-----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, Jxg9edNgRZqU4uyFwj+Pg09u//qsbLa2Zuq518JiztCR74rpmY8QTWZirH0DU2So 7RsCzrwi6tdWo9v2QVibVw== 0000950123-03-000163.txt : 20030114 0000950123-03-000163.hdr.sgml : 20030114 20030109082348 ACCESSION NUMBER: 0000950123-03-000163 CONFORMED SUBMISSION TYPE: S-4/A PUBLIC DOCUMENT COUNT: 17 FILED AS OF DATE: 20030109 FILER: COMPANY DATA: COMPANY CONFORMED NAME: COGNIZANT TECHNOLOGY SOLUTIONS CORP CENTRAL INDEX KEY: 0001058290 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-COMPUTER PROGRAMMING SERVICES [7371] IRS NUMBER: 133728359 FISCAL YEAR END: 0930 FILING VALUES: FORM TYPE: S-4/A SEC ACT: 1933 Act SEC FILE NUMBER: 333-101216 FILM NUMBER: 03508467 BUSINESS ADDRESS: STREET 1: 1700 BROADWAY STREET 2: 26TH FL CITY: NEW YORK STATE: NY ZIP: 10019 BUSINESS PHONE: 2129986115 MAIL ADDRESS: STREET 1: 1700 BROADWAY STREET 2: 26TH FL CITY: NEW YORK STATE: NY ZIP: 10019 S-4/A 1 y65565a2sv4za.txt AMENDMENT NO. 2 TO FORM S-4 AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JANUARY 9, 2003. REGISTRATION NO. 333-101216 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 --------------------- AMENDMENT NO. 2 TO FORM S-4 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 COGNIZANT TECHNOLOGY SOLUTIONS CORPORATION (Exact Name of Registrant as Specified in Its Charter) DELAWARE 7371 13-3728359 (State or Other Jurisdiction of (Primary Standard Industrial (I.R.S. Employer Incorporation or Organization) Classification Code Number) Identification Number)
500 GLENPOINTE CENTRE WEST TEANECK, NEW JERSEY 07666 (201) 801-0233 (Address, Including Zip Code, and Telephone Number, Including Area Code, of Registrant's Principal Executive Offices) STEVEN E. SCHWARTZ VICE PRESIDENT AND CHIEF CORPORATE COUNSEL 500 GLENPOINTE CENTRE WEST TEANECK, NEW JERSEY 07666 (201) 678-2758 (Name, Address, Including Zip Code, and Telephone Number, Including Area Code, of Agent For Service) --------------------- COPIES TO: JOHN D. LOBRANO ROBERT H. STEINFELD ALAN J. SINSHEIMER ROBERT M. CHILSTROM CAROLINE B. GOTTSCHALK SENIOR VICE PRESIDENT AND GENERAL SULLIVAN & CROMWELL SKADDEN, ARPS, SLATE, SIMPSON THACHER & BARTLETT COUNSEL 125 BROAD STREET MEAGHER & FLOM LLP 425 LEXINGTON AVENUE IMS HEALTH INCORPORATED NEW YORK, NY 10004 FOUR TIMES SQUARE NEW YORK, NY 10017 1499 POST ROAD (212) 558-4000 NEW YORK, NY 10036 (212) 455-2000 FAIRFIELD, CONNECTICUT 06824 (212) 735-2588 (203) 319-4700
--------------------- APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as practicable after the filing of this registration statement and the other conditions to the commencement of the exchange offer described herein have been satisfied or waived. If the securities being registered on this form are being offered in connection with the formation of a holding company and there is compliance with General Instruction G, check the following box. [ ] If this form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [ ] ____ If this form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [ ] ____ --------------------- THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF THE SECURITIES ACT OF 1933, OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a), MAY DETERMINE. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- THIS PRELIMINARY OFFERING CIRCULAR-PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. THESE SECURITIES MAY NOT BE EXCHANGED UNTIL THE REGISTRATION STATEMENT FILED WITH THE SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PRELIMINARY OFFERING CIRCULAR-PROSPECTUS IS NOT AN OFFER TO EXCHANGE NOR DOES IT SEEK AN OFFER TO EXCHANGE ANY SECURITIES IN ANY JURISDICTION WHERE THE OFFER OR EXCHANGE IS NOT PERMITTED. Subject to completion, dated January 9, 2003 IMS HEALTH INCORPORATED OFFER TO EXCHANGE 0.309 SHARES OF CLASS B COMMON STOCK OF COGNIZANT TECHNOLOGY SOLUTIONS CORPORATION FOR EACH SHARE OF COMMON STOCK OF IMS HEALTH INCORPORATED THE EXCHANGE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 12:00 MIDNIGHT, NEW YORK CITY TIME, ON FEBRUARY 6, 2003, UNLESS WE EXTEND THE OFFER. ------------------------ IMS Health Incorporated will exchange 0.309 shares of Cognizant class B common stock for each share of IMS Health common stock that it accepts in the exchange offer. IMS Health will accept up to 36,540,129 IMS Health shares and will distribute up to 11,290,900 shares of Cognizant class B common stock in the exchange offer, representing all the Cognizant shares that IMS Health currently owns. If IMS Health stockholders tender more than 36,540,129 IMS Health shares, IMS Health will accept shares for exchange on a pro rata basis as described in this document. The exchange offer is subject to various conditions described later in this document, including that at least 27,400,000 IMS Health shares are validly tendered in the exchange offer. ------------------------ The terms and conditions of the exchange offer are described in this document and the related Letter of Transmittal, which you should read carefully. None of IMS Health, Cognizant, any of their respective officers or directors or the joint dealer managers makes any recommendation as to whether or not you should tender your IMS Health shares. You must make your own decision after reading this document and consulting with your advisors. ------------------------ The Cognizant class B common stock that IMS Health is offering in the exchange offer is identical to the Cognizant class A common stock in all respects, except that a holder of class B common stock is entitled to 10 votes per share while a holder of class A common stock is entitled to one vote per share. Each share of Cognizant class B common stock received in the exchange offer will convert automatically into one share of Cognizant class A common stock when it is first transferred after the exchange offer or in certain other circumstances described in this document. Cognizant class B common stock will not be separately listed or quoted on any exchange or in the Nasdaq National Market and will not trade separately. IMS Health's common stock is listed on the New York Stock Exchange under the symbol "RX." Cognizant's class A common stock is listed for quotation on the Nasdaq National Market under the symbol "CTSH." ------------------------ PARTICIPATING IN THE EXCHANGE OFFER INVOLVES RISKS. SEE "RISK FACTORS" BEGINNING ON PAGE 17. ------------------------ NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES REGULATORS HAVE APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE ADEQUACY OR ACCURACY OF THIS DOCUMENT. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. The Joint Dealer Managers for the exchange offer are: GOLDMAN, SACHS & CO. BEAR, STEARNS & CO. INC. Offering Circular-Prospectus dated , 2003. TABLE OF CONTENTS
PAGE ---- Questions and Answers About the Exchange Offer.............. 1 Summary..................................................... 6 Risk Factors................................................ 17 Special Note on Forward-Looking Information................. 30 The Transaction............................................. 33 The Exchange Offer.......................................... 35 Market Prices and Dividend Information...................... 46 Capitalization.............................................. 48 IMS Health Selected Financial Data.......................... 49 IMS Health Unaudited Pro Forma Condensed Consolidated Financial Information..................................... 51 Cognizant Selected Financial Data........................... 58 Management's Discussion and Analysis of Results of Operations and Financial Condition of Cognizant........... 59 Business of Cognizant....................................... 74 Shares Eligible for Future Sale............................. 85 Description of Capital Stock of Cognizant................... 86 Comparison of Rights of Stockholders of IMS Health and Stockholders of Cognizant................................. 93 Certain Relationships Between IMS Health and Cognizant...... 96 Material United States Federal Income Tax Consequences...... 101 Legal Matters............................................... 104 Experts..................................................... 104 Where You Can Find More Information......................... 105 Index To Cognizant Financial Statements..................... F-1
------------------------ In this offering circular-prospectus, "IMS Health," "we," "us," and "our" each refers to IMS Health Incorporated or, where the context requires, IMS Health and its consolidated subsidiaries, and "IMS Health shares" refers to shares of common stock of IMS Health. "Cognizant" refers to Cognizant Technology Solutions Corporation or, where the context requires, Cognizant and its subsidiaries, and "Cognizant shares" refers to shares of Cognizant class B common stock or, where the context requires, Cognizant class A common stock. When we describe a specified number of IMS Health shares tendered into the exchange offer, we mean IMS Health shares that have been validly tendered into the exchange offer and not properly withdrawn. ------------------------ You should rely only on the information contained in this document. None of IMS Health, Cognizant, the joint dealer managers, the information agent or the exchange agent has authorized anyone to provide you with information different from that contained in this document. We are not offering to exchange, or soliciting any offers to exchange, securities pursuant to the exchange offer in any jurisdiction in which those offers or exchanges would not be permitted. The information contained in this document is accurate only as of the date of this document regardless of the time of delivery of this document or the time of any exchange of securities in the exchange offer. ------------------------ This document incorporates by reference important business, financial and other information about IMS Health and Cognizant that is not included in or delivered with this document. See "Where You Can Find More Information" on page 105 for a list of the documents that have been incorporated by reference into this document. i Requests for these documents may be directed to us or Cognizant, as the case may be, at the following addresses and telephone numbers: IMS Health Incorporated Cognizant Technology Solutions Corporation 1499 Post Road 500 Glenpointe Center West Fairfield, Connecticut 06824 Teaneck, New Jersey 07666 Attn: Investor Relations Department Attn: Investor Relations Department Telephone: (203) 319-4700 Telephone: (201) 801-0233
IF YOU WOULD LIKE TO REQUEST COPIES OF THESE DOCUMENTS, PLEASE DO SO BY JANUARY 30, 2003 IN ORDER TO RECEIVE THEM BEFORE THE EXPIRATION OF THE EXCHANGE OFFER. In the event that we extend the exchange offer, you must submit your request at least five business days before the expiration date, as extended. ii QUESTIONS AND ANSWERS ABOUT THE EXCHANGE OFFER Q: WHY HAS IMS HEALTH DECIDED TO DISTRIBUTE ITS REMAINING INTEREST IN COGNIZANT? A: IMS Health does not view its interest in Cognizant as strategically important to IMS Health. Among other benefits, we believe the separation of Cognizant from IMS Health will: - enable the senior management personnel of both companies to focus more completely on the opportunities and needs of their own lines of business; - improve the stock of IMS Health as an equity incentive tool for motivating key personnel; - improve the ability of both companies to independently access the capital markets; and - enable both companies to more freely use their stock for acquisitions and to raise capital. Q: WHY DID IMS HEALTH CHOOSE THE EXCHANGE OFFER AS THE WAY TO SEPARATE COGNIZANT? A: We believe that the exchange offer is a tax efficient way to achieve full separation of Cognizant from IMS Health. The exchange offer allows you to adjust your investment between IMS Health and Cognizant and depending on the relative prices of IMS Health and Cognizant shares, may provide an opportunity for you to receive a premium for your IMS Health shares. The exchange offer also allows us to acquire IMS Health shares in a manner that we believe will be neutral or accretive to our ongoing earnings per share and demonstrates our continuing confidence in the value of our shares. Q: WHAT OTHER ALTERNATIVES DID IMS HEALTH CONSIDER BEFORE CHOOSING THE EXCHANGE OFFER? A: We considered three principal alternatives for the separation of Cognizant from IMS Health: a sale of our Cognizant shares to a third party, a pro rata spin-off of the Cognizant shares to our stockholders and this exchange offer. We decided that a sale of our shares of Cognizant to a third party would not accomplish our objectives in a tax-efficient manner. A spin-off would require all our stockholders to become Cognizant stockholders and would be dilutive to our earnings per share. The exchange offer allows our stockholders to make an individual choice as to whether or not to participate. We expect the exchange offer to be neutral or accretive to our earnings per share depending on the final subscription level. Q: DOES IMS HEALTH INTEND TO CONTINUE TO BE A CUSTOMER OF COGNIZANT? A: Yes, we intend to continue our business relationship with Cognizant after the exchange offer. Cognizant has been a major source of application design, development and maintenance services for IMS Health for years. Cognizant is one of our key business partners today, and we expect our relationship to continue. Q: WHAT IS THE "EXCHANGE RATIO"? HOW MANY COGNIZANT SHARES WILL I RECEIVE FOR EACH IMS HEALTH SHARE THAT I EXCHANGE? A: You will receive 0.309 Cognizant shares for each IMS Health share that is accepted for exchange. We sometimes refer to this number as the "exchange ratio." You will receive cash in lieu of any fraction of a Cognizant share to which you would otherwise be entitled. Q: IS THE EXCHANGE OFFER AT A PREMIUM? A: Based on the closing prices of the IMS Health and Cognizant shares on the NYSE and Nasdaq National Market, respectively, on January 8, 2003, the exchange ratio represented an approximate 20% premium over the price of the IMS Health shares on that date. 1 We calculated this premium using the exchange ratio and the market price per share for the Cognizant class A common stock and IMS common stock on January 8, 2003 as follows: (0.309) x (market price per share of Cognizant class A common stock) - 1) X 100 - ------------------------------------------------------------ market price per share of IMS Health common stock
The market price of Cognizant class A common stock is not necessarily determinative of the value of the Cognizant class B common stock to be received in the exchange offer. In addition, we do not know what premium, if any, will apply at the closing of the exchange offer since the market prices for IMS Health shares and Cognizant shares fluctuate. At any time during the exchange offer you can use this formula to calculate the premium, if any, represented by the exchange ratio based on recent market prices for IMS Health and Cognizant class A shares. Q: HOW DO I DECIDE WHETHER TO PARTICIPATE IN THE EXCHANGE OFFER? A: Your decision to participate in the exchange offer will depend on many factors. You should examine carefully your specific financial position, plans and needs before you decide whether to participate in the exchange offer. We encourage you to consider, among other things: - your view of the relative value of the IMS Health shares and Cognizant shares; - your individual investment strategy with regard to the two companies; and - your opportunity to receive the premium, if any. You must make your own decision after carefully reading this document and consulting with your advisors based on your own financial position and requirements. In addition, you should consider all the factors described in the section of this document entitled "Risk Factors" starting on page 17. Q: IS IT RECOMMENDED THAT I TENDER MY IMS HEALTH SHARES? A: None of IMS Health, Cognizant, any of their respective officers or directors, the joint dealer managers, the exchange agent or the information agent makes any recommendation as to whether or not you should tender your IMS Health shares into the exchange offer. You must make your own decision after reading this document and consulting with your advisors. In addition, you should consider all the factors described in the section of this document entitled "Risk Factors" starting on page 17. Q: HOW DO I TENDER INTO THE EXCHANGE OFFER? A: We give you specific instructions in the section of this document entitled "The Exchange Offer -- Procedures for Tendering Shares of IMS Health Common Stock" beginning on page 37. Q: CAN I TENDER ONLY A PORTION OF MY IMS HEALTH SHARES? A: Yes. This is a voluntary exchange offer. You may tender all, some or none of your IMS Health shares. Q: WHAT IF I WANT TO TENDER BUT I HOLD IMS HEALTH SHARES IN "STREET NAME"? A: You will need to instruct your broker to tender your shares on your behalf. Q: CAN I CHANGE MY MIND AFTER I TENDER? A: Yes. You may withdraw your tender at any time before the exchange offer expires. We describe the procedures for withdrawing tendered IMS Health shares in the section of this document entitled "The Exchange Offer -- Withdrawal Rights" beginning on page 40. 2 Q: WHAT HAPPENS IF MORE THAN 36,540,129 IMS HEALTH SHARES ARE TENDERED? A: If more than 36,540,129 IMS Health shares are tendered, we will reduce the number of IMS Health shares that we will accept in the exchange offer on a pro rata basis in proportion to the number of shares tendered. We refer to this pro rata reduction as "proration." Stockholders who own an "odd-lot," which is a total of less than 100 IMS Health shares, and who tender all their shares will not be subject to proration. Q: WHEN WILL THE EXCHANGE OFFER AND WITHDRAWAL RIGHTS EXPIRE? A: The exchange offer and withdrawal rights will expire at 12:00 midnight, New York City time, on February 6, 2003, unless they are extended. Q: CAN IMS HEALTH EXTEND THE EXCHANGE OFFER, AND UNDER WHAT CIRCUMSTANCES? A: Yes. We can extend the exchange offer at any time, in our sole discretion, even if all the conditions to the exchange offer have been satisfied. If we extend the exchange offer, we will publicly announce the extension and the new expiration date by press release no later than 9:00 a.m., New York City time, on the next business day after the previously scheduled expiration date. Q: ARE THERE ANY CONDITIONS TO IMS HEALTH'S OBLIGATION TO COMPLETE THE EXCHANGE OFFER? A: Yes. We are not required to complete the exchange offer unless the conditions that we describe in the section of this document entitled "The Exchange Offer -- Conditions for Completion of the Exchange Offer" starting on page 42 are satisfied or waived. For example, we may choose not to complete the exchange offer unless at least 27,400,000 IMS Health shares are tendered into the exchange offer. We refer to this minimum number of IMS Health shares as the "minimum amount." We may waive any or all of the conditions to the exchange offer, including the requirement that the minimum number of IMS Health shares be tendered. Q: DOES COGNIZANT HAVE THE RIGHT TO WAIVE ANY CONDITIONS OF THE EXCHANGE OFFER OR TO EXTEND THE EXCHANGE OFFER? A: No. Any decision to waive any condition of the exchange offer or to extend the exchange offer or any other decision related to the terms of the exchange offer will be solely that of IMS Health. Q: WHAT HAPPENS IF LESS THAN THE MINIMUM AMOUNT OF IMS HEALTH SHARES ARE TENDERED? A: If fewer than the minimum number of IMS Health shares are tendered into the exchange offer, we may extend the exchange offer or we may choose not to complete the exchange offer or we may waive the condition and choose to accept the IMS Health shares tendered. If we choose not to complete the exchange offer, we will promptly return any IMS Health shares that have been tendered. Q: WHAT WILL IMS HEALTH DO WITH ANY COGNIZANT CLASS B COMMON STOCK IT DOES NOT EXCHANGE? A: If we otherwise would continue to own Cognizant class B shares after completion of the exchange offer, we currently plan to either distribute them to our stockholders or convert them into shares of Cognizant's class A common stock prior to completion of the exchange offer and distribute them to our stockholders or hold them for some period before we sell them in one or more transactions. The timing of those sales could depend on market conditions and other factors, but we expect that we would hold those shares for no more than three years. If only the minimum amount of IMS Health shares are exchanged and we do not otherwise distribute Cognizant shares to our stockholders, we will hold 2,824,300 shares of Cognizant class A common stock immediately following the completion of the exchange offer (representing 13.8% 3 of the outstanding Cognizant common stock). We will vote those shares in proportion to the votes cast by all other holders of Cognizant stock. Q: WILL I BE TAXED ON SHARES I EXCHANGE IN THE EXCHANGE OFFER? A: We expect to receive an opinion from McDermott, Will & Emery to the effect that the exchange offer should be tax-free to IMS Health stockholders for U.S. federal income tax purposes, except with respect to any cash received in lieu of fractional Cognizant shares. This opinion will not address any state, local or foreign tax consequences of the exchange offer. You should consult your tax advisor as to the particular tax consequences to you of the exchange offer. In addition, you should read the risk factor "The IRS may treat the exchange offer as taxable to exchanging stockholders or IMS Health" in the section of this document entitled "Risk Factors" on page 17. Q: WHAT ARE THE PRINCIPAL DIFFERENCES BETWEEN THE CLASSES OF COGNIZANT COMMON STOCK? A: Cognizant has two classes of common stock: class A common stock and class B common stock. IMS Health is offering only Cognizant class B common stock in the exchange offer. The Cognizant class A common stock is publicly held and listed for quotation on the Nasdaq National Market under the symbol "CTSH". The Cognizant class B common stock is identical to the Cognizant class A common stock in all respects, except that a holder of Cognizant class B common stock is entitled to 10 votes per share while a holder of Cognizant class A common stock is entitled to one vote per share. Each share of Cognizant class B common stock received in the exchange offer will convert automatically into one share of Cognizant class A common stock when it is first transferred after the exchange offer. As a result, Cognizant class B common stock will not be separately listed or quoted and will not trade separately. In addition, all the Cognizant class B common stock will automatically convert into Cognizant class A common stock on the fifth anniversary of the completion of the exchange offer or, if earlier, when the number of shares of Cognizant class B common stock represents less than 35% of the aggregate number of shares of Cognizant common stock then outstanding. Q: CAN I TRANSFER THE COGNIZANT CLASS B COMMON STOCK I RECEIVE IN THE EXCHANGE OFFER? A: Upon any transfer, the shares of Cognizant class B common stock you receive in the exchange offer will convert automatically into an equal number of shares of Cognizant class A common stock that will entitle the transferee to one vote per share. In addition, if you are an "affiliate" of Cognizant under the Securities Act of 1933, you may sell your Cognizant shares only under an effective registration statement or pursuant to an exemption from the registration requirements of the Securities Act. Q: WILL I BE ABLE TO TAKE ADVANTAGE OF THE SPECIAL VOTING RIGHTS OF COGNIZANT CLASS B COMMON STOCK AT STOCKHOLDER MEETINGS? A: Yes. While you continue to hold the Cognizant class B common stock you receive in the exchange offer, the Cognizant class B common stock will have 10 votes per share, subject to the class B common stock converting automatically into Cognizant class A common stock with one vote per share upon the occurrence of events beyond your control. Accordingly, you should not rely on having any special voting rights at stockholder meetings as a basis for your decision to participate in the exchange offer. Cognizant may implement procedures to ensure the proper voting by holders of class A and class B common stock at stockholder meetings. 4 Q: WHAT HAPPENS TO THE SPECIAL VOTING RIGHTS OF COGNIZANT CLASS B COMMON STOCK IF IT CONVERTS TO CLASS A COMMON STOCK? A: The special voting rights of the Cognizant class B common stock will cease upon conversion into Cognizant class A common stock. Cognizant class A common stock has one vote per share. Q: WHEN WILL TENDERING STOCKHOLDERS KNOW THE OUTCOME OF THE EXCHANGE OFFER? A: On the first business day after the expiration date, we will announce by press release preliminary results of the exchange offer. Promptly after they are known, we will announce by press release the final results of the exchange offer, including the proration factor, if any. Q: HAVE OTHER COMPANIES PURSUED SIMILAR TRANSACTIONS? A: Yes. Examples of similar exchange offers include transactions involving Sara Lee (Coach), DuPont (Conoco), The Limited (Abercrombie & Fitch), Lockheed Martin Corporation (Martin Marietta Materials), Viacom International, Inc. (TCI Pacific) and Eli Lilly and Company (Guidant Corp.). Q: WHO SHOULD I CALL IF I HAVE QUESTIONS OR WANT ADDITIONAL COPIES OF THE EXCHANGE OFFER DOCUMENTS? A: If you have any questions about how to tender or you want additional copies of the exchange offer documents, you may call Georgeson Shareholder Communications Inc., the information agent, at one of its numbers listed on the last page of this document. You may also contact either joint dealer manager at its number listed on the last page of this document or your own broker for assistance concerning the exchange offer. 5 SUMMARY This summary highlights only some of the information in this document and may not contain all the information that is important to you. To understand the exchange offer fully and for a more complete description of the legal terms of the exchange offer, you should read this entire document and the documents we have referred you to in the section entitled "Where You Can Find More Information." We have included page references to direct you to a more complete description of the topics discussed in this summary. THE COMPANIES IMS HEALTH INCORPORATED IMS Health Incorporated is a leading global provider of market information, sales management and decision-support services to the pharmaceutical and healthcare industries. Our key products include sales management information to optimize sales force productivity, marketing effectiveness research for prescription and over-the-counter pharmaceutical products, consulting and other services. We are managed on a global business model with global leaders for the majority of our critical business processes. In addition, our business includes our venture capital unit, Enterprise Associates, LLC, which is focused on investments in emerging businesses, and our approximately 26% equity interest in The TriZetto Group, Inc. as of September 30, 2002. We were organized under the laws of the State of Delaware on February 3, 1998. We began operating as an independent publicly-held company on July 1, 1998 as a result of the spin-off of our business from Cognizant Corporation (which was subsequently renamed Nielsen Media Research, Inc.). Our principal executive office is located at 1499 Post Road, Fairfield, Connecticut 06824, and our telephone number is (203) 319-4700. COGNIZANT TECHNOLOGY SOLUTIONS CORPORATION Cognizant Technology Solutions Corporation is a leading provider of custom information technology, commonly referred to as IT, design, development, integration and maintenance services primarily for Fortune 1000 companies located in the United States and Europe. Cognizant's core competencies include web-centric applications, data warehousing, component-based development and legacy and client-server systems. Cognizant provides the IT services it offers using an integrated on-site/offshore business model. This seamless on-site/offshore model combines technical and account management teams located on-site at the customer location and offshore at dedicated Cognizant development centers located in India and Ireland. To support this business model, at December 31, 2002, Cognizant employed over 3,900 programmers in India and over 5,400 globally. Cognizant believes that this on-site/offshore model enables it to develop, deploy and maintain, on a cost-effective and timely basis, high quality, large-scale IT systems for use in a wide range of industries. The market's acceptance of the advantages to customers of Cognizant's integrated business model has been well demonstrated by Cognizant's growth and financial performance. Between 1999 and 2001, Cognizant's revenues and net income grew at a compound annual growth rate exceeding 40%. For the year ended December 31, 2001 and the nine months ended September 30, 2002, Cognizant had revenues of $177.8 million and $162.1 million, respectively, and net income of $22.2 million and $25.4 million, respectively. For more details about Cognizant's business, see the section entitled "Business of Cognizant." 6 Cognizant was organized under the laws of the State of Delaware on April 6, 1988. Cognizant began its IT development and maintenance services business in early 1994, initially acting as an in-house technology development center for The Dun & Bradstreet Corporation and its operating units. In 1996, Cognizant was part of a group of companies that were spun-off from The Dun & Bradstreet Corporation to form a new company. In 1998, this new company spun-off IMS Health, including the controlling interest in Cognizant. Cognizant completed its initial public offering on June 24, 1998. At September 30, 2002, IMS Health owned approximately 56% of Cognizant's outstanding common stock and held approximately 93% of the combined voting power of Cognizant's common stock. Cognizant's principal executive office is located at 500 Glenpointe Centre West, Teaneck, New Jersey 07666 and its telephone number is (201) 801-0233. 7 THE EXCHANGE OFFER Terms of the exchange offer (see page 35)................. We are offering IMS Health stockholders the opportunity to exchange each of their IMS Health shares for 0.309 Cognizant class B shares. We sometimes refer to this number as the "exchange ratio." You may tender all, some or none of your IMS Health shares. The maximum number of IMS Health shares that we will accept from all IMS Health stockholders is 36,540,129 shares. IMS Health shares accepted for exchange will be exchanged at the exchange ratio, on the terms and subject to the conditions of the exchange offer, including the proration provisions. We will promptly return to IMS Health stockholders any IMS Health shares that are not accepted for exchange following the expiration of the exchange offer and determination of the final proration factor, if any, as described below. Expiration; extension; termination; amendment (see page 41)...................... The exchange offer, and your withdrawal rights, will expire at 12:00 midnight, New York City time, on February 6, 2003, unless we extend it. You must tender your IMS Health shares prior to this time if you want to participate in the exchange offer. We may extend, terminate or amend the exchange offer. No fractional shares (see page 36)........................... You will not receive any fractional Cognizant shares in the exchange offer. The exchange agent, acting as the agent for tendering IMS Health stockholders, will aggregate any fractional shares and sell them. You will receive the proceeds, if any, net of commissions, from the sale of these shares in accordance with your fractional interest. Proration; odd-lots (see page 36)........................... If more than 36,540,129 IMS Health shares are tendered into the exchange offer, we will accept all tendered IMS Health shares on a pro rata basis. We will announce the preliminary proration factor by the first business day after the exchange offer expires. If you own fewer than 100 IMS Health shares and tender all your shares for exchange, you may request preferential treatment by completing Section II. C. on the letter of transmittal entitled "Odd-Lot Shares" and, if applicable, on the notice of guaranteed delivery. If your odd-lot shares are held by a broker for your account, you can contact the broker and request this preferential treatment. All your "odd-lot" shares will be accepted for exchange without proration if we complete the exchange offer. Shares you own in the IMS Health Savings Plan are eligible for this preferential treatment. 8 Withdrawal rights (see page 40)........................... You may withdraw tendered IMS Health shares at any time before the exchange offer expires. If you change your mind again, you may re-tender your IMS Health shares by again following the exchange offer procedures prior to the expiration of the exchange offer. Conditions for completion of the exchange offer (see page 42)........................... The exchange offer is subject to various conditions, including that at least 27,400,000 IMS Health shares are tendered so that we may exchange at least 8,466,600 of the Cognizant shares held by us. All conditions must be satisfied or waived prior to the expiration of the exchange offer. Procedures for tendering (see page 37)...................... If you hold certificates for IMS Health shares, you must complete and sign the letter of transmittal designating the number of IMS Health shares you wish to tender. Send the letter of transmittal, together with your IMS Health stock certificates and any other documents required by the letter of transmittal, by courier or registered mail, return receipt requested, so that it is RECEIVED by the exchange agent at one of the addresses listed on the back cover of this document before the expiration of the exchange offer. DO NOT SEND YOUR CERTIFICATES TO IMS HEALTH, COGNIZANT, THE JOINT DEALER MANAGERS OR THE INFORMATION AGENT. If you hold shares of IMS Health common stock through a broker, you should receive instructions from your broker on how to participate. In this situation, do not complete the letter of transmittal. Please contact your broker directly if you have not yet received instructions. Some financial institutions may also effect tenders by book-entry transfer through The Depository Trust Company. If you wish to tender your IMS Health shares but the shares are not immediately available, or time will not permit the shares or other required documentation to reach the exchange agent before the expiration date, or the procedure for book-entry transfer cannot be completed on a timely basis, you may still tender your IMS Health shares by following the procedures for guaranteed delivery set forth under "The Exchange Offer -- Guaranteed Delivery Procedure." If you participate in the IMS Health Savings Plan, you will receive separate instructions on how to tender these shares and a form of election to tender your shares held under this plan from the trustee or administrator of the plan. Do not use the letter of transmittal to tender shares held under this plan. 9 Delivery of Cognizant stock certificates.................. We will deliver Cognizant stock certificates as soon as reasonably practicable after we accept IMS Health shares for exchange and, if necessary, determine the proration factor. If your IMS Health stock certificates are held by a broker, your broker should inform you of where and when your Cognizant stock certificates will be delivered. Terms of Cognizant class B common stock delivered in the exchange offer (see page 86).. The Cognizant class B common stock is identical to the Cognizant class A common stock in all respects, except that a holder of class B common stock is entitled to 10 votes per share while a holder of class A common stock is entitled to one vote per share. Conversion of Cognizant class B common stock (see page 86)........................... Each share of Cognizant class B common stock received in the exchange offer will convert automatically into one share of Cognizant class A common stock when it is first transferred after the exchange offer. In addition, all the Cognizant class B common stock will automatically convert into Cognizant class A common stock on the fifth anniversary of the completion of the exchange offer or, if earlier, when the number of shares of Cognizant class B common stock represents less than 35% of the aggregate number of shares of Cognizant common stock then outstanding. Comparative per share market price information (see page 15)........................... IMS Health common stock is currently listed and traded on the NYSE under the symbol "RX." Cognizant class A common stock is currently listed for quotation on the Nasdaq National Market under the symbol "CTSH." The Cognizant class B common stock will not be listed or quoted on any exchange and will not trade separately. You may transfer shares of Cognizant class B common stock you receive in the exchange offer, at which time they will convert automatically into an equal number of shares of Cognizant class A common stock that will entitle the transferee to one vote per share. On November 13, 2002, the last trading day before the announcement of the exchange offer, the closing sale price of the IMS Health common stock on the NYSE was $16.52 and the closing sale price of the Cognizant class A common stock on the Nasdaq National Market was $69.39. On January 8, 2003, the last trading day before commencement of the exchange offer, the closing sale price of the IMS Health common stock on the NYSE was $16.64 and the closing sale price of the Cognizant class A common stock on the Nasdaq National Market was $64.55. 10 U.S. federal income tax consequences (see page 101)... We expect to receive a tax opinion from McDermott, Will & Emery to the effect that the exchange offer should be tax-free to IMS Health stockholders for U.S. federal income tax purposes, except with respect to any cash received in lieu of fractional shares of Cognizant class B common stock, and that the exchange offer should be tax-free to IMS Health. This opinion will not address any state, local or foreign tax consequences. You should consult your tax advisor as to the particular tax consequences to you of the exchange offer. In addition you should read the risk factor "The IRS may treat the exchange offer as taxable to exchanging stockholders or IMS Health" in the section of this document entitled "Risk Factors" on page 17. No appraisal rights (see page 34)...................... No statutory appraisal rights are available to stockholders of IMS Health or Cognizant in connection with the exchange offer. Exchange Agent................ American Stock Transfer & Trust Company Information Agent............. Georgeson Shareholder Communications Inc. Joint Dealer Managers......... Goldman, Sachs & Co. and Bear, Stearns & Co. Inc. Risk factors (see page 17).... You should consider carefully the matters described in the section entitled "Risk Factors," as well as the other information included in this document and the documents to which we have referred you. Legal limitation.............. We are not making any offer to exchange, nor are we soliciting any offer to exchange, securities in any jurisdiction in which the offer or exchange is not permitted. 11 IMS HEALTH SUMMARY FINANCIAL DATA The following table presents summary financial data for IMS Health. This data is derived from and should be read together with the audited and unaudited consolidated financial statements of IMS Health and related notes thereto and "Management's Discussion and Analysis of Financial Condition and Results of Operations" contained in IMS Health's Form 10-K for 2001 and Form 10-Q for the period ended September 30, 2002, all of which have been incorporated into this document by reference. To find out where you can obtain copies of IMS Health's documents that have been incorporated by reference, see "Where You Can Find More Information." We have also prepared selected pro forma financial data to show the effect of the exchange offer on IMS Health. See "IMS Health Unaudited Pro Forma Condensed Consolidated Financial Information."
NINE MONTHS ENDED YEAR ENDED DECEMBER 31, SEPTEMBER 30, -------------------------------------------------------------- ----------------------- 1997 1998 1999 2000 2001 2001 2002 ---- ---- ---- ---- ---- ---- ---- (DOLLARS AND SHARES IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) IMS HEALTH INCORPORATED RESULTS OF OPERATIONS: Revenue....................... $1,059,559 $1,186,513 $1,397,989 $1,424,359 $1,332,923 $ 992,048 $1,046,172 Costs and expenses(1)......... 831,949 1,054,029 1,058,966 1,287,166 1,008,762 664,922 727,290 ---------- ---------- ---------- ---------- ---------- ---------- ---------- Operating income(1)........... 227,610 132,484 339,023 137,193 324,161 327,126 318,882 Non-operating income (loss), net(2)...................... 13,955 52,360 9,419 124,120 (140,360) (108,244) (23,688) ---------- ---------- ---------- ---------- ---------- ---------- ---------- Income from continuing operations, before provision for income taxes............ 241,565 184,844 348,442 261,313 183,801 218,882 295,194 Provision for income taxes.... (55,614) (58,780) (98,076) (140,412) (38,415) (41,680) (91,044) TriZetto equity loss, net of income taxes................ -- -- -- (4,777) (6,985) (5,547) (701) ---------- ---------- ---------- ---------- ---------- ---------- ---------- Income from continuing operations.................. 185,951 126,064 250,366 116,124 138,401 171,655 203,449 Income from discontinued operations, net of income taxes(3).................... 126,399 94,494 25,695 4,692 47,025 47,025 -- ---------- ---------- ---------- ---------- ---------- ---------- ---------- Net income.................... $ 312,350 $ 220,558 $ 276,061 $ 120,816 $ 185,426 $ 218,680 $ 203,449 ---------- ---------- ---------- ---------- ---------- ---------- ---------- Net income per share --basic.. $ 0.95 $ 0.68 $ 0.88 $ 0.41 $ 0.63 $ 0.74 $ 0.71 ---------- ---------- ---------- ---------- ---------- ---------- ---------- Weighted average number of shares outstanding --basic.. 330,326 324,584 311,976 296,077 295,162 295,335 287,486 Net income per share -- diluted..................... $ 0.93 $ 0.66 $ 0.86 $ 0.40 $ 0.62 $ 0.73 $ 0.70 ---------- ---------- ---------- ---------- ---------- ---------- ---------- Weighted average number of shares outstanding -- diluted...... 334,980 335,770 319,561 300,038 300,147 301,255 288,589 BALANCE SHEET DATA (AT THE END OF THE PERIOD): Total assets.................. $1,516,537 $1,789,205 $1,533,971 $1,308,161 $1,367,554 $1,249,226 $1,549,718 Post-retirement and post- employment benefits......... 38,082 27,577 27,429 43,471 44,305 43,651 41,597 Long-term debt and other liabilities................. 158,742 253,261 163,356 182,840 324,373 107,981 358,068 Shareholders' equity.......... $ 801,570 $ 825,270 $ 495,222 $ 103,540 $ 218,366 $ 304,768 $ 166,505
- --------------- (1) 2001 includes charges related to severance, impairment and other charges of $94,616, and terminated transaction costs of $6,457. 2000 includes charges related to the Synavant spin-off of $37,626, the Synavant related impairment charge of $115,453, the executive management transition charge of $31,133 and severance, impairment and other charges of $45,689. 1999 includes charges related to the 12 Gartner spin-off of $9,500. 1998 includes charges related to the Cognizant spin-off of $35,025 and one-time charges and In-Process Research and Development write-offs related to the Walsh and PMSI acquisitions of $48,019 and $32,800, respectively. (2) Non-operating Income, net in 2001 includes loss on Gartner shares of $84,880, gains/(losses) from dispositions -- net of $27,642 and the SAB No. 51 loss related to issuance of investees' stock of $1,490. Non-operating income, net in 2000 includes the gain on the sale of Erisco of $84,530, gains from dispositions -- net of $78,139, loss on Gartner shares of $6,896 and the SAB No. 51 gain related to the issue of stock by TriZetto of $9,029. Non-operating income, net in 1999 includes gains from dispositions-net of $25,264. Non-operating income, net in 1998 includes the gain related to the Cognizant's initial public offering of $12,777 and gains from dispositions -- net of $33,341. Results for 1997 include gains from dispositions -- net of $9,391 in non-operating income. (3) Income from discontinued operations, net of income taxes, includes a tax provision of $25,320, $25,320, $2,526, $12,635, $49,303 and $62,271 for the nine months ended September 30, 2001 and the years ended December 31, 2001, 2000, 1999, 1998 and 1997, respectively. 13 COGNIZANT SUMMARY FINANCIAL DATA The following table presents summary financial data for Cognizant. This data is derived from and should be read together with the audited and unaudited consolidated financial statements of Cognizant and related notes thereto and "Management's Discussion and Analysis of Results of Operations and Financial Condition of Cognizant" appearing elsewhere in this document. In the opinion of Cognizant's management, all adjustments considered necessary for a fair presentation of the interim financial information have been included, and all adjustments are of a normal and recurring nature. Operating results for the interim periods are not necessarily indicative of results that may be expected to occur for the entire year.
NINE MONTHS ENDED YEAR ENDED DECEMBER 31, SEPTEMBER 30, ------------------------------------------------- ------------------- 1997 1998 1999 2000 2001 2001 2002 ---- ---- ---- ---- ---- ---- ---- (DOLLARS AND SHARES IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) COGNIZANT TECHNOLOGY SOLUTIONS CORPORATION STATEMENT OF OPERATIONS: Revenues..................................... $13,898 $45,031 $74,084 $122,758 $158,969 $120,803 $146,510 Revenues -- related party.................... 10,846 13,575 14,820 14,273 18,809 13,514 15,565 ------- ------- ------- -------- -------- -------- -------- Total revenues............................... 24,744 58,606 88,904 137,031 177,778 134,317 162,075 Cost of revenues............................. 14,359 31,919 46,161 70,437 90,848 68,859 86,507 ------- ------- ------- -------- -------- -------- -------- Gross profit................................. 10,385 26,687 42,743 66,594 86,930 65,458 75,568 Selling, general and administrative expenses................................... 6,898 15,547 23,061 35,959 44,942 34,306 37,933 Depreciation and amortization expense........ 1,358 2,222 3,037 4,507 6,368 4,566 5,679 ------- ------- ------- -------- -------- -------- -------- Income from operations....................... 2,129 8,918 16,645 26,128 35,620 26,586 31,956 Other income (expense)....................... 25 721 1,300 2,119 (221) 1,402 1,216 ------- ------- ------- -------- -------- -------- -------- Income before provision for income taxes..... 2,154 9,639 17,945 28,247 35,399 27,988 33,172 Provision for income taxes................... (581) (3,606) (6,711) (10,564) (13,239) (10,468) (7,749) Minority interest............................ (545) -- -- -- -- -- -- ------- ------- ------- -------- -------- -------- -------- Net income................................... $ 1,028 $ 6,033 $11,234 $ 17,683 $ 22,160 $ 17,520 $ 25,423 ------- ------- ------- -------- -------- -------- -------- Net income per share, basic.................. $ 0.08 $ 0.38 $ 0.61 $ 0.95 $ 1.17 $ 0.93 $ 1.30 Net income per share, diluted................ $ 0.08 $ 0.36 $ 0.58 $ 0.87 $ 1.09 $ 0.86 $ 1.21 Weighted average number of common shares outstanding................................ 13,094 15,886 18,342 18,565 19,017 18,896 19,618 Weighted average number of common shares and stock options outstanding.................. 13,210 16,538 19,416 20,256 20,371 20,382 21,040 STATEMENT OF FINANCIAL POSITION DATA (AT THE END OF THE PERIOD): Cash and cash equivalents.................... $ 2,715 $28,418 $42,641 $ 61,976 $ 84,977 $ 79,767 $123,082 Working capital.............................. 5,694 29,416 43,507 61,501 95,637 87,564 136,634 Total assets................................. 18,298 51,679 69,026 109,540 144,983 138,573 200,776 Due to related party......................... 6,646 9 -- 8 -- -- -- Stockholders' equity......................... $ 3,419 $32,616 $45,461 $ 66,116 $ 98,792 $ 92,496 $142,622
14 COMPARATIVE PER SHARE DATA The following table compares certain historical, pro forma and equivalent per share data for IMS Health and Cognizant. The data has been derived from and should be read together with the audited and unaudited consolidated financial statements of IMS Health and related notes thereto contained in IMS Health's Form 10-K for 2001 and Form 10-Q for the period ended September 30, 2002 and the audited and unaudited consolidated financial statements of Cognizant and related notes thereto contained in Cognizant's Form 10-K for 2001 and Form 10-Q for the period ended September 30, 2002. Pro forma net income per share is presented as if the exchange offer had occurred (and that 36,540,129 IMS Health shares had been exchanged for 11,290,900 Cognizant shares) as of January 1, 2001. Pro forma and equivalent pro forma book value per share is presented as if the exchange offer had occurred (and that 36,540,129 IMS Health shares had been exchanged for 11,290,900 Cognizant shares) as of December 31, 2001 or September 30, 2002, as applicable. You should not rely on the pro forma information as being indicative of the historical results that would have occurred or the future results that IMS Health or Cognizant will experience after the exchange offer. Cognizant's earnings per share and book value per share will be impacted only by Cognizant's share of the offering expenses, estimated to be approximately $2 to $3 million. Any conversion of Cognizant's class B common stock to class A common stock will not have an impact on Cognizant's earnings per share or book value per share.
IMS HEALTH PRO FORMA FOR IMS HEALTH EXCHANGE COGNIZANT EXCHANGE OFFER HISTORICAL OFFER(1) HISTORICAL EQUIVALENT(2) ---------- ---------- ---------- -------------- EARNINGS PER SHARE FOR THE TWELVE MONTHS ENDED DECEMBER 31, 2001 Basic........................................ $0.63 $0.63 $1.17 $0.36 Diluted...................................... 0.62 0.61 1.09 0.34 EARNINGS PER SHARE FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2002 Basic........................................ 0.71 0.70 1.30 0.40 Diluted...................................... 0.70 0.70 1.21 0.37 CASH DIVIDENDS PER SHARE DECLARED For the twelve months ended December 31, 2001....................................... 0.08 0.08 0.00 0.00 For the nine months ended September 30, 2002....................................... 0.06 0.08 0.00 0.00 BOOK VALUE PER SHARE As of September 30, 2002..................... $0.59 $0.47 $7.12 $2.20
- --------------- (1) The "IMS Health Pro Forma for Exchange Offer" amounts assume that 36,540,129 IMS Health shares are exchanged for 11,290,900 Cognizant shares. However, if we assumed that only 27,400,000 IMS Health shares -- the minimum amount that IMS will accept in the exchange offer -- are exchanged for 8,466,600 Cognizant shares, then the "IMS Health Pro Forma for Exchange Offer" amounts would not differ from the amounts presented as IMS Health would have accounted for its investment in Cognizant on the cost method of accounting. (2) The exchange offer equivalent amounts are calculated by multiplying the historical Cognizant amounts by the exchange ratio in the exchange offer. 15 COMPARATIVE PER SHARE MARKET PRICE DATA Set forth below are the closing sale prices of IMS Health common stock as reported by the NYSE, and Cognizant class A common stock as listed for quotation on the Nasdaq National Market on November 13, 2002 (the last full trading day prior to the public announcement that IMS Health was considering the exchange offer) and January 8, 2003 (the most recent practicable date prior to the date of this offering circular-prospectus). Also set forth below are the exchange offer equivalent sales prices of IMS Health common stock for each of these dates, as determined by multiplying the sale price of Cognizant class A common stock by the exchange ratio for the exchange offer.
IMS HEALTH COGNIZANT EXCHANGE OFFER NYSE PRICE NASDAQ PRICE EQUIVALENT PRICE PER SHARE PER SHARE PER SHARE(1) ---------- ------------ ---------------- November 13, 2002......................... $ 16.52 $ 69.39 $ 21.44 January 8, 2003........................... 16.64 64.55 19.95
- --------------- (1) The exchange offer equivalent per share sales prices are calculated by multiplying the Cognizant price per share by the exchange ratio for the exchange offer. 16 RISK FACTORS You should consider carefully all the information set forth or incorporated by reference in this document and, in particular, the following risk factors, in considering whether or not to tender your shares of IMS Health common stock. In addition, for an important discussion of additional uncertainties associated with the businesses of IMS Health and Cognizant and forward-looking information in this document, please see "Special Note on Forward-Looking Information" on page 30. RISKS RELATED TO THE EXCHANGE OFFER YOUR INVESTMENT IN SHARES OF IMS HEALTH COMMON STOCK WILL BE SUBJECT TO DIFFERENT RISKS AFTER THE EXCHANGE OFFER REGARDLESS OF WHETHER YOU ELECT TO PARTICIPATE IN THE OFFER. Your investment will be subject to different risks as a result of the exchange offer, regardless of whether you tender all, some or none of your shares of IMS Health common stock. - If you exchange all your IMS Health shares, you will no longer have an interest in IMS Health, but instead will have an interest in Cognizant. As a result, your investment will be subject to risks associated with Cognizant and not risks associated with IMS Health. - If you exchange some, but not all, of your IMS Health shares, your interest in IMS Health will diminish, depending on the number of your shares that are accepted for exchange, while your direct interest in Cognizant may increase. As a result, your investment will be subject to risks associated with IMS Health and Cognizant. - If you do not exchange any of your IMS Health shares your interest in IMS Health will increase, on a percentage basis, while your indirect interest in Cognizant will decrease or be eliminated. As a result, your investment will be subject to risks associated with IMS Health and not risks associated with Cognizant, except to the extent we do not distribute all our Cognizant shares. YOU MAY NOT RECEIVE A PREMIUM FOR THE SHARES OF IMS HEALTH COMMON STOCK YOU TENDER IN THE EXCHANGE OFFER. The amount of the premium, if any, that you will receive if you participate in the exchange offer will depend on the relative value of IMS Health shares and Cognizant shares on the completion of the exchange offer. A number of factors may influence the value of our and Cognizant's shares. We cannot predict what the amount of the actual premium will be at the time of the exchange or whether, in fact, there will be a premium at all. Changes in the prices of IMS Health shares or Cognizant shares over time may also affect your ability to realize any premium through sales in the market. THE HISTORICAL FINANCIAL INFORMATION OF IMS HEALTH AND COGNIZANT MAY NOT BE INDICATIVE OF THEIR RESULTS AS SEPARATE COMPANIES. The historical financial information of IMS Health and Cognizant presented in this document may not necessarily reflect what the results of operations, financial condition and cash flows of each would have been had the companies been separate, stand-alone entities pursuing independent strategies during the periods presented. As a result, historical financial information is not necessarily indicative of future results of operations, financial condition and cash flows of either IMS Health or Cognizant. 17 THE PRIOR PERFORMANCE OF IMS HEALTH AND COGNIZANT COMMON STOCK MAY NOT BE INDICATIVE OF THE PERFORMANCE OF THEIR COMMON STOCK AFTER THE EXCHANGE OFFER. IMS Health and Cognizant common stock price history may not provide investors with a meaningful basis for evaluating an investment in either company's common stock. IMS has been a publicly traded company only since July 1, 1998 and Cognizant has been a publicly traded company only since June 24, 1998. The prior performance of IMS Health and Cognizant common stock may not be indicative of the performance of their common stock after the exchange offer. THE DISTRIBUTION OF SHARES OF COGNIZANT CLASS B COMMON STOCK IN THE EXCHANGE OFFER MAY ADVERSELY AFFECT THE MARKET PRICE OF SHARES OF COGNIZANT CLASS A COMMON STOCK. The exchange offer will substantially increase the number of publicly held shares of Cognizant common stock and the number of Cognizant stockholders. At September 30, 2002, Cognizant common stock held by IMS Health represented approximately 56% of the outstanding stock and approximately 93% of the combined voting power of Cognizant's common stock. The shares of Cognizant class B common stock to be distributed in the exchange offer will be immediately transferable by non-affiliates of Cognizant. Each share of Cognizant class B common stock will be automatically converted into one share of Cognizant class A common stock when it is first transferred after the exchange offer. If a significant number of persons who receive shares of Cognizant common stock in the exchange offer attempt to, or are perceived as likely to, sell their shares of Cognizant common stock after the exchange offer, the market price of shares of Cognizant class A common stock could be adversely affected or fluctuate significantly after the exchange offer. MARKET PRICES FOR SHARES OF IMS HEALTH COMMON STOCK MAY DECLINE FOLLOWING THE COMPLETION OF THE EXCHANGE OFFER. Investors may purchase shares of IMS Health common stock in order to participate in the exchange offer, which may have the effect of artificially raising market prices for shares of IMS Health common stock during the pendency of the exchange offer. Following the completion of the exchange offer, the market prices for shares of IMS Health common stock may decline because any exchange offer-related demand for shares of IMS Health common stock will cease. Furthermore, persons who were unable to exchange their shares of IMS Health common stock for any reason, including proration, may seek to sell these shares in the market, which may also affect the market price for IMS Health common stock. Market prices for shares of IMS Health common stock may also decline following the completion of the exchange offer because shares of IMS Health common stock will no longer include an investment, or will include a significantly diminished investment, in the Cognizant business. THE IRS MAY TREAT THE EXCHANGE OFFER AS TAXABLE TO EXCHANGING STOCKHOLDERS OR TO IMS HEALTH. We have received a tax opinion from McDermott, Will & Emery to the effect that, for U.S. federal income tax purposes, the exchange offer should be tax-free to IMS Health stockholders, except with respect to any cash received in lieu of fractional shares of Cognizant class B common stock, and that the exchange offer should be tax-free to IMS Health. Section 355 of the Internal Revenue Code is highly technical and complex, and many aspects of the statute have not yet been addressed by judicial decisions, Treasury regulations, or other administrative guidance. In particular, there is uncertainty with respect to the tax treatment of the exchange offer to IMS Health under Section 355(e) of the Internal Revenue Code due to the absence of controlling legal authorities addressing certain factual aspects of the exchange offer, including the potential for automatic conversion of Cognizant class B common stock into Cognizant class A common stock. The opinion of McDermott, Will & Emery is based on certain factual representations and assumptions. If these factual representations and assumptions are incorrect in any material respect, our ability to rely on the tax-free opinion would be jeopardized. No ruling from the 18 Internal Revenue Service has been or will be sought with respect to any of the tax matters relating to the exchange offer and the opinion is not binding on the IRS. Accordingly, we cannot assure you that the IRS will agree with the conclusions set forth in the opinion, and it is possible that the IRS or another tax authority could adopt a position contrary to one or all of those conclusions and that a court could sustain that contrary position. If we complete the exchange offer and the exchange offer is held to be taxable, we could be subject to tax as if the distribution were a taxable sale by us of our Cognizant shares at market value, resulting in a material amount of taxes for us because our tax basis in the Cognizant shares is not significant. Our stockholders who receive Cognizant shares could be subject to taxes that would vary with the individual circumstances of the stockholder and may be material for some of stockholders. Neither IMS Health nor Cognizant will indemnify any individual stockholder for any taxes that may be incurred in connection with the exchange offer. IMS HEALTH AND COGNIZANT MAY NOT HAVE ADEQUATE FUNDS TO PERFORM THEIR RESPECTIVE INDEMNITY OBLIGATIONS UNDER THE DISTRIBUTION AGREEMENT. In connection with the exchange offer, IMS Health and Cognizant have made tax-related representations to each other and agreed to tax-related covenants. IMS Health and Cognizant also have agreed to indemnify each other for any liability resulting from a breach of these representations and covenants and liability resulting from the conduct of IMS Health's and Cognizant's businesses. The resulting liabilities could have a material adverse effect on each company. For a summary of IMS Health's and Cognizant's obligations in connection with the potential tax and business liabilities, see "Certain Relationships between IMS Health and Cognizant -- Distribution Agreement" on page 97. SPECIAL VOTING RIGHTS ASSOCIATED WITH COGNIZANT CLASS B COMMON STOCK WILL NOT BE TRANSFERABLE. If you receive shares of Cognizant class B common stock in the exchange offer, you will have ten votes for each share you receive only until such share is converted into Cognizant class A common stock. You will not be able to transfer to another person any value associated with these special voting rights because each share of Cognizant class B common stock will be automatically converted when it is first transferred after the exchange offer into one share of Cognizant class A common stock with one vote. THE SPECIAL VOTING RIGHTS ASSOCIATED WITH COGNIZANT CLASS B COMMON STOCK MAY CEASE AT ANY TIME. You may lose your special voting rights even if you do not transfer your class B common stock because each share of class B common stock will convert automatically into one share of class A common stock with one vote per share on the fifth anniversary of completion of the exchange offer or, if earlier, the date on which the number of shares of Cognizant class B common stock represents less than 35% of the aggregate number of shares of Cognizant common stock then outstanding. The number of shares of class B common stock may fall below the 35% level as the result of transfers by other holders of class B common stock or an increase in the number of shares of Cognizant class A common stock outstanding. RISKS RELATED TO COGNIZANT A SUBSTANTIAL PORTION OF COGNIZANT'S ASSETS AND OPERATIONS ARE LOCATED IN INDIA AND COGNIZANT IS SUBJECT TO REGULATORY, ECONOMIC AND POLITICAL UNCERTAINTIES IN INDIA. Cognizant intends to continue to develop and expand its offshore facilities in India where, as of December 31, 2002, approximately 73% of its technical professionals were located. While wage costs are lower in India than in the United States and other developed countries for 19 comparably skilled professionals, wages in India are increasing at a faster rate than in the United States, which could result in Cognizant incurring increased costs for technical professionals and reduced operating margins. In addition, there is intense competition in India for skilled technical professionals and Cognizant expects that competition to increase. India has also experienced civil unrest and terrorism and has been involved in conflicts with neighboring countries. In recent years there have been military confrontations between India and Pakistan that have occurred in the region of Kashmir and along the Indian-Pakistan border. The potential for hostilities between the two countries has been high in light of tensions related to recent terrorist incidents in India and the unsettled nature of the regional geopolitical environment including events in and related to Afghanistan. If India were to become engaged in armed hostilities, particularly if these hostilities were protracted or involved the threat of or use of weapons of mass destruction, Cognizant's operations would be materially adversely affected. In addition, U.S. companies may decline to contract with Cognizant for services in light of international terrorist incidents or armed hostilities even where India is not involved because of more generalized concerns about relying on a service provider utilizing international resources. In the past, the Indian economy has experienced many of the problems confronting the economies of developing countries including high inflation, erratic gross domestic product growth and shortages of foreign exchange. The Indian government has exercised and continues to exercise significant influence over many aspects of the Indian economy, and Indian government actions concerning the economy could have a material adverse effect on private sector entities, including Cognizant. In the past, the Indian government has provided significant tax incentives and relaxed certain regulatory restrictions in order to encourage foreign investment in specified sectors of the economy, including the software development services industry. Programs that have benefited Cognizant include, among others, tax holidays, liberalized import and export duties and preferential rules on foreign investment and repatriation. Notwithstanding these benefits, India's central and state governments remain significantly involved in the Indian economy as regulators. The elimination of any of the benefits realized by Cognizant from its Indian operations could have a material adverse effect on Cognizant's business, results of operations and financial condition. Since 1991, successive governments in India have pursued policies of economic reform, including significantly relaxing restrictions on the private sector. The current Indian government, formed in October 1999, is a coalition of several parties, including some small regional parties. The withdrawal of one or more of these parties from the current coalition could result in political instability. Political instability or further changes in the government in India could delay the reform of the Indian economy and adversely affect economic conditions in India generally, which could impact Cognizant's financial results and prospects. The current Indian government has generally pursued policies and taken initiatives that support the continued economic reform policies that have been pursued by previous governments. Cognizant cannot assure you, however, that these policies and initiatives will continue in the future. The rate of economic reform could change, and specific laws and policies affecting technology companies, foreign investment, currency exchange and other matters affecting Cognizant's business could change as well. A significant change in India's economic reform and deregulation policies could adversely affect business and economic conditions in India generally and Cognizant's business in particular. No assurance can be given that Cognizant will not be adversely affected by changes in inflation, interest rates, taxation, social stability or other political, economic or diplomatic developments in or affecting India in the future. HOSTILITIES BETWEEN THE UNITED STATES AND IRAQ COULD ADVERSELY AFFECT COGNIZANT'S BUSINESS, FINANCIAL CONDITION AND RESULTS OF OPERATIONS AND IMPAIR ITS ABILITY TO SERVICE ITS CUSTOMERS. Tensions between the United States and Iraq have recently escalated as the United States has threatened to take military action against Iraq. Hostilities involving the United States, or 20 military or travel disruptions and restrictions affecting Cognizant's employees, could materially adversely affect Cognizant's operations and its ability to service its customers. As of December 31, 2002, approximately 73% of Cognizant's technical professionals were located in India, and the vast majority of Cognizant's technical professionals in the United States and Europe are Indian nationals who are able to work in the United States only because they hold current visas. A military action by the United States against Iraq would likely further disrupt travel and the ability to obtain visas to enter into the United States. Travel restrictions could cause Cognizant to incur additional unexpected labor costs and expenses or could restrain Cognizant's ability to retain the skilled professionals it needs for its operations in the United States and Europe. COGNIZANT'S INTERNATIONAL SALES AND OPERATIONS ARE SUBJECT TO MANY UNCERTAINTIES. Revenues from customers outside North America represented 16%, 14% and 13% of Cognizant's revenues for 2000, 2001 and the nine months ended September 30, 2002, respectively. Cognizant anticipates that revenues from customers outside North America will continue to account for a material portion of its revenues in the foreseeable future and may increase as Cognizant expands its international presence, particularly in Europe. In addition, a substantial majority of Cognizant's employees and almost all of its IT development centers are located in India. As a result, Cognizant may be subject to risks associated with international operations, including risks associated with foreign currency exchange rate fluctuations and risks associated with the application and imposition of protective legislation and regulations relating to import or export or otherwise resulting from foreign policy or the variability of foreign economic conditions. To date, Cognizant has not engaged in any hedging transactions to mitigate its risks relating to exchange rate fluctuations. Additional risks associated with international operations include difficulties in enforcing intellectual property rights, the burdens of complying with a wide variety of foreign laws, potentially adverse tax consequences, tariffs, quotas and other barriers and potential difficulties in collecting accounts receivable. There can be no assurance that these and other factors will not have a material adverse effect on Cognizant's business, results of operations and financial condition. COGNIZANT FACES INTENSE COMPETITION FROM OTHER IT SERVICE PROVIDERS. The intensely competitive IT professional services market includes a large number of participants and is subject to rapid change. This market includes participants from a variety of market segments, including: - systems integration firms; - contract programming companies; - application software companies; - Internet solutions providers; - the professional services groups of computer equipment companies; and - facilities management and outsourcing companies. The market also includes numerous smaller local competitors in the various geographic markets in which Cognizant operates. Cognizant's direct competitors who use the on-site/offshore business model include, among others, Infosys, Inc., Satyam Computer Services Limited, Tata Consultancy Services and WIPRO Ltd. In addition, many of Cognizant's competitors have significantly greater financial, technical and marketing resources and greater name recognition than does Cognizant. Some of these larger competitors, such as Accenture Ltd., Electronic Data Systems Corporation and IBM Global Services, have announced their intentions to develop their offshore operations in order to lower their cost structure. Cognizant cannot 21 assure you that it will be able to sustain its current levels of profitability or growth as competitive pressures, including competition for skilled IT development professionals and pricing pressure from competitors employing an on-site/offshore business model, increase. COGNIZANT'S BUSINESS WILL SUFFER IF IT FAILS TO DEVELOP NEW SERVICES AND ENHANCE ITS EXISTING SERVICES IN ORDER TO KEEP PACE WITH THE RAPIDLY EVOLVING TECHNOLOGICAL ENVIRONMENT. The IT services market is characterized by rapid technological change, evolving industry standards, changing customer preferences and new product and service introductions. Cognizant's future success will depend on its ability to develop solutions that keep pace with changes in the IT services market. There can be no assurance that Cognizant will be successful in developing new services addressing evolving technologies on a timely or cost-effective basis or, if these services are developed, that Cognizant will be successful in the marketplace. In addition, there can be no assurance that products, services or technologies developed by others will not render Cognizant's services non-competitive or obsolete. Cognizant's failure to address these developments could have a material adverse effect on its business, results of operations and financial condition. Cognizant's ability to remain competitive will also depend on its ability to design and implement, in a timely and cost-effective manner, solutions for customers moving from the mainframe environment to client/server or other advanced architectures. Cognizant's failure to design and implement solutions in a timely and cost-effective manner could have a material adverse effect on Cognizant's business, results of operations and financial condition. COMPETITION FOR HIGHLY SKILLED TECHNICAL PERSONNEL IS INTENSE AND THE SUCCESS OF COGNIZANT'S BUSINESS DEPENDS ON ITS ABILITY TO ATTRACT AND RETAIN HIGHLY SKILLED PROFESSIONALS. Cognizant's future success will depend to a significant extent on its ability to attract, train and retain highly skilled IT development professionals. In particular, Cognizant needs to attract, train and retain project managers, IT engineers and other senior technical personnel. Cognizant believes there is a shortage of, and significant competition for, IT development professionals in the United States and India with the advanced technological skills necessary to perform the services Cognizant offers. Cognizant has subcontracted, to a limited extent in the past, and may do so in the future, with other service providers in order to meet its obligations to its customers. Cognizant's ability to maintain and renew existing engagements and obtain new business will depend, in large part, on its ability to attract, train and retain technical personnel with the skills that keep pace with continuing changes in information technology, evolving industry standards and changing customer preferences. Further, Cognizant must train and manage its growing work force, requiring an increase in the level of responsibility for both existing and new management personnel. There can be no assurance that the management skills and systems currently in place will be adequate or that Cognizant will be able to train and assimilate new employees successfully. Cognizant's failure to attract, train and retain current or future employees could have a material adverse effect on its business, results of operations and financial condition. COGNIZANT'S GROWTH MAY BE HINDERED BY IMMIGRATION RESTRICTIONS. Cognizant's future success will depend on its ability to attract and retain employees with technical and project management skills from developing countries, especially India. The vast majority of Cognizant's IT professionals in the United States and in Europe are Indian nationals. The ability of Indian nationals to work in the United States depends on their ability and the ability of Cognizant to obtain the necessary visas and work permits. The H-1B visa classification enables U.S. employers to hire qualified foreign workers in positions which require an education at least equal to a U.S. Baccalaureate Degree in specialty occupations such as IT systems engineering and systems analysis. The H-1B visa usually 22 permits an individual to work and live in the United States for a period of up to six years. There is a limit on the number of new H-1B petitions that the U.S. Immigration and Naturalization Service may approve in any federal fiscal year, and in years in which this limit is reached, Cognizant may be unable to obtain H-1B visas necessary to bring foreign employees to the United States. In the current federal fiscal year, the limit is 195,000. This cap is currently not expected to be reached. However, in the fiscal year beginning October 1, 2003, because of changes in U.S. immigration law, the number of H-1B visas available to employers will be reduced to 65,000. In addition, there are strict labor regulations associated with the H-1B visa classification. Higher users of the H-1B visa program are often subject to investigations by the Wage and Hour Division of the U.S. Department of Labor. A finding by the U.S. Department of Labor of willful or substantial failure by Cognizant to comply with existing regulations on the H-1B classification may result in a bar on future work-authorized nonimmigrant or immigrant petitions. Cognizant also regularly transfers employees of its subsidiaries in India to the United States to work on projects and at client sites, using the L-1 visa classification. The L-1 visa allows companies abroad to transfer certain managers, executives and employees with specialized company knowledge to related U.S. companies such as a parent, subsidiary, affiliate, joint venture or branch office. Cognizant has an approved "Blanket L Program," under which the corporate relationships of its transferring and receiving entities have been pre-approved by the INS, thus enabling individual L-1 applications to be presented directly to a U.S. consular post abroad rather than undergoing the pre-approval process in the United States. While there have been no major changes in the law or regulations governing the L-1 categories, both the U.S. consular posts that review initial L-1 applications and the INS office, which adjudicates extensions of L-1 status, have become more restrictive with respect to this category in the recent past. As a result, the rate of refusals of initial L-1 applications and of extension denials has increased. In addition, even where L-1 visas are ultimately granted and issued, security measures undertaken by U.S. consular posts around the world have caused major delays in visa issuances. Cognizant's inability to bring qualified technical personnel into the United States to staff on-site customer locations would have a material adverse effect on Cognizant's business, results of operations and financial condition. Cognizant also processes immigrant visas for lawful permanent residence for employees to fill positions for which there are no able, willing and qualified U.S. workers available to fill the positions. Compliance with existing U.S. immigration and labor laws, or changes in those laws making it more difficult to hire foreign nationals or limiting Cognizant's ability to successfully obtain permanent residence for its foreign employees in the United States, could require Cognizant to incur additional unexpected labor costs and expenses or could restrain Cognizant's ability to retain the skilled professionals it needs for its operations in the United States. Any of these restrictions or limitations on Cognizant's hiring practices could have a material adverse effect on Cognizant's business, results of operations and financial condition. In addition to immigration restrictions in the United States, there have recently been changes to work permit legislation in the United Kingdom, where Cognizant has experienced significant growth. Under the new regulations, in order for Cognizant to transfer its employees to the United Kingdom, either from the United States or from India, it must demonstrate that the employee had been employed by Cognizant for at least six months prior to the transfer. These restrictions restrain Cognizant's ability to retain the skilled professionals it needs for its operations in Europe, and could have an adverse affect on Cognizant's international strategy to expand its presence in Europe. As a result, the changes to work permit legislation in the United Kingdom could have a material adverse effect on Cognizant's business, results of operations and financial condition. Immigration and work permit laws and regulations in the United States, the United Kingdom and other countries is subject to legislative and administrative changes as well as changes in the application of standards and enforcement. Immigration and work permit laws and regulation can 23 be significantly effected by political forces and levels of economic activity. Cognizant's international expansion strategy and its business, results of operations and financial condition may be materially adversely affected if changes in immigration and work permit laws and regulations or the administration or enforcement of such laws or regulations impairs Cognizant's ability to staff projects with IT professionals who are not citizens of the country where the work is to be performed. COGNIZANT'S ABILITY TO OPERATE AND COMPETE EFFECTIVELY COULD BE IMPAIRED IF IT LOSES KEY PERSONNEL. Cognizant's future performance depends to a significant degree upon the continued service of the key members of its management team, as well as marketing, sales and technical personnel, and its ability to attract and retain new management and other personnel. Cognizant does not maintain key man life insurance on any of its executive officers or significant employees. Competition for personnel is intense, and there can be no assurance that Cognizant will be able to retain its key employees or that it will be successful in attracting and retaining new personnel in the future. The loss of any one or more of Cognizant's key personnel or the failure to attract and retain key personnel could have a material adverse effect on Cognizant's business, results of operations and financial condition. Cognizant has entered into non-competition agreements with its executive officers. There can be no assurance that the restrictions in these agreements prohibiting the executive officers from engaging in competitive activities are enforceable. Further, substantially all of Cognizant's professional non-executive staff are not covered by agreements that would prohibit them from working for Cognizant's competitors. If any of Cognizant's key professional personnel leaves Cognizant and joins a competitor of Cognizant, Cognizant's business could be adversely affected. COGNIZANT'S EARNINGS MAY BE ADVERSELY AFFECTED IF IT CHANGES ITS INTENT NOT TO REPATRIATE EARNINGS IN INDIA. During the first quarter of 2002, Cognizant made a strategic decision to pursue an international strategy that includes expanded infrastructure investments in India and geographic expansion in Europe and Asia. As a component of this strategy, Cognizant intends to use 2002 and future Indian earnings to expand its operations outside the United States instead of repatriating those earnings to the United States. Accordingly, effective January 1, 2002, pursuant to Accounting Principles Bulletin 23, Cognizant will no longer accrue taxes on the repatriation of earnings recognized in 2002 and subsequent periods as these earnings are now considered to be indefinitely reinvested outside the United States. This change in intent resulted in an estimated effective tax rate for the nine months ended September 30, 2002 of approximately 23%, compared to an effective tax rate for fiscal 2001 of approximately 37%. However, Cognizant's cash requirements could change over time, which could effectively force it to change its intent on repatriating Indian earnings. If Cognizant's earnings are intended to be repatriated in the future, or are no longer reinvested outside the United States, Cognizant will have to accrue the applicable amount of taxes associated with those earnings and pay taxes at a substantially higher tax rate than the effective rate in 2002. These increased taxes could have a material adverse effect on Cognizant's business, results of operations and financial condition, as well as cash flows to fund such taxes. In addition, Cognizant may need to accelerate the payment of significant deferred taxes, which would have a significant impact on its cash position. COGNIZANT'S EARNINGS MAY BE ADVERSELY AFFECTED IF IT CHANGES ITS ACCOUNTING POLICY WITH RESPECT TO EMPLOYEE STOCK OPTIONS. Stock options are an important component of compensation packages for most of Cognizant's mid- and senior-level employees. Cognizant currently does not deduct the expense of employee stock option grants from its income. Many companies, however, are considering a change to their accounting policies to record the value of stock options issued to employees as 24 an expense and changes in the accounting treatment of stock options are currently under consideration by the International Accounting Standards Board and other accounting standards-setting bodies. If Cognizant were to change its accounting policy with respect to the treatment of employee stock option grants, its earnings could be materially adversely affected. A SIGNIFICANT PORTION OF COGNIZANT'S PROJECTS IS ON A FIXED-PRICE BASIS, SUBJECTING COGNIZANT TO THE RISKS ASSOCIATED WITH COST OVER-RUNS AND OPERATING COST INFLATION. Cognizant contracts to provide services either on a time-and-materials basis or on a fixed-price basis, with fixed-price contracts accounting for approximately 24% and 26% of revenues for the year ended December 31, 2001 and the nine months ended September 30, 2002, respectively. Cognizant expects that an increasing number of its future projects will be contracted on a fixed-price basis. Cognizant bears the risk of cost over-runs and operating cost inflation in connection with projects covered by fixed-price contracts. Cognizant's failure to estimate accurately the resources and time required for a fixed-price project, or its failure to complete its contractual obligations within the time frame committed, could have a material adverse effect on Cognizant's business, results of operations and financial condition. COGNIZANT'S BUSINESS MAY SUFFER IF IT IS UNABLE TO MANAGE ITS RAPID GROWTH. Since Cognizant began providing software development and maintenance services in early 1994, Cognizant's professional and support staff has increased from approximately 25 to over 6,000 at December 31, 2002. Cognizant's anticipated growth will continue to place significant demands on its management and other resources. In particular, Cognizant will have to continue to increase the number of its personnel, particularly skilled technical, marketing and management personnel, and continue to develop and improve its operational, financial, communications and other internal systems. Cognizant's inability to manage its anticipated growth effectively could have a material adverse effect on Cognizant's business, results of operations and financial condition. As part of its growth strategy, Cognizant is expanding its operations in Europe and Asia. Cognizant may not be able to compete effectively in these markets and the cost of entering these markets may be substantially greater than it expects. If it fails to compete effectively in the new markets it enters, or if the cost of entering those markets is substantially greater than it expects, Cognizant's business, results of operations and financial condition could be adversely affected. In addition, if Cognizant cannot compete effectively, it may be required to reconsider its strategy to invest in its international expansion plans and change its intent on the repatriation of its earnings. COGNIZANT RELIES ON A FEW CUSTOMERS FOR A LARGE PORTION OF ITS REVENUES. Approximately 40%, 35% and 39% of Cognizant's revenues in years ended December 31, 2000 and 2001 and the nine months ended September 30, 2002, respectively, were generated from its top five customers, including IMS Health. Approximately 10%, 11% and 10% of Cognizant's revenues in years ended December 31, 2000 and 2001 and the nine months ended September 30, 2002 were generated from IMS Health and its subsidiaries. The volume of work performed for specific customers is likely to vary from year to year, and a major customer in one year may not use Cognizant's services in a subsequent year. The loss of one of Cognizant's large customers could have a material adverse effect on its business, results of operations and financial condition. COGNIZANT GENERALLY DOES NOT HAVE LONG-TERM CONTRACTS WITH ITS CUSTOMERS. Consistent with industry practice, Cognizant generally does not enter into long-term contracts with its customers. As a result, Cognizant is substantially exposed to volatility in the market for its services, and may not be able to maintain its level of profitability. If Cognizant is unable to market its services on terms it finds acceptable, its financial condition and results of operations could suffer materially. 25 COGNIZANT'S OPERATING RESULTS EXPERIENCE SIGNIFICANT QUARTERLY FLUCTUATIONS. Cognizant historically has experienced significant quarterly fluctuations in its revenues and results of operations and expects these fluctuations to continue. Among the factors causing these variations have been: - the number, timing, scope and contractual terms of IT development and maintenance projects in which Cognizant is engaged; - delays incurred in the performance of those projects; - the accuracy of estimates of resources and time required to complete ongoing projects; and - general economic conditions. In addition, Cognizant's future revenues, operating results and margins may fluctuate as a result of: - changes in pricing in response to customer demand and competitive pressures; - the mix of on-site and offshore staffing; - the ratio of fixed-price contracts versus time-and-materials contracts; - employee wage levels and utilization rates; - the timing of collection of accounts receivable; and - the breakdown of revenues by distribution channel. A high percentage of Cognizant's operating expenses, particularly personnel and rent, are relatively fixed in advance of any particular quarter. As a result, unanticipated variations in the number and timing of Cognizant's projects or in employee wage levels and utilization rates may cause significant variations in operating results in any particular quarter, and could result in losses to Cognizant. Any significant shortfall of revenues in relation to Cognizant's expectations, any material reduction in utilization rates for Cognizant's professional staff or variance in the on-site, offshore staffing mix, an unanticipated termination of a major project, a customer's decision not to pursue a new project or proceed to succeeding stages of a current project or the completion during a quarter of several major customer projects could require Cognizant to pay underutilized employees and could therefore have a material adverse effect on Cognizant's business, results of operations and financial condition. As a result of these factors, it is possible that in some future periods Cognizant's revenues and operating results may be significantly below the expectations of public market analysts and investors. In such an event, the price of Cognizant's common stock would likely be materially and adversely affected. COGNIZANT MAY NOT BE ABLE TO SUSTAIN ITS CURRENT LEVEL OF PROFITABILITY. Cognizant's gross margin of 49% and 47% for the year ended December 31, 2001 and the nine months ended September 30, 2002, respectively, may decline if it experiences declines in demand and pricing for its services. In addition, wages in India are increasing at a faster rate than in the United States, which could result in Cognizant incurring increased costs for technical professionals. Although Cognizant has been able to partially offset pricing pressures and wage increases through its low-cost operating structure, it cannot assure you that it will be able to continue to do so in the future. LIABILITY CLAIMS COULD HAVE A MATERIAL ADVERSE EFFECT ON COGNIZANT'S BUSINESS. Many of Cognizant's engagements involve projects that are critical to the operations of its customers' businesses and provide benefits that are difficult to quantify. Any failure in a 26 customer's computer system could result in a claim for substantial damages against Cognizant, regardless of Cognizant's responsibility for the failure. Although Cognizant attempts to limit by contract its liability for damages arising from negligent acts, errors, mistakes or omissions in rendering its IT development and maintenance services, there can be no assurance that any contractual limitations on liability will be enforceable in all instances or will otherwise protect Cognizant from liability for damages. Although Cognizant has general liability insurance coverage, including coverage for errors or omissions, there can be no assurance that coverage will continue to be available on reasonable terms or will be available in sufficient amounts to cover one or more large claims, or that the insurer will not disclaim coverage as to any future claim. The successful assertion of one or more large claims against Cognizant that exceed available insurance coverage or changes in Cognizant's insurance policies, including premium increases or the imposition of large deductible or co-insurance requirements, could have a material adverse effect on Cognizant's business, results of operations and financial condition. COGNIZANT MAY BE SUBJECT TO LEGACY DUN & BRADSTREET LIABILITIES THAT COULD HAVE AN ADVERSE EFFECT ON COGNIZANT'S RESULTS OF OPERATIONS AND FINANCIAL CONDITION. In 1996, The Dun & Bradstreet Corporation, now known as R.H. Donnelly Corporation, split itself into three separate companies: The Dun & Bradstreet Corporation, Cognizant Corporation and ACNielsen Corporation. In connection with the split-up transaction, The Dun & Bradstreet Corporation, Cognizant Corporation (renamed Nielsen Media Research), of which Cognizant Technology Solutions Corporation was once a part, and ACNielsen Corporation (now a subsidiary of the Dutch company VNU N.A.) entered into a distribution agreement. In the 1996 distribution agreement, each party assumed the liabilities relating to the businesses allocated to it and agreed to indemnify the other parties and their subsidiaries against those liabilities and certain other matters. The 1996 distribution agreement also prohibited each party thereto from distributing to its stockholders any business allocated to it unless the distributed business delivered undertakings agreeing to be jointly and severally liable to the other parties under the 1996 distribution agreement for the liabilities of the distributing parent company under the 1996 distribution agreement. IMS Health made such undertaking when it was spun off by Nielsen Media Research in 1998 and, accordingly, IMS Health and Nielsen Media Research are jointly and severally liable to R.H. Donnelly and ACNielsen for Cognizant Corporation obligations under the terms of the 1996 distribution agreement. IMS Health has requested similar undertakings from Cognizant Technology Solutions Corporation as a condition to the distribution of Cognizant shares in the exchange offer. IMS Health is obligated to procure similar undertakings from Cognizant Technology Solutions Corporation to Nielsen Media Research and Synavant Inc. with respect to liabilities allocated to IMS Health in connection with Nielsen Media Research's spin-off of IMS Health and IMS Health's spin-off of Synavant Inc. In connection with the exchange offer, Cognizant Technology Solutions Corporation has given these undertakings and, as a result, Cognizant Technology Solutions Corporation may be subject to claims in the future in relation to legacy liabilities. One possible legacy liability arises from a pending antitrust action filed by Information Resources Inc. in 1996, which names as joint defendants all parties to the 1996 distribution agreement. Information Resources' complaint alleges damages in excess of $350 million, which amount it has asked to be trebled, plus punitive damages. ACNielsen Corporation agreed in connection with the 1996 distribution agreement to assume any and all liabilities resulting from the Information Resources claim to the extent that ACNielsen remains financially viable. In connection with VNU's acquisition of ACNielsen in 2001, VNU was required to assume this liability and to be included with ACNielsen for purposes of determining the amount that can be paid by ACNielsen in respect of any claim. IMS Health and Nielsen Media Research, Inc., successors to Cognizant Corporation, have agreed to share liabilities in excess of the amount ACNielsen is required to pay under the 1996 distribution agreement in respect of this claim on a 50-50 basis with The Dun & Bradstreet Corporation (subsequently separated into The Dun & 27 Bradstreet Corporation and Moody's Corporation). IMS Health and Nielsen Media Research, Inc. further agreed to share their portion of the liabilities in relation to the Information Resources action on a 75-25 basis, subject to Nielsen Media Research, Inc.'s liability in respect of the Information Resources action and certain other contingent liabilities being capped at $125 million. Pursuant to its undertaking, Cognizant Technology Solutions Corporation could be held liable for those amounts that VNU, IMS Health, Nielsen Media Research, Inc., and The Dun & Bradstreet Corporation and their successors are unable or unwilling to pay. Other claims have arisen in the past and may arise in the future under the 1996 distribution agreement or the distribution agreements relating to Nielsen Media Research's spin-off of IMS Health and IMS Health's spin-off of Synavant Inc., in which case Cognizant Technology Solutions Corporation may be jointly and severally liable for any losses suffered by the parties entitled to indemnification. IMS Health has agreed to indemnify Cognizant Technology Solutions Corporation for any and all liabilities that arise out of its undertakings to be jointly and severally liable for these liabilities, but if for any reason IMS Health does not perform on its indemnification obligation, these liabilities could have a material adverse effect on Cognizant's financial condition and results of operations. COGNIZANT EXPECTS THAT THE COST OF INSURANCE WILL INCREASE, AND THE SCOPE OF ITS COVERAGE WILL DECREASE, FOLLOWING COMPLETION OF THE EXCHANGE OFFER. Historically, Cognizant has benefited from insurance coverage provided under policies obtained by IMS Health for itself and its subsidiaries. Following completion of the exchange offer, Cognizant will be required to obtain its own separate insurance policies for director and officer liability and general liability. Cognizant expects the costs associated with the new insurance policies will be substantially higher than the cost of the shared policy due to reduced leverage in negotiating terms and general increases in insurance premiums. In addition, Cognizant expects that the scope of its coverage will also be reduced under the new policies. COGNIZANT MAY BE UNABLE TO PROTECT ITS INTELLECTUAL PROPERTY RIGHTS. Cognizant's future success will depend in part on its ability to protect its intellectual property rights. Cognizant presently holds no patents or registered copyrights, and relies upon a combination of copyright and trade secret laws, non-disclosure and other contractual arrangements and various security measures to protect its intellectual property rights. India is a member of the Berne Convention, and has agreed to recognize protections on copyrights conferred under the laws of foreign countries, including the laws of the United States. Cognizant believes that laws, rules, regulations and treaties in effect in the United States and India are adequate to protect it from misappropriation or unauthorized use of its copyrights. However, there can be no assurance that these laws will not change and, in particular, that the laws of India will not change in ways that may prevent or restrict the transfer of software components, libraries and toolsets from India to the United States. There can be no assurance that the steps taken by Cognizant to protect its intellectual property rights will be adequate to deter misappropriation of any of its intellectual property, or that Cognizant will be able to detect unauthorized use and take appropriate steps to enforce its rights. Unauthorized use of Cognizant's intellectual property may result in development of technology, products or services which compete with Cognizant's products and unauthorized parties may infringe upon or misappropriate Cognizant's products, services or proprietary information. Although Cognizant believes that its intellectual property rights do not infringe on the intellectual property rights of any of its competitors or others, there can be no assurance that infringement claims will not be asserted against Cognizant in the future, that assertion of infringement claims will not result in litigation or that Cognizant would prevail in that litigation or be able to obtain a license for the use of any infringed intellectual property from a third party on 28 commercially reasonable terms, if at all. Cognizant expects that the risk of infringement claims against Cognizant will increase if Cognizant's competitors are able to obtain patents for software products and processes. Any infringement claims, regardless of their outcome, could result in substantial cost to Cognizant and divert management's attention from Cognizant's operations. Any infringement claim or litigation against Cognizant could, therefore, have a material adverse effect on Cognizant's business, results of operations and financial condition. COGNIZANT MAY BE UNABLE TO INTEGRATE ACQUIRED COMPANIES OR TECHNOLOGIES SUCCESSFULLY. Cognizant believes that opportunities exist in the fragmented IT services market to expand its business through selective strategic acquisitions and joint ventures. Cognizant believes that acquisition and joint venture candidates may enable it to expand its geographic presence, especially in the European market, enter new technology areas or expand its capacity. There can be no assurance that Cognizant will identify suitable acquisition candidates available for sale at reasonable prices, consummate any acquisition or joint venture or successfully integrate any acquired business or joint venture into its operations. Further, acquisitions and joint ventures involve a number of special risks, including diversion of management's attention, failure to retain key personnel, unanticipated events or circumstances and legal liabilities, some or all of which could have a material adverse effect on Cognizant's business, results of operations and financial condition. Cognizant may finance any future acquisitions with debt financing, the issuance of equity securities or a combination of the foregoing. There can be no assurance that Cognizant will be able to arrange adequate financing on acceptable terms. In addition, acquisitions financed with the issuance of Cognizant's equity securities could be dilutive. PROVISIONS IN COGNIZANT'S CHARTER AND BY-LAWS, THE PROPOSED ADOPTION OF A STOCKHOLDERS' RIGHTS PLAN AND PROVISIONS UNDER DELAWARE LAW MAY DISCOURAGE UNSOLICITED TAKEOVER PROPOSALS. Provisions in Cognizant's charter and by-laws, each as to be amended following the completion of the exchange offer, the proposed stockholders' rights plan expected to be adopted in connection with the completion of the exchange offer and Delaware General Corporate Law may have the effect of deterring unsolicited takeover proposals or delaying or preventing changes in control or management of Cognizant, including transactions in which stockholders might otherwise receive a premium for their shares over then current market prices. In addition, these documents and provisions may limit the ability of stockholders to approve transactions that they may deem to be in their best interests. Cognizant's board of directors has the authority, without further action by the stockholders, to fix the rights and preferences, and issue shares, of preferred stock. Cognizant's charter, as it will be amended following completion of the exchange offer, will provide for a classified board of directors, which once implemented, will prevent a change of control of Cognizant's board of directors at a single meeting of stockholders. The elimination of Cognizant's stockholders' ability to act by written consent and to call a special meeting will delay stockholder actions until annual meetings or until a special meeting is called by Cognizant's chairman or chief executive officer or its board of directors. The supermajority voting requirement for specified amendments to Cognizant's charter and by-laws allows a minority of Cognizant's stockholders to block those amendments. The DGCL also contains provisions preventing stockholders from engaging in business combinations with Cognizant, subject to certain exceptions. These provisions could also discourage bids for Cognizant's common stock at a premium as well as create a depressive effect on the market price of the shares of Cognizant's common stock. 29 SPECIAL NOTE ON FORWARD-LOOKING INFORMATION This document, as well as information included in oral statements or other written statements made or to be made by IMS Health and Cognizant, contain forward-looking statements. The words such as "believe," "expect," "anticipate," "intend," "plan," "foresee," "likely," "project," "estimate," "will," "may," "should," "future," "predicts," "potential," "continue" and similar expressions identify these forward-looking statements which appear in a number of places in this document and include, but are not limited to, all statements relating to the exchange offer, plans for future growth and other business development activities as well as capital expenditures, financing sources, dividends and the effects of regulation and competition, foreign currency conversion and all other statements regarding the intent, plans, beliefs or expectations of IMS Health, Cognizant or their directors or officers. You are cautioned that such forward-looking statements are not assurances for 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 due to a number of factors, including those discussed in the sections of this document entitled "Risk Factors" and "Management's Discussion and Analysis of Results of Operations and Financial Condition of Cognizant" in this document and those discussed in our Form 10-K for 2001, Form 10-Q for the period ended September 30, 2002 and in Cognizant's Form 10-K for 2001 and Form 10-Q for the period ended September 30, 2002, each of which have been incorporated into this document by reference. To find out where you can obtain copies of our and Cognizant's incorporated documents, see "Where You Can Find More Information." These factors are not necessarily all of the important factors that could cause actual results to differ materially from those expressed in any of the forward-looking statements contained in this document. With respect to IMS Health, these factors include, but are not limited to, the following: - 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 -- IMS Health derived 54% of its revenue in 2001 from non-U.S. operations, including from Cognizant; - to the extent IMS Health seeks growth through acquisitions, alliances or joint ventures, the ability to identify, consummate and integrate acquisitions, alliances and ventures on satisfactory terms; - the ability to develop, update and replace new or advanced technologies, including sophisticated information systems, software and other technology used to deliver its products and services and the exposure to the risk of obsolescence or incompatibility of these technologies with those of its customers or suppliers; - the ability of the Company to maintain and defend its intellectual property rights in jurisdictions around the world; - regulations to which the Company is or may become subject relating to patient privacy and the collection and dissemination of data and, specifically, the use of anonymized patient-specific information, which the Company anticipates to be an increasingly important tool in the design, development and marketing of pharmaceuticals; - regulations to which customers of the Company in the pharmaceutical industry are or may become subject restricting the prices that may be charged for subscription or other pharmaceutical products or the manner in which such products may be marketed or sold; - increased restrictions on the use of data by, or the refusal to license data to IMS Health by distributors of pharmaceutical products and other suppliers of such information; - deterioration in economic conditions, particularly in the pharmaceutical, healthcare, or other industries in which IMS Health's customers may operate; 30 - consolidation in the pharmaceutical industry and the other industries in which IMS Health's customers operate; - conditions in the securities markets which may affect the value or liquidity of portfolio investments, including the investment in TriZetto, and management's estimates of lives of assets, recoverability of assets, fair market value, estimates and liabilities and accrued income tax benefits and liabilities; - to the extent unforeseen cash needs arise, the ability to obtain financing on favorable terms; - the ability to identify and implement cost-containment measures; - the ability to successfully maintain historic effective tax rates and to achieve estimated corporate overhead levels; - competition, particularly in the markets for pharmaceutical information; - terrorist activity, the threat of terrorist activity, and responses to and results of terrorist activity and threats, including but not limited to effects, domestically and/or internationally, on IMS Health, its personnel and facilities, its customers and suppliers, financial markets and general economic conditions; and - general economic conditions. With respect to Cognizant, these factors include, but are not limited to, the following: - the significant fluctuations of Cognizant's quarterly operating results caused by a variety of factors, many of which are not within Cognizant's control, including - the number, timing, scope and contractual terms of application design, development and maintenance projects, - delays in the performance of projects, - the accuracy of estimates of costs, resources and time to complete projects, - seasonal patterns of Cognizant's services required by customers, - potential adverse impact of new tax legislation, - levels of market acceptance for Cognizant's services, and - the hiring of additional staff; - changes in Cognizant's billing and employee utilization rates; - Cognizant's ability to manage its growth effectively, which will require Cognizant - to increase the number of its personnel, particularly skilled technical, marketing and management personnel, - to find suitable acquisition and joint venture candidates to support geographic expansion, and - to continue to develop and improve its operational, financial, communications and other internal systems, in the United States, Europe and India; - Cognizant's limited operating history with unaffiliated customers; - Cognizant's reliance on key customers and large projects; - the highly competitive nature of the markets for Cognizant's services; 31 - Cognizant's ability to successfully address the continuing changes in information technology, evolving industry standards and changing customer objectives and preferences; - Cognizant's reliance on the continued services of its key executive officers and leading technical personnel; - Cognizant's ability to attract and retain a sufficient number of highly skilled employees in the future; - Cognizant's ability to protect its intellectual property rights; - the concentration of Cognizant's operations in India and the related geo-political risks of local and cross-border conflicts; - terrorist activity, the threat of terrorist activity, and responses to and results of terrorist activity and threats, including but not limited to effects, domestically and/or internationally, on Cognizant, its personnel and facilities, its customers and suppliers, financial markets and general economic conditions; - the effects, domestically and/or internationally, on Cognizant, its personnel and facilities, its customers and suppliers, financial markets and general economic conditions arising from hostilities involving the United States in Iraq or elsewhere; - general economic conditions; and - uncertainties regarding the satisfaction or waiver of the conditions to the exchange offer, and the effects on the exchange offer (as well as the effects on the two companies and on tendering stockholders) of market conditions, economic conditions, tax treatment, regulatory and legal requirements and the results of negotiations between Cognizant and IMS Health. In addition, the exchange offer is also subject to risks and uncertainties, including, but not limited to, risks associated with the tax consequences of the exchange offer for IMS Health or persons participating in the exchange offer and risks relating to the number of Cognizant shares owned by us that are not distributed in the exchange offer and the manner and timing of any conversion, disposition or other action by us in respect of these Cognizant shares. 32 THE TRANSACTION BACKGROUND AND PURPOSE In 1996, IMS Health and Cognizant, along with a group of other companies, were spun-off from The Dun & Bradstreet Corporation (which was subsequently renamed "R.H. Donnelley Corporation") to form a new company, Cognizant Corporation. When Cognizant completed its initial public offering on June 24, 1998, it was a subsidiary of Cognizant Corporation. Shortly thereafter, the shares of Cognizant held by Cognizant Corporation were contributed to IMS Health and on July 1, 1998 IMS Health began operating as an independent company after having been spun-off from Cognizant Corporation. Immediately following the spin-off of IMS Health, Cognizant Corporation changed its name to Nielsen Media Research, Inc. At the time of the spin-off, IMS Health held approximately 67% of the outstanding stock of Cognizant representing approximately 95% of the combined voting power of Cognizant's common stock. IMS Health was deemed the "accounting successor" to Cognizant Corporation in connection with the spin-off. IMS Health has owned Cognizant class B common stock since July, 1998. IMS Health does not view its interest in Cognizant as strategically important to IMS Health. Among other benefits, we believe the separation of Cognizant from IMS Health will: - enable the senior management personnel of both companies to focus more completely on the opportunities and needs of their own lines of business; - improve the stock of both companies as equity incentive tools for motivating key personnel; - improve the ability of both companies to independently access the capital markets; and - enable both companies to more freely use their stock for acquisitions and to raise capital. EFFECTS If we complete the exchange offer and distribute all our Cognizant shares, our financial statements will no longer reflect the assets, liabilities, revenues, earnings or cash flows attributable to Cognizant. Assuming the exchange offer is completed successfully, persons who remain IMS Health stockholders after the exchange offer will own shares in a company that no longer controls Cognizant. As a result, Cognizant's results will no longer be consolidated with those of IMS Health for financial reporting purposes. Revenues and operating income attributable to Cognizant's operations represented approximately 14% and 10%, respectively, of our consolidated revenues and operating income for the nine months ended September 30, 2002. Shares of IMS Health common stock acquired by us in the exchange offer will become authorized shares of IMS Health common stock held in treasury. We may sell or distribute our authorized shares held in treasury without stockholder action for general or other corporate purposes, including stock splits or dividends, acquisitions, raising additional capital and pursuant to our stock option and other employee benefit plans, except as may be required by applicable law or the rules of the NYSE. If we would otherwise continue to own shares of Cognizant class B common stock after completion of the exchange offer, we currently plan to either distribute them to our stockholders or to convert them into shares of Cognizant class A common stock prior to completion of the exchange offer and distribute them to our stockholders or hold them for some period before we sell them in one or more transactions. The timing of those sales could depend on market conditions and other factors, but we expect that we would hold any such shares for no more than three years. We will vote those shares in the same proportion as the votes cast by the other Cognizant stockholders. If the minimum amount of IMS shares are exchanged and we do not otherwise distribute Cognizant shares to our stockholders, we will hold 2,824,300 shares of 33 Cognizant class A common stock immediately following the completion of the exchange offer (representing 13.8% of the outstanding common stock of Cognizant). PARTICIPATION BY IMS HEALTH DIRECTORS AND EXECUTIVE OFFICERS The directors and executive officers of IMS Health who hold IMS Health shares have informed IMS Health that they do not intend to participate in the exchange offer. NO APPRAISAL RIGHTS No statutory appraisal rights are available to IMS Health or Cognizant stockholders in connection with the exchange offer. REGULATORY APPROVAL No filings under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, are required in connection with the exchange offer generally. However, if an IMS Health stockholder decides to participate in the exchange offer and acquires enough shares of Cognizant class B common stock to exceed any threshold stated in the regulations under the Hart-Scott-Rodino Act and if an exemption under those regulations does not apply, that stockholder and IMS Health would be required to make filings under the Hart-Scott-Rodino Act, and the waiting period under the Hart-Scott-Rodino Act would have to expire or be terminated before any exchanges of shares with that stockholder could be effected. A filing requirement could delay exchanges with that stockholder for several months. Apart from the registration of the shares of Cognizant class B common stock offered in the exchange offer under federal and state securities laws and the filing of a Schedule TO with the SEC by us, we do not believe that any other material U.S. federal or state regulatory filings or approvals will be necessary to consummate the exchange offer. ACCOUNTING TREATMENT The shares of IMS Health common stock received by us pursuant to the exchange offer will be recorded as an acquisition of treasury stock at a cost equal to the market value at expiration of the exchange offer of the IMS Health shares accepted in the exchange offer. Any excess of the market value of the shares of IMS Health common stock acquired over the net book value of our investment in Cognizant class B common stock at that date will be recognized by us as a gain on the disposal of the Cognizant class B common stock after deducting direct and incremental expenses of the exchange offer. Depending on the market value and the number of the shares of IMS Health common stock acquired in the exchange offer, the gain on the disposal may be significant. For example, if the IMS Health shares have a market value on the date of expiration of the exchange offer equal to the closing price of the IMS Health shares on January 8, 2003, -- i.e. $16.64 per share -- and 36,540,129 IMS Health shares are exchanged for 11,290,900 Cognizant shares, IMS Health estimates that it would realize a gain of approximately $522,000,000. Assuming that 36,540,129 IMS Health shares are exchanged for 11,290,900 Cognizant shares, the actual gain will vary by approximately $36.5 million for each $1.00 change in the per share market value of the IMS Health shares on the date of expiration of the exchange offer. The disposal of substantially all of our investment in Cognizant would result in discontinued operations treatment for accounting purposes. The disposal of our investment in Cognizant will be accounted for as a tax-free transaction for U.S. federal income tax purposes. If the tax-free treatment of the exchange offer is challenged by the IRS and such challenge is ultimately upheld by the courts, we could be subject to a material amount of taxes because of our tax basis in Cognizant is not significant. The disposition of our shares of Cognizant class B common stock will not affect Cognizant's reported financial position or results of operations, except for Cognizant's share of the offering expenses, which will be expensed as incurred. 34 THE EXCHANGE OFFER TERMS OF THE EXCHANGE OFFER We are offering to exchange 0.309 shares of Cognizant class B common stock for each share of IMS Health common stock that is validly tendered and not properly withdrawn, on the terms and subject to the conditions described below and in the related letter of transmittal, by 12:00 midnight, New York City time, on February 6, 2003. We may extend this deadline for any reason in our sole discretion. We refer to the last day on which tenders will be accepted, whether on February 6, 2003 or any later date to which the exchange offer may be extended, as the "expiration date." You may tender all, some or none of your shares of IMS Health common stock. Subject to the satisfaction or waiver of the conditions to the exchange offer, we will accept up to an aggregate of 36,540,129 shares of IMS Health common stock for exchange. This number of shares multiplied by the exchange ratio equals the 11,290,900 shares of Cognizant class B common stock held by us, which is the total number of shares of Cognizant class B common stock that we own and that we are offering to exchange. If more than 36,540,129 shares of IMS Health common stock are validly tendered and not properly withdrawn, the tendered shares will be subject to proration when the exchange offer expires. Our obligation to complete the exchange offer is subject to important conditions that are described under the heading "Conditions for Completion of the Exchange Offer" beginning on page 42. In determining the exchange ratio, we considered, among other things: - recent market prices on the NYSE and Nasdaq National Market for shares of IMS Health common stock and Cognizant class A common stock, respectively; and - discussions with the joint dealer managers as to what exchange ratio might result in enough shares of IMS Health common stock being tendered in the exchange offer to enable us to distribute all (or the greatest percentage) of our 11,290,900 shares of Cognizant class B common stock. IMS Health common stock is currently listed and traded on the NYSE under the symbol "RX." Cognizant class A common stock is currently listed and listed for quotation on the Nasdaq National Market under the symbol "CTSH." Cognizant class B common stock will not be separately listed or traded on any exchange or on the Nasdaq National Market. Based on the closing trading prices for IMS Health common stock and Cognizant class A common stock on January 8, 2003, the exchange ratio would result in an IMS Health stockholder who participates in the exchange offer receiving a premium of approximately 20% for each exchanged share of IMS common stock. The market price for Cognizant class A common stock is not necessarily determinative of the value of the Cognizant class B common stock to be received in the exchange offer. In addition, because market prices for IMS Health common stock and Cognizant class A common stock will fluctuate over the course of the exchange offer, we cannot predict what the amount of the premium, if any, will be at the closing of the exchange offer or the prices at which IMS Health or Cognizant shares will trade over time. You should obtain current market prices for shares of IMS Health common stock and Cognizant class A common stock because we cannot assure you what the market prices of these shares will be before, on or after the date the exchange offer expires. We are sending this document and related documents to IMS Health stockholders of record on January 6, 2003. As of January 6, 2003, there were 281,085,182 shares of IMS Health common stock outstanding, which were held of record by approximately 6,400 stockholders. We will also furnish this document and related documents to brokers, banks and similar persons whose names or the names of whose nominees appear on our stockholder list or, if applicable, who are listed as participants in a clearing agency's security position listing for subsequent 35 transmittal to beneficial owners of shares of IMS Health common stock. All persons holding shares of IMS Health common stock are eligible to participate in the exchange offer so long as they tender their shares in a jurisdiction where the exchange offer is permitted under local law. PRORATION; TENDERS FOR EXCHANGE BY HOLDERS OF FEWER THAN 100 SHARES OF IMS HEALTH COMMON STOCK On the expiration date, if IMS Health stockholders have validly tendered more than 36,540,129 shares of IMS Health common stock, we will accept, on a pro rata basis, up to 36,540,129 shares validly tendered and not properly withdrawn, except as described in this section. Except as otherwise provided below, beneficial holders of less than 100 shares of IMS Health common stock who validly tender all their shares will not be subject to proration if more than 36,540,129 shares of IMS Health are validly tendered and not properly withdrawn. Beneficial holders of 100 or more shares of IMS Health common stock are not eligible for this preference, even if those holders have separate stock certificates or accounts representing fewer than 100 shares of IMS Health common stock. Holders of less than 100 shares of IMS Health common stock who wish to tender all their shares must complete the section captioned "Odd-Lot Shares" on the letter of transmittal and, if applicable, on the notice of guaranteed delivery. If your odd-lot shares are held by a broker for your account, you can contact your broker and request this preferential treatment. Shares held in the IMS Health Savings Plan are not eligible for this preferential treatment. We will announce preliminary results of the exchange offer by press release on the first business day after the expiration date. Because of the difficulty in determining the number of IMS Health shares validly tendered for exchange and not properly withdrawn, IMS Health expects that the final results, including proration, if any, will not be determined until approximately 5 business days after the expiration date. We will announce by press release the final results of the exchange offer promptly after they are known. NO FRACTIONAL SHARES You will not receive fractional shares of Cognizant class B common stock in the exchange offer. The exchange agent, acting as agent for IMS Health stockholders otherwise entitled to receive fractional shares of Cognizant class B common stock, will aggregate all fractional shares of Cognizant class B common stock and sell them for the accounts of these stockholders as shares of class A common stock. The proceeds, if any, received by the exchange agent from the sale of these shares will be distributed, net of commissions, to stockholders entitled thereto in accordance with their fractional interests in the shares of Cognizant class B common stock. These cash payments will be made through the exchange agent. None of us, Cognizant, the joint dealer managers, the exchange agent or the information agent guarantees any minimum proceeds from these sales, nor will pay any interest on the proceeds. EXCHANGE OF SHARES OF IMS HEALTH COMMON STOCK If all the conditions of the exchange offer are satisfied or waived, we will exchange shares of Cognizant class B common stock for each validly tendered share of IMS Health common stock that was not properly withdrawn or deemed withdrawn prior to the expiration date, except as described in the sections entitled "Proration; Tenders for Exchange by Holders of Fewer than 100 Shares of IMS Health Common Stock" on page 36 and "Extension of Tender Period; Termination; Amendment" on page 41. We may, subject to the rules under the Securities Exchange Act of 1934, as amended, delay accepting or exchanging any shares of IMS Health common stock pending receipt of any governmental regulatory approvals necessary to complete the exchange offer. For a more detailed description of our right to delay, terminate or amend the 36 exchange offer, see the section entitled "Extension of Tender Period; Termination; Amendment" on page 41. If we notify the exchange agent either orally or in writing that we have accepted the tenders of shares of IMS Health common stock for exchange, the acceptance of these shares for exchange will be complete. Promptly following our announcement of any final proration factor, the exchange agent will deliver the tendered shares of IMS Health common stock to us. Simultaneously, the exchange agent, as agent for the tendering stockholders, will receive from us the shares of Cognizant class B common stock that, according to the exchange ratio, correspond to the number of shares of IMS Health common stock accepted for exchange. The exchange agent will notify Cognizant of the whole number of shares of Cognizant class B common stock to be delivered as a result of the exchange offer. Cognizant shall direct its transfer agent to issue, upon surrender for cancellation of certificates of Cognizant class B common stock held by IMS Health, certificates of Cognizant class B common stock duly executed in the name of the person entitled to receive them and the books of Cognizant shall be adjusted to reflect such transfers. If any tendered shares of IMS Health common stock are not exchanged for any reason, or if fewer shares are exchanged due to proration, the unexchanged shares of IMS Health common stock will be returned to you by: - mailing you a stock certificate, if you tendered your shares by delivering a stock certificate to the exchange agent; or - mailing a stock certificate to your broker or crediting your broker's account in accordance with The Depository Trust Company's procedures, if you tendered shares held by your broker. Holders who tender their shares of IMS Health common stock for exchange will generally not be obligated to pay any transfer tax in connection with the exchange offer, except in the circumstances described under the instructions to the letter of transmittal. We will not pay interest under the exchange offer, regardless of any delay in making the exchange or crediting or delivering shares. PROCEDURES FOR TENDERING SHARES OF IMS HEALTH COMMON STOCK To tender your shares of IMS Health common stock, you must complete the following procedures before the expiration date: SHARES OF IMS HEALTH COMMON STOCK YOU HOLD IN CERTIFICATED FORM If you have stock certificates for your shares of IMS Health common stock, you should send to the exchange agent by courier or registered mail, return receipt requested, the following documents: - a completed and executed letter of transmittal indicating the number of shares of IMS Health common stock to be tendered and any other documents required by the letter of transmittal; and - the actual certificates representing the shares of IMS Health common stock. The exchange agent's address is listed on the back cover of this document. The certificates must be endorsed by all registered holders of the shares or accompanied by an appropriate stock power if, pursuant to the terms of the letter of transmittal: - a certificate representing shares of IMS Health common stock is registered in the name of a person other than the signer of a letter of transmittal; or - delivery of shares of Cognizant class B common stock is to be made to a person other than the registered owner of the shares of IMS Health common stock tendered. 37 The signature on the letter of transmittal must be guaranteed by an eligible institution unless the shares of IMS Health common stock tendered under the letter of transmittal are tendered (a) by the registered holder of the shares of IMS Health common stock tendered and such holder has not completed Section IV. entitled "Special Transfer Instructions" on the letter of transmittal or (b) for the account of an eligible institution. An eligible institution is a member of the S.T.A.M.P. Medallion program, and generally includes a member of a registered national securities exchange or a member of the National Association of Securities Dealers, Inc., a commercial bank, or a trust company having an office or a correspondent in the United States. Most banks, brokerage firms and financial institutions are eligible institutions. SHARES OF IMS HEALTH COMMON STOCK YOU HOLD THROUGH A BROKER If you hold your shares of IMS Health common stock through a broker, you should follow the instructions sent to you separately by your broker. Do not use the letter of transmittal to direct the tender of your shares of IMS Health common stock. Your broker must notify The Depository Trust Company and cause it to transfer the shares into the exchange agent's account in accordance with The Depository Trust Company's procedures. The broker must also ensure that the exchange agent receives an agent's message from The Depository Trust Company confirming the book-entry transfer of your shares of IMS Health common stock. An agent's message is a message, transmitted by The Depository Trust Company and received by the exchange agent, that forms a part of a book-entry confirmation, which states that The Depository Trust Company has received an express acknowledgment from the participant in The Depository Trust Company tendering the shares that such participant has received and agrees to be bound by the terms of the letter of transmittal. SHARES OF IMS HEALTH COMMON STOCK YOU HOLD IN A BOOK-ENTRY FACILITY If you are an institution that is a participant in The Depository Trust Company's book-entry transfer facility, you should follow the same procedures that are applicable to persons holding shares through a broker as described above. SHARES OF IMS HEALTH COMMON STOCK YOU HOLD THROUGH THE IMS HEALTH SAVINGS PLAN If you hold your shares of IMS Health common stock as a participant in the IMS Health Savings Plan, you should follow the instructions sent to you separately by the plan trustee or the administrator of the plan or the exchange agent. Do not use the letter of transmittal to tender of your shares of IMS Health common stock held under the plan. Only those shares that have been credited to your account before the expiration of the exchange offer are eligible to be tendered. Cigna Bank & Trust Company, FSB is the plan trustee and is the registered holder of the shares of IMS Health common stock that is held in the IMS Health Savings Plan. Under the terms of the plan, the trustee is required to permit IMS Health employees to instruct the trustee to tender in the exchange offer shares of IMS Health common stock held in the plan on their behalf. The trustee will not tender shares of IMS Health without instructions from participants in the IMS Health Savings Plan. SHARES OF IMS HEALTH COMMON STOCK YOU HOLD IN THE IMS HEALTH EMPLOYEE STOCK PURCHASE PLAN Participants in the IMS Health Employee Stock Purchase Plan may tender the shares of IMS Health common stock purchased through the plan prior to expiration of the exchange offer under the general instructions for tendering shares discussed above. 38 YOUR VESTED OPTIONS Holders of vested but unexercised options to purchase shares of IMS Health common stock may exercise these options in accordance with the terms of IMS Health's stock option plans and tender the shares of IMS Health common stock received upon such exercise prior to the expiration of the exchange offer under the general instructions for tendering shares discussed above. GENERAL CONSIDERATIONS Trustees, executors, administrators, guardians, attorneys-in-fact, officers of corporations or others acting in a fiduciary or representative capacity who sign the letter of transmittal, notice of guaranteed delivery or any certificates or stock powers must indicate the capacity in which they are signing, and must submit evidence of their power to act in that capacity unless waived by us. If you validly tender your shares of IMS Health common stock and the shares are accepted by us, there will be a binding agreement between you and us on the terms and subject to the conditions described in this document and in the accompanying letter of transmittal. A person who tenders shares of IMS Health common stock for his or her own account violates federal securities law unless the person owns: - the shares of IMS Health common stock being tendered; or - securities convertible into or exchangeable for shares of IMS Health common stock or options, warrants or rights to purchase shares of IMS Health common stock and intends to acquire the shares of IMS Health common stock being tendered by conversion or exchange of these securities or by exercise of these options, warrants or rights on or prior to the record date established for stockholders to participate in the exchange offer. Federal securities law provides a similar restriction applicable to the tender or guarantee of a tender on behalf of another person. Do not send a letter of transmittal and certificates for shares of IMS Health common stock to us, Cognizant, the joint dealer managers or the information agent. These documents should be sent only to the exchange agent. IT IS UP TO YOU TO DECIDE HOW TO DELIVER YOUR SHARES OF IMS HEALTH COMMON STOCK AND ALL OTHER REQUIRED DOCUMENTS. IT IS YOUR RESPONSIBILITY TO ENSURE THAT ALL NECESSARY MATERIALS ARE PROPERLY COMPLETED AND RECEIVED BY THE EXCHANGE AGENT PRIOR TO THE EXPIRATION DATE. IF THE EXCHANGE AGENT DOES NOT RECEIVE ALL THE REQUIRED MATERIALS BEFORE THE EXPIRATION DATE, YOUR SHARES WILL NOT BE VALIDLY TENDERED. GUARANTEED DELIVERY PROCEDURE If you wish to tender your shares of IMS Health common stock but the shares are not immediately available, or time will not permit the shares or other required documentation to reach the exchange agent before the expiration date, or the procedure for book-entry transfer cannot be completed on a timely basis, you may still tender your shares of IMS Health common stock if: - the tender is made through an eligible institution; - the exchange agent receives from the eligible institution, before the expiration of the exchange offer, a properly completed and duly executed notice of guaranteed delivery, substantially in the form provided by us; and - the exchange agent receives the certificates for all physically tendered shares of IMS Health common stock, in proper form for transfer, or a book-entry confirmation, as the case may be, and a properly completed letter of transmittal and all other documents 39 required by the letter of transmittal, within three NYSE trading days after the date of execution of the notice of guaranteed delivery. You may deliver the notice of guaranteed delivery by hand, facsimile (receipt confirmed), courier or mail to the exchange agent and you must include a guarantee by an eligible institution in the form set forth in the notice. IMS HEALTH'S INTERPRETATIONS ARE BINDING We will determine in our sole discretion all questions as to the form of documents, including notices of withdrawal, and the validity, form, eligibility (including time of receipt) and acceptance for exchange of any tender or withdrawal of shares of IMS Health common stock. Our determination will be final and binding on all tendering stockholders. We reserve the absolute right to: - reject any and all tenders of shares of IMS Health common stock not validly tendered; - waive any conditions of the exchange offer before the expiration of the exchange offer; - waive any defects or irregularities in the tender of shares of IMS Health common stock either before or after the expiration date; and - request any additional information from any record or beneficial owner of shares of IMS Health common stock that we deem necessary. None of us, Cognizant, the joint dealer managers, the information agent, the exchange agent or any other person will be under any duty to notify tendering stockholders of any defect or irregularity in tenders or notices of withdrawal. LOST OR DESTROYED CERTIFICATES If your certificate representing shares of IMS Health common stock has been mutilated, destroyed, lost or stolen and you wish to tender your shares, please notify IMS Health's transfer agent in writing. You will receive an affidavit to complete, and you will be informed of the amount needed to pay for a surety bond for your lost shares. Only after you complete the affidavit and surety bond payment and submit a completed letter of transmittal, will your shares be tendered in the exchange offer. If you wish to participate in the exchange offer, you will need to act quickly to ensure that the lost certificates can be replaced and delivered to the exchange agent prior to expiration of the exchange offer. WITHDRAWAL RIGHTS You may withdraw tenders of shares of IMS Health common stock at any time prior to the expiration of the exchange offer and, unless we have accepted your tender as provided in this document, you may also withdraw tenders of shares of IMS Health common stock after the expiration of 40 business days from the commencement of the exchange offer. For a withdrawal to be effective, a written notice of withdrawal must be received by the exchange agent at one of its addresses set forth on the back cover of this document. The notice of withdrawal must: - specify the name of the person having tendered the shares of IMS Health common stock to be withdrawn; - identify the number of shares of IMS Health common stock to be withdrawn; and - specify the name in which IMS Health share certificates are registered, if different from that of the withdrawing holder. 40 If certificates for the shares of IMS Health common stock have been delivered or otherwise identified to the exchange agent, then, before the release of such certificates, the withdrawing holder must also submit the serial numbers of the particular certificates to be withdrawn and a signed notice of withdrawal with signatures guaranteed by an eligible institution, unless such holder is an eligible institution. If the shares of IMS Health common stock have been tendered pursuant to the procedure for book-entry transfer, any notice of withdrawal must specify the name and number of the account at The Depository Trust Company to be credited with the withdrawn shares and otherwise comply with the procedures of such facility. Any shares of IMS Health common stock properly withdrawn will be deemed not to have been validly tendered for exchange for purposes of the exchange offer. Properly withdrawn shares may be re-tendered by following one of the procedures described in the section entitled "Procedures for Tendering Shares of IMS Health Common Stock" on page 37 at any time prior to the expiration of the exchange offer. Except as otherwise provided above, any tender of shares of IMS Health common stock made under the exchange offer is irrevocable. EXTENSION OF TENDER PERIOD; TERMINATION; AMENDMENT We expressly reserve the right, in our sole discretion, for any reason, including the non-satisfaction of any of the conditions for completion of the exchange offer described below, to extend the period of time during which the exchange offer is open or to amend the terms of the exchange offer in any respect, including changing the exchange ratio. If we do so, we will make a public announcement of the extension or amendment promptly. If we materially change the terms of or information concerning the exchange offer, we may extend the exchange offer. The SEC has stated that, as a general rule, it believes that an offer should remain open for a minimum of five business days from the date that notice of a material change is first given. The length of time will depend on the particular facts and circumstances. Subject to the preceding paragraph, the exchange offer will be extended so that it remains open for a minimum of ten business days following the announcement, if: - we increase or decrease the exchange ratio, the number of shares of IMS Health common stock eligible for exchange, the fees payable to the joint dealer managers or any other similarly significant change; and - the exchange offer is scheduled to expire within ten business days of announcing such increase or decrease. If any condition indicated in the next section has not been met prior to the expiration of the exchange offer, we reserve the right, in our sole discretion, to extend the exchange offer or to terminate the exchange offer and not accept for exchange any shares of IMS Health common stock. If we extend the exchange offer, are delayed in accepting any shares of IMS Health common stock or are unable to accept shares of IMS Health common stock for exchange under the exchange offer for any reason, then, without affecting our rights under the exchange offer, the exchange agent may, on our behalf, retain shares of IMS Health common stock tendered. These shares of IMS Health common stock may not be withdrawn except as provided in the section entitled "Withdrawal Rights" on page 40. Our reservation of the right to delay acceptance of any shares of IMS Health common stock is subject to provisions under the Securities Exchange Act that provide that an issuer making an exchange offer shall either pay the consideration offered or return tendered securities promptly after the termination or withdrawal of the exchange offer. 41 We will issue a press release or other public announcement no later than 9:00 a.m., New York City time, on the next business day following any extension of the previously scheduled expiration date. CONDITIONS FOR COMPLETION OF THE EXCHANGE OFFER We may not complete the exchange offer if less than 27,400,000 shares of IMS Health common stock are validly tendered. We refer to this number of shares as the "minimum amount." The minimum amount represents approximately 9.7% of the outstanding shares of IMS Health common stock as of January 6, 2003 and constitutes a sufficient number of shares to ensure that approximately 75% of the shares of Cognizant class B common stock owned by us, representing approximately 87.6% of the current combined voting power of Cognizant's common stock, are distributed in the exchange offer. We also may not accept shares for exchange and may terminate or not complete the exchange offer if: - any action, proceeding or litigation against us or Cognizant seeking to enjoin, make illegal or delay completion of the exchange offer or otherwise relating in any manner to the exchange offer is instituted or threatened; - any order, stay, judgment or decree is issued by any court, government, governmental authority or other regulatory or administrative authority and is in effect, or any statute, rule, regulation, governmental order or injunction shall have been proposed, enacted, enforced or deemed applicable to the exchange offer, any of which would or might restrict, prohibit or delay completion of the exchange offer or impair the contemplated benefits of the exchange offer to us or to Cognizant as described under "The Transaction -- Background and Purpose" on page 33; - we reasonably determine that any of the representations or undertakings made in connection with, or assumptions underlying, the opinion given by McDermott, Will & Emery regarding the tax-free nature of the exchange offer is not true and correct in all material respects, or we do not, for any reason, receive an updated copy of such opinion dated as of the date of expiration of the exchange offer in form and substance reasonably satisfactory to us, or a change in law or fact occurs that leads us to feel less confident about the tax-free nature of the exchange offer than we feel on the date of this document; - any of the following occurs and the adverse effect of such occurrence, in our reasonable judgment, is continuing: - any general suspension of trading in, or limitation on prices for, securities on any national securities exchange or in the over-the-counter market in the United States, - any extraordinary or material adverse change in U.S. financial markets generally, including, without limitation, a decline of at least ten percent in either the Dow Jones Average of Industrial Stocks or the Standard & Poor's 500 Index from their reported levels on the last trading day prior to the date of this document, - a declaration of a banking moratorium or any suspension of payments in respect of banks in the United States, - any limitation, whether or not mandatory, by any governmental entity on, or any other event that would reasonably be expected to materially adversely affect, the extension of credit by banks or other lending institutions, - a commencement of war or other national or international calamity directly or indirectly involving the United States, which would reasonably be expected to affect materially and adversely, or to delay materially, the completion of the exchange offer, or 42 - a deterioration in any of the situations above to the extent that they exist at the time of commencement of the exchange offer, - any tender or exchange offer, other than this exchange offer by us, with respect to some or all the outstanding Cognizant common stock or IMS Health common stock or any merger, acquisition or other business combination proposal involving IMS Health or Cognizant, shall have been proposed, announced or made by any person or entity; - any event or events occur that have resulted or may result, in our reasonable judgment, in an actual or threatened material change in the business condition (financial or otherwise), income, operations, stock ownership (other than this exchange offer) or prospects of IMS Health and its subsidiaries, taken as a whole, or of Cognizant and its subsidiaries, taken as a whole; or - as the term "group" is used in Section 13(d)(3) of the Securities Exchange Act, - any person, entity or group acquires more than five percent of the outstanding shares of IMS Health common stock or Cognizant class A common stock, other than a person, entity or group which had publicly disclosed such ownership with the SEC on or before the last trading day prior to the date of this document, - any such person, entity or group which had publicly disclosed such ownership on or prior to such date shall acquire additional shares of IMS Health common stock or Cognizant class A common stock, as the case may be, constituting more than two percent of the outstanding shares of IMS Health common stock or Cognizant class A common stock, or - any new group shall have been formed that beneficially owns more than five percent of the outstanding shares of IMS Health common stock or shares of Cognizant class A common stock, which, in any of the above cases, in our reasonable judgment makes it inadvisable to proceed with the exchange offer or accept any exchange of shares. If any of the above events occur, we may: - terminate the exchange offer and promptly return all tendered shares of IMS Health common stock to tendering stockholders; - extend the exchange offer and, subject to the withdrawal rights described in "Withdrawal Rights" on page 40, retain all tendered shares of IMS Health common stock until the extended exchange offer expires; - amend the terms of the exchange offer; or - waive the unsatisfied condition and, subject to any requirement to extend the period of time during which the exchange offer is open, complete the exchange offer. These conditions are solely for our benefit. We may assert these conditions regardless of the circumstances giving rise to them. We may waive any condition in whole or in part at any time in our discretion. Our failure to exercise our rights under any of the above conditions does not represent a waiver of these rights. Each right is an ongoing right that may be asserted at any time. All conditions must be satisfied or waived prior to the expiration of the exchange offer. Any determination by us concerning the conditions described above will be final and binding on all parties. If a stop order issued by the SEC is in effect with respect to the registration statement of which this document is a part or if such registration statement has not yet been declared effective by the SEC, we will not accept any shares of IMS Health common stock tendered and will not exchange shares of Cognizant class B common stock for any shares of IMS Health 43 common stock unless and until such stop order is no longer in effect or such registration statement is declared effective by the SEC. LEGAL LIMITATIONS We are not offering to exchange, or soliciting any offers to exchange, securities pursuant to the exchange offer in any jurisdiction in which those offers or exchanges would not be permitted. FEES AND EXPENSES Goldman, Sachs & Co. and Bear, Stearns & Co. Inc. are acting as the joint dealer managers in the exchange offer. We will pay the joint dealer managers an aggregate fee of up to $5 million for serving as the joint dealer managers and providing financial advisory services to IMS Health in connection with the exchange offer. Further, we may in our discretion pay an additional fee. We also will reimburse the joint dealer managers for their reasonable out-of-pocket expenses, including attorneys' fees, in connection with this exchange offer. We and Cognizant have also agreed to indemnify the joint dealer managers against certain liabilities, including liabilities under the federal securities laws. From time to time, we have retained Goldman, Sachs & Co. and Bear, Stearns & Co. Inc. to provide financial advisory and investment services. The joint dealer managers may, from time to time, hold shares of IMS Health or Cognizant in their proprietary accounts, and if they own shares of IMS Health common stock in these accounts at the time of the exchange offer, the joint dealer managers may tender these shares in the exchange offer. We have retained Georgeson Shareholder Communications Inc. to act as information agent and American Stock Transfer & Trust Company to act as exchange agent for the exchange offer. The information agent may contact holders of shares of IMS Health common stock by mail, telephone, facsimile transmission and personal interviews. The information agent may also request that brokers, dealers and other nominee stockholders forward materials relating to the exchange offer to beneficial owners. The information agent and the exchange agent will each: - receive reasonable and customary compensation for their respective services; - be reimbursed for some reasonable out-of-pocket expenses; and - be indemnified against certain liabilities in connection with their services, including liabilities under federal securities laws. Neither the information agent nor the exchange agent has been retained to make solicitations or recommendations in their roles as information agent and exchange agent, and the fees to be paid to them will not be based on the number of shares of IMS Health common stock tendered under the exchange offer. The exchange agent will, however, be compensated in part on the basis of the number of letters of transmittal received, among other things. We will not pay any fees or commissions to any broker or dealer or any other person, other than the joint dealer managers, the information agent and the exchange agent, for soliciting tenders of shares of IMS Health common stock under the exchange offer. Brokers, dealers, commercial banks and trust companies will, upon request, be reimbursed by us for reasonable and necessary costs and expenses that they incur in forwarding materials to their customers. CERTAIN MATTERS RELATING TO FOREIGN JURISDICTIONS UK INVESTORS This exchange offer is not a public offer of securities within the meaning of the Public Offers of Securities Regulations 1995, as amended. This document is communicated to persons which 44 IMS Health reasonably believes are persons falling within Article 43(2)(a) ("members and creditors of certain bodies corporate") of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2001 (as amended), which includes the stockholders of IMS Health (all such persons together referred to as "relevant persons"). This document must not be acted on or relied on by persons who are not relevant persons. The exchange offer to which this document relates is available only to relevant persons and will be engaged in only with relevant persons. FRENCH INVESTORS This offering circular-prospectus has not been prepared in the context of a public offering of securities in France within the meaning of article L. 411-1 of the Code monetaire et financier and regulations nos. 98-01 and 98-08 of the Commission des operations de bourse and has therefore not been submitted to the Commission des operations de bourse for prior approval. It is made available only to qualified investors and/or to a limited circle of investors (as defined in article L. 411-2 of the Code monetaire et financier and in the Decree no. 98-880 of October 1, 1998), on the condition that it shall not be passed on to any person nor reproduced, in whole or in part, and that applicants shall only participate in the exchange offer described in this prospectus for their own account in accordance with the terms set out by the said decree, and undertake not to retransfer, directly or indirectly, the securities in France other than in compliance with applicable laws and regulations (articles L. 411-1, L. 411-2, L. 412-1 and L. 621-8 of the Code monetaire et financier). GERMAN INVESTORS For the publication of this offering circular-prospectus IMS Health has further relied upon the exemptions of sect. 2 no. 1 and 2 of the German Act on the Publication of Sales Prospectuses (Verkaufsprospektgesetz) being applicable, as the offer is made exclusively to institutional investors and to other stockholders of IMS Health, which constitute a "limited number of persons" (begrenzter Personenkreis) in the sense of sect. 2 no. 2 of the German Act on the Publication of Sales Prospectuses." ITALIAN INVESTORS The exchange offer (as described herein) does not constitute a "Public Offer" under Italian law within the meaning of Article 1, 1st Paragraph lett. V) of the Legislative Decree no. 58 of 24 February 1998. This document is personal to each addressee and does not constitute an offer to any other person or to the public generally to subscribe for or otherwise acquire the Cognizant class B common stock. Each addressee, by accepting delivery of this document agrees to the foregoing and not to distribute as aforesaid, or make photocopies of this document. Persons into whose possession this document may come are required by IMS Health to inform themselves about and to observe such restrictions. 45 MARKET PRICES AND DIVIDEND INFORMATION SHARES OF IMS HEALTH COMMON STOCK The following table describes the per share range of high and low closing sale prices for IMS Health common stock, as reported by the NYSE, and the quarterly cash dividend per share for the periods indicated. IMS Health common stock is listed under the symbol "RX" on the NYSE.
NYSE PRICE CASH ------------------------------------ DIVIDEND IMS HEALTH HIGH LOW PER SHARE - ---------- --------------- --------------- --------- 2000(1)................................... $28.56 $14.69 1st Quarter............................. $27.19 $16.38 $0.02 2nd Quarter............................. 18.00 14.69 0.02 3rd Quarter............................. 20.75 16.00 0.02 4th Quarter............................. 28.56 19.94 0.02 2001...................................... 30.20 18.99 1st Quarter............................. 27.33 22.50 0.02 2nd Quarter............................. 30.20 24.30 0.02 3rd Quarter............................. 28.50 23.60 0.02 4th Quarter............................. 27.60 18.99 0.02 2002...................................... 22.45 13.25 1st Quarter............................. 22.45 18.67 0.02 2nd Quarter............................. 22.20 17.47 0.02 3rd Quarter............................. 18.14 13.58 0.02 4th Quarter............................. 16.99 13.25 0.02 2003...................................... 1st Quarter (until January 8, 2003)..... 17.48 16.60
- --------------- (1) Share prices for periods prior to the spin-off of Synavant on August 31, 2000 are adjusted to give effect to the impact of that spin-off on IMS share prices based on the share price of IMS and Synavant immediately prior and immediately after the spin-off. The actual and historical 2000 high and low per share price for the first and second quarters of 2000 were as follows: $26.50 and $16.38 in the first quarter and $18.00 and $14.69 in the second quarter, respectively. The number of holders of record of shares of IMS Health common stock as of January 6, 2003 was approximately 6,400. On January 8, 2003, the closing sale price per common share of IMS Health as reported by the NYSE was $16.64. You should obtain current market quotations for shares of IMS Health common stock. No one can assure you what the market price of shares of IMS Health common stock will be before, on or after the date on which the exchange offer is completed. SHARES OF COGNIZANT COMMON STOCK The following table describes the per share range of high and low sale prices for shares of Cognizant common stock, as listed for quotation on the Nasdaq National Market, and the quarterly cash dividends per share for the periods indicated. Cognizant class A common stock is listed for quotation on the Nasdaq National Market under the symbol "CTSH". Cognizant class B 46 common stock is not listed on a stock exchange and does not trade. Cognizant has never paid a dividend on its common stock.
NASDAQ PRICE CASH ------------------------------------ DIVIDEND COGNIZANT TECHNOLOGY SOLUTIONS CORPORATION HIGH LOW PER SHARE - ------------------------------------------ ---------------- ---------------- --------- 2000...................................... $69.88 $30.88 1st Quarter............................. $69.88 $37.63 $0.00 2nd Quarter............................. 63.38 33.19 0.00 3rd Quarter............................. 47.38 31.50 0.00 4th Quarter............................. 44.75 30.88 0.00 2001...................................... 50.25 20.00 1st Quarter............................. 50.25 28.38 0.00 2nd Quarter............................. 46.25 31.48 0.00 3rd Quarter............................. 45.55 20.94 0.00 4th Quarter............................. 45.10 20.00 0.00 2002...................................... 75.66 33.01 1st Quarter............................. 42.10 33.01 0.00 2nd Quarter............................. 54.22 37.71 0.00 3rd Quarter............................. 63.68 48.47 0.00 4th Quarter............................. 75.66 48.00 0.00 2003 1st Quarter (until January 8, 2003)..... 72.25 64.55
The number of registered holders of Cognizant class A common stock as of January 6, 2003 was 25. On January 8, 2003, the closing sale price per share of Cognizant class A common stock as reported on the NASDAQ was $64.55. You should obtain current market quotations for shares of Cognizant class A common stock. No one can assure you what the market price of shares of Cognizant class A common stock will be before, on or after the date on which the exchange offer is completed. DIVIDEND POLICIES IMS Health has historically paid a quarterly dividend of $0.02 per share of IMS Health common stock and has declared a quarterly dividend for 19 consecutive quarters. After the consummation of the exchange offer, stockholders whose shares of IMS Health common stock are exchanged in this exchange offer will not be entitled to any future dividend on such shares. IMS Health stockholders will continue to receive any dividends with respect to their shares of IMS Health common stock not exchanged pursuant to the exchange offer. The payment of dividends by IMS Health in the future will depend upon its business and financial condition, earnings and other factors. There can be no assurances as to the payment of dividends in the future, and the actual amount of dividends paid, if any, may be more or less than the amount discussed above. Cognizant does not currently pay dividends on its class A common stock or class B common stock and has stated that it does not anticipate paying cash dividends for the foreseeable future. Cognizant intends to retain future earnings for the development and growth of its business, including its international expansion strategy. 47 CAPITALIZATION The following tables set forth the historical capitalization of IMS Health and Cognizant as of September 30, 2002 and the pro forma capitalization of IMS Health after giving effect to the exchange of 36,540,129 shares of IMS Health common stock in return for 11,290,900 shares of Cognizant class B common stock previously owned by IMS Health. IMS HEALTH INCORPORATED
SEPTEMBER 30, 2002 -------------------------- ACTUAL PRO FORMA ------ --------- (IN THOUSANDS) Short-term debt............................................. $ 381,522 $ 381,522 Long-term debt.............................................. $ 175,000 $ 175,000 Total debt.................................................. $ 556,522 $ 556,522 Preferred stock, par value $.01, authorized 10,000,000 shares No shares issued.......................................... -- -- Series common stock, par value $.01, authorized 10,000,000 shares No shares issued.......................................... -- -- Common stock, par value $.01, authorized 800,000,000 shares; 335,045,390 shares issued and outstanding................. $ 3,350 $ 3,350 Capital in excess of par.................................... $ 498,637 $ 498,637 Retained earnings........................................... $ 1,108,050 1,630,512 Treasury stock, at cost, 53,647,664 shares (90,187,793 shares on a pro forma basis).............................. (1,314,445) (1,922,473) Cumulative translation adjustment........................... (122,426) (122,170) Minimum pension liability adjustment........................ (3,746) (3,746) Unrealized loss on changes in fair value of cash flow hedges, net of tax........................................ (3,017) (3,017) Unrealized gain on investments, net of tax expense.......... 102 102 Total equity................................................ $ 166,505 $ 81,195 Total capitalization........................................ $ 723,027 $ 637,717
COGNIZANT TECHNOLOGY SOLUTIONS CORPORATION(1)
SEPTEMBER 30, 2002 ------------------ ACTUAL ------ (IN THOUSANDS) Notes payable............................................... -- Long-term debt.............................................. -- Total debt.................................................. -- Preferred stock: (authorized 15,000,000 shares, $.10 par value) No shares issued.......................................... -- Class A common stock: (authorized 100,000,000 shares, $.01 par value) 8,744,650 shares issued and outstanding........ $ 87 Class B common stock: (authorized 25,000,000 shares, $.01 par value) 11,290,900 shares issued and outstanding....... $ 113 Capital surplus............................................. $ 58,209 Retained earnings........................................... $ 84,469 Accumulated comprehensive loss.............................. $ (256) Total equity................................................ $142,622 Total capitalization........................................ $142,622
- --------------- (1) The total capitalization of Cognizant will be impacted only by Cognizant's share of the offering expenses which will be expensed as incurred and which is estimated at approximately $2 to $3 million. Conversion of class B common stock to class A common stock will not have an impact on the total capitalization of Cognizant. 48 IMS HEALTH SELECTED FINANCIAL DATA The following table presents selected financial data for IMS Health. This data is derived from and should be read together with the audited and unaudited consolidated financial statements of IMS Health and related notes thereto and "Management's Discussion and Analysis of Financial Condition and Results of Operations" contained in IMS Health's Form 10-K for 2001 and Form 10-Q for the period ended September 30, 2002, all of which have been incorporated into this document by reference. The accompanying footnotes to the Selected Financial Data are an integral part of the data. To find out where you can obtain copies of documents that have been incorporated by reference, see "Where You Can Find More Information."
NINE MONTHS ENDED YEAR ENDED DECEMBER 31, SEPTEMBER 30, -------------------------------------------------------------- ----------------------- 1997 1998 1999 2000 2001 2001 2002 ---- ---- ---- ---- ---- ---- ---- (DOLLARS AND SHARES IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) IMS HEALTH INCORPORATED RESULTS OF OPERATIONS: Revenue....................... $1,059,559 $1,186,513 $1,397,989 $1,424,359 $1,332,923 $ 992,048 $1,046,172 Costs and expenses(1)......... 831,949 1,054,029 1,058,966 1,287,166 1,008,762 664,922 727,290 ---------- ---------- ---------- ---------- ---------- ---------- ---------- Operating income(1)........... 227,610 132,484 339,023 137,193 324,161 327,126 318,882 Non-operating income (loss), net(2)...................... 13,955 52,360 9,419 124,120 (140,360) (108,244) (23,688) ---------- ---------- ---------- ---------- ---------- ---------- ---------- Income from continuing operations, before provision for income taxes............ 241,565 184,844 348,442 261,313 183,801 218,882 295,194 Provision for income taxes.... (55,614) (58,780) (98,076) (140,412) (38,415) (41,680) (91,044) TriZetto equity loss, net of income taxes................ -- -- -- (4,777) (6,985) (5,547) (701) ---------- ---------- ---------- ---------- ---------- ---------- ---------- Income from continuing operations.................. 185,951 126,064 250,366 116,124 138,401 171,655 203,449 Income from discontinued operations, net of income taxes(3).................... 126,399 94,494 25,695 4,692 47,025 47,025 -- ---------- ---------- ---------- ---------- ---------- ---------- ---------- Net income.................... $ 312,350 $ 220,558 $ 276,061 $ 120,816 $ 185,426 $ 218,680 $ 203,449 ---------- ---------- ---------- ---------- ---------- ---------- ---------- Basic earnings per share of common stock................ Income from continuing operations.................. $ 0.57 $ 0.39 $ 0.80 $ 0.39 $ 0.47 $ 0.58 $ 0.71 Income from discontinued operations, net of income taxes....................... Taxes......................... $ 0.38 $ 0.29 $ 0.08 $ 0.02 $ 0.16 $ 0.16 -- ---------- ---------- ---------- ---------- ---------- ---------- ---------- Net income.................... $ 0.95 $ 0.68 $ 0.88 $ 0.41 $ 0.63 $ 0.74 $ 0.71 ---------- ---------- ---------- ---------- ---------- ---------- ---------- Weighted average number of shares outstanding.......... 330,326 324,584 311,976 296,077 295,162 295,335 287,486 Diluted earnings per share of common stock................ Income from continuing operations.................. $ 0.55 $ 0.38 $ 0.78 $ 0.39 $ 0.46 $ 0.57 $ 0.70 Income from discontinued operations, net of income taxes....................... $ 0.38 $ 0.28 $ 0.08 $ 0.02 $ 0.16 $ 0.16 -- ---------- ---------- ---------- ---------- ---------- ---------- ---------- Net income.................... $ 0.93 $ 0.66 $ 0.86 $ 0.40 $ 0.62 $ 0.73 $ 0.70 ---------- ---------- ---------- ---------- ---------- ---------- ----------
49
NINE MONTHS ENDED YEAR ENDED DECEMBER 31, SEPTEMBER 30, -------------------------------------------------------------- ----------------------- 1997 1998 1999 2000 2001 2001 2002 ---- ---- ---- ---- ---- ---- ---- (DOLLARS AND SHARES IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) Weighted average number of shares outstanding -- diluted...... 334,980 335,770 319,561 300,038 300,147 301,255 288,589 As a % of operating revenue... Operating income(1)........... 21.5% 11.2% 24.3% 9.6% 24.3% 33.0% 30.5% Income from continuing operations, net of income taxes(1).................... 17.5% 10.6% 17.9% 8.2% 10.4% 17.3% 19.5% ---------- ---------- ---------- ---------- ---------- ---------- ---------- Cash dividend declared per common stock................ $ 0.06 $ 0.06 $ 0.08 $ 0.08 $ 0.08 $ 0.06 $ 0.06 ---------- ---------- ---------- ---------- ---------- ---------- ---------- BALANCE SHEET DATA (AT THE END OF THE PERIOD): Total assets.................. $1,516,537 $1,789,205 $1,533,971 $1,308,161 $1,367,554 $1,249,226 $1,549,718 Post-retirement and post- employment benefits......... 38,082 27,577 27,429 43,471 44,305 43,651 41,597 Long-term debt and other liabilities................. 158,742 253,261 163,356 182,840 324,373 107,981 358,068 Shareholders' equity.......... $ 801,570 $ 825,270 $ 495,222 $ 103,540 $ 218,366 $ 304,768 $ 166,505
- --------------- (1) 2001 includes charges related to Severance, impairment and other charges of $94,616, and terminated transaction costs of $6,457. 2000 includes charges related to the Synavant spin-off of $37,626, the Synavant related impairment charge of $115,453, the executive management transition charge of $31,133 and severance, impairment and other charges of $45,689. 1999 includes charges related to the Gartner spin-off of $9,500. 1998 includes charges related to the Cognizant spin-off of $35,025 and one-time charges and In-Process Research & Development write-offs related to the Walsh and PMSI acquisitions of $48,019 and $32,800, respectively. (2) Non-operating income, net in 2001 includes loss on Gartner shares of $84,880, gains/(losses) from dispositions -- net of $27,642 and the SAB No. 51 loss related to issuance of investees' stock of $1,490. Non-operating income, net in 2000 includes the gain on the sale of Erisco of $84,530, gains from dispositions -- net of $78,139, loss on Gartner shares of $6,896 and the SAB No. 51 gain related to the issue of stock by TriZetto of $9,029. Non-operating income, net in 1999 includes gains from dispositions -- net of $25,264. Non-operating Income, net in 1998 includes the gain related to the Cognizant initial public offering of $12,777 and gains from dispositions-net of $33,341. Results for 1997 include gains from dispositions -- net of $9,391 in non-operating income. (3) Income from discontinued operations, net of income taxes includes a tax provision of $25,320, $25,320, $2,526, $12,635, $49,303 and $62,271 for the nine months ended September 30, 2002 and the years ended December 31, 2001, 2000, 1999, 1998 and 1997, respectively. 50 IMS HEALTH UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL INFORMATION The following unaudited pro forma condensed consolidated financial information is based upon the historical financial statements of IMS Health, adjusted for the disposal of its investment in 11,290,900 shares of Cognizant class B common stock. The unaudited pro forma condensed consolidated statements of income for the years ended December 31, 1999, 2000 and 2001 and the nine months ended September 30, 2002 are presented as if the disposal had occurred on January 1, 1999 and accounted for by IMS Health as a discontinued operation. The unaudited pro forma condensed consolidated financial position at September 30, 2002 is presented as if the disposal of the Cognizant investment had occurred on September 30, 2002 (See "The Transaction -- Accounting Treatment" on page 34). The unaudited pro forma condensed consolidated financial information is for illustrative purposes only and does not necessarily indicate the operating results or financial position that would have been achieved had the disposal of IMS Health's interest in Cognizant been completed as of the dates indicated or of the results that may be achieved in the future. 51 IMS HEALTH UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF INCOME YEAR ENDED DECEMBER 31, 1999
PRO FORMA IMS ACTUAL ADJUSTMENTS(1) IMS PRO FORMA ---------- ------------------ ----------------- (DOLLARS AND SHARES IN THOUSANDS, EXCEPT PER SHARE DATA) Operating revenue............................ $1,397,989 $(74,084) $1,323,905 Operating and other costs.................... 1,058,966 (50,325)(2C) 1,008,641 ---------- -------- ---------- Operating income............................. 339,023 (23,759) 315,264 ---------- -------- ---------- Interest income (expense), net............... 635 (1,263) (628) Gains from investments, net.................. 25,264 (5) 25,259 Other expense, net........................... (16,480) 4,376(2B) (12,104) ---------- -------- ---------- Non-operating income, net.................... 9,419 3,108 12,527 ---------- -------- ---------- Income before provision for income taxes..... 348,442 (20,651) 327,791 Provision for income taxes................... (98,076) 8,253(2B-C) (89,823) ---------- -------- ---------- Income from continuing operations............ $ 250,366 $(12,398) $ 237,968 ========== ======== ========== Basic earnings per share of common stock from continuing operations...................... $ 0.80 $ 0.86 ========== ========== Diluted earnings per share of common stock from continuing operations................. $ 0.78 $ 0.84 ========== ========== Weighted average number of shares outstanding -- basic....................... 311,976 (36,540)(5) 275,436 ========== ======== ========== Weighted average number of shares outstanding -- diluted..................... 319,561 (36,540)(5) 283,021 ========== ======== ==========
- --------------- See Notes to Unaudited Pro Forma Condensed Consolidated Financial Information. 52 IMS HEALTH UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF INCOME YEAR ENDED DECEMBER 31, 2000
PRO FORMA IMS ACTUAL ADJUSTMENTS(1) IMS PRO FORMA ---------- -------------- ------------- (DOLLARS AND SHARES IN THOUSANDS, EXCEPT PER SHARE DATA) Operating revenue........................... $1,424,359 $(122,763) $1,301,596 Operating and other costs................... 1,287,166 (89,643)(2C) 1,197,523 ---------- --------- ---------- Operating income............................ 137,193 (33,120) 104,073 ---------- --------- ---------- Interest (expense) income, net.............. (13,308) (2,650) (15,958) Loss on Gartner investment.................. (6,896) -- (6,896) Gains from investments, net................. 78,139 (7) 78,132 Gain on sale of Erisco...................... 84,530 -- 84,530 Gain on issuance of investees' stock........ 9,029 -- 9,029 Other expense, net.......................... (27,374) 6,979 (2B) (20,395) ---------- --------- ---------- Non-operating income, net................... 124,120 4,322 128,442 ---------- --------- ---------- Income before provision for income taxes.... 261,313 (28,798) 232,515 Provision for income taxes.................. (140,412) 11,941 (2B-C) (128,471) TriZetto equity loss, net of income tax benefit................................... (4,777) -- (4,777) ---------- --------- ---------- Income from continuing operations........... $ 116,124 $ (16,857) $ 99,267 ========== ========= ========== Basic earnings per share of common stock from continuing operations................ $ 0.39 $ 0.38 ========== ========== Diluted earnings per share of common stock from continuing operations................ $ 0.39 $ 0.38 ========== ========== Weighted average number of shares outstanding -- basic...................... 296,077 (36,540)(5) 259,537 ========== ========= ========== Weighted average number of shares outstanding -- diluted.................... 300,038 (36,540)(5) 263,498 ========== ========= ==========
- --------------- See Notes to Unaudited Pro Forma Condensed Consolidated Financial Information. 53 IMS HEALTH UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF INCOME YEAR ENDED DECEMBER 31, 2001
PRO FORMA IMS ACTUAL ADJUSTMENTS(1) IMS PRO FORMA ---------- -------------- ------------- (DOLLARS AND SHARES IN THOUSANDS, EXCEPT PER SHARE DATA) Operating revenue............................ $1,332,923 $(158,969) $1,173,954 Operating and other costs.................... 1,008,762 (114,133)(2C) 894,629 ---------- --------- ---------- Operating income............................. 324,161 (44,836) 279,325 ---------- --------- ---------- Interest (expense) income, net............... (9,006) (2,501) (11,507) Loss on Gartner investment................... (84,880) -- (84,880) Loss from investments, net................... (27,642) 1,955 (25,687) Gain (loss) on issuance of investees' stock...................................... (1,490) (5,189)(2A) (6,679) Other expense, net........................... (17,342) 9,234 (2B) (8,108) ---------- --------- ---------- Non-operating income (loss), net............. (140,360) 3,499 (136,861) ---------- --------- ---------- Income before provision for income taxes..... 183,801 (41,337) 142,464 Provision for income taxes................... (38,415) 17,659 (2A-C) (20,756) TriZetto equity loss, net of income tax benefit.................................... (6,985) -- (6,985) ---------- --------- ---------- Income from continuing operations............ $ 138,401 $ (23,678) $ 114,723 ========== ========= ========== Basic earnings per share of common stock from continuing operations...................... $ 0.47 $ 0.44 ========== ========== Diluted earnings per share of common stock from continuing operations................. $ 0.46 $ 0.44 ========== ========== Weighted average number of shares outstanding -- basic....................... 295,162 (36,540)(5) 258,622 ========== ========= ========== Weighted average number of shares outstanding -- diluted..................... 300,147 (36,540)(5) 263,607 ========== ========= ==========
- --------------- See Notes to Unaudited Pro Forma Condensed Consolidated Financial Information. 54 IMS HEALTH UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF INCOME NINE MONTHS ENDED SEPTEMBER 30, 2002
PRO FORMA IMS ACTUAL ADJUSTMENTS(1) IMS PRO FORMA ---------- -------------- ------------- (DOLLARS AND SHARES IN THOUSANDS, EXCEPT PER SHARE DATA) Operating Revenue............................ $1,046,172 $(146,510) $899,662 Operating and other costs.................... 727,290 (107,237)(2C) 620,053 ---------- --------- -------- Operating Income............................. 318,882 (39,273) 279,609 ---------- --------- -------- Interest (expense) income, net............... (4,643) (1,305) (5,948) Gains from investments, net.................. 2,450 -- 2,450 Gain (loss) on issuance of investees' stock...................................... 7,508 (8,083)(2A) (575) Other expense, net........................... (29,003) 11,180(2B) (17,823) ---------- --------- -------- Non-operating income (loss), net............. (23,688) 1,792 (21,896) ---------- --------- -------- Income before provision for income taxes..... 295,194 (37,481) 257,713 Provision for income taxes................... (91,044) 10,869(2A-C) (80,175) TriZetto equity loss, net of income tax benefit.................................... (701) -- (701) ---------- --------- -------- Income from continuing operations............ $ 203,449 $ (26,612) $176,837 ========== ========= ======== Basic earnings per share of common stock from continuing operations...................... $ 0.71 $ 0.70 ========== ======== Diluted earnings per share of common stock from continuing operations................. $ 0.70 $ 0.70 ========== ======== Weighted average number of shares outstanding -- basic....................... 287,486 (36,540)(5) 250,946 ========== ========= ======== Weighted average number of shares outstanding -- diluted..................... 288,589 (36,540)(5) 252,049 ========== ========= ========
- --------------- See Notes to Unaudited Pro Forma Condensed Financial Information. 55 IMS HEALTH UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL POSITION SEPTEMBER 30, 2002
PRO FORMA IMS ACTUAL ADJUSTMENTS(3) IMS PRO FORMA(5) ---------- -------------- ---------------- (DOLLARS AND SHARES IN THOUSANDS, EXCEPT PER SHARE DATA) Assets: Current Assets: Cash and cash equivalents................................... $ 387,972 $(123,083) $ 264,889 Accounts receivable, net of allowance for doubtful accounts.................................................. 247,506 (40,780) 206,726 Other receivable............................................ 35,428 -- 35,428 Other current assets........................................ 125,755 10,231 135,986 ----------- --------- ----------- Total Current Assets........................................ 796,661 (153,632) 643,029 ----------- --------- ----------- Securities and other investments............................ 21,210 (112) 21,098(5) TriZetto equity investment.................................. 118,167 -- 118,167 Property, plant and equipment, net of accumulated depreciation.............................................. 152,084 (25,905) 126,179 Computer software........................................... 149,292 -- 149,292 Goodwill.................................................... 166,638 (878) 165,760 Other assets................................................ 145,666 (3,587) 142,079 ----------- --------- ----------- Total Assets................................................ $ 1,549,718 $(184,114) $ 1,365,604 =========== ========= =========== Liabilities, Minority Interests and Shareholders' Equity: Current Liabilities: Accounts payable............................................ $ 29,443 $ (3,202) $ 26,241 Accrued and other current liabilities....................... 187,680 (11,639)(4B) 176,041 Short-term debt............................................. 381,522 -- 381,522 Accrued income taxes........................................ 131,468 (818) 130,650 Short-term deferred tax liability........................... 12,220 (12,220) -- Deferred revenues........................................... 75,022 (1,602) 73,420 ----------- --------- ----------- Total Current Liabilities................................... 817,355 (29,481) 787,874 ----------- --------- ----------- Post-retirement and post-employment benefits................ 41,597 -- 41,597 Long-term debt.............................................. 175,000 -- 175,000 Other liabilities........................................... 183,068 (4,650) 178,418 ----------- --------- ----------- Total Liabilities........................................... 1,217,020 (34,131) 1,182,889 ----------- --------- ----------- Commitments and contingencies Minority Interests.......................................... 166,193 (64,673)(4A) 101,520 Shareholders' Equity: Common stock, par value $.01, authorized 800,000 shares; issued 335,045 shares at September 30, 2002............... 3,350 -- 3,350 Capital in excess of par.................................... 498,637 -- 498,637 Retained earnings........................................... 1,108,050 522,462(4B) 1,630,512 Treasury stock, at cost, 53,648 shares at September 30, 2002 (90,188 shares on a pro forma basis)(5)................... (1,314,445) (608,028)(4B) (1,922,473) Cumulative translation adjustment........................... (122,426) 256 (122,170) Minimum pension liability adjustment........................ (3,746) -- (3,746) Unrealized loss on changes in fair value of cash flow hedges.................................................... (3,017) -- (3,017) Unrealized gains on investments, net of tax expense......... 102 -- 102 ----------- --------- ----------- Total Shareholders' Equity.................................. 166,505 (85,310) 81,195 ----------- --------- ----------- Total Liabilities, Minority Interests and Shareholders' Equity.................................................... $ 1,549,718 $(184,114) $ 1,365,604 =========== ========= ===========
- --------------- See Notes to Unaudited Pro-Forma Condensed Financial Information. 56 NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL INFORMATION 1. The adjustments to the unaudited pro forma condensed consolidated statements of income reflect the elimination of the unaudited results of operations of Cognizant (See Cognizant Financial Statements beginning on page F-1), after eliminating intercompany revenues and costs of $14,820, $14,273, $18,809 and $15,565, for the years ended 1999, 2000 and 2001 and the nine months ended September 30, 2002, respectively. 2. In addition, the pro forma adjustments to the unaudited pro forma condensed consolidated statements of income reflect: A. The elimination of the pre-tax gains recognized by IMS Health on the issuance of Cognizant stock in the amounts of $0, $0, $5,189 and $8,083 for the years ended December 31, 1999, 2000 and 2001 and the nine months ended September 30, 2002, respectively, and the related income tax expense of $0, $0, $1,816 and $2,834, respectively. B. The elimination of minority interest in the amounts of $4,376, $6,979, $9,234, and $11,180 for the years ended December 31, 1999, 2000 and 2001 and the nine months ended September 30, 2002, respectively. C. An increase in the IMS Health operating costs associated with the purchase of services from Cognizant by IMS Health of approximately $7,114, $6,991, $9,216 and $7,316 for the years ended December 31, 1999, 2000 and 2001, and for the nine months ended September 30, 2002, respectively, reflecting IMS Health consolidated costs on a stand alone basis. 3. The adjustments to the unaudited pro forma condensed consolidated statement of financial position reflect the elimination of the unaudited consolidated assets and liabilities of Cognizant as of September 30, 2002 (See Cognizant Financial Statements beginning on page F-1) and the recognition of an intercompany payable to Cognizant in the amount of $2,433. 4. In addition, the pro forma adjustments to the unaudited pro forma condensed consolidated statement of financial position reflect: A. The elimination of the minority interest in Cognizant as of September 30, 2002 in the amount of $64,673. B. (i) The acquisition of 36,540 shares of IMS Health common stock pursuant to the exchange offer, assuming the exchange offer is fully subscribed, recorded at a cost equal to the closing price on January 8, 2003 of $16.64, amounts to $608,026. (ii) The estimated tax-free gain on the disposal of IMS Health's investment in Cognizant in the amount of $522,460, after consideration of the cost basis of $72,566. (iii) The accrual of the estimated direct and incremental costs of the exchange offer in the amount of $13,000. The gain on disposal is predicated upon the closing price of the IMS Health common stock on the exchange offer expiration date and the number of shares accepted in the exchange offer. The actual amount of gain may differ significantly based on the number of shares of IMS Health stock accepted and closing price for IMS Health common stock on the exchange offer expiration date. 5. The unaudited pro forma condensed consolidated financial information assumes that 36,540 shares of IMS Health common stock are acquired in the exchange offer. If we assume that only 27,400 shares of IMS Health common stock are acquired, the minimum amount that IMS Health will accept, IMS Health would retain a number of Cognizant shares representing approximately 13.8% of Cognizant's outstanding common stock. The estimated gain on disposal of the investment in Cognizant would be approximately $390,000 and IMS Health would have a remaining cost basis in Cognizant of approximately $18,000. 57 COGNIZANT SELECTED FINANCIAL DATA The following table presents selected financial data for Cognizant. This data is derived from and should be read together with the audited and unaudited consolidated financial statements of Cognizant and related notes thereto and "Management's Discussion and Analysis of Results of Operations and Financial Condition of Cognizant" appearing elsewhere in this document. In the opinion of Cognizant's management, all adjustments considered necessary for a fair presentation of the interim financial information have been included, and all adjustments are of a normal and recurring nature. Operating results for the interim periods are not necessarily indicative of results that may be expected to occur for the entire year. Certain amounts for the nine months ended September 30, 2001 have been reclassified to conform to the 2002 presentation.
NINE MONTHS ENDED YEAR ENDED DECEMBER 31, SEPTEMBER 30, ------------------------------------------------- ------------------- 1997 1998 1999 2000 2001 2001 2002 ---- ---- ---- ---- ---- ---- ---- (DOLLARS AND SHARES IN THOUSANDS, EXCEPT PER SHARE DATA) COGNIZANT TECHNOLOGY SOLUTIONS CORPORATION STATEMENT OF OPERATIONS: Revenues........................ $13,898 $45,031 $74,084 $122,758 $158,969 $120,803 $146,510 Revenues -- related party....... 10,846 13,575 14,820 14,273 18,809 13,514 15,565 ------- ------- ------- -------- -------- -------- -------- Total revenues.................. 24,744 58,606 88,904 137,031 177,778 134,317 162,075 Cost of revenues................ 14,359 31,919 46,161 70,437 90,848 68,859 86,507 ------- ------- ------- -------- -------- -------- -------- Gross profit.................... 10,385 26,687 42,743 66,594 86,930 65,458 75,568 Selling, general and administrative expenses....... 6,898 15,547 23,061 35,959 44,942 34,306 37,933 Depreciation and amortization expense....................... 1,358 2,222 3,037 4,507 6,368 4,566 5,679 ------- ------- ------- -------- -------- -------- -------- Income from operations.......... 2,129 8,918 16,645 26,128 35,620 26,586 31,956 Other income (expense): Interest income................. 25 638 1,263 2,649 2,501 2,006 1,305 Impairment loss on Investment... -- -- -- -- (1,955) -- -- Other income (expense) -- net... -- 83 37 (530) (767) (604) (89) ------- ------- ------- -------- -------- -------- -------- Total other income (expense).... 25 721 1,300 2,119 (221) 1,402 1,216 ------- ------- ------- -------- -------- -------- -------- Income before provision for income taxes.................. 2,154 9,639 17,945 28,247 35,399 27,988 33,172 Provision for income taxes...... (581) (3,606) (6,711) (10,564) (13,239) (10,468) (7,749) Minority interest............... (545) -- -- -- -- -- -- ------- ------- ------- -------- -------- -------- -------- Net income...................... $ 1,028 $ 6,033 $11,234 $ 17,683 $ 22,160 $ 17,520 $ 25,423 ------- ------- ------- -------- -------- -------- -------- Net income per share, basic..... $ 0.08 $ 0.38 $ 0.61 $ 0.95 $ 1.17 $ 0.93 $ 1.30 Net income per share, diluted... $ 0.08 $ 0.36 $ 0.58 $ 0.87 $ 1.09 $ 0.86 $ 1.21 Weighted average number of common shares outstanding..... 13,094 15,886 18,342 18,565 19,017 18,896 19,618 Weighted average number of common shares and stock options outstanding........... 13,210 16,538 19,416 20,256 20,371 20,382 21,040 BALANCE SHEET DATA (AT THE END OF THE PERIOD): Cash and cash equivalents....... $ 2,715 $28,418 $42,641 $ 61,976 $ 84,977 $ 79,767 $123,082 Working capital................. 5,694 29,416 43,507 61,501 95,637 87,564 136,634 Total assets.................... 18,298 51,679 69,026 109,540 144,983 138,573 200,776 Due to related party............ 6,646 9 -- 8 -- -- -- Stockholders' equity............ 3,419 32,616 45,461 66,116 98,792 92,496 142,622
58 MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION OF COGNIZANT GENERAL Cognizant is a leading provider of custom IT design, development, integration and maintenance services primarily for Fortune 1000 companies located in the United States and Europe. Cognizant's core competencies include web-centric applications, data warehousing, component-based development and legacy and client-server systems. Cognizant provides the IT services it offers using an integrated on-site/offshore business model. This seamless onsite/offshore business model combines technical and account management teams located on-site at the customer location and offshore at dedicated development centers located in India and Ireland. Cognizant began its IT development and maintenance services business in early 1994, as an in-house technology development center for The Dun & Bradstreet Corporation and its operating units. In 1996, Cognizant, along with certain other entities, was spun-off from the Dun & Bradstreet Corporation to form a new company, Cognizant Corporation. On June 24, 1998, Cognizant completed its initial public offering. On June 30, 1998, a majority interest in Cognizant, and certain other entities were spun-off from Cognizant Corporation to form IMS Health Incorporated ("IMS Health"). Subsequently, Cognizant Corporation was renamed Nielsen Media Research, Incorporated. At September 30, 2002, IMS Health owned 56.4% of the outstanding stock of Cognizant (representing all of Cognizant's Class B common stock) and held 92.8% of the combined voting power of Cognizant's common stock. Holders of Cognizant's class A common stock have one vote per share and holders of Cognizant's class B common stock have ten votes per share. IMS Health is seeking to distribute all of the Cognizant class B common stock that IMS Health owns in the exchange offer which is the subject of this document. There will be no impact on the number of Cognizant's total shares outstanding as a result of the exchange offer. However, the exchange offer may impact Cognizant in a number of ways and these impacts could be significant as discussed in "Risk Factors" and elsewhere in this document. Cognizant expects to incur charges in the fourth quarter of 2002 and the first quarter of 2003 aggregating between $2 to $3 million in relation to one-time costs associated with the exchange offer. CRITICAL ACCOUNTING POLICIES, ESTIMATES AND RISKS Financial Reporting Release No. 60 requires all companies to include a discussion of critical accounting policies or methods used in the preparation of financial statements. Note 2 to Cognizant's consolidated financial statements included elsewhere in this document includes a summary of the significant accounting policies and methods used in the preparation of Cognizant's consolidated financial statements. The following is a brief discussion of the more significant accounting policies and methods used by Cognizant. In addition, Financial Reporting Release No. 61 requires all companies to include a discussion to address, among other things, liquidity, off-balance sheet arrangements, contractual obligations and commercial commitments. Cognizant's discussion and analysis of its financial condition and results of operations are based upon its consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of financial statements in accordance with generally accepted accounting principles in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, including the recoverability of tangible and intangible assets, disclosure of contingent assets and liabilities as of the date of the financial statements, and the reported amounts of revenues and expenses during the reported period. 59 On an on-going basis, Cognizant evaluates its estimates. The most significant estimates relate to the allowance for doubtful accounts, reserve for warranties, reserves for employee benefits, income taxes, depreciation of fixed assets and long-lived assets, contingencies and litigation and the recognition of revenue and profits based on the percentage of completion method of accounting for fixed bid contracts. Cognizant bases its estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results could vary from the estimates and assumptions used in the preparation of the accompanying financial statements. Most of Cognizant's IT development centers, including a substantial majority of its employees are located in India. As a result, Cognizant may be subject to certain risks associated with international operations, including risks associated with foreign currency exchange rate fluctuations and risks associated with the application and imposition of protective legislation and regulations relating to import and export or otherwise resulting from foreign policy or the variability of foreign economic conditions. To date, Cognizant has not engaged in any hedging transactions to mitigate its risks relating to exchange rate fluctuations. Additional risks associated with international operations include difficulties in enforcing intellectual property rights, the burdens of complying with a wide variety of foreign laws, potentially adverse tax consequences, tariffs, quotas and other barriers. Cognizant believes the following critical accounting policies affect its more significant judgments and estimates used in the preparation of its consolidated financial statements: Revenue Recognition. Cognizant's services are entered into on either a time-and-materials or fixed-price basis. Revenues related to time-and-materials contracts are recognized as the service is performed. Revenues related to fixed-price contracts primarily relate to application development and significant application enhancement projects. Revenues related to such fixed- price contracts are recognized as the service is performed using the percentage-of-completion method of accounting, under which the sales value of performance, including estimated earnings thereon, is recognized on the basis of the percentage that each contract's cost to date bears to the total estimated cost. In general, fixed-price contracts are cancelable subject to a specified notice period. All services provided by Cognizant through the date of cancellation are due and payable under the contract terms. Cognizant issues invoices related to fixed-price contracts based upon achievement of milestones during a project or other contractual terms. Differences between the timing of billings, based upon contract milestones or other contractual terms, and the recognition of revenue, based upon the percentage-of-completion method of accounting, are recognized as either unbilled or deferred revenue. Cognizant does not incur significant up-front costs associated with these fixed-price contracts and all costs related to the services provided are expensed as incurred. Estimates are subject to adjustment as a project progresses to reflect changes in expected completion costs or dates. The cumulative impact of any revision in estimates of the percentage of work completed is reflected in the financial reporting period in which the change in estimate becomes known and any anticipated losses on contracts are recognized immediately. A reserve for warranty provisions under such contracts, which generally exist for a period ranging from thirty to ninety days past contract completion, is estimated and accrued during the contract period. Cognizant's failure to estimate accurately the resources and time required for a fixed-price project, or its failure to complete its contractual obligations within the time frame committed, could have a material adverse effect on Cognizant's business, results of operations and financial condition. Revenues related to services performed without a signed agreement or work order are not recognized until such agreements or work orders are signed; however the cost related to the performance of such work is recognized in the period the services are rendered. 60 Foreign Currency Translation. The assets and liabilities of Cognizant's Canadian and European subsidiaries are translated into U.S. dollars from local currencies at current exchange rates and revenues and expenses are translated from local currencies at average monthly exchange rates. The resulting translation adjustments are recorded in a separate component of stockholders' equity. For Cognizant's Indian subsidiary, CTS India, the functional currency is the U.S. dollar, since its sales are made primarily in the United States, the sales price is predominantly in U.S. dollars and there is a high volume of intercompany transactions denominated in U.S. dollars between CTS India and its U.S. affiliates. Non-monetary assets and liabilities are translated at historical exchange rates, while monetary assets and liabilities are translated at current exchange rates. The resulting gain (loss) is included in other income. Allowance for Doubtful Accounts. Cognizant maintains allowances for doubtful accounts for estimated losses resulting from the inability of its customers to make required payments. If the financial condition of Cognizant's customers were to deteriorate, resulting in an impairment of their ability to make payments, additional allowances may be required. Income Taxes. Cognizant records a valuation allowance to reduce its deferred tax assets to the amount that is more likely than not to be realized. While Cognizant has considered future taxable income and on-going prudent and feasible tax planning strategies in assessing the need for the valuation allowance, in the event Cognizant were to determine that it would be able to realize its deferred tax assets in the future in excess of its net recorded amount, an adjustment to the deferred tax asset would increase income in the period such determination was made. Likewise, should Cognizant determine that it would not be able to realize all or part of its net deferred tax asset in the future, an adjustment to the deferred tax asset would be charged to income in the period such determination was made. Cognizant's Indian subsidiary, CTS India, is an export-oriented company, which, under the Indian Income Tax Act of 1961 is entitled to claim tax holidays for a period of ten years with respect to its export profits. Substantially all of the earnings of CTS India are attributable to export profits and are therefore currently entitled to a 90% exemption from Indian income tax. These tax holidays will begin to expire in 2004 and under current law will be completely phased out by March of 2009. In prior years, it was management's intent to repatriate all accumulated earnings from India to the United States; accordingly, Cognizant has provided deferred income taxes in the amount of approximately $25.5 million dollars on all such undistributed earnings through December 31, 2001. During the first quarter of 2002, Cognizant made a strategic decision to pursue an international strategy that includes expanded infrastructure investments in India and geographic expansion in Europe and Asia. As a component of this strategy, Cognizant intends to use 2002 and future Indian earnings to expand operations outside of the United States instead of repatriating these earnings to the United States. Accordingly, effective January 1, 2002, pursuant to Accounting Principles Bulletin 23, Cognizant will no longer accrue taxes on the repatriation of earnings recognized in 2002 and subsequent periods as these earnings are considered to be indefinitely reinvested outside of the United States. If such earnings are repatriated in the future, or are no longer deemed to be indefinitely reinvested, Cognizant will accrue the applicable amount of taxes associated with such earnings. This change in intent, as well as a change in the manner in which repatriated earnings are taxed in India, resulted in an estimated effective tax rate for the three and nine months ended September 30, 2002 of 23.3% and 23.4%, respectively. These rates compare to an effective tax rate for the three and nine month periods ended September 30, 2001 of 37.4%. 61 RESULTS OF OPERATIONS The following table sets forth certain results of operations as a percentage of total revenue:
THREE MONTHS NINE MONTHS ENDED ENDED YEAR ENDED DECEMBER 31, SEPTEMBER 30, SEPTEMBER 30, ----------------------- -------------- -------------- 1999 2000 2001 2002 2001 2002 2001 ---- ---- ---- ---- ---- ---- ---- Total revenues........................... 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% Cost of revenues......................... 51.9 51.4 51.1 53.8 50.8 53.4 51.3 ----- ----- ----- ----- ----- ----- ----- Gross profit........................... 48.1 48.6 48.9 46.2 49.2 46.6 48.7 Selling, general and administrative expense................................ 25.9 26.2 25.3 23.1 25.1 23.4 25.5 Depreciation and amortization expense.... 3.4 3.3 3.6 3.3 3.6 3.5 3.4 ----- ----- ----- ----- ----- ----- ----- Income from operations................. 18.8 19.1 20.0 19.8 20.5 19.7 19.8 Other income (expense): Interest income........................ 1.4 1.9 1.4 0.8 1.4 0.8 1.5 Impairment loss on investment............ -- -- (1.1) -- -- -- -- Other income (expense)................. -- (0.4) (0.4) (0.0) (0.5) (0.0) (0.5) ----- ----- ----- ----- ----- ----- ----- Total other income....................... 1.4 1.5 (0.1) 0.8 0.9 0.8 1.0 ----- ----- ----- ----- ----- ----- ----- Income before provision for income taxes.................................. 20.2 20.6 19.9 20.6 21.4 20.5 20.8 Provision for income taxes............... (7.6) (7.7) (7.4) (4.8) (8.0) (4.8) (7.8) ----- ----- ----- ----- ----- ----- ----- Net income............................... 12.6% 12.9% 12.5% 15.8% 13.4% 15.7% 13.0% ===== ===== ===== ===== ===== ===== =====
THREE MONTHS ENDED SEPTEMBER 30, 2002 COMPARED TO THREE MONTHS ENDED SEPTEMBER 30, 2001 Revenue. Revenue increased by 34.6%, or $15.7 million, from approximately $45.5 million during the three months ended September 30, 2001 to approximately $61.2 million during the three months ended September 30, 2002. This increase resulted primarily from an increase in application management services. For statement of operations purposes, revenues from related parties include only revenues recognized during the period in which the related party was directly affiliated with Cognizant. In the third quarter of 2002, sales to one related party customer (IMS Health) accounted for 9.0% of revenues and sales to one third party customer (Metropolitan Life Insurance Company) accounted 11.5% revenues. In the third quarter of 2001, sales to one related party customer (IMS Health) accounted for 11.2% of revenues and no third-party customer accounted for sales in excess of 10% of revenues. Gross Profit. Cognizant's cost of revenues consists primarily of the cost of salaries, payroll taxes, benefits, immigration and travel for technical personnel, and the cost of sales commissions. Cognizant's cost of revenues increased by 42.7%, or approximately $9.9 million, from approximately $23.1 million during the three months ended September 30, 2001 to approximately $33.0 million during the three months ended September 30, 2002. The increase was due primarily to costs resulting from an increase in the number of Cognizant's technical professionals from approximately 3,500 employees at September 30, 2001 to approximately 4,700 employees at September 30, 2002. The increased number of Cognizant's technical professionals is a direct result of greater demand for Cognizant's services. Cognizant's gross profit increased by 26.2%, or approximately $5.9 million, from approximately $22.4 million during the three months ended September 30, 2001 to approximately $28.3 million during the three months ended September 30, 2002. Gross profit margin decreased from 49.2% of revenues during the three months ended September 30, 2001 to 46.2% of revenues during the three months ended September 30, 2002 primarily due to a higher 2002 incentive compensation accrual associated with increased revenues. 62 Selling, General and Administrative Expenses. Selling, general and administrative expenses consist primarily of salaries, employee benefits, travel, promotion, communications, management, finance, administrative and occupancy costs as well as depreciation and amortization expense. Selling, general and administrative expenses, including depreciation and amortization, increased by 23.6%, or approximately $3.1 million, from approximately $13.1 million during the three months ended September 30, 2001 to approximately $16.2 million during the three months ended September 30, 2002, representing 28.7% and 26.4% of revenues, respectively. The dollar increase in such expenses was due primarily to a higher 2002 incentive compensation accrual associated with increased revenues, as well as increased expenses incurred to expand Cognizant's sales and marketing activities and increased infrastructure expenses to support Cognizant's revenue growth. The decrease in such expenses as a percentage of revenue resulted from Cognizant's increased volume of revenue, which outpaced the increase in selling, general and administrative expenses. Income from Operations. Income from operations increased 29.9%, or approximately $2.8 million, from approximately $9.3 million during the three months ended September 30, 2001 to approximately $12.1 million during the three months ended September 30, 2002, representing 20.5% and 19.8% of revenues, respectively. The decrease in operating margin was due primarily to a higher 2002 incentive compensation accrual associated with increased revenues. Other Income. Other income consists primarily of interest income and foreign currency exchange gains or losses. Interest income decreased by 26.7%, or approximately $172,000, from $643,000 during the three months ended September 30, 2001 to $471,000 during the three months ended September 30, 2002. The decrease in such interest income was attributable primarily to declining interest rates, offset, in part, by higher invested cash balances. Cognizant recognized a net foreign currency exchange loss of $209,000 during the three months ended September 30, 2001 as compared to a gain of $24,000 in the current period, as a result of the effect of changing exchange rates. Provision for Income Taxes. The provision for income taxes decreased by 19.5%, or approximately $713,000, from approximately $3.6 million in the three months ended September 30, 2001 to approximately $2.9 million in the three months ended September 30, 2002, with an effective tax rate of 37.4% and 23.3% for the three months ended September 30, 2001 and 2002, respectively. The lower effective tax rate reflects Cognizant's change in its intention regarding the repatriation of 2002 and future earnings from its subsidiary in India, as well as a change in the manner in which repatriated earnings are taxed in India. (See Note 5 to the Notes to the Unaudited Condensed Consolidated Financial Statements.) Net Income. Net income increased 58.3%, or approximately $3.6 million, from approximately $6.1 million for the three months ended September 30, 2001 to approximately $9.7 million for the three months ended September 30, 2002, representing 13.4% and 15.8% of revenues, respectively. NINE MONTHS ENDED SEPTEMBER 30, 2002 COMPARED TO NINE MONTHS ENDED SEPTEMBER 30, 2001 Revenue. Revenue increased by 20.7%, or approximately $27.8 million, from approximately $134.3 million during the nine months ended September 30, 2001 to approximately $162.1 million during the nine months ended September 30, 2002. This increase resulted primarily from an increase in application management services. For statement of operations purposes, revenues from related parties include only revenues recognized during the period in which the related party was directly affiliated with Cognizant. During the nine months ended September 30, 2002, sales to one related party customer (IMS Health) accounted for 9.6% of revenues and no third party accounted for sales in excess of 10% of revenues. During the nine months ended September 30, 2001, sales to one related party customer (IMS Health) accounted for 10.1% of revenues and no third party accounted for sales in excess of 10% of revenues. 63 Gross Profit. Cognizant's cost of revenues increased by 25.6%, or approximately $17.6 million, from approximately $68.9 million during the nine months ended September 30, 2001 to approximately $86.5 million during the nine months ended September 30, 2002. The increase was due primarily to increased costs resulting from the increase in the number of Cognizant's technical professionals from approximately 3,500 employees at September 30, 2001 to approximately 4,700 employees at September 30, 2002. Cognizant's gross profit increased by 15.4%, or approximately $10.1 million, from approximately $65.5 million during the nine months ended September 30, 2001 to approximately $75.6 million during the nine months ended September 30, 2002. Gross profit margin decreased from 48.7% to 46.6% of revenues during the nine months ended September 30, 2001 and 2002, respectively. The decrease in gross profit margin was due primarily to a higher 2002 incentive compensation accrual associated with increased revenues. Selling, General and Administrative Expenses. Selling, general and administrative expenses, including depreciation and amortization, increased by 12.2%, or approximately $4.7 million, from approximately $38.9 million during the nine months ended September 30, 2001 to approximately $43.6 million during the nine months ended September 30, 2002, representing 28.9% and 26.9% of revenues, respectively. The increase in such expenses in absolute dollars was due primarily to a higher 2002 incentive compensation accrual associated with increased revenues, as well as expenses incurred to expand Cognizant's sales and marketing activities and increased infrastructure expenses to support Cognizant's revenue growth. The decrease in such expenses as a percentage of revenue resulted from Cognizant's increased volume of revenue, which outpaced the increase in selling, general and administrative expenses. Income from Operations. Income from operations increased 20.2%, or approximately $5.4 million, from approximately $26.6 million during the nine months ended September 30, 2001 to approximately $32.0 million during the nine months ended September 30, 2002, representing 19.8% and 19.7% of revenues, respectively. Other Income. Interest income decreased by $701,000 from approximately $2.0 million during the nine months ended September 30, 2001 to approximately $1.3 million during the nine months ended September 30, 2002. The decrease in such interest income was attributable primarily to declining interest rates, offset, in part, by higher invested cash balances. Cognizant recognized a net foreign currency exchange loss of $604,000 during the nine months ended September 30, 2001 compared to a loss of $89,000 in the current period, as a result of changes in exchange rates. Provision for Income Taxes. The provision for income taxes decreased from approximately $10.5 million for the nine months ended September 30, 2001 to approximately $7.7 million for the nine months ended September 30, 2002, with an effective tax rate of 37.4% and 23.4% for the nine months ended September 30, 2001 and 2002, respectively. The lower effective tax rate reflects Cognizant's change in its strategy regarding the repatriation of 2002 and future earnings from its subsidiary in India, as well as a change in the manner in which repatriated earnings are taxed in India. (See Note 5 to the Notes to the Unaudited Condensed Consolidated Financial Statements.) Net Income. Net income increased from approximately $17.5 million for the nine months ended September 30, 2001 to approximately $25.4 million for the nine months ended September 30, 2002, representing 13.0% and 15.7% of revenues for the nine months ended September 30, 2001 and 2002, respectively. YEAR ENDED DECEMBER 31, 2001 COMPARED TO YEAR ENDED DECEMBER 31, 2000 Revenue. Revenue increased by 29.7%, or $40.7 million, from $137.0 million during 2000 to $177.8 million in 2001. This increase resulted primarily from a $27.7 million, or 42.9%, increase in application management services provided by Cognizant and a $13.5 million, or 18.8%, increase 64 in application development and integration services provided by Cognizant, partially offset by an approximately $0.5 million, or 100.0% decrease in Year 2000 compliance services. Cognizant provides services through time-and-material and fixed bid contracts. Over the course of the last three years fixed bid contracts have increased as a percent of revenues from 15.0% in 1999 to 15.1% in 2000 to 23.9% in 2001. Sales to related parties on a year-over-year basis were relatively stable at 10.6% in 2001 compared to 10.4% in 2000. For statement of operations purposes, revenues from related parties include only revenues recognized during the period in which the related party was affiliated with Cognizant. During 2001 and 2000, no third party accounted for greater than 10% of revenues. Gross Profit. Cognizant's cost of revenues consists primarily of the cost of salaries, payroll taxes, benefits, immigration and travel for technical personnel, and the cost of sales commissions related to revenues. Cognizant's cost of revenues increased by 29.0%, or $20.4 million, from $70.4 million during 2000 to $90.8 million in 2001. The increase was due primarily to the increased cost resulting from the increase in the number of Cognizant's technical professionals from approximately 2,800 employees at December 31, 2000 to approximately 3,470 employees at December 31, 2001. The increased number of technical professionals is a direct result of greater demand for Cognizant's services. Cognizant's gross profit increased by 30.5%, or approximately $20.3 million, from approximately $66.6 million during 2000 to $86.9 during 2001. Gross profit margin increased from 48.6% of revenues during 2000 to 48.9% of revenues in 2001. The increase in gross profit margin was primarily attributable to a continued shift toward higher margin fixed bid contracts and a lower incentive compensation accrual in 2001 as compared to 2000. Selling, General and Administrative Expenses. Selling, general and administrative expenses consist primarily of salaries, employee benefits, travel, promotion, communications, management, finance, administrative and occupancy costs. Selling, general and administrative expenses, including depreciation and amortization, increased by 26.8%, or $10.8 million, from $40.5 million during 2000 to $51.3 million during 2001, and decreased as a percentage of revenue from approximately 29.5% to 28.9%, respectively. The increase in expenses in absolute dollars was due primarily to expenses incurred to expand Cognizant's sales and marketing activities and increased infrastructure expenses to support Cognizant's growth. The decrease in expenses as a percentage of revenue was primarily due to the increased revenues that have resulted from Cognizant's expanded sales and marketing activities in the current and prior years. Income from Operations. Income from operations increased 36.3%, or approximately $9.5 million, from approximately $26.1 million during 2000 to $35.6 million during 2001, representing approximately 19.1% and 20.0% of revenues, respectively. The increase in operating margin was primarily due to a continued shift toward higher margin fixed bid contracts and a lower incentive compensation accrual in 2001 as compared to 2000. Other Income/Expense. Other income/expense consists primarily of interest income offset, by foreign currency exchange losses and, in 2001, an impairment loss on an investment. Interest income decreased by approximately 5.6%, from $2.6 million during 2000 to $2.5 million during 2001. The decrease in interest income was attributable primarily to lower interest rates, offset, in part, by higher operating cash balances. Cognizant recognized a net foreign currency exchange loss of approximately $767,000 during 2001, as a result of the effect of changing exchange rates on Cognizant's transactions. Cognizant recognized an impairment loss on its investment in Questra Corporation of approximately $2.0 million during the fourth quarter of 2001 in recognition of an other than temporary decline in value. The impairment loss was based upon an implied valuation of Questra as a result of a recent new round of venture capital funding in which Cognizant's equity interest in Questra was substantially diluted and investors, other than Cognizant, received preferential liquidation rights. The impairment loss, net of tax benefit, was $1.2 million or $0.06 per diluted share. (See Note 5 to the Consolidated Financial Statements) 65 Provision for Income Taxes. Historically, through the date of its initial public offering, Cognizant had been included in the consolidated federal income tax returns of The Dun & Bradstreet Corporation and Cognizant Corporation. Cognizant's provision for income taxes in the consolidated statements of income reflects the federal and state income taxes calculated on Cognizant's stand-alone basis. The provision for income taxes increased from $10.6 million in 2000 to $13.2 million in 2001, with an effective tax rate of 37.4% in both years. The provision for income taxes reflects Cognizant's intent to repatriate earnings from its Indian subsidiary. Net Income. Net income increased from approximately $17.7 million in 2000 to $22.2 million in 2001, representing approximately 12.9% and 12.5% as a percentage of revenues, respectively. The lower percentage in 2001 reflects the one-time write-off of Cognizant's investment in Questra, discussed previously. YEAR ENDED DECEMBER 31, 2000 COMPARED TO YEAR ENDED DECEMBER 31, 1999 Revenue. Revenue increased by 54.1%, or $48.1 million, from $88.9 million during 1999 to $137.0 million in 2000. This increase resulted primarily from a $61.5 million, or 82.0%, increase in application development and integration, application management, re-engineering and other services provided by Cognizant partially offset by an approximately $13.4 million, or 96.5%, decrease in Year 2000 compliance services. The percentage of revenues derived from unrelated parties increased from 83.3% during 1999 to 89.6% during 2000. This increase resulted from Cognizant's continued effort to pursue unaffiliated third-party customers and expanded service offerings to existing unaffiliated customers. For statement of operations purposes, revenues from related parties include only revenues recognized during the period in which the related party was affiliated with Cognizant. During 2000, sales to related party customers accounted for 10.4% of revenues and no third party accounted for greater than 10% of revenues. During 1999, sales to related party customers accounted for 16.7% of revenues and one third-party customer accounted for 17.4% of revenues. Gross Profit. Cognizant's cost of revenues increased by 52.6%, or $24.3 million, from $46.2 million during 1999 to $70.4 million during 2000. The increase was due primarily to the increased cost resulting from the increase in the number of Cognizant's technical professionals from approximately 2,000 employees at December 31, 1999 to approximately 2,800 employees at December 31, 2000. The increased number of technical professionals is a direct result of greater demand for Cognizant's services. Cognizant's gross profit increased by 55.8%, or approximately $23.9 million, from approximately $42.7 million during 1999 to approximately $66.6 million during 2000. Gross profit margin increased from 48.1% of revenues during 1999 to 48.6% of revenues during 2000. The increase in gross profit margin was primarily attributable to the increased third-party revenue and the shift toward newer, higher margin customers. Selling, General And Administrative Expenses. Selling, general and administrative expenses, including depreciation and amortization, increased by 55.1%, or $14.4 million, from $26.1 million during 1999 to $40.5 million during 2000, and increased as a percentage of revenue from approximately 29.4% to 29.5%, respectively. The increase in expenses in absolute dollars and as a percentage of revenue was primarily due to expenses incurred to expand Cognizant's sales and marketing activities and increased infrastructure expenses to support Cognizant's revenue growth. Income From Operations. Income from operations increased 57.0%, or approximately $9.5 million, from approximately $16.6 million during 1999 to approximately $26.1 million during 2000, representing approximately 18.7% and 19.1% of revenues, respectively. The increase in operating margin was primarily attributable to the increased third-party revenue and the shift toward newer, higher margin customers. Other Income. Interest income increased by approximately 109.7%, from $1.3 million during 1999 to approximately $2.6 million during 2000. The increase in interest income was attributable 66 primarily to generally higher operating cash balances. Cognizant recognized a net foreign currency exchange loss of approximately $538,000 during 2000, as a result of the effect of changing exchange rates on Cognizant's transactions. Provision For Income Taxes. Cognizant's provision for income taxes in the consolidated statements of income reflects the federal and state income taxes calculated on Cognizant's stand alone basis. The provision for income taxes increased from $6.7 million in 1999 to $10.6 million in 2000, with an effective tax rate of 37.4% in both 1999 and 2000. Net Income. Net income increased from approximately $11.2 million in 1999 to approximately $17.7 million in 2000, representing approximately 12.6% and 12.9% as a percentage of revenues, respectively. RESULTS BY BUSINESS SEGMENT North America operations consist primarily of application design, development and maintenance services in the United States and Canada. European operations consist of application design, development and maintenance services principally in the United Kingdom. Asian operations consist of application design, development and maintenance services principally in India. Cognizant is managed on a geographic basis. Accordingly, regional sales managers, sales managers, account managers, project teams and facilities are segmented geographically and decisions by Cognizant's chief operating decision maker regarding the allocation of assets and assessment of performance are based on such geographic segmentation. Revenues and resulting operating income are attributed to regions based upon customer location, and exclude the effect of intercompany revenue for services provided by CTS India to other Cognizant entities. THREE MONTHS ENDED SEPTEMBER 30, 2002 COMPARED TO THREE MONTHS ENDED SEPTEMBER 30, 2001 NORTH AMERICAN SEGMENT Revenue. Revenue increased by 34.2%, or approximately $13.5 million, from approximately $39.4 million for the three months ended September 30, 2001 to approximately $52.9 million during the three months ended September 30, 2002. The increase in revenue was attributable primarily to increased market awareness and acceptance of the on-site/offshore application design, development and maintenance services delivery model, as well as sales and marketing activities directed at the U.S. market for Cognizant's services. Income from Operations. Income from operations increased 29.5%, or approximately $2.4 million, from approximately $8.1 million for the three months ended September 30, 2001 to approximately $10.5 million for the three months ended September 30, 2002. The increase in operating income was attributable primarily to increased revenues and achieving leverage on prior sales and marketing investments. EUROPEAN SEGMENT Revenue. Revenue increased by 41.8%, or approximately $2.4 million, from approximately $5.7 million for the three months ended September 30, 2001 to approximately $8.0 million for the three months ended September 30, 2002. The increase in revenue was primarily attributable to increased demand for Cognizant's services in the United Kingdom. Income from Operations. Income from operations increased 36.8%, or approximately $427,000, from approximately $1.2 million for the three months ended September 30, 2001 to $1.6 million for the three months ended September 30, 2002. The increase in income from operations from the prior period was due to expense reductions during the third quarter of 2002 coupled with increased revenues. 67 ASIAN SEGMENT Revenue. Revenue decreased by 28.9%, or approximately $117,000, from approximately $405,000 for the three months ended September 30, 2001 to approximately $288,000 for the three months ended September 30, 2002. Income from Operations. Income from operations was approximately $100,000 for each of the three months ended September 30, 2001 and 2002. NINE MONTHS ENDED SEPTEMBER 30, 2002 COMPARED TO NINE MONTHS ENDED SEPTEMBER 30, 2001 NORTH AMERICAN SEGMENT Revenue. Revenue increased by 21.1%, or approximately $24.5 million, from approximately $116.0 million for the nine months ended September 30, 2001 to approximately $140.5 million for the nine months ended September 30, 2002. The increase in revenue was attributable primarily to increased market awareness and acceptance of the on-site/offshore application design, development and application maintenance services delivery model, as well as sales and marketing activities directed at the U.S. market for Cognizant's services. Income from Operations. Income from operations increased 20.6%, or approximately $4.7 million, from approximately $23.0 million for the nine months ended September 30, 2001 to approximately $27.7 million for the nine months ended September 30, 2002. The increase in operating income was attributable primarily to increased revenues and achieving leverage on prior sales and marketing investments. EUROPEAN SEGMENT Revenue. Revenue increased by 18.6%, or approximately $3.2 million, from approximately $17.2 million for the nine months ended September 30, 2001 to approximately $20.4 million for the nine months ended September 30, 2002. The increase in revenue was primarily attributable to increased demand for Cognizant's services in the United Kingdom. Income from Operations. Income from operations increased by 18.2% or approximately $619,000 from approximately $3.4 million for the nine months ended September 30, 2001 to $4.0 million for the nine months ended September 30, 2002. The increase in income from operations from the prior period was due to expense reductions during 2002 coupled with increased revenues. ASIAN SEGMENT Revenue. Revenue increased by 9.5%, or approximately $107,000, from approximately $1.1 million for the nine months ended September 30, 2001 to approximately $1.2 million for the nine months ended September 30, 2002. Income from Operations. Income from operations was approximately $200,000 for each of the three months ended September 30, 2001 and 2002. YEAR ENDED DECEMBER 31, 2001 COMPARED TO YEAR ENDED DECEMBER 31, 2000 NORTH AMERICAN SEGMENT Revenue. Revenue increased by 32.6%, or approximately $37.5 million, from approximately $114.9 million during 2000 to approximately $152.4 million in 2001. The increase in revenue was attributable primarily to increased market awareness and acceptance and use of the on-site/offshore software delivery model, as well as sales and marketing activities directed at the U.S. market for Cognizant's services. 68 Income from Operations. Income from operations increased 39.3%, or approximately $8.6 million, from approximately $21.9 million during 2000 to approximately $30.5 million during 2001. The increase in operating income was attributable primarily to increased revenues and achieving leverage on prior sales and marketing investments. EUROPEAN SEGMENT Revenue. Revenue increased by 10.2%, or approximately $2.1 million, from approximately $21.0 million during 2000 to approximately $23.1 million in 2001. The increase in revenue was attributable to Cognizant's sales and marketing activities in the United Kingdom, partially offset by weak demand for Cognizant's services elsewhere in Europe. Income From Operations. Income from operations increased 16.0%, or approximately $0.6 million, from approximately $4.0 million during 2000 to $4.6 million during 2001. The increase in operating income was attributable primarily to increased revenues and achieving leverage on prior sales and marketing investments. ASIAN SEGMENT Revenue. Revenue increased by 98.6%, or $1.1 million, from $1.1 million during 2000 to $2.2 million in 2001. The increase in revenue was attributable primarily to Cognizant's success in India providing software services to domestic Indian companies as well as to Indian divisions of Cognizant's multi-national clients. Income from Operations. Income from operations increased 109.3%, or approximately $0.2 million, from approximately $0.2 million during 2000 to $0.5 million during 2001. The increase in operating income was attributable primarily to increased revenues. YEAR ENDED DECEMBER 31, 2000 COMPARED TO YEAR ENDED DECEMBER 31, 1999 NORTH AMERICAN SEGMENT Revenue. Revenue increased by 61.5%, or approximately $43.8 million, from approximately $71.2 million during 1999 to approximately $114.9 million in 2000. The increase in revenue was attributable primarily to increased market awareness and acceptance of the on-site/offshore software delivery model, as well as sales and marketing activities directed at the U.S. market for Cognizant's services. Income from Operations. Income from operations increased 64.4%, or approximately $8.6 million, from approximately $13.3 million during 1999 to approximately $21.9 million during 2000. The increase in operating income was attributable primarily to increased revenues and achieving leverage on prior sales and marketing investments. EUROPEAN SEGMENT Revenue. Revenue increased by 20.8%, or approximately $3.6 million, from approximately $17.4 million during 1999 to approximately $21.0 million in 2000. The increase in revenue was attributable Cognizant's sales and marketing activities in the United Kingdom. Income from Operations. Income from operations increased 23.1%, or approximately $0.7 million, from approximately $3.2 million during 1999 to approximately $4.0 million during 2000. The increase in operating income was attributable primarily to increased revenues and achieving leverage on prior sales and marketing investments. ASIAN SEGMENT Revenue. Revenue increased by 199.2%, or $0.8 million, from approximately $0.4 million during 1999 to approximately $1.2 million in 2000. The increase in revenue was attributable 69 primarily to Cognizant's success in India providing software services to domestic Indian companies. Income From Operations. Income from operations increased 100.0%, or approximately $0.1 million, from approximately $0.1 million during 1999 to approximately $0.2 million during 2000. The increase in operating income was attributable primarily to increased revenues. LIQUIDITY AND CAPITAL RESOURCES Historically, through the date of its initial public offering, Cognizant's primary sources of funding had been cash flow from operations and intercompany cash transfers with its majority owner and controlling parent company Cognizant Corporation, and then IMS Health. In June 1998, Cognizant consummated its initial public offering of 5,834,000 shares of its Class A common stock at a price to the public of $5.00 per share, of which 5,000,000 shares were issued and sold by Cognizant and 834,000 shares were sold, at that time, by Cognizant Corporation, Cognizant's then owner and controlling parent company. The net proceeds to Cognizant from the offering were approximately $22.4 million after $845,000 of direct expenses. The funds received by Cognizant from the offering were invested in short-term, investment grade, interest-bearing securities, after Cognizant used a portion of the net proceeds to repay approximately $6.6 million of non-trade related party balances to Cognizant Corporation. Cognizant has used and will continue to use the remainder of the net proceeds from the offering for (i) expansion of existing operations, including Cognizant's offshore IT development centers; (ii) continued development of new service lines and possible acquisitions of related businesses; and (iii) general corporate purposes including working capital. At September 30, 2002, Cognizant had cash and cash equivalents of approximately $123.1 million. Net cash provided by operating activities was approximately $35.6 million during the nine months ended September 30, 2002 as compared to net cash provided by operating activities of approximately $23.7 million during the nine months ended September 30, 2001. The increase resulted primarily from increased net income and an increase in accrued and other liabilities, partially offset by an increase in trade accounts receivable. Trade accounts receivable, net of allowance for doubtful accounts was $30.2 million at September 30, 2002. Cognizant monitors turnover, aging and the collection of accounts receivable through the use of management reports which are prepared on a customer basis and evaluated by Cognizant's finance staff. At September 30, 2002, Cognizant's day's sales outstanding, including unbilled receivables, was approximately 59 days compared to 55 days at September 30, 2001. Cognizant's investing activities used net cash of approximately $10.3 million for the nine months ended September 30, 2002 as compared to net cash used of approximately $10.7 million for the same period in 2001. The decrease in 2002 compared to 2001 primarily reflects a decrease in purchases of property and equipment partially offset by the acquisition of certain assets from UnitedHealthcare Ireland Ltd. (See Note 2 to the Notes to the Unaudited Condensed Consolidated Financial Statements). Cognizant's financing activities provided net cash of approximately $13.0 million for the nine months ended September 30, 2002 as compared to net cash provided by financing activities of approximately $4.8 million for the same period in 2001. The increase in net cash provided by financing activities was related primarily to a higher level of cash proceeds from the exercise of stock options and the purchase of employee stock purchase plan shares in 2002, as compared to the prior year. The exercise of stock options and the purchase of employee stock purchase plan shares resulted in an increase of approximately 680,000 shares in Cognizant's outstanding class A common stock during the nine months ended September 30, 2002. As of September 30, 2002, Cognizant had no significant third-party debt. 70 Cognizant had working capital of $136.6 million at September 30, 2002 and $95.6 million at December 31, 2001. As of September 30, 2002, Cognizant has entered into fixed capital commitments related to its India development center expansion program of approximately $20.1 million, of which $10.9 million has been spent to date. The multi-phase program will encompass the construction of three fully-owned development centers containing approximately 620,000 sq. ft. of space in Pune, Chennai and Calcutta. Total expenditures related to this program are expected to be approximately $39.4 million. Cognizant completed construction of the two facilities in Calcutta and Pune in 2002, and expects construction of the third development center in Chennai to be completed in 2003. Cognizant expects that its capital expenditures in 2003 will increase as compared to 2002 in light of the continued expansion of its business. Cognizant expects to incur charges in the fourth quarter of 2002 and the first quarter of 2003 aggregating between $2 to $3 million in relation to one-time costs associated with the exchange offer. Cognizant believes that its available funds and the cash flows expected to be generated from operations, will be adequate to satisfy its current and planned operations and needs through at least the next 12 months. FOREIGN CURRENCY TRANSLATION The assets and liabilities of Cognizant's Canadian and European subsidiaries are translated into U.S. dollars at current exchange rates and revenues and expenses are translated at average monthly exchange rates. The resulting translation adjustments are recorded in a separate component of stockholders' equity. For Cognizant's Indian subsidiary, the functional currency is the U.S. dollar since its sales are made primarily in the United States, the sales price is predominantly in U.S. dollars and there is a high volume of intercompany transactions denominated in U.S. dollars between the Indian subsidiary and its U.S. affiliates. Non-monetary assets and liabilities are translated at historical exchange rates, while monetary assets and liabilities are translated at current exchange rates. A portion of Cognizant's costs in India is denominated in local currency and subject to exchange fluctuations, which has not had any material adverse effect on Cognizant's results of operations. CONTINGENCIES As of September 30, 2002, Cognizant has entered into fixed capital commitments related to its India development center expansion program of approximately $20,109, of which approximately $10,924 has been spent to date. Cognizant is involved in various claims and legal actions arising in the ordinary course of business. In the opinion of management, the outcome of such claims and legal actions, if decided adversely, is not expected to have a material adverse effect on Cognizant's quarterly or annual operating results, cash flows, or consolidated financial position. Additionally, many of Cognizant's engagements involve projects that are critical to the operations of its customers' business and provide benefits that are difficult to quantify. Any failure in a customer's computer system could result in a claim for substantial damages against Cognizant, regardless of Cognizant's responsibility for such failure. Although Cognizant attempts to contractually limit its liability for damages arising from negligent acts, errors, mistakes, or omissions in rendering its application design, development and maintenance services, there can be no assurance that the limitations of liability set forth in its contracts will be enforceable in all instances or will otherwise protect Cognizant from liability for damages. Although Cognizant has general liability insurance coverage, including coverage for errors or omissions, there can be no assurance that such coverage will continue to be available on reasonable terms or will be available in sufficient amounts to cover one or more large claims, or that the insurer will not disclaim coverage as to any future claim. 71 The successful assertion of one or more large claims against Cognizant that exceed available insurance coverage or changes in Cognizant's insurance policies, including premium increases or the imposition of large deductible or co-insurance requirements, could have a material adverse effect on Cognizant's business, results of operations and financial condition. In addition, in connection with the exchange offer, Cognizant is providing undertakings to a number of entities formerly related to The Dun & Bradstreet Corporation which undertakings could give rise to Cognizant liabilities in the future. See "Risk Factors -- Risks Related to Cognizant -- Cognizant may be subject to legacy Dun & Bradstreet liabilities that could have an adverse effect on Cognizant's results of operations and financial condition." EFFECTS OF INFLATION Cognizant's most significant costs are the salaries and related benefits for its programming staff and other professionals. Competition in India and the United States for professionals with advanced technical skills necessary to perform the services offered by Cognizant have caused wages to increase at a rate greater than the general rate of inflation. As with other IT service providers, Cognizant must adequately anticipate wage increases, particularly on its fixed-price contracts. There can be no assurance that Cognizant will be able to recover cost increases through increases in the prices that it charges for its services in the United States and elsewhere. RECENT ACCOUNTING PRONOUNCEMENTS STATEMENTS OF FINANCIAL ACCOUNTING STANDARDS ADOPTED: In June 2001, Statement of Financial Accounting Standards No. 141, "Business Combinations" and Statement of Financial Accounting Standards No. 142 "Goodwill and Other Intangible Assets" were issued. FAS 141 requires the purchase method of accounting to be used for all business combinations initiated after June 30, 2001. FAS 141 also specifies criteria that intangible assets acquired must meet to be recognized and reported separately from goodwill. FAS 142 requires that goodwill and intangible assets with indefinite lives no longer be amortized but instead be measured for impairment at least annually, or when events indicate that there may be an impairment. FAS 142 is effective for fiscal years beginning after December 15, 2001. The adoption of FAS 141 and FAS 142 did not have a material effect on Cognizant's financial position or results of operations. The following table sets forth Cognizant's results had FAS 142 been applied to the prior-period financial statements presented herein.
THREE MONTHS NINE MONTHS ENDED ENDED SEPTEMBER 30, SEPTEMBER 30, 2001 2001 ------------- ------------- Reported Net Income......................................... $6,108 $17,520 Reversal of Goodwill Amortization -- net of tax............. 79 238 ------ ------- Adjusted Net Income excluding Goodwill Amortization......... $6,187 $17,758 Adjusted Basic EPS excluding Goodwill Amortization.......... $ 0.32 $ 0.94 Adjusted Diluted EPS excluding Goodwill Amortization........ $ 0.30 $ 0.87
In August 2001, Statement of Financial Accounting Standards No. 144, "Accounting for the Impairment or Disposal of Long-lived Assets" was issued. FAS 144 supersedes Statement of Financial Accounting Standards No. 121, "Accounting for the Impairment of Long-lived Assets to be Disposed of," and the accounting and reporting provisions of Accounting Principles Board 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." FAS 144 also amends Accounting Research Bulletin No. 51, Consolidated Financial Statements, to eliminate the exception to consolidation for a subsidiary for which 72 control is likely to be temporary. FAS 144 retains the fundamental provisions of FAS 121 for recognizing and measuring impairment losses on long-lived assets held for use and long-lived assets to be disposed of by sale, while resolving significant implementation issues associated with FAS 121. Among other things, FAS 144 provides guidance on how long-lived assets used as part of a group should be evaluated for impairment, establishes criteria for when long-lived assets are held for sale, and prescribes the accounting for long-lived assets that will be disposed of other than by sale. FAS 144 is effective for fiscal years beginning after December 15, 2001. The adoption of FAS 144 did not have a material impact on Cognizant's financial position and results of operations. In April 2002, Statement of Financial Accounting Standards No. 145, "Rescission of FASB Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical Corrections" was issued. FAS 145 updates, clarifies and simplifies existing accounting pronouncements and is generally effective for transactions occurring after May 15, 2002. The adoption of this statement did not have a material impact on the Company's financial position or results of operations. STATEMENTS OF FINANCIAL ACCOUNTING STANDARDS NOT YET ADOPTED: In June 2001, Statement of Financial Accounting Standards No. 143, "Accounting for Asset Retirement Obligations" was issued. FAS 143 addresses financial accounting and reporting for legal obligations associated with the retirement of tangible long-lived assets and the associated retirement costs that result from the acquisition, construction, or development and normal operation of a long-lived asset. Upon initial recognition of a liability for an asset retirement obligation, FAS 143 requires an increase in the carrying amount of the related long-lived asset. The asset retirement cost is subsequently allocated to expense using a systematic and rational method over the asset's useful life. FAS 143 is effective for fiscal years beginning after June 15, 2002. The adoption of this statement is not expected to have a material impact on Cognizant's financial position or results of operations. In June 2002, Statement of Financial Accounting Standards No. 146, "Accounting for Exit or Disposal Activities" was issued. FAS 146 addresses the accounting for costs to terminate a contract that is not a capital lease, costs to consolidate facilities and relocate employees, and involuntary termination benefits under one-time benefit arrangements that are not an ongoing benefit program or an individual deferred compensation contract. A liability for contract termination costs should be recognized and measured at fair value either when the contract is terminated or when the entity ceases to use the right conveyed by the contract. A liability for one-time termination benefits should be recognized and measured at fair value at the communication date if the employee would not be retained beyond a minimum retention period (i.e., either a legal notification period or 60 days, if no legal requirement exists). For employees that will be retained beyond the minimum retention period, a liability should be accrued ratably over the future service period. The provisions of the statement will be effective for disposal activities initiated after December 31, 2002. The adoption of this statement is not expected to have a material impact on Cognizant's financial position or results of operations. In October 2002, Statement of Financial Accounting Standards No. 147, "Acquisitions of Certain Financial Institutions" was issued. FAS 147 addresses the financial accounting and reporting for the acquisition of all or part of a financial institution, except for a transaction between two or more mutual enterprises. FAS 147 also provides guidance on the accounting for the impairment or disposal of acquired long-term customer-relationship intangible assets, including those acquired in transactions between two or more mutual enterprises. The provisions of the statement will be effective for acquisitions for which the date of acquisition is on or after October 1, 2002. The adoption of this statement is not expected to have a material impact on Cognizant's financial position or results of operations. 73 BUSINESS OF COGNIZANT OVERVIEW Cognizant Technology Solutions Corporation is a leading provider of custom IT design, development, integration and maintenance services primarily for Fortune 1000 companies located in the United States and Europe. Cognizant's core competencies include web-centric applications, data warehousing, component-based development and legacy and client-server systems. Cognizant provides the IT services it offers using an integrated on-site/offshore business model. This seamless on-site/offshore model combines technical and account management teams located on-site at the customer location and offshore at dedicated Cognizant development centers located in India and Ireland. Cognizant believes that this on-site/offshore model enables it to develop, deploy and maintain, on a cost-effective and timely basis, high quality, large-scale IT systems for use in a wide range of industries. INDUSTRY BACKGROUND Many companies today face intense competitive pressure and rapidly changing market dynamics. In addition, the evolution of technology and the commercialization of the Internet have contributed to the rapid change in the business environment. In response to these challenges, many companies are focused on improving productivity, increasing service levels, lowering costs and accelerating delivery times. In order to achieve these goals, companies are implementing a broad range of technologies, such as: - e-business and e-commerce applications; - data warehousing; - customer and supply chain management; and - middleware/enterprise application integration. These technologies facilitate faster, more responsive, lower-cost business operations. However, their development, integration and on-going maintenance present major challenges and require a large number of highly skilled professionals trained in many diverse technologies. In addition, companies also require additional technical resources to maintain, enhance and re-engineer their core legacy IT systems and to address application maintenance projects. Increasingly, companies are relying on custom IT solutions providers, such as Cognizant, to provide these services. In order to respond effectively to a changing and challenging business environment, IT departments of many companies have focused increasingly on improving returns on IT investments, lowering costs and accelerating the delivery of new systems and solutions. To accomplish these objectives, many IT departments have shifted all or a portion of their IT development, integration and maintenance requirements to outside service providers. This outsourcing enables companies to eliminate or reduce the large in-house IT staffs otherwise required to evaluate, implement and manage IT initiatives, thereby reducing the present and future investments required to maintain and continually train a technical staff. In order to achieve greater cost savings and to increase delivery times, companies are increasingly turning to IT services providers operating with on-site/offshore business models. Global demand for high quality, lower cost IT services from outside providers has created a significant opportunity for IT service providers which can successfully leverage the benefits of, and address the challenges in using, an offshore talent pool. The effective use of offshore personnel can offer a variety of benefits, including lower costs, faster delivery of new IT solutions and more flexible scheduling. Certain developing countries, particularly India, have a large talent pool of highly qualified technical professionals that can provide high quality IT services at a lower 74 cost. India is a leader in IT services and is regarded as having one of the largest pools of IT talent in the world. Historically, IT service providers have used offshore labor pools primarily to supplement the internal staffing needs of customers. However, evolving customer demands have led to the increasing acceptance and use of offshore resources for higher value-added services. These services include application design, development, integration and maintenance. India's services and software exports have grown from $5.2 billion for the fiscal year ended March 31, 2001 to $6.0 billion for the fiscal year ended March 31, 2002, as estimated by the National Association of Software and Services Companies (NASSCOM) in India (converted from rupees to U.S. dollars at the respective year-end noon-buying rates announced by the New York Federal Reserve Bank). This represents a 15% growth over the period. NASSCOM has projected India's services and software exports to grow at a rate of approximately 22% for fiscal year 2002-03. Using an offshore workforce to provide value-added services presents a number of challenges to IT service providers. The offshore implementation of value-added IT services requires that IT service providers continually and effectively attract, train and retain highly skilled software development professionals with the advanced technical skills necessary to keep pace with continuing changes in information technology, evolving industry standards and changing customer preferences. These skills are necessary to design, develop and deploy high-quality technology solutions in a cost-effective and timely manner. In addition, IT service providers must have the methodologies, processes and communications capabilities to enable offshore workforces to be successfully integrated with on-site personnel. Service providers must also have strong research and development capabilities, technology competency centers and relationship management skills in order to compete effectively. THE COGNIZANT SOLUTION Cognizant believes that it has developed an effective integrated on-site/offshore business model, and that this business model will be a critical element of Cognizant's continued growth. To support this business model, at December 31, 2002, Cognizant employed over 3,900 programmers in India and over 5,400 globally. Cognizant has also established facilities, technology and communications infrastructure in order to support its business model. By basing certain technical operations in India, Cognizant has access to a large pool of skilled, English-speaking IT professionals. These IT professionals provide high quality services to Cognizant's customers at costs significantly lower than services sourced exclusively in developed countries. Cognizant's strengths, which Cognizant believes differentiate it from other IT service providers, include the following: ESTABLISHED AND SCALABLE PROPRIETARY PROCESSES. Cognizant has developed proprietary methodologies for integrating on-site and offshore teams to facilitate cost-effective, on-time delivery of high-quality projects. These methodologies comprise Cognizant's proprietary Q*VIEW software engineering process, which is available to all on-site and offshore programmers. Cognizant uses this ISO 9000 certified process to define and implement projects from the design, development and deployment stages through to on-going application maintenance. For most projects, Q*VIEW is used as part of an initial assessment that allows Cognizant to define the scope and risks of the project and subdivide the project into smaller phases with frequent deliverables and feedback from customers. Cognizant also uses its Q*VIEW process to detect, mitigate and correct possible quality defects and to establish appropriate contingencies for each project. In order to ensure implementation of the quality process, Cognizant assigns a quality facilitator to each project who reports to a centralized quality assurance and software engineering group. This group performs, on a sample basis, quality audits, deliverables verifications, metrics collection and analysis, which are used to improve processes and methodologies. These processes and methodologies have proven to be scalable, as Cognizant has significantly increased the number of offshore development centers, 75 customers and projects. In addition, all of Cognizant's principal development centers have been assessed by KPMG at Level 5 (the highest possible rating) of the Capability Maturity Model of the Software Engineering Institute at Carnegie Mellon University, which is a widely recognized means of measuring the quality and maturity of an organization's software development and maintenance processes. HIGHLY SKILLED WORKFORCE. Cognizant's managers and senior technical personnel provide in-depth project management expertise to customers. To maintain this level of expertise, Cognizant has placed significant emphasis on recruiting and training its workforce of highly skilled professionals. Cognizant has over 350 project managers and senior technical personnel around the world, many of whom have significant work experience in the United States and Europe. Cognizant also maintains programs and personnel to hire and train the best available technical professionals in both legacy systems and emerging technologies. Cognizant provides five months of combined classroom and on-the-job training to newly hired programmers, as well as additional annual training programs designed to enhance the business practices, tools, technology and consulting skills of Cognizant's professional staff. Cognizant was recently assessed at Level 5 of the People Capability Maturity Model (P-CMM) version 2.0. RESEARCH AND DEVELOPMENT AND COMPETENCY CENTERS. Cognizant has project experience and expertise across multiple architectures and technologies, and makes significant investments in its competency centers and in research and development to keep abreast of the latest technology developments. Most of Cognizant's programmers are trained in multiple technologies and architectures. As a result, Cognizant is able to react to customers' needs quickly and efficiently redeploy programmers to different technologies. In order to develop and maintain this flexibility, Cognizant has made a substantial investment in its competency centers where the experience gained from particular projects and research and development efforts is leveraged across the entire company. In addition, through its investment in research and development activities and the continuing education of its technical personnel, Cognizant enlarges its knowledge base and develops the necessary skills to keep pace with emerging technologies. Cognizant believes that its ability to work in new technologies allows it to foster long-term relationships by having the capacity to continually address the needs of both existing and new customers. WELL-DEVELOPED INFRASTRUCTURE. Cognizant's extensive facilities, technology and communications infrastructure facilitate the seamless integration of its on-site and offshore workforces. This is accomplished by permitting team members in different locations to access common project information and to work directly on customer projects. This infrastructure allows for: - rapid completion of projects; - highest level of quality; - off-peak use of customers' technological resources; and - real-time access to project information by the on-site account manager or the customer. International time differences enable Cognizant's offshore teams located in India to access a customer's computing facilities located in the United States and Europe during off-peak hours. This ability to perform services during off-peak hours enables Cognizant to complete projects more rapidly and does not require Cognizant's customers to invest in duplicative hardware and software. In addition, for large projects with short time frames, Cognizant's offshore facilities allow for parallel processing of various development phases to accelerate delivery time. In 76 addition, Cognizant can deliver services more rapidly than some competitors without an offshore labor pool because Cognizant's lower labor costs enable it to cost-effectively assign more professionals to a project. BUSINESS STRATEGIES Cognizant's objectives are to maximize stockholder value and enhance Cognizant's position as a leading provider of custom IT design, development, integration and maintenance services. Cognizant implements the following core strategies to achieve these objectives: FURTHER DEVELOP LONG-TERM CUSTOMER RELATIONSHIPS. Cognizant has strong long-term strategic relationships with its customers and business partners. Cognizant seeks to establish long-term relationships that present recurring revenue opportunities, frequently trying to establish relationships with its customers' chief information officers, or other IT decision makers, by offering a wide array of cost-effective high quality services. Over 80% of Cognizant's revenues in the nine months ended September 30, 2002 were derived from customers who had been using Cognizant's services for one year or more. Cognizant also seeks to leverage its experience with a customer's IT systems into new business opportunities. Knowledge of a customer's IT systems gained during the performance of application maintenance services, for example, may provide Cognizant with a competitive advantage in securing additional development and maintenance projects from that customer. EXPAND SERVICE OFFERINGS AND SOLUTIONS. Cognizant has several teams dedicated to developing new, high value services. These teams collaborate with customers to develop these services. For example, Cognizant is currently developing new solutions for IT systems portfolio analysis, program management, technology architecture and strategy, systems testing, legacy restoration and digital security and forensics. In addition, Cognizant invests in internal research and development and promotes knowledge building and sharing across the organization in order to promote the development of new solutions that it can offer to customers. Furthermore, Cognizant continues to enhance its capabilities and service offerings in the areas of Customer Relationship Management, or CRM, and Enterprise Resource Planning, or ERP. Cognizant believes that the continued expansion of its service offerings will reduce its reliance on any one technology initiative and will help foster long-term relationships with customers by allowing Cognizant to serve the needs of its customers better. ENHANCE PROCESSES, METHODOLOGIES AND PRODUCTIVITY TOOLSETS. Cognizant is committed to improving and enhancing its proprietary Q*VIEW software engineering process and other methodologies and toolsets. In light of the rapid evolution of technology, Cognizant believes that continued investment in research and development is critical to its continued success. Cognizant is constantly designing and developing additional productivity software tools to automate testing processes and improve project estimation and risk assessment techniques. In addition, Cognizant uses groupware technology to share project experience and best practice methodologies across the organization with the objective of improving productivity. EXPAND DOMESTIC AND INTERNATIONAL GEOGRAPHIC PRESENCE. As Cognizant expands its customer base, it plans to open additional sales and marketing offices in the United States and internationally. It is expected that this expansion will facilitate sales and service to existing and new customers. Cognizant has established sales and marketing offices in Atlanta, Chicago, Dallas, Minneapolis, Los Angeles, San Francisco and in Teaneck, 77 New Jersey. In addition, Cognizant has been pursuing market opportunities in Europe through its London office, which was established in the beginning of 1998, and its recently acquired development center in Limerick, Ireland. PURSUE SELECTIVE STRATEGIC ACQUISITIONS, JOINT VENTURES AND STRATEGIC ALLIANCES. Cognizant believes that opportunities exist in the fragmented IT services market to expand its business through selective strategic acquisitions, joint ventures and strategic alliances. Cognizant believes that acquisition and joint venture candidates may enable it to expand its geographic presence and its capabilities more rapidly, especially in the European market, as well as accelerate its entry into areas of new technology. In addition, through its working relationships with independent software vendors Cognizant obtains projects using the detailed knowledge it gains in connection with a joint development process. Finally, Cognizant will strategically partner with select IT service firms that offer complementary services in order to best meet the requirements of its customers. SERVICES Cognizant provides a broad range of IT services, including:
SERVICE SUMMARY DESCRIPTION OF SERVICE OFFERINGS ------- ---------------------------------------- Application Design, Development, Integration Define customer requirements, write and Re-engineering specifications and design, develop, test and integrate software across multiple platforms including Internet technologies. Modify and test applications to enable systems to function in new operating environments. Application Maintenance Support some or all of a customer's applications ensuring that systems remain operational and responsive to changing user requirements, and to provide on-going enhancement as required by the customer.
Cognizant uses its Q*VIEW software engineering process, its on-site and offshore business model and well-developed technology and communications infrastructure to deliver these services. APPLICATION DEVELOPMENT, INTEGRATION AND RE-ENGINEERING SERVICES. Cognizant follows either of two alternative approaches to application development and integration: - full life-cycle application development, in which Cognizant assumes start-to-finish responsibility for analysis, design, implementation, testing and integration of systems; or - cooperative development, in which Cognizant employees work with a customer's in-house IT personnel to jointly analyze, design, implement, test and integrate new systems. In both cases, Cognizant's on-site team members work closely with the end-users of the application to define requirements and develop specifications. Detailed design, implementation and testing are generally performed offshore at Cognizant's ten IT development centers located in India, as well its development center in Limerick, Ireland. In addition, Cognizant maintains an on-site presence at each customer location in order to address evolving customer needs and resulting changes to the project. 78 A key part of Cognizant's application development and integration offering is a suite of services to help organizations build and integrate business applications with the rest of their operations. In this suite of services, Cognizant leverages its skills in business application development and enterprise application integration to build sophisticated business applications and to integrate these new applications and websites with client server and legacy systems. Cognizant builds and deploys robust, scalable and extensible architectures for use in a wide range of industries. Cognizant maintains competency centers specializing in Microsoft, IBM and Sun, among others, in order to be able to provide application development and integration services to a broad spectrum of customers. Cognizant's re-engineering service offerings assist customers migrating from systems based on legacy computing environments to newer, open systems-based platforms and client/server architectures, often in response to the more stringent demands of business. Cognizant's re-engineering tools automate many of the processes required to implement advanced client/server technologies. Cognizant believes that this automation substantially reduces the time and cost to perform re-engineering services, savings that benefit both Cognizant and its customers. These tools also enable Cognizant to perform source code analysis and to re-design target databases and convert certain programming languages. If necessary, Cognizant's programmers also help customers re-design and convert user interfaces. APPLICATION MAINTENANCE SERVICES. Cognizant provides services to help ensure that a customer's core operational systems are free of defects and responsive to the customer's changing needs. As part of this process, Cognizant is often able to introduce product and process enhancements and improve service levels to customers requesting modifications and on-going support. Cognizant's on-site/offshore business model enables Cognizant to provide a range of rapid response and cost-effective support services to its customers. Cognizant's on-site team members often provide help-desk services at the customer's facility. These team members typically carry pagers in the event of an emergency service request and are available to quickly resolve customer problems from remote locations. In the case of more complex maintenance services, including modifications, enhancements and documentation, which typically have longer turnaround times, Cognizant takes full advantage of its off-shore resources to develop solutions more cost-effectively than would be possible relying on higher cost local professionals. The services provided by Cognizant's offshore team members are delivered to customers using satellite and fiber-optic telecommunications. As part of Cognizant's application maintenance services, it assists customers in renovating their core systems to meet the requirements imposed by new regulations, new standards or other external events. These services include, or have previously included, Year 2000 compliance, Eurocurrency compliance, decimalization within the securities industry and compliance with the Health Insurance Portability and Accountability Act for the healthcare industry. Cognizant seeks to anticipate the operational environment of customer's IT systems as it designs and develops such systems. Cognizant also offers diagnostic services to customers to assist them in identifying shortcomings in their IT systems and then optimizing the performance of their systems. SALES AND MARKETING Cognizant markets and sells its services directly through its professional staff, senior management and direct sales personnel operating out of its Teaneck, New Jersey headquarters and its business development offices in Atlanta, Chicago, Dallas, Minneapolis, Los Angeles, San Francisco and London. Cognizant manages its business and results of operations on a geographic basis. At September 30, 2002, Cognizant had approximately 20 direct sales persons 79 and 65 account managers. The sales and marketing group works with Cognizant's technical team as the sales process moves closer to the customer's selection of an IT service provider. The duration of the sales process varies depending on the type of service, ranging from approximately two months to over one year. The account manager or sales executive works with the technical team to: - define the scope, deliverables, assumptions and execution strategies for a proposed project; - develop project estimates; - prepare pricing and margin analyses; and - finalize sales proposals. Management reviews and approves proposals, which are then presented to the prospective customer. Cognizant sales and account management personnel remain actively involved in the project through the execution phase. Cognizant focuses its marketing efforts on businesses with intensive information processing needs. Cognizant maintains a prospect/customer database that is continuously updated and used throughout the sales cycle from prospect qualification to close. As a result of this marketing system, Cognizant pre-qualifies sales opportunities, and direct sales representatives are able to minimize the time spent on prospect qualification. In addition, substantial emphasis is placed on customer retention and expansion of services provided to existing customers. In this regard, Cognizant's account managers play an important marketing role by leveraging their ongoing relationship with the customer to identify opportunities to expand and diversify the type of services provided to that customer. CUSTOMERS The number of customers served by Cognizant has increased significantly in recent years. In 1999 Cognizant provided services to 57 customers whereas during the first nine months of 2002, Cognizant provided services to 108 customers. Cognizant's customers include: ADP, Incorporated IMS Health Brinker International, Incorporated Metropolitan Life Insurance Company CCC Information Services Incorporated Nielsen Media Research, Incorporated Computer Sciences Corporation PNC Bank The Dun & Bradstreet Corporation Royal & SunAlliance USA First Data Corporation
For the nine months ended September 30, 2002, Cognizant derived its revenues from the following industries: 35% from financial related services, 24% from healthcare services, 20% from retail, manufacturing and logistics and 14% from information services. The remaining portions of Cognizant's revenues were derived from strategic alliances and other sources. Cognizant dedicates a number of its employees to each of the major industries it services to better serve its customers. Cognizant provides services either on a time-and-material basis or on the basis of an agreed fixed bid. The volume of work performed for specific customers is likely to vary from year to year, and a significant customer in one year may not use Cognizant's services in a subsequent year. In 1999, IMS Health and First Data Corporation each accounted for more than 10% of revenue. In 2000 and 2001, IMS Health accounted for more than 10% of revenue. In the first nine months of 2002, IMS Health accounted for approximately 10% of revenue. 80 Presented in the table below is additional information about Cognizant's customers.
NINE MONTHS YEAR ENDED ENDED DECEMBER 31, SEPTEMBER 30, ------------------ ------------- 1999 2000 2001 2002 ---- ---- ---- ---- Percent of revenues from top five customers... 57% 40% 35% 39% Percent of revenues from top ten customers.... 75% 59% 53% 55% Percent of revenues from IMS Health and current subsidiaries........................ 17% 10% 11% 10% Application development services as a percent of revenues................................. 32% 46% 43% 43% Application maintenance services as a percent of revenues................................. 44% 47% 52% 57% Fixed bid contracts as a percent of revenues.................................... 15% 15% 24% 26%
COMPETITION The intensely competitive IT services market includes a large number of participants and is subject to rapid change. This market includes participants from a variety of market segments, including: - systems integration firms; - contract programming companies; - application software companies; - Internet solutions providers; - the professional services groups of computer equipment companies; and - facilities management and outsourcing companies. Cognizant's most direct competitors include, among others, WIPRO Ltd. and Infosys Technologies Limited, which utilize an integrated on-site/offshore business model comparable to that used by Cognizant. Cognizant also competes with large IT service providers with greater resources, such as Accenture Ltd., Electronic Data Systems Corporation and IBM Global Services, who have announced their intentions to develop more offshore capabilities to lower their cost structure. In addition, Cognizant competes with numerous smaller local companies in the various geographic markets in which Cognizant operates. Many of Cognizant's competitors have significantly greater financial, technical and marketing resources and greater name recognition than does Cognizant. The principal competitive factors affecting the markets for Cognizant's services include: - performance and reliability; - quality of technical support, training and services; - responsiveness to customer needs; - reputation, experience and financial stability; and - competitive pricing of services. Cognizant relies on the following to compete effectively: - a well developed recruiting, training and retention model; - a successful service delivery model; - a broad referral base; 81 - continual investment in process improvement and knowledge capture; - investment in research and development; and - continued focus on responsiveness to customer needs, quality of services, competitive prices, project management capabilities and technical expertise. HISTORY Cognizant Technology Solutions Corporation began its IT development and maintenance services business in early 1994, initially acting as an in-house technology development center for The Dun & Bradstreet Corporation and its operating units. In 1996, Cognizant Technology Solutions Corporation, along with certain other entities, was spun-off from The Dun & Bradstreet Corporation to form a new company, Cognizant Corporation. On June 24, 1998, Cognizant Technology Solutions Corporation completed its initial public offering. On June 30, 1998, a majority interest in Cognizant Technology Solutions Corporation and certain other entities were spun-off from Cognizant Corporation to form IMS Health Incorporated. Subsequently, Cognizant Corporation was renamed Nielsen Media Research, Incorporated. At September 30, 2002, IMS Health owned approximately 56% of Cognizant Technology Solution Corporation's outstanding stock and held approximately 93% of the combined voting power of Cognizant Technology Solution Corporation's common stock. For the nine months ended September 30, 2002, Cognizant Technology Solution Corporation derived 10% of its revenues from IMS Health, 14% of its revenues from other companies formerly affiliated with The Dun & Bradstreet Corporation, and 76% of its revenues from companies never affiliated with The Dun & Bradstreet Corporation. INTELLECTUAL PROPERTY Cognizant's intellectual property rights are important to its business. Cognizant presently holds no patents or registered copyrights. Instead, Cognizant relies on a combination of intellectual property laws, trade secrets, confidentiality procedures and contractual provisions to protect its intellectual property. Cognizant requires its employees, independent contractors, vendors and customers to enter into written confidentiality agreements upon the commencement of their relationships with Cognizant. These agreements generally provide that any confidential or proprietary information developed by Cognizant or on its behalf be kept confidential. In addition, when Cognizant discloses that any confidential or proprietary information to third parties, it routinely requires those third parties to agree in writing to keep that information confidential. A portion of Cognizant's business involves the development for customers of software applications and other technology deliverables. This intellectual property includes written specifications and documentation in connection with specific customer engagements. Cognizant's customers usually own the intellectual property in the software Cognizant develops for them. Pursuant to a license agreement with IMS Health, all rights to the "Cognizant" name and certain related trade and service marks were transferred to Cognizant in July 1998. As of September 30, 2002, Cognizant held three trademarks in the United States and four trademark applications pending in India. EMPLOYEES At December 31, 2002, Cognizant employed approximately 1,425 persons on a full-time basis in its North American headquarters and satellite offices and on-site North American customer locations. Cognizant also employed approximately 240 persons on a full-time basis in its European satellite offices and on-site European customer locations and approximately 4,500 persons on a full-time basis in its offshore IT development centers in India. None of Cognizant's employees are subject to a collective bargaining arrangement. Cognizant considers its relations with its employees to be good. 82 Cognizant's future success depends to a significant extent on its ability to attract, train and retain highly skilled IT development professionals. In particular, Cognizant needs to attract, train and retain project managers, programmers and other senior technical personnel. Cognizant believes there is a shortage of, and significant competition for, IT development professionals in the United States and in India with the advanced technological skills necessary to perform the services Cognizant offers. Cognizant has an active recruitment program in India, and has developed a recruiting system and database that facilitates the rapid identification of skilled candidates. During the course of the year, Cognizant conducts extensive recruiting efforts at premier colleges and technical schools in India. Cognizant evaluates candidates based on academic performance, the results of a written aptitude test measuring problem-solving skills and a technical interview. In addition, Cognizant has an active lateral recruiting program. A substantial majority of the personnel on most on-site teams and virtually all the personnel staffed on offshore teams is comprised of Indian nationals. Cognizant's senior project managers are hired from leading consulting firms in the United States and India. Cognizant's senior management and most of its project managers have experience working in the United States and Europe. This enhances Cognizant's ability to attract and retain other professionals with experience in the United States. Cognizant has also adopted a career and education management program to define its employees' objectives and career plans. Cognizant has implemented an intensive orientation and training program to introduce new employees to the Q*VIEW software engineering process and Cognizant's services. PROPERTIES Cognizant has recently completed construction of two fully-owned state-of-the-art development centers containing approximately 250,000 sq. ft. of space in the Indian cities of Calcutta and Pune, and expects construction of a third state-of-the-art development center in Chennai, India containing approximately 370,000 sq. ft. to be completed in 2003. Each of these development centers will contain up-to-date technology infrastructure and communications capabilities. These three facilities will be able to accommodate approximately 6,000 employees in total. Cognizant believes that these new facilities will provide Cognizant with an advantage in recruiting new employees and in retaining customers. Cognizant operates out of its Teaneck, New Jersey headquarters and its regional and international offices. Cognizant believes that its current facilities are adequate to support its existing operations. Cognizant also believes that it will be able to obtain suitable additional facilities on commercially reasonable terms on an "as needed" basis. 83 Set forth below is a table summarizing the principal properties used in Cognizant's business as of September 30, 2002:
APPROXIMATE AREA LOCATION (IN SQ. FEET) USE NATURE OF OCCUPANCY -------- ------------- --- ------------------- Bangalore, India........ 25,850 IT Development Facility Multiple leases expiring 4/30/05 -- 6/30/06 with renewal options Bangalore, India........ 35,475 IT Development Facility Lease expiring 10/31/05 with renewal option Chennai, India.......... 84,900 IT Development Facility Lease expiring 6/30/03 -- 2/29/04 with renewal options Chennai, India.......... 15,500 IT Development Facility Multiple leases expiring 1/31/06 -- 4/30/06 with renewal options Chennai, India.......... 43,350 IT Development Facility Multiple leases expiring 8/31/04 -- 12/31/06 with renewal options Chennai, India.......... 35,100 IT Development Facility Multiple leases expiring 4/30/06 with renewal options Chennai, India.......... 33,700 IT Development Facility Lease expiring 12/15/06 with renewal options Calcutta, India......... 129,600 IT Development Facility Owned Facility Calcutta, India......... 13,900 IT Development Facility Lease expiring 10/6/07 with a renewal option Calcutta, India......... 10,900 IT Development Facility Lease expiring 6/14/06 with a renewal option Calcutta, India......... 9,300 IT Development Facility Lease expiring 11/30/03 Calcutta, India......... 4,000 IT Development Facility Multiple leases expiring 1/15/03 -- 4/30/05 with renewal options Hyderabad, India........ 25,080 IT Development Facility Multiple leases expiring 1/17/03 -- 10/19/08 with renewal options Pune, India............. 172,800 IT Development Facility Owned Facility Teaneck, New Jersey..... 24,745 Executive and Business Multiple leases expiring 9/30/05 -- 12/31/10 Development Office Atlanta, Georgia........ 1,000 Business Development Office Lease expiring 9/14/03 Chicago, Illinois....... 5,100 Business Development Office Lease expiring 7/31/05 Dallas, Texas........... 800 Business Development Office Lease expiring 3/31/03 Los Angeles, 1,000 Business Development Office Lease expiring 5/31/03 California............ Minneapolis, Minnesota.. 800 Business Development Office Lease expiring 6/30/03 Phoenix, Arizona........ 15,950 Development Facility Lease expiring 01/22/03 San Ramon, California... 5,700 Business Development Office Multiple leases expiring 10/15/06 Frankfurt, Germany...... 200 Business Development Office Lease expiring 3/31/03 London, England......... 2,080 Business Development Office Lease expiring 9/28/04 Limerick, Ireland....... 10,500 IT Development Facility Multiple leases expiring 1/19/25 -- 6/1/35
LEGAL PROCEEDINGS Cognizant is involved in various claims and legal actions arising in the ordinary course of business. In the opinion of Cognizant's management, the outcome of these claims and legal actions, if decided adversely, is not expected to have a material adverse effect on its quarterly or annual operating results, cash flows or consolidated financial position. MANAGEMENT OF COGNIZANT Board of Directors The current members of Cognizant's Board of Directors are Wijeyaraj Mahadeva, chairman; Nancy E. Cooper; Robert W. Howe; John E. Klein; Venetia Kontogouris; David M. Thomas; Robert E. Weissman and Thomas M. Wendel. Effective upon the completion of the exchange offer, we expect certain of the directors nominated by IMS Health, including Nancy E. Cooper and David M. Thomas, will resign. 84 SHARES ELIGIBLE FOR FUTURE SALE The shares of Cognizant class B common stock that we distribute in the exchange offer will be freely transferable, other than shares received by persons who may be deemed to be "affiliates" of Cognizant under the Securities Act of 1933, as amended (the "Securities Act"). Affiliates generally include individuals or entities that control, are controlled by, or are under common control with, Cognizant. The directors and principal executive officers of Cognizant are affiliates of Cognizant. Significant stockholders of Cognizant may also be affiliates. Affiliates of Cognizant may sell their shares of Cognizant common stock only under an effective registration statement under the Securities Act or pursuant to an available exemption from the registration requirements of the Securities Act, if any, such as the exemption afforded by Rule 144 under the Securities Act. Shares of the Cognizant class B common stock will convert automatically into shares of Cognizant class A common stock when they are first transferred after the exchange offer. If we would otherwise continue to own Cognizant class B common stock after completion of the exchange offer, we currently plan to either distribute them to our stockholders or convert them into shares of Cognizant's class A common stock prior to completion of the exchange offer and distribute them to our stockholders or hold them for some period before we sell them in one or more transactions. The timing of those sales could depend on market conditions and other factors, but we expect that we would hold any such shares for no more than three years. We will vote those shares in proportion to the votes cast by all other holders of Cognizant common stock. If the minimum amount of IMS shares are exchanged and we do not otherwise distribute Cognizant shares to our stockholders, we will hold 2,824,300 shares of Cognizant class A common stock immediately following the completion of the exchange offer (representing 13.8% of the outstanding Cognizant common stock). 85 DESCRIPTION OF CAPITAL STOCK OF COGNIZANT The following is a summary of the material terms of Cognizant's capital stock. For a complete description, refer to the Delaware General Corporation Law, and to Cognizant's amended and restated certificate of incorporation and bylaws, each as will be in effect following consummation of the exchange offer. Cognizant has filed its amended and restated certificate of incorporation and bylaws, each as will be in effect following consummation of the exchange offer, as exhibits to the registration statement of which this offering circular-prospectus forms a part. Cognizant's authorized capital stock consists of 140,000,000 shares consisting of (i) 100,000,000 shares of class A common stock, par value $.01 per share, (ii) 25,000,000 shares of class B common stock, par value $.01 per share, and (iii) 15,000,000 shares of preferred stock, par value $.10 per share. As of September 30, 2002, Cognizant had issued and outstanding 8,744,650 shares of class A common stock and 11,290,900 shares of class B common stock and had granted options to purchase 3,868,858 shares of class A common stock at a weighted average exercise price of $26.05 per share. No shares of preferred stock have been designated or issued. COMMON STOCK The holders of Cognizant class A common stock and class B common stock generally have identical rights except that holders of Cognizant class A common stock are entitled to one vote per share while holders of Cognizant class B common stock are entitled to ten votes per share on all matters to be voted on by stockholders. The holders of common stock are not entitled to cumulative voting rights. Generally, all matters to be voted on by stockholders, including the election of directors, must be approved by a majority of the votes cast by shares of Cognizant class A common stock and class B common stock present in person or represented by proxy, voting together as a single class, subject to any voting rights granted to holders of any preferred stock. Following completion of the exchange offer, directors will be elected by a plurality of the votes cast. A majority vote of the affected class, voting separately, is also necessary for amendments to the certificate of incorporation that would adversely affect the rights of that class of common stock. In the event of a voluntary or involuntary liquidation, dissolution or winding up of Cognizant, the holders of shares of common stock would be entitled to share ratably in all assets remaining after payment of liabilities, subject to prior distribution rights owing to holders of shares of preferred stock then outstanding, if any. Holders of the shares of common stock have no preemptive rights, and the shares of common stock are not subject to further calls or assessment by Cognizant. Holders of Cognizant class A common stock and class B common stock will receive dividends in an equal amount per share in the event any dividend is declared by the Cognizant Board of Directors. Dividends on the common stock of each class are subject to any preferential rights of any outstanding preferred stock. Dividends consisting of shares of Cognizant class A common stock and class B common stock may be paid only as follows: (i) shares of Cognizant class A common stock may be paid only to holders of Cognizant class A common stock and shares of Cognizant class B common stock may be paid only to holders of Cognizant class B common stock and (ii) shares shall be paid proportionally with respect to each outstanding share of Cognizant class A common stock and class B common stock. CONVERSION OF CLASS B COMMON STOCK Shares of Cognizant class B common stock will automatically convert into an equal number of shares of class A common stock at certain times after the exchange offer. The Cognizant class A common stock received by stockholders upon conversion will be listed for quotation on the Nasdaq National Market and will be freely transferable, subject to generally applicable restrictions on sales by "affiliates" of Cognizant under the Securities Act. The Cognizant class A 86 common stock will have only one vote per share. See "Risk Factors -- The special voting rights associated with Cognizant class B common stock may cease at any time" and "Risk Factors -- Special voting rights associated with Cognizant class B common stock will not be transferable" on page 19. At all times after the exchange offer Cognizant will reserve and keep available, out of its authorized but unissued common stock, the number of shares of Cognizant class A common stock as would become issuable upon the conversion of all shares of Cognizant class B common stock then outstanding. Cognizant will not reissue or resell any shares of Cognizant class B common stock that have been converted. CONVERSION OF CLASS B COMMON STOCK UPON TRANSFER BY HOLDERS Each share of Cognizant class B common stock will convert automatically into one share of Cognizant class A common stock when it is first transferred after the exchange offer. AUTOMATIC CONVERSION OF CLASS B COMMON STOCK All outstanding shares of class B common stock will convert automatically into an equal number of shares of class A common stock on the fifth anniversary of the closing of the exchange offer or earlier if, at any time the number of outstanding shares of class B common stock cease to represent at least 35% of the aggregate number of outstanding shares of Cognizant common stock. Cognizant will provide notice of any automatic conversion of all shares of class B common stock to holders of record prior to or as soon as practicable after the conversion. Immediately upon conversion, the rights of the holders of class B common stock as such shall cease and such holders shall be treated for all purposes as having become the owners of an equal number of shares of class A common stock issuable upon such conversion. Dividends declared but unpaid at the time of conversion will be payable to the holders of record of the converted class B common stock. PREFERRED STOCK Cognizant's certificate of incorporation authorizes the issuance of preferred stock with such designations, rights and preferences as may be determined from time to time by its Board of Directors. Accordingly, Cognizant's Board of Directors is empowered, without stockholder approval, to issue preferred stock with dividends, liquidation, voting or other rights that could adversely affect the voting power or other rights of the holders of Cognizant common stock. Pursuant to the Intercompany Agreement, IMS Health's consent will be required to issue any preferred stock prior to the completion of the exchange offer. In the event preferred stock is issued, it could be used, under certain circumstances, as a method of discouraging, delaying or preventing a change in control of Cognizant. No shares of preferred stock are issued or outstanding and Cognizant has no present plans to issue any shares of preferred stock. However, in the event Cognizant's board of directors adopts a stockholders' rights plan, as described under " -- Stockholders' Rights Plan", a new series of preferred stock will be required to be designated. CERTAIN PROVISIONS OF DELAWARE LAW Under Section 203 of the DGCL, a corporation is generally restricted from engaging in a business combination with an interested stockholder for a three-year period following the time the stockholder became an interested stockholder. An interested stockholder is defined as a stockholder who, together with its affiliates or associates, owns, or who is an affiliate or associate of the corporation and within the prior three-year period did own, 15% or more in voting power of the corporation's outstanding voting stock. This restriction applies unless, 87 - prior to the time the stockholder became an interested stockholder, the board of directors of the corporation approved either the business combination or the transaction which resulted in the stockholder becoming an interested stockholder; - the interested stockholder owned at least 85% of the voting stock of the corporation, excluding specified shares, upon completion of the transaction which resulted in the stockholder becoming an interested stockholder; or - at or subsequent to the time the stockholder became an interested stockholder, the business combination was approved by the board of directors of the corporation and authorized by the affirmative vote, at an annual or special meeting, and not by written consent, of at least 66 2/3% of the outstanding voting shares of the corporation, excluding shares held by that interested stockholder. A business combination generally includes: - mergers, consolidations and sales or other dispositions of 10% or more of the assets of a corporation to or with an interested stockholder; - transactions resulting in the issuance or transfer to an interested stockholder of any capital stock of the corporation or its subsidiaries, subject to certain exceptions; - transactions having the effect of increasing the proportionate share of the interested stockholder in the capital stock of the corporation or its subsidiaries, subject to certain exceptions; and - other transactions resulting in a disproportionate financial benefit to an interested stockholder. This makes a takeover of a company more difficult and may have the effect of diminishing the possibility of certain types of two-step acquisitions of a company or other unsolicited attempts to acquire a company. This may further have the effect of preventing changes in the Board of Directors of a company and it is possible that such provisions could make it more difficult to accomplish transactions which stockholders may otherwise deem to be in their best interests. See "Risk Factors -- Provisions in Cognizant's charter and by-laws, the proposed adoption of a stockholders' rights plan and provisions under Delaware law may discourage unsolicited takeover proposals" on page 29. LIMITATION OF LIABILITY AND INDEMNIFICATION OF OFFICERS AND DIRECTORS Cognizant's certificate of incorporation and by-laws provide that the liability of the directors for monetary damages shall be limited to the fullest extent permissible under Delaware law. This limitation of liability does not affect the availability of injunctive relief or other equitable remedies. Cognizant's by-laws provide that Cognizant will indemnify its directors and officers to the fullest extent permissible under Delaware law. These indemnification provisions require Cognizant to indemnify these persons against certain liabilities and expenses to which they may become subject by reason of their service as a director or officer of Cognizant or any of its affiliated enterprises. In addition, Cognizant has indemnification agreements covering its directors and executive officers providing indemnification to the fullest extent permitted by applicable law and also setting forth certain procedures, including the advancement of expenses, that apply in the event of a claim for indemnification. AMENDMENTS TO COGNIZANT'S CERTIFICATE OF INCORPORATION In connection with the exchange offer, IMS Health has executed a written consent in lieu of a special stockholders meeting to approve amendments to Cognizant's certificate of incorporation that will include the provisions described below and will become effective following consummation of the exchange offer. Following completion of the exchange offer, Cognizant's certificate of incorporation and by-laws will be amended and restated to include the provisions described below. For complete information, you should read the full text of the new restated certificate of 88 incorporation, filed with the SEC as an exhibit to the registration statement of which this offering circular-prospectus forms a part. Cognizant's board of directors also expects to adopt a stockholders' rights plan prior to the expiration of the exchange offer. Please refer to "Description of Capital Stock of Cognizant-- Stockholders' Rights Plan" on page 92 herein. EFFECTS OF THE AMENDMENTS The exchange offer may make it easier for a single person or group of related persons to gain control over Cognizant. Because IMS Health currently holds approximately 55% of Cognizant's outstanding common stock, constituting approximately 93% of the combined voting power of Cognizant's common stock, it is impossible at present that a person other than IMS Health would gain control of Cognizant without IMS Health's consent. Following the exchange offer, however, the new holders of Cognizant's common stock will have the ability to elect Cognizant's entire board of directors. Accordingly, a person or group of related persons could gain control of Cognizant by acquiring a majority of the outstanding common stock, or the votes represented by those shares. In addition, the control position that IMS Health has in matters voted on by Cognizant stockholders will be eliminated following completion of the exchange offer. Eliminating IMS Health as holder of approximately 55% of Cognizant's outstanding common stock, constituting approximately 93% of the combined voting power of Cognizant's common stock, as a result of the exchange offer will also increase Cognizant's vulnerability to an unsolicited takeover proposal. The charter amendments, together with the by-law amendments and Cognizant's anticipated stockholders' rights plan, will make it more difficult for a potential acquiror of Cognizant to take advantage of Cognizant's new capital structure by means of a transaction that is not negotiated with Cognizant's board of directors. CLASSIFIED BOARD Cognizant's certificate of incorporation will be amended to provide for a classified board of directors, also known as a staggered board. The board of directors, other than those directors who may be elected by the holders of Cognizant's preferred stock, will be divided into three classes of directors effective as of the first annual meeting of stockholders following the completion of the exchange offer. Cognizant's directors will be elected to three separate classes at Cognizant's next annual meeting, as follows: - two "Class I Directors" will be elected at Cognizant's next annual meeting to serve for a term expiring at the first annual meeting of stockholders to be held following that meeting; - two "Class II Directors" will be elected at Cognizant's next annual meeting to serve for a term expiring at the second annual meeting of stockholders to be held following that meeting; and - two "Class III Directors" will be elected at Cognizant's next annual meeting to serve for a term expiring at the third annual meeting of stockholders to be held following that meeting. At each annual meeting following Cognizant's next annual meeting, only directors of the class whose term is expiring that year will be required to stand for election, and upon election each director will serve a three-year term. Any newly created directorship that results from an increase in the number of directors and any vacancy occurring in the board of directors can be filled only by a majority of the directors then in office. No change may have the effect of removing any director from office. Upon any change in the authorized number of directors, the total number of directors will be allocated as evenly as possible among the three classes, provided that the term of office may not be shortened for any incumbent director. Any director elected to fill a vacancy not resulting from an increase in the number of directors will have the same remaining term as that of his or her predecessor. Any director elected to fill a newly 89 created directorship resulting from an increase in the size of any class will have the same remaining term as the other directors of that class. Cognizant's certificate of incorporation will provide that directors can be removed only by the affirmative vote of at least 80% in voting power of all outstanding shares of Cognizant common stock entitled to vote generally in the election of directors. In addition, following Cognizant's next annual meeting and the implementation of the classified board of directors, directors may be removed only for cause. BOARD SIZE Cognizant's certificate of incorporation will be amended to provide that the number of Cognizant's directors will be not less than three and that the exact number of directors will be fixed from time to time by a majority of Cognizant's board of directors. The board of directors has set the number of directors at six, effective following consummation of the exchange offer. STOCKHOLDERS MAY NOT ACT BY WRITTEN CONSENT Unless otherwise provided in a company's certificate of incorporation, Delaware law permits any action required or permitted to be taken by stockholders of a company at a meeting to be taken without notice, without a meeting and without a stockholder vote if a written consent setting forth the action to be taken is signed by the holders of shares of outstanding stock having the requisite number of votes that would be necessary to authorize the action at a meeting of stockholders at which all shares entitled to vote were present and voted. Cognizant's amended and restated certificate of incorporation and amended by-laws will require that stockholder action be taken only at an annual or special meeting of stockholders, and will prohibit stockholder action by written consent. STOCKHOLDERS MAY NOT CALL A SPECIAL MEETING Under Cognizant's current by-laws, a special meeting of the stockholders may be called by the president of Cognizant or by Cognizant's board of directors and is required to be called by the president at the written request of a majority of the shares of common stock issued and outstanding and entitled to vote. Cognizant's certificate of incorporation will be amended, and conforming changes will be made to Cognizant's by-laws, to prohibit stockholders from calling a special meeting, to provide that a special meeting of the stockholders may be called by the chief executive officer of Cognizant or Cognizant's board of directors and to require that business transacted at any special meeting of stockholders be limited to the purpose stated in the notice of the meeting. SUPERMAJORITY APPROVAL REQUIREMENTS Currently, in addition to approval by Cognizant's board of directors, the approval of the holders of a majority in voting power of Cognizant's outstanding shares of stock entitled to vote is required to amend any provision of Cognizant's certificate of incorporation. Delaware law permits a company to include provisions in its certificate of incorporation that require a greater vote than the vote otherwise required by law for any corporate action. Upon completion of the exchange offer, Cognizant's certificate of incorporation will be amended to require the affirmative vote of the holders of at least 80% in voting power of all outstanding shares of Cognizant entitled to vote generally in the election of directors, voting together as a single class, to amend, alter, change, add to or repeal specified provisions of Cognizant's certificate of incorporation and any provision of the by-laws. The provisions in Cognizant's certificate of incorporation that will be affected by this amendment are: - the provisions concerning the classified board, the size of the board and the filling of board vacancies and newly created directorships; - the provision concerning the inability of Cognizant's stockholders to call special meetings; 90 - the provision concerning the inability of Cognizant's stockholders to act by written consent; and - the provisions concerning the ability of Cognizant's stockholders to amend, alter, change, add to or repeal the foregoing provisions of the certificate of incorporation or the by-laws. This supermajority voting requirement may discourage or deter a person from attempting to obtain control of Cognizant by making it more difficult to amend Cognizant's by-laws, whether to eliminate provisions that have an anti-takeover effect or those that protect the interests of minority stockholders. This supermajority voting amendment permits a minority of Cognizant's shareholders to block an attempt by its stockholders to amend or repeal its by-laws. CONVERSION OF CLASS B COMMON STOCK TO COGNIZANT CLASS A COMMON STOCK Cognizant's existing certificate of incorporation provides that upon the completion of the exchange offer each share of class B common stock will automatically convert into one share of class A common stock immediately prior to the first transfer of the share. A transfer will be deemed to occur upon any change in the beneficial owner of the share. Cognizant's board of directors will be authorized to determine in good faith, based on information it deems appropriate, whether a transfer has occurred and whether at any time the outstanding shares of Cognizant class B common stock represent less than 35% of the economic ownership represented by the aggregate number of shares of common stock then outstanding, which would result in the automatic conversion of all outstanding shares of Cognizant class B common stock into class A common stock. Cognizant's class B common stock certificates that will be distributed in the exchange offer will include the following legend: According to the Restated Certificate of Incorporation of Cognizant Technology Solutions Corporation, the shares of Class B Common Stock represented by this certificate will be automatically converted into shares of Class A Common Stock upon any transfer of such shares of Class B Common Stock. Consequently, no purported transferee of any shares of Class B Common Stock is entitled to own or to be registered as the record holder of such shares of Class B Common Stock but instead shall be entitled to own and be registered as the record holder of a like number of shares of Class A Common Stock. Each holder of this certificate, by accepting the same, accepts and agrees to all of the foregoing. AMENDMENTS TO COGNIZANT'S BY-LAWS In connection with the exchange offer, Cognizant's board of directors has also approved amendments to Cognizant's by-laws, to become effective following completion of the exchange offer. For complete information, we refer you to the full text of the form of amended and restated Cognizant by-laws, filed with the SEC as an exhibit to the registration statement of which this offering circular-prospectus forms a part. Cognizant's amended by-laws require that, at any annual or special meeting of stockholders, the only nominations of persons for election to the board of directors and proposals of business to be considered will be the nominations made or proposals of business brought before the meeting: - pursuant to Cognizant's notice of meeting; - by or at the direction of the board of directors; and - by a stockholder of Cognizant who was a stockholder of record of Cognizant at the time of the delivery of the notice provided for in the by-laws, who is entitled to vote at the meeting and who complies with the notice procedures set forth in the by-laws. 91 These amendments may preclude nominations or the conduct of business by stockholders at a particular stockholders meeting if the proper procedures are not followed, and may discourage or deter a third party from attempting to obtain control of Cognizant, even if this attempt might be viewed as beneficial to Cognizant by its stockholders. STOCKHOLDERS' RIGHTS PLAN Following completion of the exchange offer, Cognizant's board of directors expects to adopt a stockholders' rights plan. The stockholders' rights plan will not require stockholder approval. The stockholders' rights plan is expected to provide that holders of Cognizant's outstanding class A or class B common stock will receive a right to purchase 1/1000 of a share of a newly created series of preferred stock, which will be the economic equivalent of one share of Cognizant's common stock. Rights will become exercisable on the earlier of: (1) the tenth day following the public announcement that a person or group has acquired beneficial ownership of 15% or more of Cognizant's total voting power represented by the class A common stock and class B common stock or (2) the tenth business day (or such later date as may be determined by Cognizant's board of directors) following the commencement or announcement of an intention to make a tender offer or exchange offer pursuant to which a person would acquire more than 15% of Cognizant's voting power. Rights will be redeemable at a price of $.01 per right, by the vote of Cognizant's board of directors, at any time prior to the time a person acquires more than 15% of the voting power. If any person does so, each holder of a right (other than rights held by the acquiring person, which will become void) will receive, upon exercise of the right at the then-current exercise price, shares of the class of Cognizant's common stock to which such right relates, having a market value on that date of twice the exercise price of the right, commonly referred to as a "flip-in right." If the flip-in right is exercised, the acquiring person's voting and economic interest in Cognizant would be dramatically diluted by the issuance by Cognizant of large numbers of its shares of common stock to its current stockholders other than the acquiring person at a reduced price. If, after any person acquires shares of the outstanding common stock representing more than 15% of the voting power, Cognizant is acquired in a business consolidation or 50% or more of its assets or earning power is sold, each holder of a right (other than rights held by the acquiring person, which will become void) will receive, upon exercise of the right at the then-current exercise price, shares of the acquiror having a market value on that date of twice the exercise price of the right, commonly referred to as a "flip-over right." This would cause significant dilution to the acquiror's existing shareholders. Any person owning in excess of 15% of Cognizant's voting power on the date of the adoption of the plan or as a result of the exchange offer will not trigger these rights so long as that person does not acquire additional shares. LISTING Cognizant class A common stock is listed for quotation on the Nasdaq National Market under the trading symbol "CTSH." Cognizant class B common stock is not listed or quoted on any exchange or in the Nasdaq National Market and will not trade separately, but after the exchange will generally be freely transferable as described above. TRANSFER AGENT AND REGISTRAR The transfer agent for Cognizant's common stock is American Stock Transfer & Trust Company. 92 COMPARISON OF RIGHTS OF STOCKHOLDERS OF IMS HEALTH AND STOCKHOLDERS OF COGNIZANT Upon completion of the exchange offer, IMS Health stockholders who exchange their shares of IMS Health common stock for shares of Cognizant class B common stock will become stockholders of Cognizant. These holders' rights will continue to be governed by Delaware law and will be governed by Cognizant's certificate of incorporation and bylaws as amended. Because each of us and Cognizant is organized under the laws of Delaware, differences in the rights of a Cognizant stockholder from those of an IMS Health stockholder arise principally from differences in our and Cognizant's certificate of incorporation and by-laws. As discussed in "Description of Capital Stock of Cognizant -- Amendments to Cognizant's Certificate of Incorporation" beginning on page 88 hereof, Cognizant's certificate of incorporation and by-laws will be amended and restated following completion of the exchange offer. The following is a summary of the material differences between our and Cognizant's certificates of incorporation and by-laws, including those changes that will become effective following the completion of the exchange offer. The summary is not a complete statement of the rights of stockholders of the two companies or a complete description of the specific provisions referred to below. The summary is qualified in its entirety by reference to the governing corporate instruments of IMS Health and Cognizant, in each case as will be in effect following the consummation of the exchange offer, which you should read. Copies of the governing corporate instruments of us and Cognizant to be in effect following the completion of the exchange offer have been filed with the SEC. To find out where you can get copies of these documents, see "Where You Can Find More Information."
IMS HEALTH COGNIZANT ---------- --------- AUTHORIZED CAPITAL Common Stock 800,000,000 shares of common stock, $.01 par 100,000,000 shares of class A common stock, value per share, of which 281,397,726 shares $.01 par value per share, of which 8,744,650 were issued and outstanding as of September shares were issued and outstanding as of 30, 2002. 10,000,000 shares of series common September 30, 2002. 25,000,000 shares of stock, $.01 par value per share, none of class B common stock, $.01 par value per which were issued and outstanding as of share, of which 11,290,900 shares were September 30, 2002. issued and outstanding as of September 30, 2002. Each share of class B common stock shall convert automatically into one share of class A common stock when it is first transferred after consummation of the exchange offer. All shares of class B common stock shall automatically convert into an equal number of class A common stock (i) on the fifth anniversary of this exchange offer or (ii) if at any time the outstanding shares of class B common stock cease to represent at least 35% of the aggregate number of shares of common stock then outstanding. Preferred Stock 10,000,000 shares of preferred stock, $.01 15,000,000 shares of preferred stock, $.10 par value, none of which were issued and par value per share, none of which were outstanding as of September 30, 2002. issued and outstanding as of December 31, 2002.
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IMS HEALTH COGNIZANT ---------- --------- VOTING One vote for each share of common stock held One vote for each share of class A common of record on all matters submitted to a vote stock, ten votes for each share of class B of the stockholders. common stock, in each case held of record on all matters submitted to a vote of the stockholders. Any amendments to the certificate of incorporation that would adversely affect the rights of either the class A or class B common stock also require a majority vote of the affected class. STOCKHOLDER ACTION BY WRITTEN CONSENT Any action required or permitted to be taken Any action required or permitted to be taken by the holders of IMS Health's common stock by the holders of Cognizant's common stock must be effected at a duly called special or must be effected at a duly called special or annual meeting of the stockholders and may annual meeting of the stockholders and may not be effected by any consent in writing of not be effected by any consent in writing of the stockholders. the stockholders. BOARD OF DIRECTORS Number 9 members currently; must always be at least 8 members currently, 6 members upon 3 directors; number of directors may be consummation of the exchange offer; must changed from time to time by a resolution of always be at least 3 directors; number of the board of directors. directors may be changed from time to time by a resolution of the board of directors. 2 directors who are IMS Health employees will resign upon completion of the exchange offer. Election of Directors Board of directors is classified with a Board of directors is classified with a three-tier structure. One-third of the three-tier structure. One-third of the directors are elected each year for a directors will be elected each year for a three-year term. three-year term. See "Description of Capital Stock of Cognizant -- Amendments to Cognizant's Certificate of Incorporation -- Classified Board." Removal of Directors Directors can be removed only for cause, and Directors can only be removed by the only by the affirmative vote of at least 80% affirmative vote of at least 80% in voting in voting power of all shares entitled to power of all shares entitled to vote in the vote in the election of directors, voting as election of directors, voting as a single a single class. class. In addition, following the election of the Cognizant board of directors at Cognizant's 2003 annual meeting of stockholders, directors can be removed only for cause.
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IMS HEALTH COGNIZANT ---------- --------- SPECIAL STOCKHOLDER MEETINGS May be held upon call of the board of May be held upon the call of the board of directors or by the chief executive officer. directors or by the chief executive officer. The purpose or purposes of the proposed The purpose or purposes of the proposed meeting shall be included in the notice meeting shall be included in the notice setting forth such call. setting forth such call. AMENDMENTS TO CHARTER The vote of at least 80% in voting power of The vote of at least 80% in voting power of all the shares entitled to vote in the all the shares entitled to vote in the election of directors, voting as a single election of directors will be required to class, is required to alter, amend or repeal alter, amend or repeal provisions of the provisions of the charter relating to by-law charter relating to by- law amendments, the amendments, the classified board of classified board of directors, the inability directors, the inability of the stockholders of the stockholders to act by written to act by written consent or to call special consent or to call special meetings and the meetings and this supermajority voting supermajority voting requirement, voting as requirement. a single class. AMENDMENTS TO BY-LAWS By-laws may be amended by the board of By-laws may be amended by the board of directors or holders of a majority of the directors or by holders of at least 80% in voting power of IMS Health, except that the voting power of all the shares entitled to vote of the holders of at least 80% in vote in the election of directors, voting as voting power of all the shares entitled to a single class. vote in the election of directors, voting as a single class, shall be required to alter, amend or repeal provisions of the by-laws related to the ability of stockholders to call special meetings, the ability of stockholders to act by written consent, the classified board of directors and the super-majority voting requirements.
95 CERTAIN RELATIONSHIPS BETWEEN IMS HEALTH AND COGNIZANT The following is a summary of the terms of the agreements in place between IMS Health and Cognizant. For complete information, you should read the full text of these agreements, which have been filed with the SEC as exhibits to the registration statement of which this offering circular-prospectus forms a part. To find out where you can get copies of these documents, see "Where You Can Find More Information." EXISTING INTERCOMPANY AGREEMENTS In May of 1998, IMS Health's and Cognizant's predecessor entered into a number of agreements in contemplation of Cognizant's initial public offering. We have assumed rights and obligations under two of those agreements, the Intercompany Services Agreement and the Intercompany Agreement. We are also party to a Master Services Agreement with Cognizant. The material terms of these agreements are summarized below. Because Cognizant was controlled by our predecessor at the time these agreements were executed, none of these agreements resulted from arms-length negotiations and, therefore, the terms of these agreements may be more or less favorable to Cognizant than those obtainable from unaffiliated third parties. INTERCOMPANY SERVICES AGREEMENT Pursuant to the Intercompany Services Agreement, IMS Health currently provides Cognizant with certain administrative services, including payroll and payables processing and permits Cognizant to participate in IMS Health's business insurance plans. In addition, two of Cognizant's officers participate in IMS Health's employee benefit plans and four of Cognizant's officers hold IMS stock options. In the past, IMS Health provided certain other services such as tax planning and compliance, which were transitioned to Cognizant in December 2001. IMS Health and Cognizant plan to enter into an amended and restated Intercompany Services Agreement following consummation of the exchange offer, which will provide for the continued provision of payroll, payables processing and certain other administrative services for a term of up to one year and at prices to be agreed between us and Cognizant. INTERCOMPANY AGREEMENT The Intercompany Agreement provides us with certain rights until we and our affiliates cease to control at least 50% of the combined voting power of the outstanding voting stock of Cognizant, including the right to approve certain corporate decisions of Cognizant. These rights will terminate upon the consummation of the exchange offer. We also have the right under the Intercompany Agreement to require Cognizant to file a registration statement in connection with subsequent dispositions by us from time to time of our Cognizant shares. We have the right to request up to two registrations of this type in each calendar year, but not more than six in any five-year period. Cognizant may postpone such a demand under certain circumstances for up to 90 days. In addition, if Cognizant files a registration statement on its own behalf or on behalf of another stockholder in respect of Cognizant common stock, we will have the right to include shares of common stock held by us, subject to certain limitations. The Intercompany Agreement provides that Cognizant will pay all costs and expenses in connection with each such registration, except underwriting discounts and commissions applicable to the shares of common stock sold by us. The Intercompany Agreement contains customary terms and provisions with respect to, among other things, registration procedures and indemnification obligations. We delivered a request for registration of our Cognizant shares to Cognizant in connection with the exchange offer on November 14, 2002. Our registration rights will survive the consummation of the exchange offer and, if we hold common stock of Cognizant after the exchange offer, we may rely on our registration rights from time to 96 time to dispose of any Cognizant class B common stock not exchanged and converted by us into Cognizant class A common stock as described in the section of this document entitled "Questions and Answers About the Exchange Offer." The Intercompany Agreement also contains mutual promises by us and Cognizant concerning indemnification for liabilities relating to our respective businesses. We have agreed to indemnify Cognizant and its subsidiaries, officers, directors, employees and agents against certain liabilities relating to the conduct of our business; and Cognizant has agreed to indemnify us and our subsidiaries, officers, directors, employees and agents against certain liabilities relating to the conduct of Cognizant's business. The indemnification provisions of the Intercompany Agreement also will survive the consummation of the exchange offer. MASTER SERVICES AGREEMENT Cognizant and IMS Health have entered into a Master Services Agreement pursuant to which Cognizant provides software development and maintenance services to IMS Health. The software development and maintenance services are provided to IMS Health on terms that are comparable to those provided to unrelated third parties. Cognizant also provides similar services on comparable terms to other former affiliates of ours and Cognizant including Dun & Bradstreet Corporation and Nielsen Media Research, Inc. Any work order issued pursuant to the Master Services Agreement may be terminated by us with or without cause on 30 days prior written notice. For 2002, Cognizant expects to recognize related party revenues totaling $21 million, or 9% of Cognizant's total revenues, for services performed for IMS Health. In 2001, Cognizant recognized related party revenues totaling $18.8 million for services performed for IMS Health under the Master Services Agreement. In 2000, Cognizant recognized related party revenues totaling $14.3 million including revenues from IMS Health and Synavant through August 30, 2000. In 1999, Cognizant recognized related party revenues totaling $14.8 million including revenues from IMS Health and Synavant. DISTRIBUTION AGREEMENT We have entered into a Distribution Agreement with Cognizant, the terms of which have been approved by a special committee of the board of directors of Cognizant, which is comprised of Cognizant's independent directors. The Distribution Agreement sets forth certain rights and obligations of IMS Health and Cognizant in respect of the exchange offer in addition to those provided in the Intercompany Agreement. For a more complete description of the terms of the Distribution Agreement, we urge you to read the entire Distribution Agreement, which has been filed with the SEC as an exhibit to the registration statement of which this offering circular-prospectus forms a part. AGREEMENTS RELATING TO THE DISTRIBUTION Director Resignations. We have agreed to cause David M. Thomas and Nancy E. Cooper to resign as of the consummation of the exchange offer from their positions as directors of Cognizant and from any boards of directors of Cognizant's subsidiaries on which they serve. Indemnification. The parties have agreed to indemnification provisions in respect of the respective disclosure in the exchange offer documents, the conduct of the exchange offer and any failure to perform the Distribution Agreement. Joint and Several Undertakings. IMS Health has requested, as a condition to the distribution of Cognizant shares in the exchange offer, that Cognizant agree to undertake to be jointly and severally liable to certain of our prior affiliates for liabilities arising out of or in connection with our business and the businesses of Cognizant and other successors to the businesses of Cognizant Corporation in accordance with the terms of the Distribution Agreement dated as of October 28, 1996 among Cognizant Corporation, which has been renamed Nielsen Media 97 Research, Inc., The Dun & Bradstreet Corporation, which has been renamed the R.H. Donnelly Corporation and ACNielsen Corporation and related agreements. In addition, IMS Health is obligated to procure similar undertakings from Cognizant to Nielsen Media Research and Synavant Inc. with respect to liabilities allocated to IMS Health in connection with the Distribution Agreement, dated as of June 30, 1998 between Nielsen Media Research, Inc. and IMS Health and related agreements and the Distribution Agreement, dated as of August 31, 2000, between IMS Health and Synavant Inc. Cognizant has agreed to deliver these undertakings. However, subject to the general allocation of liabilities arising from the respective businesses of IMS Health and Cognizant, we have agreed to indemnify and reimburse Cognizant for liabilities incurred with respect to these undertakings. Commercial Arrangements. We agreed to enter into an amended and restated intercompany services agreement to be effective as of the consummation of the exchange offer, as described in "Certain Relationships Between IMS Health and Cognizant -- Intercompany Services Agreement" on page 96. We also agreed to the continuation of certain commercial relationships with Cognizant for a period of at least three years on terms and conditions to be mutually agreed. Conversion of Retained Shares. We have agreed that if we would otherwise continue to hold Cognizant class B common stock after the consummation of the exchange offer, we would either distribute such Cognizant class B common stock to our stockholders at or prior to the consummation of the exchange offer or convert such shares into Cognizant class A common stock prior to the consummation of the exchange offer and hold them or distribute them to our stockholders. Voting of Retained Shares. If we own Cognizant shares after the exchange offer, we have agreed that, in all matters requiring a vote of the holders of Cognizant common stock, we will vote such shares in proportion to the votes cast affirmatively or negatively by all other holders of Cognizant common stock voting. Restrictions on Disposition of Retained Shares. If we hold Cognizant shares after the exchange offer, we have agreed not to transfer such shares until 90 days after consummation of the exchange offer, except in the case of a pro rata distribution to our stockholders. After the initial 90-day period, we may sell any retained Cognizant shares only: - in a public offering pursuant to our registration rights under the Intercompany Agreement; - in sales on the NASDAQ National Market in an amount in any day not in excess of 25% of the average daily trading volume of Cognizant shares for the immediately preceding four weeks; - in a transaction in which we and Cognizant agree in good faith would not reasonably be expected to have an adverse impact on the trading prices of Cognizant shares; and - to institutional investors who agree in writing not to sell, transfer or otherwise dispose of, or issue any derivative security with respect to, such shares until at least the later of 30 days from the date of their acquisition or the one year anniversary of the consummation of the exchange offer. Right of First Offer. If we own 5% or more of the outstanding Cognizant common stock after the exchange offer, we have agreed to give Cognizant a right of first offer during the two-year period following consummation of the exchange offer before we attempt to transfer 5% or more of the outstanding shares of Cognizant common stock to an entity or group, subject to certain exceptions. Insurance. The Distribution Agreement includes provisions governing the administration of certain insurance programs and procedures for making claims and it also allocates the right to proceeds and the allocation of deductibles under these programs. 98 Expenses. We and Cognizant have agreed to modify the provisions of the Intercompany Agreement relating to the fees and expenses arising as the result of our exercise of our registration rights so that we, rather than Cognizant, are responsible for the fees and expenses of our own legal counsel and certain other agreed fees and expenses. TAX MATTERS The Distribution Agreement provides that IMS Health and Cognizant will comply with, and not take any action during the relevant time period that is inconsistent with, the representations made to and relied upon by McDermott, Will & Emery in connection with rendering its opinion regarding the U.S. federal income tax consequences of the exchange offer. In addition, under Section 355(e) of the Internal Revenue Code, the exchange offer will be taxable to IMS Health if the exchange offer is part of a plan or series of related transactions pursuant to which one or more persons acquire directly or indirectly stock representing a 50% or greater interest, based on either vote or value, in IMS Health or Cognizant. If we become subject to tax under Section 355(e) of the Code, our tax liability will be based upon the difference between the fair market value of the Cognizant class B common stock at the time of the exchange offer and our adjusted basis in the Cognizant class B common stock at that time. This tax liability could be a material amount. If a breach by Cognizant of the representations made by it to McDermott, Will & Emery in connection with its tax opinion or the covenants in the distribution agreement is the "but for" cause of the exchange offer either failing to qualify as a tax-free distribution under Section 355(a) of the Code or becoming taxable to us under Section 355(e) of the Code, then Cognizant has agreed to indemnify us and each member of the consolidated group of which we are a member from and against any liability, including any taxes, interest or penalties or additions to tax, that is imposed upon us or any member of our consolidated group as a result of the exchange offer becoming taxable under Section 355 of the Code. Cognizant will be entitled to rely upon certain representations made by us to McDermott, Will & Emery in connection with its tax opinion. In the event any of these representations are not true, correct or complete, Cognizant will not be obligated to indemnify us or the members of our consolidated group against any liability arising under Section 355 of the Code if Cognizant's breach of a representation would not have resulted in this type of liability had all of IMS Health's representations made in connection with McDermott, Will & Emery's tax opinion been true, complete and correct. As a result of the representations made to McDermott, Will & Emery in connection with its tax opinion and the covenants in the Distribution Agreement, the acquisition of control of Cognizant during the two-year period following the exchange offer may be more difficult or less likely to occur because of the potential indemnification liability associated with a breach of these representations or covenants. In addition, Cognizant's ability to undertake acquisitions and other transactions may be substantially restricted during the two-year period following the exchange offer. TERMINATION We may terminate the Distribution Agreement upon notice to Cognizant prior to the consummation of the exchange offer. OTHER RELATIONSHIPS AND TRANSACTIONS Cognizant has a strategic business relationship with The TriZetto Group Inc. that includes helping its healthcare customers integrate TriZetto's products with their existing information systems and, within TriZetto, supporting further development of these software applications. As of September 30, 2002, IMS Health owned approximately 26% of the outstanding common stock 99 of TriZetto. During the three- and nine-month periods ended September 30, 2002, Cognizant recorded revenues from TriZetto of approximately $1,199,000 and $1,302,000, respectively, and expenses related to TriZetto commissions of approximately $123,000 and $456,000 for the three-and nine-month periods ended September 30, 2002, respectively. During the three- and nine-month periods ended September 30, 2001, Cognizant recorded revenues from TriZetto of approximately $401,000 and expenses related to TriZetto commissions of approximately $0 and $793,000 for the three- and nine-month periods ended September 30, 2001, respectively. In December 2001, Cognizant paid IMS Health a one-time fee of approximately $825,000 under an alliance agreement in which Cognizant was named "vendor of choice" for IT services to the pharmaceutical industry. This agreement was negotiated between the parties on an arms-length basis. 100 MATERIAL UNITED STATES FEDERAL INCOME TAX CONSEQUENCES The following is a summary of the material U.S. federal income tax consequences to IMS Health stockholders as a result of the exchange offer and the substantially simultaneous distribution, if any, to the IMS Health stockholders of any Cognizant class B common stock that we would otherwise continue to own after completion of the exchange offer. For purposes of this summary, the exchange offer and any substantially simultaneous distribution are referred to collectively as the "exchange offer." The summary is based on the Internal Revenue Code, the Treasury regulations promulgated thereunder, and interpretations of the Internal Revenue Code and Treasury regulations by the courts and the IRS, all as they exist as of the date of this document. This summary does not discuss all tax considerations that may be relevant to IMS Health stockholders in light of their particular circumstances, nor does it address the consequences to IMS Health stockholders subject to special treatment under the U.S. federal income tax laws, such as tax-exempt entities, non-resident alien individuals, foreign entities, foreign trusts and estates and beneficiaries thereof, persons who acquire such shares of IMS Health common stock pursuant to the exercise of employee stock options or otherwise as compensation, insurance companies, and dealers in securities. In addition, this summary does not address the U.S. federal income tax consequences to IMS Health stockholders who do not hold their shares of IMS Health common stock as capital assets. This summary does not address any state, local or foreign tax consequences. IMS Health stockholders are urged to consult their tax advisors as to the particular tax consequences to them of the exchange offer. TAX OPINION -- U.S. FEDERAL INCOME TAX CONSEQUENCES We have received a tax opinion from McDermott, Will & Emery stating that, for U.S. federal income tax purposes, the exchange offer should qualify under Section 355 of the Code as a distribution that is tax-free to IMS Health stockholders, except with respect to any cash received in lieu of fractional shares of Cognizant class B common stock and that the exchange offer should be tax-free to IMS Health. Section 355 of the Code is highly technical and complex, and many aspects of the statute have not yet been addressed by judicial decisions, Treasury regulations, or other administrative guidance. In particular, there is uncertainty with respect to the tax treatment of the exchange offer to IMS Health under Section 355(e) of the Code due to the absence of controlling legal authorities addressing certain factual aspects of the exchange offer, including the automatic conversion of Cognizant class B common stock into Cognizant class A common stock. The opinion of McDermott, Will & Emery represents their best interpretation of the legal requirements of Section 355 of the Code as applied to the exchange offer. No ruling from the IRS has been or will be sought with respect to any of the tax matters relating to the exchange offer and the opinion will not be binding on the IRS. Accordingly, we cannot assure you that the IRS will agree with the conclusions set forth in the tax opinion of McDermott, Will & Emery, and it is possible that the IRS or another tax authority could adopt a position contrary to one or all of those conclusions and that a court could sustain that contrary position. We will not be able to rely on the tax opinion if any factual representations made to counsel are incorrect or untrue in any material respect or any undertakings made to counsel are not complied with. Neither we nor Cognizant are aware of any facts or circumstances that would cause any such representations to be incorrect or untrue in any material respect. If we complete the exchange offer and it is held to be taxable for U.S. federal income tax purposes, we and our stockholders that receive shares of Cognizant class B common stock could be subject to material amounts of taxes as a result of the exchange offer. Neither we nor Cognizant will indemnify any individual stockholder for any taxes that may be incurred in connection with the exchange offer. 101 The tax opinion provides that for U.S. federal income tax purposes: - the distribution of the Cognizant class B common stock by IMS Health pursuant to the exchange offer should be tax free to IMS Health; - no gain or loss should be recognized by, and no amount should be required to be included in the income of, the IMS Health stockholders upon their receipt of shares of Cognizant class B common stock in the exchange offer, except to the extent of cash received in lieu of fractional shares of Cognizant class B common stock; - for those IMS Health stockholders that surrender all of their shares of IMS Health common stock for Cognizant class B common stock, the aggregate tax basis of the shares of Cognizant class B common stock held by the IMS Health stockholders after the exchange offer, including any fractional share interests with respect to which cash is received as described below, should be the same as the aggregate tax basis of the shares of IMS Health common stock exchanged in the exchange offer; - for those IMS Health stockholders that do not surrender all of their shares of IMS Health common stock in the exchange offer, each such stockholder's aggregate tax basis in the shares of IMS Health common stock held before the completion of the exchange offer should be allocated between the shares of IMS Health common stock and shares of Cognizant class B common stock, including any fractional share interests with respect to which cash is received as described below, held by such stockholder after the exchange offer in proportion to their relative fair market values; - the holding period of the shares of Cognizant class B common stock received by the IMS Health stockholders in the exchange offer, including any fractional share interests with respect to which cash is received, as described below, should include the period during which such stockholder held the IMS Health stock, provided that the IMS Health stock is held as a capital asset by such stockholder on the date the exchange offer is completed; and - if a stockholder of IMS Health receives cash as the result of an independent exchange agent sale of a fractional share of Cognizant class B common stock on behalf of the stockholder, the stockholder should recognize gain or loss in an amount equal to the difference between the tax basis allocable to such fractional share interest and the amount of cash received. The opinion does not specifically address tax basis issues with respect to holders of shares of IMS Health common stock who own blocks of shares of IMS Health common stock with different per share tax bases. These holders are urged to consult their tax advisors regarding the possible tax basis consequences to them of the exchange offer. The Treasury regulations require each IMS Health stockholder that receives shares of Cognizant class B common stock in the exchange offer to attach to the holder's U.S. federal income tax return for the year in which the stock is received a detailed statement setting forth such data as may be appropriate in order to show the applicability of Section 355 of the Code to the exchange offer. Within a reasonable time after the exchange offer, IMS Health will provide IMS Health stockholders who participated in the exchange offer with the information necessary to comply with such requirement, and will provide information regarding the allocation of tax basis as described above. If, contrary to the opinion of McDermott, Will & Emery, the exchange offer does not qualify as a tax-free distribution under Section 355 of the Code, the exchange would be a taxable transaction for U.S. federal income tax purposes. Accordingly, an exchanging IMS Health stockholder would, depending on the stockholder's particular circumstances, be treated either as having sold IMS Health shares in exchange for Cognizant class B common stock or as having 102 received a distribution on IMS Health stock. The following is a discussion of the U.S. federal income tax consequences to stockholders if the exchange offer does not qualify as a tax-free distribution: Under Section 302 of the Code, an IMS Health stockholder whose IMS Health stock is exchanged in the exchange offer would be treated as having sold IMS Health stock in exchange for Cognizant class B common stock, and thus would recognize capital gain or loss, if the exchange: - results in a "complete termination" of the stockholder's equity interest in IMS Health; - results in a "substantially disproportionate" redemption with respect to the stockholder; or - is "not essentially equivalent to a dividend" with respect to the stockholder. Each of these tests, referred to as the "Section 302 tests," is explained in more detail below. If a stockholder satisfies any of the Section 302 tests explained below, the stockholder would recognize capital gain or loss equal to the difference between the (i) sum of the value of the Cognizant class B common stock and the amount of any cash in lieu of fractional shares received in the exchange offer and (ii) the stockholder's adjusted tax basis in the IMS Health stock surrendered in exchange therefor. This gain or loss would be long-term capital gain or loss if the stockholder's holding period for the IMS Health stock exchanged exceeded one year as of the date of acquisition of the IMS Health stock by IMS Health in the exchange offer. Limitations may apply to a stockholder's ability to deduct capital losses. If a stockholder does not satisfy any of the Section 302 tests explained below, the stockholder's exchange of IMS Health stock for Cognizant class B common stock would not be treated as a sale or exchange under Section 302 of the Code. Instead, the Cognizant class B common stock received by the stockholder in the exchange offer (including any fractional share interest deemed received and sold for cash) would be treated as a dividend distribution under Section 301 of the Code on the stockholder's remaining IMS Health stock, taxable at ordinary income tax rates, to the extent of the stockholder's share of the current and accumulated earnings and profits (within the meaning of the Code) of IMS Health. To the extent the amount exceeds the stockholder's share of the current and accumulated earnings and profits of IMS Health, the excess first would be treated as a tax-free return of capital to the extent, generally, of the stockholder's adjusted tax basis in its IMS Health stock and any remainder would be treated as capital gain (which may be long-term capital gain as described above). To the extent that an exchange of IMS Health stock in the exchange offer is treated as a dividend, the stockholder's adjusted tax basis in the IMS Health stock exchanged would be added to any IMS Health stock retained by the stockholder. In applying each of the Section 302 tests explained below, IMS Health stockholders would have to take into account not only IMS Health stock that they actually own but also stock they are treated as owning under the constructive ownership rules of Section 318 of the Code. Under the constructive ownership rules, a stockholder is treated as owning any shares that are owned (actually and in some cases constructively) by certain related individuals and entities as well as shares that the stockholder has the right to acquire by exercise of an option. Section 302 Tests. One of the following tests would have to be satisfied for the exchange of IMS Health stock in the exchange offer to be treated as a sale or exchange for U.S. federal income tax purposes: - Complete Termination Test. The exchange of a stockholder's shares in the exchange offer would result in a "complete termination" of the stockholder's equity interest in IMS Health if (i) the stockholder disposes of all of the IMS Health stock that the stockholder actually owns either in the exchange offer for Cognizant class B common stock or otherwise, and (ii) after the exchange offer is completed, the stockholder does not constructively own 103 any IMS Health stock, or, with respect to IMS Health stock owned by certain related individuals, the stockholder effectively waives, in accordance with Section 302(c) of the Code, attribution of shares which otherwise would be considered as constructively owned by the stockholder. - Substantially Disproportionate Test. The exchange of IMS Health stock for Cognizant class B common stock in the exchange offer would result in a "substantially disproportionate" redemption if, among other things, the percentage of the then outstanding shares actually and constructively owned by the stockholder immediately after the exchange is less than 80% of the percentage of the shares actually and constructively owned by the stockholder immediately before the exchange (treating as outstanding all IMS Health stock acquired by IMS Heath in the exchange offer). - Not Essentially Equivalent to a Dividend Test. The exchange of IMS Health stock for Cognizant class B common stock in the exchange offer would be treated as "not essentially equivalent to a dividend" if the reduction in the stockholder's proportionate interest in IMS Health as a result of the exchange constitutes a "meaningful reduction" of the stockholder's interest in IMS Health given the stockholder's particular circumstances. The Internal Revenue Service has indicated in a published revenue ruling that even a small reduction in the percentage interest of a stockholder whose relative stock interest in a publicly held corporation is minimal (for example, an interest of less than 1%) and who exercises no control over corporate affairs should constitute a "meaningful reduction" of that stockholder's interest. If, contrary to the opinion of McDermott, Will & Emery, the transaction is taxable to IMS Health, IMS Health would be treated as if it had sold the Cognizant class B stock that it exchanged for the value of that stock, which would result in a material amount of tax because IMS Health's basis in that stock is not significant. IMS Health stockholders are urged to consult their tax advisors as to the particular tax consequences to them of the exchange offer, including the application of state, local and foreign tax laws and any changes in federal tax laws that occur after the date of this document. LEGAL MATTERS The validity of the shares of Cognizant class B common stock offered hereby will be passed upon by Simpson Thacher & Bartlett, counsel to Cognizant. Certain legal matters with respect to the U.S. federal income tax consequences to IMS Health stockholders with respect to the exchange offer will be passed upon by McDermott, Will & Emery, tax counsel to IMS Health. EXPERTS The IMS Health consolidated financial statements incorporated in this document by reference to the Annual Report on Form 10-K for the year ended December 31, 2001 have been so incorporated in reliance on the report of PricewaterhouseCoopers LLP, independent accountants, given on the authority of said firm as experts in auditing and accounting. The Cognizant consolidated financial statements as of December 31, 2001 and 2000 and for each of the three years in the period ended December 31, 2001 included in this document have been so included in reliance on the report of PricewaterhouseCoopers LLP, independent accountants, given on the authority of said firm as experts in auditing and accounting. 104 WHERE YOU CAN FIND MORE INFORMATION We and Cognizant file annual, quarterly and special reports, proxy statements and other information with the SEC. You may read and copy any reports, statements or other information filed by either company at the SEC's public reference room at 450 5th Street NW, Washington DC 20549. Please call the SEC at 1-800-SEC-0330 for further information on the public reference rooms. In addition, the SEC maintains an Internet site that contains reports, proxy statements and other information regarding registrants that file electronically, such as us and Cognizant. The address of the SEC's Internet site is http://www.sec.gov. Cognizant has filed a registration statement on Form S-4 under the Securities Act, of which this document forms a part, to register the shares of Cognizant class B common stock offered in the exchange offer. We will file a Schedule TO Issuer Tender Offer Statement with the SEC with respect to the exchange offer. This offering circular-prospectus, and the related letter of transmittal, constitute our offer to exchange. This document does not contain all the information set forth in the registration statement or in the Schedule TO, selected portions of which are omitted in accordance with the rules and regulations of the SEC. For further information pertaining to us, the shares of IMS Health common stock, Cognizant and the shares of Cognizant common stock, reference is made to the registration statement and its exhibits. Statements contained in this document or in any document incorporated in this document by reference as to the contents of any contract or other document referred to within this document or other documents that are incorporated by reference are not necessarily complete and, in each instance, reference is made to the copy of the applicable contract or other document filed as an exhibit to the registration statement or otherwise filed with the SEC. Each statement contained in this document is qualified in its entirety by reference to the underlying documents. The following documents that we and Cognizant have filed with the SEC are incorporated into this document by reference: - IMS Health's - Annual Report on Form 10-K for the year ended December 31, 2001, filed on March 21, 2002; - Quarterly Report on Form 10-Q for the first quarter ended March 31, 2002, filed on May 9, 2002; - Quarterly Report on Form 10-Q for the second quarter ended June 30, 2002, filed on August 12, 2002; - Quarterly Report on Form 10-Q for the third quarter ended September 30, 2002, filed on November 14, 2002; - Current Report on Form 8-K filed August 12, 2002; and - Proxy Statement on Schedule 14A, dated March 28, 2002. - Cognizant's - Annual Report on Form 10-K for the year ended December 31, 2001, filed on March 11, 2002; and - Quarterly Report on Form 10-Q for the first quarter ended March 31, 2002, filed on May 13, 2002; - Quarterly Report on Form 10-Q for the second quarter ended June 30, 2002, filed on August 8, 2002; - Quarterly Report on Form 10-Q for the third quarter ended September 30, 2002, filed on November 14, 2002; 105 - Current Report on Form 8-K filed April 16, 2002; - Current Report on Form 8-K filed October 31, 2002; - Current Report on Form 8-K filed January 6, 2003; and - Proxy Statement on Schedule 14A, dated April 26, 2002. Disclosures regarding us and Cognizant contained in this document supersede the corresponding disclosure contained in the documents listed above which are incorporated by reference. In addition, we and Cognizant also incorporate by reference additional documents we or Cognizant file with the SEC between the date of this document and the date the exchange offer expires or terminates. These documents may include periodic reports, such as Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q and Current Reports on Form 8-K, as well as proxy statements. IMS Health has supplied all information contained in this document relating to IMS Health and Cognizant has supplied all information contained in this document relating to Cognizant. Documents incorporated by reference are available from IMS Health or Cognizant without charge, excluding any exhibits to those documents unless the exhibits are specifically incorporated into this document by reference. Requests for these documents should be directed to us or Cognizant, as the case may be, at the following addresses and telephone numbers: IMS Health Incorporated Cognizant Technology Solutions Corporation 1499 Post Road 500 Glen Pointe Center West Fairfield, Connecticut 06824 Teaneck, New Jersey 07666 Attn: Investor Relations Department Attn: Investor Relations Department Telephone: (203) 319-4700 Telephone: (201) 801-0233
You will not be charged for any of these documents that you request. If you request any documents incorporated by reference herein from IMS Health or Cognizant, the documents will be mailed to you by first class mail, or another equally prompt means, within one business day after your request is received. IN ORDER TO ENSURE TIMELY DELIVERY OF THE REQUESTED DOCUMENTS, REQUESTS SHOULD BE MADE BY JANUARY 30, 2003. In the event that we extend the exchange offer, you must submit your request at least five business days before the expiration date, as extended. 106 INDEX TO COGNIZANT CONSOLIDATED FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULE
PAGE ---- Consolidated Financial Statements: Report of Independent Accountants......................... F-2 Consolidated Statements of Financial Position as of December 31, 2001 and 2000............................. F-3 Consolidated Statements of Operations for the years ended December 31, 2001, 2000 and 1999....................... F-4 Consolidated Statements of Stockholders' Equity for the years ended December 31, 2001, 2000 and 1999........... F-5 Consolidated Statements of Cash Flows for the years ended December 31, 2001, 2000 and 1999....................... F-6 Notes to Consolidated Financial Statements................ F-7 Financial Statement Schedule: Schedule of Valuation and Qualifying Accounts............. F-22 Unaudited Condensed Consolidated Statements: Condensed Consolidated Statements of Income and Comprehensive Income (Unaudited) for the Three Months and Nine Months Ended September 30, 2002 and 2001...... F-23 Condensed Consolidated Statements of Financial Position (Unaudited) as of September 30, 2002 and December 31, 2001................................................... F-24 Condensed Consolidated Statements of Cash Flows (Unaudited) for the Nine Months Ended September 30, 2002 and 2001.......................................... F-25 Notes to Unaudited Condensed Consolidated Financial Statements............................................. F-26
F-1 REPORT OF INDEPENDENT ACCOUNTANTS To the Board of Directors and Stockholders of Cognizant Technology Solutions Corporation: In our opinion, the accompanying consolidated balance sheets and the related consolidated statements of operations, cash flows and stockholders' equity listed in the accompanying index on page F-1 present fairly, in all material respects, the financial position of Cognizant Technology Solutions Corporation and its subsidiaries at December 31, 2001 and 2000, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2001, in conformity with accounting principles generally accepted in the United States of America. In addition, in our opinion, the financial statement schedule listed in the accompanying index presents fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements. These financial statements and financial statement schedule are the responsibility of the Company's management; our responsibility is to express an opinion on these financial statements and financial statement schedule based on our audits. We conducted our audits of these statements in accordance with auditing standards generally accepted in the United States of America, 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 our opinion. PricewaterhouseCoopers LLP New York, New York February 4, 2002 F-2 COGNIZANT TECHNOLOGY SOLUTIONS CORPORATION CONSOLIDATED STATEMENTS OF FINANCIAL POSITION (IN THOUSANDS, EXCEPT PAR VALUES)
AT DECEMBER 31, -------------------- 2001 2000 ---- ---- ASSETS Current assets: Cash and cash equivalents................................... $ 84,977 $ 61,976 Trade accounts receivable, net of allowances of $882 and $516, respectively........................................ 21,063 19,187 Trade accounts receivable -- related party.................. 1,481 1,361 Unbilled accounts receivable................................ 5,005 1,941 Unbilled accounts receivable -- related party............... 417 -- Other current assets........................................ 4,392 3,758 -------- -------- Total current assets................................... 117,335 88,223 -------- -------- Property and equipment, net of accumulated depreciation of $16,805 and $10,997, respectively......................... 24,339 15,937 Goodwill, net............................................... 878 1,195 Investment.................................................. -- 1,955 Other assets................................................ 2,431 2,230 -------- -------- Total assets........................................... $144,983 $109,540 ======== ======== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable............................................ $ 3,652 $ 2,849 Accounts payable-related party.............................. -- 8 Accrued expenses and other liabilities...................... 18,046 23,865 -------- -------- Total current liabilities.............................. 21,698 26,722 Deferred income taxes....................................... 24,493 16,702 -------- -------- Total liabilities...................................... 46,191 43,424 -------- -------- Commitments and contingencies (See Notes 11 and 12 to the Consolidated Financial Statements) Stockholders' equity: Preferred stock, $.10 par value, 15,000 shares authorized, none issued............................................... -- -- Class A common stock, $.01 par value, 100,000 shares authorized, 8,065 and 7,362 shares issued and outstanding at December 31, 2001 and 2000, respectively............... 80 73 Class B common stock, $.01 par value, 25,000 shares authorized, 11,290 shares issued and outstanding at December 31, 2001 and 2000, respectively.................. 113 113 Additional paid-in capital.................................. 39,711 29,094 Retained earnings........................................... 59,046 36,886 Cumulative translation adjustment........................... (158) (50) -------- -------- Total stockholders' equity............................. 98,792 66,116 -------- -------- Total liabilities and stockholders' equity............. $144,983 $109,540 ======== ========
The accompanying notes are an integral part of the consolidated financial statements. F-3 COGNIZANT TECHNOLOGY SOLUTIONS CORPORATION CONSOLIDATED STATEMENTS OF OPERATIONS (IN THOUSANDS, EXCEPT PER SHARE DATA)
YEARS ENDED DECEMBER 31, ------------------------------- 2001 2000 1999 ---- ---- ---- Revenues.................................................. $158,969 $122,758 $74,084 Revenues-related party.................................... 18,809 14,273 14,820 -------- -------- ------- Total revenues....................................... 177,778 137,031 88,904 Cost of revenues.......................................... 90,848 70,437 46,161 -------- -------- ------- Gross profit.............................................. 86,930 66,594 42,743 Selling, general and administrative expenses.............. 44,942 35,959 23,061 Depreciation and amortization expense..................... 6,368 4,507 3,037 -------- -------- ------- Income from operations.................................... 35,620 26,128 16,645 Other(expense) income: Interest income........................................... 2,501 2,649 1,263 Impairment loss on investment............................. (1,955) -- -- Other (expense) income, net............................... (767) (530) 37 -------- -------- ------- Total other (expense) income......................... (221) 2,119 1,300 -------- -------- ------- Income before provision for income taxes.................. 35,399 28,247 17,945 Provision for income taxes................................ (13,239) (10,564) (6,711) -------- -------- ------- Net income................................................ $ 22,160 $ 17,683 $11,234 ======== ======== ======= Net income per share, Basic............................... $ 1.17 $ 0.95 $ 0.61 ======== ======== ======= Net income per share, Diluted............................. $ 1.09 $ 0.87 $ 0.58 ======== ======== ======= Weighted average number of common shares outstanding -- Basic................................................... 19,017 18,565 18,342 Dilutive effect of shares issuable as of period-end under stock option plans...................................... 1,354 1,691 1,074 -------- -------- ------- Weighted average number of common shares -- Diluted....... 20,371 20,256 19,416 -------- -------- ------- Comprehensive Income: Net income.............................................. $ 22,160 $ 17,683 $11,234 Foreign currency translation adjustment................. (108) (41) 2 -------- -------- ------- Total comprehensive income................................ $ 22,052 $ 17,642 $11,236 ======== ======== =======
The accompanying notes are an integral part of the consolidated financial statements. F-4 COGNIZANT TECHNOLOGY SOLUTIONS CORPORATION CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
CLASS A CLASS B COMMON STOCK COMMON STOCK ADDITIONAL CUMULATIVE --------------- --------------- PAID-IN RETAINED TRANSLATION SHARES AMOUNT SHARES AMOUNT CAPITAL EARNINGS ADJUSTMENT TOTAL ------ ------ ------ ------ ---------- -------- ----------- ----- (IN THOUSANDS) Balance, December 31, 1998.................... 7,010 $70 11,290 $113 $24,475 $ 7,969 $ (11) $32,616 ===== === ====== ==== ======= ======= ===== ======= Translation Adjustment.... -- -- -- -- -- -- 2 2 Exercise of Stock Options................. 192 2 -- -- 549 -- -- 551 Tax Benefit related to Option Exercises........ -- -- -- -- 886 -- -- 886 Compensatory Grant........ -- -- -- -- 340 -- -- 340 Less Prior year charge................ -- -- -- -- (122) -- -- (122) Less Unearned portion... -- -- -- -- (46) -- -- (46) Net income................ -- -- -- -- -- 11,234 -- 11,234 ----- --- ------ ---- ------- ------- ----- ------- Balance, December 31, 1999.................... 7,202 72 11,290 113 26,082 19,203 (9) 45,461 ===== === ====== ==== ======= ======= ===== ======= Translation Adjustment.... -- -- -- -- -- -- (41) (41) Exercise of Stock Options................. 129 1 -- -- 782 -- -- 783 Tax Benefit related to Option Exercises........ -- -- -- -- 1,258 -- -- 1,258 Employee Stock Purchase Plan.................... 32 -- -- -- 937 -- -- 937 Compensatory Grant........ -- -- -- -- 340 -- -- 340 Less Prior year charges............... -- -- -- -- (294) -- -- (294) Less Unearned portion... -- -- -- -- (11) -- -- (11) Net Income................ -- -- -- -- -- 17,683 -- 17,683 ----- --- ------ ---- ------- ------- ----- ------- Balance, December 31, 2000.................... 7,363 73 11,290 113 29,094 36,886 (50) 66,116 ===== === ====== ==== ======= ======= ===== ======= Translation Adjustment.... -- -- -- -- -- -- (108) (108) Exercise of Stock Options................. 665 7 -- -- 5,131 -- -- 5,138 Tax Benefit related to Stock Plans............. -- -- -- -- 4,633 -- -- 4,633 Employee Stock Purchase Plan.................... 37 -- -- -- 842 -- -- 842 Compensatory Grant........ -- -- -- -- 340 -- -- 340 Less Prior year charges............... -- -- -- -- (329) -- -- (329) Net Income................ -- -- -- -- -- 22,160 -- 22,160 ----- --- ------ ---- ------- ------- ----- ------- Balance, December 31, 2001.................... 8,065 $80 11,290 $113 $39,711 $59,046 $(158) $98,792 ===== === ====== ==== ======= ======= ===== =======
The accompanying notes are an integral part of the consolidated financial statements. F-5 COGNIZANT TECHNOLOGY SOLUTIONS CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS
YEAR ENDED DECEMBER 31, ------------------------------- 2001 2000 1999 ---- ---- ---- (IN THOUSANDS) Cash flows from operating activities: Net income................................................ $ 22,160 $ 17,683 $11,234 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization........................... 6,367 4,507 3,037 Provision/(reduction) for doubtful accounts............. 1,837 572 (31) Deferred income taxes................................... 7,791 6,341 4,258 Impairment loss on investment........................... 1,955 -- -- Tax benefit related to option exercises................. 4,633 1,258 886 Changes in assets and liabilities: Trade accounts receivable................................. (3,833) (10,825) 1,068 Other current assets...................................... (4,115) (1,924) (1,143) Other assets.............................................. 300 (902) (116) Accounts payable.......................................... 803 1,414 (309) Accrued and other liabilities............................. (5,819) 12,096 562 -------- -------- ------- Net cash provided by operating activities................. 32,079 30,220 19,446 -------- -------- ------- Cash flows used in investing activities: Purchase of property and equipment........................ (14,953) (10,652) (5,924) Investment................................................ -- (1,955) -- -------- -------- ------- Net cash used in investing activities..................... (14,953) (12,607) (5,924) Cash flows from financing activities: Proceeds from stock plans/compensatory grant.............. 5,991 1,755 723 (Payments to) proceeds from related party................. (8) 8 (24) -------- -------- ------- Net cash provided by financing activities................. 5,983 1,763 699 Effect of currency translation............................ (108) (41) 2 Increase in cash and cash equivalents..................... 23,001 19,335 14,223 Cash and cash equivalents, at beginning of year........... 61,976 42,641 28,418 -------- -------- ------- Cash and cash equivalents, at end of year................. $ 84,977 $ 61,976 $42,641 ======== ======== ======= Supplemental information: Cash paid for income taxes during the year................ $ 3,797 $ 1,186 $ 2,546 ======== ======== =======
The accompanying notes are an integral part of the consolidated financial statements. F-6 COGNIZANT TECHNOLOGY SOLUTIONS CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA) 1. BASIS OF PRESENTATION Cognizant Technology Solutions Corporation (the "Company" or "CTS") is principally engaged in providing high-quality, cost-effective, full life cycle solutions to complex software development and maintenance requirements that companies face as they transition to e-business. The Company has operations and subsidiaries in India, the United Kingdom, Germany, Canada and the United States. These IT services are delivered through the use of a seamless on-site and offshore consulting project team. These solutions include application development and integration, application management, and re-engineering services. The Company began its software development and maintenance services business in early 1994 as an in-house technology development center for The Dun & Bradstreet Corporation ("D&B") and its operating units. These operating units principally included A.C.Nielsen, Dun & Bradstreet Information Services, Dun & Bradstreet Software, Erisco, Inc. ("Erisco"), IMS International, Inc. ("IMS International"), NCH Promotional Services, Inc., Nielsen Media Research, Inc. ("Nielsen Media Research"), The Reuben H. Donnelley Corporation, Pilot Software, Inc. ("Pilot Software") and Strategic Technologies, Inc. ("Strategic Technologies"), and a majority interest in Gartner Group, Inc. ("Gartner Group"). In November 1996, the Company, Erisco, IMS International, Nielsen Media Research, Pilot Software, Strategic Technologies and certain other entities, plus a majority interest in Gartner Group, were spun-off from D&B to form Cognizant, the then majority owner and controlling parent of the Company. At that time, ACNielsen was separately spun-off from D&B and Dun & Bradstreet Software was sold to GEAC Software. In 1997, Cognizant sold Pilot Software to a third party. In 1997, the Company purchased the 24.0% minority interest in its Indian subsidiary from a third party for $3,468 making the Indian subsidiary wholly owned by the Company. On January 15, 1998, Cognizant announced that it would, subject to certain conditions, reorganize itself (the "Reorganization"), by spinning the Nielsen Media Research business from the rest of its businesses, creating two publicly traded companies, IMS Health Corporation ("IMS Health") and Nielsen Media Research. The reorganization became effective on July 1, 1998. The shares of the Company previously held by Cognizant are now held by IMS Health and all services previously provided to the Company by Cognizant are now being provided by IMS Health. In June 1998, the Company completed its IPO. (See Note 3 to the Consolidated Financial Statements.) As of December 31, 2001, IMS Health owned a majority and controlling interest in the outstanding Common Stock of the Company (58.3%) and held approximately 93.3% of the combined voting power of the Company's Common Stock. IMS Health currently provides the Company with certain administrative services, including payroll and payables processing and permits the Company to participate in IMS Health's business insurance plans. In prior periods, IMS Health provided certain other services such as tax planning and compliance, which have now been transitioned to the Company. Certain employees also participate in IMS Health's employee benefit plans. Costs for these services for all periods prior to the IPO were allocated to the Company based on utilization of certain specific services. All subsequent services were performed and charged to the Company under the CTS/IMS Health intercompany services agreement. (See also Note 10 to the Consolidated Financial Statements.) On February 11, 2000, the Board of Directors declared a 2-for-1 stock split of Class A and Class B Common Stock effected by a 100% dividend payable on March 16, 2000 to stockholders F-7 COGNIZANT TECHNOLOGY SOLUTIONS CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) of record on March 2, 2000. The stock split has been reflected in the accompanying financial statements, and all applicable references to the number of outstanding common shares and per share information has been restated. Appropriate adjustments have been made in the exercise price and number of shares subject to stock options. Stockholders' equity account have been restated to reflect the reclassification of an amount equal to the par value of the increase in issued common shares from the capital in excess of par value account to the common stock accounts. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Principles of Consolidation. The consolidated financial statements reflect the consolidated financial position, results of operations and cash flows of the Company and its consolidated subsidiaries as if it were a separate entity for all periods presented. All intercompany transactions are eliminated. Cash and Cash Equivalents. Cash and cash equivalents primarily include time and demand deposits in the Company's operating bank accounts. The Company considers all highly liquid instruments with an initial maturity of three months or less to be cash equivalents. Investments. Investments in business entities in which the Company does not have control or the ability to exercise significant influence over the operating and financial policies are accounted for under the cost method. Investments are evaluated, at each balance sheet date, for impairment. Property and Equipment. Property and equipment are stated at cost, net of accumulated depreciation. Depreciation is calculated on the straight-line basis over the estimated useful lives of the assets. Leasehold improvements are amortized on a straight-line basis over the shorter of the term of the lease or the estimated useful life of the improvement. Maintenance and repairs are expensed as incurred, while renewals and betterments are capitalized. Purchased Software. Purchased software that is intended for internal use is capitalized, including the salaries and benefits of employees that are directly involved in the installation of such software. The capitalized costs are amortized on a straight-line method over the lesser of three years or its useful life. Goodwill. Goodwill represents the excess of the purchase price of the former minority interest in the Company's Indian subsidiary over the fair values of amounts assigned to the incremental net assets acquired. Amortization expense has been recorded using the straight-line method over a period of seven years. Amortization expense was $317 for each of the years ended December 31, 2001, 2000 and 1999. Accumulated amortization was $1,345, $1,028 and $711 at December 31, 2001, 2000 and 1999, respectively. In accordance with Statement of Financial Accounting Standards ("SFAS") No. 142 "Goodwill and Other Intangible Assets" ("FAS 142"), the Company will no longer amortize its remaining goodwill balance for years beginning after December 31, 2001. Impairment of Long-Lived Assets. In accordance with Statement of Financial Accounting Standards ("SFAS") No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of," the Company reviews for impairment of long-lived assets and certain identifiable intangibles whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. In general, the Company will recognize an impairment loss when the sum of undiscounted expected future cash flows is less than the carrying amount of such assets. The measurement for such an impairment loss is then based on the fair value of the asset. F-8 COGNIZANT TECHNOLOGY SOLUTIONS CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Revenue Recognition. The Company's services are entered into on either a time-and-materials or fixed-price basis. Revenues related to time-and-material contracts are recognized as the service is performed. Revenues related to fixed-price contracts are recognized as the service is performed using the percentage-of-completion method of accounting, under which the sales value of performance, including estimated earnings thereon, is recognized on the basis of the percentage that each contract's cost to date bears to the total estimated cost. Fixed price contracts are cancellable subject to a specified notice period. All services provided by the Company through the date of cancellation are due and payable under the contract terms. The Company issues invoices related to fixed price contracts based upon achievement of milestones during a project or other contractual terms. Differences between the timing of billings, based upon contract milestones or other contractual terms, and the recognition of revenue, based upon the percentage-of-completion method of accounting, are recognized as either unbilled or deferred revenue. Estimates are subject to adjustment as a project progresses to reflect changes in expected completion costs. The cumulative impact of any revision in estimates is reflected in the financial reporting period in which the change in estimate becomes known and any anticipated losses on contracts are recognized immediately. A reserve for warranty provisions under such contracts, which generally exist for ninety days past contract completion, is estimated and accrued during the contract period. Unbilled Accounts Receivable. Unbilled accounts receivable represent revenues on contracts to be billed, in subsequent periods, as per the terms of the contracts. Foreign Currency Translation. The assets and liabilities of the Company's Canadian and European subsidiaries are translated into U.S. dollars from local currencies at current exchange rates and revenues and expenses are translated from local currencies at average monthly exchange rates. The resulting translation adjustments are recorded in a separate component of stockholders' equity. For the Company's Indian subsidiary ("CTS India"), the functional currency is the U.S. dollar, since its sales are made primarily in the United States, the sales price is predominantly in U.S. dollars and there is a high volume of intercompany transactions denominated in U.S. dollars between CTS India and its U.S. affiliates. Non-monetary assets and liabilities are translated at historical exchange rates, while monetary assets and liabilities are translated at current exchange rates. The resulting gain (loss) is included in other income. Risks and Uncertainties. The preparation of financial statements in accordance with generally accepted accounting principles in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, including the recoverability of tangible and intangible assets, disclosure of contingent assets and liabilities as of the date of the financial statements, and the reported amounts of revenues and expenses during the reported period. The most significant estimates relate to the allowance for doubtful accounts, reserve for warranties, reserves for employee benefits, depreciation of fixed assets and long-lived assets, contingencies and litigation and the recognition of revenue and profits based on the percentage of completion method of accounting for fixed bid contracts. Actual results could vary from the estimates and assumptions used in the preparation of the accompanying financial statements. All of the Company's software development centers, including a substantial majority of its employees are located in India. As a result, the Company may be subject to certain risks associated with international operations, including risks associated with foreign currency exchange rate fluctuations and risks associated with the application and imposition of protective legislation and regulations relating to import and export or otherwise resulting from foreign policy or the variability of foreign economic conditions. To date, the Company has not engaged in any F-9 COGNIZANT TECHNOLOGY SOLUTIONS CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) significant hedging transactions to mitigate its risks relating to exchange rate fluctuations. Additional risks associated with international operations include difficulties in enforcing intellectual property rights, the burdens of complying with a wide variety of foreign laws, potentially adverse tax consequences, tariffs, quotas and other barriers. Concentration of Credit Risk. Financial instruments that potentially subject the Company to significant concentrations of credit risk consist primarily of cash and cash equivalents and trade accounts receivable. The Company maintains its cash investments with high credit quality financial institutions in investment-grade, short term debt securities and limits the amount of credit exposure to any one commercial issuer. Income Taxes. Prior to the consummation of the Company's IPO, the Company had been included in the federal and certain state income tax returns of Cognizant and D&B. The provision for income taxes in the Company's consolidated financial statements has been calculated on a separate company basis. Income tax benefits realized by the Company and utilized by Cognizant or D&B are included in stockholders' equity. The Company is no longer included in the consolidated return of its majority owner and controlling parent company, and is required to file separate income tax returns. On a stand-alone basis, the Company provides for income taxes utilizing the asset and liability method of accounting for income taxes. Under this method, deferred income taxes are recorded to reflect the tax consequences in future years of differences between the tax basis of assets and liabilities and their financial reporting amounts at each balance sheet date, based on enacted tax laws and statutory tax rates applicable to the periods in which the differences are expected to affect taxable income. If it is determined that it is more likely than not that future tax benefits associated with a deferred tax asset will not be realized, a valuation allowance is provided. The effect on deferred tax assets and liabilities of a change in the tax rates is recognized in income in the period that includes the enactment date. CTS India is an export oriented company that is entitled to claim a tax holiday for a period of nine years from April 1995 through March 2004 in respect to its export profits. Under the Indian Income Tax Act of 1961, substantially all of the earnings of the Company's Indian subsidiary are currently exempt from Indian Income Tax as profits are attributable to export operations. However, since management currently intends to repatriate all accumulated earnings from India to the United States, the Company has provided deferred U.S. income taxes on all such Indian undistributed earnings. Deferred U.S. income taxes on unremitted earnings from other foreign entities have not been provided for as it is the Company's intent to reinvest such earnings. Such income taxes are immaterial. Net Income per Share. Basic earnings per share ("EPS") excludes dilution and is computed by dividing earnings available to common stockholders by the weighted-average number of common shares outstanding for the period. Diluted EPS includes all dilutive potential common stock in the weighted average shares outstanding. (See Note 8 to the Consolidated Financial Statements) Stock-Based Compensation. With respect to stock options granted to employees, SFAS No. 123 "Accounting for Stock-Based Compensation" permits companies to continue using the accounting method promulgated by the Accounting Principles Board Opinion No. 25 ("APB 25"), "Accounting for Stock Issued to Employees," to measure compensation or to adopt the fair value based method prescribed by SFAS No. 123. Management has decided to continue to use the provisions of APB 25 and not to adopt SFAS No. 123's accounting provisions, but has included the required pro forma disclosures. F-10 COGNIZANT TECHNOLOGY SOLUTIONS CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Reclassifications. Certain prior-year amounts have been reclassified to conform with the 2001 presentation. Recently Issued Accounting Standards. In June 2001, Statement of Financial Accounting Standards No. 141, "Business Combinations" ("FAS 141") and Statement of Financial Accounting Standards No. 142 "Goodwill and Other Intangible Assets" ("FAS 142") were issued. FAS 141 requires the purchase method of accounting to be used for all business combinations initiated after June 30, 2001. FAS 141 also specifies criteria that intangible assets acquired must meet to be recognized and reported separately from goodwill. The Company does not anticipate that adoption of FAS 141 will have any material effect on the Company's financial position or results of operations. FAS 142 requires that goodwill and intangible assets with indefinite lives no longer be amortized but instead be measured for impairment at least annually, or when events indicate that there may be an impairment. FAS 142 is effective for fiscal years beginning after December 15, 2001. The adoption of FAS 142 in the first quarter of 2002 will not have a material effect on the Company's financial position or results of operations. In June 2001, Statement of Financial Accounting Standards No. 143, "Accounting for Asset Retirement Obligations" ("FAS 143") was issued. FAS 143 addresses financial accounting and reporting for legal obligations associated with the retirement of tangible long-lived assets and the associated retirement costs that result from the acquisition, construction, or development and normal operation of a long-lived asset. Upon initial recognition of a liability for an asset retirement obligation, FAS 143 requires an increase in the carrying amount of the related long-lived asset. The asset retirement cost is subsequently allocated to expense using a systematic and rational method over the assets useful life. FAS 143 is effective for fiscal years beginning after June 15, 2002. The adoption of this statement is not expected to have a material impact on the Company's financial position or results of operations. In August 2001, Statement of Financial Standards No. 144, "Accounting for the Impairment or Disposal of Long-lived Assets" ("FAS 144") was issued. FAS 144 supersedes Statement of Financial Accounting Standards No. 121, "Accounting for the Impairment of Long-lived Assets to be Disposed of," and the accounting and reporting provisions of 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." FAS 144 also amends ARB ("Accounting Research Bulletins") No. 51, Consolidated Financial Statements, to eliminate the exception to consolidation for a subsidiary for which control is likely to be temporary. FAS 144 retains the fundamental provisions of FAS 121 for recognizing and measuring impairment losses on long-lived assets held for use and long-lived assets to be disposed of by sale, while resolving significant implementation issues associated with FAS 121. Among other things, FAS 144 provides guidance on how long-lived assets used as part of a group should be evaluated for impairment, establishes criteria for when long-lived assets are held for sale, and prescribes the accounting for long-lived assets that will be disposed of other than by sale. FAS 144 is effective for fiscal years beginning after December 15, 2001. The Company does not anticipate, that adoption of FAS 144 will have a material impact on the Company's financial position and results of operations. 3. INITIAL PUBLIC OFFERING On June 24, 1998, the Company consummated its Initial Public Offering ("IPO") of 5,834,000 shares of its Common Stock at a price of $5.00 per share (on a post-split basis), 5,000,000 of which were issued and sold by the Company and 834,000 of which were sold by Cognizant Corporation ("Cognizant"), the Company's then majority owner and controlling parent F-11 COGNIZANT TECHNOLOGY SOLUTIONS CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) company. The net proceeds to the Company from the IPO were approximately $22,407 after $843 of direct expenses. In July 1998, IMS Health (the accounting successor to Cognizant) sold 875,000 shares of Class B Common Stock, which were converted to Class A Common Stock pursuant to an over allotment option granted to the underwriters of the IPO. Of the total net proceeds received by the Company upon the consummation of its IPO, approximately $6,637 was used to repay the related party balance then owed to Cognizant. The related party balance resulted from certain advances to the Company from Cognizant used to purchase the minority interest of the Company's Indian subsidiary and to fund payroll and accounts payable. Concurrent with the IPO, the Company reclassified the amounts in mandatorily redeemable common stock to stockholders' equity as the redemption feature was voided. (See Note 8 to the Consolidated Financial Statements.) 4. SUPPLEMENTAL FINANCIAL DATA PROPERTY AND EQUIPMENT Property and equipment consist of the following:
ESTIMATED DECEMBER 31, USEFUL LIFE -------------------- (YEARS) 2001 2000 ----------- ---- ---- Buildings........................................ 40 $ 3,930 $ 1,544 Computer equipment and purchased software........ 3 27,160 18,106 Furniture and equipment.......................... 5 - 9 1,958 1,753 Land............................................. 1,678 1,580 Leasehold improvements........................... Various 6,418 3,951 ------- -------- -------- Sub-total........................................ 41,144 26,934 Accumulated depreciation and amortization........ (16,805) (10,997) -------- -------- Property and Equipment -- Net.................... $ 24,339 $ 15,937 ======== ========
ACCRUED EXPENSES AND OTHER LIABILITIES Accrued expenses and other current liabilities consist of the following:
DECEMBER 31, ------------------ 2001 2000 ---- ---- Accrued compensation and benefits........................... $ 7,676 $10,581 Deferred revenue............................................ 2,696 2,199 Accrued vacation............................................ 2,465 1,873 Accrued travel and entertainment............................ 1,705 2,398 Accrued income taxes........................................ 0 1,446 Other....................................................... 3,504 5,368 ------- ------- $18,046 $23,865 ======= =======
5. INVESTMENT In June 2000, the Company announced a strategic relationship with Trident Capital, a leading venture capital firm, to jointly invest in emerging e-business service and technology companies. In accordance with this strategy, the Company invested $1,955 in Questra Corporation, an e-business software and consulting firm headquartered in Rochester, New York, in return for a F-12 COGNIZANT TECHNOLOGY SOLUTIONS CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 5.8% equity interest. Trident Capital also independently made a direct investment in Questra Corporation. The Company's investment is being accounted for under the cost basis of accounting. The Company reviews for impairment certain assets whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Questra Corporation recently issued Preferred B shares in exchange for $19 million of new venture capital financing. Since the Company did not participate, it's ownership interest in Preferred A shares was reduced from 5.8% to 2.1%. Based on the implied fair value of Questra, as measured by the latest round of financing, and considering the preferential liquidation rights that the Preferred B shareholders received, the Company has concluded that it will not recover its investment in Questra and has recorded an impairment loss of $1,955 to recognize the other than temporary decline in value of its investment. 6. EMPLOYEE BENEFITS Beginning in 1997, certain U.S. employees of the Company were eligible to participate in Cognizant's and now IMS Health's 401(k) plan. The Company matches up to 50.0% of the eligible employee's contribution. The amount charged to expense for the Company's matching contribution was $0, $31 and $49 for the years ended December 31, 2001, 2000 and 1999, respectively. In 2000, the Company established a 401(k) plan, which certain U.S. employees of the Company became eligible to participate in. The Company matches up to 50.0% of the eligible employee's contribution. The amount charged to expense for the matching contribution was $351 and $195 for the years ended December 31, 2001 and 2000, respectively. Certain of the Company's employees participate in IMS Health's defined benefit pension plan and a defined contribution plan in the United Kingdom sponsored by the Company. The costs to the Company recognized as postretirement benefit costs and related liabilities were not material to the Company's results of operations or financial position for the years presented. (See Note 10 to the Consolidated Financial Statements.) CTS India maintains an employee benefit plan that covers substantially all India-based employees. The employees' provident fund, pension and family pension plans are statutory defined contribution retirement benefit plans. Under the plans, employees contribute up to twelve percent of their base compensation, which is matched by an equal contribution by CTS India. Contribution expense recognized was $790, $501 and $338 for the years ended December 31, 2001, 2000 and 1999, respectively. CTS India also maintains a statutory gratuity plan that is a statutory postemployment benefit plan providing defined lump sum benefits. CTS India makes annual contributions to an employees' gratuity fund established with a government-owned insurance corporation to fund a portion of the estimated obligation. The Company estimates its obligation based upon employees' salary and years of service. Expense recognized by the Company was $902, $511,and $358 for the years ended December 31, 2001, 2000 and 1999, respectively. F-13 COGNIZANT TECHNOLOGY SOLUTIONS CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 7. INCOME TAXES Income (loss) before provision for income taxes consisted of the following for years ended December 31:
2001 2000 1999 ---- ---- ---- U.S................................................. $ 7,236 $ 7,469 $ 7,553 Non-U.S............................................. 28,163 20,778 10,392 ------- ------- ------- Total............................................... $35,399 $28,247 $17,945 ======= ======= =======
The provision (benefit) for income taxes consists of the following for the years ended December 31:
2001 2000 1999 ---- ---- ---- U.S. Federal and state: Current............................................ $ 2,986 $ 3,276 $3,079 Deferred........................................... 8,620 6,409 3,354 ------- ------- ------ Total U.S. Federal and state....................... 11,606 9,685 6,433 ------- ------- ------ Non-U.S.: Current............................................ 1,466 961 315 Deferred........................................... 167 (82) (37) ------- ------- ------ Total non-U.S...................................... 1,633 879 278 ------- ------- ------ Total.............................................. $13,239 $10,564 $6,711 ======= ======= ======
The following table sets forth the significant differences between the U.S. federal statutory taxes and the Company's provision for income taxes for consolidated financial statement purposes:
2001 2000 1999 ---- ---- ---- Tax expense at U.S. Federal statutory rate........... $12,390 $ 9,604 $6,101 State and local income taxes, net of Federal benefit............................................ 361 375 398 Non-deductible Goodwill amortization................. 111 108 109 Other................................................ 377 477 103 ------- ------- ------ Total income taxes................................... $13,239 $10,564 $6,711 ======= ======= ======
The Company's deferred tax assets (liabilities) are comprised of the following at December 31:
2001 2000 ---- ---- Deferred tax assets: Net operating losses...................................... $ -- $ 120 Timing differences........................................ 1,042 367 Net deferred tax assets..................................... 1,042 487 Deferred tax liabilities: Undistributed Indian income................................. 25,535 17,189 Total deferred tax liabilities.............................. 25,535 17,189 Net deferred tax liability.................................. $24,493 $16,702
F-14 COGNIZANT TECHNOLOGY SOLUTIONS CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) CTS India is an export oriented company that is entitled to claim a tax holiday for a period of nine years from April 1995 through March 2004 in respect to its export profits. Under the Indian Income Tax Act of 1961, substantially all of the earnings of the Company's Indian subsidiary are currently exempt from Indian Income Tax as profits are attributable to export operations. However, since management currently intends to repatriate all accumulated earnings from India to the United States, the Company has provided deferred U.S. income taxes on all such undistributed earnings. Deferred U.S. income taxes on unremitted earnings from other foreign entities have not been provided for as it is the Company's intent to reinvest such earnings. Such income taxes are not material. The Company has determined that the income taxes recorded by the Company would not be materially different in the absence of the current tax exemption and, therefore, the tax exemption had no material effect on earnings per share. 8. CAPITAL STOCK A. Common Stock. On June 12, 1998, the Company amended and restated its certificate of incorporation to authorize 100,000,000 shares of Class A common stock, par value $.01 per share, 15,000,000 shares of Class B common stock, par value $.01 per share, and 15,000,000 shares of preferred stock, par value $.10 per share, and effected a 0.65 for one reverse stock split. Holders of Class A common stock have one vote per share and holders of Class B common stock have ten votes per share. Holders of Class B common stock are entitled to convert their shares into Class A common stock at any time on a share for share basis. Shares of Class B Common Stock transferred to stockholders of IMS Health in a transaction intended to be on a tax-free basis (a "Tax-Free Spin-Off") under the Code shall not convert to shares of Class A Common Stock upon the occurrence of such Tax-Free Spin-Off. No preferred stock has been issued. Subsequent to the IPO, the underwriters exercised their right to purchase an additional 875,100 shares of Class A Common Stock. As a result, IMS Health, the majority owner and controlling parent of the Company, converted 875,100 shares of Class B Common stock into Class A Common Stock and subsequently sold such shares. On February 11, 2000, the Board of Directors declared a 2-for-1 stock split of Class A and Class B Common Stock effected by a 100% dividend payable on March 16, 2000 to stockholders of record on March 2, 2000. The stock split has been reflected in the financial statements, and all applicable references to the number of outstanding common shares and per share information has been restated. Appropriate adjustments have been made in the exercise price and number of shares subject to stock options. Stockholders' equity account have been restated to reflect the reclassification of an amount equal to the par value of the increase in issued common shares from the capital in excess of par value account to the common stock accounts. On May 23, 2000, the stockholders of the Company approved an increase in the number of authorized Class B common Stock from 15,000,000 shares to 25,000,000 shares. B. Redeemable Common Stock. On July 25, 1997, certain management employees of the Company and its affiliates subscribed and subsequently purchased Common Stock under the "Key Employees Restricted Stock Purchase Plan." These shares were purchased by the employees at the then estimated fair market value of $1.93 per share. Holders of the stock may put, at any time, to the Company their shares at the lower of the purchase price or the share price based on a valuation of the Company at the time of the put. Upon consummation of the IPO, this put right terminated. The Company initially recorded the value of the purchased stock outside the equity section. In 1998, upon the completion of the initial public offering, all redemption conditions were removed, and the shares were reclassified to common stock. F-15 COGNIZANT TECHNOLOGY SOLUTIONS CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 9. EMPLOYEE STOCK OPTION PLAN In July 1997, CTS adopted a Key Employees Stock Option Plan, which provides for the grant of up to 1,397,500 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. As a result of the IPO, 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. In December 1997, CTS adopted a Non-Employee Directors' Stock Option Plan, which provides for the grant of up to 143,000 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. As a result of the IPO, 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. In March 1998, CTS granted non-qualified stock options to purchase an aggregate of 97,500 shares to CTS's Chairman and Chief Executive Officer at an exercise price of $13.84 per share, an amount less than the then fair market value of the shares on the date of the grant. The Company has recorded the related compensation expense over the vesting period of these options. In May 1999, CTS adopted the 1999 Incentive Compensation Plan, which provides for the grant of up to 2,000,000 stock options to eligible employees, nonemployee Directors and independent contractors. 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, unless specified otherwise, and have an exercise price equal to the fair market value of the common stock on the grant date. On May 23, 2000, the stockholders of the Company approved an increase in the number of shares available for issuance under this plan from 2,000,000 to 3,000,000 shares. On May 30, 2001, the stockholders of the Company approved an increase in the number of shares available for issuance under this plan from 3,000,000 to 6,000,000. A summary of the Company's stock option activity, and related information is as follows as of December 31, 2001, 2000 and 1999:
------------------------------------------------------------------ 2001 2001 2000 2000 1999 1999 ------------------------------------------------------------------ WEIGHTED WEIGHTED WEIGHTED AVERAGE AVERAGE AVERAGE EXERCISE EXERCISE EXERCISE SHARES PRICE SHARES PRICE SHARES PRICE ------ -------- ------ -------- ------ -------- Outstanding at beginning of year............................ 3,681,312 $18.90 2,551,808 $ 8.37 1,370,052 $ 2.93 Granted, Employee Option Plan... -- -- -- -- 122,400 $13.73 Granted, Directors Option Plan.......................... -- -- -- -- 40,000 11.16 Granted, 1999 Incentive Comp. Plan.......................... 1,541,600 $31.71 1,408,000 $37.59 1,277,000 12.58 Exercised....................... (666,019) $ 7.71 (129,868) $ 6.01 (191,494) 2.88 Cancelled....................... (238,352) $37.57 (147,878) $26.43 (66,150) 4.51 Expired......................... (13,000) $53.70 (750) $12.22 -- -- --------- --------- --------- Outstanding -- end of year........ 4,305,541 $24.08 3,681,312 $18.90 2,551,808 $ 8.37 Exercisable -- end of year........ 1,192,510 $13.99 956,608 $ 5.83 441,902 $ 3.40
F-16 COGNIZANT TECHNOLOGY SOLUTIONS CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) The following summarizes information about the Company's stock options outstanding and exercisable by price range at December 31, 2001:
- --------------------------------------------------------------------------------------------- OPTIONS OUTSTANDING OPTIONS EXERCISABLE - --------------------------------------------------------------------------------------------- WEIGHTED AVERAGE REMAINING WEIGHTED WEIGHTED RANGE OF NUMBER CONTRACTUAL LIFE AVERAGE AVERAGE EXERCISE PRICES OUTSTANDING IN YEARS EXERCISE PRICE OPTIONS EXERCISE PRICE - --------------- ----------- ---------------- -------------- ------- -------------- $1.93 - $1.93 386,404 5.5 Years $ 1.93 386,404 $ 1.93 $3.46 - $5.00 206,532 6.3 Years $ 4.24 162,276 $ 4.04 $5.44 - $8.06 16,500 6.7 Years $ 6.23 5,000 $ 5.96 $10.75 - $15.36 1,064,055 7.4 Years $12.39 351,155 $12.36 $20.78 - $30.94 1,069,800 9.3 Years $28.12 2,000 $29.94 $31.50 - $45.50 1,404,250 8.9 Years $35.43 229,175 $33.35 $47.91 - $68.75 158,000 8.3 Years $56.53 56,500 $56.89 --------- --------- Total 4,305,541 8.2 Years $24.08 1,192,510 $13.99
Compensation cost recognized by the Company under APB 25 was $11, $35 and $172 for 2001, 2000 and 1999, respectively. Had compensation cost for the Company's stock-based compensation plans, as well as the IMS Health options held by certain executive officers (See Note 10 to the Consolidated Financial Statements), been determined based on the fair value at the grant dates for awards under those plans, consistent with the method prescribed by SFAS No. 123, the Company's net income and net income per share would have been reduced to the pro forma amounts indicated below:
DECEMBER 31, --------------------------- 2001 2000 1999 ---- ---- ---- Net income As reported......................................... $22,160 $17,683 $11,234 Pro forma........................................... $15,033 $12,815 $10,047 As reported Net income per share, basic......................... $ 1.17 $ 0.95 $ 0.61 Net income per share, diluted....................... $ 1.09 $ 0.87 $ 0.58 Pro forma Net income per share, basic......................... $ 0.79 $ 0.69 $ 0.55 Net income per share, diluted....................... $ 0.74 $ 0.63 $ 0.52
The pro forma disclosures shown above are not representative of the effects on net income and earnings per share in future years. For purposes of pro forma disclosures only, the fair value for all Company options was estimated at the date of grant using the Black-Scholes option model with the following weighted average assumptions in 2001; risk-free interest rate of 4.3%, expected dividend yield of 0.0%, expected volatility of 78% and weighted average expected life of 3.0 years. 2000 assumptions; risk-free interest rate of 6.1%, expected dividend yield of 0.0%, expected volatility of 75% and expected life of 3.9 years. 1999 assumptions; risk-free interest rate of 5.6%, expected dividend yield of 0.0%, expected volatility of 75.0% and expected life of 3.9 years. The weighted-average fair value of the Company's options granted during 2001, 2000 and 1999 was $16.68, $21.71 and $7.45, respectively. The assumptions used in 1999 for IMS Health stock options were: risk-free interest rate of 4.8%, expected dividend yield of 0.3%, expected volatility of 35.0% and expected life of 3.0 years. The assumptions used in 1998 for IMS Health stock options were: risk-free F-17 COGNIZANT TECHNOLOGY SOLUTIONS CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) interest rate of 5.5%, expected dividend yield of 0.3%, expected volatility of 25.0% and expected life of 3.0 years. The weighted average fair value of IMS Health stock options granted to certain executive officers in 1998 was $7.14 and in 1999 was $9.99. 10. RELATED PARTY TRANSACTIONS AND TRANSACTIONS WITH AFFILIATES Revenues. The Company and IMS Health have entered into Master Services Agreements pursuant to which the Company provides IT services to IMS Health. In 2001, the Company recognized related party revenues totaling $18,809 including revenues from IMS Health. In 2000, the Company recognized related party revenues totaling $14,273 including revenues from IMS Health and Strategic Technologies (through August 30, 2000). In 1999, the Company recognized related party revenues totaling $14,820 including revenues from IMS Health and Strategic Technologies. Affiliated Agreements. In 1997, the Company entered into various agreements with Cognizant which were assigned to IMS Health as part of the 1998 Reorganization. The agreements include an Intercompany Services Agreement for services provided by IMS Health such as payroll and payables processing, tax, real estate and risk management services, a License Agreement to use the "Cognizant" trade name and an Intercompany Agreement. On July 1, 1998, IMS Health transferred all of its rights to the "Cognizant" name and related trade and service marks to the Company. Services. IMS Health currently provides the Company with certain administrative services, including payroll and payables processing and permits the Company to participate in IMS Health's business insurance plans. In prior periods, IMS Health provided certain other services such as tax planning and compliance, which have now been transitioned to the Company. All services were performed under the CTS/IMS Health intercompany services agreement. Total costs charged to the Company by IMS Health in connection with these services were $440, $254 and $350 for the years ended December 31, 2001, 2000 and 1999, respectively. In December 2001, the Company paid IMS Health a one-time fee of approximately $825 under an alliance agreement in which the Company was named "vendor of choice" for IT services to the pharmaceutical industry. Intercompany receivables/payables to IMS Health at December 31, 2001, 2000 and 1999 are as follows:
2001 2000 1999 ---- ---- ---- Proceeds from (payments to), net............................ -- $8 $(24)
In addition, the Company has a certain relationship with the former Erisco Managed Care Technologies ("Erisco"), which is now a wholly owned subsidiary of The Trizetto Group, Inc. ("Trizetto"). As of December 31, 2001, IMS Health owned approximately 26.8% of the outstanding common stock of Trizetto. During 2001 the Company recorded revenues from Erisco of approximately $401 and payments to Erisco for commissions and marketing fees of approximately $1,012. Pension Plans. Certain U.S. employees of the Company participate in IMS Health's defined benefit pension plans. The plans are cash balance pension plans under which six percent of creditable compensation plus interest is credited to the employee's retirement account on a monthly basis. The cash balance earns monthly investment credits based on the 30-year Treasury bond yield. At the time of retirement, the vested employee's account balance is F-18 COGNIZANT TECHNOLOGY SOLUTIONS CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) actuarially converted into an annuity. The Company's cost for these plans is included in the allocation of expense from IMS Health for employee benefits plans. Stock Options. In November 1996, in consideration for services to the Company, Cognizant Corporation granted an executive officer and director of the Company options to purchase an aggregate of 114,900 shares (on a pre-split basis) of the common stock of Cognizant Corporation at an exercise price of $33.38 per share. Such executive officer and director agreed to forfeit options to purchase 58,334 shares (on a pre-split basis) of Cognizant Corporation common stock upon the consummation of the Company's initial public offering. In July 1998, IMS Health granted an executive officer options to purchase an aggregate of 8,158 shares (on a pre-split basis) of the common stock of IMS Health at an exercise price of $30.17 per share. All remaining such options have since been converted into options to purchase the common stock of IMS Health as a result of the Reorganization that occurred on July 1, 1998, the two-for-one split of IMS Health stock that occurred on January 15, 1999, the distribution of Gartner Group shares that occurred on July 26, 1999 and the distribution of Synavant Inc. (formerly known as Strategic Technologies) shares that occurred on August 30, 2000. At December 31, 2001 after adjusting for the Reorganization, the split of IMSH stock and the distribution of Gartner Group and Synavant Inc. shares, such officer had 143,687 options in IMS Health outstanding at a weighted average exercise price of $14.47 per share. At December 31, 2001, 127,470 options were exercisable. In November 1996, Cognizant Corporation granted an executive officer options to purchase an aggregate of 60,000 shares (on a pre-split basis) of the common stock of Cognizant Corporation at an exercise price of $33.38 per share. In addition, in November 1996, such executive officer was granted options to purchase an aggregate of 20,000 shares (on a pre-split basis) of the common stock of Cognizant Corporation at an exercise price of $33.38 per share, which was equal to the fair market value at the grant date, by paying ten percent of the option exercise price as an advance payment toward such exercise. The unvested portion of such advance payment is refundable under certain conditions. The remaining 90 percent is payable at exercise. In July 1998, IMS Health granted an executive officer options to purchase an aggregate of 9,106 shares (on a pre-split basis) of the common stock of IMS Health at an exercise price of $30.17 per share. All remaining such options have since been converted into options to purchase the common stock of IMS Health as a result of the Reorganization, the two-for-one split of IMS Health stock, the distribution of Gartner Group and Synavant Inc. shares discussed above. At December 31, 2001, after adjusting for the Reorganization, the split of IMSH stock and the distribution of Gartner Group and Synavant Inc. shares, such officer had 68,222 options in IMS Health outstanding at a weighted average exercise price of $17.07 per share. At December 31, 2001, 39,326 options were exercisable. 11. COMMITMENTS As of December 31, 2001, the Company has entered into fixed capital commitments related to its India development center expansion program of approximately $10.7 million, of which $7.6 million has been spent to date. The Company leases office space and equipment under operating leases, which expire at various dates through the year 2010. Certain leases contain renewal provisions and generally require the Company to pay utilities, insurance, taxes, and other operating expenses. Future F-19 COGNIZANT TECHNOLOGY SOLUTIONS CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) minimum rental payments under operating leases that have initial or remaining lease terms in excess of one year as of December 31, 2001 are as follows: 2002........................................................ $ 4,761 2003........................................................ 4,296 2004........................................................ 2,819 2005........................................................ 1,400 2006........................................................ 785 Thereafter.................................................. 2,033 ------- Total minimum lease payments................................ $16,094
Rental expense totaled $3,175, $3,472, and $1,823 for years ended December 31, 2001, 2000 and 1999, respectively. The Company is involved in various claims and legal actions arising in the ordinary course of business. In the opinion of management, the outcome of such claims and legal actions, if decided adversely, is not expected to have a material adverse effect on the Company's business, financial condition and results of operations. Additionally, many of the Company's engagements involve projects that are critical to the operations of its customers' business and provide benefits that are difficult to quantify. Any failure in a customer's computer system could result in a claim for substantial damages against the Company, regardless of the Company's responsibility for such failure. Although the Company attempts to contractually limit its liability for damages arising from negligent acts, errors, mistakes, or omissions in rendering its software development and maintenance services, there can be no assurance that the limitations of liability set forth in its contracts will be enforceable in all instances or will otherwise protect the Company from liability for damages. Although the Company has general liability insurance coverage, including coverage for errors or omissions, there can be no assurance that such coverage will continue to be available on reasonable terms or will be available in sufficient amounts to cover one or more large claims, or that the insurer will not disclaim coverage as to any future claim. The successful assertion of one or more large claims against the Company that exceed available insurance coverage or changes in the Company's insurance policies, including premium increases or the imposition of large deductible or co-insurance requirements, would have a material adverse effect on the Company's business, results of operations and financial condition. 12. SEGMENT INFORMATION The Company, operating globally, provides software services for medium and large businesses. North American operations consist primarily of software services in the United States and Canada. European operations consist of software services principally in the United Kingdom. Asian operations consist of software services principally in India. The Company is managed on a geographic basis. Accordingly, regional sales managers, sales managers, account managers, project teams and facilities are segmented geographically and decisions by the Company's chief operating decision maker regarding the allocation of assets and assessment of performance are based on such geographic segmentation. In accordance with SFAS No. 131, "Disclosures About Segments of an Enterprise and Related Information." Information about the Company's operations and total assets in North F-20 COGNIZANT TECHNOLOGY SOLUTIONS CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) America, Europe and Asia for the years ended December 31, 2001, 2000 and 1999 are as follows:
2001 2000 1999 ---- ---- ---- REVENUES(1)(1a) North America(2).................................... $152,422 $114,932 $71,171 Europe(3)........................................... 23,092 20,959 17,352 Asia................................................ 2,264 1,140 381 -------- -------- ------- Consolidated........................................ $177,778 $137,031 $88,904 ======== ======== ======= OPERATING INCOME(1) North America(2).................................... $ 30,536 $ 21,918 $13,328 Europe(3)........................................... 4,632 3,994 3,245 Asia................................................ 452 216 72 -------- -------- ------- Consolidated........................................ $ 35,620 $ 26,128 $16,645 ======== ======== ======= IDENTIFIABLE ASSETS North America(2).................................... $ 88,328 $ 71,464 $43,671 Europe(4)........................................... 5,322 7,293 3,408 Asia................................................ 51,333 30,783 21,947 -------- -------- ------- Consolidated........................................ $144,983 $109,540 $69,026 ======== ======== =======
- --------------- (1) Revenues and resulting operating income are attributed to regions based upon customer location. (1a) Application development and integration services represented approximately 32.3%, 46.1% and 42.9% of revenues in 1999, 2000 and 2001, respectively. Application management services accounted for 44.0%, 47.0% and 51.8% of revenues in 1999, 2000 and 2001, respectively. Year 2000 compliance services represented approximately 15.6% of revenues in 1999. (2) Substantially all relates to operations in the United States. (3) Includes revenue from operations in the United Kingdom of $18,129, $13,718, and $9,933 for the year ended December 31, 2001, 2000 and 1999, respectively. (4) Includes identifiable assets in the United Kingdom of $5,184, $7,012, and $3,325 at December 31, 2001, 2000 and 1999, respectively. During 1999, 2000 and 2001, the Company's top five customers accounted for, in the aggregate, 57.3%, 39.5% and 34.7% of revenues, respectively. The Company's ten largest customers accounted for, in the aggregate, approximately 75.3%, 59.1% and 53.0% of the Company's revenues in 1999, 2000 and 2001, respectively. In 2001, sales to related party customers accounted for 10.6% of revenues. No third party customer accounted for sales in excess of 10% of revenues in 2000. In 2000, sales to related party customers accounted for 10.4% of revenues. No third party customer accounted for sales in excess of 10% of revenues in 2000. In 1999, sales to related party customers accounted for 16.7% of revenues and one third party customer accounted for 17.4% of revenues. For statement of operations purposes, revenues from related parties only include revenues recognized during the period in which the related party was affiliated with the Company. F-21 COGNIZANT TECHNOLOGY SOLUTIONS CORPORATION VALUATION AND QUALIFYING ACCOUNTS (DOLLARS IN THOUSANDS) Accounts Receivable Allowance:
BALANCE AT CHARGED TO CHARGED TO BEGINNING COSTS AND OTHER BALANCE AT YEAR OF PERIOD EXPENSES ACCOUNTS DEDUCTIONS END OF PERIOD ---- ---------- ---------- ---------- ---------- ------------- 2001...................... $516 $1,895 -- $1,529 $882 2000...................... $225 $ 572 -- $ 281 $516 1999...................... $274 $ (31) -- $ 18 $225
F-22 COGNIZANT TECHNOLOGY SOLUTIONS CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME (UNAUDITED) (IN THOUSANDS, EXCEPT PER SHARE DATA)
THREE MONTHS ENDED NINE MONTHS ENDED SEPTEMBER 30, SEPTEMBER 30, ------------------- ------------------- 2002 2001 2002 2001 ---- ---- ---- ---- Revenues......................................... $55,714 $40,403 $146,510 $120,803 Revenues -- related party........................ 5,519 5,099 15,565 13,514 ------- ------- -------- -------- Total revenues.............................. 61,233 45,502 162,075 134,317 Cost of revenues................................. 32,970 23,109 86,507 68,859 ------- ------- -------- -------- Gross profit..................................... 28,263 22,393 75,568 65,458 Selling, general and administrative expenses..... 14,150 11,441 37,933 34,306 Depreciation and amortization expense............ 2,005 1,629 5,679 4,566 ------- ------- -------- -------- Income from operations........................... 12,108 9,323 31,956 26,586 Other income (expense): Interest income................................ 471 643 1,305 2,006 Other income (expense) -- net.................. 24 (209) (89) (604) ------- ------- -------- -------- Total other income.......................... 495 434 1,216 1,402 ------- ------- -------- -------- Income before provision for income taxes......... 12,603 9,757 33,172 27,988 Provision for income taxes....................... (2,936) (3,649) (7,749) (10,468) ------- ------- -------- -------- Net income....................................... $ 9,667 $ 6,108 $ 25,423 $ 17,520 ======= ======= ======== ======== Basic earnings per share......................... $ 0.49 $ 0.32 $ 1.30 $ 0.93 ======= ======= ======== ======== Diluted earnings per share....................... $ 0.45 $ 0.30 $ 1.21 $ 0.86 ======= ======= ======== ======== Weighted average number of common shares outstanding -- Basic........................... 19,862 19,184 19,618 18,896 ======= ======= ======== ======== Dilutive effect of shares issuable as of period-end under stock option plans............ 1,589 1,331 1,422 1,486 ======= ======= ======== ======== Weighted average number of common shares outstanding -- Diluted......................... 21,451 20,515 21,040 20,382 ======= ======= ======== ======== Comprehensive income: Net income....................................... $ 9,667 $ 6,108 $ 25,423 $ 17,520 Foreign currency translation adjustments......... (194) 50 (98) (59) ------- ------- -------- -------- Comprehensive income............................. $ 9,473 $ 6,158 $ 25,325 $ 17,461 ======= ======= ======== ========
The accompanying notes are an integral part of the unaudited condensed consolidated financial statements. F-23 COGNIZANT TECHNOLOGY SOLUTIONS CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL POSITION (UNAUDITED) (IN THOUSANDS, EXCEPT PAR VALUES)
SEPTEMBER 30, DECEMBER 31, 2002 2001 ------------- ------------ ASSETS Current assets: Cash and cash equivalents................................. $123,082 $ 84,977 Trade accounts receivable, net of allowance of $881 and $882, respectively..................................... 30,206 21,063 Trade accounts receivable-related party................... 1,614 1,481 Unbilled accounts receivable.............................. 6,719 5,005 Unbilled accounts receivable-related party................ 818 417 Other current assets...................................... 6,877 4,392 -------- -------- Total current assets................................... 169,316 117,335 -------- -------- Property and equipment, net of accumulated depreciation of $22,622 and $16,805, respectively......................... 25,906 24,339 Goodwill, net............................................... 878 878 Other assets................................................ 4,676 2,431 -------- -------- Total assets........................................... $200,776 $144,983 ======== ======== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable.......................................... $ 4,817 $ 3,652 Accrued and other current liabilities..................... 27,865 18,046 -------- -------- Total current liabilities.............................. 32,682 21,698 Deferred income taxes....................................... 25,472 24,493 -------- -------- Total liabilities...................................... 58,154 46,191 -------- -------- Commitments and Contingencies (Note 7) Stockholders' equity: Preferred stock, $.10 par value, 15,000 shares authorized, none issued............................................... -- -- Class A common stock, $.01 par value, 100,000 shares authorized, 8,745 shares and 8,065 shares issued and outstanding at September 30, 2002 and December 31, 2001, respectively.............................................. 87 80 Class B common stock, $.01 par value, 25,000 shares authorized, 11,291 shares issued and outstanding at September 30, 2002 and December 31, 2001, respectively.... 113 113 Additional paid-in-capital.................................. 58,209 39,711 Retained earnings........................................... 84,469 59,046 Cumulative translation adjustment........................... (256) (158) -------- -------- Total stockholders' equity............................. 142,622 98,792 -------- -------- Total liabilities and stockholders' equity............. $200,776 $144,983 ======== ========
The accompanying notes are an integral part of the unaudited condensed consolidated financial statements. F-24 COGNIZANT TECHNOLOGY SOLUTIONS CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) (IN THOUSANDS)
FOR THE NINE MONTHS ENDED SEPTEMBER 30, -------------------- 2002 2001 --------- -------- Cash flows from operating activities: Net income.................................................. $ 25,423 $17,520 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization............................. 5,679 4,566 Provision for doubtful accounts........................... 541 1,388 Deferred income taxes..................................... 979 5,675 Tax benefit related to option exercises................... 5,545 4,101 Changes in assets and liabilities: Trade accounts receivable................................. (9,817) (1,320) Other current assets...................................... (4,600) (5,318) Other assets.............................................. 852 133 Accounts payable.......................................... 1,165 146 Accrued and other liabilities............................. 9,819 (3,176) -------- ------- Net cash provided by operating activities................... 35,586 23,715 -------- ------- Cash flows from investing activities: Purchases of property and equipment-net..................... (7,599) (10,691) Acquisition of assets....................................... (2,744) -- -------- ------- Net cash used in investing activities....................... (10,343) (10,691) -------- ------- Cash flows from financing activities: Proceeds from issued shares/contributed capital............. 12,960 4,818 Payments to related party................................... -- 8 -------- ------- Net cash provided by financing activities................... 12,960 4,826 -------- ------- Effect of currency translation.............................. (98) (59) -------- ------- Increase in cash and cash equivalents....................... 38,105 17,791 Cash and cash equivalents, beginning of year................ 84,977 61,976 -------- ------- Cash and cash equivalents, end of period.................... $123,082 $79,767 ======== =======
The accompanying notes are an integral part of the unaudited condensed consolidated financial statements. F-25 COGNIZANT TECHNOLOGY SOLUTIONS CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (DOLLAR AMOUNTS IN THOUSANDS) NOTE 1 -- INTERIM UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS: The accompanying unaudited condensed consolidated financial statements included herein have been prepared by Cognizant Technology Solutions Corporation (the "Company") in accordance with generally accepted accounting principles in the United States and Article 10 of Regulation S-X under the Securities Exchange Act of 1934, as amended, and should be read in conjunction with the Company's consolidated financial statements (and notes thereto) included in the Company's 2001 Annual Report on Form 10-K and the Company's unaudited condensed consolidated financial statements (and notes thereto) included in the Company's Quarterly Reports on Form 10-Q for the periods ended March 31, 2002 and June 30, 2002. In the opinion of the Company's management, all adjustments considered necessary for a fair presentation of the accompanying unaudited condensed consolidated financial statements have been included, and all adjustments are of a normal and recurring nature. Operating results for the interim period are not necessarily indicative of results that may be expected to occur for the entire year. Certain prior-year amounts have been reclassified to conform to the 2002 presentation. NOTE 2 -- ACQUISITION OF ASSETS: On June 30, 2002, Cognizant Technology Solutions Ireland Limited ("CTS Ireland"), a newly formed, wholly-owned subsidiary of the Company, purchased certain assets and assumed certain liabilities from UnitedHealthcare Ireland Limited ("UHC Ireland"), a subsidiary of UnitedHealth Group, for $2,900. UHC Ireland previously provided, and will continue to provide through CTS Ireland, application design, development and maintenance services, using its existing staff of 70 Information Technology ("IT") professionals. The acquisition of the assets of UHC Ireland will enable the Company to provide a wide range of services to the Company's clients in Europe and worldwide and represents the initial phase of the implementation of the Company's previously announced international expansion strategy. The Company has completed a preliminary assessment of the allocation of the purchase price to the tangible and amortizable intangible assets acquired and liabilities assumed. Based upon that preliminary assessment, the Company has assigned estimated values to the workforce and customer relationship acquired, and expects the useful lives of such assets to range between three and ten years. Amortization expense associated with these intangible assets of $114 has been included in the Company's Statements of Operations for the three and nine-month periods ended September 30, 2002. The Company expects that adjustments related to the finalization of the valuation of such intangible assets will not have a material effect on the Company's results of operations. Pending finalization of the valuation, the purchase price, net of amounts assigned to fixed assets of approximately $260, has been included in long-term "Other Assets" in the accompanying Balance Sheet. Such net assets have been included as identifiable assets in the European segment in Note 8 of the Notes to the Unaudited Condensed Consolidated Financial Statements. The results of CTS Ireland have been included in the unaudited condensed consolidated financial statements of the Company effective July 1, 2002. F-26 COGNIZANT TECHNOLOGY SOLUTIONS CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) NOTE 3 -- COMPREHENSIVE INCOME: The Company's Comprehensive Income consists of net income and foreign currency translation adjustments. Accumulated balances of Cumulative Translation Adjustments, as of September 30, 2002 and September 30, 2001 are as follows:
CUMULATIVE TRANSLATION ADJUSTMENT ----------- Balance, December 31, 2001.................................. $(158) Foreign currency translation adjustments.................... (98) ----- Balance, September 30, 2002................................. $(256) ===== Balance, December 31, 2000.................................. $ (50) Foreign currency translation adjustments.................... (59) ----- Balance, September 30, 2001................................. $(109) =====
NOTE 4 -- RELATED PARTY TRANSACTIONS AND TRANSACTIONS WITH AFFILIATES: As of September 30, 2002, IMS Health Incorporated ("IMS Health") owned 56.4% of the outstanding common stock of the Company (representing all of the Company's Class B common stock) and held 92.8% of the combined voting power of the Company's common stock. Holders of Class A common stock have one vote per share and holders of Class B common stock have ten votes per share. Holders of Class B common stock are entitled to convert their shares into shares of Class A common stock at any time on a share for share basis. Shares of Class B common stock transferred to stockholders of IMS Health in a transaction intended to be on a tax-free basis (a "Tax-Free Transaction") under the Internal Revenue Code shall not convert into shares of Class A common stock upon the occurrence of such Tax-Free Transaction. No preferred stock has been issued. IMS Health currently provides the Company with certain administrative services including payroll and payables processing and permits the Company to participate in certain of IMS Health's business insurance plans. In prior periods, IMS Health provided certain other services such as tax planning and compliance, which have since been transitioned to the Company. All services are performed and charged to the Company under an intercompany services agreement with IMS Health. Total costs in connection with these services were approximately $139 and $110 for the three-month periods ended September 30, 2002 and 2001, respectively. Total costs in connection with these services were approximately $417 and $330 for the nine-month periods ended September 30, 2002 and 2001, respectively. The Company has a strategic relationship with The TriZetto Group Inc. ("TriZetto") that includes helping its healthcare customers integrate TriZetto's products with their existing information systems and, within TriZetto, supporting further development of these software applications. As of September 30, 2002, IMS Health owned approximately 26.5% of the outstanding common stock of TriZetto. During the three- and nine-month periods ended September 30, 2002, the Company recorded revenues from TriZetto of approximately $1,199 and $1,302, respectively, and recorded expense related to TriZetto commissions of approximately $123 and $456 for the three- and nine-month periods ended September 30, 2002, respectively. During the three- and nine-month periods ended September 30, 2001, the Company recorded revenues from TriZetto of approximately $401 and recorded expense related to TriZetto F-27 COGNIZANT TECHNOLOGY SOLUTIONS CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) commissions of approximately $0 and $793 for the three- and nine-month periods ended September 30, 2001, respectively. Other related party disclosures are included in Note 8 of the Notes to the Unaudited Condensed Consolidated Financial Statements. NOTE 5 -- INCOME TAXES: The Company's Indian subsidiary, CTS India, is an export-oriented company which, under the Indian Income Tax Act of 1961, is entitled to claim tax holidays for a period of ten years with respect to its export profits. Substantially all of the earnings of CTS India are attributable to export profits and are therefore currently entitled to a 90% exemption from Indian income tax. These tax holidays will begin to expire in 2004 and under current law will be completely phased out by March of 2009. In prior years, it was management's intent to repatriate all accumulated earnings from India to the United States; accordingly, the Company has provided deferred income taxes in the amount of approximately $25,535 on all such undistributed earnings through December 31, 2001. During the first quarter of 2002, the Company made a strategic decision to pursue an international strategy that includes expanded infrastructure investments in India and geographic expansion in Europe and Asia. As a component of this strategy, the Company intends to use 2002 and future Indian earnings to expand operations outside of the United States, instead of repatriating these earnings to the United States. Accordingly, effective January 1, 2002, pursuant to Accounting Principles Bulletin 23, the Company will no longer accrue taxes on the repatriation of earnings recognized in 2002 and subsequent periods as these earnings are considered to be indefinitely reinvested outside of the United States. As of September 30, 2002, the amount of unrepatriated earnings upon which no provision for taxation has been recorded is approximately $21,224. If such earnings are repatriated in the future, or are no longer deemed to be indefinitely reinvested, the Company will accrue the applicable amount of taxes associated with such earnings. This change in intent, as well as a change in the second quarter in the manner in which repatriated earnings are taxed in India, resulted in an estimated effective tax rate for the three-and nine-month periods ended September 30, 2002 of 23.3% and 23.4%, respectively. These rates compare to an effective tax rate for the three- and nine-month periods ended September 30, 2001 of 37.4%. During the nine-month period ended September 30, 2002, stock option exercises resulted in a tax benefit to the Company of approximately $5,546. This benefit is netted against certain short-term tax obligations and included in the caption "Other Current Assets" on the accompanying balance sheet. NOTE 6 -- ADOPTION OF STATEMENTS OF FINANCIAL ACCOUNTING STANDARDS: Statements of Financial Accounting Standards Adopted: In June 2001, Statement of Financial Accounting Standards No. 141, "Business Combinations" ("FAS 141") and Statement of Financial Accounting Standards No. 142 "Goodwill and Other Intangible Assets" ("FAS 142") were issued. FAS 141 requires the purchase method of accounting to be used for all business combinations initiated after June 30, 2001. FAS 141 also specifies criteria that intangible assets acquired must meet to be recognized and reported separately from goodwill. FAS 142 requires that goodwill and intangible assets with indefinite lives no longer be amortized but instead be measured for impairment at least annually, or when events indicate that there may be an impairment. FAS 142 is effective for fiscal years beginning F-28 COGNIZANT TECHNOLOGY SOLUTIONS CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) after December 15, 2001. The adoption of FAS 141 and FAS 142 did not have a material effect on the Company's financial position or results of operations. The following table sets forth the Company's results had FAS 142 been applied to the prior-period financial statements presented herein.
NINE MONTHS THREE MONTHS ENDED ENDED SEPTEMBER 30, 2001 SEPTEMBER 30, 2001 ------------------ ------------------ Reported Net Income............................. $6,108 $17,520 Reversal of Goodwill Amortization -- net of tax........................................... 79 238 ------ ------- Adjusted Net Income excluding Goodwill Amortization.................................. $6,187 $17,758 Adjusted Basic EPS excluding Goodwill Amortization.................................. $ 0.32 $ 0.94 Adjusted Diluted EPS excluding Goodwill Amortization.................................. $ 0.30 $ 0.87
In August 2001, Statement of Financial Accounting Standards No. 144, "Accounting for the Impairment or Disposal of Long-lived Assets" ("FAS 144") was issued. FAS 144 supersedes Statement of Financial Accounting Standards No. 121, "Accounting for the Impairment of Long-lived Assets to be Disposed of," and the accounting and reporting provisions of Accounting Principles Board 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." FAS 144 also amends Accounting Research Bulletin No. 51, "Consolidated Financial Statements", to eliminate the exception to consolidation for a subsidiary for which control is likely to be temporary. FAS 144 retains the fundamental provisions of FAS 121 for recognizing and measuring impairment losses on long-lived assets held for use and long-lived assets to be disposed of by sale, while resolving significant implementation issues associated with FAS 121. Among other things, FAS 144 provides guidance on how long-lived assets used as part of a group should be evaluated for impairment, establishes criteria for when long-lived assets are held for sale, and prescribes the accounting for long-lived assets that will be disposed of other than by sale. FAS 144 is effective for fiscal years beginning after December 15, 2001. The adoption of FAS 144 did not have a material impact on the Company's financial position and results of operations. In April 2002, Statement of Financial Accounting Standards No. 145, "Rescission of FASB Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical Corrections" ("FAS 145") was issued. FAS 145 updates, clarifies and simplifies existing accounting pronouncements and is generally effective for transactions occurring after May 15, 2002. The adoption of this statement did not have a material impact on the Company's financial position or results of operations. Statements of Financial Accounting Standards Not Yet Adopted: In June 2001, Statement of Financial Accounting Standards No. 143, "Accounting for Asset Retirement Obligations" ("FAS 143") was issued. FAS 143 addresses financial accounting and reporting for legal obligations associated with the retirement of tangible long-lived assets and the associated retirement costs that result from the acquisition, construction, or development and normal operation of a long-lived asset. Upon initial recognition of a liability for an asset retirement obligation, FAS 143 requires an increase in the carrying amount of the related long-lived asset. The asset retirement cost is subsequently allocated to expense using a systematic F-29 COGNIZANT TECHNOLOGY SOLUTIONS CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) and rational method over the asset's useful life. FAS 143 is effective for fiscal years beginning after June 15, 2002. The adoption of this statement is not expected to have a material impact on the Company's financial position or results of operations. In June 2002, Statement of Financial Accounting Standards No. 146, "Accounting for Exit or Disposal Activities" ("FAS 146") was issued. FAS 146 addresses the accounting for costs to terminate a contract that is not a capital lease, costs to consolidate facilities and relocate employees, and involuntary termination benefits under one-time benefit arrangements that are not an ongoing benefit program or an individual deferred compensation contract. A liability for contract termination costs should be recognized and measured at fair value either when the contract is terminated or when the entity ceases to use the right conveyed by the contract. A liability for one-time termination benefits should be recognized and measured at fair value at the communication date if the employee would not be retained beyond a minimum retention period (i.e., either a legal notification period or 60 days, if no legal requirement exists). For employees that will be retained beyond the minimum retention period, a liability should be accrued ratably over the future service period. The provisions of the statement will be effective for disposal activities initiated after December 31, 2002. The adoption of this statement is not expected to have a material impact on the Company's financial position or results of operations. In October 2002, Statement of Financial Accounting Standards No. 147, "Acquisitions of Certain Financial Institutions" ("FAS 147") was issued. FAS 147 addresses the financial accounting and reporting for the acquisition of all or part of a financial institution, except for a transaction between two or more mutual enterprises. FAS 147 also provides guidance on the accounting for the impairment or disposal of acquired long-term customer-relationship intangible assets, including those acquired in transactions between two or more mutual enterprises. The provisions of the statement will be effective for acquisitions for which the date of acquisition is on or after October 1, 2002. The adoption of this statement is not expected to have a material impact on the Company's financial position or results of operations. NOTE 7 -- CONTINGENCIES AND COMMITMENTS: As of September 30, 2002, the Company has entered into fixed capital commitments related to its India development center expansion program of approximately $20,109, of which approximately $10,924 has been spent to date. The Company is involved in various claims and legal actions arising in the ordinary course of business. In the opinion of management, the outcome of such claims and legal actions, if decided adversely, is not expected to have a material adverse effect on the Company's quarterly or annual operating results, cash flows, or consolidated financial position. Additionally, many of the Company's engagements involve projects that are critical to the operations of its customers' business and provide benefits that are difficult to quantify. Any failure in a customer's computer system could result in a claim for substantial damages against the Company, regardless of the Company's responsibility for such failure. Although the Company attempts by contract to limit its liability for damages arising from negligent acts, errors, mistakes, or omissions in rendering its application design, development and maintenance services, there can be no assurance that the limitations of liability set forth in its contracts will be enforceable in all instances or will otherwise protect the Company from liability for damages. Although the Company has general liability insurance coverage, including coverage for errors or omissions, there can be no assurance that such coverage will continue to be available on reasonable terms or will be available in sufficient amounts to cover one or more large claims, or that the insurer will not disclaim coverage as to any future claim. The successful assertion of one or more large claims against the Company that F-30 COGNIZANT TECHNOLOGY SOLUTIONS CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) exceed available insurance coverage or changes in the Company's insurance policies, including premium increases or the imposition of large deductible or co-insurance requirements, could have a material adverse effect on the Company's business, results of operations and financial condition. NOTE 8 -- SEGMENT INFORMATION: The Company is a leading provider of custom IT design, development, integration and maintenance services primarily for Fortune 1000 companies located in the United States and Europe. The Company's core competencies include web-centric applications, data warehousing, component-based development and legacy and client-server systems. The Company provides the IT services it offers using an integrated on-site/offshore business model. This seamless onsite/offshore model combines technical and account management teams located on-site at the customer location and offshore at dedicated development centers located in India and Ireland. North American operations consist primarily of application design, development and maintenance services in the United States and Canada. European operations consist primarily of application design, development and maintenance services principally in the United Kingdom, Germany and Ireland. European identifiable assets include the net assets resulting from the acquisition of certain assets and liabilities from UHC Ireland (See Note 2 to the Notes to the Unaudited Condensed Consolidated Financial Statements). Asian operations consist primarily of application design, development and maintenance services principally in India. The Company is managed on a geographic basis. Accordingly, regional sales managers, sales managers, account managers, project teams and facilities are segmented geographically and decisions by the Company's chief operating decision maker regarding the allocation of assets and assessment of performance are based on such geographic segmentation. Revenues and resulting operating income are attributed to regions based upon customer location, and exclude the effect of intercompany revenue for services provided by CTS India to other CTS entities. Information about the Company's operations and total assets in North America, Europe and Asia for the periods ended September 30, 2002 and 2001 are presented in accordance with Statement of Financial Accounting Standard No. 131, "Disclosures About Segments of an Enterprise and Related Information," as follows:
THREE MONTHS ENDED NINE MONTHS ENDED SEPTEMBER 30, SEPTEMBER 30, ------------------- ------------------- 2002 2001 2002 2001 ---- ---- ---- ---- REVENUES(1) North America(2)......................... $52,913 $39,432 $140,445 $115,989 Europe................................... 8,032 5,665 20,398 17,203 Asia..................................... 288 405 1,232 1,125 ------- ------- -------- -------- Consolidated............................. $61,233 $45,502 $162,075 $134,317 ======= ======= ======== ======== OPERATING INCOME(1) North America(2)......................... $10,463 $ 8,079 $ 27,692 $ 22,959 Europe................................... 1,588 1,161 4,021 3,403 Asia..................................... 57 83 243 224 ------- ------- -------- -------- Consolidated............................. $12,108 $ 9,323 $ 31,956 $ 26,586 ======= ======= ======== ========
F-31 COGNIZANT TECHNOLOGY SOLUTIONS CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
AS OF SEPTEMBER 30, ------------------- IDENTIFIABLE ASSETS 2002 2001 - ------------------- ---- ---- North America(2)............................................ $ 84,458 $ 89,576 Europe...................................................... 11,741 5,946 Asia........................................................ 104,577 43,051 -------- -------- Consolidated................................................ $200,776 $138,573 ======== ========
- --------------- (1) Revenues and resulting operating income are attributed to regions based upon customer location. (2) Primarily relates to operations in the United States. In the third quarter of 2002, sales to one related party customer (IMS Health) accounted for 9.0% of revenues and sales to one third-party customer (Metropolitan Life Insurance Company) accounted for 11.5% of revenues. In the third quarter of 2001, sales to one related party customer (IMS Health) accounted for 11.2% of revenue and no third party accounted for sales in excess of 10% of revenue. During the nine months ended September 30, 2002, sales to IMS Health accounted for 9.6% of revenues and no third party customer accounted for sales in excess of 10% of revenue. During the none months ended September 30, 2001 sales to IMS Health accounted for 10.1% of revenues and no third party customer accounted for sales in excess of 10% of revenue. Revenues related to services performed without a signed agreement or work order are not recognized until such agreements or work orders are signed; however the cost related to the performance of such work is recognized in the period the services are rendered. A majority of the Company's employees and a significant portion of the Company's assets are located in India. Accordingly, the Company bears certain geo-political risks of local and cross-border conflicts within this geographic region. NOTE 9 -- SUBSEQUENT EVENTS: ACQUISITION OF ASSETS On October 29, 2002, the Company completed the transfer of Silverline Technologies, Inc.'s American Express practice to the Company. The Company will now provide application design, development and maintenance services to American Express through an acquired workforce of approximately three hundred IT and support professionals located primarily in the United States and India. The Company has commenced a preliminary assessment of the allocation of the consideration paid of approximately $10,400 to the amortizable intangible assets acquired in this transaction. Since the transfer was effected on October 29, 2002, the results of operations of this transfer will be included in the consolidated financial statements of the Company commencing from that date. The operating results from this transaction are not expected to be material to the Company. PROPOSED SPLIT-OFF TRANSACTION The Company intends to file a registration statement on Form S-4 with the Securities and Exchange Commission (SEC) concurrently with the filing of this Quarterly Report. The registration statement is being filed for the purpose of registering a proposed offer by IMS Health F-32 COGNIZANT TECHNOLOGY SOLUTIONS CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) to exchange shares of the Company's Class B common stock owned by IMS Health for a yet to be determined number of shares of common stock of IMS Health (the "Exchange Offer"). At September 30, 2002, IMS Health owned approximately 56.4% of the outstanding stock of the Company (representing all of the Company's outstanding Class B common stock) and held approximately 92.8% of the combined voting power of the Company's outstanding common stock. It is expected that IMS Health will seek to exchange up to 11,291 shares of the Company's Class B common stock in the Exchange Offer, representing all Class B shares of the Company that are currently owned by IMS Health. The exchange offer, which is subject to SEC review and certain conditions, is expected to occur in the first quarter of 2003. The Company expects to incur significant costs in connection with this proposed transaction. Such costs will be expensed as incurred. The shares of the Company's Class B common stock are identical to the shares of the Company's Class A common stock, except that a holder of shares of Class B common stock is entitled to 10 votes per share, while a holder of shares of Class A common stock is entitled to one vote per share. Each share of Class B received in the Exchange Offer will convert automatically into one share of Class A common stock when it is transferred after the Exchange Offer as well as under certain other specified circumstances. The Class B common stock will not be separately listed or quoted on any exchange and will not trade separately. There will be no impact on the number of the Company's total shares outstanding as a result of the Exchange Offer. F-33 The letter of transmittal, certificates for shares of IMS Health common stock and any other required documents should be sent or delivered by each IMS Health stockholder or his or her broker, dealer, commercial bank, trust company or other nominee to the exchange agent at one of the following addresses: By Mail: By Hand: By Overnight Delivery: American Stock Transfer & Trust American Stock Transfer & Trust American Stock Transfer & Trust Company Company Company 59 Maiden Lane 59 Maiden Lane Operations Center Plaza Level Plaza Level 6201 15th Avenue New York, New York 10038 New York, New York 10038 Brooklyn, New York 11219 Attn: Reorg. Department
For information about submitting the letter of transmittal or delivery of your shares call (800) 937-5449 (Toll-Free) in the United States and (718) 921-8200 ext. 6820 elsewhere If you have any questions about how to tender or you want additional copies of the exchange offer documents, you may call the information agent at one of its numbers listed below. You may also contact either dealer manager at one of the numbers listed below or your own broker for assistance concerning the exchange offer The Information Agent for the Exchange Offer is: [GEORGESON SHAREHOLDER LOGO] 17 State Street, 10th Floor New York, New York 10004 Toll Free: (866) 203-1913 Banks and Brokers may call collect: (212) 440-9800 The Joint Dealer Managers for the Exchange Offer are: GOLDMAN, SACHS & CO. BEAR, STEARNS & CO. INC. 85 Broad Street 383 Madison Avenue New York, New York 10004 New York, New York 10179 (800) 323-5678 (Toll-Free) (866) 827-9756 (Toll-Free) (212) 902-1000 (212) 272-9756
PART II INFORMATION NOT REQUIRED IN PROSPECTUS ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS. Cognizant's amended and restated certificate of incorporation and by-laws provide that the liability of the directors for monetary damages shall be limited to the fullest extent permissible under Delaware law. This limitation of liability does not affect the availability of injunctive relief or other equitable remedies. Cognizant's by-laws provide that Cognizant will indemnify its directors and officers to the fullest extent permissible under Delaware law. These indemnification provisions require Cognizant to indemnify these persons against certain liabilities and expenses to which they may become subject by reason of their service as a director or officer of Cognizant or any of its affiliated enterprises. In addition, Cognizant has indemnification agreements covering its directors and executive officers providing indemnification to the fullest extent permitted by applicable law and also setting forth certain procedures, including the advancement of expenses, that apply in the event of a claim for indemnification. Subsection (a) of Section 145 of the General Corporation Law of the State of Delaware empowers a corporation to indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative (other than an action by or in the right of the corporation) by reason of the fact that the person is or was a director, employee or agent of the corporation or is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, against expenses (including attorneys' fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by the person in connection with such action, suit or proceeding if the person acted in good faith and in a manner the person reasonably believed to be in or not opposed to the best interests of the corporation, and, with respect to any criminal action or proceeding, had no reasonable cause to believe the person's conduct was unlawful. Subsection (b) of Section 145 empowers a corporation to indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action or suit by or in the right of the corporation to procure a judgment in its favor by reason of the fact that the person acted in any of the capacities set forth above, against expenses (including attorneys' fees) actually and reasonably incurred by the person in connection with the defense or settlement of such action or suit if the person acted in good faith and in a manner the person reasonably believed to be in or not opposed to the best interests of the corporation and except that no indemnification may be made in respect to any claim, issue or matter as to which the person shall have been adjudged to be liable to the corporation unless and only to the extent that the Court of Chancery or the court in which the action or suit was brought shall determine that despite the adjudication of liability but in view of all the circumstances of the case the person is fairly and reasonably entitled to indemnify for such expenses which the Court of Chancery or the other court shall deem proper. Section 145 further provides that to the extent a director, officer, employee or agent of a corporation has been successful in the defense of any action, suit or proceeding referred to in subsections (a) or (b) or in the defense of any claim, issue or matter therein, the person shall be indemnified against expenses (including attorneys' fees) actually and reasonably incurred by the person in connection therewith; that indemnification or advancement of expenses provided for by Section 145 shall not be deemed exclusive of any other rights to which the indemnified party may be entitled; and empowers the corporation to purchase and maintain insurance on behalf of a director, officer, employee or agent of the corporation against any liability asserted against the person or incurred by the person in any above capacity or arising out of the person's status as such whether or not the corporation would have the power to indemnify the person against such liabilities under Section 145. II-1 For information concerning Cognizant's undertaking to submit to adjudication the issue of indemnification for violation of the securities laws, see Item 22 hereof. Cognizant maintains insurance, at its expense, to protect any director or officer of the Company against certain expenses, liabilities or losses. ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES. (a) See the Exhibit Index included immediately preceding the exhibits to this Registration Statement. ITEM 22. UNDERTAKINGS. The undersigned registrant hereby undertakes: (1) The undersigned registrant hereby undertakes as follows: that prior to any public reoffering of the securities registered hereunder through use of a prospectus that is a part of this registration statement by any person or party who is deemed to be an underwriter within the meaning of Rule 145(c), the issuer undertakes that such reoffering prospectus will contain the information called for by the applicable registration form with respect to reofferings by persons who may be deemed underwriters, in addition to the information called for by the other items of the applicable form. (2) The registrant undertakes that every prospectus: (i) that is filed pursuant to paragraph (1) immediately preceding or (ii) that purports to meet the requirements of Section 10(a)(3) of the Act and is used in connection with an offering of securities subject to Rule 415 will be filed as a part of an amendment to the registration statement and will not be used until such amendment is effective, and that, for purposes of determining any liability under the Securities Act of 1933, each such post-effective amendment shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. (3) Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers and controlling persons of the registrant pursuant to the foregoing provisions, or otherwise, the registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue. (4) The undersigned registrant hereby undertakes to respond to requests for information that is incorporated by reference into the prospectus pursuant to Items 4, 10(b), 11, or 13 of this form, within one business day of receipt of such request, and to send the incorporated documents by first class mail or other equally prompt means. This includes information contained in documents filed subsequent to the effective date of the registration statement through the date of responding to the request. (5) The undersigned registrant hereby undertakes to supply by means of a post-effective amendment all information concerning a transaction, and the company being acquired involved therein, that was not the subject of and included in the registration statement when it became effective. II-2 SIGNATURES Pursuant to the requirements of the Securities Act, the registrant has duly caused this Amendment No. 2 to the Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the city of Teaneck, state of New Jersey, on January 9, 2003. COGNIZANT TECHNOLOGY SOLUTIONS CORPORATION By: /s/ WIJEYARAJ MAHADEVA ------------------------------------ Wijeyaraj Mahadeva Chairman of the Board and Chief Executive Officer Pursuant to the requirements of the Securities Act of 1933, this Amendment No. 2 to the Registration Statement has been signed by the following persons in the capacities and on the dates indicated:
SIGNATURE TITLE DATE --------- ----- ---- /s/ WIJEYARAJ MAHADEVA Chairman of the Board and Chief January 9, 2003 ------------------------------------------------ Executive Officer (Principal Wijeyaraj Mahadeva Executive Officer) /s/ GORDON COBURN Chief Financial Officer, January 9, 2003 ------------------------------------------------ Treasurer and Secretary Gordon Coburn (Principal Financial and Accounting Officer) * Director January 9, 2003 ------------------------------------------------ Nancy E. Cooper * Director January 9, 2003 ------------------------------------------------ Robert W. Howe * Director January 9, 2003 ------------------------------------------------ John E. Klein * Director January 9, 2003 ------------------------------------------------ Venetia Kontogouris * Director January 9, 2003 ------------------------------------------------ David M. Thomas * Director January 9, 2003 ------------------------------------------------ Robert E. Weissman * Director January 9, 2003 ------------------------------------------------ Thomas M. Wendel * By: /s/ STEVEN SCHWARTZ ------------------------------------------ (as attorney-in-fact for each of the persons indicated)
II-3 EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION OF EXHIBIT - ----------- ---------------------- 3.1 Amended and Restated Certificate of Incorporation. (Incorporated by reference to Exhibit 3.1 to the Registrant's Registration Statement on Form S-1 (File Number 333-49783) which became effective on June 18, 1998.) 3.2 Certificate of Amendment to the Registrant's Amended and Restated Certificate of Incorporation. (Incorporated by reference to Exhibit 3.1 to the Registrant's Quarterly Report on Form 10-Q for the quarter ended June 30, 2000.) 3.3* Form of Restated Certificate of Incorporation to take effect following completion of the exchange offer. 3.4 By-laws. (Incorporated by reference to Exhibit 3.2 to the Registrant's Registration Statement on Form S-1 (File Number 333-49783) which became effective on June 18, 1998.) 3.5* Form of Amended and Restated By-laws to take effect following completion of the exchange offer. 4.1* Specimen Certificate for shares of class B common stock. 5.1* Opinion of Simpson Thacher & Bartlett. 8.1* Tax opinion of McDermott, Will & Emery. 10.1 Form of Indemnification Agreement for Directors and Officers. (Incorporated by reference to Exhibit 10.1 to the Registrant's Registration Statement on Form S-1 (File Number 333-49783) which became effective on June 18, 1998.) 10.2 Amended and Restated Cognizant Technology Solutions Key Employees' Stock Option Plan. (Incorporated by reference to Exhibit 10.2 to the Registrant's Registration Statement on Form S-1 (File Number 333-49783) which became effective on June 18, 1998.) 10.3 Amended and Restated Cognizant Technology Solutions Non-Employee Directors' Stock Option Plan. (Incorporated by reference to Exhibit 10.3 to the Registrant's Registration Statement on Form S-1 (File Number 333-49783) which became effective on June 18, 1998.) 10.4 Option Agreement between the Registrant and Wijeyaraj Mahadeva. (Incorporated by reference to Exhibit 10.4 to the Registrant's Registration Statement on Form S-1 (File Number 333-49783) which became effective on June 18, 1998.) 10.5 Form of Master Services Agreement between the Registrant and each of I.M.S. International, Inc., IMS America, Ltd. and Nielsen Media Research, Inc. (Incorporated by reference to Exhibit 10.5 to the Registrant's Registration Statement on Form S-1 (File Number 333-49783) which became effective on June 18, 1998.) 10.6 Intercompany Agreement between the Registrant and Cognizant Corporation. (Incorporated by reference to Exhibit 10.7 to the Registrant's Registration Statement on Form S-1 (File Number 333-49783) which became effective on June 18, 1998.) 10.7 Intercompany Services Agreement between the Registrant and Cognizant Corporation. (Incorporated by reference to Exhibit 10.8 to the Registrant's Registration Statement on Form S-1 (File Number 333-49783) which became effective on June 18, 1998.) 10.8 Form of Severance and Non-Competition Agreement between the Registrant and each of its Executive Officers. (Incorporated by reference to Exhibit 10.9 to the Registrant's Registration Statement on Form S-1 (File Number 333-49783) which became effective on June 18, 1998.)
EXHIBIT NO. DESCRIPTION OF EXHIBIT - ----------- ---------------------- 10.9 Sublease dated August 28, 1998 by and between Trans Tec Services, Inc., as Sublessor, and the Registrant, as Sublessee (Incorporated by reference to Exhibit 10.10 to the Registrant's Annual Report on Form 10-K for the year ended December 31, 1998.) 10.10 1999 Incentive Compensation Plan, as amended. (Incorporated by reference to Exhibit 10.1 to the Registrant's Quarterly Report on Form 10-Q for the quarter ended June 30, 2001.) 10.11 Employee Stock Purchase Plan. (Incorporated by reference to Exhibit 10.2 to the Registrant's Quarterly Report on Form 10-Q for the quarter ended June 30, 1999.) 10.12 Sublease dated as of April 6, 2001 by and between American Express Travel Related Services Company, Inc., as Sublessor, and the Registrant, as Sublessee. (Incorporated by reference to Exhibit 10.13 to the Registrant's Annual Report on Form 10-K for the year ended December 31, 2002.) 10.13* Distribution Agreement between IMS Health Incorporated and the Registrant dated January 7, 2003. 21*** List of subsidiaries of the Registrant. 23.1* Consents of PricewaterhouseCoopers LLP. 23.2 Consent of Simpson Thacher & Bartlett (included in Exhibit 5.1). 23.3 Consent of McDermott, Will & Emery (included in Exhibit 8.1). 24*** Power of Attorney. 99.1* Form of Letter of Transmittal and Substitute Form W-9. 99.2* Form of Notice of Guaranteed Delivery. 99.3* Form of Letter to Brokers. 99.4* Form of Letter to Clients. 99.5* Form of Participation Instructions. 99.6* Form of Form of Election. 99.7* Form of Instructions to Form of Election. 99.8* Form of Letter to Stockholders from David M. Thomas.
- --------------- * Filed herewith. ** To be filed by amendment. *** Previously filed. EX-3.3 3 y65565a2exv3w3.txt FORM OF RESTATED CERTIFICATE OF INCORPORATION Exhibit 3.3 RESTATED CERTIFICATE OF INCORPORATION OF COGNIZANT TECHNOLOGY SOLUTIONS CORPORATION The undersigned officer of Cognizant Technology Solutions Corporation, a corporation organized and existing under and by virtue of the General Corporation Law of the State of Delaware (the "Corporation"), hereby certifies as follows: 1. The name of the Corporation is Cognizant Technology Solutions Corporation. The Corporation was originally incorporated under the name Anemone Investments, Inc. 2. The Corporation's original Certificate of Incorporation was filed with the Secretary of State on April 6, 1988. 3. A Restated Certificate of Incorporation of the Corporation, in the form attached hereto as Exhibit A, has been duly adopted by the Board of Directors and by written consent of the majority stockholder of the Corporation, in accordance with Sections 228, 242 and 245 of the General Corporation Law of the State of Delaware. 4. The Amended and Restated Certificate of Incorporation of the Corporation is hereby further amended and restated to read in its entirety as set forth in the Restated Certificate of Incorporation attached hereto as Exhibit A, which is hereby incorporated by reference. IN WITNESS WHEREOF, the Corporation has caused this Restated Certificate of Incorporation to be signed by its duly elected Chairman of the Board and Chief Executive Officer this _________ day of __, 2003. _________________________________________ Wijeyaraj Mahadeva Chief Executive Officer EXHIBIT A RESTATED CERTIFICATE OF INCORPORATION OF COGNIZANT TECHNOLOGY SOLUTIONS CORPORATION ARTICLE I The name of the Corporation is Cognizant Technology Solutions Corporation (hereinafter, the "Corporation"). ARTICLE II The registered office of the Corporation within the State of Delaware is located at Corporation Trust Center, 1209 Orange Street, City of Wilmington, County of New Castle. The name of its registered agent at that address is The Corporation Trust Company. ARTICLE III The nature of the business or purposes to be conducted or promoted is to engage in any lawful act or activity for which corporations may be organized under the General Corporation Law of Delaware (the "GCL"). ARTICLE IV A. The total number of shares of stock that the Corporation shall have authority to issue is One Hundred Forty Million (140,000,000) of which (i) One Hundred Million (100,000,000) shares shall be shares of Class A Common Stock, $.01 par value per share (the "Class A Common Stock"), and Twenty-five Million (25,000,000) shares shall be shares of Class B Common Stock, $.01 par value per share (the "Class B Common Stock") (the Class A Common Stock and the Class B Common Stock being collectively referred to herein as the "Common Stock"), and (ii) Fifteen Million (15,000,000) shares shall be shares of Preferred Stock, $.10 par value per share (the "Preferred Stock"). B. The number of authorized shares of any class or classes of stock may be increased or decreased (but not below the number of shares thereof then outstanding) by the affirmative vote of the holders of a majority of the votes entitled to be cast by the holders of the Common Stock of the Corporation, voting together as a single class, irrespective of the provisions of Section 242(b)(2) of the GCL or any corresponding provision hereinafter enacted. C. The following is a statement of the powers, preferences and relative participating, optional or other special rights and qualifications, limitations and restrictions of the Class A Common Stock and Class B Common Stock of the Corporation. (1) Except as otherwise set forth below in this Article IV, the powers, preferences and relative participating, optional or other special rights and qualifications, limitations or restrictions of the Class A Common Stock and Class B Common Stock shall be identical in all respects. (2) Subject to the rights of the holders of Preferred Stock, and subject to any other provisions of this Restated Certificate of Incorporation, holders of Class A Common Stock and Class B Common Stock shall be entitled to receive such dividends and other distributions in cash, stock or property of the Corporation as may be declared thereon by the Board of Directors of the Corporation from time to time out of assets or funds of the Corporation legally available therefor. If any dividend or other distribution in cash or other property is paid with respect to Class A Common Stock or with respect to Class B Common Stock (other than dividends or other distributions payable in shares of Common Stock), a like dividend or other distribution in cash or other property shall also be paid with respect to shares of the other class of Common Stock, in an amount equal per share. In the case of dividends or other distributions payable in Common Stock, including distributions pursuant to stock splits or divisions of Common Stock of the Corporation, only shares of Class A Common Stock shall be paid or distributed with respect to Class A Common Stock and only shares of Class B Common Stock shall be paid or distributed with respect to Class B Common Stock. The number of shares of Class A Common Stock and Class B Common Stock so distributed shall be equal in number on a per share basis. Neither the shares of Class A Common Stock nor the shares of Class B Common Stock may be reclassified, subdivided or combined unless such reclassification, subdivision or combination occurs simultaneously and in the same proportion for each class. (3) (a) At every meeting of the stockholders of the Corporation, every holder of Class A Common Stock shall be entitled to one vote in person or by proxy for each share of Class A Common Stock standing in his, her or its name on the transfer books of the Corporation, and every holder of Class B Common Stock shall be entitled to ten votes in person or by proxy for each share of Class B Common Stock standing in his, her or its name on the transfer books of the Corporation in connection with the election of directors and all other matters submitted to a vote of the stockholders; provided, however, that with respect to any proposed conversion subsequent to a Tax-Free Spin-Off (as defined in paragraph (C)(6)(b) below) of the shares of Class B Common Stock into shares of Class A Common Stock pursuant to paragraph (C)(6)(b) below, each holder of a share of Common Stock, irrespective of class, shall have one vote in person or by proxy for each share of Common Stock standing in his, her or its name on the transfer books of the Corporation. Except as may be otherwise required by this Article IV, the holders of Class A Common Stock and Class B Common Stock shall vote together as a single class on all matters submitted to a vote of the holders of Common Stock. (b) Subject to any rights of the holders of Preferred Stock, the provisions of this Restated Certificate of Incorporation shall not be modified, revised, altered or amended, repealed or rescinded in whole or in part, without the approval of a majority of the votes entitled to be cast by the holders of the Class A Common Stock and the Class B Common Stock, voting together as a single class; provided, however, that with respect to any proposed amendment of this Restated Certificate of Incorporation which would alter or change the powers, preferences or special rights of the shares of Class A Common 2 Stock or Class B Common Stock so as to affect them adversely, the approval of a majority of the votes entitled to be cast by the holders of the shares affected by the proposed amendment, voting separately as a class, shall be obtained in addition to the approval of a majority of the votes entitled to be cast by the holders of the Class A Common Stock and the Class B Common Stock voting together as a single class as hereinbefore provided. Any increase in the authorized number of shares of any class or classes of stock of the Corporation or creation, authorization or issuance of any securities convertible into, or warrants, options or similar rights to purchase, acquire or receive, shares of any such class or classes of stock shall be deemed not to affect adversely the powers, preferences or special rights of the shares of Class A Common Stock or Class B Common Stock. Neither the outcome of any vote with respect to any proposed conversion subsequent to a Tax-Free Spin-Off of the shares of Class B Common Stock into shares of Class A Common Stock pursuant to paragraph (C)(6)(b) below nor the occurrence of the events described in the last sentence of paragraph (C)(6)(b)(iii) below shall be deemed to be a modification, revision, alteration, amendment, repeal or rescission of the provisions of this Restated Certificate of Incorporation. (c) Every reference in this Restated Certificate of Incorporation to a majority or other proportion of shares of Common Stock, Class A Common Stock or Class B Common Stock shall refer to such majority or other proportion of the votes to which such shares of Common Stock, Class A Common Stock or Class B Common Stock, as applicable, are entitled. (4) In the event of any dissolution, liquidation or winding up of the affairs of the Corporation, whether voluntary or involuntary, after payment in full of the amounts required to be paid to the holders of Preferred Stock, the remaining assets and funds of the Corporation shall be distributed pro rata to the holders of Class A Common Stock and Class B Common Stock. For the purposes of this paragraph (C)(4), the voluntary sale, conveyance, lease, exchange or transfer (for cash, shares of stock, securities or other consideration) of all or substantially all of the assets of the Corporation or a consolidation or merger of the Corporation with one or more other corporations (whether or not the Corporation is the corporation surviving such consolidation or merger) shall not be deemed to be a liquidation, dissolution or winding up, voluntary or involuntary. (5) In the event of any reorganization or any consolidation of the Corporation with one or more other corporations or a merger of the Corporation with another corporation unless immediately following such event, and based solely on the securities issued in connection therewith, a majority of the total voting power of the successor corporation is held by Persons (as defined in paragraph (C)(6)(b)(ii) below) that were stockholders of the Corporation immediately prior to such event, each holder of a share of Class A Common Stock shall be entitled to receive with respect to such share the same kind and amount of shares of stock and other securities and property (including cash) receivable upon such reorganization, consolidation or merger by a holder of a share of Class B Common Stock and each holder of a share of Class B Common Stock shall be entitled to receive with respect to such share the same kind and amount of shares of stock and other securities and property (including cash) receivable upon such reorganization, consolidation or merger by a holder of a share of Class A Common Stock; provided, however, that in the event of any such reorganization or consolidation in which a majority 3 of the total voting power of the successor corporation is held by Persons that were stockholders of the Corporation immediately prior to such event, each holder of a share of Class A common Stock shall be entitled to receive with respect to such share the same kind and amount of shares of stock and other securities and property (including cash) receivable upon such reorganization, consolidation or merger by a holder of a share of Class B Common Stock and vice versa except that any stock or securities received may differ insofar as is necessary to preserve the respective voting rights of the Class A Common Stock and Class B Common Stock hereunder. (6) (a) Prior to the date on which shares of Class B Common Stock are distributed to stockholders of Cognizant (as defined in paragraph (C)(6)(b) below) in a Tax-Free Spin-Off, each record holder of shares of Class B Common Stock may convert from time to time any or all of such shares into an equal number of shares of Class A Common Stock by surrendering the certificates for such shares, accompanied by any required tax transfer stamps and by a written notice by such record holder to the Corporation stating that such record holder desires to convert such shares of Class B Common Stock into the same number of shares of Class A Common Stock and requesting that the Corporation issue all of such shares of Class A Common Stock to Persons named therein, setting forth the number of shares of Class A Common Stock to be issued to each such Person and the denominations in which the certificates therefor are to be issued. To the extent permitted by law, such voluntary conversion shall be deemed to have been effected at the close of business on the date of such surrender. Following a Tax-Free Spin-Off, shares of Class B Common Stock shall no longer be convertible into shares of Class A Common Stock except as set forth in paragraph (C)(6)(b) below. (b) (i) Prior to a Tax-Free Spin-Off, each share of Class B Common Stock shall automatically convert into one share of Class A Common Stock immediately prior to the transfer of such share if, after such transfer, such share is not Beneficially Owned (as defined below) by Cognizant. Shares of Class B Common Stock shall not convert into shares of Class A Common Stock (x) in any transfer effected in connection with a distribution of Class B Common Stock as a spin-off, split-up or split-off to stockholders of Cognizant intended to be on a tax-free basis under the Internal Revenue Code of 1986, as amended from time to time (the "Code") (a "Tax-Free Spin-Off'), or (y) except as otherwise set forth below in this paragraph (C)(6)(b), in any transfer after a Tax-Free Spin-Off. For purposes of this paragraph (C)(6), a Tax-Free Spin-Off shall be deemed to have occurred at the time shares are first transferred to stockholders of Cognizant following receipt of an affidavit described in clauses (vi) or (vii) of the first sentence of paragraph (C)(6)(d) below. For purposes of this paragraph (C)(6), "Cognizant" shall mean Cognizant Corporation, a Delaware corporation, all successors to Cognizant Corporation by way of merger, consolidation or sale of all or substantially all its assets, and all corporations, partnerships, joint ventures, associations and other entities in which Cognizant Corporation Beneficially Owns, directly or indirectly, 50% or more of the outstanding voting stock, voting power or similar voting interests ("Voting Interests") (each, a "Subsidiary Entity"), but which shall not include the Corporation or any Subsidiary Entity in which the Corporation Beneficially Owns, directly or indirectly, 50% or more of the outstanding Voting Interests (it being understood that Cognizant shall mean IMS Health Incorporated upon consummation of the 4 reorganization of Cognizant into IMS Health Incorporated and Nielsen Media Research on or about June 30, 1998). The terms "Beneficially Own," "Beneficially Owns" and "Beneficially Owned" as used herein shall have the meanings ascribed to such terms in Rule 13d-3 of the General Rules and Regulations of the Securities Exchange Act of 1934, as in effect on the date of filing of this Restated Certificate of Incorporation. (ii) The term "Person" as used herein shall mean any individual, firm, corporation or other entity; each reference to an "individual" (or to a "record holder" of shares, if an individual) shall be deemed to include in his or her representative capacity a guardian, committee, executor, administrator or other legal representative of such individual or record holder. (iii) In the event of a Tax-Free Spin-Off, each share of Class B Common Stock shall automatically convert into one share of Class A Common Stock (x) immediately prior to the first transfer of such share (such transfer being deemed to occur upon any change of the Beneficial Owner thereof) after such share is transferred to a stockholder of Cognizant in the Tax-Free Spin-Off or (y) if later, on the fifth anniversary of the date on which such share of Class B Common Stock is first transferred to a stockholder of Cognizant in the Tax-Free Spin-Off unless, prior to such Tax-Free Spin-Off, Cognizant delivers to the Corporation the written advice of counsel, reasonably satisfactory to the Corporation, to the effect that such conversion could adversely affect the ability of Cognizant to obtain a favorable ruling from the Internal Revenue Service that the distribution would be a Tax-Free Spin-Off under the Code or the Internal Revenue Service has adopted a general non-ruling policy on tax-free spinoffs and that such conversion could adversely affect the status of the transaction as a Tax-Free Spin-Off. If such written advice of counsel is received, approval of such conversion shall be submitted to a vote of the holders of the Common Stock as soon as practicable after the fifth anniversary of the Tax-Free Spin-Off. At the meeting of stockholders called for such purpose, every holder of Common Stock shall be entitled to one vote (irrespective of the voting rights provided for such shares under paragraph (C)(3)(a) above) in person or by proxy for each share of Common Stock standing in his or her name on the transfer books of the Corporation. Approval of such conversion shall require the approval of a majority of the votes, on the per share voting basis provided in the preceding sentence, entitled to be cast by the holders of the Class A Common Stock and Class B Common Stock present and voting, voting together as a single class, and the holders of the Class B Common Stock shall not be entitled to a separate class vote. Such conversion shall be effective on the date on which such approval is given at a meeting of stockholders called for such purpose. Notwithstanding the foregoing, if Cognizant delivers to the Corporation prior to such anniversary the written advice of counsel, reasonably satisfactory to the Corporation, to the effect that such vote could adversely affect the status of the transaction as a Tax-Free Spin-Off (including without limitation the ability to obtain a favorable ruling from the Internal Revenue Service), such vote shall not be held and no such conversion shall take place. Upon delivery of such written advice of counsel as to such vote, and the further advice that the continued existence of this paragraph (C)(6)(b)(iii) itself could adversely affect the status of the transaction as a Tax-Free Spin-Off (including without limitation the ability to obtain a favorable ruling from the Internal 5 Revenue Service), then this paragraph (C)(6)(b)(iii) shall thereafter be null and void and no longer be deemed to be part of this Restated Certificate of Incorporation. (iv) If at any time the outstanding shares of Class B Common Stock shall cease to represent at least 35% of the economic ownership represented by the aggregate number of shares of Common Stock then outstanding, then each share of Class B Common Stock shall automatically convert into one share of Class A Common Stock. (v) The Corporation will provide notice of any automatic conversion of all outstanding shares of Class B Common Stock to holders of record as soon as practicable after the conversion; provided, however, that the Corporation may satisfy such notice requirement by providing such notice prior to conversion. Such notice shall be provided by mailing notice of such conversion first class postage prepaid, to each holder of record of the Common Stock, at such holder's address as it appears on the transfer books of the Corporation; provided, however, that no failure to give such notice nor any defect therein shall affect the validity of the automatic conversion of any shares of Class B Common Stock. Each such notice shall state, as appropriate, the following: (A) the automatic conversion date; (B) that all outstanding shares of Class B Common Stock are automatically converted; (C) the place or places where certificates for such shares are to be surrendered for conversion; and (D) that no dividends will be declared on the shares of Class B Common Stock converted after such conversion date. (vi) The Board of Directors of the Corporation shall have the power and authority to determine in good faith, based on such information as it deems appropriate, (x) whether there has occurred a transfer of a share of Class B Common Stock as described in clause (x) of paragraph (C)(6)(b)(iii) above, and (y) whether at any time the outstanding shares of Class B Common Stock represent less than 35% of the economic ownership represented by the aggregate number of shares of Common Stock then outstanding as described in paragraph (C)(6)(b)(iv) above. Immediately upon such conversion, the rights of the holders of shares of Class B Common Stock as such shall cease and such holders shall be treated for all purposes as having become the record owners of the shares of Class A Common Stock issuable upon such conversion; provided, however, that such Persons shall be entitled to receive when paid any dividends declared on the Class B Common Stock as of a record date preceding the time of such conversion and unpaid as of the time of such conversion, subject to paragraph (C)(6)(f) below. (c) Prior to a Tax-Free Spin-Off, holders of shares of Class B Common Stock may (i) sell or otherwise dispose of or transfer any or all of such shares held by them, respectively, only in connection with a transfer which meets the qualifications of paragraph (C)(6)(d) below, and under no other circumstances, or (ii) convert any or all of 6 such shares into shares of Class A Common Stock as provided in paragraph (C)(6)(a) above. Prior to a Tax-Free Spin-Off, no one other than those Persons in whose names shares of Class B Common Stock originally are registered on the stock ledger of the Corporation, or transferees or successive transferees who receive shares of Class B Common Stock in connection with a transfer which meets the qualifications set forth in paragraph (C)(6)(d) below, shall by virtue of the acquisition of a certificate for shares of Class B Common Stock have the status of an owner or holder of shares of Class B Common Stock or be recognized as such by the Corporation or be otherwise entitled to enjoy for his or her own benefit the special rights and powers of a holder of shares of Class B Common Stock. Holders of shares of Class B Common Stock may at any and all times transfer to any Person the shares of Class A Common Stock issuable upon conversion of such shares of Class B Common Stock. (d) Prior to a Tax-Free Spin-Off, shares of Class B Common Stock shall be transferred on the books of the Corporation and a new certificate therefor issued, upon presentation at the office of the Secretary of the Corporation (or at such additional place or places as may from time to time be designated by the Secretary of the Corporation) of the certificate for such shares, in proper form for transfer and accompanied by all requisite stock transfer tax stamps, only if such certificate when so presented shall also be accompanied by any one of the following: (i) an affidavit from Cognizant stating that such certificate is being presented to effect a transfer by Cognizant of such shares to a successor of Cognizant or Subsidiary Entity of Cognizant; or (ii) an affidavit from Cognizant or a successor of Cognizant stating that such certificate is being presented to effect a transfer by any Subsidiary Entity of Cognizant or a successor of Cognizant of such shares to Cognizant or a successor of Cognizant or another Subsidiary Entity of Cognizant or a successor of Cognizant; or (iii) an affidavit from Cognizant or a successor of Cognizant stating that such certificate is being presented to effect a transfer by Cognizant or a successor of Cognizant of such shares to the stockholders of Cognizant or a successor of Cognizant in connection with a Tax-Free Spin-Off. Each affidavit of a record holder furnished pursuant to this paragraph (C)(6)(d) shall be verified as of a date not earlier than five days prior to the date of delivery thereof, and, where such record holder is a corporation or partnership, shall be verified by an officer of the corporation or by a general partner of the partnership, as the case may be. (e) Prior to the occurrence of a Tax-Free Spin-Off, each certificate for shares of Class B Common Stock shall bear a legend on the face thereof reading as follows: "The shares of Class B Common Stock represented by this Certificate may not be transferred to any person or entity in connection with a transfer that does not meet the qualifications set forth in paragraph (C)(6)(d) of Article IV of the Restated Certificate of 7 Incorporation of this Corporation and no person who receives such shares in connection with a transfer which does not meet the qualifications prescribed by paragraph (C)(6)(d) of said Article IV is entitled to own or to be registered as the record holder of such shares of Class B Common Stock and such shares will have been automatically converted into Class A Common Stock upon any such purported transfer. The record holder of this certificate may at any time convert such shares of Class B Common Stock into the same number of shares of Class A Common Stock. Each holder of this certificate, by accepting the same, accepts and agrees to all of the foregoing." Upon and after the transfer of shares in a Tax-Free Spin-Off, shares of Class B Common Stock shall no longer bear the legend set forth above in this paragraph (C)(6)(e), instead each certificate for shares of Class B Common Stock shall bear a legend on the face thereof reading as follows: "According to the Restated Certificate of Incorporation of Cognizant Technology Solutions Corporation, the shares of Class B Common Stock represented by this certificate will be automatically converted into shares of Class A Common Stock upon any transfer of such shares of Class B Common Stock. Consequently, no purported transferee of any shares of Class B Common Stock is entitled to own or to be registered as the record holder of such shares of Class B Common Stock but instead shall be entitled to own and be registered as the record holder of a like number of shares of Class A Common Stock. Each holder of this certificate, by accepting the same, accepts and agrees to all of the foregoing." (f) Upon any conversion of shares of Class B Common Stock into shares of Class A Common Stock pursuant to the provisions of this paragraph (C)(6), any dividend, for which the payment date shall be subsequent to such conversion, which may have been declared on the shares of Class B Common Stock so converted shall be deemed to have been declared, and shall be payable, with respect to the shares of Class A Common Stock into or for which such shares of Class B Common Stock shall have been so converted, and any such dividend payable in Common Stock shall be deemed to have been declared, and shall be payable, in shares of Class A Common Stock. (g) The Corporation shall not reissue or resell any shares of Class B Common Stock which shall have been converted into shares of Class A Common Stock pursuant to or as permitted by the provisions of this paragraph (C)(6), or any shares of Class B Common Stock which shall have been acquired by the Corporation in any other manner. The Corporation shall, from time to time, take such appropriate action as may be necessary to retire such shares and to reduce the authorized amount of Class B Common Stock accordingly. The Corporation shall at all times reserve and keep available, out of its authorized but unissued Common Stock, such number of shares of Class A Common Stock as would become issuable upon the conversion of all shares of Class B Common Stock then outstanding. (h) In connection with any transfer or conversion of any stock of the Corporation pursuant to or as permitted by the provisions of this paragraph (C)(6) or in connection with the making of any determination referred to in this paragraph (C)(6): 8 (i) the Corporation shall be under no obligation to make any investigation of facts unless an officer, employee or agent of the Corporation responsible for making such transfer or determination or issuing Class A Common Stock pursuant to such conversion has substantial reason to believe, or unless the Board of Directors (or a committee of the Board of Directors designated for such purpose) determines that there is substantial reason to believe, that any affidavit or other document is incomplete or incorrect in a material respect or that an investigation would disclose facts upon which any determination referred to in paragraph (C)(6)(f) above should be made, in either of which events the Corporation shall make or cause to be made such investigation as it may deem necessary or desirable in the circumstances and have a reasonable time to complete such investigation; and (ii) neither the Corporation nor any director, officer, employee or agent of the Corporation shall be liable in any manner for any action taken or omitted in good faith. (i) The Corporation will not be required to pay any documentary, stamp or similar issue or transfer taxes payable in respect of the issue or delivery of shares of Class A Common Stock on the conversion of shares of Class B Common Stock pursuant to this paragraph (C)(6), and no such issue or delivery shall be made unless and until the Person requesting such issue has paid to the Corporation the amount of any such tax or has established, to the satisfaction of the Corporation, that such tax has been paid. (7) All rights to vote and all voting power (including, without limitation thereto, the right to elect directors) shall be vested exclusively in the holders of Common Stock, voting together as a single class, except as otherwise expressly provided in this Restated Certificate of Incorporation, in a Preferred Stock Designation or as otherwise expressly required by applicable law. D. Subject to the limitations and in the manner provided by law, shares of the Preferred Stock may be issued from time to time in series, and the Board of Directors of the Corporation or a duly-authorized committee of the Board of Directors of the Corporation, in accordance with the laws of the State of Delaware, is hereby authorized to determine or alter the relative rights, powers (including voting powers), preferences, privileges and restrictions granted to or imposed upon Preferred Stock or any wholly unissued series of shares of Preferred Stock, and to increase or decrease (but not below the number of shares of any series of Preferred Stock then outstanding) the number of shares of any such series subsequent to the issue of shares of that series. In case the number of shares of any series shall be so decreased, the shares constituting such decrease shall upon the taking of any action required by applicable law resume the status which they had prior to the adoption of the resolution originally fixing the number of shares of such series. ARTICLE V The business and affairs of the Corporation shall be managed by or under the direction of the Board of Directors. In addition to the powers and authority expressly conferred upon them by 9 statute or by this Restated Certificate of Incorporation or the bylaws of the Corporation, the directors are hereby empowered to exercise all such powers and do all such acts and things as may be exercised or done by the Corporation. Election of directors need not be by written ballot unless the bylaws so provide. ARTICLE VI The books and records of the Corporation may be kept (subject to any mandatory requirement of law) outside the State of Delaware at such place or places as may be designated from time to time by the Board of Directors or by the bylaws of the Corporation. ARTICLE VII The Board of Directors shall be authorized to make, amend, alter, change, add to or repeal the By-Laws of the corporation in any manner not inconsistent with the laws of the State of Delaware. The affirmative vote of the holders of at least 80 percent in voting power of all outstanding shares of the corporation entitled to vote generally in the election of directors, voting together as a single class, shall be required in order for the stockholders to make, amend, alter, change, add to or repeal any provision of the By-Laws of the corporation. ARTICLE VIII (1) The board of directors shall consist of not less than three directors, the exact number of directors to be determined from time to time by resolution adopted by the affirmative vote of a majority of the Board of Directors. Commencing with the election of directors at the first annual meeting following this Restated Certificate of Incorporation becoming effective, the directors shall be divided into three classes designated Class I, Class II and Class III. Each class shall consist, as nearly as possible, of one-third of the total number of directors constituting the entire Board of Directors. Class I directors shall be originally elected for a term expiring at the succeeding annual meeting of stockholders, Class II directors shall be originally elected for a term expiring at the second succeeding annual meeting of stockholders, and Class III directors shall be originally elected for a term expiring at the third succeeding annual meeting of stockholders. At each annual meeting of stockholders, other than the first annual meting following this Restated Certificate of Incorporation becoming effective, successors to the class of directors whose term expires at that annual meeting shall be elected for a term expiring at the third succeeding annual meeting. If the number of directors is changed, any increase or decrease shall be apportioned among the classes so as to maintain the number of directors in each class as nearly equal as possible, and any additional director of any class elected to fill a newly created directorship resulting from an increase in such class shall hold office for a term that shall coincide with the remaining term of that class, but in no case shall a decrease in the number of directors remove or shorten the term of any incumbent director. A director shall hold office until the annual meeting for the year in which his term expires and until his successor shall be elected and shall qualify, subject, however, to prior death, resignation, retirement, disqualification or removal from office. Any newly created directorship on the Board of Directors that results from an increase in the number of directors and any vacancy occurring in the Board of Directors 10 shall be filled only by a majority of the directors then in office, although less than a quorum, or by a sole remaining director. Any director elected to fill a vacancy not resulting from an increase in the number of directors shall have the same remaining term as that of his predecessor. Directors may be removed only by the affirmative vote of at least 80 percent in voting power of all outstanding shares of the corporation entitled to vote generally in the election of directors, voting as a single class. (2) Notwithstanding the foregoing, whenever the holders of any one or more series of Preferred Stock issued by the corporation shall have the right, voting separately as a series or separately as a class with one or more such other series, to elect directors at an annual or special meeting of stockholders, the election, term of office, removal, filling of vacancies and other features of such directorships shall be governed by the terms of this Restated Certificate of Incorporation (including any certificate of designations relating to any series of preferred stock) applicable thereto, and such directors so elected shall not be divided into classes pursuant to this Article VIII unless expressly provided by such terms. ARTICLE IX Subject to the rights of the holders of any series of Preferred Stock, any action required or permitted to be taken by stockholders must be effected at a duly called annual or special meeting of stockholders and may not be effected by any consent in writing by such holders. Except as otherwise required by law and subject to the rights of the holders of any series of Preferred Stock, special meetings of stockholders of the corporation may be called only by the Chief Executive Officer of the corporation or by the Board of Directors pursuant to a resolution approved by the Board of Directors, and special meetings may not be called by any other person or persons. Business transacted at any special meeting of stockholders shall be limited to the purposes stated in the notice. ARTICLE X A director of the Corporation shall not be personally liable to the Corporation or its stockholders for monetary damages for breach of fiduciary duty as a director, except for liability (a) for any breach of the director's duty of loyalty to the Corporation and its stockholders; (b) for acts or omissions not in good faith or which involve intentional misconduct or knowing violations of law; (c) under Section 174 of the GCL; or (d) for any transaction from which the director derived an improper personal benefit. If the GCL hereafter is amended to further eliminate or limit the liability of directors, then the liability of a director of the Corporation, in addition to the limitation on personal liability provided herein, shall be limited to the fullest extent permitted by the amended GCL. Any repeal or modification of the foregoing provisions of this Article X shall not adversely affect any right or protection of any director, officer, employee or agent of the Corporation existing at the time of such repeal or modification. 11 ARTICLE XI (1) The Corporation reserves the right to amend or repeal any provision contained in this Restated Certificate of Incorporation, in the manner now or hereafter prescribed by statute, and all rights conferred upon a stockholder herein are granted subject to this reservation. (2) Notwithstanding anything else contained in this Restated Certificate of Incorporation or the By-laws of the corporation to the contrary, the affirmative vote of the holders of at least 80 percent in voting power of all the outstanding shares of the corporation entitled to vote generally in the election of directors, voting together as a single class, shall be required in order for the stockholders to amend, alter, change, add to or repeal any provision of Article VII, Article VIII, Article IX or this Article XI or to adopt any provision inconsistent therewith. 12 EX-3.5 4 y65565a2exv3w5.txt FORM OF AMENDED AND RESTATED BY-LAWS EXHIBIT 3.5 AMENDED AND RESTATED BY-LAWS OF COGNIZANT TECHNOLOGY SOLUTIONS CORPORATION ARTICLE I STOCKHOLDERS SECTION 1. The annual meeting of the stockholders of the corporation for the purpose of electing directors and for the transaction of such other business as may properly be brought before the meeting shall be held on the third Wednesday in April of each year, if not a legal holiday, and if a legal holiday, then on the next secular day following, within or without the State of Delaware, or at such time and place as may be designated from time to time by the Board of Directors. SECTION 2. Except as otherwise required by law and subject to the rights of the holders of any series of Preferred Stock, special meetings of stockholders of the corporation may be called only by the Chief Executive Officer of the corporation or by the Board of Directors pursuant to a resolution approved by the Board of Directors, and special meetings may not be called by any other person or persons. Business transacted at any special meeting of stockholders shall be limited to the purposes stated in the notice. SECTION 3. Except as otherwise provided by law, notice of the time, place and purpose or purposes of every meeting of stockholders shall be given not earlier than sixty, nor less than ten, days previous thereto to each stockholder of record entitled to vote at the meeting. Notice of any meeting of stockholders need not be given to any stockholders who shall waive notice thereof, before or after such meeting, in writing or by electronic transmission, or to any stockholder who shall attend such meeting, except when the stockholder attends a meeting for the express purpose of objecting, at the beginning of the meeting, to the transaction of any business because the meeting is not lawfully called or convened. SECTION 4. The holders of record of a majority in voting power of the issued and outstanding shares of the corporation, which are entitled to vote at the meeting, shall, except as otherwise provided by law, constitute a quorum at all meetings of the stockholders. If there be no such quorum present in person or by proxy, the holders of a majority in voting power of such shares so present or represented may adjourn the meeting from time to time. SECTION 5. (1) Meetings of the stockholders shall be presided over by the Chief Executive Officer or Chairman, or, if neither is present, by a Vice President or, if no such officer is present, by a chairman to be chosen at the meeting. The Secretary of the corporation or, in his absence, an Assistant Secretary shall act as secretary of the meeting. If neither the Secretary nor an Assistant Secretary is present, the chairman shall appoint a secretary. (2) The date and time of the opening and the closing of the polls for each matter upon which the stockholders will vote at a meeting shall be announced at the meeting by the person presiding over the meeting. The Board of Directors may adopt by resolution such rules and 2 regulations for the conduct of the meeting of stockholders as it shall deem appropriate. Except to the extent inconsistent with such rules and regulations as adopted by the Board of Directors, the person presiding over any meeting of stockholders shall have the right and authority to convene and to adjourn the meeting, to prescribe such rules, regulations and procedures and to do all such acts as, in the judgment of such presiding person, are appropriate for the proper conduct of the meeting. Such rules, regulations or procedures, whether adopted by the Board of Directors or prescribed by the presiding person of the meeting, may include, without limitation, the following: (i) the establishment of an agenda or order of business for the meeting; (ii) rules and procedures for maintaining order at the meeting and the safety of those present; (iii) limitations on attendance at or participation in the meeting to stockholders of record of the corporation, their duly authorized and constituted proxies or such other persons as the presiding person of the meeting shall determine; (iv) restrictions on entry to the meeting after the time fixed for the commencement thereof; and (v) limitations on the time allotted to questions or comments by participants. The presiding person at any meeting of stockholders, in addition to making any other determinations that may be appropriate to the conduct of the meeting, shall, if the facts warrant, determine and declare to the meeting that a matter or business was not properly brought before the meeting and if such presiding person should so determine, such presiding person shall so declare to the meeting and any such matter or business not properly brought before the meeting shall not be transacted or considered. Unless and to the extent determined by the Board of Directors or the person presiding over the meeting, meetings of stockholders shall not be required to be held in accordance with the rules of parliamentary procedure. SECTION 6. Each stockholder entitled to vote at any meeting may vote in person or by proxy for each share of stock held by him which has voting power upon the matter in question at the time; but no proxy shall be voted on after three years from its date, unless such proxy provides for a longer period. SECTION 7. At all elections of directors the voting shall be by ballot, and a plurality of the votes cast shall elect. Except as otherwise provided by the Certificate of Incorporation, these By-laws, the rules or regulations of any stock exchange applicable to the corporation, or applicable law, all other questions to stockholders shall be determined by a majority of the votes cast on such questions. SECTION 8. In order that the corporation may determine the stockholders entitled to notice of or to vote at any meeting of stockholders or any adjournment thereof, or entitled to receive payment of any dividend or other distribution or allotment of any rights, or entitled to exercise any rights in respect of any change, conversion or exchange of stock or for the purpose of any other lawful action, the Board of Directors may fix a record date, which record date shall not precede the date upon which the resolution fixing the record date is adopted by the Board of Directors, and which record date: (1) in the case of determination of stockholders entitled to vote at any meeting of stockholders or adjournment thereof, shall, unless otherwise required by law, not be more than sixty (60) nor less than ten (10) days before the date of such meeting; (2) in the case of determination of stockholders entitled to express consent to corporate action in writing without a meeting, shall not be more than ten (10) days from the date upon which the resolution fixing the record date is adopted by the Board of Directors; and (3) in the case of any other action, shall not be more than sixty (60) days prior to such other action. If no record date is fixed: (1) the record date for determining stockholders entitled to notice of or to vote at a 3 meeting of stockholders shall be at the close of business on the day next preceding the day on which notice is given, or, if notice is waived, at the close of business on the day next preceding the day on which the meeting is held; (2) the record date for determining stockholders entitled to express consent to corporate action in writing without a meeting, when no prior action of the Board of Directors is required by law, shall be the first date on which a signed written consent setting forth the action taken or proposed to be taken is delivered to the corporation in accordance with applicable law, or, if prior action by the Board of Directors is required by law, shall be at the close of business on the day on which the Board of Directors adopts the resolution taking such prior action; and (3) the record date for determining stockholders for any other purpose shall be at the close of business on the day on which the Board of Directors adopts the resolution relating thereto. A determination of stockholders of record entitled to notice of or to vote at a meeting of stockholders shall apply to any adjournment of the meeting; provided, however, that the Board of Directors may fix a new record date for the adjourned meeting. SECTION 9. (A) Annual Meetings of Stockholders. (1) Nominations of persons for election to the Board of Directors of the corporation and the proposal of business to be considered by the stockholders may be made at an annual meeting of stockholders only (a) pursuant to the corporation's notice of meeting (or any supplement thereto), (b) by or at the direction of the Board of Directors or (c) by any stockholder of the corporation who was a stockholder of record of the corporation at the time the notice provided for in this Section 9 is delivered to the Secretary of the corporation, who is entitled to vote at the meeting and who complies with the notice procedures set forth in this Section 9. (2) For nominations or other business to be properly brought before an annual meeting by a stockholder pursuant to clause (c) of paragraph (A)(1) of this Section 9, the stockholder must have given timely notice thereof in writing to the Secretary of the corporation and any such proposed business other than the nominations of persons for election to the Board of Directors must constitute a proper matter for stockholder action. To be timely, a stockholder's notice shall be delivered to the Secretary at the principal executive offices of the corporation not later than the close of business on the ninetieth day nor earlier than the close of business on the one hundred twentieth day prior to the first anniversary of the preceding year's annual meeting (provided, however, that in the event that the date of the annual meeting is more than thirty days before or more than seventy days after such anniversary date, notice by the stockholder must be so delivered not earlier than the close of business on the one hundred twentieth day prior to such annual meeting and not later than the close of business on the later of the ninetieth day prior to such annual meeting or the tenth day following the day on which public announcement of the date of such meeting is first made by the corporation). In no event shall the public announcement of an adjournment or postponement of an annual meeting commence a new time period (or extend any time period) for the giving of a stockholder's notice as described above. Such stockholder's notice shall set forth: (a) as to each person whom the stockholder proposes to nominate for election as a director (i) all information relating to such person that is required to be disclosed in solicitations of proxies for election of directors in an election contest, or is otherwise required, in each case pursuant to and in accordance with Regulation 14A under the Securities Exchange Act of 1934, as amended (the "Exchange Act") and (ii) such person's written consent to being named in the proxy statement as a nominee and to serving as a director if elected; 4 (b) as to any other business that the stockholder proposes to bring before the meeting, a brief description of the business desired to be brought before the meeting, the text of the proposal or business (including the text of any resolutions proposed for consideration and in the event that such business includes a proposal to amend the By-laws of the corporation, the language of the proposed amendment), the reasons for conducting such business at the meeting and any material interest in such business of such stockholder and the beneficial owner, if any, on whose behalf the proposal is made; and (c) as to the stockholder giving the notice and the beneficial owner, if any, on whose behalf the nomination or proposal is made (i) the name and address of such stockholder, as they appear on the corporation's books, and of such beneficial owner, (ii) the class and number of shares of capital stock of the corporation which are owned beneficially and of record by such stockholder and such beneficial owner, (iii) a representation that the stockholder is a holder of record of stock of the corporation entitled to vote at such meeting and intends to appear in person or by proxy at the meeting to propose such business or nomination, and (iv) a representation whether the stockholder or the beneficial owner, if any, intends or is part of a group which intends (a) to deliver a proxy statement and/or form of proxy to holders of at least the percentage of the corporation's outstanding capital stock required to approve or adopt the proposal or elect the nominee and/or (b) otherwise to solicit proxies from stockholders in support of such proposal or nomination. The foregoing notice requirements shall be deemed satisfied by a stockholder if the stockholder has notified the corporation of his or her intention to present a proposal at an annual meeting in compliance with Rule 14a-8 (or any successor thereof) promulgated under the Exchange Act and such stockholder's proposal has been included in a proxy statement that has been prepared by the corporation to solicit proxies for such annual meeting. The corporation may require any proposed nominee to furnish such other information as it may reasonably require to determine the eligibility of such proposed nominee to serve as a director of the corporation. (3) Notwithstanding anything in the second sentence of paragraph (A)(2) of this Section 9 to the contrary, in the event that the number of directors to be elected to the Board of Directors of the corporation at an annual meeting is increased and there is no public announcement by the corporation naming the nominees for the additional directorships at least one hundred days prior to the first anniversary of the preceding year's annual meeting, a stockholder's notice required by this Section 9 shall also be considered timely, but only with respect to nominees for the additional directorships, if it shall be delivered to the Secretary at the principal executive offices of the corporation not later than the close of business on the tenth day following the day on which such public announcement is first made by the corporation. B. Special Meetings of Stockholders. Only such business shall be conducted at a special meeting of stockholders as shall have been brought before the meeting pursuant to the corporation's notice of meeting. Nominations of persons for election to the Board of Directors may be made at a special meeting of stockholders at which directors are to be elected pursuant to the corporation's notice of meeting (1) by or at the direction of the Board of Directors or (2) provided that the Board of Directors has determined that directors shall be elected at such meeting, by any stockholder of the corporation who is a stockholder of record at the time the notice provided for in this Section 9 is delivered to the Secretary of the corporation, who is 5 entitled to vote at the meeting and upon such election and who complies with the notice procedures set forth in this Section 9. In the event the corporation calls a special meeting of stockholders for the purpose of electing one or more directors to the Board of Directors, any such stockholder entitled to vote in such election of directors may nominate a person or persons (as the case may be) for election to such position(s) as specified in the corporation's notice of meeting, if the stockholder's notice required by paragraph (A)(2) of this Section 9 shall be delivered to the Secretary at the principal executive offices of the corporation not earlier than the close of business on the one hundred twentieth day prior to such special meeting and not later than the close of business on the later of the ninetieth day prior to such special meeting or the tenth day following the day on which public announcement is first made of the date of the special meeting and of the nominees proposed by the Board of Directors to be elected at such meeting. In no event shall the public announcement of an adjournment or postponement of a special meeting commence a new time period (or extend any time period) for the giving of a stockholder's notice as described above. C. General. (1) Only such persons who are nominated in accordance with the procedures set forth in this Section 9 shall be eligible to be elected at an annual or special meeting of stockholders of the corporation to serve as directors and only such business shall be conducted at a meeting of stockholders as shall have been brought before the meeting in accordance with the procedures set forth in this Section 9. Except as otherwise provided by law, the chairman of the meeting shall have the power and duty (a) to determine whether a nomination or any business proposed to be brought before the meeting was made or proposed, as the case may be, in accordance with the procedures set forth in this Section 9 (including whether the stockholder or beneficial owner, if any, on whose behalf the nomination or proposal is made solicited (or is part of a group which solicited) or did not so solicit, as the case may be, proxies in support of such stockholder's nominee or proposal in compliance with such stockholder's representation as required by clause (A)(2)(c)(iv) of this Section 9) and (b) if any proposed nomination or business was not made or proposed in compliance with this Section 9, to declare that such nomination shall be disregarded or that such proposed business shall not be transacted. Notwithstanding the foregoing provisions of this Section 9, if the stockholder (or a qualified representative of the stockholder) does not appear at the annual or special meeting of stockholders of the corporation to present a nomination or business, such nomination shall be disregarded and such proposed business shall not be transacted, notwithstanding that proxies in respect of such vote may have been received by the corporation. (2) For purposes of this Section 9, "public announcement" shall include disclosure in a press release reported by the Dow Jones News Service, Associated Press or comparable national news service or in a document publicly filed by the corporation with the Securities and Exchange Commission pursuant to Section 13, 14 or 15(d) of the Exchange Act. (3) Notwithstanding the foregoing provisions of this Section 9, a stockholder shall also comply with all applicable requirements of the Exchange Act and the rules and regulations thereunder with respect to the matters set forth in this Section 9. Nothing in this Section 9 shall be deemed to affect any rights (a) of stockholders to request inclusion of proposals in the corporation's proxy statement pursuant to Rule 14a-8 under the 6 Exchange Act or (b) of the holders of any series of Preferred Stock to elect directors pursuant to any applicable provisions of the Certificate of Incorporation. ARTICLE II BOARD OF DIRECTORS SECTION 1. The Board of Directors of the corporation shall consist of such number of directors, not less than three, as shall from time to time be fixed by the affirmative vote of a majority of the Board of Directors. A majority of the total number of directors shall constitute a quorum for the transaction of business. Directors need not be stockholders. SECTION 2. Vacancies in the Board of Directors and newly created directorships resulting from an increase in the number of directors shall be filled as provided in the Certificate of Incorporation. SECTION 3. Meetings of the Board of Directors shall be held at such place within or without the State of Delaware as may from time to time be fixed by resolution of the Board or as may be specified in the notice of call of any meeting. Regular meetings of the Board of Directors shall be held at such times as may from time to time be fixed by resolution of the Board and special meetings may be held at any time upon the call of the Chief Executive Officer or Chairman, by oral, telegraphic, facsimile or written notice or notice by means of electronic transmission, duly served on or sent, given or mailed to each director not less than one day before the meeting. The notice of any meeting need not specify the purposes thereof. A meeting of the Board may be held without notice immediately after the meeting of stockholders at the same place at which such meeting is held. Notice need not be given of regular meetings of the Board held at times fixed by resolution of the Board. Notice of any meeting need not be given to any director who shall attend such meeting in person or who shall waive notice thereof, before or after such meeting, in writing or by electronic transmission. Unless otherwise provided by the Certificate of Incorporation or these By-laws, any action required or permitted to be taken at any meeting of the Board of Directors or of any committee thereof may be taken without a meeting, if all the members of the Board of Directors or committee, as the case may be, consent thereto in writing or by electronic transmission, and the writing or writings (or electronic transmission or transmissions) are filed with the minutes of proceedings of the Board of Directors or committee. SECTION 4. The Board of Directors may designate one or more committees, each committee to consist of one or more of the directors of the corporation, which to the extent permitted by law and provided in said resolution or resolutions, shall have and may exercise the powers of the Board of Directors in the management of the business and affairs of the corporation, and may authorize the seal of the corporation to be affixed to all papers which may require it. A majority of the members of a committee shall constitute a quorum for the transaction of its business. The Board of Directors may designate one or more directors as alternate members of any committee. In the absence or disqualification of any member of any such committee or committees, the member or members thereof present at any meeting and not disqualified from voting, whether or not he or they constitute a quorum, may unanimously appoint another member of the Board of Directors, to act at the meeting for all purposes in the place of any such absent or disqualified member. Such committee or committees shall have such 7 name or names as may be determined from time to time by resolution adopted by the Board of Directors. ARTICLE III OFFICERS SECTION 1. The Board of Directors as soon as may be after their election held in each year shall elect officers of the corporation, including a Chief Executive Officer, one or more Vice Presidents, a Secretary and a Treasurer. The Board of Directors may also from time to time appoint such other officers (including a Chairman who shall be a member of the Board of Directors, one or more Vice Chairmen, one or more Assistant Secretaries and one or more Assistant Treasurers) as it may deem proper or may delegate to any elected officer of the corporation the power so to appoint and remove any such other officers and to prescribe their respective terms of office, authorities and duties. Any Vice President may be designated Executive, Senior, or Regional, or may be given such other designation or combination of designations. SECTION 2. All officers of the corporation elected or appointed by the Board of Directors shall hold office until their respective successors are chosen and qualified. Any officer may be removed from office at any time either with or without cause by the affirmative vote of a majority of the members of the Board then in office, or, in the case of appointed officers, by any elected officer upon whom such power of removal shall have been conferred by the Board of Directors. SECTION 3. Each of the officers of the corporation elected or appointed by the Board of Directors shall have the powers and duties prescribed by law, by the By-laws or by the Board of Directors and, unless otherwise prescribed by the By-laws or by the Board of Directors, shall have such further powers and duties as ordinarily pertain to his office. The Chief Executive Officer shall be the Principal Executive Officer and shall have the general direction of the affairs of the corporation. Any officer, agent, or employee of the corporation may be required to give bond for the faithful discharge of his duties in such sum and with such surety or sureties as the Board of Directors may from time to time prescribe. SECTION 4. The corporation shall indemnify, to the full extent that it shall have power under applicable law to do so and in a manner permitted by such law, any person (a "Covered Person") made or threatened to be made a party to any threatened, pending or completed action, suit or proceeding whether civil, criminal, administrative or investigative, by reason of the fact that he is or was a director or officer of the corporation. Notwithstanding the preceding sentence, except as specifically provided in this paragraph below, the corporation shall be required to indemnify a Covered Person in connection with a proceeding (or part thereof) commenced by such Covered Person only if the commencement of such proceeding (or part thereof) by the Covered Person was authorized in the specific case by the Board of Directors of the corporation. The corporation shall to the fullest extend not prohibited by applicable law pay the expenses (including attorneys' fees) incurred by a Covered Person in defending any proceeding in advance of its final disposition, provided, however, that, to the extent required by law, such payment of expenses in advance of the final disposition of the proceeding shall be made only upon receipt of 8 an undertaking by the Covered Person to repay all amounts advanced if it should be ultimately determined that the Covered Person is not entitled to be indemnified under this Article III or otherwise. The corporation may indemnify, to the full extent permitted by such law, any person made or threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative, by reason of the fact that he is or was an employee or agent of the corporation, or is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise. If a claim for indemnification (following the final disposition of such action, suit or proceeding) or advancement of expenses under this Article III is not paid in full within thirty days after a written claim therefor by the Covered Person has been received by the corporation, the Covered Person may file suit to recover the unpaid amount of such claim and, if successful in whole or in part, shall be entitled to be paid the expense of prosecuting such claim. In any such action the corporation shall have the burden of proving that the Covered Person is not entitled to the requested indemnification or advancement of expenses under applicable law. The indemnification provided by this Article III shall not be deemed exclusive of any other rights to which any person indemnified may be entitled under by-law, agreement, vote of stockholders or disinterested directors or otherwise, both as to action in his official capacity and as to action in another capacity while holding such office, and shall continue as to a person who has ceased to be such director, officer, employee or agent and shall inure to the benefit of the heirs, executors and administrators of such a person. The corporation may purchase and maintain insurance on behalf of any person who is or was a director, officer, employee or agent of the corporation, or is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise against any liability asserted against him and incurred by him in any such capacity, or arising out of his status as such, whether or not the corporation would have the power to indemnify him against such liability under the provisions of this Article III or otherwise. ARTICLE IV CERTIFICATES OF STOCK SECTION 1. Except as otherwise determined by resolution of the Board of Directors in respect of any uncertificated shares, the interest of each stockholder of the corporation shall be evidenced by a certificate or certificates for shares of stock in such form as the Board of Directors may from time to time prescribe. Subject to any applicable restrictions on transfer, the shares of the stock of the corporation shall be transferable on the books of the corporation by the holder thereof in person or by his attorney, upon surrender for cancellation of a certificate or certificates for the same number of shares, with an assignment and power of transfer endorsed thereon or attached thereto, duly executed, and with such proof of the authenticity of the signature as the corporation or its agents may reasonably require. SECTION 2. The certificates of stock shall be signed by such officer or officers as may be permitted by law to sign (except that where any such certificate is countersigned by a transfer agent other than the corporation or its employee, or by a registrar other than the corporation or its employee, the signatures of any such officer or officers may be facsimiles), and shall be countersigned and registered in such manner, all as the Board of Directors may by 9 resolution prescribe. In case any officer or officers who shall have signed, or whose facsimile signature or signatures shall have been used on any such certificate or certificates shall cease to be such officer or officers of the corporation, whether because of death, resignation or otherwise, before such certificate or certificates shall have been issued by the corporation, such certificate or certificates may nevertheless be issued and delivered as though the person or persons who signed such certificate or certificates, or whose facsimile signature or signatures shall have been used thereon had not ceased to be such officer or officers of the corporation. SECTION 3. No certificate for shares of stock in the corporation shall be issued in place of any certificate alleged to have been lost, stolen or destroyed, except upon production of such evidence of such loss, theft or destruction and upon delivery to the corporation of a bond of indemnity in such amount, upon such terms and secured by such surety, as the Board of Directors in its discretion may require. ARTICLE V CORPORATE BOOKS The books of the corporation may be kept outside of the State of Delaware at such place or places as the Board of Directors may from time to time determine. ARTICLE VI CHECKS, NOTES, PROXIES, ETC. All checks and drafts on the corporation's bank accounts and all bills of exchange and promissory notes, and all acceptances, obligations and other instruments for the payment of money, shall be signed by such officer or officers or agent or agents as shall be thereunto authorized from time to time by the Board of Directors. Proxies to vote and consents with respect to securities of other corporations or entities owned by or standing in the name of the corporation may be executed and delivered from time to time on behalf of the corporation by the Chief Executive Officer, or by such officers as the Board of Directors may from time to time determine. ARTICLE VII FISCAL YEAR The fiscal year of the corporation shall begin on the first day of January in each year and shall end on the thirty-first day of December following. ARTICLE VIII CORPORATE SEAL The corporate seal shall have inscribed thereon the name of the corporation and the words "Corporate Seal" state and date of incorporation. In lieu of the corporate seal, when 10 so authorized by the Board of Directors or a duly empowered committee thereof, a facsimile thereof may be impressed or affixed or reproduced. ARTICLE IX OFFICES The corporation and the stockholders and the directors may have offices outside of the State of Delaware at such places as shall be determined from time to time by the Board of Directors. ARTICLE X AMENDMENTS The Board of Directors shall be authorized to make, amend, alter, change, add to or repeal the By-laws of the corporation in any manner not inconsistent with the laws of the State of Delaware. The affirmative vote of the holders of at least 80 percent in voting power of all the outstanding shares of the corporation entitled to vote generally in the election of directors, voting together as a single class, shall be required in order for the stockholders to make, amend, alter, change, add to or repeal any provision of the By-laws of the corporation. EX-4.1 5 y65565a2exv4w1.htm SPECIMEN CERTIFICATE SPECIMEN CERTIFICATE
 

Exhibit 4.1

(Certificate of Stock)

 

 

     THE CORPORATION WILL FURNISH WITHOUT CHARGE TO EACH STOCKHOLDER WHO SO REQUESTS THE POWERS, DESIGNATIONS, PREFERENCES AND RELATIVE, PARTICIPATING, OPTIONAL OR OTHER SPECIAL RIGHTS OF EACH CLASS OF STOCK OR SERIES THEREOF AND THE QUALIFICATIONS, LIMITATIONS OR RESTRICTIONS OF SUCH PREFERENCES AND/OR RIGHTS.

     ACCORDING TO THE RESTATED CERTIFICATE OF INCORPORATION OF COGNIZANT TECHNOLOGY SOLUTIONS CORPORATION, THE SHARES OF CLASS B COMMON STOCK REPRESENTED BY THIS CERTIFICATE WILL BE AUTOMATICALLY CONVERTED INTO SHARES OF CLASS A COMMON STOCK UPON ANY TRANSFER OF SUCH SHARES OF CLASS B COMMON STOCK. CONSEQUENTLY, NO PURPORTED TRANSFEREE OF ANY SHARES OF CLASS B COMMON STOCK IS ENTITLED TO OWN OR TO BE REGISTERED AS THE RECORD HOLDER OF SUCH SHARES OF CLASS B COMMON STOCK BUT INSTEAD SHALL BE ENTITLED TO OWN AND BE REGISTERED AS THE RECORD HOLDER OF A LIKE NUMBER OF SHARES OF CLASS A COMMON STOCK. EACH HOLDER OF THIS CERTIFICATE, BY ACCEPTING THE SAME, ACCEPTS AND AGREES TO ALL OF THE FOREGOING.

     The following abbreviations, when used in the inscription on the face of this certificate, shall be construed as though they were written out in full according to applicable laws or regulations:

         
TEN COM
TEN ENT
JT TEN		   - -
- -
- - 		  as tenants in common as tenants by the entireties as joint tenants with right of survivorship and not as tenants in common
         
UNIF GIFT MIN ACT   - -                            Custodian                          
       (Cust)                               (Minor)
under Uniform Gifts to Minors
Act                                                       
                            (State)

 

     Additional abbreviations may also be used though not in the above list.

FOR VALUE RECEIVED, ______________________ hereby sell, assign and transfer unto

     
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE		    

(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING ZIP CODE, OF ASSIGNEE)

Shares of the capital stock represented by the within Certificate, and do hereby irrevocably constitute and appoint

Attorney to transfer the said stock on the books of the within named Corporation with full power of substitution in the premises.

Dated                     

         
       
    NOTICE:   THE SIGNATURE TO THIS ASSIGNMENT MUST CORRESPOND WITH THE NAME AS WRITTEN UPON THE FACE OF THE CERTIFICATE IN EVERY PARTICULAR, WITHOUT ALTERATION OR ENLARGEMENT OR ANY CHANGE WHATEVER.

Signature(s) Guaranteed:

THE SIGNATURE(S) SHOULD BE GUARANTEED BY AN ELIGIBLE
GUARANTOR INSTITUTION (BANKS, STOCKBROKERS, SAVINGS AND
LOAN ASSOCIATIONS AND CREDIT UNIONS WITH MEMBERSHIP IN
AN APPROVED SIGNATURE GUARANTEE MEDALLION PROGRAM),
PURSUANT TO S.E.C. RULE 17Ad-15.

AMERICAN BANK NOTE COMPANY
55TH and SANSOM STREET
PHILADELPHIA, PA 19139
(215) 764-8600
SALES: R. JOHNS: 212-269-0339 X — 13
/NET/BANKNOTE/HOME 12/COGNIZANT H75226

PRODUCTION COORDINATOR: LISA MARTIN: 215-764-8625
PROOF OF JANUARY 6, 2003
COGNIZANT TECHNOLOGY SOLUTIONS CORPORATION
H 75226 bk
OPERATOR:       HJ
NEW

 

  EX-5.1 6 y65565a2exv5w1.txt OPINION OF SIMPSON THACHER & BARTLETT Exhibit 5.1 Simpson Thacher & Bartlett 425 Lexington Avenue New York, New York 10017 January 9, 2003 Cognizant Technology Solutions Corporation 500 Glenpointe Centre West Teaneck, New Jersey 07666 Ladies and Gentlemen: We have acted as counsel to Cognizant Technology Solutions Corporation, a Delaware corporation (the "Company"), in connection with the Registration Statement on Form S-4 (the "Registration Statement") filed by the Company with the Securities and Exchange Commission (the "Commission") under the Securities Act of 1933, as amended (the "Act"), relating to the offer by IMS Health Incorporated ("IMS Health") to exchange up to 11,290,900 shares (the "Shares") of the Company's Class B Common Stock, $.01 par value per share, that IMS currently owns for a number of shares of outstanding common stock of IMS Health to be specified (such offer, as it may be amended and supplemented from time to time, the "Exchange Offer"). We have examined the Registration Statement and a form of the share certificate, which has been filed with the Commission as an exhibit to the Registration Statement. We also have examined the originals, or duplicates or certified or conformed copies, of such records, agreements, instruments and other documents and have made such other and further investigations as we have deemed relevant and necessary in connection with the opinions expressed herein. As to questions of fact material to this opinion, we have relied upon certificates of public officials and of officers and representatives of the Company. In such examination, we have assumed the genuineness of all signatures, the legal capacity of natural persons, the authenticity of all documents submitted to us as originals, the conformity to original documents of all documents submitted to us as duplicates or certified or conformed copies, and the authenticity of the originals of such latter documents. Page 2 Based upon the foregoing, and subject to the qualifications and limitations stated herein, we are of the opinion that Shares have been validly issued and fully paid and are nonassessable. We are members of the Bar of the State of New York and we do not express any opinion herein concerning any law other than the Delaware General Corporation Law (including the statutory provisions, all applicable provisions of the Delaware Constitution and reported judicial decisions interpreting the foregoing). We hereby consent to the filing of this opinion letter as Exhibit 5.1 to the Registration Statement and to the use of our name under the caption "Legal Matters" in the Prospectus included in the Registration Statement. Very truly yours, /s/ Simpson Thacher & Bartlett SIMPSON THACHER & BARTLETT EX-8.1 7 y65565a2exv8w1.txt TAX OPINION OF MCDERMOTT, WILL & EMERY Exhibit 8.1 A Partnership Including Boston Professional Corporations Chicago 600 13th Street, N.W. London Washington, D.C. 20005-3096 Los Angeles 202-756-8000 Miami Facsimile 202-756-8087 Munich http.//www.mwe.com New York Orange County Silicon Valley Washington, D.C. MCDERMOTT, WILL & EMERY January 9, 2003 IMS Health Incorporated 1499 Post Road Fairfield, Connecticut 06842 Ladies and Gentlemen: We have acted as special tax counsel to IMS Health Incorporated ("IMS Health") in connection with the proposed exchange offer pursuant to which IMS Health (i) will exchange its shares of Cognizant Technology Solutions Corporation ("Cognizant") class B common stock ("Cognizant Class B Common Stock") for shares of IMS Health common stock ("IMS Health Common Stock") tendered by IMS Health stockholders and (ii) may distribute to the IMS Health stockholders substantially simultaneously any Cognizant Class B Common Stock that IMS Health would otherwise continue to own after completion of the exchange (the foregoing transactions are referred to collectively herein as the "Exchange"), as contemplated by (i) the registration statement on Form S-4 (and all exhibits and attachments thereto), Registration No. 333-101216, filed with the United States Securities and Exchange Commission (the "Commission") on November 14, 2002, as amended by Amendment No. 1 (and all exhibits and attachments thereto) filed with the Commission on December 23, 2002, and Amendment No. 2 (and all exhibits and attachments thereto) filed with the Commission on IMS Health Incorporated January 9, 2003 Page 2 January 9, 2003 (collectively, the "Registration Statement"), (ii) the Distribution Agreement between IMS Health and Cognizant dated January 7, 2003 (the "Distribution Agreement"), and attached as Exhibit 10.13 to the Registration Statement, and (iii) the tender offer statement on Schedule TO (and all exhibits and attachments thereto) filed with the Commission on January 9, 2003 (the "Schedule TO"). You have requested our opinion regarding certain United States federal income tax consequences of the Exchange. In rendering our opinion, we have examined and relied on (i) the Registration Statement; (ii) the Schedule TO; (iii) the Distribution Agreement; (iv) the representations made to us by IMS Health and Cognizant in certificates dated January 9, 2003, including any exhibits thereto (the "IMS Health Certificate" and the "Cognizant Certificate," respectively); (v) the representations to be made to us in certificates to be executed by Venetia Kontogouris and Robert E. Weissman, both directors of Cognizant (the "Kontogouris Certificate" and the "Weissman Certificate," respectively); (vi) the opinion delivered by Goldman, Sachs & Co. on January 8, 2003, to the Board of Directors of IMS Health (the "Goldman, Sachs Opinion"); (vii) the opinion delivered by Bear, Stearns & Co. Inc. on January 8, 2003, to the Board of Directors of IMS Health (the "Bear, Stearns Opinion"); and (viii) such other instruments and documents related to the Exchange as we have deemed necessary or appropriate to enable us to render the opinion set forth below. The IMS Health Certificate, the Cognizant Certificate, the Kontogouris Certificate, and the Weissman Certificate are referred to collectively herein as the "Certificates." IMS Health Incorporated January 9, 2003 Page 3 In addition, we have assumed that (i) the Exchange will be consummated in the manner contemplated by the Distribution Agreement, the Registration Statement, and the Schedule TO and in accordance with the provisions of the Distribution Agreement and the exhibits to the Schedule TO, and that none of the terms or conditions contained therein have been or will be waived or modified in any material respect; (ii) the Registration Statement, the Schedule TO, the Distribution Agreement, the Certificates, and such other documents and records that we have considered reflect all of the material facts relating to the Exchange; (iii) the statements concerning the Exchange set forth in the Registration Statement, the Schedule TO, the Goldman, Sachs Opinion, and the Bear, Stearns Opinion, including the purposes of the parties for consummating the Exchange, are accurate and complete; and (iv) the representations contained in the Certificates are accurate and complete without regard to any qualification as to knowledge or belief contained therein. In our examination of the materials described herein, we also have assumed the genuineness of all signatures, the legal capacity of all natural persons, the authenticity of all documents submitted to us as originals, and the conformity to the original documents of all documents submitted to us as certified or photostatic copies and the authenticity of the originals thereof. We have not independently verified any factual matters relating to the Exchange in connection with the preparation of this opinion. Accordingly, our opinion does not take into account any matters not set forth herein that might have been disclosed by independent verification. In the course of preparing our opinion, nothing has come to our attention that would lead us to believe that any of the facts, representations, or other information on which we have relied in rendering our opinion is incorrect. IMS Health Incorporated January 9, 2003 Page 4 Based solely on the foregoing and subject to the exceptions, qualifications, and limitations set forth herein, we are of the opinion that, for United States federal income tax purposes: (i) the distribution of the Cognizant Class B Common Stock by IMS Health pursuant to the Exchange should be tax-free to IMS Health; (ii) no gain or loss should be recognized by, and no amount should be included in the income of, the IMS Health stockholders upon their receipt of shares of Cognizant Class B Common Stock in the Exchange; (iii) for those IMS Health stockholders that surrender all of their shares of IMS Health Common Stock in the Exchange, the aggregate tax basis of the shares of Cognizant Class B Common Stock held by each such stockholder after the Exchange, including any fractional share interest with respect to which cash is received as described in (vi) below, should be the same as the aggregate tax basis of the shares of IMS Health Common Stock exchanged therefor; (iv) for those IMS Health stockholders that do not surrender all of their shares of IMS Health Common Stock in the Exchange, each such stockholder's aggregate tax basis in the shares of IMS Health Common Stock held before the Exchange should be allocated between the shares of IMS Health Common Stock and shares of Cognizant Class B IMS Health Incorporated January 9, 2003 Page 5 Common Stock, including any fractional share interest with respect to which cash is received as described in (vi) below, held by such stockholder after the Exchange in proportion to their relative fair market values; (v) the holding period of the shares of Cognizant Class B Common Stock received by the IMS Health stockholders in the Exchange, including any fractional share interests with respect to which cash is received as described in (vi) below, should include the holding period of the shares of IMS Health Common Stock with respect to which the shares of Cognizant Class B Common Stock were received; and (vi) if a stockholder of IMS Health receives cash as the result of an independent exchange agent sale of a fractional share of Cognizant Class B Common Stock on behalf of the stockholder, the stockholder should recognize gain or loss in an amount equal to the difference between the tax basis allocable to such fractional share interest and the amount of cash received. Our opinion is based on an analysis of the Code, final, temporary, and proposed Treasury Regulations thereunder, current administrative rulings, judicial decisions, and other applicable authorities as of the date hereof. The analysis of the United States federal income tax consequences of the proposed transactions involves a careful application of the relevant IMS Health Incorporated January 9, 2003 Page 6 legal standards to the facts related to the Exchange. The legal analysis of the Exchange is particularly dependent on the accuracy and completeness of the facts, information, covenants, representations, and warranties contained in the documents described herein. Thus, any change or inaccuracy in such facts, information, covenants, representations, or warranties (including, without limitation, events occurring subsequent to the Exchange) could affect the conclusions stated herein. Our opinion is not binding on, and does not foreclose the possibility of a contrary determination by, the Internal Revenue Service ("Service") or by a court of competent jurisdiction, or of a contrary position by the Service or the Treasury Department in regulations or rulings issued in the future. Furthermore, Congress can change the tax laws and can do so retroactively. By rendering our opinion, we do not undertake to advise you of any change in any law that may occur after the date of this opinion. Except as set forth above, we express no opinion to any party as to any tax consequences, whether United States federal, state, local, or foreign, of the Exchange or of any other transaction or event contemplated by or referred to in the Distribution Agreement, the Registration Statement, or the Schedule TO. Our opinion does not address United States federal income tax consequences that may vary with, or are contingent on, a stockholder's individual circumstances. In particular, our opinion does not address (i) tax basis issues with respect to stockholders participating in the Exchange who own blocks of shares of IMS Health Common Stock with different per-share tax bases or (ii) any tax consequences to stockholders participating in the Exchange who do not hold their shares of IMS Health Common Stock as capital assets. IMS Health Incorporated January 9, 2003 Page 7 Our opinion is rendered to IMS Health solely in connection with the Exchange and may not be relied on, used, circulated, quoted, or referred to by IMS Health for any other purpose or relied on by, or furnished to, any other person (except for governmental authorities) without our prior written consent. We consent to the use of our name in the offering circular-prospectus included in the Registration Statement and cross-referenced in the Schedule TO, and to the filing of this opinion with the Commission as an exhibit to the Registration Statement and the Schedule TO. In giving this consent, we do not hereby admit that we are within the category of persons whose consent is required under Section 7 of the Securities Act of 1933, as amended, or the rules and regulations of the Commission promulgated thereunder. Very truly yours, /s/ MCDERMOTT, WILL & EMERY EX-10.13 8 y65565a2exv10w13.txt DISTRIBUTION AGREEMENT EXHIBIT 10.13 DISTRIBUTION AGREEMENT DISTRIBUTION AGREEMENT, dated as of January 7, 2003, between IMS HEALTH INCORPORATED, a Delaware corporation ("IMS Health"), and COGNIZANT TECHNOLOGY SOLUTIONS CORPORATION, a Delaware corporation ("Cognizant"). WHEREAS, IMS Health owns 11,290,900 shares of Cognizant class B common stock (the "Series B Shares"), representing approximately 56% of the outstanding stock of Cognizant and approximately 93% of the combined voting power of Cognizant's common stock; WHEREAS, IMS Health (as permitted assignee of Cognizant Corporation) and Cognizant are party to (i) the Intercompany Services Agreement, dated as of May 15, 1998 (the "Intercompany Services Agreement"), originally between Cognizant Corporation and Cognizant, which provides for the performance by IMS Health of certain services for Cognizant, and (ii) the Intercompany Agreement, dated as of May 15, 1998 (the "Intercompany Agreement"), originally between Cognizant Corporation and Cognizant, which, inter alia, provides IMS Health with the right to request Cognizant to file and cause to become effective a registration statement with the Securities and Exchange Commission ("SEC") in respect of the disposition by IMS Health of its Series B Shares from time to time, subject to the terms and conditions of the Intercompany Agreement; WHEREAS, IMS Health has announced its intention to make an offer to its shareholders to exchange its Series B Shares for outstanding shares of common stock of IMS Health (the "Exchange Offer") in a tax-free distribution pursuant to Section 355 of the Internal Revenue Code of 1986, as amended, and has delivered to Cognizant a written request pursuant to the Intercompany Agreement for registration of the Series B Shares to be distributed in the Exchange Offer; and WHEREAS, IMS Health and Cognizant have determined that it is necessary and desirable to set forth below certain rights and obligations relating to the Exchange Offer and the performance of their mutual obligations in connection with the distribution of the Series B Shares. NOW, THEREFORE, in consideration of the mutual agreements, provisions and covenants contained in this Agreement, the parties hereby agree as follows: 1 ARTICLE I DEFINITIONS SECTION 1.1 General. As used in this agreement, the following terms have the following meanings: (a) "Action" means 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) "Action Giving Rise to a Change in Control" has the meaning indicated in Section 3.1(a)(iii). (c) "Agreement" means this Distribution Agreement. (d) "Amended and Restated Intercompany Services Agreement" has the meaning indicated in Section 2.6. (e) "Business Entity" means any corporation, partnership, limited liability company or other entity which may legally hold title to assets. (f) "Claims Administration" means the processing of claims made under the Shared Policies, including the reporting of claims to the insurance carriers and the management of the defense of claims. (g) "Code" means the Internal Revenue Code of 1986, as amended, and the Treasury regulations promulgated thereunder, including any successor legislation. (h) "Cognizant" means Cognizant Technology Solutions Corporation. (i) "Cognizant Class A Common Stock" means the class A common stock, par value $.01 per share, of Cognizant. (j) "Cognizant Class B Common Stock" means the class B common stock, par value $.01 per share, of Cognizant. (k) "Cognizant Common Stock" means the Cognizant Class A Common Stock and the Cognizant Class B Common Stock. (l) "Cognizant Failure" has the meaning indicated in Section 3.1(a)(b). 2 (m) "Cognizant Liabilities" means collectively, (i) all obligations and Liabilities of Cognizant or any Subsidiary of Cognizant immediately prior to the completion of the Exchange Offer, and (ii) all obligations and Liabilities of Cognizant hereunder and under the Intercompany Agreement. (n) "Cognizant Representation Letter" has the meaning indicated in Section 3.1(a)(i). (o) "Commercial Agreement" has the meaning indicated in Section 2.9. (p) "Company Information" means any Covered Information insofar as it includes or has been made in reliance upon and in conformity with: (i) (A) the information contained in the following parts of the Offering Circular-Prospectus: the third paragraph and the second sentence of the fourth paragraph on the cover page of the Offering Circular-Prospectus; Cognizant's contact information on page ii; the second, third and fourth questions and answers on page 4 and the first question and answer on page 5; the fifth, sixth, seventh and eighth paragraphs of the "Summary"; the paragraph entitled "Conversion of Cognizant class B common stock" on page 10; the "Cognizant Summary Financial Data"; the column captioned "Cognizant Historical" in "Comparative Per Share Data"; the column captioned "Cognizant Nasdaq Price Per Share", the last two risk factors under "Risk Factors -- Risks Related to the Exchange Offer"; "Risk Factors -- Risks Relating to Cognizant", the fourth paragraph of "Special Note on Forward-Looking Information"; the third paragraph under "Accounting Treatment"; "Market Prices and Dividend Information -- Shares of Cognizant Common Stock" and the third paragraph under in "Market Prices and Dividend Information -- Dividend Policies"; "Capitalization -- Cognizant Technology Solutions Corporation"; "Cognizant Selected Financial Data"; "Management's Discussion and Analysis of Results of Operations and Financial Condition of Cognizant"; "Business of Cognizant"; "Description of Capital Stock of Cognizant"; the column captioned "Cognizant" in the section captioned "Comparison of Rights of Stockholders of IMS Health and Stockholders of Cognizant"; the first sentence under the caption "Legal Matters"; the second paragraph under the caption "Experts"; the paragraphs under the caption "Where Can You Find More Information" relating to the Company, and (B) the information contained in the Company's financial statements included in the Offering Circular-Prospectus and the information contained in any Exchange Act reports of Cognizant incorporated by reference in the Offering Circular-Prospectus; and (ii) the information set forth in Part II of the Registration Statement, other than exhibits 8.1, 23.3 and 99.1 through 99.8. 3 (q) "Covered Information" means any information included in, incorporated by reference in or otherwise made a part of (i) the registration statement under which the Series B Shares are registered under the Securities Act, any preliminary prospectus, final prospectus or summary prospectus included therein (including without limitation any preliminary, final or summary Offering Circular-Prospectus), and any amendment or supplement thereto, and any document incorporated by reference therein; (ii) the Schedule TO, (iii) any statement made or information, report or document delivered to IMS Health stockholders or filed with or delivered to the SEC by or on behalf of either party, its officers, directors or stockholders, any Dealer Managers or their respective affiliates in connection with or relating to the Exchange Offer (including any material filed with the SEC pursuant to Rule 165 under the Exchange Act), (iv) any solicitation materials relating to the Exchange Offer or any oral solicitation of tenders and (v) any press release issued or authorized by either party related to the Exchange Offer. (r) "Dealer Managers" means the dealer managers for the Exchange Offer appointed from time to time by IMS Health. (s) "Dealer Managers Agreement" means the Dealer Managers Agreement, to be dated January 9, 2003 among Goldman, Sachs & Co., Bear, Stearns & Co. Inc., IMS Health and Cognizant in the form attached as Exhibit A. (t) "Distribution Agent" means American Stock Transfer & Trust Company. (u) "Distribution Date" means the date of consummation of the Exchange Offer. (v) "Exchange Act" means the Securities Exchange Act of 1934, as amended. (w) "Exchange Offer" has the meaning indicated in the recitals. (x) "Governance Amendments" means the amendments to the amended and restated certificate of incorporation of Cognizant attached hereto as Exhibit B. (y) "Governmental Entity" means any federal, state, local, foreign or international court, government, department, commission, board, bureau, agency, official or other regulatory, administrative or governmental authority. (z) "IMS Health" means IMS Health Incorporated. 4 (aa) "IMS Health Common Stock" means the common stock, par value $.01 per share, of IMS Health. (bb) "IMS Health Entity" has the meaning indicated in Section 3.1(b). (cc) "IMS Health Information" means any Covered Information that is not Company Information. (dd) "IMS Health Liabilities" means collectively, (i) all obligations and Liabilities of IMS Health or any Subsidiary of IMS Health immediately prior to the completion of the Exchange Offer, and (ii) all obligations and Liabilities of IMS Health hereunder and under the Intercompany Agreement, except the Cognizant Liabilities. (ee) "IMS Health Representation Letter" has the meaning indicated in Section 3.1(a)(iv). (ff) "Indemnitee" has the meaning indicated in Section 4.6(c). (gg) "Indemnifying Party" has the meaning indicated in Section 4.6(c). (hh) "Information Statement" means Cognizant's Information Statement on Schedule 14C relating to the adoption by IMS Health of the Governance Amendments prepared by Cognizant in accordance with Section 4.5(c). (ii) "Intercompany Agreement" has the meaning indicated in the recitals. (jj) "Intercompany Services Agreement" has the meaning indicated in the recitals. (kk) "IRI Action" has the meaning indicated in Section 2.5(vii). (ll) "Liabilities" means 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, 5 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, 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. (mm) "NASDAQ" has the meaning indicated in Section 4.3(c). (nn) "Offering Circular-Prospectus" means the Offering Circular-Prospectus sent to the holders of IMS Health Common Stock in connection with the Exchange Offer, including any amendment or supplement thereto, and any document incorporate by reference therein. (oo) "Person" means any natural person, corporation, business trust, joint venture, association, company, limited liability company, partnership or government, or any agency or political subdivision thereof. (pp) "Policies" means insurance policies and insurance contracts of any kind (other than life and benefits policies or contracts), including 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. (qq) "Restricted Period" has the meaning indicated in Section 3.1(a)(iii). (rr) "Retained Shares" means any shares of Cognizant Common Stock held by IMS Health following the Exchange Offer. (ss) "Right of First Offer" has the meaning indicated in Section 4.4(a). (tt) "Schedule TO" means the Exchange Offer Statement on Schedule TO to be filed by IMS Health with the SEC under the Exchange Act and any amendment or supplement thereto, and any document incorporated by reference therein. 6 (uu) "SEC" has the meaning indicated in the recitals. (vv) "Section 355 Liability" has the meaning indicated in Section 3.1(b). (ww) "Securities Act" means the Securities Act of 1933, as amended. (xx) "Series B Shares" has the meaning indicated in the recitals. (yy) "Shared Policies" has the meaning set forth in Section 3 of the Intercompany Services Agreement. (zz) "Subsidiary" of a Person means any corporation, partnership or other entity of which such Person (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). (aaa) "Tax Opinion" has the meaning indicated in Section 3.1(a)(i). (bbb) "Taxes" means any and all federal, state and local taxes, assessments and other governmental charges, duties, impositions and liabilities, including taxes based upon or measured by gross receipts, assets, income, profits, sales, use and occupation, and value added, ad valorem, transfer, gains, franchise, withholding, payroll, premium, recapture, employment, excise, escheat, unemployment insurance, social security, business license, business organization, unincorporated business, stamp, customs duty, capital stock, severance, disability, production and property taxes, together with all interest, penalties and additions imposed with respect to such amounts and any obligations under any agreements or arrangements with any other person with respect to such amounts and including any liability for taxes of a predecessor entity. (ccc) "Tax Matters" has the meaning indicated in Section 2.5(vii). (ddd) "Tendering Holders" has the meaning indicated in Section 2.1(a). (eee) "Third Party Claim" has the meaning indicated in Section 4.6(c). 7 (fff) "Transfer" has the meaning indicated in Section 4.4(a). (ggg) "Transferor's Notice" has the meaning indicated in Section 4.4(a). (hhh) "Treasury Regulations" means the Treasury regulations promulgated under the Code. (iii) "Undertakings" has the meaning indicated in Section 2.5(vii). (jjj) "1996 Distribution Agreement" means the Distribution Agreement, dated as of October 28, 1996, among Cognizant Corporation, The Dun & Bradstreet Corporation and ACNielsen Corporation. (kkk) "1998 Distribution Agreement" means the Distribution Agreement, dated as of June 30, 1998, between Cognizant Corporation and IMS Health. (lll) "2000 Distribution Agreement" means the Distribution Agreement, dated as of August 31, 2000, between IMS Health and Synavant Inc. ARTICLE II THE EXCHANGE OFFER SECTION 2.1 The Exchange Offer and Other Transactions. (a) The Exchange Offer. Subject to the conditions set forth in the Offering Circular-Prospectus upon the consummation of the Exchange Offer and the acceptance for payment by IMS Health of shares of IMS Health Common Stock thereunder, on or prior to the Distribution Date, IMS Health shall cause the Distribution Agent to distribute, on or as soon as practicable following the Distribution Date, taking into account Section 2.1(b), to the holders of IMS Health Common Stock validly tendering and not properly withdrawing their shares in the Exchange Offer (such holders, collectively, the "Tendering Holders"), all of the Series B Shares, or, if less, the full number of Series B Shares necessary to effectuate the Exchange Offer on the terms described in the Offering Circular-Prospectus. IMS Health shall deliver to the Distribution Agent the share certificates representing the Series B Shares that are to be distributed to the Tendering Holders in the Exchange Offer. During the period commencing on the date the certificates representing the Series B Shares are delivered to the Distribution Agent and ending upon the date(s) on which the Series B Shares are distributed to the Tendering Holders or on which fractional shares of Series B Shares are sold on behalf of such Tendering Holders, the Distribution Agent shall hold the Series B Shares on behalf of such Tendering Holders. Cognizant agrees to provide upon request 8 by IMS Health all certificates evidencing Series B Shares that IMS Health shall reasonably require in order to effect the Exchange Offer. (b) Sale of Fractional Shares. IMS Health shall appoint the Distribution Agent as agent for each holder of record of IMS Health Common Stock who would receive in the Exchange Offer any fractional Series B Shares. The Distribution Agent shall be instructed by IMS to aggregate all such fractional shares and sell them in an orderly manner after the Distribution Date in the open market and, after completion of such sales, distribute a pro rata portion of the net proceeds from such sales, based upon the gross selling price of all such fractional shares net of all selling expenses, to each Tendering Stockholder who would otherwise have received a fractional share. IMS Health shall reimburse the Distribution Agent for its reasonable costs, expenses and fees (other than selling expenses) in connection with the sale of fractional Series B Shares and the distribution of the proceeds thereof in accordance with this Section 2.1(b). (c) Existing Agreements. Except for this Agreement, the Intercompany Agreement, the Amended and Restated Intercompany Services Agreement, the Commercial Agreement and such contracts and agreements as are listed on Schedule 2.1(c) or as may be agreed by the parties in writing after the date hereof and on or prior the Distribution Date, all agreements and arrangements existing on the date hereof between IMS Health or any of its Subsidiaries on the one hand and Cognizant and any of its Subsidiaries on the other hand, whether written or oral, including those relating to the purchase and sale of products and services, shall cease as of the Distribution Date to have any further force and effect. (d) Notice. IMS Health shall give Cognizant and its counsel reasonable advance notice of any withdrawal, rescission, termination or modification of the Exchange Offer to the extent advance notice is practicable under the circumstances. IMS Health may withdraw, rescind, terminate or modify the Exchange Offer at any time in its discretion whether or not advance notice is given. SECTION 2.2 Resignation of Directors. IMS Health shall cause David M. Thomas and Nancy E. Cooper to resign as of the Distribution Date from their positions as directors of Cognizant and any of its Subsidiaries in which they serve. SECTION 2.3 Dealer Managers Agreement. Each party shall at the request of the Dealer Managers execute and deliver a Dealer Managers Agreement in substantially the form attached as Exhibit A hereto, together with such changes as agreed to by the parties, and such related and ancillary documentation as is contemplated thereby (including pursuant to Sections 4 and 6 thereof). Each party agrees to perform its obligations under the Dealer Managers Agreement in accordance with the terms thereof and that (i) the obligations of the parties under the Dealer Managers Agreement for the 9 benefit of the Dealer Managers are in addition to their obligations under the Intercompany Agreement for the benefit of each other and (ii) except as otherwise provided herein, the indemnification and other provisions set forth in Section 4.5 and Section 4.6 of the Intercompany Agreement shall be superseded in their entirety with respect to the Exchange Offer by Section 2.4 hereto and Section 7 of the Dealer Managers Agreement. SECTION 2.4 Indemnification and Contribution. (a) Cognizant hereby indemnifies and agrees to defend and hold harmless IMS Health and its directors, officers and any controlling persons within the meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act from and against any losses, claims, damages, liabilities or expenses (or actions or proceedings in respect thereof) to which IMS or any such director, officer or controlling person may become subject under the Securities Act, the Exchange Act, the Dealer Managers Agreement or otherwise insofar as such losses, claims, damages, liabilities or expenses arise out of or are based upon (i) any untrue statement or alleged untrue statement of material fact contained in any Company Information in the Offering Circular Prospectus or the Schedule TO or any omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, and Cognizant will reimburse IMS Health and each such director, officer or controlling person for any legal or other expenses reasonably incurred by any of them in connection with investigating or defending any such loss, claim, liability, action or proceeding, provided, however, that Cognizant shall not be liable in any such case to the extent that any such loss, claim, damage, liability or expense (or action or proceeding in respect thereof) arises out of or is based upon any untrue statement or alleged untrue statement or omission or alleged omission made in any IMS Health Information or (ii) any breach by Cognizant of any representation, warranty or covenant herein. (b) IMS Health hereby indemnifies and agrees to defend and hold harmless Cognizant and its directors, officers and any controlling persons within the meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act from and against any losses, claims, damages, liabilities or expenses (or actions or proceedings in respect thereof) to which Cognizant or any such director, officer or controlling person may become subject, under the Securities Act, Exchange Act or otherwise, insofar as such losses, claims, damages, liabilities or expenses arise out of or are based upon (i) any untrue statement or alleged untrue statement of material fact contained in any IMS Health Information in the Offering Circular Prospectus or the Schedule TO or any omission or alleged omission to state therein a material fact necessary to make the statements therein not misleading, (ii) a withdrawal, rescission, termination or modification of, or a failure to make or consummate the Exchange Offer or otherwise arise as a result of the manner in which the Exchange Offer is made or conducted by IMS Health and the Dealer 10 Managers or (iii) any breach by IMS Health of any representation, warranty or covenant herein. (c) The indemnification obligations of Cognizant and IMS Health set forth in clauses (a) and (b) of this Section 2.4 shall not apply to any losses, claims, damages, liabilities or expenses (or actions or proceedings in respect thereto) that arise out of or are based upon any breach by either party of the representations and warranties set forth in Section 3.1. The indemnification for any such breach of the representations and warranties set forth in Section 3.1 and any other matter that would be covered in Article III shall not be subject to this Section 2.4 and shall be in accordance with the provisions of Article III. (d) The provisions relating to notice, defense and settlement of actions and proceedings set forth in Section 4.5(c) of the Intercompany Agreement are hereby incorporated mutatis mutandis herein in respect of any action or proceeding involving any claim referred to in clause (a) or (b) of this Section 2.4, except that references in Section 4.5(c) of the Intercompany Agreement to Section 4.5 shall be to this Section 2.4. (e) If the indemnification provided for in clause (a) or (b) of this Section 2.4 is unavailable to the indemnified party in respect of any losses, claims, damages or liabilities referred to therein, then the indemnifying party and the indemnified party shall contribute to the amounts paid or payable by such indemnified party in such proportion as is appropriate to reflect the relative fault of the parties in connection with such statements and omissions, as well as any other relevant equitable considerations. (f) The rights and obligations of the parties set forth in clauses (a) and (b) of this Section 2.4 shall remain in full force and effect regardless of any investigation made by or on behalf of the indemnified person or any of its directors, officers or controlling persons and shall survive the consummation of the Exchange Offer. The rights of Persons entitled to be indemnified or held harmless under clauses (a) and (b) above are cumulative to any indemnities or other rights or remedies provided under the Intercompany Agreement, the Exchange Offer Documentation or applicable law. SECTION 2.5 Representations and Warranties. (a) Cognizant hereby represents to IMS Health as follows: (i) Organization; Good Standing. Cognizant is a corporation duly incorporated, validly existing and in good standing under the laws of the State of 11 Delaware and has all corporate power required to consummate the transactions contemplated hereby. (ii) Authorization. The execution, delivery and performance by Cognizant of this Agreement and the consummation by Cognizant of the transactions contemplated hereby have been duly authorized by all necessary corporate action on the part of Cognizant other than the adoption by IMS Health of the Governance Amendments. This Agreement constitutes, and each other agreement or instrument executed and delivered or to be executed and delivered by Cognizant pursuant to this Agreement will, upon such execution and delivery, constitute, a legal, valid and binding obligation of Cognizant, enforceable against Cognizant in accordance with its terms, subject to the effects of bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium and other similar laws relating to or affecting creditors' rights generally, general equitable principles (whether considered in a proceeding in equity or at law) and an implied covenant of good faith and fair dealing, except as the enforceability hereof may be limited by considerations of public policy. (iii) Consents and Filings. Except (A) for the filing of the Form S-4 with the SEC and the issuance of the effectiveness order by the SEC with respect thereto, (B) for such consents, approvals, authorizations, registrations or qualifications as may be required under state or foreign securities or Blue Sky laws in connection with the Exchange Offer, (C) for the filing of the Information Statement with the SEC and the mailing thereof to Cognizant's stockholders, (D) for the filing of a restated certificate of incorporation of Cognizant in respect of the Governance Amendments with the Secretary of the State of Delaware and (E) the filing of any other reports or documents required to be filed under the Exchange Act, no consent of, or filing with, any Governmental Entity located in the United States which has not been obtained or made by Cognizant is required to be obtained or made for or in connection with the execution and delivery of this Agreement by Cognizant, and the performance by Cognizant of its obligations hereunder. (iv) Noncontravention. The execution, delivery and performance of this Agreement by Cognizant does not, and the consummation by Cognizant of the transactions contemplated hereby will not, (A) violate any applicable federal or state statute, law, rule or regulation, (B) violate any provision of the certificate of incorporation or by-laws of Cognizant, or (C) violate any provision of, or result in the termination or acceleration of, or entitle any party to accelerate any obligation or indebtedness under, any mortgage, lease, franchise, license, permit, agreement, instrument, law, order, arbitration award, judgment or decree to which Cognizant or any of its Subsidiaries is a party or by which any of them are bound, except for such violations as would not, individually or in the aggregate have a material adverse effect on 12 the business, financial condition or results of operation of Cognizant and its Subsidiaries, taken as a whole. (v) Litigation. There are no Actions or suits against Cognizant pending, or to the knowledge of Cognizant, threatened which seek to, and Cognizant is not subject to any judgments, decrees or orders which, enjoin or rescind the transactions contemplated by this Agreement or otherwise prevent Cognizant from complying with the terms and provisions of this Agreement. (vi) Company Information. At the time the Offering Circular-Prospectus is first sent to the holders of IMS Health Common Stock and at the time that the registration statement pursuant to which the Series B Shares are registered under the Securities Act is declared effective, none of the Company Information will contain an untrue statement of a material fact or omit to state a material fact necessary to make the Company Information, in light of the circumstances in which it is presented, not misleading. (b) IMS Health hereby represents and warrants to Cognizant as follows: (i) Organization; Good Standing. IMS Health is a corporation duly incorporated, validly existing and in good standing under the laws of the State of Delaware and has all corporate power required to consummate the transactions contemplated hereby. (ii) Authorization. The execution, delivery and performance by IMS Health of this Agreement and the consummation by IMS Health of the transactions contemplated hereby have been duly authorized by all necessary corporate action on the part of IMS Health, other than the adoption by IMS Health of the Governance Amendments. This Agreement constitutes, and each other agreement or instrument executed and delivered or to be executed and delivered by IMS Health pursuant to this Agreement will, upon such execution and delivery, constitute, a legal, valid and binding obligation of IMS Health, enforceable against IMS Health in accordance with its terms, subject to the effects of bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium and other similar laws relating to or affecting creditors' rights generally, general equitable principles (whether considered in a proceeding in equity or at law) and an implied covenant of good faith and fair dealing, except as the enforceability hereof may be limited by consideration of public policy. (iii) Consents and Filings. Except (A) for the filing with the SEC of the Schedule TO and any other reports or documents required to be filed under the Exchange Act, (B) for the filing of the Form S-4 with the SEC and the issuance of the 13 effectiveness order by the SEC with respect thereto and (C) for such consents, approvals, authorizations, registrations or qualifications as may be required under state or foreign securities or Blue Sky laws in connection with the Exchange Offer, no consent of, or filing with, any Governmental Entity which has not been obtained or made is required to be obtained or made for or in connection with the execution and delivery of this Agreement by IMS Health, and the performance by IMS Health of its obligations hereunder. Except as otherwise expressly provided herein or in the Dealer Managers Agreement, as between IMS Health and CTS, IMS Health is solely responsible for the conduct of the Exchange Offer by IMS Health and the Dealer Managers in conformity with all applicable law in those jurisdictions in which the Exchange Offer is extended. (iv) Noncontravention. The execution, delivery and performance of this Agreement by IMS Health does not, and the consummation by IMS Health of the transactions contemplated hereby will not, (x) violate any applicable federal, state or local statute, law, rule or regulation, (y) violate any provision of the certificate of incorporation or by-laws of IMS Health or (z) violate any provision of, or result in the termination or acceleration of, or entitle any party to accelerate any obligation or indebtedness under, any mortgage, lease, franchise, license, permit, agreement, instrument, law, order, arbitration award, judgment or decree to which IMS Health or any of its Subsidiaries is a party or by which any of them are bound, except for such violations as would not, individually or in the aggregate have a material adverse effect on the business, financial condition or results of operation of IMS Health and its Subsidiaries, taken as a whole. (v) Litigation. There are no Actions or suits against IMS Health pending, or to the knowledge of IMS Health, threatened which seek to, and IMS Health is not subject to any judgments, decrees or orders which, enjoin or rescind the transactions contemplated by this Agreement or otherwise prevent IMS Health from complying with the terms and provisions of this Agreement. (vi) IMS Health Information. At the time the Offering Circular-Prospectus is first sent to the holders of IMS Health Common Stock and at the time that the registration statement pursuant to which the Series B Shares are registered under the Securities Act is declared effective, none of the IMS Health Information will contain an untrue statement of a material fact or omits to state a material fact necessary to make the IMS Health Information, in light of the circumstances in which it is presented, not misleading. (vii) Legacy Liabilities. To the knowledge of IMS Health, after due inquiry, the only "Cognizant Liabilities," as defined in Section I.1(ee) of the 1996 Distribution Agreement or "IMS Health Liabilities," as defined in Section I.1(ee) of the 1998 Distribution Agreement or "IMS Liabilities," as defined in Section I.1(ll) of the 14 2000 Distribution Agreement, that could result in claims against Cognizant as a result of the undertakings referred to in Section 4.5(d) (the "Undertakings") are the "Information Resources Litigation" (the "IRI Action") and the tax matters (the "Tax Matters") described under the heading "Contingencies" in Note 8 to IMS Health's unaudited financial statements included in IMS Health's Quarterly Report on Form 10-Q for the period ending September 31, 2002. IMS Health is not aware of any other matters that are or may become "Cognizant Liabilities" or "IMS Health Liabilities" or "IMS Liabilities" or could give rise to any material claim by any person against either IMS Health or Cognizant under any of the agreements described in Section 4.5(d). (viii) Claims History. Schedule 2.5(b)(viii) sets forth a list of all claims (other than those in respect of the IRI Action and the Tax Matters) involving an amount in dispute in excess of US $1 million that have been made against IMS Health or to the knowledge of IMS Health, after due inquiry, for which IMS Health could be liable (i) by Dun & Bradstreet or ACNielsen (or their successors) in respect of "Cognizant Liabilities", (ii) by Nielsen Media Research (or its successors) in respect of "IMS Health Liabilities" or by (iii) Synavant Inc. (or its successors, if any) in respect of "IMS Liabilities," and the date and manner of resolution of such claims. SECTION 2.6 Intercompany Services Agreement. (a) The parties agree that on the Distribution Date they shall enter into an amended and restated Intercompany Services Agreement and the material terms of such agreement are in the form set forth as Exhibit C (the "Amended and Restated Intercompany Services Agreement"). Except as provided in the Amended and Restated Intercompany Services Agreement, Cognizant shall pay in immediately available funds on the Distribution Date any fees due and unpaid to IMS Health under the Intercompany Services Agreement for services rendered on or prior to the Distribution Date or other amounts then due and payable to IMS Health under the Intercompany Services Agreement. (a) The rights and obligations of the parties under Section 4, Section 6 and, where applicable, Section 9 of the Intercompany Services Agreement shall survive termination of the Intercompany Services Agreement to the extent such rights and obligations relate to services rendered on or prior to the Distribution Date. SECTION 2.7 Intercompany Agreement. The rights and obligations of the parties under this Agreement are in addition to any rights and obligations of the parties under the Intercompany Agreement and the Intercompany Agreement shall remain in full force and effect in accordance with its original terms at all times prior to, during and after the consummation of the Exchange Offer, provided that to the extent of any conflict between the provisions of the Intercompany Agreement and the provisions of this Agreement, this Agreement shall prevail. 15 SECTION 2.8 Additional Documents and Undertakings. Each of IMS Health and Cognizant agree to execute and deliver such documents and undertakings as may be reasonably requested by the other party in connection with the consummation of the Exchange Offer. SECTION 2.9 Commercial Agreement. The parties agree that on the Distribution Date they shall enter into a Commercial Agreement on the terms set forth in Exhibit D (the "Commercial Agreement"). ARTICLE III TAX MATTERS SECTION 3.1 Certain Tax Representations and Post-Exchange Offer Transactions. (a) Representations and Warranties. (i) Cognizant represents and warrants to IMS Health that its representations to be set forth in a representation letter addressed to McDermott, Will & Emery, substantially in the form attached hereto as Exhibit E (the "Cognizant Representation Letter") and to be used by McDermott, Will & Emery in connection with rendering its opinion regarding the U.S. federal income tax consequences of the Exchange Offer (the "Tax Opinion") will be accurate and complete and, taking into account the purpose for which they are sought, will not be misleading, as of the date as of which those representations are made and as of the Distribution Date. Cognizant further represents and warrants that any representations it makes to counsel in connection with obtaining an opinion contemplated by Section 3.1(a)(iii) below will be accurate and complete and, taking into account the purpose for which they are sought, will not be misleading, as of the date as of which those representations are made and as of the date on which the relevant action triggering the need for such opinion is consummated. (ii) Cognizant agrees that it will, and will cause its Subsidiaries to, comply with all of, and not take action inconsistent with any of, the representations included or referred to in Section 3.1(a)(i). (iii) Cognizant agrees that, until two years after the Distribution Date (the "Restricted Period"), neither it nor any of its Subsidiaries will enter into any agreement, understanding, arrangement, or substantial negotiations, within the meaning of Treasury Regulations Section 1.355-7T(h)(1), to (A) merge or consolidate with or into any other corporation, (B) liquidate or partially liquidate, (C) 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 16 transactions, (D) redeem or otherwise repurchase any common stock of Cognizant (other than as described in Section 4.05(1)(b) of Rev. Proc. 96-30, 1996-1 C.B. 696), or (E) 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 Cognizant (hereinafter, any action or actions described in items (A) through (E) shall be referred to as an "Action Giving Rise to a Change in Control"), unless, prior to taking such Action Giving Rise to a Change in Control, Cognizant has obtained (and provided to IMS Health) a written opinion of a law firm reasonably acceptable to IMS Health, in form and substance reasonably satisfactory to IMS Health, acting without undue delay, to the effect that such action or actions will not result in (x) the Exchange Offer failing to qualify under Section 355(a) of the Code or (y) the common stock of Cognizant distributed by IMS Health 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; provided, however, (a)(i) if the Action Giving Rise to a Change in Control is an "acquisition" that satisfies the requirements of "Safe Harbor I" as provided by Treasury Regulations Section 1.355-7T(d)(1) and at the time of such Action Giving Rise to a Change in Control such Treasury Regulation (or, if adopted in final form, such final Treasury Regulation) still applies to the transaction, (ii) if the Action Giving Rise to a Change in Control does not involve a "public offering" within the meaning of Treasury Regulations Section 1.355-7T, and (iii) if, in connection with the Action Giving Rise to a Change in Control, none of the parties to the acquisition, and none of the person or persons acquiring directly or indirectly stock representing a 50 percent or greater interest (within the meaning of Section 355(e) of the Code) in Cognizant, is a Listed Party (as defined below), then, for purposes of the foregoing, the Restricted Period shall be 6 months after the Distribution Date rather than two years after the Distribution Date; (b)(i) if the Action Giving Rise to a Change in Control is an "acquisition" that satisfies the requirements of "Safe Harbor II" as provided by Treasury Regulations Section 1.355-7T(d)(2) and at the time of such Action Giving Rise to a Change in Control such Treasury Regulation (or, if adopted in final form, such final Treasury Regulation) still applies to the transaction and (ii) if, in connection with the Action Giving Rise to a Change in Control, none of the parties to the acquisition, and none of the person or persons acquiring directly or indirectly stock representing a 50 percent or greater interest (within the meaning of Section 355(e) of the Code) in Cognizant, is a Listed Party (as defined below), then, for purposes of the foregoing, the Restricted Period shall be 6 months after the Distribution Date rather than two years after the Distribution Date; and (c)(i) if the Action Giving Rise to a Change in Control is an "acquisition" that satisfies the requirements of "Safe Harbor III" as provided by Treasury Regulations Section 17 1.355-7T(d)(3) and at the time of such Action Giving Rise to a Change in Control such Treasury Regulation (or, if adopted in final form, such final Treasury Regulation) still applies to the transaction, (ii) if the Action Giving Rise to a Change in Control does not involve a "public offering" within the meaning of Treasury Regulations Section 1.355-7T, and (iii) if the Restricted Period is not otherwise 6 months after the Distribution Date, then for purposes of the foregoing the Restricted Period shall be one year after the Distribution Date rather than two years after the Distribution Date. For purposes of the foregoing, a Listed Party is (A) any person listed on Schedule 3.1(a)(iii), (B) any person "controlling, controlled by or under common control with" (as defined below) a person listed on Schedule 3.1(a)(iii), (C) any person bearing a relationship described in Sections 267(b) or 707(b) of the Code to a person listed on Schedule 3.1(a)(iii), (D) any person that is part of a Coordinating Group, as defined in Treasury Regulations Section 1.355-7T(h)(4), with any person listed on Schedule 3.1(a)(iii), and (E) any "successor" (as defined below) of any person described in items (A) through (D) of this sentence. For purposes of determining whether a person or persons is or are "controlling, controlled by or under common control with" another person, control shall mean direct or indirect beneficial ownership of, or the power otherwise to direct the voting of, 50% or more of the voting securities of such person. For purposes of the foregoing, a person is a "successor" to another person if the first person is so treated under the merger or similar laws of any relevant jurisdiction, if the person has acquired directly or indirectly a trade or business or substantial assets from the other person, or if the person is a "transferee" from the other person within the meaning of Section 6901(h) of the Code. (iv) IMS Health agrees that Cognizant and Cognizant's counsel shall be entitled to rely on the representations and warranties set forth in Section I of the representation letter addressed to McDermott, Will & Emery to be used by it in connection with its Tax Opinion and substantially in the form attached hereto as Exhibit F (the "IMS Health Representation Letter") for purposes of (A) determining whether any event described in items (A) through (E) of the Section 3.1(a)(iii) will occur and (B) preparing the opinion contemplated by Section 3.1(a)(iii); and, upon request of such counsel, IMS Health shall use its best efforts to update and supplement those representations and warranties so that they will be accurate and complete and, taking into account the purpose for which they are sought, will not be misleading, as of the date on which the relevant action triggering the need for such opinion is consummated. IMS Health agrees that it will cooperate and comply with all reasonable requests from Cognizant and Cognizant's counsel for assistance and information needed in connection with such opinion. 18 (v) In the absence of a "determination" within the meaning of Section 1313(a) of the Code as to which IMS Health is the "taxpayer" within the meaning of Section 1313(b) of the Code that is inconsistent with the conclusions set forth in the Tax Opinion, Cognizant agrees that it will file, and will cause its Subsidiaries to file, all Tax returns and similar documents consistently with the conclusions concerning the federal income tax consequences of the Exchange Offer set forth in the Tax Opinion, and that it will not, and will cause its Subsidiaries not to, contradict or otherwise take a position contrary to such conclusions in any communication with any governmental agency or any public disclosure. (b) Notwithstanding Section 3.1(c) below, if Cognizant (or any of its Subsidiaries) fails to comply with any of its obligations under Section 3.1(a) or breaches any representation, warranty or covenant given under Section 3.1(a), and if, but for such failure to comply or breach (i) the Exchange Offer would have qualified under Section 355(a) of the Code or (ii) the common stock of Cognizant distributed by IMS Health would not fail to be treated as qualified property for purposes of Section 355(c)(2) of the Code by reason of Section 355(e) of the Code (a "Cognizant Failure"), then Cognizant shall indemnify and hold harmless IMS Health and each member of the consolidated group of which IMS Health is a member (each member, an "IMS Health Entity") from and against any and all liabilities (including, without limitation, Taxes and any interest, penalties or additions to Tax) (a "Section 355 Liability") imposed upon or incurred by any IMS Health Entity as a result of the failure of the Exchange Offer to qualify under Section 355(a) of the Code (other than such a failure resulting from the failure to satisfy the "business purpose" requirement of Treasury Regulations Section 1.355-2(b)) or the application of Section 355(e) of the Code. For purposes of the foregoing sentence, with respect to any representation or warranty that is qualified by the knowledge of Cognizant or any employee, director, officer, agent or affiliate of Cognizant, such qualification shall be ignored in determining the effect of any failure of such representation to be true, but, for the avoidance of doubt, shall not be ignored in determining whether there has been a breach or failure of such representation to be true. (c) Except as set forth in Section 3.1(b) above and for the avoidance of doubt, Cognizant shall not be required to indemnify and hold harmless, and shall have no liability to, any IMS Health Entity for any Section 355 Liability that would not have been imposed but for any provision contained in Cognizant's certificate of incorporation or by-laws as in existence immediately prior to the Distribution Date (including, without limitation, the provisions governing the conversion and voting rights of the Cognizant class B common stock set forth therein). SECTION 3.2 Indemnification Procedures. If a claim is made by any taxing authority against any IMS Health Entity that (a) the Exchange Offer fails to 19 qualify under Section 355(a) of the Code or (b) the common stock of Cognizant distributed by IMS Health fails 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 IMS Health Entity shall notify Cognizant in writing, and in reasonable detail, promptly (and in any event within 15 days of receiving written notice of such claim); provided, however, that failure to give such notification shall not affect the indemnification provided hereunder except to the extent that Cognizant shall have been actually prejudiced as a result of such failure. Thereafter the IMS Health Entity shall deliver to Cognizant, promptly (and in any event within five business days) after the IMS Health Entity's receipt thereof, copies of all notices and documents (including court papers) received by the IMS Health Entity related to the claim of the taxing authority. IMS Health (or, if applicable, the relevant IMS Health Entity) shall have the right to control all proceedings and make all decisions in connection with such claim (including, without limitation, selection of counsel and forum for pursuing the claim and any settlement of such claim); provided that, if such claim arises as a result of a Cognizant Failure (or IMS Health asserts that the claim so arises), then Cognizant (or the relevant Cognizant Entity) shall have the right to control all proceedings and make all decisions in connection with such claim (including, without limitation, selection of counsel and forum for pursuing the claim); provided, further, that before assuming such control and being granted the right to make all such decisions, Cognizant shall acknowledge in writing to the relevant IMS Health Entity that it is liable for the amount of any Tax including interest and penalties in respect thereof that may arise from an adverse determination of such claim; and provided, further, that Cognizant shall not settle any such claim without the consent of the relevant IMS Health Entity, which consent shall not be unreasonably withheld. Notwithstanding anything to the contrary herein, if the relevant IMS Health Entity rejects any settlement proposed by Cognizant, Cognizant's liability to that entity, and to any other IMS Health Entity subject to liability for such claim, shall be limited to the amount of the proposed settlement rejected by the relevant IMS Health Entity, plus any interest accruing from that date. IMS Health and Cognizant agree that they will each cooperate and comply (and will each cause its respective subsidiaries and affiliates so to cooperate and comply) with all reasonable requests from the other party and its counsel for assistance and information needed in connection with responding to a claim from any taxing authority with respect to the Exchange Offer and conducting any proceeding described in this Section 3.2. ARTICLE IV CERTAIN COVENANTS SECTION 4.1 Access to Information. (a) Other than in respect of matters for which indemnification is sought pursuant to Article II or III (in which event the provisions of such Article will govern), from and after the Distribution Date, each of Cognizant 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 20 information, to the personnel, properties, books and records of such party and its Subsidiaries to the extent that such access is reasonably required by the other party and relates to such other party's performance of its obligations under this Agreement or such party's financial, tax and other reporting obligations. (b) A party providing information 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 information or access to information. SECTION 4.2 Confidentiality. Each of (i) Cognizant 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, the Intercompany Agreement, the Intercompany Services 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 12:01 a.m on the day following the Distribution Date, (x) relates to the Intercompany Agreement, the Intercompany Services Agreement or any other agreement entered into pursuant hereto, (y) is obtained in the course of performing services for the other party pursuant to the Intercompany Agreement, the Intercompany Services Agreement or any other agreement entered into pursuant hereto, 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 4.3 Other Covenants. (a) Conversion of Retained Shares. IMS Health agrees that if it would otherwise continue to hold Cognizant Class B Common Stock after consummation of the Exchange Offer, IMS Health shall either distribute such Cognizant Class B Common Stock to its stockholders or convert such shares into Cognizant Class A Common Stock prior to the consummation of the Exchange Offer. 21 (b) Restriction on Disposition of Retained Shares. IMS Health (i) shall not sell, transfer or otherwise dispose of, or issue any derivative security with respect to, the Retained Shares for the period of 90 days following the Distribution Date other than in a distribution in the form of a dividend to IMS Health stockholders and (ii) thereafter shall not sell, transfer or otherwise dispose of, or issue any derivative security with respect to, any Retained Shares other than in a public offering pursuant to its registration rights under the Intercompany Agreement, except (x) sales on the NASDAQ National Stock Market ("NASDAQ") of Retained Shares in an amount (collectively) in any day not in excess of 25% of the average daily trading volume of Cognizant Class A Common Stock for the immediately preceding four weeks as reported on NASDAQ (excluding shares sold, transferred or otherwise disposed of on NASDAQ by IMS Health or as to which IMS Health issues a derivative security that trades on NASDAQ, in each case, during such four week period), (y) in transactions which the parties agree in good faith would not reasonably be expected to have an adverse impact on the trading prices of Cognizant Class A Common Stock as reported on NASDAQ or (z) sales of shares to any institutional investor who agrees in writing not to sell, transfer or otherwise dispose of, or issue any derivative security with respect to, such shares until at least the later of 30 days from the date of such sale or the one year anniversary of the Distribution Date. (c) Voting of Retained Shares. Following the Distribution Date, in all matters upon which a vote of the holders of Cognizant Common Stock is taken, for such time as IMS Health holds any Retained Shares, IMS Health shall vote such Retained Shares in proportion to the votes cast affirmatively or negatively by all other holders of Cognizant Common Stock voting. SECTION 4.4 Right of First Offer. (a) Commencing immediately after the Distribution Date, and prior to the second anniversary of the Distribution Date or such earlier time as IMS Health shall cease to own at least 5% of the outstanding shares of Cognizant Common Stock, IMS Health shall not, and shall not permit any Subsidiary to, sell, exchange or transfer or agree to any of the foregoing ("Transfer"), other than to a direct or indirect wholly owned Subsidiary of IMS Health, Cognizant or pursuant to a bona fide merger, tender offer, exchange offer, consolidation or other similar transaction in which the opportunity to Transfer shares is made available on the same basis to all holders of Cognizant Class A Common Stock, a number of shares of Cognizant Class A Common Stock in any 60-day period representing 5% or more of the outstanding shares of Cognizant Common Stock to any single person, entity or group (as the term "group" is defined in Section 13(d)(3) of the Exchange Act), unless IMS Health shall have given to Cognizant at least ten days' prior written notice (the "Right of First Offer") that it or its Subsidiary is considering effecting such a Transfer (a "Transferor's Notice"). Such notice shall state (i) the number of shares of Cognizant Class A Common Stock that IMS Health 22 or its Subsidiary may Transfer (the "Offered Securities") and (ii) the price at which IMS Health or its Subsidiary would be willing to Transfer the Offered Securities. Upon receipt of the Transferor's Notice, Cognizant, acting through its board of directors, shall have ten days (the "Offer Period") to elect to purchase the Offered Securities at a price in cash equal to the price set forth in the Transferor's Notice. (b) If Cognizant does not exercise its Right of First Offer, then IMS Health shall have the right, for a period ending 90 days after the expiration of the Offer Period, to Transfer all or any portion of the Offered Securities in one or any number of transactions at a price no less than the price contained in the Transfer Notice. If IMS Health or its Subsidiary does not Transfer or, in the case of IMS Health, cause its Subsidiary to Transfer all or any portion of the Offered Securities within the time period provided for in this Section 4.4(b), the Right of First Offer in this Section 4.4 shall again become applicable with respect to any Transfer of shares of Cognizant Common Stock by IMS Health or its Subsidiary. (c) If Cognizant exercises its Right of First Offer, the closing of the purchase of the Offered Securities with respect to which such right has been exercised shall take place on the 15th day after the later of (i) the date Cognizant gives notice of such exercise and (ii) the expiration of such time as the parties may reasonably require in order to comply with applicable United States federal and state laws and regulations, which in no event shall be more than 45 days after the date specified in clause (c)(i). (d) Upon exercise by Cognizant of its Right of First Offer under this Section 4.4, Cognizant and IMS Health or, if applicable, its Subsidiary, shall be legally obligated to consummate the purchase contemplated thereby and shall use their respective reasonable best efforts to make all necessary filings and to secure any approvals required and to comply as soon as practicable with all applicable United States federal and state laws and regulations in connection therewith; provided, however, that IMS Health or its Subsidiary may determine, at any time prior to the consummation of a Transfer to Cognizant, not to Transfer or, in the case of IMS Health, cause its Subsidiary to Transfer the Offered Securities, in which case all of the provisions of this Section 4.4 shall again become applicable with respect to any Transfer of shares of Cognizant Common Stock by IMS Health or its Subsidiary. SECTION 4.5 Additional Undertakings. (a) By-laws of Cognizant. Concurrently with its approval of the execution, delivery and performance of this Agreement, the Board of Directors of Cognizant approved changes to Cognizant's by-laws in the form attached as Exhibit G to become effective upon completion of the Exchange Offer. IMS Health shall not act by 23 written consent to amend, or otherwise propose that Cognizant's stockholders amend, Cognizant's by-laws to be in effect upon completion of the Exchange Offer. (b) Certificate of Incorporation of Cognizant. Concurrently with its approval of the execution, delivery and performance of this Agreement, the Board of Directors of Cognizant approved amendments to Cognizant's amended and restated certificate of incorporation to be submitted to the stockholders of Cognizant for adoption, and to become effective upon completion of the Exchange Offer or such later date as may be required by the rules and regulations of the SEC. Concurrently with the execution of this Agreement, IMS Health shall execute and deliver a written consent for stockholder action without a meeting pursuant to Section 228 of the Delaware General Corporation Law to provide for the adoption of an amended and restated certificate of incorporation of Cognizant in the form attached hereto as Exhibit H, to become effective upon completion of the Exchange Offer or such later date as may be required by the rules and regulations of the SEC. As promptly as practicable after the date hereof, Cognizant shall notify all Cognizant stockholders who have not consented in writing to the adoption and approval of the Governance Amendments, and who, if such action had been taken at a meeting, would have been entitled to notice of the meeting if the record date for such meeting had been the date of the delivery of such written consent, of such adoption and approval. (c) Filing of Information Statement on Schedule 14C. On or as promptly as practicable following the date hereof, Cognizant shall prepare and file with the SEC the Information Statement. IMS Health shall be permitted a reasonable opportunity to review the Information Statement and to comment thereon; provided that the consent of IMS Health shall not be required as a condition to filing the Information Statement with the SEC or mailing it to Cognizant's stockholders. IMS Health agrees to cooperate with Cognizant in the preparation and filing of the Information Statement and to provide such information and assistance as may be reasonably required by Cognizant in connection therewith. Cognizant shall use reasonable efforts to clear the Information Statement with the SEC as promptly as practicable after filing it with the SEC. Cognizant shall mail the Information Statement to its stockholders as promptly as practicable after it is cleared by the SEC so that the Governance Amendments may become effective on the Distribution Date, provided that the effectiveness of the Governance Amendments shall not be a condition to the expiration or consummation of the Exchange Offer by IMS Health. (d) Undertakings. On or prior to the Distribution Date, Cognizant shall execute and deliver the several Undertakings, forms of which are attached hereto as Exhibit I through K, to be jointly and severally liable with IMS Health for certain liabilities under the 1996 Distribution Agreement, 1998 Distribution Agreement and 2000 Distribution Agreement. 24 SECTION 4.6 Additional Indemnity. (a) IMS Health shall indemnify, defend and hold harmless each of Cognizant, its affiliates and their respective successors and assigns ("Indemnitees") from and against (i) any and all liabilities or alleged liabilities to R.H. Donnelly Corporation, ACNielsen Corporation, Nielsen Media Research, Inc. and Synavant Inc. and their successors, assigns and affiliates (including fees and expenses of counsel, which will be reimbursed as incurred) to which such Indemnitees may become subject arising under the Undertakings, except to the extent such liabilities or alleged liabilities, other than the IRI Action or the Tax Matters, otherwise relate to, arise out of or result from the operation of the Company Business (as defined in the Intercompany Agreement) and (ii) notwithstanding the first Section 5.3 (or Section 5.2) of the Intercompany Agreement, which shall not apply to any matters covered by this clause (ii), any and all liabilities referred to on Schedule 4.6(a)(ii). (b) Without in any way limiting the foregoing, in the event any claim is made against any Indemnitee pursuant to the Undertakings, IMS Health shall assume the defense of any such claim in respect of the IRI Action or the Tax Matters or, at the election of Cognizant, any other claim referred to in Section 4.6(a); provided that such Indemnitee shall have the right to participate in, but not control, any proceeding in respect of such claim with counsel of its choice. IMS Health agrees to pay the reasonable fees and expenses of such counsel to the extent that, in such Indemnitee's reasonable judgment, a conflict of interest between any Indemnitee and IMS Health exists in respect of such claim which would make representation of both parties by one counsel inappropriate. In all other circumstances in which IMS Health assumes the defense of any claim, the fees and expenses of counsel chosen by any Indemnitee shall be borne by such Indemnitee. IMS Health shall use its reasonable best efforts to ensure that, in discharging its obligations in respect of liabilities or alleged liabilities subject to this Section 4.6, no Indemnitee shall be required to make or advance any payment and thereafter seek indemnity from IMS Health but rather that IMS Health shall make any payment required to be made by the Indemnitee in respect of such liabilities directly to the party entitled to such payment, except to the extent any such payment is in respect of any Company Liabilities (as defined in the Intercompany Agreement) and modified by, and subject to, this Section 4.6. (c) If a claim or demand is made against an Indemnitee by any of R.H. Donnelly Corporation, ACNielsen Corporation, Nielsen Media Research Inc. or Synavant Inc. or any of their successors, assigns or affiliates, (a "Third Party Claim") as to which such Indemnitee is entitled to indemnification pursuant to this Section 4.6, such Indemnitee shall notify IMS Health (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; 25 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. 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. (i) If a Third Party Claim is made against an Indemnitee with respect to which a claim for indemnification is made pursuant to Section 4.6(a) hereof other than any claim in respect of the IRI Action, the Tax Matters or any other claim with respect to which Cognizant elects to have IMS Health assume the defense, the Indemnifying Party shall be entitled to participate in the defense thereof and, to the extent it so chooses and acknowledges in writing its obligation to indemnify the Indemnitee therefore, to assume the defense thereof with counsel selected by the Indemnifying Party. 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 to the extent, in such Indemnitee's reasonable judgment, a conflict of interest between such Indemnitee and such Indemnifying Party exists in respect of such claim which would make representation of both such parties by one counsel inappropriate, and in such event the reasonable 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, or is so required pursuant to Section 4.6(a), 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. 26 (ii) In no event will the Indemnitee in respect of any claim under this Section 4.6 admit any liability with respect to, or settle, compromise or discharge, any Third Party Claim without the Indemnifying Party's prior written consent (which will not be unreasonably withheld); 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 (as between the Indemnifying Party and the Indemnitee) in respect of any claim under this Section 4.6, the Indemnitee will agree to any settlement, compromise of 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. (iii) Notwithstanding the foregoing, the Indemnifying Party shall not be entitled to assume the defense of any Third Party Claim (and nevertheless shall be liable for the fees and expenses of counsel incurred by the Indemnitee in defending such Third Party Claim as provided herein) 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. (iv) 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 27 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 reasonable manner, and at the cost and expense of such Indemnifying Party, in prosecuting any subrogated right or claim. (d) The remedies provided in this Section 4.6 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. (e) It is understood and agreed that neither any liabilities of Cognizant arising as a result of the Undertakings for which IMS Health must indemnify the Indemnitee pursuant to Section 4.6(a) nor any liabilities referred to on Schedule 4.6(a)(ii) shall constitute "Company Liabilities" for the purposes of the Intercompany Agreement and this Section 4.6. ARTICLE V INSURANCE SECTION 5.1 Separation of Insurance Coverages. Each of IMS Health and Cognizant shall take such action as may be required to terminate as of the Distribution Date coverage for Cognizant and its Subsidiaries under each Shared Policy. Cognizant shall take all reasonable steps necessary and appropriate to have in effect, on or prior to the Distribution Date or as soon thereafter as reasonably practicable, separate Policies in respect of any Liabilities of Cognizant (including Liabilities which exist on the date of this Agreement or which arise prior to the Distribution Date) to replace any insurance coverage provided to Cognizant and its Subsidiaries under the Shared Policies, provided that, regardless of whether Cognizant is able to secure such replacement Policies and notwithstanding any contrary provision in the Intercompany Agreement, IMS Health shall have no obligation to Cognizant or any of its Subsidiaries under the Intercompany Agreement, any Shared Policy or otherwise to provide insurance coverage to Cognizant or any of its Subsidiaries after the Distribution Date SECTION 5.2 Policy Rights. Each of IMS Health and Cognizant shall retain any and all rights of an insured party under each of the remaining Shared Policies, subject to the terms of such Shared Policies and any limitations or obligations contemplated by this Article V, 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 on or prior to the Distribution Date, 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. 28 SECTION 5.3 Claims. (a) Administration. Except as otherwise provided in Section 3(a) of the Intercompany Services Agreement (other than as provided in the first sentence of such section), IMS Health shall be responsible for Claims Administration under such Shared Policies with respect to Liabilities of Cognizant and IMS Health; provided that the retention 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 and the Intercompany Services Agreement; and provided, further, that IMS Health's retention of the administrative responsibilities for the Shared Policies shall not relieve the party submitting any Insured Claim of the primary responsibility for reporting such Insured Claim accurately, completely and in a timely manner or of such party's authority to settle any such Insured Claim within any period permitted or required by the relevant Shared Policy. IMS Health may discharge its administrative responsibilities under this Section 5.3 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 Shared Policies and shall be responsible for obtaining or reviewing the appropriateness of releases upon settlement of its respective insured claims under Shared Policies. The reasonable, disbursements, out-of-pocket expenses and direct and indirect costs of employees and agents relating to Claims Administration shall be reimbursed, within 15 business days of presentation of invoices therefor, until the first anniversary of the Distribution Date. Notwithstanding the foregoing, after the first anniversary of the Distribution Date, each of IMS Health and Cognizant shall be responsible for its own Claims Administration. (b) Exceeding Policy Limits. Cognizant and IMS Health shall not be liable to one another for claims not reimbursed by insurers for any reason not within the control of Cognizant or IMS Health, as the case may be, including coinsurance provisions, deductibles, quota share deductibles, self-insured retentions, bankruptcy or insolvency of an insurance carrier, Shared Policy limitations or restrictions, any coverage disputes, any failure to timely claim by Cognizant or IMS Health or any defect in such claim or its processing. (c) Allocation of Insurance Proceeds. Subject to the terms of Section 3 (other than the first sentence of Section 3(a)) of the Intercompany Services Agreement and this Article V, Cognizant may claim coverage for insured claims under any Shared Policy as and to the extent that such insurance is available up to the full extent of the applicable limits of liability of such Shared Policy (and may receive any insurance proceeds with respect thereto). Insurance proceeds received with respect to claims, costs and expenses under the Shared Policies shall be paid to Cognizant with respect to Liabilities of Cognizant and to IMS Health with respect to Liabilities of IMS Health. 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 insurance proceeds received based upon their respective percentage of the total of their bona fide claims which were covered under such Shared Policy (their "allocable 29 portion of Insurance Proceeds"), and either such 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. 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 the Shared Policies, and to take all commercially reasonable steps to recover from all other responsible parties in respect of an Insured Claim to the extent coverage limits under a Shared Policy have been exceeded or would be exceeded as a result of such Insured Claim. (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 any such party (without giving effect to any deductible) bears to the total insurance proceeds received under the applicable Shared Policy, 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. SECTION 5.4 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 V 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 5.5 Cooperation. The parties agree to use their commercially reasonable efforts to cooperate with respect to the various insurance matters contemplated by this Agreement. ARTICLE VI MISCELLANEOUS SECTION 6.1 Effectiveness. This Agreement shall come into full force and effect upon its execution and delivery by each party hereto. SECTION 6.2 Benefit of Agreement; No Third Party Beneficiaries. This Agreement shall binding upon, inure to the benefit of and be enforceable by only IMS Health, Cognizant and their respective successors and assigns whether so expressed or not. Except as set forth in Section 2.4 and Section 4.6 with respect to the indemnitees referred to therein, nothing in this Agreement, express or implied, shall give to any Person, other than IMS 30 Health, Cognizant and their respective successors and permitted assigns hereunder any benefit or any legal or equitable right or remedy under or relating to this Agreement. SECTION 6.3 Further Assurances. Each party hereto shall (a) take such actions and execute and deliver such other documents and (b) comply with all applicable laws, regulations, orders and decrees, and obtain all required consents and approvals and make all required filings with any governmental agency, other regulatory or administrative agency, commission or similar authority, in each of cases (a) and (b) as may be necessary in connection with the consummation of the Exchange Offer as contemplated in the Offering Circular-Prospectus or otherwise to give effect to the purposes of this Agreement. SECTION 6.4 Waivers. No failure or delay on the part of any party hereto in exercising any right hereunder shall operate as a waiver thereof, nor shall any single or partial exercise of any such right, or any abandonment or discontinuance of steps to enforce such a right, preclude any other or further exercise thereof or the exercise of any other right. This Agreement may not be modified or amended except by an agreement in writing signed by each of the parties hereto. No modification or waiver of any provision of this Agreement nor consent to any departure therefrom shall be effective unless the same shall be in writing, and then such waiver or consent shall be effective only in the specific instance and for the purpose for which given. SECTION 6.5 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 party hereto, which consent shall not be unreasonably withheld or delayed, and any attempt to assign any rights or obligations arising under this Agreement without such consent shall be null and void. (b) Cognizant will not distribute to its stockholders any interest in any Cognizant Business Entity, by way of a spin-off distribution, split-off or exchange of interests in a Cognizant Business Entity for any interest in Cognizant held by Cognizant stockholders, or any similar transaction or transactions, unless such Cognizant Business Entity undertakes to IMS Health to be jointly and severally liable for all Cognizant Liabilities hereunder. (c) IMS Health will not (i) 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 such IMS 31 Health Business Entity undertakes to Cognizant to be jointly and severally liable for all IMS Health Liabilities hereunder. SECTION 6.6 Limitation of Liability. IN NO EVENT SHALL ANY PARTY TO THIS AGREEMENT, OR ANY SUBSIDIARY OF ANY PARTY, BE LIABLE TO ANY OTHER PARTY TO THIS AGREEMENT, OR ANY SUBSIDIARY OF ANY OTHER PARTY, FOR ANY SPECIAL, CONSEQUENTIAL, INDIRECT, INCIDENTAL OR PUNITIVE DAMAGES OR LOST PROFITS, HOWEVER CAUSED AND ON ANY THEORY OF LIABILITY (INCLUDING NEGLIGENCE), ARISING IN ANY WAY OUT OF OR RELATED TO THIS AGREEMENT, WHETHER OR NOT SUCH PARTY HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES. SECTION 6.7 Entire Agreement; Rules of Construction. (a) This Agreement, the Intercompany Agreement and the Amended and Restated Intercompany Services Agreement, taken together, contain the entire understanding between the parties with respect to the transactions contemplated hereby. (b) References in this Agreement to any gender include references to all genders, and references to the singular include references to the plural and vice versa. The words "include," "includes" and "including" when used in this Agreement shall be deemed to be followed by the phrase "without limitation." Unless the context otherwise requires, the words "hereof," "hereby" and "herein" and words of similar meaning when used in this Agreement refer to this Agreement in its entirety and not to any particular Article, Section or provision of this Agreement. SECTION 6.8 Termination and Survival. This Agreement and the obligations of the parties hereunder shall terminate upon notice by IMS Health to Cognizant at any time prior to the Distribution Date, provided that the obligations of the parties under Sections 2.4, 4.2 and 6.10 shall survive such termination. Except as otherwise contemplated by this Agreement, all covenants and agreements of the parties contained in this Agreement shall survive the Distribution Date. SECTION 6.9 Amendments. This Agreement may be amended, modified or supplemented only in a writing executed by the parties. SECTION 6.10 Expenses. Cognizant shall, whether or not the Registration Statement becomes effective, pay all fees, costs and expenses incident to its performance of or compliance with Article IV of the Intercompany Agreement in connection with the Exchange Offer, including the fees, costs and expenses described in 32 clauses (i) through (x), inclusive, of Section 4.7 thereof, provided that, notwithstanding the foregoing, Cognizant shall not be required to pay the fees and disbursements of counsel for IMS or the fees in Schedule 6.10. Except as provided in the preceding sentence or elsewhere in this Agreement, all costs and expenses incurred in connection with the preparation, execution, delivery and implementation of this Agreement, the Exchange Offer and the other transactions contemplated hereby shall be charged to the party incurring such costs and expenses. SECTION 6.11 Notices. All notices, requests and other communications hereunder shall be in writing and shall be given (i) by mail (postage prepaid, registered or certified mail, return receipt requested), (ii) by hand delivery, (iii) by nationally recognized courier service or (iv) by facsimile, receipt confirmed, addressed as follows (or at such other address as shall be specified by a party by notice pursuant hereto): (a) If to the Corporation, to: IMS Health Incorporated 1499 Post Road Fairfield, Connecticut 06824 Fax: (203) 319-4552 Attention: Robert Steinfeld With a copy to: Sullivan & Cromwell 125 Broad Street New York, New York 10004 Fax: (212) 558-3588 Attention: Alan Sinsheimer (b) If to Cognizant, to: Cognizant Technology Solutions Corporation 500 Glenpointe Centre West Teaneck, New Jersey 07666 Fax: (201) 801-0243 Attention: Steven E. Schwartz 33 With a copy to: Simpson Thacher & Bartlett 425 Lexington Avenue New York, New York 10017 Fax: (212) 455-2502 Attention: Caroline B. Gottschalk Each such notice, request or communication shall be effective (i) if mailed, three Business Days after mailing, (ii) if delivered by hand or by nationally recognized courier service, when delivered and (iii) if given by facsimile, when such facsimile is transmitted and the appropriate confirmation is received. SECTION 6.12 Dispute Resolution. In the event of a controversy, dispute or claim arising out of, in connection with or relating to the interpretation, performance, nonperformance, validity or breach of this Agreement or otherwise arising out of, or in any way related to this Agreement or the transactions contemplated hereby, including any claim based on contract, tort, statute or constitution, the provisions of Section 7.8 of the Intercompany Agreement shall apply to such controversy, dispute or claim mutatis mutandis as if fully set forth herein. SECTION 6.13 Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the State of New York. SECTION 6.14 Severability. If any provision of this Agreement shall be invalid, illegal or unenforceable in any respect under any law, the validity, legality and enforceability of the remaining provisions shall not in any way be affected or impaired thereby. Any provision of this Agreement that is unenforceable in any jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction. SECTION 6.15 Titles 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 6.16 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 (other than Cognizant and its Subsidiaries, in the case of IMS Health) or by any entity that is contemplated to be a Subsidiary of such party on or after the Distribution Date. 34 SECTION 6.17 Counterparts. This Agreement may be executed in one or more counterparts, each of which shall be deemed an original and all of which shall, taken together, be considered one and the same agreement. 35 IN WITNESS WHEREOF, each party hereto has executed this Agreement as of the date first above written. IMS HEALTH INCORPORATED By:_________________________ Name: Title: COGNIZANT TECHNOLOGY SOLUTIONS CORPORATION By:_________________________ Name: Title: 36 Exhibit I Cognizant Technology Solutions Corporation 500 Glenpointe Centre West Teaneck, New Jersey 07666 January __, 2003 R.H. Donnelly Corporation One Diamond Hill Road Murray Hill, NJ 07974 Attn: Chief Legal Officer ACNielsen Corporation 177 Broad Street Stamford, CT 06901 Attn: Chief Legal Officer Ladies and Gentlemen: Reference is made to (i) the Distribution Agreement, dated as of October 28, 1996 (the "1996 Distribution Agreement"), among Cognizant Corporation, which has been renamed Nielsen Media Research, Inc. ("NMR"). The Dun & Bradstreet Corporation, which has been renamed the R.H. Donnelley Corporation ("RHD") and ACNielsen Corporation ("ACNielsen") and (ii) the letter of undertaking dated June 29, 1998 (the "IMS Health Undertaking") from IMS Health Incorporated ("IMS Health") to RHD and ACNielsen. In June 1998, NMR distributed to its stockholders all of the outstanding shares of common stock of IMS Health (the "IMS Health Distribution"). IMS Health, which is a successor to certain rights and obligations of NMR under the 1996 Distribution Agreement, has announced its intention to distribute its shares of Cognizant Technology Solutions Corporation ("Cognizant") to its stockholders in exchange for shares of IMS Health stock (the "Split-Off"). In connection with the IMS Health Distribution and the IMS Health Undertaking, IMS Health undertook to both RHD and ACNielsen to be jointly and severally liable for all Cognizant Liabilities (as defined in the 1996 Distribution Agreement). Pursuant to Section 8.9(c) of the 1996 Distribution Agreement, as applicable to IMS Health pursuant to the IMS Health Undertaking, IMS Health may not engage in a transaction such as the Split-Off unless it causes the distributed entity to undertake to both RHD and ACNielsen to be jointly and severally liable for all Cognizant Liabilities under the 1996 Distribution Agreement. Therefore, in accordance with Section 8.9(c) of the 1996 Distribution Agreement and intending to be legally bound hereby and effective from and after the effective time of the Split-Off, Cognizant undertakes to each of RHD and ACNielsen to be jointly and severally liable with IMS Health under the 1996 Distribution Agreement for all "Cognizant Liabilities" as defined therein. This letter shall be governed by and construed in accordance with the laws of the State of New York. Very truly yours, Cognizant Technology Solutions Corporation By: ----------------------------------- Name: Title: Exhibit J Cognizant Technology Solutions Corporation 500 Glenpointe Centre West Teaneck, New Jersey 07666 January __, 2003 Nielsen Media Research, Inc. 299 Park Avenue New York, NY 10171 Attn: Chief Legal Officer Ladies and Gentlemen: Reference is made to the Distribution Agreement, dated as of June 30, 1998 (the "1998 Distribution Agreement"), between Cognizant Corporation, which has been renamed Nielsen Media Research, Inc. ("NMR") and IMS Health Incorporated ("IMS Health"). IMS Health has announced its intention to distribute its shares of Cognizant Technology Solutions Corporation ("Cognizant") to its stockholders in exchange for shares of IMS Health stock (the "Split-Off"). Pursuant to Section 8.9(c) of the 1998 Distribution Agreement, IMS Health may not engage in a transaction such as the Split-Off unless it causes the distributed entity to undertake to NMR to be jointly and severally liable for all IMS Health Liabilities under the 1998 Distribution Agreement. Therefore, in accordance with Section 8.9(c) of the 1998 Distribution Agreement and intending to be legally bound hereby and effective from and after the effective time of the Split-Off, Cognizant undertakes to NMR to be jointly and severally liable with IMS Health under the 1998 Distribution Agreement for all "IMS Health Liabilities" as defined therein. This letter shall be governed by and construed in accordance with the laws of the State of New York. Very truly yours, Cognizant Technology Solutions Corporation By: ----------------------------------- Name: Title: Exhibit K Cognizant Technology Solutions Corporation 500 Glenpointe Centre West Teaneck, New Jersey 07666 January __, 2003 Synavant Inc. 3445 Peachtree Road, NE Suite 1400 Atlanta, Georgia 30326 Attn: Chief Legal Officer Ladies and Gentlemen: Reference is made to the Distribution Agreement, dated as of August 31, 2000 (the "2000 Distribution Agreement"), between IMS Health Incorporated ("IMS Health") and Synavant Inc. ("Synavant"). IMS Health has announced its intention to distribute its shares of Cognizant Technology Solutions Corporation ("Cognizant") to its stockholders in exchange for shares of IMS Health stock (the "Split-Off). Pursuant to Section 8.10(b) of the 2000 Distribution Agreement, and effective from and after the effective time of the Split-Off, Cognizant undertakes to Synavant to be jointly and severally liable with IMS Health under the 2000 Distribution Agreement for all "IMS Liabilities" as defined therein. The delivery of this letter by Cognizant (a) does not constitute an assumption of Cognizant of any liabilities or obligations other than as expressly provided in the preceding paragraph and, (b) does not constitute a guarantee of the performance by IMS of any covenant, agreement or other obligation to be performed at or after the Effective Time (as defined in the 2000 Distribution Agreement). This letter shall be governed by and construed in accordance with the laws of the State of New York. Very truly yours, Cognizant Technology Solutions Corporation By: ----------------------------------- Name: Title: EX-23.1 9 y65565a2exv23w1.txt CONSENTS OF PRICEWATERHOUSECOOPERS LLP Exhibit 23.1 Consent of Independent Accountants We consent to the incorporation by reference in this Registration Statement on Form S-4 of Cognizant Technology Solutions Corporation of our report dated February 11, 2002 relating to the consolidated financial statements, which appears in the IMS Health Incorporated 2001 Annual Report to Shareholders, which is incorporated by reference in its Annual Report on Form 10-K for the year ended December 31, 2001. We also consent to the incorporation by reference of our report dated February 11, 2002 relating to the financial statement schedule, which appears in such Annual Report on Form 10-K. We also consent to the reference to us under the heading Experts in such Registration Statement. PricewaterhouseCoopers LLP New York, New York January 9, 2003 Consent of Independent Accountants We consent to the use in this Registration Statement on Form S-4 of Cognizant Technology Solutions Corporation of our report dated February 4, 2002 relating to the consolidated financial statements and financial statement schedule of Cognizant Technology Solutions Corporation, which appears in such Registration Statement. We also consent to the reference to us under the heading Experts in such Registration Statement. PricewaterhouseCoopers LLP New York, New York January 9, 2003 EX-99.1 10 y65565a2exv99w1.txt FORM OF LETTER OF TRANSMITTAL THE EXCHANGE OFFER WILL EXPIRE AT 12:00 MIDNIGHT, NEW YORK CITY TIME ON FEBRUARY 6, 2003, UNLESS OTHERWISE EXTENDED IMS HEALTH INCORPORATED LETTER OF TRANSMITTAL TO: AMERICAN STOCK TRANSFER & TRUST COMPANY, EXCHANGE AGENT The undersigned acknowledges receipt of the offering circular-prospectus dated January 9, 2003 of IMS Health Incorporated, a Delaware corporation ("IMS Health"), this Letter of Transmittal and the Instructions thereto, which together constitute IMS Health's offer to exchange 0.309 shares of class B common stock of Cognizant Technology Solutions Corporation, a Delaware corporation ("Cognizant"), for each share of IMS Health common stock that is validly tendered and accepted by IMS Health in the exchange offer. DO NOT COMPLETE OR RETURN THIS LETTER OF TRANSMITTAL IF YOUR SHARES ARE HELD IN AN ACCOUNT WITH A BROKER, DEALER, COMMERCIAL BANK, TRUST COMPANY OR IMS HEALTH'S SAVINGS PLAN. THIS LETTER OF TRANSMITTAL IS BEING SUPPLIED FOR YOUR INFORMATION ONLY. THE INSTITUTION HOLDING YOUR SHARES WILL SUPPLY YOU WITH SEPARATE INSTRUCTIONS REGARDING THE TENDER OF YOUR SHARES. I. ABOUT YOU AND YOUR SHARES--INDICATE ADDRESS CHANGE AS NECESSARY BELOW - -------------------------------------------------------------------------------- IF YOU HAVE ANY QUESTIONS OR NEED ASSISTANCE WITH COMPLETING THIS LETTER OF TRANSMITTAL, PLEASE CONTACT THE INFORMATION AGENT: GEORGESON SHAREHOLDER COMMUNICATIONS INC. AT (866) 203-1913, TOLL-FREE, IN THE UNITED STATES OR (212) 440-9800 FROM ELSEWHERE. DELIVERY OF THIS LETTER OF TRANSMITTAL TO A PERSON OTHER THAN THE EXCHANGE AGENT OR TO AN ADDRESS OTHER THAN AS SET FORTH BELOW OR BY FACSIMILE WILL NOT CONSTITUTE VALID DELIVERY.
BY MAIL: BY HAND: BY OVERNIGHT DELIVERY: AMERICAN STOCK TRANSFER & AMERICAN STOCK TRANSFER & AMERICAN STOCK TRANSFER & TRUST TRUST COMPANY TRUST COMPANY COMPANY 59 Maiden Lane 59 Maiden Lane Operations Center Plaza Level Plaza Level 6201 15th Avenue New York, New York 10038 New York, New York 10038 Brooklyn, New York 11219 Attn: Reorg. Department
The Information Agent for the Exchange offer is: [GEORGESON SHAREHOLDER LOGO] 17 State Street, 10th Floor New York, New York 10004 (866) 203-1913, toll-free, in the United States and (212) 440-9800 for calls elsewhere II. TENDER OF SHARES REGISTERED IN YOUR NAME. If you are tendering shares of IMS Health common stock, you must also complete Section III. If you are tendering shares of IMS Health common stock held in certificated form you must forward your stock certificates representing the shares that you wish to tender with this Letter of Transmittal or by the Notice of Guaranteed Delivery. A(I) CERTIFICATED SHARES. Complete this Section II.A.(i) if you wish to tender certificated shares issued in your name and indicate in Section II.A.(ii) how you will be forwarding the certificates representing your tendered shares. TENDER ____________ SHARES OF IMS HEALTH COMMON STOCK CERTIFICATED IN MY NAME. (II) [ ] CHECK HERE IF CERTIFICATES REPRESENTING SHARES OF IMS HEALTH COMMON STOCK ARE ENCLOSED WITH THIS LETTER OF TRANSMITTAL; OR [ ] CHECK HERE IF TENDERED SHARES OF IMS HEALTH COMMON STOCK ARE BEING DELIVERED PURSUANT TO A NOTICE OF GUARANTEED DELIVERY PREVIOUSLY SUBMITTED, AND COMPLETE THE INFORMATION BELOW Names of registered holders: - -------------------------------------------------------------------------------- Date of Notice of Guaranteed Delivery: -------------------------------------------------------------------- Name of Institution that guaranteed delivery: -------------------------------------------------------------- B BOOK-ENTRY TRANSFER FACILITY SHARES. Complete this Section II.B if you wish to tender shares of IMS Health common stock held on the accounts of the book-entry transfer facility, the Depository Trust Company, in your name. TENDER ____________ SHARES OF IMS HEALTH COMMON STOCK HELD IN MY NAME BY THE DEPOSITORY TRUST COMPANY. C ODD-LOT SHARES. Complete this Section II.C. if you hold less than 100 shares and wish to tender all such shares. [ ]CHECK HERE ONLY IF (1) YOU BENEFICIALLY OWN LESS THAN 100 SHARES OF IMS HEALTH COMMON STOCK IN THE AGGREGATE AND (2) YOU WISH TO TENDER ALL YOUR SHARES. Ladies and Gentlemen: Reference is made to the offering circular-prospectus, dated January 9, 2003, of IMS Health and this Letter of Transmittal and the Instructions hereto, which together constitute IMS Health's offer to exchange up to 11,290,900 shares of Cognizant class B common stock for shares of IMS Health common stock that are validly tendered by the expiration date and not properly withdrawn or deemed withdrawn, at an exchange ratio of 0.309 shares of Cognizant class B common stock for each share of IMS Health common stock tendered, upon the terms and subject to the conditions set forth herein and in the offering circular-prospectus. This transaction is referred to as the "exchange offer." The exchange offer, proration period and withdrawal rights will expire at 12:00 midnight, New York City time, on February 6, 2003, unless extended by IMS Health in accordance with applicable law and the terms of the exchange offer, in which event the term "expiration date" shall mean the latest time and date at which the exchange offer, as extended, shall expire. Upon the terms and subject to the conditions of the exchange offer, I hereby tender to you the shares of IMS Health common stock represented by the certificate(s) described above or held on the account books maintained by the book-transfer facility, The Depository Trust Company. Subject to, and effective upon, IMS Health's acceptance for exchange of such tendered shares of IMS Health common stock, I hereby sell, assign and transfer to you, or upon your order, all right, title and interest in and to such shares. I hereby irrevocably constitute and appoint American Stock Transfer & Trust Company, the exchange agent, as my true and lawful agent and attorney-in-fact (with full knowledge that the exchange agent also acts as your agent) with respect to such tendered shares of IMS Health common stock, with full power of substitution (such power of attorney being deemed to be an irrevocable power coupled with an interest): 1. to (i) deliver stock certificates representing such tendered shares of IMS Health common stock, or (ii) tender shares on the account books maintained by the book-entry transfer facility, The Depository Trust Company, together in any such case, with all accompanying evidences of transfer and authenticity (such as a power of attorney, letter of testamentary or a letter of appointment), to you or upon your order, upon receipt by the exchange agent, as my agent, of shares of Cognizant class B common stock, to which I am entitled upon the acceptance for exchange by you of such tendered shares of IMS Health common stock; 2. to present certificate(s) representing such tendered shares of IMS Health common stock, if applicable, for transfer on your books; and 3. to receive all benefits and otherwise exercise all rights of beneficial ownership of such shares, all in accordance with the terms of the exchange offer. If my tendered shares of IMS Health common stock are accepted for exchange, I will be entitled to (i) receive stock certificates representing, or (ii) book-entry credit to my account at the book-entry transfer facility, The Depository Trust Company, representing shares of Cognizant class B common stock. I hereby represent and warrant to you as follows: (1) I have full power and authority to tender, sell, assign and transfer the shares of IMS Health common stock that I have tendered, (2) when such shares are accepted by you for exchange pursuant to the exchange offer, you will acquire good, marketable and unencumbered title thereto, free and clear of all liens, restrictions, changes and encumbrances, and (3) that none of such shares of IMS Health common stock will be subject to any adverse claim at the time you accept such shares for exchange. I will, upon request, execute and deliver any additional documents that the exchange agent or you deem to be necessary or desirable to complete the sale, assignment and transfer of the shares of IMS Health common stock that I have tendered. All authority conferred or agreed to be conferred in this Letter of Transmittal and all of my obligations hereunder shall be binding upon my successors, assigns, heirs, executors, administrators, trustees in bankruptcy and legal representatives and shall not be affected by, and shall survive, my death or incapacity. This tender may be withdrawn only in accordance with the procedures set forth in the offering circular-prospectus and the Instructions provided with this Letter of Transmittal. I further represent that: (1) I own the shares of IMS Health common stock being tendered within the meaning of Rule 14e-4 promulgated under the Securities Exchange Act of 1934, as amended, and (2) my participation in the exchange offer and tender of shares of IMS Health common stock complies with Rule 14e-4 and the applicable laws of the jurisdiction where I have received materials relating to the exchange offer or the jurisdiction where this tender is being made. I ALSO REPRESENT THAT, UNLESS I HAVE CHECKED THE FOLLOWING BOX, TO MY KNOWLEDGE, AFTER COMPLETION OF THE EXCHANGE OFFER, NEITHER I NOR ANY PERSON ON WHOSE BEHALF I AM TENDERING SHARES WILL BENEFICIALLY OWN MORE THAN 5% OF THE AGGREGATE OUTSTANDING COMMON STOCK OF COGNIZANT: [ ] I understand that the maximum number of shares of IMS Health common stock which will be accepted for exchange will be 36,540,129 shares. I understand that if more than such maximum number of shares of IMS Health common stock are tendered, the exchange offer will be oversubscribed, and shares of IMS Health common stock tendered will be subject to proration in accordance with the terms set forth in the offering circular-prospectus in the section entitled "The Exchange Offer -- Terms of the Exchange Offer," except for odd-lot tenders as described in the offering circular-prospectus in the section entitled "The Exchange Offer -- Proration; Tenders for Exchange by Holders of Fewer Than 100 Shares of IMS Health Common Stock." I understand that, upon your acceptance of any of the shares of IMS Health common stock that I have tendered, I will be deemed to have accepted the shares of Cognizant class B common stock exchanged therefor and will be deemed to have relinquished all rights with respect to the accepted shares of IMS Health common stock. I recognize that, under certain circumstances and subject to certain conditions to the exchange offer (which you may waive) that are contained in the offering circular-prospectus, you may not be required to accept for exchange any of the shares of IMS Health common stock that I have tendered (including any shares of IMS Health common stock I tendered after the expiration date). I understand that I may withdraw my tender only in accordance with the procedures contained in the offering circular-prospectus in the section entitled "The Exchange Offer -- Withdrawal Rights" and in the Instructions provided with this Letter of Transmittal. Shares of IMS Health common stock tendered by me and delivered to the exchange agent and not accepted for exchange will be returned to me as described in the offering circular-prospectus in the section entitled "The Exchange Offer -- Exchange of Shares of IMS Health Common Stock." I understand that you will (1) cause the delivery of the shares of Cognizant class B common stock to which I am entitled and if applicable, the shares of IMS Health common stock not tendered by me or any tendered shares that are not accepted for exchange, in each case in the name(s) of the registered holder(s) shown in Section I of this Letter of Transmittal, and (2) mail the confirmation of shares of Cognizant class B common stock to which I am entitled and, if applicable, the confirmation of shares of IMS Health common stock not tendered by me, or any shares tendered by me and not accepted for exchange by you to the address(es) of the registered holder(s) shown in Section I of this Letter of Transmittal. If I am eligible or required to complete Section IV entitled "Special Transfer Instructions" and Section IV is properly completed (and accompanied by all necessary and proper documentary evidence, such as a power of attorney), please issue the shares of Cognizant class B common stock to which I am entitled and, if applicable, the shares of IMS Health common stock not tendered by me or any tendered shares that are not accepted for exchange in the name(s) of, and mail such confirmation (and accompanying documents, as appropriate) to, the person(s) so indicated. I understand that any shares of IMS Health common stock delivered by book-entry transfer and not accepted for exchange will be credited to the account at the book-entry transfer facility from which the shares were transferred. I recognize that you have no obligation pursuant to the "Special Transfer Instructions" to transfer any shares of IMS Health common stock from the name of the registered holder(s) thereof if you do not accept such shares for exchange. I understand that the delivery and surrender of the shares of IMS Health common stock that I have tendered is not effective, and the risk of loss of the shares of IMS Health common stock (including shares of IMS Health common stock tendered herewith) does not pass to the exchange agent, until receipt by the exchange agent of this Letter of Transmittal, duly completed and signed, or an agent's message (as discussed in the offering circular-prospectus in the section entitled "The Exchange Offer -- Procedures for Tendering Shares of IMS Health Common Stock") in connection with a book-entry transfer of shares, together with all accompanying evidences of authority in form satisfactory to you and any other required documents. I UNDERSTAND THAT ALL QUESTIONS AS TO THE FORM OF DOCUMENTS (INCLUDING NOTICES OF WITHDRAWAL) AND THE VALIDITY, FORM, ELIGIBILITY (INCLUDING TIME OF RECEIPT) AND ACCEPTANCE FOR EXCHANGE OF ANY TENDER OF SHARES OF IMS HEALTH COMMON STOCK WILL BE DETERMINED BY IMS HEALTH IN ITS SOLE DISCRETION AND SUCH DETERMINATION SHALL BE FINAL AND BINDING UPON ALL TENDERING IMS HEALTH STOCKHOLDERS. I understand that a tender of shares of IMS Health common stock made pursuant to any method of delivery as described in the offering circular-prospectus and your acceptance for exchange of such shares pursuant to the procedures described in the offering circular-prospectus in the section entitled "The Exchange Offer -- Procedures for Tendering Shares of IMS Health Common Stock" and in the Instructions provided herewith will constitute a binding agreement between us upon the terms and subject to the conditions of the exchange offer. III. SIGNATURES. Complete this Section III if you are tendering shares of IMS Health common stock and you completed Section II.A., II.B. or II.C. NOTE: SIGNATURES MUST BE PROVIDED BELOW IMPORTANT: ALL TENDERING STOCKHOLDERS MUST SIGN HERE (PLEASE ALSO COMPLETE THE SUBSTITUTE FORM W-9 OR FORM W-8) X ------------------------------------------------------- Daytime Telephone Number: --------------------------- X ------------------------------------------------------- Dated: -------------------------------------------------- Signature(s) of Owner(s)
Must be signed by the registered holders(s) of the shares of IMS Health common stock tendered as their names appear on the certificate(s) or on a security position listing or by person(s) authorized to become registered holder(s) by endorsements and documents transmitted with this Letter of Transmittal. If signed by a trustee, executor, administrator, guardian, attorney-in-fact, officer or other person acting in a fiduciary or representative capacity, please set forth the full title. See Instruction III in the Instructions to this Letter of Transmittal. Name(s): ------------------------------------------------ Capacity: ------------------------------------------------ (Please Print) Address: - ------------------------------------------------------------------------------------------------------------------------ Daytime Telephone No.: ------------------------------ Dated: ------------------------, 2003
SIGNATURE GUARANTEE (IF REQUIRED-SEE INSTRUCTIONS) FOR USE BY ELIGIBLE INSTITUTIONS ONLY. PLACE MEDALLION GUARANTEE IN SPACE BELOW. Signature(s) Guaranteed by an Eligible Institution: - ---------------------------------------------------------------- (Authorized Signature) Title: -------------------------------------------------- Name of Firm: ---------------------------------------- Address: - ------------------------------------------------------------------------------------------------------------------------ Telephone No.: ---------------------------------------- Dated: -------------------------------------------------
IV. SPECIAL TRANSFER INSTRUCTIONS. Complete this Section IV only if, pursuant to the enclosed Instructions, you are entitled to have your shares of Cognizant class B common stock or check for your fractional interest in shares of Cognizant class B common stock, if applicable, issued in a name other than as set forth in Section I. Section III must be completed. The Substitute Form W-9 (below) or an appropriate Form W-8 (which must be obtained from your tax advisor or the exchange agent), as applicable, must be completed by the new account holder. Name(s): ------------------------------------ Address: --------------------------------------
PAYER'S NAME: AMERICAN STOCK TRANSFER & TRUST COMPANY - --------------------------------------------------------------------------------------------------------------------------- SUBSTITUTE FORM W-9 PART 1 -- PLEASE PROVIDE YOUR TIN IN THE Social Security Number or Employer FORM W-9 SPACE AT THE RIGHT AND CERTIFY BY SIGNING Identification Number DEPARTMENT OF THE TREASURY AND DATING BELOW ------------------------------------- INTERNAL REVENUE SERVICE ------------------------------------------------------------------------------------ Payer's Request for Taxpayer PART 2 -- For Payees exempt from backup withholding, see PART 3 Identification Number (TIN) the enclosed Guidelines. For Certification of Taxpayers Check if you Identification Number on Substitute Form W-9 and complete are awaiting as instructed therein. TIN: [ ] - --------------------------------------------------------------------------------------------------------------------------- CERTIFICATION INSTRUCTIONS -- You must cross out item (2) above if you have been notified by the IRS that you are subject to backup withholding because of underreporting interest or dividends on your tax return. However, if after being notified by the IRS that you were subject to backup withholding, you received another notification from the IRS that you were no longer subject to backup withholding, do not cross out item (2). ALSO SEE THE ENCLOSED INSTRUCTIONS ON SUBSTITUTE FORM W-9. THE INTERNAL REVENUE SERVICE DOES NOT REQUIRE YOUR CONSENT TO ANY PROVISION OF THIS DOCUMENT OTHER THAN THE CERTIFICATION REQUIRED TO AVOID BACKUP WITHHOLDING. SIGNATURE DATE----------------------------- ----------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------------------------------
NOTE: FAILURE TO COMPLETE AND RETURN ONE OF THESE FORMS MAY RESULT IN BACKUP WITHHOLDING OF 30% OF ANY PAYMENTS MADE TO YOU PURSUANT TO THE OFFER. YOU MUST COMPLETE THE FOLLOWING CERTIFICATE IF YOU ARE AWAITING (OR WILL SOON APPLY FOR) A TAXPAYER IDENTIFICATION NUMBER. CERTIFICATE OF AWAITING TAXPAYER IDENTIFICATION NUMBER I certify under penalties of perjury that a Taxpayer Identification Number has not been issued to me, and either (a) I have mailed or delivered an application to receive a Taxpayer Identification Number to the appropriate Internal Revenue Service Center or Social Security Administrative Office or (b) I intend to mail or deliver an application in the near future. I understand that if I do not provide a Taxpayer Identification Number by the time of the exchange, 30% of all reportable payments made to me thereafter will be withheld until I provide a number. Signature Date - ------------------------------------------------------------ ---------------------
EX-99.2 11 y65565a2exv99w2.txt FORM OF NOTICE OF GUARANTEED DELIVERY IMS HEALTH INCORPORATED OFFER TO EXCHANGE 0.309 SHARES OF COGNIZANT TECHNOLOGY SOLUTIONS CORPORATION CLASS B COMMON STOCK FOR EACH SHARE OF IMS HEALTH INCORPORATED COMMON STOCK UP TO AN AGGREGATE OF 36,540,129 SHARES OF IMS HEALTH COMMON STOCK NOTICE OF GUARANTEED DELIVERY (NOT TO BE USED FOR SIGNATURE GUARANTEE) This Notice of Guaranteed Delivery or one substantially similar hereto must be used to participate in the exchange offer of IMS Health Incorporated, as set forth in the offering circular-prospectus dated January 9, 2003 (the "Offering Circular-Prospectus") and the accompanying Letter of Transmittal, if (1) your stock certificate(s) representing shares of IMS Health common stock are not immediately available, (2) you cannot complete the procedure for book-entry transfer on a timely basis or (3) you cannot deliver the certificates(s) and all other required documents to American Stock Transfer & Trust Company, the exchange agent, prior to the expiration date (as defined in the Offering Circular-Prospectus). You may deliver this Notice of Guaranteed Delivery by hand, facsimile transmission or mail to the exchange agent. For more details see the section entitled "The Exchange Offer -- Guaranteed Delivery Procedure" in the Offering Circular-Prospectus. The Depository for the exchange offer is: AMERICAN STOCK TRANSFER & TRUST COMPANY
BY MAIL: BY HAND: BY OVERNIGHT DELIVERY: -------- -------- ---------------------- AMERICAN STOCK TRANSFER & AMERICAN STOCK TRANSFER & AMERICAN STOCK TRANSFER & TRUST COMPANY TRUST COMPANY TRUST COMPANY 59 Maiden Lane 59 Maiden Lane Operations Center Plaza Level Plaza Level 6201 15th Avenue New York, New York 10038 New York, New York 10038 Brooklyn, New York 11219 Attn: Reorg Department BY FACSIMILE TRANSMISSION: ----------------------------- (for Eligible Institutions only) (718) 234-5001 Confirm by Telephone:(718) 921-8200
DELIVERY OF THIS INSTRUMENT TO AN ADDRESS OTHER THAN AS SET FORTH ABOVE OR TRANSMISSION VIA FACSIMILE TRANSMISSION TO A NUMBER OTHER THAN AS SET FORTH ABOVE WILL NOT CONSTITUTE A VALID DELIVERY. This Notice of Guaranteed Delivery is not to be used to guarantee signatures. If a signature on a Letter of Transmittal is required to be guaranteed by an "eligible institution" under the Instructions thereto, such signature guarantee must appear in Section III of the Letter of Transmittal. BY EXECUTING THIS NOTICE OF GUARANTEED DELIVERY, YOU ARE GUARANTEEING THAT THE SHARES OF IMS HEALTH COMMON STOCK LISTED ON THIS NOTICE WILL IN FACT BE DELIVERED TO THE EXCHANGE AGENT NO LATER THAN 5:00 P.M. NEW YORK CITY TIME, ON THE THIRD NEW YORK STOCK EXCHANGE TRADING DAY AFTER THIS NOTICE OF GUARANTEED DELIVERY IS DELIVERED TO THE EXCHANGE AGENT. FAILURE TO DELIVER STOCK CERTIFICATE(S) OR COMPLETE BOOK-ENTRY TRANSFER OF SUCH SHARES OF IMS HEALTH COMMON STOCK BY SUCH TIME COULD RESULT IN FINANCIAL LOSS TO THE ELIGIBLE INSTITUTION MAKING THIS GUARANTEE. Ladies and Gentlemen: I hereby tender to IMS Health Incorporated the shares of IMS Health common stock listed below, upon the terms of and subject to the conditions set forth in the Offering Circular-Prospectus and the related Letter of Transmittal and the Participation Instructions thereto, receipt of which I hereby acknowledge, pursuant to the guaranteed delivery procedures set forth in the Offering Circular-Prospectus.
CERTIFICATE NO. NUMBER OF SHARES - --------------- ---------------- - -------------------------------------------- -------------------------------------------- - -------------------------------------------- -------------------------------------------- - -------------------------------------------- -------------------------------------------- - -------------------------------------------- -------------------------------------------- - -------------------------------------------- -------------------------------------------- - -------------------------------------------- -------------------------------------------- The Book-Entry Transfer Facility Sign Here Account Number (if the shares of IMS Health -------------------------------------------- common stock will be tendered by book-entry transfer) - -------------------------------------------- -------------------------------------------- ACCOUNT NUMBER SIGNATURE(S) - -------------------------------------------- -------------------------------------------- NUMBER OF SHARES NUMBER AND STREET OR P.O. BOX Dated ____________, 2003 -------------------------------------------- CITY, STATE, ZIP CODE
ODD-LOTS This section is to be completed only if shares of IMS Health common stock are being tendered by or on behalf of a person owning beneficially less than 100 shares of IMS Health common stock. Check one: [ ] I beneficially own less than 100 shares of IMS Health common stock, all of which are being tendered, or [ ] I am a broker, dealer, commercial bank, trust company or other nominee who (1) is tendering for the beneficial owners thereof, shares of IMS Health common stock with respect to which I am the record owner, and (2) believes, based upon representations made to me by each such beneficial owner, that such owner owns beneficially less than 100 shares of IMS Health common stock and is tendering all such shares. 2 GUARANTEE (NOT TO BE USED FOR SIGNATURE GUARANTEE) The undersigned, a participant in the Security Transfer Agents Medallion Program, (a) represents and guarantees that the above-named person(s) "own(s)" the shares of IMS Health common stock tendered hereby within the meaning of Rule 14e-4 of the Securities Exchange Act of 1934, as amended, (b) represents and guarantees that the tender of such shares of IMS Health common stock complies with Rule 14e-4, and (c) guarantees delivery to the exchange agent of certificates for the shares of IMS Health common stock tendered hereby, in proper form for transfer, or delivery of such shares of IMS Health common stock pursuant to procedures for book-entry transfer, in either case with delivery of a properly completed and duly executed Letter of Transmittal and any other required documents, unless an agent's message is used, all within three New York Stock Exchange trading days after the date hereof. --------------------------------------------------- FIRM NAME PRINT --------------------------------------------------- AUTHORIZED SIGNATURE --------------------------------------------------- ADDRESS --------------------------------------------------- CITY, STATE, ZIP CODE --------------------------------------------------- AREA CODE AND TELEPHONE NUMBER Dated ________, 2003 DO NOT SEND CERTIFICATES(S) OR ANY OTHER REQUIRED DOCUMENT WITH THIS FORM. THEY SHOULD BE SENT WITH THE LETTER OF TRANSMITTAL TO THE EXCHANGE AGENT (UNLESS A BOOK-ENTRY TRANSFER FACILITY IS USED). 3 EX-99.3 12 y65565a2exv99w3.txt FORM OF LETTER TO BROKERS IMS HEALTH INCORPORATED OFFER TO EXCHANGE 0.309 SHARES OF COGNIZANT TECHNOLOGY SOLUTIONS CORPORATION CLASS B COMMON STOCK FOR EACH SHARE OF IMS HEALTH INCORPORATED COMMON STOCK UP TO AN AGGREGATE OF 36,540,129 SHARES OF IMS HEALTH COMMON STOCK To Brokers, Securities Dealers, Commercial Banks, Trust Companies and Other Nominees: IMS Health Incorporated ("IMS Health") is offering, upon the terms and subject to the conditions set forth in the enclosed offering circular-prospectus, dated January 9, 2003 (the "Offering Circular-Prospectus"), and the enclosed letter of transmittal and the participation instructions thereto, to exchange 0.309 shares of Cognizant Technology Solutions Corporation ("Cognizant") class B common stock for each share of IMS Health common stock validly tendered and not properly withdrawn, up to an aggregate of 36,540,129 shares of IMS Health common stock tendered and exchanged. We are asking you to contact your clients for whom you hold shares of IMS Health common stock, whether these shares are registered in your name or in the name of your nominee. You will be reimbursed for customary mailing and handling expenses incurred by you in forwarding any of the enclosed materials to your clients. As described in the Offering Circular-Prospectus, IMS Health is not conducting the exchange offer in any jurisdiction where the exchange offer would not be legal under the laws of such jurisdiction. No broker, dealer, bank, trust company or fiduciary shall be deemed to be the agent of IMS Health, Cognizant, the exchange agent, the dealer manager or the information agent for purposes of the exchange offer. Enclosed is a copy of each of the following documents: 1. The Offering Circular-Prospectus. 2. The Letter of Transmittal (printed on yellow paper). 3. Participation Instructions (printed on white paper). 4. The Notice of Guaranteed Delivery (printed on pink paper). 5. A form of letter which may be sent to your clients for whose account you hold shares of IMS Health common stock registered in your name or the name of your nominee with space provided for obtaining the clients' instructions with regard to the exchange offer (printed on blue paper). 6. A return envelope addressed to American Stock Transfer & Trust Company, the exchange agent. Your prompt action is requested. THE EXCHANGE OFFER WILL EXPIRE AT 12:00 MIDNIGHT, NEW YORK CITY TIME, ON FEBRUARY 6, 2003, OR IF EXTENDED BY IMS HEALTH, THE LATEST DATE AND TIME TO WHICH EXTENDED (THE "EXPIRATION DATE"). Shares of IMS Health common stock tendered pursuant to the exchange offer may be withdrawn, subject to the procedures described in the Offering Circular-Prospectus, at any time prior to the expiration date and after March 6, 2003, if not theretofore accepted for exchange. To participate in the exchange offer, certificates for shares of IMS Health common stock (or evidence of a book-entry delivery into the exchange agent's account at The Depository Trust Company) and a duly executed and properly completed letter of transmittal together with any other required documents, or an agent's message in connection with a book-entry transfer, must be delivered to the exchange agent as indicated in the Offering Circular-Prospectus. If holders of shares of IMS Health common stock wish to tender their shares, but it is impracticable for them to do so prior to the expiration date, a tender may be effected by following the guaranteed delivery procedures described in the Offering Circular-Prospectus under the section entitled "The Exchange Offer -- Guaranteed Delivery Procedure." Additional copies of the enclosed material may be obtained by contacting the information agent, Georgeson Shareholder Communications Inc., at (866) 203-1913 (toll-free) in the United States or at (212) 440-9800 from elsewhere. You may also contact the information agent, the exchange agent, American Stock Transfer & Trust Company or the joint dealer managers for the exchange offer -- Goldman, Sachs & Co. or Bear, Stearns & Co. Inc. -- at one of the telephone numbers set forth on the last page of the Offering Circular-Prospectus for assistance with any questions you may have about the exchange offer. NOTHING HEREIN OR IN THE ENCLOSED DOCUMENTS SHALL CONSTITUTE YOU OR ANY PERSON AS AN AGENT OF IMS HEALTH, COGNIZANT, THE EXCHANGE AGENT, THE JOINT DEALER MANAGERS OR THE INFORMATION AGENT, OR AUTHORIZE YOU OR ANY OTHER PERSON TO MAKE ANY STATEMENTS ON BEHALF OF ANY OF THEM WITH RESPECT TO THE EXCHANGE OFFER, EXCEPT FOR STATEMENTS EXPRESSLY MADE IN THE OFFERING CIRCULAR-PROSPECTUS OR THE LETTER OF TRANSMITTAL. 2 EX-99.4 13 y65565a2exv99w4.txt FORM OF LETTER TO CLIENTS IMS HEALTH INCORPORATED OFFER TO EXCHANGE 0.309 SHARES OF COGNIZANT TECHNOLOGY SOLUTIONS CORPORATION CLASS B COMMON STOCK FOR EACH SHARE OF IMS HEALTH INCORPORATED COMMON STOCK UP TO AN AGGREGATE OF 36,540,129 SHARES OF IMS HEALTH COMMON STOCK To Our Clients: Enclosed for your consideration is an offering circular-prospectus, dated January 9, 2003 (the "Offering Circular-Prospectus"), and a Letter of Transmittal relating to the offer by IMS Health Incorporated ("IMS Health") to exchange 0.309 shares of Cognizant Technology Solutions Corporation ("Cognizant") class B common stock for each tendered share of IMS Health common stock, up to an aggregate of 36,540,129 shares of IMS Health common stock. The Letter of Transmittal is furnished to you for information only and may not be used by you to tender your shares of IMS Health common stock. The material is being forwarded to you as the beneficial owner of IMS Health common stock carried by us in your account, but not registered in your name. A tender of your shares of IMS Health common stock may only be made by us as the registered holder and pursuant to your instructions. Accordingly, we request instructions as to whether you wish us to tender any or all of your shares of IMS Health commons stock held by us for your account pursuant to the terms and conditions set forth in the enclosed Offering Circular-Prospectus and the related Letter of Transmittal. Your instructions to us should be forwarded prior to close of business on February 3, 2003, three business days prior to the expiration date for the exchange offer, in order to permit us to tender your shares of IMS Health common stock in accordance with the provisions of the exchange offer. THE EXCHANGE OFFER WILL EXPIRE AT 12:00 MIDNIGHT, NEW YORK CITY TIME, ON FEBRUARY 6, 2003, OR IF EXTENDED BY IMS HEALTH, THE LATEST DATE AND TIME TO WHICH EXTENDED (THE "EXPIRATION DATE"). IMS Health common stock tendered pursuant to the exchange offer may be withdrawn, subject to the procedures described in the Offering Circular-Prospectus, at any time prior to the expiration date and after March 6, 2003, if not theretofore accepted for exchange by IMS Health. Your attention is directed to the following: 1. The exchange offer is for up to an aggregate of 36,540,129 shares of IMS Health common stock. 2. IMS Health's obligation to accept shares of IMS Health common stock tendered in the exchange offer is subject to certain condition specified in the Offering Circular-Prospectus. If you wish to have us tender any or all of your shares of IMS Health common stock, please so instruct us by completing, executing and returning to us the instruction from which appears on the reverse side of this letter. INSTRUCTIONS I acknowledge receipt of your letter and the enclosed material referred to therein relating to IMS Health's offer to exchange Cognizant class B common stock for IMS Health common stock at a fixed ratio. I hereby instruct you to tender the shares of IMS Health common stock indicated below (or, if no number is indicated below, all shares) held by you for my account, pursuant to the terms of and conditions set forth in the Offering Circular-Prospects, the related Letter of Transmittal and the participation instructions for the Letter of Transmittal. [ ] Please tender all my shares of IMS Health common stock held by you for my account. [ ] Please tender ____________ (number) of the shares of IMS Health common stock held by you for my account. ODD-LOTS [ ] By checking this box, I represent that I own beneficially and of record an aggregate of less than 100 shares of IMS Health common stock and am tendering all my shares of IMS Health common stock. UNLESS A SPECIFIC CONTRARY INSTRUCTION IS GIVEN IN THE SPACE PROVIDED, YOUR SIGNATURE(S) HEREON SHALL CONSTITUTE AN INSTRUCTION TO US TO TENDER ALL OF YOUR SHARES OF IMS HEALTH COMMON STOCK HELD BY US IN YOUR ACCOUNT. SIGNATURE SIGNATURE - -------------------------------------------- -------------------------------------------- - -------------------------------------------- -------------------------------------------- PLEASE PRINT NAME HERE PLEASE PRINT NAME HERE
PLEASE RETURN THIS FORM TO THE BROKERAGE FIRM MAINTAINING YOUR ACCOUNT, NOT THE EXCHANGE AGENT, INFORMATION AGENT, IMS HEALTH OR COGNIZANT. EX-99.5 14 y65565a2exv99w5.txt FORM OF PARTICIPATION INSTRUCTIONS IMS HEALTH INCORPORATED OFFER TO EXCHANGE 0.309 SHARES OF COGNIZANT TECHNOLOGY SOLUTIONS CORPORATION CLASS B COMMON STOCK FOR EACH SHARE OF IMS HEALTH INCORPORATED COMMON STOCK UP TO AN AGGREGATE OF 36,540,129 SHARES OF IMS HEALTH COMMON STOCK PARTICIPATION INSTRUCTIONS
PAGE ---- IN THIS BOOKLET YOU WILL FIND THE FOLLOWING INFORMATION: Checklist and Instructions for Participation in the Exchange Offer..................................................... 1 Instructions for Completing the Letter of Transmittal....... 3 Other Important Information About the Exchange Offer........ 7 Certain Matters Relating to Foreign Jurisdictions........... 8 Questions and Answers About the Exchange Offer.............. 9 Delivery Instructions....................................... 10 Back-up Withholding; Substitute Form W-9; Forms W-8......... 10
I. CHECKLIST AND INSTRUCTIONS FOR PARTICIPATION IN THE EXCHANGE OFFER (1) CHECK CONTENTS OF THE PACKAGE: Before proceeding, please ensure that this package contains the following materials: - Letter to stockholders from David M. Thomas, Chairman and Chief Executive Officer of IMS Health Incorporated. - Letter of Transmittal pre-printed with your account number and number of shares of IMS Health common stock held in certificated form and on the account books maintained by the book-entry transfer facility, The Depository Trust Company, if your shares of IMS Health are registered in your name, which includes a substitute W-9 (printed on yellow paper). - Offering Circular-Prospectus, dated January 9, 2003. - Return envelope. (2) REVIEW MATERIALS CAREFULLY BEFORE DECIDING TO PARTICIPATE: Please review all enclosed materials carefully before deciding to participate in the exchange offer. If your shares of IMS Health common stock are registered in your name and you decide to participate, you must continue with instructions 3, 4 and 5 below. If your shares of IMS Health common stock are held for you by your broker, dealer, bank or trust company and you decide to participate, you must contact such person and instruct them to tender your shares on your behalf. If you are an employee of IMS Health and you hold shares of IMS Health common stock in the IMS Health Savings Plan you should receive a Form of Election and Instructions on how to complete the Form of Election to tender your shares. If you hold shares of IMS Health common stock in the IMS Health Savings Plan, you do not need to proceed with instructions 3, 4 and 5 below to tender your shares. (3) COMPLETE THE LETTER OF TRANSMITTAL: You must do the following to properly complete the Letter of Transmittal: - Read these Participation Instructions. - Complete Section II of the Letter of Transmittal to indicate the number of shares of IMS Health common stock you wish to tender in the exchange offer. - Read the representations on the back side of the Letter of Transmittal. - Complete Section III of the Letter of Transmittal. - Some portions of the Letter of Transmittal should only be completed if applicable: -- If you cannot deliver your certificate(s) to the exchange agent before the expiration date of the exchange offer, a broker must guarantee delivery of your shares of IMS Health common stock and you must complete Section II.A.(ii) of the Letter of Transmittal to indicate that your certificates will be delivered using guaranteed delivery procedures. The broker must submit a separate document entitled "Notice of Guaranteed Delivery." -- If your shares of IMS Health common stock are: (1) registered in your former name; (2) registered in the name of or held jointly with a person who is deceased; (3) registered in the name of a former minor; or (4) registered in the name of a custodial account for the benefit of a former minor, you must complete Section IV of the Letter of Transmittal entitled "Special Transfer Instructions" and obtain a medallion signature guarantee for your signature in Section III. (4) COMPLETE THE APPLICABLE SUBSTITUTE W-9 (U.S. STOCKHOLDERS) OR AN APPROPRIATE FORM W-8 (NON-U.S. STOCKHOLDERS): All IMS Health stockholders tendering shares of IMS Health common stock in the exchange offer must verify that the Social Security number printed on the Letter of Transmittal is correct by completing a Substitute Form W-9 or an appropriate Form W-8, as described in the section of the Participation Instructions entitled "Backup Withholding; Substitute Form W-9; Forms W-8". If you are a non-U.S. stockholder, you must obtain an appropriate Form W-8 from your advisor or the exchange agent as described in the section of the Participation Instructions entitled "Back-up Withholding; Substitute Form W-9; Forms W-8". If you completed Section IV entitled "Special Transfer Instructions," the Substitute Form W-9 or an appropriate Form W-8 must be completed by the new owner. (5) MAIL IMS HEALTH SHARE CERTIFICATES, THE SIGNED LETTER OF TRANSMITTAL AND ANY OTHER DOCUMENTS REQUIRED BY THE LETTER OF TRANSMITTAL TO THE EXCHANGE AGENT: Send the Letter of Transmittal together with your certificate(s) representing shares of IMS Health common stock, if applicable, and all other documents required by the Letter of Transmittal and the Instructions thereto to American Stock Transfer & Trust Company, as exchange agent, at one of the addresses shown on the Letter of Transmittal. Use of registered mail, return receipt requested or overnight courier is recommended. Do not fax these materials. Additional copies of the enclosed material may be obtained by contacting the information agent, Georgeson Shareholder Communications Inc., at (866) 203-1913 (toll-free) in the United States or at (212) 440-9800 from elsewhere. You may also contact the information agent, the exchange agent, American Stock Transfer & Trust Company or the joint dealer managers for the exchange offer -- Goldman, Sachs & Co. or Bear, Stearns & Co. Inc. -- at one of the telephone numbers set forth on the last page of the offering circular-prospectus if you have any questions pertaining to the exchange offer or need other assistance in completing the Letter of Transmittal. IMPORTANT: THE LETTER OF TRANSMITTAL (TOGETHER WITH SHARES OF IMS HEALTH COMMON STOCK, IF APPLICABLE, AND ALL OTHER REQUIRED DOCUMENTS) OR A NOTICE OF GUARANTEED DELIVERY MUST BE RECEIVED ON OR PRIOR TO THE EXPIRATION DATE (AS DISCUSSED IN THE OFFERING CIRCULAR-PROSPECTUS). 2 II. INSTRUCTIONS FOR COMPLETING THE LETTER OF TRANSMITTAL ALL TENDERS OF SHARES OF IMS HEALTH COMMON STOCK ARE SUBJECT TO THE TERMS OF THE LETTER OF TRANSMITTAL, THESE PARTICIPATION INSTRUCTIONS AND THE OFFERING CIRCULAR-PROSPECTUS, DATED JANUARY 9, 2003 WHICH WERE MAILED TO STOCKHOLDERS OF RECORD AS OF JANUARY 6, 2003. THE EXCHANGE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 12:00 MIDNIGHT, NEW YORK CITY TIME, ON FEBRUARY 6, 2003, UNLESS IMS HEALTH EXTENDS THE OFFER. THE EXCHANGE AGENT MUST RECEIVE YOUR LETTER OF TRANSMITTAL AND STOCK CERTIFICATES, IF APPLICABLE, AND ALL OTHER DOCUMENTS REQUIRED BY THE LETTER OF TRANSMITTAL BEFORE 12:00 MIDNIGHT, NEW YORK CITY TIME, ON FEBRUARY 6, 2003 IF YOU WANT TO PARTICIPATE IN THE EXCHANGE OFFER. The Letter of Transmittal is to be completed if (1) certificate(s) representing shares of IMS Health common stock are to be forwarded along with the Letter of Transmittal, (2) tenders are to be made by book-entry transfer to the account maintained by the exchange agent at The Depository Trust Company unless an agent's message is used, or (3) guaranteed delivery procedures are being used, according to the procedures contained in the offering circular-prospectus in the section entitled "The Exchange Offer -- Guaranteed Delivery Procedure." Delivery of documents to The Depository Trust Company does not constitute delivery to the exchange agent. SECTION I. ABOUT YOU AND YOUR SHARES Section I of the Letter of Transmittal shows the name and address of the registered holder and the number of shares of IMS Health common stock owned by you, as reflected on the records of IMS Health at the time of mailing these instructions. Mark through any incorrect address information that is printed in this area on the Letter of Transmittal. Clearly print your correct address in the space beside the printed information. If you cannot locate your stock certificates representing your shares of IMS Health common stock (other than shares held on the account books maintained by the book-entry transfer facility, The Depository Trust Company), and you wish to tender your shares, please notify the exchange agent in writing. You will receive an affidavit to complete, and you will be informed of the amount you need to pay for a surety bond for your lost shares. Only after you complete the affidavit and surety bond payment and submit a completed Letter of Transmittal, will your shares be tendered in the exchange offer. IMPORTANT INFORMATION FOR IMS HEALTH STOCKHOLDERS TENDERING SHARES OF IMS HEALTH COMMON STOCK WHEN CERTIFICATES ARE NOT IMMEDIATELY AVAILABLE. If your certificates representing the shares of IMS Health common stock that you wish to tender are not immediately available or you cannot deliver your shares of IMS Health common stock and all other documents required by the Letter of Transmittal and these Participation Instructions to the exchange agent on or before the expiration date, you must tender your shares of IMS Health common stock according to the guaranteed delivery procedures set forth in the section of the offering circular-prospectus entitled "The Exchange Offer -- Guaranteed Delivery Procedure" and you should check the box in Section II.A. of the Letter of Transmittal to indicate that you will be tendering through the guaranteed delivery procedure. Pursuant to such procedure: (1) such tender must be made through a participant in the Security Transfer Agents Medallion Program, an "eligible institution;" (2) prior to the expiration date, the exchange agent must have received from such eligible institution a properly completed and duly executed Notice of Guaranteed Delivery substantially in the form provided by IMS Health on the pink paper setting forth the name and address of the holder and the number of shares of IMS Health common stock tendered, stating that the tender 3 is being made thereby and guaranteeing that, within three New York Stock Exchange trading days after the date of the execution of the Notice of Guaranteed Delivery, the certificate(s) representing the shares of IMS Health common stock accompanied by all other documents required by the Letter of Transmittal will be deposited by the eligible institution with the exchange agent; and (3) the certificate(s) representing the shares of IMS Health common stock tendered by the Letter of Transmittal (or a confirmation of a book-entry transfer of such shares of IMS Health common stock into the exchange agent's book-entry account maintained by the book-entry transfer facility, The Depository Trust Company), together with a properly completed and duly executed Letter of Transmittal and any required signature guarantees, or an agent's message in connection with the book-entry transfer, and any other documents required by the Letter of Transmittal and these Participation Instructions, must be received by the exchange agent within three New York Stock Exchange trading days after the date of execution of the Notice of Guaranteed Delivery. SECTION II. TENDER OF SHARES OF IMS HEALTH COMMON STOCK REGISTERED IN YOUR NAME. COMPLETE SECTION II OF THE LETTER OF TRANSMITTAL TO INDICATE THE NUMBER OF SHARES OF IMS HEALTH COMMON STOCK YOU WISH TO TENDER IN THE EXCHANGE OFFER. If you are a participant in the IMS Health Savings Plan do not use the Letter of Transmittal to tender your shares of IMS Health common stock held in such plans. You will receive separate instructions to tender your shares from the plan administrator. A) CERTIFICATED SHARES. If you hold certificates for the shares of IMS Health common stock listed in Section I of the Letter of Transmittal, you must complete Section II.A. to tender these shares of IMS Health common stock in the exchange offer. If you do not wish to tender any of your certificated shares of IMS Health common stock, you do not need to complete Section II.A. If you elect to tender any of your certificated shares of IMS Health common stock, you must deliver original physical stock certificates for all shares of IMS Health common stock that you wish tendered. B) BOOK-ENTRY TRANSFER SHARES. If you hold shares of IMS Health common stock on the accounts of the book-entry transfer facility, The Depository Trust Company, as set forth in Section I of the Letter of Transmittal, you must complete Section II.B. to tender these shares of IMS Health common stock in the exchange offer. If you do not wish to tender any of your shares of IMS Health common stock on the accounts of The Depository Trust Company, you do not need to complete Section II.B. C) ODD-LOTS. If you beneficially own less than 100 shares of IMS Health common stock and wish to tender all your shares of IMS Health common stock, you must complete Section II.C. to receive preferential treatment in the exchange offer. If you beneficially own less than 100 shares of IMS Health common stock, an "odd-lot," and you tender all of your shares, you will receive preferential treatment if the exchange offer is oversubscribed and all your shares of IMS Health common stock tendered will be accepted for exchange. Shares you own in IMS Health's Savings Plan will not be considered odd-lots and tenders of shares of IMS Health common stock held in this plan will be subject to proration. SECTION III. SIGNATURES If you elected to participate in the exchange offer by completing Sections II.A. or II.B., you must sign the Letter of Transmittal in Section III. All individuals named on the stock certificate(s) representing shares of IMS Health common stock tendered in the exchange offer and delivered to the exchange agent, and all individuals named on the book-entry account for shares of IMS Health common stock tendered in the exchange offer, must sign the Letter of Transmittal. The name of each person signing must exactly match the name(s) on the stock certificate(s) or on the book-entry account. Please include your daytime telephone number. IF YOUR NAME HAS CHANGED DUE TO MARRIAGE/DIVORCE, THE HOLDER OR JOINT HOLDER OF YOUR SHARES OF IMS HEALTH COMMON STOCK IS DECEASED OR THE SHARES OF IMS HEALTH COMMON STOCK YOU ARE TENDERING ARE REGISTERED IN THE NAME OF OR FOR THE BENEFIT OF A MINOR, PLEASE REFER TO SECTION IV OF THESE INSTRUCTIONS FOR ADDITIONAL PROCEDURES REQUIRED TO TENDER YOUR SHARES OF IMS HEALTH COMMON STOCK. IF YOU COMPLETE SECTION IV OF THE LETTER OF TRANSMITTAL, YOU MUST HAVE THE SIGNATURE IN SECTION III GUARANTEED BY AN ELIGIBLE 4 INSTITUTION, ACCORDING TO THE PROCEDURES CONTAINED IN THE OFFERING CIRCULAR-PROSPECTUS IN THE SECTION ENTITLED "THE EXCHANGE OFFER -- PROCEDURES FOR TENDERING SHARES OF IMS HEALTH COMMON STOCK." If the Letter of Transmittal is signed by the registered holder(s) of the shares of IMS Health common stock tendered by the Letter of Transmittal, no endorsements of certificates or separate stock powers are required. If the Letter of Transmittal or any certificates or stock powers are signed by trustees, executors, administrators, guardians, attorneys-in-fact, officers of a corporation or others acting in a fiduciary or representative capacity, the person signing must include their full title and must deliver, with the Letter of Transmittal, proper evidence of authority to exchange the shares of IMS Health common stock. Proper evidence of authority includes a power of attorney, a letter of testamentary or a letter of appointment. SECTION IV. SPECIAL TRANSFER INSTRUCTIONS. If any of the following applies to shares of IMS Health common stock that you want to tender in the exchange offer, then please read and comply with these Instructions: - the shares of IMS Health common stock that you are tendering are registered in your former name (because your name has changed due to marriage/divorce); - the registered holder or one of the joint holders of the shares of IMS Health common stock you are tendering is deceased; - the shares of IMS Health common stock you are tendering are registered in the name of a former minor who has reached the legal age of majority; or - the shares of IMS Health common stock you are tendering are registered in the name of a custodial account for the benefit of a former minor who has reached the legal age of majority. If any of these situations applies to you, then (1) print the name(s) and address of the person(s) who should be recognized as the registered holder of the shares of IMS Health common stock in the space provided in Section IV, and (2) refer to the procedures printed below for the requirements needed to make some of the most frequently requested types of registration changes. These documents must accompany your IMS Health stock certificate(s), if applicable, and your Letter of Transmittal. If you are a trustee, executor, administrator or someone acting on behalf of a stockholder and your name is not printed on the Letter of Transmittal, you must include your full title and send us proper evidence of your authority to exchange the shares. Proper evidence of authority includes a power of attorney, a letter of testamentary or a letter of appointment. We will only process those transfers of shares of IMS Health common stock that legally must be processed in order for those shares of IMS Health common stock to be tendered in the exchange offer. Any other elective transfers (such as gifts of shares of IMS Health common stock, transfers for estate planning purposes, etc.) will be processed by IMS Health's transfer agent and registrar in accordance with its routine transfer procedures. NAME CHANGE DUE TO MARRIAGE OR DIVORCE: 1. Obtain a signature guarantee for the stockholder whose name is printed on the Letter of Transmittal. If the stock certificate lists or the book-entry account is in the name of joint owners, both owners must sign and have their signatures guaranteed. Each signature must be guaranteed by an officer of a commercial bank, trust company, credit union or savings & loan who is a member of the Securities Transfer Agents Medallion Program (STAMP), or by a stockbroker who is a member of STAMP. The signature guarantee must be set forth in Section III of the Letter of Transmittal. THE SIGNATURE OF A NOTARY PUBLIC IS NOT ACCEPTABLE FOR THIS PURPOSE. 2. Complete the Substitute Form W-9 (for U.S. stockholders) mailed with the Letter of Transmittal or an appropriate Form W-8, which must be obtained from your tax advisor or the exchange agent (for non-U.S. stockholders), by listing the Taxpayer Identification Number (TIN) or Social Security Number 5 (SSN) that is to be used for tax reporting on the new account. The individual whose TIN or SSN is being used must sign the Substitute Form W-9 or Form W-8, as applicable. Please refer to the section of these Participation Instructions entitled "Instructions -- Backup Withholding; Substitute Form W-9; Forms W-8" for more information relating to Substitute Form W-9 and Forms W-8. STOCKHOLDER WHOSE NAME IS PRINTED ON THE LETTER OF TRANSMITTAL IS DECEASED. YOU ARE THE EXECUTOR OR ADMINISTRATOR OF THE ESTATE: 1. Provide a certified (under raised seal) copy of the Court Qualification (such as a power of attorney, a letter of testamentary or a letter of appointment) appointing the legal representative (dated within 60 days). 2. Obtain a signature guarantee for the legal representative. The signature must be guaranteed by an officer of a commercial bank, trust company, credit union or savings & loan who is a member of the Securities Transfer Agents Medallion Program (STAMP), or by a stockbroker who is a member of STAMP. The signature guarantee must be set forth in Section III of the Letter of Transmittal. THE SIGNATURE OF A NOTARY PUBLIC IS NOT ACCEPTABLE FOR THIS PURPOSE. 3. Complete the Substitute Form W-9 (for U.S. stockholders) mailed with the Letter of Transmittal or an appropriate Form W-8, which must be obtained from your tax advisor or the exchange agent (for non-U.S. stockholders), by listing the Taxpayer Identification Number (TIN) or Social Security Number (SSN) that is to be used for tax reporting on the new account. If the account is being registered in the name of the estate and not to an individual, a TIN is required. Please refer to the section of these Participation Instructions entitled "Backup Withholding; Substitute Form W-9; Forms W-8" for more information relating to Substitute Form W-9 and Forms W-8. THE STOCK CERTIFICATE CONTAINS MULTIPLE NAMES OR THE BOOK-ENTRY ACCOUNT IS A JOINT ACCOUNT AND ONE OF THE STOCKHOLDERS/ACCOUNT HOLDERS IS DECEASED. TRANSFERRING SHARES TO THE SURVIVOR ONLY: 1. Provide a certified (under raised seal) copy of the death certificate. 2. Survivor's signature (signature guarantee is not necessary in this case). 3. Complete the Substitute Form W-9 (for U.S. stockholders) mailed with the Letter of Transmittal or an appropriate Form W-8, which must be obtained from your tax advisor or the exchange agent (for non-U.S. stockholders), by listing the Taxpayer Identification Number (TIN) or Social Security Number (SSN) that is to be used for tax reporting on the new account. The individual whose TIN or SSN is being used must sign the Substitute Form W-9 or Form W-8, as applicable. Please refer to the section of these Participation Instructions entitled "Backup Withholding; Substitute Form W-9; Forms W-8" for more information relating to Substitute Form W-9 and Forms W-8. THE STOCK CERTIFICATE CONTAINS MULTIPLE NAMES OR THE BOOK-ENTRY ACCOUNT IS A JOINT ACCOUNT AND ONE OF THE STOCKHOLDERS/ACCOUNT HOLDERS IS DECEASED. TRANSFERRING SHARES TO THE SURVIVOR, AND ADDING A NAME: 1. Provide a certified (under raised seal) copy of the death certificate. 2. Survivor must obtain a signature guarantee. The signature must be guaranteed by an officer of a commercial bank, trust company, credit union or savings & loan who is a member of the Securities Transfer Agents Medallion Program (STAMP), or by a stockbroker who is a member of STAMP The signature guarantee must be set forth in Section III of the Letter of Transmittal. THE SIGNATURE OF A NOTARY PUBLIC IS NOT ACCEPTABLE FOR THIS PURPOSE. 3. Complete the Substitute Form W-9 (for U.S. stockholders) mailed with the Letter of Transmittal or an appropriate Form W-8, which must be obtained from your tax advisor or the exchange agent (for non U.S. stockholders), by listing the Taxpayer Identification Number (TIN) or Social Security Number (SSN) that is to be used for tax reporting on the new account. The individual whose TIN or SSN is being used must sign the Substitute Form W-9 or Form W-8, as applicable. Please refer to the section of these 6 Participation Instructions entitled "Backup Withholding; Substitute Form W-9; Forms W-8" for more information relating to Substitute Form W-9 and Forms W-8. THE STOCK CERTIFICATE IS HELD IN A CUSTODIAL ACCOUNT AND THE FORMER MINOR HAS REACHED THE LEGAL AGE OF MAJORITY: 1. The custodian must obtain a signature guarantee for his or her signature. The signature must be guaranteed by an officer of a commercial bank, trust company, credit union or savings & loan who is a member of the Security Transfer Agents Medallion Program (STAMP), or by a stockbroker who is a member of STAMP. The signature guarantee must be set forth in Section III of the Letter of Transmittal. THE SIGNATURE OF A NOTARY PUBLIC IS NOT ACCEPTABLE FOR THIS PURPOSE. 2. Provide a certified (under raised seal) copy of the birth certificate for the former minor. 3. Complete the Substitute Form W-9 (for U.S. stockholders) mailed with the Letter of Transmittal or an appropriate Form W-8, which must be obtained from your tax advisor or the exchange agent (for non-U.S. stockholders), by listing the Taxpayer Identification Number (TIN) or Social Security Number (SSN) that is to be used for tax reporting on the new account. The individual whose TIN or SSN is being used must sign the Substitute Form W-9. Please refer to the section of these Participation Instructions entitled "Backup Withholding; Substitute Form W-9; Forms W-8" for more information relating to Substitute Form W-9 and Forms W-8. IF THE REQUEST IS BEING MADE BY THE MINOR WHO HAS REACHED THE LEGAL AGE OF MAJORITY: 1. The former minor must obtain a signature guarantee. This signature must be guaranteed by an officer of a commercial bank, trust company, credit union or savings & loan who is a member, of the Securities Transfer Agents Medallion Program (STAMP), or by a stockbroker who is a member of STAMP. The signature guarantee must be set forth in Section III of the Letter of Transmittal. THE SIGNATURE OF A NOTARY PUBLIC IS NOT ACCEPTABLE FOR THIS PURPOSE. 2. Complete the Substitute Form W-9 (for U.S. stockholders) mailed with the Letter of Transmittal or an appropriate Form W-8, which must be obtained from your tax advisor or the exchange agent (for non-U.S. stockholders), by listing the Taxpayer Identification Number (TIN) or Social Security Number (SSN) that is to be used for tax reporting on the new account. The individual whose TIN or SSN is being used must sign the Substitute Form W-9. Please refer to the section of these Participation Instructions entitled "Backup Withholding; Substitute Form W-9; Forms W-8" for more information relating to Substitute Form W-9 and Forms W-8. If your circumstances differ from those listed above, please contact the information agent, Georgeson Shareholder Communications Inc., at (866) 203-1913 (toll-free) in the United States or at (212) 440-9800 from elsewhere. You may also contact the information agent, the exchange agent, American Stock Transfer & Trust Company or the joint dealer managers for the exchange offer -- Goldman, Sachs & Co. or Bear, Stearns & Co. Inc. -- at one of the telephone numbers set forth on the last page of the offering circular-prospectus if you have any questions pertaining to the exchange offer or need other assistance in completing the Letter of Transmittal. III. OTHER IMPORTANT INFORMATION ABOUT THE EXCHANGE OFFER ALL DISPUTES WILL BE RESOLVED BY IMS HEALTH, IN ITS DISCRETION All questions as to the validity, form, eligibility (including time of receipt), acceptance and withdrawal of tendered shares of IMS Health common stock will be determined by IMS Health, in its sole discretion, and its determination shall be final and binding on all tendering stockholders. IMS Health reserves the absolute right to reject any or all tenders of shares of IMS Health common stock determined by it not to be in proper form or the acceptance of which may, in the opinion of IMS Health's counsel, be unlawful. IMS Health also reserves the absolute right to waive any defect or irregularity in any tender of shares of IMS Health common stock. All 7 tendering stockholders, by execution of the Letter of Transmittal, waive any right to receive notice of the acceptance of their shares of IMS Health common stock for exchange. IMS Health reserves the right to request any additional information from any record or beneficial owner of shares of IMS Health common stock that IMS Health in its sole discretion determines to so request including information with respect to the tax status of any such person or of its partners, stockholders, beneficiaries, principals or participants or the tax impact to IMS Health of such person tendering shares of IMS Health common stock. None of IMS Health, the exchange agent, or any other person shall be under any duty to give notification of any defect or irregularity in any tender, or incur any liability for failure to give any such notification. See the section entitled "IMS Health's Interpretations are Binding" in the offering circular-prospectus. IMS HEALTH TO PAY STOCK TRANSFER TAXES FOR EXCHANGE OFFER TENDERS IMS Health will pay all stock transfer taxes, if any, payable as a result of the transfer to it of shares of IMS Health common stock tendered, and the transfer to tendering stockholders of shares of Cognizant class B common stock pursuant to the exchange offer. If tendered certificates are registered in the name of any person other than the person signing the Letter of Transmittal for the reasons described in the Instructions in Section IV, the amount of all stock transfer taxes, if any (whether imposed on the registered owner or such other person), payable on account of the transfer to such person must be paid by the tendering stockholder unless evidence satisfactory to IMS Health of the payment of such taxes or exemption therefrom is submitted. Except as noted above, it will not be necessary for transfer tax stamps to be affixed to the certificate(s) representing shares of IMS Health common stock listed on the Letter of Transmittal. MUTILATED, LOST, STOLEN OR DESTROYED IMS HEALTH CERTIFICATES If any certificate representing shares of IMS Health common stock has been mutilated, destroyed, lost or stolen, the stockholder must notify the exchange agent in writing. You will receive an affidavit to complete, and you will be informed of the amount need to pay for a surety bond for you lost shares. Only after you complete the affidavit and surety bond payment and submit a completed Letter of Transmittal, will your shares be tendered in the exchange offer. IF YOU DESIRE ASSISTANCE OR ADDITIONAL COPIES OF THE OFFERING MATERIALS Additional copies of the enclosed material may be obtained by contacting the information agent, Georgeson Shareholder Communications Inc., at (866) 203-1913 (toll-free) in the United States or at (212) 440-9800 from elsewhere. IV. CERTAIN MATTERS RELATING TO FOREIGN JURISDICTIONS IMS Health is seeking to conduct the exchange offer in certain foreign jurisdictions. However, IMS Health is not offering to exchange, and is not soliciting any offer to exchange, any shares of IMS Health common stock pursuant to the exchange offer in any jurisdiction in which the offer or exchange would not be permitted. The offering circular-prospectus and the offering materials does not constitute an offer to exchange to stockholders located in any jurisdiction where the exchange offer would not be permitted. In any jurisdiction where the securities or blue sky laws require the exchange offer to be made by a licensed broker or dealer, the exchange offer may be made on our behalf, but only with our prior written consent, by one or more registered brokers or dealers licensed under the laws of such jurisdiction. For more information, see the section of the offering circular-prospectus entitled "The Exchange Offer -- Certain Matters Relating to Foreign Jurisdictions." 8 UK INVESTORS The exchange offer in not a public offer of securities within the meaning of the Public Offers of Securities Regulations 1995, as amended. The offering circular-prospectus is communicated to persons which IMS Health reasonably believes are person falling within Article 43(2)(a) ("members and creditors of certain bodies corporate") of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2001 (as amended)(all such persons together referred to as "relevant persons"). The offering circular-prospectus must not be acted on or relied on by persons who are not relevant persons. The exchange offer to which the offering circular-prospectus relates is available only to relevant persons and will be engaged in only with relevant persons. FRENCH INVESTORS The offering circular-prospectus has not been prepared in the context of a public offering of securities in France within the meaning of article L. 411-1 of the Code monetaire et financier and regulations nos. 98-01 and 98-08 of the Commission des operations de bourse and has therefore not been submitted to the Commission des operations de bourse for prior approval. It is made available only to qualified investors and/or to a limited circle of investors (as defined in article L. 411-2 of the Code monetaire et financier and in the Decree no. 98-880 of October 1, 1998), on the condition that it shall not be passed on atop any person nor reproduced, in whole or in part, and that applicants shall only participate in the exchange offer described in the offering circular-prospectus for their own account in accordance with the terms set out by the said decree, and undertake not to transfer, directly or indirectly, the securities in France other than in compliance with applicable laws and regulations (articles L. 411-1, L. 411-2, L. 412-1 and L. 621-8 of the Code monetaire et financier). GERMAN INVESTORS For the publication of the offering circular-prospectus IMS Health has further relied upon the exemptions sect. 2 no. 1 and 2 of the German Act on the Publication of Sales Prospectuses (Verkaufsprospektgesetz) being applicable, as the offer is made exclusively to institutional investors and to other stockholders of IMS Health, which constitute a "limited number of persons" (begrenzter Personenkreis) in the sense of sect. 2 no. 2 of the German Act on the Publication of Sales Prospectuses." ITALIAN INVESTORS The exchange offer (as described in the offering circular-prospectus) does not constitute a "Public Offer" under Italian law within the meaning of Article 1, 1st Paragraph lett. V) of the Legislative Decree no. 58 of 24 February 1998. This document is personal to each addressee and does not constitute an offer to any other person or to the public generally to subscribe for or to otherwise acquire the Cognizant class B common stock. Each addressee, by accepting delivery of the offering circular-prospectus agrees to the foregoing and not to distribute as aforesaid, or make photo copies of the offering circular-prospectus. Persons into whose possession the offering circular-prospectus may come are required to IMS Health to inform themselves about and to observe such restrictions. V. QUESTIONS AND ANSWERS ABOUT THE EXCHANGE OFFER SEE PAGE 1 OF THE OFFERING CIRCULAR-PROSPECTUS FOR THE ANSWERS TO VARIOUS COMMON QUESTIONS YOU MAY HAVE ABOUT THE EXCHANGE OFFER. 9 VI. DELIVERY INSTRUCTIONS The method of delivery of the Letter of Transmittal, the certificate(s) representing shares of IMS Health common stock tendered and any other required documents is at the option and risk of the tendering stockholder. Except as otherwise provided below, the delivery will be deemed made only when actually received or confirmed by the exchange agent. If you send certificate(s) representing shares of IMS Health common stock by mail, we recommend that you use registered mail, return receipt requested, and allow sufficient time to ensure timely receipt by the expiration date. Delivery of documents to the book-entry transfer facility does not constitute delivery to the exchange agent. DO NOT FAX THE LETTER OF TRANSMITTAL. No alternative, conditional or contingent tenders will be accepted for exchange in the exchange offer. All tendering stockholders, by execution of the Letter of Transmittal, waive any right to receive any notice of the acceptance of their shares of IMS Health common stock. The Letter of Transmittal, the certificate(s) representing shares of IMS Health common stock tendered and any other required documents should be sent to: AMERICAN STOCK TRANSFER & TRUST COMPANY
BY MAIL: BY HAND: BY OVERNIGHT DELIVERY: AMERICAN STOCK TRANSFER & AMERICAN STOCK TRANSFER & AMERICAN STOCK TRANSFER & TRUST COMPANY TRUST COMPANY TRUST COMPANY 59 Maiden Lane 59 Maiden Lane Operations Center Plaza Level Plaza Level 6201 15th Avenue New York, New York 10038 New York, New York 10038 Brooklyn, New York 11219 Attn: Reorg. Department
FOR INFORMATION ABOUT SUBMITTING THE LETTER OF TRANSMITTAL OR DELIVERY OF YOUR SHARES CALL: (800)-937-5449, TOLL-FREE, IN THE UNITED STATES AND (718)-921-8200 EXT. 6820 FROM ELSEWHERE. DELIVERY OF THE LETTER OF TRANSMITTAL TO A PERSON OTHER THAN THE EXCHANGE AGENT OR TO AN ADDRESS OTHER THAN THE ADDRESS LISTED ABOVE OR BY FACSIMILE WILL NOT CONSTITUTE VALID DELIVERY. VII. BACK-UP WITHHOLDING; SUBSTITUTE FORM W-9; FORMS W-8 U.S. STOCKHOLDERS -- SUBSTITUTE FORM W-9 U.S. federal income tax law requires that a holder whose tendered IMS Health Incorporated ("IMS Health") shares are accepted for exchange must provide the exchange agent (as Payor) with his or her correct taxpayer identification number ("TIN") on the Substitute Form W-9 included herein, which, in the case of a holder who is an individual, is his or her social security number. IF THE EXCHANGE AGENT IS NOT PROVIDED WITH THE CORRECT TIN OR AN ADEQUATE BASIS FOR EXEMPTION, THE HOLDER MAY BE SUBJECT TO A PENALTY IMPOSED BY THE INTERNAL REVENUE SERVICE ("IRS"). Exempt holders (including, among others, corporations and financial institutions) are not subject to these backup withholding and reporting requirements. See the section entitled "Guidelines for Certification of Taxpayer Identification Number on Substitute Form W-9" for additional instructions. To prevent backup withholding, each tendering holder must provide his or her correct TIN by completing the Substitute Form W-9 included herein, certifying that the TIN provided is correct (or that such holder is awaiting a TIN) and that (1) the holder is exempt from backup withholding, (2) the holder has not been notified by the IRS that he or she is subject to backup withholding as a result of the failure to report all interest or dividends or (3) the IRS has notified the holder that he or she is no longer subject to backup withholding. If the certificate(s) representing IMS Health shares are in more than one name or are not in the name of the actual owner, consult the guidelines for information on which TIN to report. If you do not have a TIN, consult the guidelines for instructions on applying for a TIN, check the box of the Substitute Form W-9 10 (Part 3) indicating that you have applied for and are awaiting receipt of your TIN, write "Applied For" in the space for the Social Security number or Employer Identification Number and complete the Certification of Payee Awaiting Taxpayer Identification Number in order to avoid backup withholding. Notwithstanding that there is a check in the box indicating that you have applied for and are awaiting receipt of your TIN, you have written "Applied For" in the space for the Social Security number or Employer Identification Number and the Certification of Awaiting Taxpayer Identification Number is completed, the exchange agent will withhold 30% of the cash payments equal to or in excess of $20 made in lieu of fractional shares of Cognizant Technology Solutions Corporation ("Cognizant") common stock pursuant to the exchange offer, and if the TIN is provided within 60 days, such amount will be refunded. Backup withholding is not an additional tax. Rather, the federal income tax liability of persons subject to backup withholding will be reduced by the amount of tax withheld. If backup withholding results in an overpayment of taxes, a refund may be obtained from the IRS. Holders of shares of IMS Health common stock who acquired their shares at different times may have different tax bases in their IMS Health shares, and should consult their tax advisors as to the possibility of identifying the specific IMS Health shares surrendered in the exchange offer in order to establish the tax basis of the shares of Cognizant common stock issued in exchange for IMS Health shares surrendered. NON-U.S. STOCKHOLDERS -- FORMS W-8 Tendering non-U.S. stockholders must complete and submit to the exchange agent, instead of the Substitute Form W-9, a Form W-8BEN (Certificate of Foreign Status of Beneficial Owner for United States Tax Withholding), a Form W-8ECI (Certificate of Foreign Person's Claim for Exemption From Withholding on Income Effectively Connected With the Conduct of a Trade or Business in the United States), a Form W-8EXP (Certificate of Foreign Government or Other Foreign Organization for United States Tax Withholding) or a Form W-8IMY (Certificate of Foreign Intermediary, Foreign Partnership, or Certain U.S. Branches for United States Tax Withholding) (each a "Form W-8" and, collectively, "Forms W-8"), as applicable. Forms W-8 and related instructions may be obtained from the exchange agent. If you are a non-U.S. stockholder, you should consult your tax advisor as to which Form (s) W-8 you should complete. A TENDERING NON-U.S. STOCKHOLDER WHO DOES NOT COMPLETE, SIGN AND RETURN THE APPROPRIATE FORM W-8 TO THE EXCHANGE AGENT WILL BE SUBJECT TO U.S. FEDERAL BACKUP WITHHOLDING EQUAL TO 30% OF THE CASH PAYMENTS EQUAL TO OR IN EXCESS OF $20 MADE IN LIEU OF FRACTIONAL SHARES OF COGNIZANT COMMON STOCK PURSUANT TO THE EXCHANGE OFFER. Backup withholding is not an additional tax. Rather, the federal income tax liability of persons subject to backup withholding will be reduced by the amount of tax withheld. If backup withholding results in an overpayment of taxes, a refund may be obtained from the IRS. 11 GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION NUMBER ON SUBSTITUTE FORM W-9 (SECTION REFERENCES ARE TO THE INTERNAL REVENUE CODE) GUIDELINES FOR DETERMINING THE PROPER IDENTIFICATION NUMBER TO GIVE THE PAYER.--Social Security numbers have nine digits separated by two hyphens: i.e. 000-00-0000. Employer identification numbers have nine digits separated by only one hyphen: i.e. 00-0000000. The table below will help determine the number to give the payer.
- ------------------------------------------------------------ GIVE THE SOCIAL SECURITY FOR THIS TYPE OF ACCOUNT: NUMBER OF -- - ------------------------------------------------------------ 1. An individual's account The individual 2. Two or more individuals (joint The actual owner of account) the account or, if combined funds, any one of the individuals(1) 3. Husband and wife (joint account) The actual owner of the account or, if joint funds, either person(1) 4. Custodian account of a minor The minor(2) (Uniform Gift to Minors Act) 5. Adult and minor (joint account) The adult or, if the minor is the only contributor, the minor(3) 6. Account in the name of guardian or The ward, minor, or committee for a designated ward, incompetent minor, or incompetent person person(4) 7. a. The usual revocable savings The grantor- trust account (grantor is also trustee(3) trustee) b. So-called trust account that is The actual owner(3) not a legal or valid trust under State law 8. Sole proprietorship account The owner(5) - ------------------------------------------------------------ - ------------------------------------------------------------ GIVE THE EMPLOYER IDENTIFICATION FOR THIS TYPE OF ACCOUNT: NUMBER OF -- - ------------------------------------------------------------ 9. A valid trust, estate, or pension Legal entity (Do trust not furnish the identifying number of the personal representative or trustee unless the legal entity itself is not designated in the account title.)(3) 10. Corporate account The corporation 11. Religious, charitable, or The organization educational organization account 12. Partnership account held in the The partnership name of the business 13. Association, club, or other tax- The organization exempt organization 14. A broker or registered nominee The broker or nominee 15. Account with the Department of The public entity Agriculture in the name of a public entity (such as a State or local government, school district, or prison) that receives agricultural program payments - ------------------------------------------------------------
(1) List first and circle the name of the person whose number you furnish. (2) Circle the minor's name and furnish the minor's social security number. (3) List first and circle the name of the legal trust, estate, or pension trust. (4) Circle the ward, minor's or incompetent person's name and furnish such person's Social Security number. (5) Show the name of the owner. NOTE: If no name is circled when there is more than one name, the number will be considered to be that of the first name listed. RESIDENT ALIENS: If you are a resident alien and you do not have, and are not eligible to get, a Social Security number, your TIN is your IRS individual taxpayer identification number ("ITIN"). Enter it on the portion of the Substitute Form W-9 where the Social Security number would be entered. If you do not have an ITIN, see "Obtaining Number" below. 12 GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION NUMBER ON SUBSTITUTE FORM W-9 If you don't have a taxpayer identification number ("TIN"), apply for one immediately. To apply, obtain Form SS-5, Application for a Social Security Card, from your local office of the Social Security Administration, or Form SS-4, Application for Employer Identification Number, from the Internal Revenue Service (the "IRS") by calling 1-800-829-3676 or visiting the IRS's Internet web site at www.irs.gov. Resident aliens who are not eligible to get a Social Security number and need an 1TIN should obtain Form W-7, Application for Individual Taxpayer Identification Number, from the IRS by calling 1-800-829-3676 or visiting the IRS's Internet web site at www.irs.gov. PAYEES AND PAYMENTS EXEMPT FROM BACKUP WITHHOLDING Payees specifically exempted from backup withholding on ALL payments include the following: - A corporation. - A financial institution. - An organization exempt from tax under section 501(a) or an individual retirement plan, or a custodial account under section 403(b)(7). - The United States or any agency or instrumentality thereof. A state, the District of Columbia, a possession of the United States or any subdivision or instrumentality thereof. - A foreign government, a political subdivision of a foreign government, or any agency or instrumentality thereof. - An international organization or any agency or instrumentality thereof. - A registered dealer in securities or commodities registered in the U.S. or a possession of the U.S. - A real estate investment trust. - A common trust fund operated by a bank under section 584(a). - An exempt charitable remainder trust, or a non-exempt trust described in section 4947(a)(1). - An entity registered at all times under the Investment Company Act of 1940. - A foreign central batik of issue. Payments of dividends not generally subject to backup withholding include the following: - Payments to nonresident aliens subject to withholding under section 1441. - Payments to partnerships not engaged in a trade or business in the U.S. and which have at least one nonresident partner. - Payments of patronage dividends where the amount received is not paid in money. - Payments made by certain foreign organizations. - Payments made to a nominee. Payments of interest not generally subject to backup withholding include the following: - Payments of interest on obligations issued by individuals. - Note: You may be subject to backup withholding if this interest is $600 or more and is paid in the course of the payor's trade or business and you have not provided your correct TIN to the payor. - Payments of tax-exempt interest (including exempt-interest dividends under section 852). - Payments described in section 6049(b)(5) to nonresident aliens. - Payments on tax-free covenant bonds under section 1451. - Payments made by certain foreign organizations. - Payments made to a nominee. Exempt payees described above should file Substitute Form W-9 to avoid possible erroneous backup withholding. FILE THIS FORM WITH THE PAYOR. FURNISH YOUR TAXPAYER IDENTIFICATION NUMBER. WRITE "EXEMPT" ON THE FACE OF THE FORM AND RETURN IT TO THE PAYOR. IF THE PAYMENTS ARE INTEREST, DIVIDENDS, OR PATRONAGE DIVIDENDS, ALSO SIGN AND DATE THE FORM. Certain payments other than interest, dividends, and patronage dividends that are not subject to information reporting are also not subject to backup withholding. For details, see sections 6041, 6041A, 6045, and 6050A and the Treasury regulations under those sections. PRIVACY ACT NOTICE -- Section 6109 requires you to furnish your correct TIN to persons who must file information returns with the IRS to report interest, dividends, and certain other income paid to you, mortgage interest you paid, the acquisition or abandonment of secured property, or contributions you made to an IRA. The IRS uses the numbers for identification purposes and to help verify the accuracy of your tax return. You must provide your TIN whether or not you are qualified or required to file a tax return. Payors must generally withhold 31% of taxable interest, dividend, and certain other payments to a payee who does not furnish a TIN to the payor. Certain penalties may also apply. PENALTIES (1) PENALTY FOR FAILURE TO FURNISH TAXPAYER IDENTIFICATION NUMBER -- If you fail to furnish your correct TIN to a payor, you are subject to a penalty of $50 for each such failure unless your failure is due to reasonable cause and not to willful neglect. (2) FAILURE TO REPORT CERTAIN DIVIDEND AND INTEREST PAYMENTS -- If you fail to properly include any portion of an includible payment for interest, dividends, or patronage dividends in gross income, such failure will be treated as being due to negligence and will be subject to a penalty of 5% on any portion of an underpayment attributable to that failure unless there is clear and convincing evidence to the contrary. (3) CIVIL PENALTY FOR FALSE INFORMATION WITH RESPECT TO WITHHOLDING -- If you make a false statement with no reasonable basis which results in no imposition of backup withholding, you are subject to a penalty of $500. (4) CRIMINAL PENALTY FOR FALSIFYING INFORMATION -- Falsifying certifications or affirmations may subject you to criminal penalties including fines and/or imprisonment. FOR ADDITIONAL INFORMATION CONTACT YOUR TAX CONSULTANT OR THE IRS. 13 IMPORTANT INFORMATION ABOUT THE EXCHANGE OFFER Investors are urged to read the documents that IMS Health and Cognizant have filed and will file with the SEC in connection with the exchange offer. These documents contain important information about the exchange offer and its potential effect on the companies and their stockholders. They can be accessed online at the SEC's website (www.sec.gov), as well as on the IMS Health and Cognizant websites. Copies also are available by request from IMS Investor Relations or Cognizant at the phone numbers listed in the Offering Circular-Prospectus. 14 EX-99.6 15 y65565a2exv99w6.txt FORM OF FORM OF ELECTION Return this form to American Stock Transfer & Trust Company no later than 4 PM New York City time on February 3, 2003, which is 3 trading days prior to the expiration date of the exchange offer Do you need Assistance? Call American Stock Transfer & Trust Company Toll Free (800) 937-5449 from the U.S. or (718) 921-8200 ext. 6820 from elsewhere IMS HEALTH INCORPORATED SAVINGS PLAN FORM OF ELECTION 1. ABOUT YOU AND YOUR SHARES-INDICATE ADDRESS CHANGE AS NECESSARY BELOW - -------------------------------------------------------------------------------- RETURN THIS FORM TO AMERICAN STOCK TRANSFER & TRUST COMPANY AS FOLLOWS:
BY MAIL: BY HAND: BY OVERNIGHT DELIVERY: AMERICAN STOCK TRANSFER AMERICAN STOCK TRANSFER AMERICAN STOCK TRANSFER & TRUST COMPANY & TRUST COMPANY & TRUST COMPANY 59 Maiden Lane 59 Maiden Lane Operations Center Plaza Level Plaza Level 6201 15th Avenue New York, New York 10038 New York, New York 10038 Brooklyn, New York 11219 Attn: Reorg. Department
FOR INFORMATION, CALL (800) 937-5449, TOLL-FREE, IN THE UNITED STATES AND (718) 921-8200 EXT. 6820 FROM ELSEWHERE 2. ELECTION OPTIONS AND REQUIRED SIGNATURES -- COMPLETE A AND B A) OPTIONS [ ] Tender 100% of the IMS Health shares in my IMS Health Savings Plan account. [ ] Tender ____% of the IMS Health shares in my IMS Health Savings Plan account. B) REQUIRED SIGNATURES-You must sign below. - ------------------------------------------------------------------------ - ------------------------ SIGNATURE OF STOCKHOLDER DATE ( ) - --------------------------------------------- AREA CODE AND DAYTIME PHONE EX-99.7 16 y65565a2exv99w7.txt FORM OF INSTRUCTIONS TO FORM OF ELECTION IMS HEALTH INCORPORATED OFFER TO EXCHANGE 0.309 SHARES OF COGNIZANT TECHNOLOGY SOLUTIONS CORPORATION CLASS B COMMON STOCK FOR EACH SHARE OF IMS HEALTH INCORPORATED COMMON STOCK UP TO AN AGGREGATE OF 36,540,129 SHARES OF IMS HEALTH COMMON STOCK INSTRUCTIONS TO FORM OF ELECTION All tenders of shares of IMS Health common stock are subject to the terms of the Form of Election and offering circular-prospectus, dated January 9, 2003 (the "Offering Circular-Prospectus"), which was mailed to stockholders of record as of January 6, 2003. THE EXCHANGE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 12:00 MIDNIGHT, NEW YORK CITY TIME, ON FEBRUARY 6, 2003, UNLESS IMS HEALTH EXTENDS THE OFFER. THE EXCHANGE AGENT MUST RECEIVE YOUR FORM OF ELECTION BEFORE 4:00 P.M., NEW YORK CITY TIME, ON FEBRUARY 3, 2003 IF YOU WANT TO PARTICIPATE IN THE EXCHANGE OFFER. DO NOT FAX THE FORM OF ELECTION TO THE EXCHANGE AGENT. These instructions for the Form of Election must be followed to tender shares of IMS Health common stock owned by you in the IMS Health Savings Plan (the "Plan"). Additional copies of the Offering Circular-Prospectus or the Form of Election may be obtained by contacting the information agent, Georgeson Shareholder Communications Inc., at (866) 203-1913 (toll-free) in the United States or at (212) 440-9800 from elsewhere. You may also contact Cigna, the administrator of the IMS Health Savings Plan at (800) 253-2287, the information agent, the exchange agent, American Stock Transfer & Trust Company or the joint dealer managers for the exchange offer -- Goldman, Sachs & Co. or Bear, Stearns & Co. Inc. -- at one of the telephone numbers set forth on the last page of the Offering Circular-Prospectus for assistance with any questions you may have about the exchange offer. SECTION 1. ABOUT YOU AND YOUR SHARES Section 1 of the Form of Election shows your name and address and the number of shares of IMS Health common stock owned by you in the Plan, as reflected on the records of the trustee for the Plan at the time of mailing these instructions. Mark through any incorrect address information that is printed in this area on the Form of Election. Clearly print your correct address in the space beside the printed information. SECTION 2. ELECTION OPTIONS AND REQUIRED SIGNATURES A) NUMBER OF SHARES TENDERED The exchange offer is completely voluntary. You may tender in the exchange offer all, some or none of the shares of IMS Health common stock held in your Plan account. If you want to keep all of your shares of IMS Health common stock, you do not need to take any action. Your right to make an election will be carried out by directing the trustee of the Plan to tender shares on your behalf. The trustee of the Plan is the registered owner of all shares of IMS Health common stock held in the Plan and, as such, only the trustee can tender shares held in the Plan. You may select from the following options: 1. TENDER ALL SHARES OF IMS HEALTH COMMON STOCK HELD IN YOUR PLAN ACCOUNT. If you select this option, the trustee of the Plan will tender all shares of IMS Health common stock that are credited or allocable to your account on the date the exchange offer expires, subject to the limitations described in this document. To select this option, you must check the appropriate box on the Form of Election for the Plan indicating your desire to tender shares. 2. TENDER A PERCENTAGE (INDICATED BY YOU) OF THE SHARES OF IMS HEALTH COMMON STOCK IN YOUR PLAN ACCOUNTS. If you select this option, the trustee of the Plan will tender a portion, equal to the percentage you indicate, of the shares of IMS Health common stock credited or allocable to your account, on the date the exchange offer expires, subject to the limitations described in this document. To select this option, you must fill in the blank on the Form of Election for the Plan indicating your desire to tender shares, with the percentage of the total shares in the Plan that you desire to tender. The percentage you indicate in Section 2 of the Form of Election will be applied to the total number of shares of IMS Health common stock credited or allocable to your Plan account on the date the exchange offer expires. 3. TENDER NONE OF YOUR SHARES OF IMS HEALTH COMMON STOCK. If you want to keep all of the shares of IMS Health common stock held in your Plan account, then do nothing. You do not need to take any action. If you do not complete the Form of Election, the trustee will not tender any of the shares credited or allocable to your Plan account and you will not participate in the exchange offer. You will not receive any shares of Cognizant class B common stock in the exchange offer, unless the exchange offer is under subscribed and IMS Health decides to authorize a dividend of its remaining shares of Cognizant class B common stock. B) YOU MUST SIGN THE FORM OF ELECTION You, as the beneficial owner of the Plan account holding shares of IMS Health common stock, must sign the Form of Election. Your name must exactly match the name on the Plan account. Please be sure to include your daytime telephone number. BEFORE YOU MAIL YOUR FORM OF ELECTION, MAKE SURE YOU DO THE FOLLOWING: (a) verify the election you have chosen; and (b) sign and date the Form of Election and include your daytime phone number. ALL DISPUTES WILL BE RESOLVED BY IMS HEALTH, IN ITS DISCRETION. All questions as to the validity, form, eligibility (including time of receipt), acceptance and withdrawal of tendered shares of IMS Health common stock will be determined by IMS Health, in its sole discretion, and its determination shall be final and binding on all tendering stockholders. IMS Health reserves the absolute right to reject any or all tenders of shares of IMS Health common stock determined by it not to be in proper form or the acceptance of which may, in the opinion of IMS Health's counsel, be unlawful. IMS Health also reserves the absolute right to waive any defect or irregularity in any tender of shares of IMS Health common stock. All tendering stockholders, by execution of the Form of Election, waive any right to receive notice of the acceptance of their shares of IMS Health common stock for exchange. IMS Health reserves the right to request any additional information from any record or beneficial owner of shares of IMS Health common stock that IMS Health in its sole discretion determines to so request including information with respect to the tax status of any such person. None of IMS Health, the exchange agent, or any other person shall be under any duty to give notification of any defect or irregularity in any tender, or incur any liability for failure to give any such notification. See the section entitled "The Exchange Offer -- IMS Health's Interpretations are Binding" in the Offering Circular-Prospectus. ANY DISPUTES REGARDING YOUR ELECTION OR THE ELECTIONS MADE BY OTHER STOCKHOLDERS WILL BE RESOLVED BY IMS HEALTH, AND ITS DETERMINATION WILL BE FINAL AND BINDING ON ALL TENDERING STOCKHOLDERS. IMS HEALTH AND THE EXCHANGE AGENT HAVE THE ABSOLUTE RIGHT TO REJECT ANY AND ALL FORM OF ELECTIONS WHICH THEY DETERMINE ARE NOT IN PROPER FORM, OR TO WAIVE DEFECTS IN ANY FORM. 2 QUESTIONS AND ANSWERS ABOUT THE EXCHANGE OFFER IMS HEALTH SAVINGS PLAN HOW WAS THE NUMBER OF SHARES OF IMS HEALTH COMMON STOCK LISTED ON THE FORM OF ELECTION DETERMINED? The IMS Health Common Stock Fund in the Plan holds shares of IMS Health common stock and cash. The number of shares of IMS Health common stock and the amount of cash held in the fund change from day to day based upon activity within the fund. Each participant's investment in the fund is accounted for in terms of "Units," which represent a participant's pro rata ownership of the stock and cash held by the fund. The Form of Election lists the proportionate number of shares of common stock corresponding to your investment as of January 6, 2003, based on the number of Units credited to your account and the total assets of the fund on that date. On January 6, 2003, each Unit was equivalent to approximately one share of IMS Health common stock. The number of shares of IMS Health common stock that corresponds to one unit changes from time to time based upon activity within the fund and changes, if any, you make in your investment options. HOW MANY SHARES FROM MY IMS HEALTH COMMON STOCK FUND ACCOUNT CAN I TENDER IN THE EXCHANGE OFFER? You may tender all, some or none of the shares of IMS Health common stock allocable to your account in the IMS Health Common Stock Fund on the date that the exchange offer expires. If you elect to tender shares of IMS Health common stock allocable to your IMS Health Common Stock Fund in your Plan account, the percentage you indicate on the Form of Election will be applied to the number of shares that corresponds to the number of Units allocable to your account on the date the exchange offer expires. This number may be different from the number of shares printed on your Form of Election. IMS Health will establish a new fund within the IMS Health Savings Plan for the sole purpose of holding the shares of Cognizant class B common stock received by Plan participants in the exchange offer until such shares or the proceeds of the sale of such shares are transferred to another fund within the Plan, which is currently expected to occur approximately one month after the expiration of the exchange offer. Because your IMS Health Common Stock Fund account is valued in Units, rather than shares, the amount that will be transferred from your IMS Health Common Stock Fund account to the new Cognizant class B Common Stock Fund will be calculated by applying the percentage of your account that you elect to tender to your proportionate amount of the total value of the IMS Health Common Stock Fund (which is expressed in Units). WILL MY PAYROLL CONTRIBUTIONS AND/OR MY INVESTMENT OPTIONS IN THE IMS HEALTH COMMON STOCK FUND INCREASE THE NUMBER OF SHARES OF IMS HEALTH COMMON STOCK I CAN TENDER IN THE EXCHANGE OFFER? Maybe. Any payroll contributions that you have directed towards the IMS Health Common Stock Fund will continue to be invested in shares of IMS Health common stock allocable to your account. You may tender in the exchange offer any additional shares that are purchased with payroll contributions that are credited to your account before 4:00 p.m. New York City time February 3, 2003. You also can request to move money from other investment funds under the Plan into your IMS Health Common Stock Fund account until 4:00 p.m. New York City time on February 3, 2003. If a funds transfer is processed before 4:00 p.m. New York City time on February 3, 2003, you may tender in the exchange offer the additional shares that become allocable to your account as a result of such transactions. The exchange offer is scheduled to expire on February 6, 2003; however, the proceeds of any tendered shares may remain uninvested for such period of time as may be administratively necessary to complete the exchange offer. WILL THERE BE "FREEZE" PERIODS WHEN NO TRANSACTIONS WITHIN THE COMMON STOCK FUND CAN BE PROCESSED? Yes. To ensure that the trustee tenders the correct number of shares of IMS Health common stock on behalf of employees who elect to tender Plan shares in the exchange offer, and to ensure that the correct number of shares of Cognizant class B common stock are issued in exchange, we will need to temporarily 3 freeze each IMS Health participant's account in the IMS Health Common Stock Fund, which contains shares of IMS Health common stock that are eligible for tender in the exchange offer. This administrative process may take up to three business days. At 4:00 p.m., New York City time, on the day that is three (3) business days before the exchange offer is scheduled to expire, which currently is February 3, 2003, each participant's account in the IMS Health Common Stock Fund, which contains shares of IMS Health common stock that are eligible for tender in the exchange offer will be frozen. The freeze is scheduled to last until approximately 12:01 a.m. New York City time, on February 7, 2003. Commencing after the freeze period begins and continuing until the exchange offer is completed or is terminated (the "Segregation Period"), the shares of IMS Health common stock with respect to which an election to participate in the exchange offer has been made will be segregated from other accounts and funds within the Plan. During the Segregation Period, you will not be able to make inquiries regarding or obtain any information about your segregated shares of IMS Health common stock. Please note that during this freeze period, if you call the automated voice response system, view your account over the Internet, or speak with a Benefits Express representative, the value of your IMS Health Common Stock Fund account will not include the value of any shares of IMS Health common stock held in that account you have elected to have tendered in the exchange offer, and those shares of IMS Health common stock will not be included in your IMS Health Common Stock Fund account balance. Please note that even though the value of shares of IMS Health common stock held in your IMS Health Common Stock Fund account will be unavailable during the freeze period, you will continue to have access to information to, and to effect transactions in, the rest of your account. New contributions and loan repayments, including contributions and repayments to your IMS Health Common Stock Fund account, will continue to be made in accordance with your current investment elections. You also may reallocate funds among the other investment funds, take a new loan or withdrawal, or make new investment or contribution elections; however, any shares of IMS Health common stock that you acquire after the date the Form of Election is due will not be eligible to be tendered in the exchange offer. THE EXCHANGE OFFER AND WITHDRAWAL RIGHTS ARE SCHEDULED TO EXPIRE AT 12:00 MIDNIGHT, NEW YORK CITY TIME, ON FEBRUARY 6, 2003, SO THE FREEZE PERIOD IS SCHEDULED TO BEGIN AT 4:00 P.M., NEW YORK CITY TIME, ON FEBRUARY 3, 2003 AND END AT APPROXIMATELY 12:01 A.M., NEW YORK CITY TIME, ON FEBRUARY 7, 2003, UNLESS IMS HEALTH EXTENDS THE OFFER. HOW MANY SHARES OF COGNIZANT CLASS B COMMON STOCK WILL I RECEIVE IN MY PLAN ACCOUNT FOR EACH SHARE OF IMS HEALTH COMMON STOCK THAT I TENDER FROM MY PLAN ACCOUNT? You will receive in your Plan account 0.309 shares of Cognizant class B common stock for each share of IMS Health common stock that is validly tendered on your behalf (and not properly withdrawn) in the exchange offer. This number is referred to as the "exchange ratio." You may receive fewer shares of Cognizant class B common stock if more than 36,540,129 shares of IMS Health common stock are validly tendered. If that happens, the shares tendered by your Plan account and accepted in the exchange offer will be subject to proration, as described below. ARE THERE ANY CONDITIONS TO IMS HEALTH'S OBLIGATION TO COMPLETE THE EXCHANGE OFFER? Yes. IMS Health is not required to complete the exchange offer unless the conditions described in the Offering Circular-Prospectus are satisfied or waived. In particular, IMS Health may not complete this exchange offer unless at least 27,400,000 shares of IMS Health common stock are tendered. This minimum number of shares of IMS Health common stock that must be tendered is referred to as the "minimum amount." IMS Health may waive any or all of the conditions to the exchange offer, including the requirement that the minimum amount of shares of IMS Health common stock be tendered. WHAT HAPPENS IF LESS THAN THE MINIMUM AMOUNT OF SHARES OF IMS HEALTH COMMON STOCK IS TENDERED? If less than the minimum amount of shares of IMS Health common stock is tendered in the exchange offer, IMS Health may terminate the exchange offer and return any shares of IMS Health common stock that 4 have been tendered. However, IMS Health may waive this condition and complete the exchange offer as described in the Offering Circular-Prospectus. If IMS Health would continue to own Cognizant class B common stock after the completion of the exchange offer, it is their current plan to either distribute them to its stockholders or convert them into shares of Cognizant's class A common stock prior to the completion of the exchange offer. WHAT HAPPENS IF MORE THAN 36,540,129 SHARES OF IMS HEALTH COMMON STOCK ARE TENDERED, I.E., THE EXCHANGE OFFER IS OVERSUBSCRIBED? If the exchange offer is oversubscribed, the number of shares of IMS Health common stock to be accepted from each IMS Health stockholder who validly tendered and did not properly withdraw shares of IMS Health common stock will be reduced on a pro rata basis. We refer to this pro rata reduction as "proration." Proration will be based on the number of shares of IMS Health common stock each stockholder has tendered in the exchange offer, and not on the stockholder's aggregate ownership of shares of IMS Health common stock. Any shares of IMS Health common stock not accepted for exchange will be returned to your Plan account promptly following the expiration or termination of the exchange offer. CAN I CHANGE MY MIND AFTER I TENDER MY SHARES OF IMS HEALTH COMMON STOCK? Yes. You may withdraw tenders of your shares of IMS Health common stock any time before the exchange offer expires by following the withdrawal procedures described in the Offering Circular-Prospectus under the section entitled "The Exchange Offer -- Withdrawal Rights." If you change your mind after you have withdrawn your tender, you may tender your shares of IMS Health common stock again by following the tender procedures and re-delivering your shares of IMS Health common stock before the expiration of the exchange offer. WHAT IF MY SHARES OF IMS HEALTH COMMON STOCK ARE NOT ACCEPTED FOR EXCHANGE? Any shares of IMS Health common stock not accepted for exchange will be returned to your Plan account promptly following the expiration or termination of the exchange offer. Shares of IMS Health common stock tendered in the exchange offer may not be accepted if: - the exchange offer is terminated by IMS Health; - the exchange offer is oversubscribed, so that not all tendered shares of IMS Health common stock are accepted; - necessary documents were not provided or completed before the expiration date, so the shares of IMS Health common stock were not validly tendered shares; or - the exchange offer is not completed by March 6, 2003, which is the date that is 40 business days after January 9, 2003, the date the exchange offer was commenced. 5 DELIVERY INSTRUCTIONS PLEASE NOTE THAT, FOR ADMINISTRATIVE PURPOSES, THE ELECTION DEADLINE FOR SHARES HELD IN THE PLAN IS 4:00 P.M., NEW YORK CITY TIME, ON FEBRUARY 3, 2003, WHICH IS EARLIER THAN THE GENERAL DEADLINE FOR OTHER STOCKHOLDERS. The method of delivery of the Form of Election is at the option and risk of the tendering stockholder. Except as otherwise provided below, the delivery will be deemed made only when actually received or confirmed by the exchange agent. If you send the Form of Election by mail, we recommend that you use registered mail, return receipt requested, and allow sufficient time to ensure timely receipt by the election deadline. DO NOT FAX THE FORM OF ELECTION. No alternative, conditional or contingent tenders will be accepted for exchange in the exchange offer. All tendering stockholders, by execution of the Form of Election, waive any right to receive any notice of the acceptance by IMS Health of their tendered shares. THE FORM OF ELECTION AND ANY OTHER REQUIRED DOCUMENTS MUST BE SENT TO: AMERICAN STOCK TRANSFER & TRUST COMPANY
BY MAIL: BY HAND: BY OVERNIGHT DELIVERY: -------- -------- ---------------------- AMERICAN STOCK TRANSFER & AMERICAN STOCK TRANSFER & AMERICAN STOCK TRANSFER & TRUST COMPANY TRUST COMPANY TRUST COMPANY 59 Maiden Lane 59 Maiden Lane Operations Center Plaza Level Plaza Level 6201 15th Avenue New York, New York 10038 New York, New York 10038 Brooklyn, New York 11219 Attn: Reorg. Department
FOR INFORMATION ABOUT SUBMITTING THE FORM OF ELECTION, CALL (800) 937-5449, TOLL-FREE, IN THE UNITED STATES AND (718) 921-8200 EXT. 6820 FROM ELSEWHERE DELIVERY OF THE FORM OF ELECTION TO A PERSON OTHER THAN THE EXCHANGE AGENT OR TO AN ADDRESS OTHER THAN THE ADDRESS LISTED ABOVE WILL NOT CONSTITUTE VALID DELIVERY. BEFORE YOU MAIL YOUR FORM OF ELECTION, MAKE SURE YOU HAVE DONE THE FOLLOWING: (a) verified the election you have chosen; and (b) signed and dated the Form of Election and included your daytime phone number. 6 EX-99.8 17 y65565a2exv99w8.txt FORM OF LETTER TO STOCKHOLDERS IMS LOGO January 9, 2003 Dear Stockholder: In November 2002, we announced a plan to dispose of our interest in Cognizant Technology Solution Corporation by offering you, as an IMS Health stockholder, the opportunity to exchange shares of IMS Health shares that you own for Cognizant shares. We currently own 11,290,900 Cognizant shares. We are now formally launching this exchange offer. Specifically, we are offering to exchange 0.309 Cognizant shares for each share we accept in the exchange offer. The offer is scheduled to expire at 12:00 midnight, New York City time, on February 6, 2003. The terms and conditions of the offer are contained in the enclosed offering circular-prospectus. In addition, we have prepared a Question and Answer section in the offering circular-prospectus that responds to commonly asked questions about the exchange offer. You should read all of the enclosed materials very carefully. We note that the exchange ratio represents a premium of 20% based on closing prices on January 8, 2003. Of course, we cannot predict what the amount of the premium, if any, will be at the closing of the exchange offer since the market prices for IMS Health shares and Cognizant shares fluctuate. We have retained Georgeson Shareholder Communications Inc. as our information agent, American Stock Transfer & Trust Company, as our exchange agent, and Goldman, Sachs & Co. and Bear, Stearns & Co. Inc., as the joint dealer managers for the exchange offer. For additional copies of the offering circular-prospectus and related documentation you may contact the information agent at (866) 203-1913 (toll-free) in the United States, or (212) 440-9800 from elsewhere. You may also contact the information agent, exchange agent or the joint dealer managers at one of the telephone numbers set forth on the last page of the offering circular-prospectus for assistance with any questions you may have about the exchange offer. I thank you for your continuing support of our company. Sincerely, David M. 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