SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934 (Amendment No. )
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ý | Definitive Proxy Statement | |
o | Definitive Additional Materials | |
o | Soliciting Material Pursuant to §240.14a-12 | |
IMS HEALTH INCORPORATED |
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IMS HEALTH INCORPORATED
1499 Post Road
Fairfield, CT 06824
March 31, 2003
Dear Shareholder:
You are cordially invited to attend the 2003 Annual Meeting of Shareholders of IMS Health Incorporated on May 2, 2003, at 11:30 a.m. at The Hyatt Regency, Old Greenwich, Connecticut.
The Notice of Annual Meeting and Proxy Statement accompanying this letter describes the business to be conducted at the meeting and provides information about IMS. The Proxy Statement discusses, on page 40, the recent evaluation of the Company's shareholder rights plan pursuant to its Three-Year Independent Director Evaluation policy.
Your vote is important. Whether you plan to attend the meeting or not, please complete, sign and return the enclosed proxy card promptly or vote by telephone or over the Internet. If you attend the meeting and prefer to vote in person, you may withdraw your proxy and vote your shares.
Sincerely,
DAVID M. THOMAS
Chairman and Chief Executive Officer
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
DATE: | May 2, 2003 | |
TIME: | 11:30 a.m. | |
PLACE: | The Hyatt Regency 1800 East Putnam Avenue Old Greenwich, CT 06870 |
ITEM OF BUSINESS: |
1. |
To elect three Class I directors for a three-year term. |
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2. |
To ratify the appointment of PricewaterhouseCoopers LLP as our independent public accountants for 2003. |
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3. |
To approve the amended and restated 1998 IMS Health Incorporated Non-Employee Directors' Stock Incentive Plan. |
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4. |
To approve the amended and restated 1998 IMS Health Incorporated Employees' Stock Incentive Plan. |
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5. |
To reapprove the business criteria used for performance goals under the 1998 IMS Health Incorporated Employees' Stock Incentive Plan and the Executive Annual Incentive Plan. |
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6. |
To transact any other business that may properly come before the meeting. |
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RECORD DATE: |
Holders of IMS Common Stock of record at the close of business on March 7, 2003 are entitled to vote at the meeting. |
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ANNUAL REPORT: |
The IMS 2002 Annual Report to Shareholders and 2002 Annual Review, which are not part of the proxy soliciting materials, are enclosed. |
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PROXY VOTING: |
It is important that your shares be represented and voted at the meeting. You can vote your shares by completing and returning the proxy card sent to you. Most shareholders can also vote their shares over the Internet or by telephone. If Internet or telephone voting is available to you, voting instructions are printed on the proxy card sent to you. You can revoke a proxy at any time prior to its exercise at the meeting by following the instructions in the accompanying Proxy Statement. |
By Order of the Board of Directors, | ||
ROBERT H. STEINFELD Senior Vice President, General Counsel and Corporate Secretary |
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Dated: March 31, 2003 Fairfield, Connecticut |
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Page |
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The Company | 1 | ||||||
Proxy Solicitation | 1 | ||||||
Voting | 1 | ||||||
Record Date, Quorum and Voting Requirements | 2 | ||||||
Security Ownership of Management and Others | 3 | ||||||
Section 16(a) Beneficial Ownership Reporting Compliance | 4 | ||||||
Proposal No. 1: |
Election of Directors |
5 |
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Directors Standing for Election | 5 | ||||||
Directors Continuing in Office | 6 | ||||||
General InformationBoard of Directors | 6 | ||||||
Committees of the Board and Meetings | 7 | ||||||
Compensation of Directors | 9 | ||||||
Compensation of Executive Officers |
10 |
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Report of the Compensation and Benefits Committee on Executive Compensation | 10 | ||||||
Executive Compensation Philosophy | 10 | ||||||
Executive Compensation Program | 11 | ||||||
CEO Compensation | 12 | ||||||
Summary Compensation Table | 14 | ||||||
Option/SAR Grants in Last Fiscal Year | 15 | ||||||
Aggregate Option/SAR Exercises in Last Fiscal Year and Fiscal Year-End Option/SAR Values | 16 | ||||||
Equity Compensation Plan Information | 16 | ||||||
Five-Year Performance Graph | 18 | ||||||
Retirement Benefits | 19 | ||||||
Change-in-Control Agreements | 21 | ||||||
Employment Agreements | 21 | ||||||
Employee Protection Plan | 24 | ||||||
Proposal No. 2: |
Appointment of and Relationship with Independent Public Accountants |
25 |
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Report of the Audit Committee | 25 | ||||||
Fees Paid to Independent Public Accounts | 26 | ||||||
Proposal No. 3: |
Approval of the Amended and Restated 1998 IMS Health Incorporated Non-Employee Directors' Stock Incentive Plan |
27 |
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Proposal No. 4: |
Approval of the Amended and Restated 1998 IMS Health Incorporated Employees' Stock Incentive Plan |
31 |
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Proposal No. 5: |
Reapproval of Performance Goals Under the 1998 IMS Health Incorporated Employees' Stock Incentive Plan and the Executive Annual Incentive Plan |
37 |
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Other Matters |
40 |
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APPENDIX A |
Compensation and Benefits Committee Charter |
A-1 |
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APPENDIX B | 1998 IMS Health Incorporated Non-Employee Directors' Stock Incentive Plan (as amended and restated as of May 2, 2003) |
B-1 | |||||
APPENDIX C | 1998 IMS Health Incorporated Employees' Stock Incentive Plan (as amended and restated as of May 2, 2003) |
C-1 |
PROXY STATEMENT
The Company
IMS Health Incorporated ("IMS" or the "Company") is a leading global provider of market information, sales management and decision-support services to the pharmaceutical and healthcare industries. We have operations in more than 100 countries and employ approximately 5,900 full-time equivalent employees worldwide. Our principal executive offices are located at 1499 Post Road, Fairfield, Connecticut 06824. Our telephone number is (203) 319-4700.
Proxy Solicitation
On March 31, 2003, we began mailing these proxy materials to all shareholders of record at the close of business on March 7, 2003. We have sent this Proxy Statement to you because the Board of Directors of the Company is requesting your proxy to vote at the 2003 Annual Meeting and at any adjournment or postponement. We will request banks and brokers to solicit proxies from their customers where appropriate and will reimburse them for reasonable out-of-pocket expenses. We may retain Georgeson Shareholder Communications, Inc. to assist with this solicitation for a fee estimated at $10,000 and will pay all expenses related to proxy solicitation.
Voting
You may vote on matters presented at the Annual Meeting in the following ways:
In person You may attend the Annual Meeting and cast your vote there.
By proxy Shareholders of record have a choice of voting by proxy:
If you are a beneficial owner, please refer to your proxy card or the information forwarded by your bank, broker or other holder of record to see which of the above choices are available to you. A control number, located on your proxy card, is designed to verify your identity and allow you to vote your shares, and to confirm that your voting instructions have been properly recorded when voting over the Internet or by telephone. Please be aware that if you vote over the Internet, you may incur costs such as telephone and Internet access charges for which you will be responsible. The Internet and telephone voting facilities for shareholders of record will close at 11:00 p.m. E.D.T. on May 1, 2003.
Regardless of the method you choose to vote, the individuals named on the enclosed proxy card (your "proxies") will vote your shares in the way that you indicate. When completing the Internet or telephone processes or the proxy card, you may specify whether your shares should be voted for or against or to abstain from voting on all, some or none of the following:
If you do not indicate how your shares should be voted on a matter, the shares represented by your properly completed proxy will be voted as the Board of Directors recommends.
If you choose to vote over the Internet or by telephone, you must complete the process no later than 11:00 p.m. E.D.T. on May 1, 2003 and it is not necessary to return your proxy card.
If you choose to vote by mailing a proxy card, your proxy card must be filed with the Corporate Secretary of the Company prior to or at the commencement of the Annual Meeting.
Voting over the Internet, by telephone or by sending in a signed proxy will not prevent you from attending the Annual Meeting and voting in person. You have the right to revoke a proxy, whether delivered over the Internet, by telephone or by mail, at any time before it is exercised, by voting again at a later date through any of the methods available to you, by giving written notice of revocation to the Corporate Secretary of IMS, or by attending the Annual Meeting and voting in person.
If you participate in the IMS Health Incorporated Savings Plan (the "Plan") and have contributions invested in IMS Common Stock, the proxy card will serve as a voting instruction for the Trustee of the Plan. You must return your proxy card prior to April 30, 2003. We will then forward your proxy card to the Trustee. If your proxy card is not received before that date or if you sign and return the proxy card without instructions marked in the boxes, the Trustee will vote your shares of Common Stock in the same proportion as other shares of Common Stock held in the Plan for which the Trustee received timely instructions.
Record Date, Quorum and Voting Requirements
Only holders of record of IMS Common Stock at the close of business on March 7, 2003 will be eligible to vote at the Annual Meeting. As of the close of business on March 7, 2003, IMS had 244,617,077 shares of Common Stock outstanding. Each share of Common Stock is entitled to one vote.
A quorum of shares is necessary to hold a valid shareholders' meeting. The IMS by-laws provide that a majority of the shares entitled to vote, present in person or represented by proxy, will constitute a quorum at meetings of shareholders. Shares for which an "abstention" from voting is observed, as well as shares that a broker holds in "street name" and votes on some matters but not others ("broker non-votes"), will be counted for purposes of establishing a quorum.
Directors will be elected by a plurality of votes cast at the Annual Meeting. This means that the three nominees for director who receive the most votes will be elected. If you are present at the meeting but do not vote for a particular nominee, or if you have given a proxy and properly withheld authority to vote for a nominee, or if there are broker non-votes, the shares withheld or not voted will not be counted for purposes of the election of directors.
For each other item, the affirmative vote of a majority of the shares present in person or represented by proxy and entitled to vote on the matter at the Annual Meeting is required for approval. If you are present at the meeting but do not vote on any of these proposals, or if you have given a proxy and abstain on any of these proposals, this will have the same effect as if you voted against the proposal. If there are broker non-votes on the issue, the shares not voted will have no effect on the outcome of the proposal.
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SECURITY OWNERSHIP OF MANAGEMENT AND OTHERS
The following table shows the number of shares of Common Stock "beneficially owned" as of March 1, 2003 by each of the directors and each of the named executive officers listed in the Summary Compensation Table below and all current directors and executive officers of the Company as a group. "Beneficial ownership" includes shares that a shareholder has the power to vote or the power to transfer, and also includes stock options that were either exercisable at the specified date or will become exercisable within 60 days thereafter. Percentages are based upon the number of shares of Common Stock outstanding at March 1, 2003, plus, where applicable, the number of shares that the indicated person or group had a right to acquire within 60 days of such date.
The information in the table is based upon information provided by each director and executive officer. Unless otherwise stated, the indicated persons have sole voting and investment power over the shares listed and the beneficial ownership of such person or group does not exceed 1% of the outstanding Common Stock. Restricted stock, restricted stock units and deferred stock units represent shares subject to restrictions on transferability and, in the case of units, do not have voting rights until settlement at specified future dates. Share figures have been rounded down to whole shares. Based on a review of filings with the Securities and Exchange Commission, the Company is unaware of any holders of more than 5% of the outstanding shares of IMS Common Stock.
Name |
Number of Shares and Nature of Ownership |
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Murray L. Aitken | 14,788 | Restricted Stock Units | |||
61,666 | Right to Acquire Within 60 Days by Exercise of Options | ||||
76,454 | |||||
Constantine L. Clemente |
3,000 |
Direct |
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2,065 | Restricted Stock | ||||
2,278 | Deferred Stock Units | ||||
3,000 | Right to Acquire Within 60 Days by Exercise of Options | ||||
10,343 | |||||
Nancy E. Cooper |
2,500 |
Direct |
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10,062 | Restricted Stock Units | ||||
33,333 | (1) | Right to Acquire Within 60 Days by Exercise of Options | |||
45,895 | |||||
James D. Edwards |
2,476 |
Restricted Stock |
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Kathryn E. Giusti |
2,118 |
Restricted Stock |
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3,000 | Right to Acquire Within 60 Days by Exercise of Options | ||||
5,118 | |||||
John P. Imlay, Jr |
22,212 |
Direct |
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6,734 | Deferred Stock Units | ||||
52,871 | Right to Acquire Within 60 Days by Exercise of Options | ||||
81,817 | |||||
Robert J. Kamerschen |
33,443 |
Direct |
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52,871 | Right to Acquire Within 60 Days by Exercise of Options | ||||
86,314 | |||||
H. Eugene Lockhart |
6,612 |
Direct |
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6,367 | Deferred Stock Units | ||||
54,460 | Right to Acquire Within 60 Days by Exercise of Options | ||||
67,439 |
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Gilles V. J. Pajot |
60,794 |
Direct |
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21,354 | Restricted Stock Units | ||||
887,009 | Right to Acquire Within 60 Days by Exercise of Options | ||||
969,157 | |||||
M. Bernard Puckett |
8,659 |
Direct |
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51,748 | Right to Acquire Within 60 Days by Exercise of Options | ||||
60,407 | |||||
Robert H. Steinfeld |
4,220 |
Direct |
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14,963 | Restricted Stock Units | ||||
222,645 | Right to Acquire Within 60 Days by Exercise of Options | ||||
241,828 | |||||
David M. Thomas |
138,673 |
Direct |
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139,093 | Restricted Stock Units | ||||
1,000,000 | (1) | Right to Acquire Within 60 Days by Exercise of Options | |||
1,277,766 | |||||
William C. Van Faasen |
10,200 |
Direct |
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1,369 | Restricted Stock | ||||
3,245 | Deferred Stock Units | ||||
56,142 | Right to Acquire Within 60 Days by Exercise of Options | ||||
70,956 | |||||
All Current Directors and |
300,451 |
Direct |
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Executive Officers as a | 349,299 | Restricted Stock/Units | |||
Group (17 in number) | 18,624 | Deferred Stock Units | |||
2,841,454 | Right to Acquire Within 60 Days by Exercise of Options | ||||
3,509,828 | (2) |
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act of 1934, as amended, requires the Company's officers and directors, and persons who own more than 10% of a registered class of the Company's equity securities, to file reports of ownership and changes in ownership with the Securities and Exchange Commission. These reports are commonly referred to as Form 3, Form 4 and Form 5 reports. Filing persons are also required by the rules of the Securities and Exchange Commission to furnish the Company with copies of all Section 16(a) reports they file. Based solely on its review of copies of such reports received by it and written representations from certain persons that no other reports were required for those persons, the Company believes that all filing requirements applicable to its officers, directors and greater than 10% shareholders were complied with for the fiscal year ended December 31, 2002, except that one share purchase transaction for Mr. Kamerschen and one share purchase transaction for Mr. Van Faasen were not reported in a timely manner on a Form 4, but such transactions were subsequently reported.
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PROPOSAL NO. 1: ELECTION OF DIRECTORS
The members of the Board of Directors of the Company are grouped into three classes. After election, each class holds office for a three-year term. The term of the current Class I Directors expires at the 2003 Annual Meeting of Shareholders.
The Board of Directors proposes the election of John P. Imlay, Jr., Robert J. Kamerschen and H. Eugene Lockhart for election as Class I Directors at the 2003 Annual Meeting for a three-year term expiring at the 2006 Annual Meeting. Following is information about each nominee, including biographical data for at least the last five years.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE ELECTION AS DIRECTORS OF THE NOMINEES NAMED ABOVE
Unless you otherwise instruct, proxies will be voted for election of all the nominees, all of whom are now members of the Board. If any nominee is unwilling or unable to serve as a Director and the Board does not, in that event, choose to reduce the size of the Board and the number of Class I Directors, the persons voting the proxy may vote for the election of another person in accordance with their judgment.
The following information provides, for each nominee for election as a Class I Director, the nominee's name, age, position with IMS, the year the nominee first became a Director, principal occupations during the last five years, and other directorships in public companies.
DIRECTORS STANDING FOR ELECTION
CLASS I DIRECTORS. The following Directors have terms ending in 2003:
JOHN P. IMLAY, JR. Mr. Imlay, age 66, has served as a Director of IMS since June 1998. Mr. Imlay has been Chairman of Imlay Investments, an Atlanta-based private venture capital investment firm, since 1990. From January 1990 until November 1996, Mr. Imlay was Chairman of Dun & Bradstreet Software Services, Inc., a software company, and he served as Principal Executive Officer of Dun & Bradstreet Software Services, Inc. from January 1990 to January 1993 and as President of that company from January 1990 until March 1992.
ROBERT J. KAMERSCHEN. Mr. Kamerschen, age 67, has served as a Director of IMS since June 1998. From October 1999 to February 2002, Mr. Kamerschen was Chairman and Chief Executive Officer of DIMAC Marketing Corporation, a direct marketing services firm. On April 6, 2000, DIMAC Marketing Corporation and its subsidiaries filed voluntary petitions with the U.S. Bankruptcy Court in Wilmington, Delaware seeking reorganizations under Chapter 11 of the U.S. Bankruptcy Code. DIMAC and its subsidiaries emerged from bankruptcy protection on February 28, 2001. Mr. Kamerschen previously held the following positions with ADVO, Inc., a direct marketing services firm: Retired Chairman and Senior Executive Consultant from July 1999 until October 1999, Chairman from November 1988 until June 1999, and Chairman and Chief Executive Officer from November 1988 until January 1999. Mr. Kamerschen also serves as a director of the following public companies: Linens 'N Things, Inc., Memberworks Inc., RadioShack Corporation, R.H. Donnelley Corporation and Synavant Inc.
H. EUGENE LOCKHART. Mr. Lockhart, age 53, has served as a Director of IMS since June 1998. Since February 2003, Mr. Lockhart has been a Venture Partner for Oak Investment Partners, a private equity investment firm. From February 2000 until February 2003, Mr. Lockhart was President and Chief Executive Officer of The New Power Company, a provider of energy and related services. On June 11, 2002, New Power Holdings, Inc. and its subsidiaries, including The New Power Company, filed voluntary petitions with the U.S. Bankruptcy Court for the Northern District of Georgia seeking reorganizations under Chapter 11 of the U.S. Bankruptcy Code. The proceedings in this matter are still pending. Prior to joining The New Power Company, Mr. Lockhart served at AT&T Corporation as President of Consumer Services from July 1999 until February 2000 and as President and Chief Marketing Officer from February 1999 until June 1999. From April 1997 until October 1998, Mr. Lockhart was President, Global Retail, of Bank of America Corporation, a financial services firm, and from March 1994 until April 1997, he
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served as President and Chief Executive Officer of MasterCard International, Inc., a credit card company. Mr. Lockhart also serves as a director of the following public companies: RadioShack Corporation and Synavant Inc.
DIRECTORS CONTINUING IN OFFICE
CLASS II DIRECTORS. The following Directors have terms ending in 2004:
JAMES D. EDWARDS. Mr. Edwards, age 59, has served as a Director of IMS since October 2002. He is the owner of JDE Enterprises Inc., a provider of consulting and independent contractor services. Mr. Edwards retired in 2002 as Managing PartnerGlobal Markets, of Arthur Andersen LLP, after serving in several positions of increased responsibility.
DAVID M. THOMAS. Mr. Thomas, age 53, has served as a Director and as Chairman and Chief Executive Officer of IMS since November 2002. From November 2000 until October 2002, Mr. Thomas also served as President IMS. Prior to joining IMS, Mr. Thomas was Senior Vice President/Group Executive, Personal Systems Group of International Business Machines ("IBM") from January 1998 until September 2000. He held the position of General Manager of Global Industries of IBM from January 1996 until January 1998 and General Manager of IBM North America from October 1995 until January 1996. Mr. Thomas is also a director of the following public companies: Fortune Brands, Inc., The MONY Group, Inc. and The TriZetto Group, Inc.
WILLIAM C. VAN FAASEN. Mr. Van Faasen, age 54, has been a Director of IMS since June 1998. Since March 2003, he has been Chairman, President and Chief Executive Officer of Blue Cross and Blue Shield of Massachusetts, a health insurance firm in Boston, Massachusetts. From September 1992 until March 2003, he was President and Chief Executive Officer. Mr. Van Faasen is also a director of Tier Technologies, Inc., Liberty Mutual Insurance Company and NSTAR.
CLASS III DIRECTORS. The following Directors have terms ending in 2005:
CONSTANTINE L. CLEMENTE. Mr. Clemente, age 65, has served as a Director of IMS since December 2001. In August 2002, Mr. Clemente retired from Pfizer, Inc. From May 1999 until August 2002, he was Executive Vice PresidentCorporate Affairs; Secretary and Corporate Counsel of Pfizer. From 1992 until May 1999, Mr. Clemente served as Senior Vice PresidentCorporate Affairs; Secretary and Corporate Counsel of Pfizer. Mr. Clemente joined the legal division of Pfizer in 1964 and has served Pfizer in a number of domestic and international positions since that time.
KATHRYN E. GIUSTI. Ms. Giusti, age 43, has served as a Director of IMS since February 2002. Since January 1998, she has served as the President of the Multiple Myeloma Research Foundation, a non-profit organization aimed at funding research for and advancing awareness of multiple myeloma. From 1992 through March 1997, she worked for G.D. Searle & Company, a subsidiary of Pharmacia Corporation, where she most recently served as Executive Director, Worldwide Arthritis Franchise.
M. BERNARD PUCKETT. Mr. Puckett, age 58, has served as a Director of IMS since June 1998. In August 2002, Mr. Puckett was elected Chairman of the Board of Openwave Systems, Inc. Mr. Puckett has been a private investor since January 1996. He previously held the position of President and Chief Executive Officer of Mobile Telecommunication Technologies Corporation, a telecommunications firm, from May 1995 until January 1996. In addition, he served as President and Chief Operating Officer of that firm from January 1994 until May 1995.
General Information
Board of Directors
The Board of Directors is responsible for supervision of the overall affairs of the Company. During 2002, Messrs. Lanigan and Alexander retired from the Board of Directors. Mr. Lanigan served on the Board of IMS and its predecessors for more than 24 years. Mr. Alexander also served on the Board of IMS
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and its predecessors for more than 9 years. We thank them for their many contributions during their tenure on our Board and will miss their participation.
To assist in carrying out its duties, the Board has delegated authority to several committees. The Board of Directors held five meetings during 2002. Overall attendance at Board and Committee meetings was 93%. No Director attended fewer than 75% of the total number of meetings of the Board of Directors and of the Committees of the Board on which the Director serves.
Committees of the Board and Meetings
The Board of Directors has three standing committees:
Our Board of Directors has a long-standing commitment to sound and effective corporate governance practices. The Board's Corporate Governance Principles address a number of important governance issues such as:
Our Board of Directors and management have reviewed the provisions of the Sarbanes-Oxley Act of 2002, the related rules of the Securities and Exchange Commission and the proposed New York Stock Exchange Listing Standards regarding corporate governance policies and procedures. We believe that our Corporate Governance Principles and committee charters meet current requirements and reflect the highest standards of corporate governance. We intend to review all of these governance documents and amend them as necessary once final rules have been adopted. In the interim, we are asking key employees throughout the world to ensure that reporting practices for our financial plan goals are carried out with the highest standard of ethics and integrity. Violations can lead to disciplinary action, including loss of compensation, stock, benefits and, in certain cases, termination of employment.
Beginning in 2002, the Audit Committee of the Board of Directors consisted of Messrs. Van Faasen (Chairman), Lanigan and Lockhart. Mr. Robert J. Lanigan retired from the Committee in February 2002; Ms. Kathryn E. Giusti served on the Committee from March 2002 until December 2002, at which time Mr. James D. Edwards was appointed to the Committee. The Board has determined that Mr. Edwards is an "Audit Committee Financial Expert" as such term is defined in new rules of the Securities and Exchange Commission. Each member of the Audit Committee is financially literate and is an independent director as defined in the existing New York Stock Exchange listing standards. The Audit Committee held eight meetings in 2002. At each of its meetings, the Committee met with senior members of the Company's financial management team, the Company's Assistant Controller with responsibility for internal audit, the Company's General Counsel and its independent public accountants. The primary functions of the Audit Committee are to oversee that management has established and/or maintained: (i) the reliability and integrity of the Company's accounting policies and financial reporting and disclosure practices; and (ii) an adequate system of internal control and compliance with law and internal policy.
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The Audit Committee fulfills its responsibilities primarily by carrying out the activities enumerated in the Audit Committee Charter adopted by the Board of Directors in May 2000, which include:
The Compensation and Benefits Committee of the Board of Directors consists of Messrs. Puckett (Chairman), Imlay and Kamerschen. Effective October 15, 2002, Mr. Clifford L. Alexander retired from the Committee. This Committee held five meetings during 2002. Each member of the Compensation and Benefits Committee is an independent director as defined in the existing New York Stock Exchange listing standards. This committee adopted a charter last year which is set forth in Appendix A of this proxy statement at page A1. The primary function of the Compensation and Benefits Committee is to assist the Board of Directors in the discharge of its responsibilities to the shareholders, potential shareholders, other constituents and the investment community by overseeing:
The Committee establishes and reviews all compensation arrangements for elected corporate officers and certain other senior management positions consistent with the compensation philosophy adopted by the Board of Directors.
From February until October 2002, the Nominating and Governance Committee of the Board of Directors consisted of Messrs. Kamerschen (Chairman), Alexander, Clemente and Thomas. Effective October 15, 2002, Messrs. Alexander and Thomas retired from the Committee and Ms. Kathryn E. Giusti was appointed to the Committee. This Committee held four meetings during 2002. Each member of the Nominating and Governance Committee is an independent director as defined in the existing New York Stock Exchange listing standards. The primary function of the Nominating and Governance Committee is to provide counsel to the full Board with respect to:
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The Nominating and Governance Committee will consider shareholders' recommendations of nominees for membership on the Board of Directors. Shareholders may recommend nominees for membership on the Board of Directors to the Nominating and Governance Committee by submitting the names in writing to: Robert H. Steinfeld, Senior Vice President, General Counsel and Corporate Secretary, IMS Health Incorporated, 1499 Post Road, Fairfield, Connecticut 06824. The IMS by-laws specify certain time limitations, notice requirements and other procedures applicable to the submission of nominations before an Annual or Special Meeting, which are described in the section entitled "Shareholder Proposals for 2004 Annual Meeting" beginning on page 40.
Compensation of Directors
Of the current Board members, Mr. Thomas is the only salaried employee of the Company. Board members who are not salaried employees of IMS receive compensation for Board service. The compensation currently consists of the following:
Annual Retainer: | $30,000 (payable in quarterly installments) | |
Committee Chairman Fees: |
$5,000 annually (payable in quarterly installments) |
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Attendance Fees: |
$1,000 for each Board meeting, $1,000 for each Board committee meeting and expenses related to attendance at such meetings |
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Stock Options: |
9,000 shares annually (these options vest and become exercisable in three equal annual installments or earlier upon termination of service, and expire seven years after grant or earlier following termination of service) |
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Restricted Stock: |
One-time grant of $40,000 worth of Common Stock upon initial election as a Director (these shares are subject to a risk of forfeiture for five years but restrictions lapse upon death, disability or upon termination in other circumstances as determined by the Compensation and Benefits Committee; dividends are unrestricted) |
Directors may elect to defer all or part of their compensation under the Company's Non-Employee Directors' Deferred Compensation Plan, a non-qualified plan. Under this plan, the participating Directors may elect to defer their compensation to an account credited with deferred cash, deferred share units or stock options. The number of share units acquired is determined by dividing the cash amount deferred by 100% of the fair market value of the stock at the deferral date; stock options are acquired in a similar way, except they are valued at one-third of the then fair market value of a share of stock. Deferrals are non-forfeitable, and options have an exercise price equal to 100% of the fair market value of the underlying shares at the deferral date, become exercisable after one year and have a term of seven years.
If there is a change in control of IMS, the Compensation and Benefits Committee may take such action as it deems necessary or desirable with respect to Directors' stock options or restricted stock. For this purpose, the term "change in control" has the same meaning as under the Change-in-Control Agreements, described below. These Committee actions could include acceleration of vesting, exercisability or settlement, payment of cash in exchange for cancellation, or issuing substitute awards that substantially preserve the value, rights and benefits of previously granted options or restricted stock.
The Board of Directors has adopted share ownership guidelines for non-employee Directors because it believes that each non-employee Director should maintain a meaningful investment in the Company.
9
COMPENSATION OF EXECUTIVE OFFICERS
Report of the Compensation and Benefits Committee on Executive Compensation
This report of the Compensation and Benefits Committee of the Board of Directors reviews our compensation program for senior executives. The Committee members are independent directors and not officers or employees of IMS. We have direct access to independent experts, experienced in the design and implementation of executive compensation arrangements, for advice on compensation matters. Currently, the Committee reviews and approves the cash and equity components of the compensation program for all senior executives of IMS as well as change in control and retirement benefits. The Committee has responsibility for the determination of the Chief Executive Officer's compensation including, but not limited to salary, annual and long-term incentive awards of stock and cash, stock option grants and other equity grants and benefits, and such determinations are presented to the Board for its ratification. Determination of the CEO's compensation is based on the Board's evaluation of the CEO's performance presented to this Committee by the Chairman of the Nominating and Governance Committee, and such other non-performance related matters as the Compensation and Benefits Committee deems appropriate.
Executive Compensation Philosophy
Both our Committee and the Board of Directors believe that to build shareholder value, IMS should compensate senior executives in a way that aligns their interests with the interests of shareholders. We want senior executives to operate our business with a long-term perspective while striving to deliver annual results in accordance with the Company's approved strategy and growth objectives. The Company's compensation programs are designed and managed from a total rewards perspective to support a results-oriented "pay-for-performance" philosophy and delivering significantly higher rewards to those employees who consistently perform above expectations and make a significant contribution to the collective success of IMS. In order to hold executives directly accountable for results and promote a sharp focus on building shareholder value, we have implemented an executive compensation program that ties a major portion of an executive's compensation to measures of the performance of IMS. This "pay-for-performance" approach to compensation cascades throughout the organization as do the Company's global job evaluation and benefit programs.
The levels of compensation available to senior executives who successfully enhance corporate value need to be competitive with the compensation offered by other high-performing companies that potentially compete for their services. This approach enables us to attract and retain the highest caliber of executive talent, which is critical to the long-term success of our Company in an increasingly competitive market.
As a result, in determining compensation opportunities and payments to executives, we look at the competitive opportunities, payments and performance among a comparator group of companies. The companies used for comparison purposes include several pharmaceutical service providers, companies engaged in other service industries and pharmaceuticals, as well as other companies with which the Company competes for executive talent. These other companies have one or more characteristics comparable to IMS, including:
The group of comparator companies for compensation purposes differs from the peer group used for comparison in the Performance Graph on page 18.
10
Compensation data for the comparator companies comes from benchmarking surveys conducted by independent compensation consultants. In reviewing the data, we take into account how the IMS compensation policies and overall performance compares to similar indices for the comparator group. In general, we seek to target an executive's total compensation opportunity, earnable for strong performance by IMS, between the 50th and 75th percentile of the comparator group compensation for the corresponding position. Our decisions, however, take into account other factors, including individual, business unit and Company performance as well as shareholder returns.
Stock-based awards provide a direct way to align the interests of our management team to the interests of shareholders. In addition, the Board of Directors has instituted stock ownership guidelines to ensure that each senior executive continues to hold a significant equity stake in the Company and remains strongly committed to its success.
Executive Compensation Program
Base Salary. Base salary compensates an executive for ongoing performance of assigned responsibilities. Our Committee reviews base salaries annually. In determining whether to adjust the base salary of an executive, including the Chief Executive Officer, we take into account salaries paid for comparable positions at other companies, changes in the executive's responsibilities, the individual performance of the executive and the IMS compensation philosophy favoring variable, performance-based compensation. For 2002, we approved merit increases to the base salaries of all executive officers, including promotions, for an overall increase of 1.6% excluding new hires.
Annual Incentives. An annual incentive generally rewards an executive for financial results achieved for the year. These awards depend on the level of achievement relative to financial targets set at the beginning of the plan year. For 2002, we set financial targets based on two performance measures: revenue and operating income growth of IMS on a consolidated basis. In addition, we consider individual personal objectives if at least 90% of the financial goals are achieved. These objectives focus the executive on key strategic initiatives critical to the Company's long-term success. Further, a "booster" is applied, based on the Company's earnings-per-share performance.
With respect to each performance measure, the executive does not earn an annual incentive unless performance exceeds a predetermined "floor" for that measure. The bonus opportunity with respect to a measure is earned if the target is achieved, with performance between the floor and the target resulting in a lower bonus with respect to that performance measure. An amount greater than the target bonus opportunity for each performance measure can be earned, up to a specific limit, for exceeding the target for that measure. Incentive payouts for executive officers in 2002 averaged 70.6% of target, ranging from 40%80% of target, excluding those for the Chief Operating Officer and the Chief Financial Officer, both recent hires whose payouts for 2002 were guaranteed.
When negotiating to hire executives, in some cases the Company agrees to provide a guaranteed level of annual incentive payments during the first one or two years of the executive's service.
Performance Restricted Stock Units and Related Long-Term Incentives. Performance Restricted Stock Units, or "PERS," provide a long-term incentive opportunity for senior executives based on achievement of the same pre-established annual financial and individual goals used for purposes of the annual incentive awards. We use this program to bring total compensation opportunities and long-term compensation opportunities within the desired range relative to the comparator group, as discussed above, and to enhance retention by requiring a period of future service to "earn-out" the shares representing the PERS awarded. In addition, through this program we enable senior executives to increase their stock ownership based on performance, which creates momentum toward achievement of executive stock ownership guidelines adopted by the Board.
11
Under this program, we grant a matching PERS award equal in value to the annual incentive award earned by the executive. As an award of restricted stock units, PERS confer on an executive an opportunity to receive one share for each unit at the end of a set restricted period. The number of PERS granted equals the dollar amount of the executive's annual incentive award divided by the average fair market value of IMS stock for the last twenty trading days of the performance year. After grant, PERS fluctuate with the price of IMS stock for two years (during which period they remain subject to a risk of forfeiture in the event of termination of the executive's employment, with exceptions for death, a change in control, etc.) after which time the PERS vest.
Certain executive officers who do not participate in the PERS program instead participate in our Long-Term Incentive (LTI) Program. However, not all executives in the LTI program receive awards every year and the award value varies based on individual performance. Under this program in 2002, participants were granted the opportunity to earn an award based on the Company's cumulative earnings per share performance during the 2002 and 2003 fiscal years. Each award that may be earned consists of cash and a number of restricted stock units having a value at the commencement of the performance period equal to the cash amount. Awards range from 0% to 200% of the participant's target award level, depending on the level of performance. The cash portion of the award is vested at the end of the performance period, but restricted stock units generally require two years of further service in order to vest, except in cases of death, disability and certain retirements. The award for the 2001 and 2002 performance years paid out at 70% of target.
Stock Options. We use stock options as our primary long-term incentive mechanism because options reward executives to the extent shareholders benefit from share price increases after the date of grant. Executives can reap benefits from options only when and to the extent that the market value of the underlying shares has increased.
Senior executives and other key management who did not receive grants during the 2001 annual cycle received option grants during the 2002 annual grant cycle. Certain new executive officers were granted stock options as part of their agreements to join the Company. Factors considered for these grants included: level of responsibility, potential future contributions and competitiveness of total compensation. In keeping with our philosophy to link individuals' compensation to stock performance, approximately 935 employees received stock option grants during 2002 that vest at the rate of one third per annum and have a seven-year term. Approximately 85% of IMS employees currently hold stock options.
Restricted Stock or Units. Restricted stock or units may be granted at Committee discretion to executive officers upon hiring, promotion, assignment of additional responsibilities, or in recognition of exceptional achievement. These are granted as an inducement and reward for new or increased commitment or contribution to IMS, and in some cases to offset valuable benefits lost by the executive upon leaving a previous employer to join our Company.
Other Benefits. We provide a variety of employment benefits in order to be competitive in attracting and retaining talented executives to work for IMS. Among the more important are retirement benefits provided under our various pension programs and severance benefits provided under the Employee Protection Plan and the Change-in-Control Agreements entered into with certain executives, as described beginning on page 20 of this Proxy Statement. In securing the services of certain executive officers, we have negotiated and entered into employment agreements that provide enhanced pension benefits and protections to the executive in the event of termination of employment, as described in greater detail beginning on page 21. We also offer the Executive Deferred Compensation Plan, which permits a number of senior executives to defer cash salary and bonus amounts until termination, retirement or later. Cash deferrals are treated as though invested in various indexed funds, offering tax advantages to executives and promoting retirement savings.
CEO Compensation. For 2002, we paid Mr. Thomas $750,000 in salary, which is the annual salary rate that has been in effect since he joined the Company in November of 2000. He has an annual incentive target opportunity equal to 100% of his salary based on the achievement of established financial
12
performance criteria set by the Compensation and Benefits Committee. Payment of the 2002 annual incentive award for Mr. Thomas was $562,500, or 75% of his target. Because 90% of the financial thresholds were achieved, this payment was calculated in accordance with the annual incentive plan which provides for a 48% weighting on revenue performance, a 32% weighting on operating income performance, a 20% weighting on the individual objectives. No "EPS Booster" was earned for 2002.
Under the PERS program, Mr. Thomas received an award of restricted stock units that were equal in value to his annual incentive award. These restricted stock units will vest on January 2, 2005. To link his pay more closely to company performance and align his interest more directly with the longer-term interests of shareowners, last year we granted Mr. Thomas 300,000 stock options that will vest in equal installments over three years. We believe that stock options and restricted stock units, when used judiciously and coupled with our stock ownership requirements, can be an extremely effective incentive for superior performance leading to long-term shareholder value. The target compensation for Mr. Thomas for 2002 was 18% below the 75th percentile for our relevant peer group.
Tax Deductibility. Section 162(m) of the Internal Revenue Code of 1986 imposes limitations on the deductibility of compensation paid to a public company's Chief Executive Officer and the other four most highly compensated executive officers. The Committee's policy is to seek to preserve such corporate tax deductibility to the greatest extent practicable, while maintaining the flexibility to approve, when appropriate, compensation arrangements in the best interests of our Company and its shareholders, but which may not always qualify for full tax deductibility. Accordingly, we have taken the steps we believe are required, including shareholder approval, to enable certain annual incentive awards, PERS, and options granted to senior executives to qualify as "performance-based" compensation not subject to Section 162(m) limits on tax deductibility. However, the Committee believes that the Company must attract, retain and reward the executive talent necessary to maximize the return to shareholders and that the loss of a tax deduction may be necessary and appropriate in some circumstances.
The Compensation and Benefits Committee
M. Bernard Puckett, Chairman
John P. Imlay, Jr.
Robert J. Kamerschen
13
Executive Compensation Tables
The following table shows annual, long-term and other compensation paid or accrued by IMS for services rendered for the indicated fiscal years by the Company's current Chief Executive Officer, and the four most highly compensated officers (the "named executive officers") serving at the end of 2002.
|
|
|
|
|
Long-Term Compensation |
|
||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
|
Annual Compensation |
Awards |
Payouts |
|
|||||||||||
Name and Principal Position |
Year |
Salary ($) |
Bonus(1) ($) |
Other Annual Compensation(2) ($) |
Restricted Stock Award(s)(3) ($) |
Securities Underlying Options/SARs (#) |
Long-Term Incentive Payouts ($) |
All Other Compensa- tion(4) ($) |
||||||||
David M. Thomas Chairman and Chief Executive Officer |
2002 2001 2000 |
750,000 750,000 99,432 |
562,500 750,000 101,239 |
224,646 278,900 |
562,500 2,867,000 2,551,239 |
300,000 1,000,000 |
|
44,984 25,803 |
||||||||
Gilles V. J. Pajot(5) Executive Vice President and President, European Region |
2002 2001 2000 |
485,070 465,072 485,990 |
217,040 143,159 446,076 |
211,575 208,655 312,518 |
217,040 144,473 583,086 |
82,500 606,455 |
|
|
||||||||
Nancy E. Cooper Senior Vice President and Chief Financial Officer |
2002 2001 |
320,000 53,333 |
160,000 |
|
160,000 |
55,000 100,000 |
|
6,132 |
||||||||
Robert H. Steinfeld Senior Vice President, General Counsel and Corporate Secretary |
2002 2001 2000 |
310,000 300,000 261,244 |
139,825 124,908 131,179 |
|
139,825 124,908 50,025 |
66,000 198,984 |
|
13,044 13,037 26,615 |
||||||||
Murray L. Aitken Senior Vice President, Global Consulting and Services |
2002 2001 |
325,000 175,411 |
100,000 100,000 |
|
100,000 200,000 |
98,500 125,000 |
|
12,184 |
14
Option/SAR Grants in Last Fiscal Year
The table below shows the grants of stock options made to the named executive officers in 2002. These options have an exercise price equal to the fair market value of the stock on the date of grant.
Name |
|
Number of Securities Underlying Options/ SAR's Granted (#) |
% of Total Options/SAR's Granted to Employees in Fiscal Year |
Exercise or Base Price ($/Share) |
Expiration Date |
Grant Date Present Value (1) ($) |
||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
David M. Thomas | Stock Options | 300,000 | 4.6 | % | $ | 17.70 | 07/08/09 | $ | 1,319,047 | |||||
Gilles V. J. Pajot | Stock Options | 82,500 | 1.3 | % | $ | 17.70 | 07/08/09 | $ | 362,738 | |||||
Nancy E. Cooper | Stock Options | 55,000 | 0.8 | % | $ | 17.70 | 07/08/09 | $ | 241,825 | |||||
Robert H. Steinfeld | Stock Options | 66,000 | 1.0 | % | $ | 17.70 | 07/08/09 | $ | 290,190 | |||||
Murray L. Aitken | Stock Options | 60,000 | 0.9 | % | $ | 18.88 | 02/11/09 | $ | 283,347 | |||||
38,500 | 0.6 | % | $ | 17.70 | 07/08/09 | $ | 169,278 |
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Aggregated Option/SAR Exercises in Last Fiscal Year and
Fiscal Year-End Option/SAR Values
The following table provides information related to option exercises by each of the named executive officers during 2002, the number of unexercised options at year-end and the value of unexercised in-the-money stock options at year-end.
|
|
|
Number of Securities Underlying Unexercised Options/SAR's at Fiscal Year-End (1) (#) |
|
|
||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
|
|
Value of Unexercised In-the-Money Options/SAR's at Fiscal Year-End (2) ($) |
||||||||||
|
Shares Acquired on Exercise (#) |
|
|||||||||||
Name |
Value Realized ($) |
||||||||||||
Exercisable |
Unexercisable |
Exercisable |
Unexercisable |
||||||||||
David M. Thomas | | | 1,000,000 | 300,000 | | | |||||||
CTS Options (3) | | | 7,500 | 22,500 | 221,325 | 622,725 | |||||||
Gilles V. J. Pajot | | | 846,013 | 157,660 | 26,989 | 26,990 | |||||||
Nancy E. Cooper | | | 33,333 | 121,667 | | | |||||||
CTS Options (3) | | | | 15,000 | | 401,400 | |||||||
Robert H. Steinfeld | | | 208,979 | 89,915 | 16,193 | 8,097 | |||||||
Murray L. Aitken | | | 41,666 | 181,834 | | |
Equity Compensation Plan Information
The following table provides information as of December 31, 2002, regarding certain outstanding awards and shares remaining available for future issuance under the Company's compensation plans under which equity securities are authorized for issuance (excluding 401(k) plans, ESOPs and similar tax-qualified plans):
Plan Category |
Number of securities to be issued upon exercise of outstanding options, warrants, and rights (a) |
Weighted-average exercise price of outstanding options, warrants and rights (b) |
Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a))(1) (c) |
||||
---|---|---|---|---|---|---|---|
Equity compensation plans approved by security holders(2) | 24,697,799 | $ | 21.79 | 17,052,306 | |||
Equity compensation plans not approved by security holders | 10,780,616 | $ | 19.68 | 2,496,481 | |||
Total |
35,478,415 |
$ |
21.15 |
19,548,787 |
16
Our equity compensation plans that have not been approved by our shareholders are the 2000 Stock Incentive Plan and certain shares authorized for grant under the 1998 Non-Employee Directors' Stock Incentive Plan. Set forth below is a description of the material features of these plans:
The 2000 Stock Incentive Plan provides for the grant of options and other equity awards to employees, excluding executive officers and directors. The Board of Directors adopted the Plan in 2000. Grants under the Plan are determined, and the Plan is administered by the Compensation and Benefits Committee of the Board of Directors, along with certain officers to whom the Committee has delegated authority. The features of the Plan are similar to those of the 1998 Employees' Stock Incentive Plan, authorizing grants of non-qualified stock options, stock appreciation rights, restricted stock, restricted stock units, dividend equivalents, and other stock-based awards. The Committee sets vesting terms of awards at grant; in some cases options or awards may vest upon the achievement of pre-set performance goals. To date, the Company has granted primarily options and restricted stock units under the Plan. Options must have an exercise price of at least 100% of the fair market value of the Common Stock on the grant date, and a term not exceeding ten years. Upon termination of employment, unvested options generally are forfeited and vested options expire 90 days after termination, except terms that are more favorable apply in the case of death, disability and retirement or as determined by the Committee. The exercise price may be paid in cash or by surrender of previously acquired shares. Restricted stock units granted under the Plan are settled by delivery of shares, and generally have been subject to a risk of forfeiture upon termination of employment for a period of one to four years, except more favorable terms apply to termination due to death, disability or retirement. Holders of restricted stock units are entitled to dividend equivalents. The Committee has specified that certain awards under the Plan will become vested upon a change in control of the Company.
The 1998 Non-Employee Directors' Stock Incentive Plan currently provides for the grant of options and restricted stock to non-employee directors. Under Securities and Exchange Commission rules governing the above table, the Plan is considered approved by security holders but was amended by the Board of Directors to add 226,678 shares in 2000. Grants under the Plan are determined, and the Plan is administered by, the Compensation and Benefits Committee of the Board of Directors, subject to the review and approval of the full Board of Directors. Options must have an exercise price of at least 100% of the fair market value of the Common Stock on the grant date, and a term not exceeding ten years. The Committee sets vesting terms of awards at grant. Upon termination of service as a director, unvested options generally are forfeited and vested options expire 90 days after termination, except more favorable terms, including non-forfeiture of unvested options, apply in the case of death, disability and retirement or as determined by the Committee. The exercise price may be paid in cash or by surrender of previously acquired shares. Restricted stock granted under the Plan is subject to a risk of forfeiture upon termination of service as a director, except in the case of death or disability or as otherwise determined by the Committee, for a period specified by the Committee.
17
Holders of restricted stock are entitled to unrestricted dividends. The current policies with respect to grants of awards under this Plan are described under the caption "Compensation of Directors." This Plan is being amended and restated at the Annual Meeting, subject to the approval of the Company's shareholders.
Five Year Performance Graph
This graph compares the total shareholder return of IMS, the Standard and Poor's 500 Index, the S&P 500 Pharmaceutical Index and a selected comparator group from June 23, 1998the first day of when-issued trading in IMS Common Stockuntil December 31, 2002. While there is no widely recognized standard industry group or individual companies that are pure peers of IMS, a group was selected composed of six companies that provide pharmaceutical companies with contract research, contract sales and drug wholesale services. Although most of these companies do not compete directly with IMS, their customers are the same, and we believe their share price performance is influenced by many of the same factors as that of IMS. This Pharmaceutical Services Group consists of: McKesson HBOC, Inc., Cardinal Health Inc., Covance Inc., Dendrite International, Inc., NDC Health Corporation and Quintiles Transnational Corporation. In addition, we have replaced the S&P Drug Index with the S&P 500 Pharmaceutical Index because, effective December 31, 2001, the S&P Drug Index is no longer a reported index.
Comparison of Cumulative Total Returns to Shareholders
June 23, 1998 to December 31, 2002
|
6/23/1998 |
12/31/1998 |
12/31/1999 |
12/31/2000 |
12/31/2001 |
12/31/2002 |
Compound Annual Return Rate |
|||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
IMS | $ | 100.00 | $ | 143.14 | $ | 127.60 | $ | 132.26 | $ | 95.87 | $ | 78.99 | -5.1% | |||||||
Pharmaceutical Services Group | $ | 100.00 | 116.61 | 52.57 | 91.78 | 91.81 | 78.65 | -5.2% | ||||||||||||
S&P 500 Pharmaceutical | $ | 100.00 | 117.89 | 103.75 | 141.43 | 120.86 | 96.64 | -0.8% | ||||||||||||
S&P 500 | $ | 100.00 | 110.66 | 133.94 | 121.75 | 107.28 | 83.57 | -3.9% |
Note:
Note: All IMS share prices have been adjusted to reflect dividend reinvestment of the value of the shares distributed in the Company's spin-off of Gartner, Inc. in 1999 and Synavant Inc. in 2000 into additional shares of stock in IMS.
18
Retirement Benefits
The information set forth in the table below is applicable to Mr. Thomas and illustrates the estimated aggregate annual benefits payable under the IMS Health Incorporated Retirement Plan ("Retirement Plan"), the IMS Health Incorporated Retirement Excess Plan ("REP") and the IMS Health Incorporated Supplemental Executive Retirement Plan ("SERP") in specified average final compensation and credited service classifications upon retirement. Amounts shown in the table include U.S. Social Security benefits, which would be deducted in calculating benefits payable under these plans. These aggregate annual retirement benefits do not increase because of additional credited service after 15 years.
Benefits vest after five years of credited service and are calculated at 5% of average final compensation per year for the first 10 years of credited service, and 2% per year for the next five years, up to a maximum of 60% of average final compensation after 15 years of credited service. Except as described below, average final compensation is defined as the highest average annual compensation during five consecutive twelve-month periods in the last ten consecutive twelve-month periods of the employee's credited service. The benefits shown in the table below are calculated on a straight-life annuity basis.
|
Estimated Aggregate Annual Retirement Benefit Assuming Credited Service of: |
|||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Average Final Compensation |
||||||||||||||||
5 Years |
10 Years |
20 Years |
30 Years |
36 Years |
||||||||||||
$ | 1,000,000 | $ | 250,000 | $ | 500,000 | $ | 600,000 | $ | 600,000 | $ | 600,000 | |||||
1,300,000 | 325,000 | 650,000 | 780,000 | 780,000 | 780,000 | |||||||||||
1,600,000 | 400,000 | 800,000 | 960,000 | 960,000 | 960,000 | |||||||||||
1,900,000 | 475,000 | 950,000 | 1,140,000 | 1,140,000 | 1,140,000 |
Compensation, for the purpose of determining retirement benefits, consists of base salary, annual bonuses, commissions, overtime and shift pay, and includes earned compensation deferred under the Executive Deferred Compensation Plan. Severance pay, income derived from equity-based awards, contingent payments and other forms of special remuneration are excluded. A portion of the bonuses included in the Summary Compensation Table above were not paid until the year following the year in which they were accrued and expensed; therefore, compensation for purposes of determining retirement benefits varies from the Summary Compensation Table amounts in that bonuses expensed in the previous year but paid in the current year are part of retirement compensation in the current year and any unpaid current year's bonuses accrued and included in the Summary Compensation Table are not.
As of December 31, 2002, the number of years of credited service for Mr. Thomas is two. For 2002, compensation that would be included in calculating average final compensation for Mr. Thomas was $1,500,000.
Under terms agreed to in connection with his employment by the Company as the Chairman, Chief Executive Officer and at that time President in November 2000, Mr. Thomas is 100% vested in the benefit payable under the terms of the SERP. In addition, Mr. Thomas' employment agreement provides for an alternate determination of his pension benefit, which if greater, would become payable. The alternative determination of his pension benefit reflects the service Mr. Thomas earned with his prior employer. See "Employment Agreements" beginning on page 21.
The information set forth in the table below is applicable to Mr. Steinfeld and Ms. Cooper and illustrates the estimated aggregate annual benefits payable under the Retirement Plan, the REP and the IMS Health Incorporated Executive Pension Plan ("EXPP"). U.S. Social Security benefits will not be deducted when determining benefits payable under these plans. These aggregate annual retirement benefits do not increase because of additional credited service after 30 years. The effective date of the EXPP is April 17, 2001. Mr. Steinfeld and Ms. Cooper have been designated to participate in the EXPP effective February 11, 2003.
19
Benefits vest after five years of credited service and are calculated at 2.5% of average final compensation per year for the first 15 years of credited service, 1.5% of average final compensation for the next 15 years, up to a maximum of 60% of average final compensation after 30 years of credited service.
|
Estimated Aggregate Annual Retirement Benefit Assuming Credited Service of: |
|||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Average Final Compensation |
||||||||||||||||
5 Years |
10 Years |
15 Years |
20 Years |
25 Years |
||||||||||||
$ | 300,000 | $ | 37,500 | $ | 75,000 | $ | 112,500 | $ | 135,000 | $ | 180,000 | |||||
375,000 | 46,875 | 93,750 | 140,625 | 168,750 | 225,000 | |||||||||||
450,000 | 56,250 | 112,500 | 168,750 | 202,500 | 270,000 | |||||||||||
525,000 | 65,625 | 131,250 | 196,875 | 236,250 | 315,000 |
The benefits shown in the table above are calculated on a straight-life annuity basis. As of December 31, 2002, the number of years of credited service for Mr. Steinfeld and Ms. Cooper are six and zero, respectively.
For 2002, compensation that would be included in calculating average final compensation for Mr. Steinfeld and Ms. Cooper was $434,908 and $320,000, respectively. However, Mr. Steinfeld's employment agreement provides that his average final compensation shall at least equal his 2001 base salary plus the greater of his 2001 target annual incentive or his actual annual incentive paid for 2001. As a result, Mr. Steinfeld's average final compensation shall not be less than $465,000. In addition, Mr. Steinfeld's aggregate annual accrued benefit under the Retirement Plan, REP and EXPP shall not be less than $47,240 per year commencing at age 55, which is the aggregate amount determined under the Retirement Plan, REP and US Executive Retirement Plan ("US ERP") as of February 11, 2003. See "Employment Agreements" beginning on page 21.
The information set forth in the table below is applicable to Mr. Pajot and illustrates the estimated aggregate annual benefits payable in specified average final compensation and credited service classifications upon retirement. Amounts shown in the table include benefits payable under the plans of Mr. Pajot's prior employer that would be deducted in calculating benefits payable by the Company.
Mr. Pajot is 100% vested in his plan benefit. Benefits are calculated at 3.25% of average final compensation per year of credited service, up to a maximum of 65% of average final compensation, after 20 years of service.
|
Estimated Aggregate Annual Retirement Benefit Assuming Credited Service of: |
|||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Average Final Compensation |
||||||||||||||||
5 Years |
10 Years |
15 Years |
20 Years |
25 Years |
||||||||||||
$ | 600,000 | $ | 97,500 | $ | 195,000 | $ | 292,500 | $ | 390,000 | $ | 390,000 | |||||
700,000 | 113,750 | 227,500 | 341,250 | 455,000 | 455,000 | |||||||||||
800,000 | 130,000 | 260,000 | 390,000 | 520,000 | 520,000 | |||||||||||
900,000 | 146,250 | 292,500 | 438,750 | 585,000 | 585,000 | |||||||||||
1,000,000 | 162,500 | 325,000 | 487,500 | 650,000 | 650,000 |
The benefits shown in the table above are calculated on a straight-life annuity basis. As of December 31, 2002, the number of years of credited service for Mr. Pajot is ten. For 2002, compensation that would be included in calculating average final compensation for Mr. Pajot was $628,229.
Retirement benefits for Mr. Aitken are determined solely under the Retirement Plan and the REP. Under these plans, IMS credits 6% of the participant's compensation monthly to the participant's national retirement account in the plans. The retirement account earns monthly investment credits based on the yield on 30-year Treasury bonds, which is adjusted periodically. The estimated annual retirement benefit payable to Mr. Aitken at retirement age 65 based upon service to December 31, 2002 is $3,146. Compensation earned in 2002 but prior to Mr. Aitken's plan participation date of July 1, 2002 is excluded
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for determining his retirement benefit. For 2002, compensation for purposes of determining retirement benefits for Mr. Aitken was $162,500.
Optional forms of payment, including but not limited to actuarially equivalent lump sum payments under the non-qualified plans, are available under each of these arrangements provided the employee has complied with all requirements relating to such election.
Change-in-Control Agreements
We have entered into Change-in-Control Agreements with certain of our executives. These provide for severance and other benefits if, following a change in control of IMS, the executive's employment terminates in a way adverse to the executive. These agreements cover all executive officers as well as certain other officers and selected key employees.
Under the Change-in-Control Agreements, an executive commits to remain employed for 180 days following an event that represents a potential change in control to maintain stable operations while a change in control proceeds. If a named executive officer's employment ends within two years following a change in control either because the Company terminates him or her without cause or because the executive resigns under circumstances constituting "good reason," the executive will be entitled to:
If payments trigger the "golden parachute" excise tax imposed by the U.S. Internal Revenue Code, the Company will pay an additional "gross-up" amount so that his or her after-tax benefits are the same as though no excise tax had applied, and we will reimburse an executive for expenses incurred in enforcing the agreement unless incurred in bad faith.
Under the agreement, "good reason" means an adverse change in employment status, compensation or benefits, or a required move to a new work location not otherwise specified in the agreement.
A "change in control" is defined in the agreement to occur if a person becomes the beneficial owner of 20% or more of the combined voting power of IMS' securities, if a majority of the Board changes in a 24-month period without the specified approval of incumbent directors, if IMS merges with another entity in a way that substantially changes the ownership of existing shareholders, if we sell substantially all assets or liquidate IMS, or if the Board of Directors otherwise determines that a change in control has occurred. If a potential change in control occurs, IMS must deposit funds into a "rabbi" trust to fund potential obligations under the agreements.
Employment Agreements
The employment agreements with Messrs. Thomas, Pajot and Steinfeld and Ms. Cooper employ each of them for a specified period of up to approximately three years, with automatic one-year renewals
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thereafter. The agreements specify annual base salaries, which must be reviewed annually and may be increased but not decreased from the amount previously in effect. Salary levels in effect for 2002 are reflected in the Summary Compensation Table. The agreements also provide each executive with an opportunity to earn annual incentive compensation based on achievement of performance objectives set by the Compensation and Benefits Committee, in an amount not less than the incentive opportunity in the prior year and in any case not less than a specified percentage of salary, as follows: Mr. Thomas, 100%; Mr. Pajot, 56%; Mr. Steinfeld, 56%; and Ms. Cooper, 50%. Under the agreements, we must permit each executive to continue participating in plans and programs offering compensation opportunities and benefits no less favorable than those in effect at the time the agreements became effective. The agreements impose obligations on the executive as to confidentiality, non-competition, non-disparagement of IMS, and similar matters during employment and for specified periods following termination. In addition to normal remedies for breach, the breach of these obligations after termination of employment can trigger forfeiture of options.
The agreements require IMS to provide certain payments and benefits upon termination of the executive's employment, in addition to amounts previously accrued. If employment terminates due to retirement, approved early retirement, death or disability, the executive will receive annual incentive compensation for that year prorated to reflect the part of the year worked. Retirement is defined as age 60, in the case of Mr. Thomas, and age 55 in the case of the other executives. Eligibility for retirement under certain IMS plans may be met through the attainment of age and/or service criteria that differs from that in the agreements. If termination results from a disability, the employment agreements provide for accelerated vesting of options, restricted stock units, performance awards and other awards and continued participation in health and other benefit plans until age 65. Although not covered by the employment agreements, the executives' option agreements provide, subject to certain exceptions, for no forfeiture of options and other awards upon termination due to death or retirement. If we terminate the employment of the executive not for cause or the executive terminates for "good reason," he/she will receive:
If such a termination occurs within two years after a change in control, the executive will receive the benefits listed above plus these enhancements:
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Upon occurrence of a potential change-in-control event, we must deposit funds into a trust to fund potential obligations under the agreements. If payments following a change-in-control trigger the "golden parachute" excise tax, we will pay the executive an additional "gross-up" amount so that his or her after-tax benefits are the same as though no excise tax had applied.
For purposes of the agreements, "good reason" means a demotion or adverse change in the executive's employment status, compensation or benefits, a required relocation, a failure of IMS to abide by other important provisions of the agreement or to renew the term of the agreement. We must fully indemnify the executives, continue officers' and directors' liability insurance during employment and for up to six years thereafter, and reimburse the executive for expenses incurred in enforcing the agreement unless incurred in bad faith or frivolous. A "change in control" has the same meaning as defined in the Change-in-Control Agreements, described above.
The agreements contain additional provisions tailored to the individual executive's circumstances, and resulting from the negotiations between IMS and the executive. Mr. Thomas's agreement provides that he is credited, for purposes of vesting under our supplemental pension plan and other executive compensation plans (excluding the IMS equity plans), with 28 years of service, reflecting his years of service to his prior employer. If Mr. Thomas's employment terminates after five years of service to IMS, his 28 years of service to his prior employer will be treated as years of service under our SERP, but any pension paid by the former employer will reduce our pension obligation. If termination occurs in less than five years, the agreement provides a formula that can enhance his retirement benefit if termination is not for cause, not due to retirement and not a voluntary termination without good reason (as defined above). His agreement also provides that he and his family may use our aircraft for personal travel, in which case he will receive a tax "gross-up" for his income taxes resulting from a family member accompanying him on business travel (but not non-business travel).
Mr. Pajot's agreement provides for special pension benefits intended to duplicate benefits payable under a pension plan of a prior employer, had he remained with that employer until retirement. His arrangement provides that, if he retires at age 65, his annual benefit will equal 65% of his average final pensionable earnings (base salary plus bonus), however our retirement benefits obligation will be reduced by the pension amounts he is entitled to receive from his former employer. His disability benefits will be at least equal to those provided under our US ERP, with credit for all years of service to IMS. The US ERP disability provision provides for monthly payments to the disabled employee equal to 1/12th of the base salary and cash incentive paid to the employee during the 12 month period prior to becoming disabled. His agreement also provides that he can voluntarily terminate his employment before a change in control and receive the severance payments, pro-rata annual incentive award, vesting in certain options and continued health and welfare benefits that would have been provided had we terminated his employment without cause, or he can voluntarily terminate his employment within two years after a change in control and receive all of the payments and benefits that would have been provided had we terminated his employment without cause after a change in control.
Mr. Steinfeld's agreement provides that, for purposes of determining pension benefits under the EXPP, his average final compensation shall be at least equal to $465,000, his accrued benefit shall not be less than that which was determined as of February 11, 2003 under the US ERP and he will earn two years of past service credit for each of the next 3 years of future service in addition to the service credits otherwise arising from such future service. Thereafter, additional service will be awarded in accordance with the terms of the EXPP. If Mr. Steinfeld is terminated within two years after a change in control in circumstances that would trigger a severance payment, he will also receive retiree medical and life
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insurance benefits no less favorable than those he would have received had he retired at or after age 55. His agreement also provides that under certain circumstances, he may be required to reimburse the Company for bonus or equity based compensation received, if the Company is required to prepare an accounting restatement due to the material noncompliance with applicable financial reporting requirements.
Ms. Cooper's agreement provides that for purposes of determining pension benefits under the EXPP, she will earn one additional year of past service credit upon the completion of one year of future service. Thereafter, additional service will be awarded in accordance with the terms of the EXPP. If Ms. Cooper is terminated within two years after a change in control in circumstances that would trigger a severance payment, she will also receive retiree medical and life insurance benefits no less favorable than those she would have received had she retired at or after age 55. Her agreement also provides that under certain circumstances, she may be required to reimburse the Company for bonus or equity based compensation received, if the Company is required to prepare an accounting restatement due to the material noncompliance with applicable financial reporting requirements.
Employee Protection Plan
The IMS Health Incorporated Employee Protection Plan, or EPP, provides severance benefits to employees, including certain executive officers. The EPP provides for the payment of severance benefits if IMS terminates the officer's employment not for cause. An executive officer terminated in this way will receive salary and benefits continuing for not less than 26 weeks nor more than 104 weeks, determined on the basis of 1.5 weeks for each $10,000 of base salary plus three weeks for each year of service, but limited to 26 weeks if the employee has less than one year of service at termination. Benefits under the EPP cease when the officer earns or accrues compensation from any new employer or other third party. These benefits do not apply to certain executive officers terminated within two years after a change in control, which are covered by the change-in-control agreements described above.
In addition to continuation of salary, the EPP provides to eligible terminated officers:
The Chief Executive Officer retains discretion to increase or decrease EPP benefits for executives and other employees. EPP benefits will not be provided to executives covered by employment agreements, except Messrs. Thomas and Steinfeld and Ms. Cooper are entitled to EPP benefits to the extent that they may be more favorable than benefits under their employment agreements.
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PROPOSAL NO. 2: APPOINTMENT OF AND RELATIONSHIP
WITH INDEPENDENT PUBLIC ACCOUNTANTS
The Board of Directors, upon the recommendation of the Audit Committee, selected PricewaterhouseCoopers LLP as the Company's independent public accountants for 2003. The Board of Directors will ask the Company's shareholders to approve this selection at the Annual Meeting.
Report of the Audit Committee
PricewaterhouseCoopers LLP served as the Company's independent public accountants for the year ended December 31, 2002. PricewaterhouseCoopers has been the Company's independent public accountants since July 1998, when IMS became an independent publicly traded company. In connection with its audit of the Company's consolidated financial statements, PricewaterhouseCoopers also audited the separate financial statements of the Company's publicly traded subsidiary, CTS.
Among its functions, the Audit Committee reviews the Company's financial reporting process on behalf of the Board of Directors. Management has the primary responsibility for the financial statements and the reporting process. The independent public accountants are responsible for expressing an opinion on the conformity of the Company's audited financial statements with accounting principles generally accepted in the United States of America.
The Audit Committee has reviewed and discussed the annual audited financial statements with management and the independent public accountants, PricewaterhouseCoopers. The Audit Committee also examined with the independent public accountants the matters required to be discussed by the Statement of Auditing Standards No. 61, and reviewed the results of the independent public accountant's examination of the consolidated financial statements.
PricewaterhouseCoopers has also confirmed to the Company that it is in compliance with the rules, standards and policies of the Independence Standards Board and the Securities and Exchange Commission governing auditor independence. The Audit Committee received and discussed with PricewaterhouseCoopers its written disclosures in the form of a letter as required by Independence Standards Board Standard No. 1. The Audit Committee has considered whether the provision of non-audit services by the Company's independent public accountants is compatible with the auditor's independence.
Based on the reviews and discussions referred to above, and the guidelines specified by the Audit Committee Charter, the Audit Committee recommended to the Board of Directors that the audited consolidated financial statements be included in the Company's Annual Report on Form 10-K for the year ended December 31, 2002 for filing with the Securities and Exchange Commission.
The Audit Committee William C. Van Faasen, Chairman James D. Edwards H. Eugene Lockhart |
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Fees Paid to Independent Public Accountants
As mentioned previously, the accounting firm of PricewaterhouseCoopers served as IMS' independent public accountants for the year ended December 31, 2002. In addition to rendering audit services during 2002, PricewaterhouseCoopers performed various non-audit services for the Company worldwide.
Audit Fees
The aggregate fees billed by PricewaterhouseCoopers for audit services in connection with the Company's financial statements for the fiscal year ended December 31, 2002 were $2.2 million, including fees for audit services performed at the Company's publicly traded then subsidiary, CTS, and fees relating to the filing of various statutory reports worldwide.
Financial Information Systems and Design Implementation Fees
The consulting business of PricewaterhouseCoopers provided services relating to an information system design and implementation project for IMS during the fiscal year ended December 31, 2002. On October 1, 2002, PricewaterhouseCoopers sold its consulting business. Aggregate fees billed to the Company in 2002 by PricewaterhouseCoopers for information system design and implementation services were $1.8 million.
All Other Fees
The aggregate fees for all other professional services rendered by PricewaterhouseCoopers for the fiscal year ended December 31, 2002 were $3.5 million, including audit-related services of $1.2 million, tax-related services of $0.8 million and non-audit services of $1.5 million. Audit-related services generally include services rendered in connection with Securities and Exchange Commission registration statements, due diligence on acquisitions, benefit plan audits and accounting consultations. Tax-related services include tax return preparation and tax consultation. Non-audit services include primarily actuarial and human resource advisory services. The Audit Committee has concluded that the provision of these services by PricewaterhouseCoopers is compatible with maintaining its independence.
The Board of Directors, on the recommendation of the Audit Committee, has appointed PricewaterhouseCoopers as independent public accountants for the Company for the year ending December 31, 2003, subject to ratification of the appointment by the affirmative vote of a majority of the shares of Common Stock voting in person or represented by proxy at the Annual Meeting of Shareholders and entitled to vote on the matter. A representative of PricewaterhouseCoopers is expected to be available to answer appropriate questions at the Annual Meeting and is free to make statements during the meeting. If the shareholders do not ratify the appointment of PricewaterhouseCoopers, the Board of Directors will reconsider the appointment.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR RATIFICATION OF
THE APPOINTMENT OF PRICEWATERHOUSECOOPERS
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PROPOSAL NO. 3: APPROVAL OF AMENDED AND RESTATED 1998 IMS HEALTH INCORPORATED NON-EMPLOYEE DIRECTORS' STOCK INCENTIVE PLAN
The Board of Directors recommends that shareholders of IMS approve an amendment and restatement of the 1998 Non-Employee Directors' Stock Incentive Plan (the "Directors' Plan"). The principal changes to the Directors' Plan would be to increase the number of shares available under the Plan by approximately 500,000 shares and to include a restriction on repricing outstanding options under the Plan. The increase in shares is to allow Directors to receive their annual remuneration and to elect to forego their cash remuneration and instead receive grants of shares, deferred share units and options.
At December 31, 2002, outstanding awards under the Directors' Plan relate to a total of 370,901 shares, and 25,942 shares remain available for future awards. If this proposal is approved by shareholders, the Company's separate Non-Employee Directors' Deferred Compensation Plan (the "Deferral Plan") will be amended to remove its "evergreen" authorization of shares for director deferrals, and shares for such deferrals will thereafter be drawn only from the amended Directors' Plan. For information on the total number of shares currently available under the Company's equity compensation plans, subject to outstanding options, warrants, and rights, see "Equity Compensation Plan Information on page 16."
The Board and its Compensation & Benefits Committee (the "Committee") believe that the Directors' Plan is a valuable means by which IMS can attract and retain non-employee directors. Recent corporate governance reforms in the United States have underscored the fact that qualified and diligent independent directors are essential to the long-term success of a company, and have imposed increased responsibilities on independent directors. The Directors' Plan has and can continue to align the interests of directors with those of shareholders. The Deferral Plan has provided directors with a means to voluntarily increase their investment in IMS, and the proposed amendment to the Directors' Plan will permit such voluntary investments to continue. The Directors' Plan has been designed in a flexible manner, to give the Board and Committee the opportunity to determine the appropriate amounts and terms of equity awards, both as to outright grants and as voluntary investments by directors in lieu of receipt of cash fees. This flexibility could be particularly important if directors undertake added and possibly uneven duties in an effort to enhance the effectiveness of IMS corporate governance and to meet new legal and stock exchange requirements.
Reasons for Shareholder Approval
The Board seeks shareholder approval of the amendment and restatement of the Directors' Plan in order to grant stock awards to non-employee directors in accordance with their annual remuneration and to satisfy certain legal requirements, particularly requirements of the New York Stock Exchange. In addition, the Board regards shareholder approval of the Directors' Plan as desirable and consistent with corporate governance best practices.
Restriction on Repricing
The Directors' Plan includes a new restriction providing that, without shareholder approval, the Company will not amend or replace options previously granted under the Plan in a transaction that constitutes a "repricing." The term "repricing" has the meaning specified in a definition recently adopted by the New York Stock Exchange. Adjustments to the exercise price or number of shares subject to an option to reflect the effects of a stock split or other extraordinary corporate transaction will not constitute a "repricing," however.
Description of the Directors' Plan
The following description of the Directors' Plan is qualified in its entirety by the provisions of the Directors' Plan, a copy of which is attached as Appendix B to this Proxy Statement.
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Types of Awards: The Directors' Plan authorizes the following types of awards:
Information as to the current granting policies of the Board of Directors with respect to options and restricted stock awards under the Directors' Plan is set forth above under the caption "Compensation of Directors."
Administration. The Directors' Plan is administered and interpreted by the Compensation & Benefits Committee and the Board. The Plan requires Board approval of determinations as to the amount and timing of awards, and other decisions that might impose significant cost on the Company. The Committee is composed of non-employee directors, and the Board intends that Committee members will be independent under applicable standards of independence for directors. Officers and employees will perform administrative functions under the Plan, particularly those associated with implementing deferrals and awards in lieu of fees.
Eligibility. Directors who are not employed by IMS or its subsidiaries, including Committee members, are eligible for participation in the Directors' Plan. As of the 2003 Annual Meeting, eight non-employee directors will be eligible to receive awards under the Directors' Plan. All of these Directors currently hold awards under the Directors' Plan.
Shares Available and Award Limitations. If the amendment and restatement is approved, 525,942 shares will be available for outstanding awards and future grants under the Directors' Plan, representing approximately 0.2% of the outstanding class of Common Stock as of December 31, 2002. The amendment provides that shares subject to a Plan award that is forfeited, expired, settled in cash or otherwise terminated without issuance of shares to the participant, and shares withheld by or surrendered to IMS in payment of the exercise price of an option, will be deemed to become available again for new awards under the Plan. Shares delivered under the Plan may be either newly issued or treasury shares.
On March 12, 2003, the last reported sale price of the Company's Common Stock in consolidated trading of New York Stock Exchange-listed securities was $14.17 per share.
Stock Options. The Board or Committee can grant non-qualified stock options under the Directors' Plan, as outright grants or in lieu of directors' cash fees if so elected by the participant. The exercise price of any option granted under the Directors' Plan is determined by the Committee, but may not be less than 100% of the fair market value of the shares on the date of grant. If options are offered in lieu of cash fees, the Committee must determine a value for the options, which is the amount by which the director's fees will be reduced. The Committee, with reference to an option valuation methodology, will determine this value but the Committee may set a fixed value that will remain in effect for a year and otherwise exercise discretion in setting the value. A director who elects to receive such options will in effect pay a "premium" for options, which, at grant, have an exercise price equal to the current market price of common stock.
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No option will be exercisable for more than 10 years after the date of grant. Options granted outright will have vesting and forfeiture terms specified by the Board or Committee. Such options will, however, become vested upon termination due to death, disability or retirement, and will remain outstanding for five years after such termination, but not past the stated option expiration date and subject to extension in certain cases of death during the post-termination exercise period. All options may be exercised by payment of the exercise price in cash, in shares having a fair market value equal to the exercise price, or through broker-assisted cashless exercises to the extent permitted by law. Option shares may be withheld to pay the exercise price if no additional accounting expense is incurred.
Restricted Stock and Restricted Stock Units. The Board or Committee is authorized to grant shares of restricted stock or restricted stock units as outright grants, and to determine the vesting and forfeiture terms of such awards. These awards are non-transferable for so long as they remain subject to a risk of forfeiture, and restricted stock units can be deferred as to settlement beyond the time the forfeiture risk lapses. These awards will not be forfeited if termination of service as a director results from death or disability, and the Committee retains authority to accelerate vesting in other cases.
Shares and Deferred Share Units in Lieu of Fees. The Board or Committee can permit participants to elect to receive shares or deferred share units in lieu of directors' cash fees. No discount applies for this purpose, so that the number of shares or units received is determined by dividing the amount of fees forgone by the fair market value of a share at a designated date. That date may be either the date the fees otherwise would have been paid or another date set in advance; this allows easier administration of these transactions by providing for quarterly or a similarly limited number of purchase dates each year.
Adjustments Upon Certain Events. Adjustments to the number and kind of shares issued or reserved for issuance pursuant to the Directors' Plan or outstanding awards and shares subject to the overall share limitation are authorized in the event a share dividend or split, reorganization, recapitalization, merger, spin-off, extraordinary dividend, or other similar corporate transaction or event affects the Common Stock. Upon a change in control, the Committee can provide for accelerated vesting or take other actions to preserve the value of awards.
Amendments and Termination. The Board may amend, alter, discontinue or terminate the Directors' Plan, except that amendments are subject to shareholder approval if required by law or the rules of the New York Stock Exchange or if the amendment would materially increase the number of shares reserved, materially broaden eligibility to receive awards or materially increase benefits accruing to participants. Thus, although most plan amendments that increase the Company's costs would require shareholder approval, the increase in cost of the Directors' Plan would not by itself trigger a shareholder approval requirement. The Committee can amend the Directors' Plan, but the Board must also approve amendments that are more significant. Outstanding awards may also be amended, but not in ways that contravene the express terms of the Directors' Plan. Without the consent of a participant, no amendment to the Directors' Plan or an award may materially impair the participant's rights under a previously granted award. If not earlier terminated by the Board, the Directors' Plan will terminate when no shares remain available and when the Company has no obligations with respect to outstanding awards.
Other Terms of Awards. Awards are generally not transferable or assignable by a participant otherwise than by will or by the laws of descent or distribution, although the Committee can permit transfers of awards in individual cases to the extent permitted by law. The Committee may require or permit participants to defer the settlement of all or part of an award, including shares issued upon exercise of an option, in accordance with such terms and conditions as the Committee may establish. Awards under the Directors' Plan may be granted without a requirement that the participant pay consideration in the form of cash or property for the grant (as distinguished from the exercise of an option), except to the extent required by law.
The Directors' Plan is not exclusive, so that the Board or Committee may grant equity awards and pay compensation to directors under other plans and arrangements.
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Federal Income Tax Implications of the Directors' Plan
The federal income tax consequences of non-qualified stock options, restricted stock, restricted stock units and deferred stock units under the Directors' Plan are the same as for similar types of awards under the Incentive Plan. A discussion of this appears below under Proposal 4, "Federal Income Tax Implications of the IMS Health Employees' Stock Incentive Plan." Receipt of options and deferred share units in lieu of directors' fees likely will be implemented in a manner that results in no income taxation of participants at the time of grant. Receipt of actual shares in lieu of directors' fees will be subject to federal income taxation, as ordinary income, at the time the shares are issued. The Company would be entitled to a corresponding tax deduction.
New Plan Benefits Under the Directors' Plan
No outstanding award under the Directors' Plan is subject to shareholder approval of the proposed amended and restated Plan. Future awards under the Directors' Plan will be subject to the discretion of the Committee. The type, number, recipients and other terms of such awards cannot be determined at this time. Current policies of the Company with respect to equity grants to non-employee directors are described above under the caption "Compensation of Directors." The following table shows the grants under the Directors' Plan to be granted in 2003 under the current Non-Employee Director Remuneration Program as described on page 9.
1998 IMS Health Incorporated Non-Employee Directors' Stock Incentive Plan
As Amended and Restated May 2, 2003
Name and Position |
Number of Options To Be Granted At 2003 Annual Meeting Date |
|
---|---|---|
Non-Employee Director Group |
85,000 |
If shareholders decline to approve the amended and restated Directors' Plan, the terms of the Directors' Plan without the amendment will remain in effect, so that a portion of the option grants shown in the table above could still be made.
Vote Required For Approval
Approval of the Directors' Plan will require the affirmative vote of holders of a majority of the shares of Common Stock present in person or represented by proxy and entitled to vote on the matter.
THE BOARD OF DIRECTORS CONSIDERS THE APPROVAL OF THE AMENDED AND RESTATED DIRECTORS' PLAN TO BE IN THE BEST INTERESTS OF THE COMPANY AND ITS SHAREHOLDERS AND THEREFORE RECOMMENDS THAT SHAREHOLDERS VOTE FOR APPROVAL OF THIS PROPOSAL AT THE ANNUAL MEETING.
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PROPOSAL NO. 4: APPROVAL OF THE AMENDED AND RESTATED 1998 IMS HEALTH
INCORPORATED EMPLOYEES' STOCK INCENTIVE PLAN
The Board of Directors recommends that shareholders of IMS approve an amendment to the 1998 Employees' Stock Incentive Plan (the "Incentive Plan") to increase the proportion of awards that can be granted in the form of restricted stock and other "full-value" awards, to extend the termination date of the Plan from 2008 to 2013, to conform the Plan's restriction on repricing to the proposed New York Stock Exchange rule requiring shareholder approval of repricing, and to clarify a provision relating to stock appreciation rights.
The proposed amendment will not increase the overall number of shares reserved and available under the Incentive Plan. At December 31, 2002, outstanding awards under the Incentive Plan relate to a total of 18,511,732 shares, and 14,210,140 shares remain available for future awards. For information on the total number of shares currently available under the Company's equity compensation plans, subject to outstanding options, warrants and rights, see "Equity Compensation Plan Information" on page 16.
The Board and its Compensation and Benefits Committee (the "Committee") believe that attracting and retaining executives and other key employees of high quality has been and will continue to be essential to the Company's growth and success. The Incentive Plan enables the Company to offer appropriate incentives required to attract, retain, motivate and reward top caliber employees for the creation of long-term corporate value. In particular, stock options, restricted stock and other stock-based awards are important elements of compensation for executives and other employees, because such awards enable them to acquire or increase their proprietary interest in IMS Health, thereby ensuring a mutuality of interest with shareholders. Awards incorporating performance requirements can provide suitable rewards for achieving specific performance objectives focused on the Company's annual and long-term goals, such as earnings and earnings per share. Awards under the Incentive Plan provide an increased incentive for each employee granted an award to expend his or her maximum efforts for the success of the firm's business. The Board and Committee therefore view the Incentive Plan as a key component of the Company's overall compensation program.
Reasons for Shareholder Approval
The Board seeks shareholder approval of the amendment to the Incentive Plan in order to satisfy certain legal requirements, including requirements of the New York Stock Exchange. In addition, the Board regards shareholder approval of the Incentive Plan as desirable and consistent with corporate governance best practices. Shareholder approval of the amendment will also permit designated stock options to qualify as incentive stock options under the Internal Revenue Code for ten years after approval. Such qualification can give the holder of the options more favorable tax treatment, as explained below.
Restriction on Repricing
The Incentive Plan includes a provision that, without shareholder approval, the Company will not amend or replace options previously granted under the Plan in a transaction that constitutes a "repricing." The amendment specifies that the term "repricing" has the meaning specified in a definition recently adopted by the New York Stock Exchange. Adjustments to the exercise price or number of shares subject to an option to reflect the effects of a stock split or other extraordinary corporate transaction will not constitute a "repricing."
Description of the Incentive Plan
The following description of the Incentive Plan is qualified in its entirety by the provisions of the Incentive Plan, a copy of which is attached as Appendix C to this Proxy Statement.
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Types of Awards: The Incentive Plan authorizes a broad range of awards, including:
Administration. The Incentive Plan is administered and interpreted by the Compensation and Benefits Committee. The Board limits membership on the Committee to non-employee directors, and intends that appointees will be independent directors under all applicable standards of independence. The Incentive Plan authorizes the delegation of Committee authority to an executive officer or group of executive officers to approve the grant of awards other than restricted stock, in amounts that are limited under the Plan. The Committee at present permits grants under delegated authority, but only to employees below the level of executive officer and otherwise as limited by the Plan and the Delaware General Corporation Law.
Eligibility. Employees of IMS Health and its subsidiaries (which excludes persons who serve solely as directors of the Company, including Committee members) are eligible to be selected for participation in the Incentive Plan. The Committee has complete authority and discretion to determine from among eligible persons to whom awards under the Incentive Plan will be granted and the amounts of such awards. At present, approximately 5,900 persons would be eligible for selection to receive awards under the Incentive Plan, of which approximately 3,250 persons currently hold awards granted under the Incentive Plan.
Shares Available and Award Limitations. As stated above, 14,210,140 shares are available for outstanding awards and future grants under the Incentive Plan, representing approximately 5% of the outstanding class of Common Stock as of December 31, 2002. The amendment is not increasing the number of shares reserved under the Incentive Plan. Shares subject to an Incentive Plan award that is forfeited or expired, settled in cash or is otherwise terminated without issuance of shares to the participant, and shares withheld by or surrendered to IMS Health to satisfy withholding tax obligations or in payment of the exercise price of an award will be deemed to remain available for new awards under the Incentive Plan. The amendment clarifies that undelivered shares subject to an award become available again even if the award is otherwise exercised for some shares, as for example, in the case of delivery of a net number of shares upon exercise of an SAR. The Incentive Plan applies the same share counting rules to shares subject to outstanding awards under the 1998 IMS Health Incorporated Replacement Plan for Certain Employees Holding Cognizant Corporation Equity-Based Awards that are not in fact issued or delivered. That plan provided for replacement awards for awards outstanding at the time of the 1998 spin-off of the Company, but did not authorize new awards to be granted after the spin-off. In addition, shares issuable in connection with awards granted in substitution for awards of a business acquired by IMS Health will not be counted against the number of shares reserved under the Incentive Plan. Shares delivered under the Incentive Plan may be either newly issued or treasury shares.
The Incentive Plan also contains a limit on the number of shares of restricted stock and similar awards that may be granted, which is to be increased by the amendment. Currently, the Plan would allow approximately 516,667 shares to be issued in connection with these types of awards granted in the future. The amendment would increase this amount to 2,016,667 shares that could be delivered in connection with "full-value awards" granted after May 2, 2003. For this purpose, "full-value awards" means equity awards
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other than Options or SARs for which a participant does not pay or surrender rights to payment equal to at least the fair market value of the award determined at the date of grant.
An annual per-person limitation applies to each type of award granted to a participant in any calendar year. Each type of award may relate to no more than one million shares plus the amount of any unused annual limit for the previous year. In the case of a performance-based award, which is not valued in a way and which relates to shares, the maximum amount of such award to any Participant with respect to performance in a single fiscal year shall be $5 million. Limitations on per-person awards are required to qualify them for full tax deductibility under Section 162(m).
On March 12, 2003, the last reported sale price of the Company's Common Stock in consolidated trading of New York Stock Exchange-listed securities was $14.17 per share.
Stock Options. The Committee is authorized to grant stock options, including both incentive stock options ("ISOs"), which can result in potentially favorable tax treatment to the participant, and non-qualified stock options. The exercise price of any option granted under the Incentive Plan is determined by the Committee but may not be less than 100% of the fair market value of the shares on the date of grant. If the Committee requires the participant to pay consideration at the time of grant of the option, that payment will be treated as a prepayment applied to the exercise price of the option. The Committee determines the term of each option granted, the times at which each option will be exercisable, and provisions relating to forfeiture of unexercised options at or following termination of employment. No option, however, will be exercisable more than 10 years after the date it is granted. The Incentive Plan also specifies that options become vested upon termination due to death or disability, and will not be forfeited upon termination due to retirement, and specifies periods following various types of employment terminations during which options may be exercised. Options may be exercised by payment of the exercise price in cash, in shares having a fair market value equal to the exercise price, or through a broker-assisted cashless exercise. The amendment clarifies that option shares may be withheld to pay the exercise price if that would not trigger additional accounting expense.
SARs. The Committee is authorized to grant SARs, either independent of an option grant or in connection with an option. An SAR, upon exercise, entitles the participant to receive the excess of the fair market value of a share of Common Stock over the exercise price, payable in cash or shares. SARs granted in connection with an option may be granted concurrently with the related option grant or at any time prior to the exercise or cancellation of the option and are generally subject to the same terms and conditions as the option. The exercise price of an SAR is determined by the Committee but will not be less than the greater of (i) 100% of the fair market value of the shares on the date of grant or in the case of an SAR granted in conjunction with an option, the option price of the related option and (ii) an amount permitted by applicable laws, rules, by-laws or policies or regulatory authorities or stock exchanges. The Committee may impose, in its discretion, conditions upon exercisability or transferability, including limits on the times at which an SAR will be exercisable and provisions relating to forfeiture of unexercised SARs at or following termination of employment. SARs granted under the Incentive Plan may include "limited SARs" that are exercisable upon the occurrence of specified events. To date the Committee has not granted SARs, but SARs exercisable for stock may become more useful under accounting rules that might in the future apply to the Company.
Other Stock-Based Awards, Performance-Based Awards and Related Provisions. The Committee is authorized to grant shares of restricted stock, shares of common stock as a bonus or as deferred shares, awards valued by reference to the fair market value of shares, and dividend equivalents. The Committee determines the terms and conditions of such awards, including the consideration to be paid upon grant or exercise, the periods during which awards will be outstanding, and any vesting provisions, forfeiture conditions and restrictions on such awards. In addition, the Committee can attach performance goals to these stock-based awards so that they will qualify as "performance-based compensation" which is deductible by IMS without limitation under Section 162(m) of the Code. Performance-based compensation requires satisfaction by a participant of certain pre-established performance goals while the outcome is
33
substantially uncertain. Such performance goals must be objective, and are to be based on one or more business criteria specified in the Plan. These business criteria are discussed in greater detail in Proposal 5 below. The performance goals may be calculated without regard to extraordinary items, or the treatment of extraordinary items for purposes of measuring performance may be specified in advance by the Committee. A performance award qualifying under Section 162(m) may not be paid until the Committee certifies that the performance goals have been met.
Adjustments Upon Certain Events. Adjustments to the number and kind of shares issued or reserved for issuance pursuant to the Incentive Plan or outstanding awards and shares subject to the overall share limitation, the limitation on full-value awards and the annual per-person limitation on equity awards are authorized in the event a share dividend or split, reorganization, recapitalization, merger, spin-off, extraordinary dividend or other similar corporate transaction or event affects the Common Stock. The Committee is also authorized to adjust performance conditions and other terms of awards in response to these kinds of events or changes in applicable laws, regulations, or accounting principles, except that any adjustments to awards intended to qualify as "performance-based" must conform to requirements under Section 162(m). In the event of a change in control (as defined in the Incentive Plan), the Committee may take such action as it deems necessary or desirable with respect to an award. To date, the Committee has provided for accelerated vesting of many types of awards upon a change in control.
Amendments or Termination. The Board may amend, alter or discontinue the Incentive Plan, except that amendments are subject to shareholder approval if required by law or the rules of the New York Stock Exchange or if the amendment would materially increase the number of shares reserved, materially broaden eligibility to receive awards or materially increase benefits accruing to participants. Thus, although most amendments that increase the Company's costs would require shareholder approval, the increase in cost of the Incentive Plan would not by itself trigger a shareholder approval requirement. Without the consent of a participant, no amendment or alteration may materially impair a participant's rights under a previously granted award.
Other Terms of Awards. The Committee may require or permit participants to defer the settlement of all or part of an award, including shares issued upon exercise of an option, in accordance with such terms and conditions as the Committee may establish, including payment or crediting of interest or dividend equivalents on any deferred amounts. The Committee may condition awards on the payment of taxes, such as by withholding a portion of the shares or other property to be distributed in order to satisfy tax obligations. Awards under the Incentive Plan may be granted without a requirement that the participant pay consideration in the form of cash or property for the grant (as distinguished from the option exercise), except to the extent required by law. Awards are generally not transferable or assignable by a participant otherwise than by will or by the laws of descent or distribution, although the Committee can permit transfers of awards in individual cases to the extent permitted by law.
The Incentive Plan is not exclusive, so that the Committee may grant equity awards and performance-based compensation under other plans and arrangements.
Federal Income Tax Implications of the Incentive Plan
The Company believes that under current law the following Federal income tax consequences generally would arise with respect to awards under the Incentive Plan. The grant of an option or an SAR will create no federal income tax consequences for the participant or the Company. A participant will not have taxable income upon exercising an option, which is an ISO, except that the alternative minimum tax may apply. Upon exercising an option, which is not an ISO, the participant generally must recognize ordinary income equal to the difference between the exercise price and the fair market value of the freely transferable and non-forfeitable shares acquired on the date of exercise. Upon exercising an SAR, the participant must generally recognize ordinary income equal to the cash or the fair market value of the shares received.
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Upon a disposition of shares acquired upon exercise of an ISO before the end of the applicable ISO holding periods, the participant must generally recognize ordinary income equal to the lesser of (i) the fair market value of the ISO shares at the date of exercise minus the exercise price or (ii) the amount realized upon the disposition of the ISO shares minus the exercise price. Otherwise, a participant's sale of shares acquired by exercise of an option generally will result in short-term or long-term capital gain or loss measured by the difference between the sale price and the participant's tax "basis" in such shares. The tax "basis" normally is the exercise price plus any amount he or she recognized as ordinary income in connection with the option's exercise. A participant's sale of shares acquired by exercise of an SAR generally will result in short-term or long-term capital gain or loss measured by the difference between the sale price and the tax "basis" in the shares, which normally is the amount he or she recognized as ordinary income in connection with the SAR's exercise.
The Company normally can claim a tax deduction equal to the amount recognized as ordinary income by a participant in connection with the exercise of an option or SAR, but no tax deduction relating to a participant's capital gains. Accordingly, the Company will not be entitled to any tax deduction with respect to an ISO if the participant holds the shares for the applicable ISO holding periods prior to selling the shares.
The Company may, however, permit participants to elect to defer taxation upon certain exercises of options other than ISOs. Under such a transaction, the participant must pay for the option exercise by surrendering shares, and the Company defers the option shares that represent the gain upon exercise as to delivery. The participant generally should not realize income upon exercise, but will realize ordinary income equal to the value of shares delivered at the end of the deferral period. The Company is not entitled to a tax deduction at the time of exercise, but becomes entitled to a tax deduction at the time shares are delivered at the end of the deferral period. Proposed legislation may limit the ability of participants to make this kind of deferral, however.
With respect to awards other than options and SARs that result in a transfer to the participant of shares or other property, if no restriction on transferability or substantial risk of forfeiture applies to the transferred amounts, the participant generally must recognize ordinary income equal to the fair market value of shares or other property actually received. Thus, for example, if the Company grants an award of deferred stock or permits the participant to elect to defer receipt of shares under an award, the participant will defer the time he or she becomes subject to income tax, and the Company's right to claim a tax deduction likewise will be deferred. If a restriction on transferability and substantial risk of forfeiture applies to shares or other property transferred to a participant under an award (such as, for example, restricted stock), the participant generally must recognize ordinary income equal to the fair market value of the transferred amounts at the earliest time either the transferability restriction or risk of forfeiture lapses. In all cases, the Company generally can claim a tax deduction in an amount equal to the ordinary income recognized by the participant, except as discussed below. A participant may elect to be taxed at the time of grant of restricted stock or other property rather than upon lapse of restrictions on transferability or the risk of forfeiture, but if the participant subsequently forfeits such shares or property he or she would not be entitled to any tax deduction, including as a capital loss, for the value of the shares or property on which he or she previously paid tax.
As discussed above, compensation that qualifies as "performance-based" compensation is excluded from the $1 million deductibility cap of Internal Revenue Code Section 162(m), and therefore remains fully deductible by the company that pays it. Under the Incentive Plan, options and SARs granted with an exercise price or base price at least equal to 100% of fair market value of the underlying stock at the date of grant, performance awards to employees the Committee expects to be named executive officers at the time compensation is received, and certain other awards which are conditioned upon achievement of performance goals are intended to qualify as such "performance-based" compensation. A number of requirements must be met in order for particular compensation to so qualify, however, so there can be no
35
assurance that such compensation under the Incentive Plan will be fully deductible under all circumstances. In addition, other awards under the Incentive Plan generally will not so qualify, so that compensation paid to certain executives in connection with such awards may, to the extent it and other compensation subject to Section 162(m)'s deductibility cap exceed $1 million in a given year, not be deductible by the Company as a result of Section 162(m). See also "Proposal 5" below.
The foregoing provides only a general description of the application of federal income tax laws to certain awards under the Incentive Plan. This discussion is intended for the information of shareholders considering how to vote at the Annual Meeting and not as tax guidance to participants in the Incentive Plan, as the consequences may vary with the types of awards made, the identity of the recipients and the method of payment or settlement. Different tax rules may apply, including in the case of variations in transactions that are permitted under the Incentive Plan (such as payment of the exercise price of an option by surrender of previously acquired shares). The summary does not address the effects of other federal taxes (including possible "golden parachute" excise taxes) or taxes imposed under state, local or foreign tax laws.
New Plan Benefits Under the Incentive Plan
No outstanding award under the Incentive Plan is subject to shareholder approval of the proposed amendment. Because future awards under the Incentive Plan will be granted in the discretion of the Committee, the type, number, recipients and other terms of such awards cannot be determined at this time. Information regarding the Company's recent practices with respect to stock-based compensation under the Plan is presented in the "Summary Compensation Table" and "Equity Compensation Plan Information" elsewhere in this Proxy Statement and in the Company's financial statements for the fiscal year ended December 31, 2002, in the Annual Report which accompanies this Proxy Statement. If shareholders decline to approve the Incentive Plan, the terms of the Incentive Plan without the amendment will remain in effect, and future performance-based awards will not be granted under the Incentive Plan to the extent necessary so that shareholder approval would have met the requirements of Treasury Regulation 1.162-27(e)(4).
Vote Required For Approval
Approval of the amendment to the Incentive Plan will require the affirmative vote of holders of a majority of the shares of Common Stock present in person or represented by proxy and entitled to vote on the matter.
THE BOARD OF DIRECTORS CONSIDERS THE APPROVAL OF THE AMENDMENTS TO
THE INCENTIVE PLAN TO BE IN THE BEST INTERESTS OF THE COMPANY AND ITS
SHAREHOLDERS AND THEREFORE RECOMMENDS THAT SHAREHOLDERS VOTE
FOR APPROVAL OF THIS PROPOSAL AT THE ANNUAL MEETING.
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PROPOSAL NO. 5: REAPPROVAL OF PERFORMANCE GOALS UNDER THE 1998
IMS HEALTH INCORPORATED EMPLOYEES' STOCK INCENTIVE PLAN AND
THE EXECUTIVE ANNUAL INCENTIVE PLAN
The Board of Directors recommends that shareholders of IMS Health reapprove the business criteria used in setting performance objectives for performance awards under the 1998 Employees' Stock Incentive Plan (the "Incentive Plan") and annual incentive awards under the Executive Annual Incentive Plan (the "Annual Plan"). Although the Incentive Plan and Annual Plan were each approved by shareholders in 1999, reapproval of certain terms of performance goals under those plans is advisable so that the Company will be able to continue to claim tax deductions for awards and payouts in 2004 and following years.
Reasons for Shareholder Approval
As discussed in the Compensation and Benefits Committee Report, the Company seeks to preserve its ability to claim tax deductions for compensation paid to executives, to the greatest extent practicable. Section 162(m) of the Internal Revenue Code limits the deductions a publicly held company can claim for compensation in excess of $1 million in a given year paid to the Chief Executive Officer and any of the four other most highly compensated executive officers serving on the last day of the fiscal year (referred to as the "named executive officers"). "Performance-based" compensation that meets certain requirements is not counted against the $1 million deductibility cap, and therefore remains fully deductible.
The Company is seeking reapproval of the business criteria used to set performance goals for performance-based awards under the Incentive Plan and Annual Plan to named executive officers in order to meet a key requirement for such awards to qualify as "performance-based" under Section 162(m). Because shareholder approval of general business criteria, without specific targeted levels of performance, qualifies performance-based awards under Section 162(m) for a period of approximately five years, reapproval of such business criteria by shareholders will meet the requirements under Section 162(m) until 2008. Shareholder approval of the performance goal inherent in stock options and SARs (increases in the market price of stock) under the Incentive Plan is not subject to a time limit under Section 162(m), and so is not subject to this proposal.
Business Criteria Used for Specifying Performance Goals
Both the Incentive Plan and the Annual Plan provide that the Compensation and Benefits Committee may grant awards that may be earned only upon achievement of specific, pre-established performance goals. Such performance goals must be objective, and are to be based on one or more of the following criteria: (i) consolidated earnings before or after taxes (including earnings before interest, taxes, depreciation and/or amortization); (ii) net income; (iii) operating income; (iv) earnings per share; (v) book value per share; (vi) return on shareholders' equity; (vii) expense management; (viii) return on investment; (ix) improvements in capital structure; (x) profitability of an identifiable business unit or product; (xi) maintenance or improvement of profit margins; (xii) stock price; (xiii) market share; (xiv) revenues or sales; (xv) costs; (xvi) cash flow; and (xvii) working capital. The Annual Plan includes measures of customer satisfaction and employee satisfaction as other possible business criteria for performance goals. The Incentive Plan includes the following additional business criteria: (i) economic value added; (ii) total shareholder return (stock price appreciation plus dividends and distributions); (iii) operating management goals; and (iv) execution of pre-approved corporate strategy. Any of these business criteria may relate to IMS Health or one or more of its subsidiaries, divisions or business units, partnerships, joint ventures or minority investments, product lines or products. The performance goals may be calculated without regard to extraordinary items, or the treatment of extraordinary items for purposes of measuring performance may be specified in advance by the Committee. A performance award qualifying under Section 162(m) may not be paid until the Committee certifies that the performance goals have been met.
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Description of the Incentive Plan
The Incentive Plan is described in detail under Proposal 4 above, including the Federal income tax consequences of awards under the Plan. A copy of the Incentive Plan is attached hereto as Appendix C. Information regarding performance-based equity awards that incorporate the business criteria for which reapproval of shareholders is sought appears under the heading "Proposal 4Description of the PlanOther Stock-Based Awards, Performance-Based Awards and Related Provisions".
Description of the Annual Plan
The Board of Directors adopted the Annual Plan in 1998, and shareholders approved it in 1999. Its purpose is to advance the interests of the Company and shareholders by providing incentives in the form of periodic cash bonus awards to certain management employees of the Company and its subsidiaries, thereby motivating such employees to attain corporate performance goals articulated under the Annual Plan.
Administration. The Annual Plan is administered and interpreted by the Compensation and Benefits Committee (the "Committee"). The Board limits membership on the Committee to non-employee directors, and intends that appointees will be independent directors under all applicable standards of independence.
Eligibility. The Committee selects participants from among employees of the Company whose position and responsibilities are expected to have a material impact on the results of operations of the Company or its subsidiaries. Approximately 130 senior employees currently participate in the plan.
Performance Goals. The amount of any incentive compensation earned by a participant in a performance period will be determined based on the attainment of written performance goals approved by the Committee and established while the outcome is substantially uncertain. The objective performance goals must be based on the business criteria described above. The Committee also specifies an award opportunity for each participant. This is an amount or range of amounts that may be earned upon achievement of specified levels of performance during the performance period. Performance is typically measured over a period of the one year, but the Committee has authority to specify different length performance periods under the Plan.
Payment of Awards. Following the completion of a performance period, the Committee will determine whether and the extent to which applicable performance goals have been met so that the participant has earned an award authorized under the Plan. If so, the Committee will make a written determination to that effect, specifying the level of performance achieved and the amount of incentive compensation to be paid. No incentive compensation will be paid under the Plan until certification is made by the Committee. At the discretion of the Committee, the amount of the payment may be varied downward or, with respect to a participant who was not designated as a covered employee subject to Section 162(m) of the Code (the "Covered Employees"), upward.
Maximum Award Limit. The maximum amount that may be earned by a participant with respect to a fiscal year of the Company is $3 million.
Termination of Employment. If a participant dies, retires, is assigned to a different position, is granted a leave of absence, or is otherwise terminated (except for cause) during a performance period, a pro rata share of any incentive compensation based on the period of actual performance may, at the discretion of the Committee, be paid to such participant at the end of the performance period.
Amendment and Termination. The Board may amend, alter or discontinue the Annual Plan, but no amendment, alteration or discontinuation may impair the rights or obligation under any award granted to a participant without his or her consent. The Committee may, however, amend the Annual Plan to permit the granting of awards that meet the requirements of the Code.
Nontransferability of Awards. Awards and rights under the Plan are not transferable or assignable by the participant otherwise than by will or the laws of descent and distribution.
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Federal Income Tax Implications of the Annual Plan. Cash payments of incentive awards under the Annual Plan result in ordinary income to the participant, and the Company is generally entitled to an equal tax deduction. As discussed above, the ability of the Company to claim this tax deduction for the named executive officers may depend on compliance with Section 162(m) of the Code, which may not occur in all cases. The Company permits awards under the Annual Plan to be deferred at the election of the participant, which defers the timing of taxation to the participant and the timing of the corresponding tax deduction to be claimed by the Company.
New Plan Benefits
Reapproval of the business criteria used for performance awards under the Incentive Plan and Annual Plan will not affect any currently outstanding awards or award opportunities. Awards granted in 2004 and thereafter under the two Plans should remain fully deductible by virtue of shareholder reapproval of the business criteria used in the Plan. It is not possible at this time to determine whether any such awards will be granted or the terms of such awards.
Vote Required For Approval
Approval of this proposal will require the affirmative vote of holders of a majority of the shares of Common Stock present in person or represented by proxy and entitled to vote on the matter.
THE BOARD OF DIRECTORS CONSIDERS THE REAPPROVAL OF THE BUSINESS CRITERIA USED IN SETTING PERFORMANCE GOALS UNDER THE INCENTIVE PLAN AND ANNUAL PLAN TO BE IN THE BEST INTERESTS OF THE COMPANY AND ITS SHAREHOLDERS AND THEREFORE RECOMMENDS THAT SHAREHOLDERS VOTE FOR APPROVAL OF THIS PROPOSAL AT THE ANNUAL MEETING.
39
TIDE Policy CommitteeShareholder Rights PlanIndependent Director Evaluation. In March 2002, the Board of Directors adopted a TIDE policy (Three-Year Independent Director Evaluation policy) for its shareholder rights plan. The TIDE policy stipulates that at least three independent directors of the Company (the "TIDE Committee") will evaluate the shareholder rights plan at least every three years. In April 2002, the Company's Board of Directors established a TIDE Committee comprised of Robert J. Kamerschen, Chairman; Constantine L. Clemente and Kathryn E. Giusti, all of whom are independent Directors of the Company. The TIDE Committee reviewed and considered materials reflecting arguments for and against the retention of shareholder rights plans in general and the Company's shareholder rights plan in particular and consulted with outside counsel. Based on its review and deliberations at a meeting in December 2002, the TIDE Committee determined that the Company's shareholder rights plan continued to be in the best interest of the Company and its shareholders and did not recommend any changes or modifications to the shareholder rights plan at this time. Upon the recommendation of the Committee, the Board unanimously approved the retention of the Company's shareholder rights plan in its current form.
Other Business. We know of no matters, other than those referred to in this Proxy Statement that will be presented at the Annual Meeting. If, however, any other appropriate business should properly be presented at the meeting, the persons named in the enclosed form of proxy will have discretion to vote on those matters for you.
SHAREHOLDER PROPOSALS FOR 2004 ANNUAL MEETING
Under the rules of the Securities and Exchange Commission, if a shareholder wants us to include a proposal in our Proxy Statement (and form of proxy) for presentation at our 2004 Annual Meeting of Shareholders, the proposal must be received by us, marked to the attention of Robert H. Steinfeld, Corporate Secretary, at our principal executive offices by December 2, 2004.
Under our by-laws, and as permitted by the rules of the Securities and Exchange Commission, certain procedures are provided that a shareholder must follow to nominate persons for election as directors or to introduce an item of business at an annual meeting of shareholders. These procedures provide that nominations for director nominees and/or an item of business to be introduced at an annual meeting of shareholders must be submitted in writing to the Corporate Secretary of the Company at 1499 Post Road, Fairfield, Connecticut 06824. We must receive the notice of your intention to introduce a nomination or proposed item of business at our 2004 Annual Meeting no earlier than February 2, 2004, and no later than February 22, 2004.
If, however, the date of our 2004 Annual Meeting is advanced more than 20 days, or delayed more than 70 days, from May 2, 2004, we must receive notice no earlier than 90 days prior to the 2004 Annual Meeting date and no later than the close of business (i) 70 days prior to the 2004 Annual Meeting date or (ii) the 10th day following the day on which public announcement of the date of such meeting is first made, whichever is later.
The nomination must contain the following information about the nominee:
Notice of a proposed item of business must include:
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If more than one copy of the Company's 2002 Annual Report, 2002 Annual Review and Proxy Statement has been mailed to your address and you wish to reduce the number of reports you receive and save the Company the cost of producing and mailing these reports or if you wish to receive your reports via the Internet, please let us know. We will discontinue the mailing of reports on the accounts you select if you mark the designated box on the appropriate proxy card(s). At least one account must continue to receive the Annual Report and Proxy Statement either via mail or via Internet delivery.
March 31, 2003
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Appendix A
IMS Health Incorporated
Compensation and Benefits Committee Charter
Purpose
The primary purpose of the Compensation and Benefits Committee (the "Committee") is to assist the Board of Directors (the "Board") of IMS Health Incorporated (the "Company") in the discharge of its responsibilities to the shareholders, potential shareholders, other constituents and the investment community by overseeing: (i) the executive compensation practices of the Company; (ii) administration of the Company's compensation and benefits programs for employees and for non-employee members of the Board including but not limited to awards of equity interests; and (iii) the preparation of an annual report on executive compensation for inclusion in the Company's proxy statement.
Composition
At the recommendation of the Nominating and Governance Committee, the Board shall appoint (and remove) all members and the Chairman of the Committee. All members of the Committee shall be members of the Board, each of whom has been determined by the Board to: (i) meet the independence requirements of the New York Stock Exchange as implemented by the Board; (ii) qualify as "non-employee directors" within the meaning of Rule 16b-3 of the Securities Exchange Act of 1934 (the "1934 Act") and the rules promulgated thereunder by the Securities and Exchange Commission, as amended from time to time; and (iii) meet the "outside director" requirements of Section 162(m) of the Internal Revenue Code of 1986 and the rules and regulations promulgated thereunder, as amended from time to time. Members should have sufficient knowledge and familiarity in the area of compensation practices and policies to discharge the duties and responsibilities of the Committee. The Chairman will chair all regular sessions of the Committee and set the agendas for Committee meetings. No action of the Committee shall be invalid or void solely because of a failure of any member to meet the requirements of this paragraph.
Duties and Responsibilities
The Committee shall have and may exercise the powers of the Board in matters relating to the following duties and responsibilities, to the fullest extent permitted by law:
Administration: The Committee shall interpret, implement and administer all aspects of remuneration, including but not limited to the compensation and benefits of all executive officers, members of management, all other employees of the Company and its subsidiaries and non-employee members of the Board. In carrying out this duty, the Committee's responsibilities shall include, but not be limited to:
A-1
totals thereof, with respect to the Company's Chief Executive Officer ("CEO"), all executives reporting directly to the CEO and all officers who are "insiders" subject to Section 16 of the 1934 Act (collectively, the "Board Review Group"). All such determinations shall be presented to the Board for its review, and in the case of the CEO, such determination shall be presented to the Board for its ratification. Determination of the CEO's compensation shall be based upon the Board's evaluation of the performance of the CEO, which shall be presented to this Committee by the Chairman of the Nominating and Governance Committee, and such other non-performance related matters as the Committee deems appropriate.
Additional Approval Requirements: The foregoing notwithstanding, any policies, plans and programs that provide for material compensation of non-employee directors or that reserve equity securities for issuance in connection with options or other equity awards, and material amendments to such programs, shall be subject to approval of the Board, and to the extent required by law, shareholders of the Company.
Delegation: The Committee may delegate the authority granted hereunder, subject to applicable limitations under the Delaware General Corporation Laws. Such delegation may include delegation to a subcommittee, in order to ensure compliance with legal and regulatory obligations, to ensure timely decision-making or for other purposes. Such delegation may also include delegation to management or any member or members of the Board Review Group, but only with respect to compensation matters affecting employees other than members of the Board Review Group.
Compliance and Reporting: The Committee shall produce annual reports summarizing compensation policies for the Company's CEO and other executive officers and explain the relationship between executive officer compensation and the Company's performance, as required by the Securities and Exchange Commission, the New York Stock Exchange and generally accepted business practices, for inclusion in the Company's proxy statement in accordance with Securities and Exchange Commission rules and regulations.
A-2
Meetings and Reports to the Board
The Committee shall schedule at least four regular meetings per year, at which a Secretary, designated by the Committee members, shall keep minutes. The Committee shall meet in executive session at least on an annual basis. The Chairman of the Committee shall report on the Committee's activities and actions to the Board at each Board meeting immediately following each Committee meeting.
Outside Consultants
The Committee shall have the sole authority and discretion to retain outside compensation consultants, legal counsel or other independent third-party experts to advise the Committee in discharging its duties and responsibilities.
A-3
APPENDIX B
1998 IMS HEALTH INCORPORATED
NON-EMPLOYEE DIRECTORS' STOCK INCENTIVE PLAN
(As Amended and Restated as of May 2, 2003)
1. Purpose of the Plan
The purpose of the Plan is to aid the Company in attracting, retaining and compensating non-employee directors and to enable them to increase their proprietary interest in the Company. The Plan is intended to benefit the Company and its shareholders by enabling non-employee directors of the Board to have a greater personal financial stake in the Company, and reinforcing such directors' common interest with shareholders in increasing the value of the Shares on a long-term basis. In furtherance of this purpose, the Plan provides for periodic grants of Options, Restricted Stock, and Restricted Stock Units, and the opportunity for non-employee directors to elect deferred and alternative forms of compensation in lieu of cash fees for service as a director, including Options, Shares, and Deferred Share Units.
2. Definitions
The following capitalized terms used in the Plan have the respective meanings set forth in this Section:
B-1
or consolidation (A) which would result in the voting securities of the Company outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity) more than 662/3% of the combined voting power of the voting securities of the Company or such surviving entity outstanding immediately after such merger or consolidation and (B) after which no Person holds 20% or more of the combined voting power of the then-outstanding securities of the Company or such surviving entity; or
B-2
3. Shares Subject to the Plan
Subject to adjustment as provided in Section 9(a), the total number of Shares reserved and available for delivery under the Plan for Awards outstanding at May 2, 2003 or thereafter granted shall be 909,962. The Shares delivered under the Plan may consist, in whole or in part, of authorized and unissued Shares or treasury Shares. Shares subject to an Award under the Plan that is canceled, expired, forfeited, settled in cash, or otherwise terminated without a delivery of Shares to the Participant, including the number of Shares withheld or surrendered in payment of any exercise or purchase price of an Award, will become available for Awards under the Plan.
4. Administration
5. Eligibility
A director who is not an employee of the Company or any subsidiary of the Company as of the date that an Award is granted shall be eligible to participate under this Plan.
B-3
6. Terms and Conditions of Options
Options granted under the Plan shall be non-qualified stock options for federal income tax purposes, as evidenced by the related Option agreements, and shall be subject to the foregoing and the following terms and conditions and to such other terms and conditions, not inconsistent therewith, as the Board or the Committee shall determine:
B-4
exercised only during the shorter of (A) the remaining stated term of the Option or (B) five years after the date of such termination of service; provided, however, that if a Participant dies within a period of five years after such termination of service, the unexercised portion of the Option may thereafter be exercised, during the shorter of (A) the remaining stated term of the Option or (B) the period that is the longer of five years after the date of such termination of service or one year after the date of death.
7. Terms and Conditions of Restricted Stock and Restricted Stock Units
Restricted Stock or RSUs granted under the Plan shall be subject to the foregoing and the following terms and conditions and to such other terms and conditions, not inconsistent therewith, as the Board or Committee shall determine:
8. Issuance of Shares, Deferred Share Units, and Options in Lieu of Cash Fees
The Board or Committee may authorize the grant of Shares, Deferred Share Units, or Options in lieu of cash fees otherwise payable to a non-employee director for service to the Company in their capacity as a director, if and to the extent elected by the director. Cash fees for these purposes includes annual retainer, meeting fees, such fees for service as a member of a Board committee, and fees for service in a leadership capacity with respect to the Board or a committee. Awards granted under this Section 8 shall be subject to the foregoing and the following terms and conditions and to such other terms and conditions, not inconsistent therewith, as the Board or Committee shall determine:
B-5
payable or another date designated by the Committee, not later than 90 days after the date such fees were otherwise payable.
9. Adjustments Upon Certain Events
Notwithstanding any other provision in the Plan to the contrary, the following provisions shall apply to all Awards granted under the Plan:
10. Successors and Assigns
The Plan shall be binding on all successors and assigns of the Company and a Participant, including without limitation, the estate of such Participant and the executor, administrator or trustee of such estate, or any receiver or trustee in bankruptcy or representative of the Participant's creditors, or any designated beneficiary.
11. Amendments and Termination
The Board may amend, alter, discontinue or terminate the Plan, except that any amendment or alteration shall be subject to the approval of the Company's shareholders at or before the next annual meeting of shareolders for which the record date is after the date of such Board action if (a) such
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shareholder approval is required by any federal or state law or regulation or the rules of any stock exchange or automated quotation system on which the Shares may then be listed or quoted, or (b) such amendment or alteration would materially increase the number of shares reserved for the purposes of the Plan, materially broaden the class of persons eligible to participate in the Plan or materially increase benefits accruing to Participants. The Board may, in its discretion, determine to submit other amendments or alterations to the Plan to shareholders for approval. The Committee may act to amend or alter the Plan, but only if the amendment would not require shareholder approval and otherwise does not materially increase the cost of the Plan to the Company. The Board or Committee can act to amend outstanding Awards. The foregoing notwithstanding, no amendment or other change to the Plan or to the terms of an outstanding Award shall be made which would materially and adversely affect the rights of a Participant under any Award theretofore granted without such Participant's consent.
12. Nontransferability of Awards
An Award shall not be transferable or assignable by the Participant otherwise than by will or by the laws of descent and distribution. During the lifetime of a Participant, an Award shall be exercisable only by such Participant. An Award exercisable after the death of a Participant may be exercised by the legatees, personal representatives or distributees of the Participant or a beneficiary designated in accordance with procedures specified by the Company. Notwithstanding anything to the contrary herein, the Committee, in its sole discretion, shall have the authority to waive this Section 12 (or any part thereof) to the extent that this Section 12 (or any part thereof) is not required under the rules promulgated under any law, rule or regulation applicable to the Company.
13. Nonexclusivity of the Plan
Neither the adoption of the Plan by the Board nor any submission of the Plan or amendments thereto to a vote of shareholders of the Company shall be construed as creating any limitations on the power of the Board or Committee to adopt such other compensatory arrangements as it may deem desirable, including, without limitation, the granting of awards otherwise than under the Plan, and such other arrangements may be either applicable generally or only in specific cases.
14. Choice of Law
The Plan shall be governed by and construed in accordance with the laws of the State of New York applicable to contracts made and to be performed in the State of New York.
15. Effectiveness of the Plan and Plan Termination
The Plan became effective as of the Effective Date. The Plan will terminate at such time as no Shares remain available for issuance and the Company has no further obligations with respect to outstanding Awards.
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APPENDIX C
1998 IMS HEALTH INCORPORATED
EMPLOYEES' STOCK INCENTIVE PLAN
(As amended and restated effective May 2, 2003)
1. Purpose of the Plan
The purpose of the Plan is to aid the Company and its Subsidiaries in securing and retaining employees of outstanding ability and to motivate such employees to exert their best efforts on behalf of the Company and its Subsidiaries by providing incentives through the granting of Awards. The Company expects that it will benefit from the added interest which such employees will have in the welfare of the Company as a result of their proprietary interest in the Company's success.
2. Definitions
The following capitalized terms used in the Plan have the respective meanings set forth in this Section:
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or consolidation (A) which would result in the voting securities of the Company outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity) more than 662/3% of the combined voting power of the voting securities of the Company or such surviving entity outstanding immediately after such merger or consolidation and (B) after which no Person holds 20% or more of the combined voting power of the then-outstanding securities of the Company or such surviving entity;
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3. Shares Subject to the Plan
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unused Annual Limit as of the close of the previous year, subject to adjustment as provided in Section 10(a).
4. Administration
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5. Eligibility
Employees (but not members of the Committee or any person who serves only as a director) of the Company and its Subsidiaries are eligible to be granted Awards. In addition, any person who has been offered employment by the Company or a Subsidiary is eligible to be granted Awards, provided that no such person may receive any payment or exercise any right relating to an Award until such person has commenced such employment. Participants shall be selected from time to time by the Committee, in its sole discretion, from among those eligible, and the Committee shall determine, in its sole discretion, the number of Shares to be covered by the Awards granted to each Participant.
6. Limitations
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7. Terms and Conditions of Options
Options granted under the Plan shall be, as determined by the Committee, non-qualified, incentive or other stock options for federal income tax purposes, as evidenced by the related Award agreements, and shall be subject to the foregoing and the following terms and conditions and to such other terms and conditions, not inconsistent therewith, as the Committee shall determine:
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shorter of (A) the remaining stated term of the Option or (B) five years after the date of death or Disability.
8. Terms and Conditions of Stock Appreciation Rights
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receive from the Company in exchange therefore an amount equal to (i) the excess of (A) the Fair Market Value on the exercise date of one Share over (B) the Option Price per Share, times (ii) the number of Shares covered by the Option, or portion thereof, which is surrendered. The date a notice of exercise is received by the Company shall be the exercise date. Payment shall be made in Shares or in cash, or partly in Shares and partly in cash, valued at such Fair Market Value, all as shall be determined by the Committee. Stock Appreciation Rights may be exercised from time to time upon actual receipt by the Company of written notice of exercise stating the number of Shares subject to an exercisable Option with respect to which the Stock Appreciation Right is being exercised. No fractional Shares will be issued in payment for Stock Appreciation Rights, but instead cash will be paid for a fraction or, if the Committee should so determine, the number of Shares will be rounded downward to the next whole Share.
9. Other Stock-Based Awards
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which is equal to 25 percent of the relevant performance period. The performance goals, which must be objective, shall be based upon one or more of the following criteria: (i) consolidated earnings before or after taxes (including earnings before interest, taxes, depreciation and amortization); (ii) net income; (iii) operating income; (iv) earnings per share; (v) book value per share; (vi) return on shareholders' equity; (vii) expense management; (viii) return on investment; (ix) improvements in capital structure; (x) profitability of an identifiable business unit or product; (xi) maintenance or improvement of profit margins; (xii) stock price; (xiii) market share; (xiv) revenues or sales; (xv) costs; (xvi) cash flow; (xvii) working capital; (xviii) economic value added; (xix) return on assets; (xx) total shareholder return (stock price appreciation plus dividends and distributions); (xxi) operating management goals; (xxii) and execution of pre-approved corporate strategy. The foregoing criteria may relate to the Company, one or more of its Subsidiaries or one or more of its divisions or units, or any combination of the foregoing, and may be applied on an absolute basis and/or be relative to one or more peer group companies or indices, or any combination thereof, all as the Committee shall determine. In addition, to the degree consistent with Section 162(m) of the Code (or any successor section thereto), the performance goals may be calculated without regard to extraordinary items. In the case of a Performance-Based Award which is not valued in a way in which the limitation set forth in the final sentence of Section 3 would operate as an effective limitation satisfying Treasury Regulation 1.162-27(e)(4), the maximum amount of a Performance-Based Award to any Participant with respect to performance in a single fiscal year of the Company shall be $5,000,000. The Committee shall determine whether, with respect to a performance period, the applicable performance goals have been met with respect to a given Participant and, if they have, to so certify and ascertain the amount of the applicable Performance-Based Award. No Performance-Based Awards will be paid for such performance period until such certification is made by the Committee. The amount of the Performance-Based Award actually paid to a given Participant may be less than the amount determined by the applicable performance goal formula, at the discretion of the Committee. The amount of the Performance-Based Award determined by the Committee for a performance period shall be paid to the Participant at such time as determined by the Committee in its sole discretion after the end of such performance period; provided, however, that a Participant may, if and to the extent permitted by the Committee and consistent with the provisions of Section 162(m) of the Code, elect to defer payment of a Performance-Based Award.
10. Adjustments Upon Certain Events
Notwithstanding any other provisions in the Plan to the contrary, the following provisions shall apply to all Awards granted under the Plan:
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accounting principles, tax rates and regulations or business conditions or in view of the Committee's assessment of the business strategy of the Company, any subsidiary or business unit thereof, performance of comparable organizations, economic and business conditions, personal performance of a Participant, and any other circumstances deemed relevant; provided that no such adjustment shall be authorized to be made if and to the extent that such authority or the making of such adjustment would cause Options, Stock Appreciation Rights, or Performance Awards granted under Section 9(b) hereof intended to qualify as "performance-based compensation" under Code Section 162(m) and regulations thereunder to otherwise fail to so qualify.
11. No Right To Employment
The granting of an Award under the Plan shall impose no obligation on the Company or any Subsidiary to continue the employment of a Participant and shall not lessen or affect the Company's or Subsidiary's right to terminate the employment of such Participant.
12. Successors and Assigns
The Plan shall be binding on all successors and assigns of the Company and a Participant, including without limitation, the estate of such Participant and the executor, administrator or trustee of such estate, or any receiver or trustee in bankruptcy or representative of the Participant's creditors.
13. Nontransferability of Awards
An Award shall not be transferable or assignable by the Participant otherwise than by will or by the laws of descent and distribution. During the lifetime of a Participant, an Award shall be exercisable only by such Participant. An Award exercisable after the death of a Participant may be exercised by the legatees, personal representatives or distributees of the Participant. Notwithstanding anything to the contrary herein, the Committee, in its sole discretion, shall have the authority to waive this Section 13 (or any part thereof) to the extent that this Section 13 (or any part thereof) is not required under the rules promulgated under any law, rule or regulation applicable to the Company.
14. Amendments and Termination
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the contrary herein, the Board may not amend, alter or discontinue the provisions relating to Section 10(b) of the Plan after the occurrence of a Change in Control.
15. International Participants
With respect to Participants who reside or work outside the United States of America and either who are not (and who are not expected to be) "covered employees" within the meaning of Section 162(m) of the Code or who are granted Awards not intended to qualify as "performance-based compensation" under Section 162(m), the Committee may, in its sole discretion, amend the terms of the Plan or Awards with respect to such Participants in order to conform such terms with local laws, regulations, or customs or otherwise to meet the objectives of the Plan, and may, where appropriate, establish one or more sub-plans to reflect such amended provisions.
16. Nonexclusivity of the Plan
Neither the adoption of the Plan by the Board nor any submission of the Plan, specific Plan terms, or amendments thereto to a vote of shareholders of the Company shall be construed as creating any limitations on the power of the Board to adopt such other compensatory arrangements as it may deem desirable, including, without limitation, the granting of awards otherwise than under the Plan, and such other arrangements may be either applicable generally or only in specific cases.
17. Choice of Law
The Plan shall be governed by and construed in accordance with the laws of the State of New York.
18. Effectiveness of the Plan
The Plan shall be effective as of the Spinoff Date.
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ANNUAL MEETING OF SHAREHOLDERS OF
IMS HEALTH INCORPORATED
May 2, 2003
Please date, sign and mail
your proxy card in the
envelope provided as soon
as possible.
Please detach and mail in the envelope provided.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE ELECTION
OF DIRECTORS AND "FOR" PROPOSALS 2 THROUGH 5.
PLEASE SIGN, DATE AND RETURN PROMPTLY IN THE ENCLOSED ENVELOPE.
PLEASE MARK YOUR VOTE IN BLUE OR BLACK INK AS SHOWN HERE ý
1. Election of Directors | FOR | AGAINST | ABSTAIN | |||||||||
o FOR ALL NOMINEES |
NOMINEES O John P. Imlay, Jr. O Robert J. Kamerschen O H. Eugene Lockhart |
2. | Ratification of the appointment of PricewaterhouseCoopers LLP as Independent Public Accountants for 2003. | o | o | o | ||||||
o WITHHOLD AUTHORITY FOR ALL NOMINEES |
3. | Approval of the amended and restated 1998 IMS Health Incorporated Non-Employee Directors' Stock Incentive Plan. | o | o | o | |||||||
o FOR ALL EXCEPT (See instructions below) |
4. | Approval of the amended and restated 1998 IMS Health Incorproated Employees' Stock Incentive Plan. | o | o | o | |||||||
5. | Reapproval of the business criteria used for performance goals under the 1998 IMS Health Employees' Stock Incentive Plan and the Executive Annual Incentive Plan. | o | o | o | ||||||||
INSTRUCTION: To withhold authority to vote for any individual nominee(s), mark "FOR ALL EXCEPT" and fill in the circle next to each nominee you wish to withhold, as shown here: | ||||||||||||
To change the address on your account, please check the box at right and indicate your new address in the address space above. Please note that changes to the registered name(s) on the account may not be submitted via this method. o |
Unless voting electronically or by phone, please mark, sign and date this proxy card and return it promptly in the enclosed envelope. |
Signature of Shareholder | Date: | Signature of Shareholder | Date: | ||||
Note: | This proxy must be signed exactly as the name appears hereon. When shares are held jointly, each holder should sign. When signing as executor, administrator, attorney, trustee or guardian, please give full title as such.
If the signer is a corporation, please sign full corporate name by duly authorized officer, giving full title as such. If signer is a partnership, please sign in partnership name by authorized person. |
IMS HEALTH INCORPORATED
2003 ANNUAL MEETING OF SHAREHOLDERS
THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS FOR THE
ANNUAL MEETING OF SHAREHOLDERS ON MAY 2, 2003.
The undersigned shareholder hereby appoints DAVID M. THOMAS, NANCY E. COOPER and ROBERT H. STEINFELD, and each of them, officers and proxies for the undersigned with full power of substitution, to act and vote, with the powers the undersigned would possess if personally present, at the Annual Meeting of Shareholders of IMS Health Incorporated, to be held at The Hyatt Regency, Old Greenwich Connecticut, on Friday, May 2, 2003, at 11:30 a.m. and any adjournments or postponements thereof, as directed on the reverse side, with respect to the matters set forth on the reverse side and with discretionary authority on all other matters that come before the meeting, all as more fully described in the proxy statement received by the undersigned shareholder. If no direction is made, the proxy will be voted "FOR" the approval of Item 1, the election of John P. Imlay, Jr., Robert J. Kamerschen, H. Eugene Lockhart, "FOR" the approval of Item 2, the ratification of the appointment of PricewaterhouseCoopers LLP as Independent Public Accountants for 2003, Item 3, the approval of the amended and restated 1998 IMS Health Incorporated Non-Employee Directors' Stock Incentive Plan, Item 4, the approval of the amended and restated 1998 IMS Health Incorporated Employees' Stock Incentive Plan and Item 5, the reapproval of the business criteria used for performance goals under the 1998 IMS Health Incorporated Stock Incentive Plan and the Executive Annual Incentive Plan, in accordance with the recommendation of the Board of Directors.
For participants in the IMS Health Incorporated Savings Plan that have contributions invested in IMS Common Stock, this proxy card will serve as a voting instruction for the Trustee of the Plan. Participants must return their proxy card prior to April 30, 2003. American Stock Transfer & Trust Company will then forward the proxy cards to the Trustee. If a participant's proxy card is not received before April 30, 2003 or if such participant signs and returns his or her proxy card without instructions marked in the boxes, the Trustee will vote the participant's shares of Common Stock in the same proportion as other shares of Common Stock held in the Plan for which the Trustee received timely instructions.
(Continued and to be signed on the reverse side)
ANNUAL MEETING OF SHAREHOLDERS OF
IMS HEALTH INCORPORATED
May 2, 2003
PROXY VOTING INSTRUCTIONS
MAILDate, sign and mail your proxy card in the envelope provided as soon as possible. | COMPANY NUMBER | |||
-OR- | ||||
TELEPHONECall toll-free 1-800-PROXIES from any touch-tone telephone and follow the instruc-tions. Have your control number and proxy card available when you call. | ACCOUNT NUMBER | |||
-OR- | ||||
INTERNETAccess "www.voteproxy.com" and follow the on-screen instructions. Have your control number available when you access the web page. | CONTROL NUMBER | |||
Please detach and mail in the envelope provided IF you are not voting via telephone or the Internet.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE ELECTION
OF DIRECTORS AND "FOR" PROPOSALS 2 THROUGH 5.
PLEASE SIGN, DATE AND RETURN PROMPTLY IN THE ENCLOSED ENVELOPE.
PLEASE MARK YOUR VOTE IN BLUE OR BLACK INK AS SHOWN HERE ý
1. Election of Directors | FOR | AGAINST | ABSTAIN | |||||||||
o FOR ALL NOMINEES |
NOMINEES O John P. Imlay, Jr. O Robert J. Kamerschen O H. Eugene Lockhart |
2. | Ratification of the appointment of PricewaterhouseCoopers LLP as Independent Public Accountants for 2003. | o | o | o | ||||||
o WITHHOLD AUTHORITY FOR ALL NOMINEES |
3. | Approval of the amended and restated 1998 IMS Health Incorporated Non-Employee Directors' Stock Incentive Plan. | o | o | o | |||||||
o FOR ALL EXCEPT (See instructions below) |
4. | Approval of the amended and restated 1998 IMS Health Incorproated Employees' Stock Incentive Plan. | o | o | o | |||||||
5. | Reapproval of the business criteria used for performance goals under the 1998 IMS Health Employees' Stock Incentive Plan and the Executive Annual Incentive Plan. | o | o | o | ||||||||
INSTRUCTION: To withhold authority to vote for any individual nominee(s), mark "FOR ALL EXCEPT" and fill in the circle next to each nominee you wish to withhold, as shown here: | ||||||||||||
To change the address on your account, please check the box at right and indicate your new address in the address space above. Please note that changes to the registered name(s) on the account may not be submitted via this method. o |
Unless voting electronically or by phone, please mark, sign and date this proxy card and return it promptly in the enclosed envelope. |
Signature of Shareholder | Date: | Signature of Shareholder | Date: | ||||
Note: | This proxy must be signed exactly as the name appears hereon. When shares are held jointly, each holder should sign. When signing as executor, administrator, attorney, trustee or guardian, please give full title as such.
If the signer is a corporation, please sign full corporate name by duly authorized officer, giving full title as such. If signer is a partnership, please sign in partnership name by authorized person. |