SCHEDULE 14A
(Rule 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No._____________________)
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by Rule 14a-6(e)(2))
[X ] Definitive Proxy Statement
[ ] Definitive Additional Materials
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COGNIZANT CORPORATION
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[LOGO] COGNIZANT CORPORATION
200 NYALA FARMS, WESTPORT, CT 06880
April 24, 1997
Dear Shareholder:
You are cordially invited to attend the 1997 Annual Meeting of Shareholders
of Cognizant Corporation on Tuesday, May 27, 1997 at 9:30 A.M. at 1209 Orange
Street, Wilmington, Delaware.
The Notice of Annual Meeting and Proxy Statement accompanying this letter
describe the business to be acted upon at the meeting.
Please promptly vote, date, sign and return your proxy for the meeting even
if you plan to attend. You may vote in person at that time if you wish.
Sincerely,
/s/ ROBERT E. WEISSMAN
-------------------------------------
ROBERT E. WEISSMAN
Chairman and Chief Executive Officer
[LOGO] COGNIZANT CORPORATION
200 NYALA FARMS, WESTPORT, CT 06880
----------
NOTICE OF ANNUAL MEETING
----------
The Annual Meeting of Shareholders of Cognizant Corporation will be held on
Tuesday, May 27, 1997 at 9:30 A.M. at 1209 Orange Street, Wilmington, Delaware,
to take action on the following matters:
1. To elect three Class I directors for a three-year term.
2. To ratify the appointment of Coopers & Lybrand L.L.P. as independent
public accountants to audit the Company's consolidated financial
statements for 1997.
3. To approve the Cognizant Corporation Employee Stock Purchase Plan.
4. To transact such other business as may properly come before the
meeting or any adjournment. The Company knows of no other business to
be brought before the meeting.
The Board of Directors has fixed the close of business on April 16, 1997 as
the record date for determination of Shareholders entitled to notice of, and to
vote at, the meeting.
By Order of the Board of Directors,
/s/ SUSAN H. REYNOLDS
------------------------
SUSAN H. REYNOLDS
Senior Vice President
and Corporate Secretary
Dated: April 24, 1997
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PROXY STATEMENT
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GENERAL
This Proxy Statement is furnished in connection with the solicitation by
the Board of Directors of Cognizant Corporation ("Cognizant") of proxies for the
Annual Meeting of Shareholders to be held on May 27, 1997. These proxy materials
are being mailed to you and the other Shareholders on or about April 24, 1997.
The principal executive offices of Cognizant are located at 200 Nyala Farms,
Westport, Connecticut 06880 and its telephone number is (203) 222-4200.
SPIN-OFF OF COGNIZANT
Cognizant began operating as an independent publicly-held company on
November 1, 1996 (the "Spin-off Date") as a result of its spin-off (the
"Spin-off") from The Dun & Bradstreet Corporation ("Dun & Bradstreet"). Prior to
the Spin-off, Cognizant and its businesses were owned by Dun & Bradstreet.
PROXY VOTING
A proxy allows you as a Shareholder to vote on significant matters even if
you cannot attend the Annual Meeting. However, sending in a signed proxy will
not prevent you from attending the meeting and voting in person. You have the
right to revoke a proxy at any time before it is exercised by signing and
returning a proxy bearing a later date, by giving written notice of revocation
to the Corporate Secretary of Cognizant, or by attending the meeting and voting
in person. Proxies must be filed with the secretary of the meeting prior to or
at the commencement of the meeting.
All properly signed proxies not revoked will be voted at the meeting in
accordance with your instructions. A proxy which you sign and return as a
Shareholder of record without instructions marked in the boxes will be voted, as
to proposals specified in the proxy, in accordance with the recommendations of
the Board of Directors as outlined in this Proxy Statement. If any other
proposals are brought before the meeting and submitted to a vote, all proxies
will be voted in accordance with the judgment of the persons voting those
proxies.
The previous paragraph does not apply to any Cognizant shares you hold in
the Cognizant Corporation Savings Plan, The Dun & Bradstreet Corporation Profit
Participation Plan, the ACNielsen Corporation Savings Plan or the DonTech Profit
Participation Plan (the "Savings Plans"). If you have Savings Plan contributions
invested in Cognizant Common Stock, the proxy will serve as a voting instruction
for the trustee of the respective Savings Plan, as well as a proxy for any
shares registered in your own name. If a proxy covering shares in a Savings Plan
has not been received prior to May 20, 1997 or if you sign and return it without
instructions marked in the boxes, the trustee will vote those Savings Plan
shares in the same proportion as the respective Savings Plan shares for which it
has received instructions, except as otherwise required by law.
RECORD DATE, QUORUM AND VOTING REQUIREMENTS
Only holders of record of Cognizant Common Stock, par value $.01 per share,
at the close of business on April 16, 1997 are eligible to vote at the meeting.
As of the close of business on April 16, 1997, Cognizant had outstanding
167,137,493 shares of Common Stock.
Cognizant's by-laws provide that a majority of the shares entitled to vote,
present in person or represented by proxy, constitutes a quorum at meetings of
Shareholders. Shares that abstain from voting are counted for purposes of
establishing a quorum, as are shares which a broker holds in "street name" and
votes on some matters but not others ("broker non-votes").
Directors are elected by a plurality of the voting power present in person
or represented by proxy at the meeting and entitled to vote. If you are present
at the meeting but do not vote for a particular nominee, or if you have given a
proxy and properly withhold authority to vote for a nominee, or if there are
broker non-votes, the shares withheld or not voted will have no effect on the
outcome of the vote.
The ratification of the appointment of independent accountants is
determined by the affirmative vote of a majority of the voting power present in
person or represented by proxy at the meeting and entitled to vote on the
matter. If you abstain from voting or direct your proxy to abstain from voting
on this matter, your shares are considered present at the meeting for the matter
but, since they are not votes in favor of the matter, they will have the same
effect as votes against the matter. Broker non-votes are not considered present
and they are, therefore, not counted in respect of this matter.
The approval of the Cognizant Corporation Employee Stock Purchase Plan is
determined by the affirmative vote of a majority of the votes cast in the
matter, provided that the votes cast constitute a majority of the shares
entitled to vote on the matter. Neither abstentions nor broker non-votes will be
counted in respect of this matter.
PROXY SOLICITATION
Employees of Cognizant may communicate with you and other Shareholders to
solicit your proxies. Cognizant also has retained Georgeson & Company Inc. to
assist in the solicitation of proxies for a fee estimated at $10,000 plus
expenses. Cognizant will pay all expenses related to proxy solicitation.
Cognizant and Georgeson & Company Inc. will request banks and brokers to solicit
proxies from their customers where appropriate and will reimburse them for
reasonable out-of-pocket expenses.
SECURITY OWNERSHIP OF MANAGEMENT AND OTHERS
The following table sets forth the number of shares of Cognizant Common
Stock, par value $.01 per share, the only outstanding equity security (other
than stock options) or voting security of Cognizant, beneficially owned by each
of the directors, each of the executive officers named in the Summary
Compensation Table below, and all present directors and executive officers of
Cognizant as a group, at December 31, 1996. The table also sets forth the name
and address of the only persons known to Cognizant to be the beneficial owners
(the "Owners") of more than five percent of the outstanding Common Stock and the
number of shares so owned, to Cognizant's knowledge, on December 31, 1996. This
information is based upon information furnished by each such person (or, in the
case of the Owners, based upon a Schedule 13G filed by the Owners with the
Securities and Exchange Commission ("SEC")). Please note that, in certain cases,
shares required under rules of the SEC to be shown as beneficially owned are
shares as to which the indicated person holds only rights to acquire within 60
days through exercise of stock options. Unless otherwise stated, the indicated
persons have sole voting and investment power over the shares listed. All
directors and executive officers as a group own less than 1% of the Common
Stock. Percentages are based upon the number of shares of Cognizant Common Stock
outstanding at December 31, 1996, plus, where applicable, the number of shares
that the indicated person or group had a right to acquire within 60 days of such
date.
NAME NUMBER OF SHARES AND NATURE OF OWNERSHIP
---- ----------------------------------------
Clifford L. Alexander, Jr. .............. 3,300 Direct
898 Restricted Stock Grant (1)
-------
4,198
Victoria R. Fash ........................ 2,304 Direct
17,663 Rights to Acquire Within 60 days by Exercise of Options
-------
19,967
John P. Imlay, Jr. ...................... 10,000 Direct
898 Restricted Stock Grant (1)
-------
10,898
William G. Jacobi ....................... 5,579 Direct
81,899 Rights to Acquire Within 60 days by Exercise of Options
-------
87,478
2
NAME NUMBER OF SHARES AND NATURE OF OWNERSHIP
---- ----------------------------------------
Robert Kamerschen ....................,.. 4,000 Direct
898 Restricted Stock Grant (1)
-------
4,898
Alan J. Klutch .......................... 9,833 Direct
103,061 Rights to Acquire Within 60 days by Exercise of Options
-------
112,894
Robert J. Lanigan ....................... 7,100 Direct (2)
898 Restricted Stock Grant (1)
-------
7,998
H. Eugene Lockhart ...................... 300 Direct
898 Restricted Stock Grant (1)
-------
1,198
James R. Peterson ....................... 4,300 Direct
898 Restricted Stock Grant (1)
-------
5,198
M. Bernard Puckett ...................... 3,600 Direct
898 Restricted Stock Grant (1)
-------
4,498
Dennis G. Sisco ......................... 4,391 Direct
74,110 Rights to Acquire Within 60 days by Exercise of Options
-------
78,501
Robert E. Weissman ...................... 116,985 Direct
466,342 Rights to Acquire Within 60 days by Exercise of Options
-------
583,327
All Directors and Executive
Officers as a Group .................. 870,088(3)
The Capital Group Companies, Inc.
and its subsidiary, Capital Research
and Management Company,
333 South Hope Street,
Los Angeles, CA 90071 ................ 12,017,250(4)(5)
- ----------
(1) Represents shares of restricted stock granted under the Non-Employee
Directors' Stock Incentive Plan, which shares are scheduled to vest on
November 15, 2001.
(2) These shares are held in two revocable trusts (one trust holding 5,900
shares and the other 1,200 shares) for the benefit of Mr. Lanigan in which
he is the settlor and sole beneficial owner and over which he has sole
investment control.
(3) Includes all shares beneficially owned, regardless of nature of ownership,
and all rights to acquire shares within 60 days. Excludes the shares owned
by Mr. Sisco, who was not an executive officer as of the date of this Proxy
Statement.
(4) Represents 7.10% of the total outstanding Common Stock on December 31,
1996.
(5) The Capital Group Companies, Inc. ("CGCI") and its wholly owned subsidiary,
Capital Research and Management Company ("CRMC"), jointly filed a Schedule
13G with the SEC on February 12, 1997. This Schedule 13G shows that CRMC, a
registered investment adviser, had, as of December 31, 1996, sole
dispositive power (but no voting power) over 9,881,000 shares of Common
Stock. Because of the SEC's ownership attribution rules, the Schedule 13G
also shows CGCI as having sole dispositive power over such shares, as well
as sole voting and dispositive power over an additional 1,600,250 shares
and sole dispositive power (but no voting power) over a further 536,000
shares.
3
PROPOSAL NO. 1:
ELECTION OF DIRECTORS
The members of the Board of Directors of Cognizant are grouped into three
classes, one of which is elected at each Annual Meeting of Shareholders to hold
office for a three-year term and until successors are elected and have
qualified.
The Board of Directors has nominated John P. Imlay, Jr., Robert Kamerschen
and H. Eugene Lockhart for election as Class I Directors at the 1997 Annual
Meeting for a three-year term expiring at the 2000 Annual Meeting. Messrs.
Imlay, Kamerschen and Lockhart have served as directors since October 15, 1996,
shortly before Cognizant became an independent public company.
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 Class I, the persons voting
the proxy will have discretion to vote for the election of another person in
accordance with their judgment.
The following table provides, for each nominee for election as a Class I
Director, the nominee's name, position with Cognizant, the year the nominee
first became a director, principal occupations during the last five years, age,
and other directorships in public companies.
NOMINEES FOR CLASS I DIRECTORS FOR TERMS EXPIRING AT THE 2000 ANNUAL MEETING:
PRINCIPAL
POSITIONS OCCUPATIONS
WITH DIRECTOR DURING LAST OTHER
NAME COGNIZANT SINCE FIVE YEARS AGE DIRECTORSHIPS
---- --------- -------- ----------- --- -------------
John P. Imlay, Jr. Director 1996 Chairman, Imlay Investments, 60 Gartner Group,
Inc., Atlanta, GA (private Inc.; Metromedia
venture capital investments), International Group.
1990 to present; Chairman,
Dun & Bradstreet Software
Services, Inc., Atlanta, GA
(software company), 3/90 to
11/96; Principal Executive
Officer, 3/90 to 1/93;
President, 3/90 to 3/92.
4
PRINCIPAL
POSITIONS OCCUPATIONS
WITH DIRECTOR DURING LAST OTHER
NAME COGNIZANT SINCE FIVE YEARS AGE DIRECTORSHIPS
---- --------- -------- ----------- --- -------------
Robert Kamerschen Director 1996 Chairman and Chief Executive 61 ADVO, Inc.;
Officer, ADVO, Inc., Windsor, Micrografx, Inc.
CT (direct mail marketing
services), 11/88 to present.
H. Eugene Lockhart Director 1996 President, Retail Banking 47 Niagara Mohawk
Division, BankAmerica Power Corp.; RJR
Corporation, San Francisco, Nabisco Holdings
CA (financial services), Corp.
effective 5/97; President and
Chief Executive Officer,
MasterCard International
Inc., Purchase, NY (credit
card company), 3/94 to 4/97;
Executive Vice President,
First Manhattan Consulting
Group, New York, NY (banking
consulting firm), 9/92 to
2/94; Chief Executive
Officer, UK Banking and Group
Operations, Midland Bank plc,
London, England, 1986 to 1993.
5
The following tables provide, for each Class II and Class III Director
continuing in office, the director's name, position with Cognizant, the year the
director first became a director, principal occupations during the last five
years, age, and other directorships in public companies.
The information for Robert E. Weissman, Chairman and Chief Executive
Officer of Cognizant, does not include positions as an officer or director of
subsidiaries of Cognizant which are part of his responsibilities and for which
he receives no separate compensation.
CLASS II DIRECTORS HOLDING OFFICE FOR TERMS EXPIRING AT THE 1998 ANNUAL MEETING:
PRINCIPAL
POSITIONS OCCUPATIONS
WITH DIRECTOR DURING LAST OTHER
NAME COGNIZANT SINCE FIVE YEARS AGE DIRECTORSHIPS
---- --------- -------- ---------- --- -------------
Clifford L. Alexander, Jr. Director 1996 President, Alexander & 63 The Dun &
Associates, Inc., Washington, Bradstreet
D.C. (consulting firm Corporation; MCI
specializing in workforce Communications
inclusiveness), 1/81 to Corporation;
present. Dreyfus Third
Century Fund;
Dreyfus General
Family of Funds;
Dreyfus Premier
Family of Funds;
Mutual of America
Life Insurance
Company; American
Home Products
Corporation; TLC
Beatrice
International
Holdings, Inc.
James R. Peterson Director 1996 Former President and Chief 69 The Dun &
Executive Officer, The Parker Bradstreet
Pen Company, Janesville, WI Corporation; WMX
(writing instruments and Technologies, Inc.
temporary help services),
1/82 to 1/85.
Robert E. Weissman Chairman and 1996 Chairman and Chief Executive 56 State Street Boston
Chief Officer, Cognizant, 7/96 to Corporation.
Executive present; Chairman and Chief
Officer, Executive Officer, The Dun &
Director Bradstreet Corporation, 4/95
to 10/96; President and
Chief Executive Officer,
1/94 to 3/95; President
and Chief Operating
Officer, 1/85 to 12/93.
6
CLASS III DIRECTORS HOLDING OFFICE FOR TERMS
EXPIRING AT THE 1999 ANNUAL MEETING:
PRINCIPAL
POSITIONS OCCUPATIONS
WITH DIRECTOR DURING LAST OTHER
NAME COGNIZANT SINCE FIVE YEARS AGE DIRECTORSHIPS
---- --------- -------- ------------ --- -------------
Robert J. Lanigan Director 1996 Chairman Emeritus, 68 The Dun &
Owens-Illinois, Inc., Toledo, Bradstreet
OH (glass, plastics and other Corporation;
packaging products), 1/92 to Owens-Illinois,
present; Chairman of the Inc.; Transocean,
Board, 4/84 to 10/91; Chief Inc.; Sonat
Executive Officer, Offshore Inc.;
1/84 to 9/90. Chrysler
Corporation; The
Coleman Company,
Inc.
M. Bernard Puckett Director 1996 Private Investor, 1/96 to 52 P-Com, Inc.; R.R.
present; President and Chief Donnelley & Sons
Executive Officer, Mobile Company.
Telecommunication
Technologies Corp., Jackson,
MS (telecommunications), 5/95
to 1/96; President, Chief
Operating Officer, 1/94 to
5/95; Senior Vice
President-Corporate Strategy
and Development,
International Business
Machines Corporation, Armonk,
NY (computers), 7/93 to
12/93; General Manager of
Applications Solutions, 1/91
to 7/93.
COMMITTEES OF THE BOARD AND MEETINGS
The Audit Committee of the Board of Directors reviews the scope of the
audits of Cognizant's internal audit staff and the auditors' evaluation of
internal controls, receives an annual summary of the results of such audits and
reviews the scope of the audit of Cognizant's consolidated financial statements
by independent public accountants and their report on the audit. The committee
also recommends the appointment of Cognizant's independent public accountants to
the full Board. The Audit Committee consists of Messrs. Alexander (Chairman),
Lanigan and Lockhart. The Audit Committee held one meeting during 1996.
The Compensation and Benefits Committee of the Board of Directors
establishes and revises all compensation arrangements for certain executives of
Cognizant consistent with a statement of executive compensation philosophy
adopted by the Board of Directors. The committee also has authority to
administer Cognizant's executive benefit plans and to establish and review the
policies regarding executive and all other benefit programs. The committee
consists of Messrs. Puckett (Chairman), Imlay, Kamerschen and Peterson. The
Compensation and Benefits Committee held two meetings during 1996.
While the Board of Directors has no nominating committee, Shareholders'
recommendations for nominees to the Board of Directors will be considered by the
full Board. You may recommend nominees by submitting the names
7
in writing to: Susan H. Reynolds, Senior Vice President and Corporate Secretary,
Cognizant Corporation, 200 Nyala Farms, Westport, Connecticut 06880. Cognizant's
by-laws specify certain time limitations, notice requirements and other
procedures applicable to the submission of nominations before an Annual or
Special Meeting.
Two meetings of the Board of Directors were held during 1996. All the
directors attended each meeting of the Board of Directors and of the committees
of the Board on which they served.
PROPOSAL NO. 2:
APPOINTMENT OF AND RELATIONSHIP WITH
INDEPENDENT PUBLIC ACCOUNTANTS
Upon recommendation of the Audit Committee, the Board of Directors has
appointed Coopers & Lybrand L.L.P. ("Coopers & Lybrand") as independent public
accountants to audit the consolidated financial statements of Cognizant for the
year 1997. This appointment is subject to ratification by the Shareholders at
the Annual Meeting.
Coopers & Lybrand also acted as Cognizant's independent public accountants
for 1996. In connection with its audit of the consolidated financial statements,
Coopers & Lybrand also audited the separate financial statements of certain
subsidiaries, reviewed certain filings with the SEC and performed certain
non-audit services.
The Audit Committee has reviewed each professional service provided by
Coopers & Lybrand during 1996 and the types of professional non-audit services
which it may provide in the future, and has concluded that the performance of
non-audit services does not affect the independence of Coopers & Lybrand in its
audit of Cognizant's consolidated financial statements.
A representative of Coopers & Lybrand is expected to be available to answer
questions at the Annual Meeting and is free to make statements during the
meeting.
If the appointment of Coopers & Lybrand is not approved by the
Shareholders, or Coopers & Lybrand ceases to act as Cognizant's independent
accountants, or the Board of Directors removes Coopers & Lybrand as Cognizant's
independent accountants, the Board will appoint other independent accountants.
The engagement of new accountants for periods following the 1998 Annual Meeting
will be subject to ratification by the Shareholders at that meeting.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR RATIFICATION OF THE
APPOINTMENT OF COOPERS & LYBRAND.
COMPENSATION OF EXECUTIVE OFFICERS AND DIRECTORS
REPORT OF THE COMPENSATION AND BENEFITS COMMITTEE ON EXECUTIVE COMPENSATION
As noted above, Cognizant became an independent public company on November
1, 1996. Prior to that date, the businesses of Cognizant were conducted by Dun &
Bradstreet and all compensation decisions for Cognizant executives were
determined by the Compensation Committee of the Dun & Bradstreet Board of
Directors.
This report provides an explanation of the new philosophy underlying
Cognizant's Executive Compensation Program effective after the Spin-off Date,
and describes how decisions were implemented regarding the compensation paid by
Cognizant to Robert E. Weissman, Chief Executive Officer. The Compensation &
Benefits Committee ("Committee") of the Board of Directors reviews and approves
compensation for senior executives of Cognizant, including the Chief Executive
Officer and the other executives whose compensation is described in this Proxy
Statement. The Committee is composed entirely of outside directors and has been
advised by independent experts experienced in the design and implementation of
executive compensation arrangements.
EXECUTIVE COMPENSATION PHILOSOPHY
The Committee and the Board of Directors of Cognizant believe that a key to
building Shareholder value is to closely align the financial interests of
Shareholders with those of Cognizant's employees, including its senior
8
executives. Moreover, we believe top-caliber executives and employees who
deliver customer satisfaction are the other key drivers of Shareholder value. We
believe both our Shareholders and Cognizant are best served by operating the
business with a long-term perspective while striving to deliver annual results
that are on par with those of other growth companies. Cognizant relies heavily
on incentive compensation programs to motivate superior performance, both short-
and long-term. These plans, which are paid in cash and stock, place a major
portion of senior executives' compensation at risk to assure a sharp and
continuing focus on building Shareholder value. The cash compensation programs
are variable and are tied to the business unit or corporate performance for
which executives are held directly accountable. The focus of cash compensation
is on improving annual financial results. The stock options focus on creating
and sustaining Shareholder value long-term, and serve as the primary source of
future compensation growth opportunity for executives. Executives are expected
to acquire and hold significant amounts of stock and, in part, Cognizant's
compensation programs are designed to accomplish that objective.
Total compensation opportunities for Cognizant executives are highly
performance-driven in form and nature. They are designed to reward delivery of
Shareholder value with levels of compensation that are consistent with the
practices of high-performing companies that are likely to compete for the
services of our executives. This enables Cognizant to attract the highest
caliber of executive talent in an increasingly competitive market.
COMPONENTS OF THE COMPENSATION PROGRAM
The Committee believes that the form and level of executive compensation
helps Cognizant attract and retain highly motivated and effective executives who
are critical to the future success of the business.
All of the Committee's judgments about the appropriateness of levels of
compensation opportunities and payments to executives are considered in context
of competitive practices among a comparator group of companies. The companies
used for comparison purposes include several of Cognizant's peer group of
competitors, as well as companies that are not engaged in the business
information services industry. These other companies are comparable to Cognizant
in terms of one or more of the following characteristics: (1) projected revenue
growth, operating income, assets, market value and total shareholder returns;
(2) significant market presence outside the United States; (3) leading market
shares in significant or emerging markets; (4) similarities in scope of position
responsibilities, executive expertise and the magnitude of performance
challenges faced; and (5) direct competitors for executive talent.
Compensation data for the comparator companies are obtained from
benchmarking surveys conducted by independent compensation consultants. These
surveys cover more companies than those used in the peer group comparison shown
in the Total Shareholder Return graph on page 11. In reviewing the data, the
Committee takes into account how Cognizant's compensation policies and overall
performance compare to similar indices for the comparator group. We do not seek
to position compensation within any particular range of the comparator group.
Our decisions are based on individual, business unit and company performance,
and Shareholder returns.
The compensation package for executives comprises base salary, annual cash
incentives and long-term incentives in the form of stock options. Two components
of the former Dun & Bradstreet executive compensation program have been
discontinued: (1) the cash-based performance unit plan, and (2) annual grants of
restricted stock. The elimination of these payments significantly reduces the
certainty and increases the risks associated with compensation earned by
Cognizant executives. The Committee believes this shift is important for
achieving alignment between Shareholders and executives.
BASE SALARY. The base salaries of executives compensate for ongoing
performance of assigned responsibilities. In determining whether to adjust the
base salary of an executive, including the Chief Executive Officer, the
Committee takes into account salaries paid for comparable positions at other
companies, changes in the executive's responsibilities, the individual
performance of the executive and Cognizant's compensation philosophy.
ANNUAL INCENTIVES. The annual incentive plan rewards executives for the
financial results achieved for the year. Awards paid are dependent on the level
of achievement of financial targets set at the beginning of the plan year.
Financial targets for 1997 are based on revenue growth, operating earnings and
cash flow of each executive's business
9
unit or Cognizant's consolidated results. Potentially, qualitative goals such as
customer satisfaction may be included as measures of executive performance.
As a result of the Spin-off on November 1, 1996, year-end bonus payments
were prorated for the last two months of 1996, based on Cognizant performance
during the year. The goals for 1996 were based on operating earnings of the
executive's business unit or earnings per share (EPS). Some executives had a
portion of their bonus opportunity tied to qualitative goals such as an employee
satisfaction index, measured by a survey of business effectiveness.
STOCK OPTIONS. Stock options are Cognizant's primary long-term incentive
mechanism and serve to reward executives in the same manner as our Shareholders
benefit. The options only have compensation value when Shareholder value
increases. Following the Spin-off Date, executives were granted options and
offered the opportunity to purchase additional options by paying ten percent of
the option grant value in 1996. The remaining ninety percent is payable at
exercise. All options have a life of ten years, vest proportionally over six
years and have an exercise price equal to the fair market value of the Common
Stock on the grant date. In combination, these grants generally represent
multiple years of competitive award opportunity.
Future grants may be awarded to senior executives after three to five years
and will depend on a number of factors including: (1) level of responsibility;
(2) individual performance; (3) competitiveness of cash compensation earned
since initial grant; (4) potential future contributions; and (5) whether another
option grant would provide an appropriate reward and incentive for the executive
to sustain and enhance Shareholder value longer-term. The Committee believes
this approach is the most effective means for aligning Shareholder and executive
interests, reinforcing an entrepreneurial mindset, building a high-performance
culture and increasing the "at risk" portion of each executive's compensation
package.
All Dun & Bradstreet stock options held by Cognizant executives which were
outstanding on October 31, 1996 were replaced, effective November 1, 1996, with
Cognizant stock options. These replacement options were adjusted to preserve the
economic value of the Dun & Bradstreet options, and the original terms and
conditions remain in effect on these shares.
CEO COMPENSATION. Mr. Weissman participates in the executive compensation
program described in this report. Mr. Weissman's cash compensation level and
opportunities as Chief Executive Officer of Cognizant include a base salary and
a target annual incentive opportunity of $750,000 each, beginning on the
Spin-off Date. Mr. Weissman received a prorated portion of his annual incentive
for the last two months of 1996. This is compared with an annual $865,000 base
salary level and a $785,000 bonus target at Dun & Bradstreet, through October
31, 1996. Mr. Weissman received a grant of 575,000 stock options and purchased
an additional 400,000 options following the Spin-off Date. The Committee
believes Mr. Weissman's current compensation is appropriate and fully consistent
with Cognizant's philosophy on executive compensation.
TAX DEDUCTIBILITY. The Internal Revenue Code (the "Code") has set certain
limitations on the deductibility of compensation paid to a public company's
Chief Executive Officer and the other four most highly compensated senior
executives. For 1996, none of the compensation paid to the named executives by
Cognizant is expected to exceed the Code limitations. In addition, the new stock
option grants made in 1996, and the anticipated 1997 salary and annual incentive
awards, are expected to qualify for tax deductibility under transition rules
applicable to spin-offs. The Committee plans to address the issue of qualifying
subsequent years' compensation for deductibility under the Code in the future.
COMPENSATION AND BENEFITS COMMITTEE
M. Bernard Puckett, Chairman
John P. Imlay, Jr.
Robert Kamerschen
James R. Peterson
10
COMPARISON OF TOTAL SHAREHOLDER RETURN OF
COGNIZANT, S&P 500 AND COGNIZANT PEER GROUP
[GRAPHICAL REPRESENTATION OF DATA BELOW]
10/17/96 12/31/96
-------- --------
COGNIZANT CORP 100 100.76
S&P 500 INDEX 100 105.17
PEER GROUP 100 95.88
This graph compares total shareholder return of Cognizant, the Standard &
Poor's 500 Index and a group of Cognizant peer companies from October 17, 1996,
the first day of when-issued trading in Cognizant Common Stock, until December
31, 1996. Since there is no widely recognized standard industry group comprising
Cognizant and peer companies, a group of companies representing a broad range of
business information and service providers was used. The performance peer group
includes Automatic Data Processing, Inc., Ceridian Corp., Dow Jones & Company,
Inc., Forrester Research, Inc., Medaphis Corporation, Policy Management Systems
Corporation, Reuters Holding PLC and Shared Medical Systems Corporation.
EXECUTIVE COMPENSATION TABLES
SUMMARY COMPENSATION TABLE
All the executive officers named in the Summary Compensation Table below
were employed by Dun & Bradstreet until the Spin-off Date. Accordingly, for 1996
the Summary Compensation Table shows separately the amounts paid by Cognizant
(indicated as "CZT") starting on the Spin-off Date and the amounts paid by Dun &
Bradstreet (indicated as "D&B") before the Spin-off Date. Because the 1996
compensation reflects 10 months of payments under Dun & Bradstreet's
compensation programs, as well as certain one-time payments relating to the
Spin-off, it does not necessarily reflect Cognizant's compensation policies as
described in the Report of the Compensation and Benefits Committee on Executive
Compensation, earlier in this Proxy Statement.
In particular, 1996 payments include acceleration of certain long-term
awards (as described in the footnotes to the Summary Compensation Table) upon
the Spin-off as required by the applicable Dun & Bradstreet compensation plans.
In addition, Cognizant has discontinued the performance unit and restricted
stock components of Dun & Bradstreet's compensation program.
All 1995 compensation amounts were paid by Dun & Bradstreet.
11
ANNUAL COMPENSATION
-------------------------------------
(A) (B) (C) (D) (E)
OTHER
ANNUAL
COMPENSA-
NAME AND PRINCIPAL SALARY BONUS (1) TION (2)
POSITION YEAR ($) ($) ($)
------------------ ---- ------- --------- ---------
Robert E. Weissman ............ 1996 CZT 125,000 125,000 0
Chairman and Chief
Executive Officer
D&B 720,833 1,887,500 89
------- --------- -----
Total 845,833 2,012,500 89
-----------------------------------------------------------
1995 D&B 830,000 802,095 216
-----------------------------------------------------------
Dennis G. Sisco ............... 1996 CZT 64,167 44,500 0
Executive Vice
President (7)
D&B 320,833 655,833 0
------- --------- -----
Total 385,000 700,333 0
-----------------------------------------------------------
1995 D&B 351,615 453,901 0
-----------------------------------------------------------
William G. Jacobi ............. 1996 CZT 66,667 46,667 0
Executive Vice
President
D&B 333,333 615,000 2,921
------- --------- -----
Total 400,000 661,667 2,921
-----------------------------------------------------------
1995 D&B 377,315 277,557 3,448
-----------------------------------------------------------
Victoria R. Fash .............. 1996 CZT 62,500 43,333 0
Executive Vice President &
Chief Financial Officer
D&B 245,833 462,500 4,825
------- --------- -----
Total 308,333 505,833 4,825
-----------------------------------------------------------
1995 D&B 258,359 250,901 0
-----------------------------------------------------------
Alan J. Klutch ................ 1996 CZT 54,167 33,333 0
Senior Vice President
--Finance
D&B 270,833 450,000 30,116
------- --------- -----
Total 325,000 483,333 30,116
-----------------------------------------------------------
1995 D&B 312,500 224,772 34,778
-----------------------------------------------------------
LONG-TERM COMPENSATION
------------------------------------------
AWARDS PAYOUTS
------------------------- ----------
(A) (F) (G) (H) (I)
SECURITIES
RESTRICTED UNDERLYING LONG-TERM ALL OTHER
STOCK OPTIONS/ INCENTIVE COMPENSA-
NAME AND PRINCIPAL AWARD(S)(3) SARS (4) PAYOUTS (5) TION (6)
POSITION ($) (#) ($) ($)
------------------ ------------ -------- ----------- -----------
Robert E. Weissman ............ 0 575,000* 0 3,750 CZT
Chairman and Chief 400,000**
Executive Officer 568,721***
0 0 4,432,257 65,313 D&B
------- --------- --------- ------
0 1,543,721 4,432,257 69,063 Total
----------------------------------------------------------------
443,895 34,823 887,800 55,063 D&B
----------------------------------------------------------------
Dennis G. Sisco ............... 0 275,000* 0 1,925 CZT
Executive Vice 125,000**
President (7) 111,610***
0 0 1,055,375 29,917 D&B
------- --------- --------- ------
0 511,610 1,055,375 31,842 Total
----------------------------------------------------------------
252,058 15,696 104,220 26,308 D&B
----------------------------------------------------------------
William G. Jacobi ............. 0 275,000* 0 2,000 CZT
Executive Vice 125,000**
President 114,842***
0 0 996,459 25,502 D&B
------- --------- --------- ------
0 514,842 996,459 27,502 Total
----------------------------------------------------------------
277,964 13,813 155,996 21,217 D&B
----------------------------------------------------------------
Victoria R. Fash .............. 0 275,000* 0 1,875 CZT
Executive Vice President & 125,000**
Chief Financial Officer 34,617***
0 0 383,002 16,777 D&B
------- --------- --------- ------
0 434,617 383,002 18,652 Total
----------------------------------------------------------------
219,283 8,788 38,600 4,176 D&B
----------------------------------------------------------------
Alan J. Klutch ................ 0 175,000* 0 1,625 CZT
Senior Vice President 50,000**
--Finance 122,451***
0 0 869,045 19,868 D&B
------- --------- --------- ------
0 347,451 869,045 21,493 Total
----------------------------------------------------------------
101,303 6,588 202,650 6,795 D&B
----------------------------------------------------------------
- ----------
* Effective Date Stock Options
** Effective Date Purchased Options
*** D&B Substitute Options
12
(1) The 1996 Cognizant bonus amounts were earned in 1996 and paid in 1997. The
1996 Dun & Bradstreet bonus amounts were earned and paid in 1996. The 1995
bonus amounts were earned in 1995 and paid in 1996.
(2) Amounts shown represent reimbursement for taxes paid by the named executive
officers with respect to company-directed travel and certain other
expenses. The value of certain personal benefits is not included since it
does not exceed $50,000 for any named executive officer.
(3) In 1996, no restricted stock was granted and there were no restricted stock
holdings outstanding for the named executive officers at December 31, 1996.
Previous Dun & Bradstreet restricted stock awards either vested or were
paid in cash in connection with the Spin-off. Amounts shown for 1995
represent the dollar value on the date of grant of Dun & Bradstreet
restricted stock granted that year.
(4) Only the amounts designated as Effective Date Stock Options reflect new
Cognizant option grants for 1996. Those designated as Effective Date
Purchased Options are options that were purchased by the named executive
officers for cash at a price of 10% of the exercise price. The remaining
90% is payable if and when the options are exercised. The 10% purchase
price is forfeited if the options expire without being exercised, and the
portion of the purchase price attributable to vested options is also
forfeitable upon termination of employment in certain circumstances. The
new grants were designed to implement a front-loaded equity-based incentive
covering several years. Accordingly, while the grants are larger than
typical annual grants, none of the named executive officers is expected to
receive additional option grants for a minimum of three years. The options
designated as Substitute Options were issued in substitution of Dun &
Bradstreet options that were canceled as of the Spin-off Date, as described
in the introduction to the "Option/SAR Grants in Last Fiscal Year" table
below. Amounts granted in 1995 represent the original number of Dun &
Bradstreet stock options granted in 1995. These shares are among the Dun &
Bradstreet options that were replaced by the Substitute Options shown in
the 1996 grant. All the options in this table are without tandem stock
appreciation rights, except for the Limited SARs described under the
"Option/SAR Grants in Last Fiscal Year" table below.
(5) Amounts shown for 1995 represent payments made under the Dun & Bradstreet
Key Employees Performance Unit Plan ("PUP"). The amounts shown for 1996
represent a cash payout of the cash and restricted stock components of the
1993, 1994 and 1995 PUP awards. The 1994 and 1995 PUP awards would normally
have been paid in future years, but were accelerated pursuant to the terms
of the PUP as a result of the Spin-off. Cognizant does not have an
incentive plan equivalent to the PUP.
(6) Amounts shown represent aggregate annual company contributions for the
account of each named executive officer under the Dun & Bradstreet Profit
Participation Plan ("PPP") and Profit Participation Benefit Equalization
Plan ("PPBEP"), and the Cognizant Corporation Savings Plan ("Savings Plan")
and Savings Benefit Equalization Plan ("SBEP"), plans which are open to
employees of Dun & Bradstreet or Cognizant and certain subsidiaries. The
PPP and Savings Plan are tax-qualified defined contribution plans and the
PPBEP and SBEP are non-qualified plans which provide a benefit to
participants in the PPP and Savings Plan equal to the amount of company
contributions that would have been made to the participant's PPP and
Savings Plan accounts but for certain Federal tax laws.
(7) Mr. Sisco resigned as Executive Vice President in 1997 and is no longer an
executive officer.
13
OPTION/SAR GRANTS IN LAST FISCAL YEAR
The following table shows grants of stock options to the named executive
officers in 1996. As indicated, certain of the options were new options granted
at the launch of Cognizant as an independent company ("Effective Date Options").
These grants are front-loaded and thus none of the named executive officers is
expected to receive additional option grants for a minimum of three years. The
other grants were made in substitution of outstanding Dun & Bradstreet options
that were canceled as of the Spin-off Date ("Substitute Options"). The original
exercise price of the canceled Dun & Bradstreet options was the fair market
value of Dun & Bradstreet common stock on the date of grant. The exercise price
and number of shares subject to the Substitute Options were determined under a
formula intended to preserve the economic value of the canceled Dun & Bradstreet
options.
INDIVIDUAL GRANTS
- ----------------------------------------------------------------------------------------------------------------------
(A) (B) (C) (D) (E) (F)
NUMBER OF
SECURITIES % OF TOTAL
UNDERLYING OPTIONS/SARS EXERCISE GRANT DATE
OPTIONS/SARS GRANTED TO OR BASE PRESENT
GRANTED (1) EMPLOYEES IN PRICE EXPIRATION VALUE (2)
NAME (#) FISCAL YEAR ($/SHARE) DATE ($)
---- ------------ ------------ -------- ----------- ----------
Robert E. Weissman .... Effective Date Options
Stock Options 575,000 5.7651% $33.3750 11/14/06 $4,979,500
Purchased Options 400,000 $33.3750 11/14/06 $3,464,000
----------------------------------------------------------------------------------------------
Substitute Options 15,813 16.9539% $30.6752 01/05/97 $31,626
3,256(I) $30.6752 01/05/97 $6,512
26,545 $28.2517 12/15/97 $136,972
40,115 $29.9135 12/20/98 $180,919
63,339 $23.6815 12/19/99 $636,557
71,337 $22.9891 12/18/00 $802,541
70,603 $28.0439 12/17/01 $569,766
68,142 $31.9909 12/15/02 $406,126
72,496 $34.4837 12/14/03 $355,230
74,213 $29.9135 12/20/04 $555,855
62,862 $35.3146 12/19/05 $341,969
----------------------------------------------------------------------------------------------
Dennis G. Sisco ....... Effective Date Options
Stock Options 275,000 2.3652% $33.3750 11/14/06 $2,381,500
Purchased Options 125,000 $33.3750 11/14/06 $1,082,500
----------------------------------------------------------------------------------------------
Substitute Options 5,013 3.3272% $29.9135 12/20/98 $22,609
7,599 $23.6815 12/19/99 $76,370
8,524 $22.9891 12/18/00 $95,895
8,271 $28.0439 12/17/01 $66,747
8,939 $31.9909 12/15/02 $53,276
9,101 $32.9603 07/20/03 $52,695
15,773 $34.4837 12/14/03 $77,288
20,057 $29.9135 12/20/04 $150,227
6,247 $28.8056 04/18/05 $53,787
22,086 $35.3146 12/19/05 $120,148
----------------------------------------------------------------------------------------------
William G. Jacobi ..... Effective Date Options
Stock Options 275,000 2.3652% $33.3750 11/14/06 $2,381,500
Purchased Options 125,000 $33.3750 11/14/06 $1,082,500
----------------------------------------------------------------------------------------------
Substitute Options 3,588 3.4235% $30.6752 01/05/97 $7,176
3,256(I) $30.6752 01/05/97 $6,512
8,919 $28.2517 12/15/97 $46,022
10,027 $29.9135 12/20/98 $45,222
3,166 $23.6815 12/19/99 $31,818
5,045 $22.9891 12/18/00 $56,756
6,738 $28.0439 12/17/01 $54,376
8,251 $31.9909 12/15/02 $49,176
9,101 $32.9603 07/20/03 $52,695
15,773 $34.4837 12/14/03 $77,288
16,044 $29.9135 12/20/04 $120,170
6,247 $28.8056 04/18/05 $53,787
18,687 $35.3146 12/19/05 $101,657
14
INDIVIDUAL GRANTS
- ----------------------------------------------------------------------------------------------------------------------
(A) (B) (C) (D) (E) (F)
NUMBER OF
SECURITIES % OF TOTAL
UNDERLYING OPTIONS/SARS EXERCISE GRANT DATE
OPTIONS/SARS GRANTED TO OR BASE PRESENT
GRANTED (1) EMPLOYEES IN PRICE EXPIRATION VALUE (2)
NAME (#) FISCAL YEAR ($/SHARE) DATE ($)
---- ------------ ------------ -------- ----------- ----------
Victoria R. Fash ...... Effective Date Options
Stock Options 275,000 2.3652% $33.3750 11/14/06 $2,381,500
Purchased Options 125,000 $33.3750 11/14/06 $1,082,500
----------------------------------------------------------------------------------------------
Substitute Options 2,994 1.0320% $28.0439 12/17/01 $24,162
3,563 $31.9909 12/15/02 $21,235
4,175 $34.4837 12/14/03 $20,458
8,022 $29.9135 12/20/04 $60,085
3,122 $28.8056 04/18/05 $26,880
12,741 $35.3146 12/19/05 $69,311
----------------------------------------------------------------------------------------------
Alan J. Klutch ........ Effective Date Options
Stock Options 175,000 1.3304% $33.3750 11/14/06 $1,515,500
Purchased Options 50,000 $33.3750 11/14/06 $433,000
----------------------------------------------------------------------------------------------
Substitute Options 2,119 3.6503% $30.6752 01/05/97 $4,238
3,256(I) $30.6752 01/05/97 $6,512
7,803 $28.2517 12/15/97 $40,263
9,026 $29.9135 12/20/98 $40,707
13,934 $23.6815 12/19/99 $140,037
15,658 $22.9891 12/18/00 $176,153
16,044 $28.0439 12/17/01 $129,475
14,878 $31.9909 12/15/02 $88,673
13,802 $34.4837 12/14/03 $67,630
14,039 $29.9135 12/20/04 $105,152
11,892 $35.3146 12/19/05 $64,692
----------------------------------------------------------------------------------------------
(I) = Incentive Stock Options
- ----------
(1) The expiration dates and generally the other terms of the Substitute
Options are identical to the terms of the corresponding Dun & Bradstreet
options. The Cognizant Effective Date Options may not be exercised for at
least one year after grant and may then be exercised in installments of
one-sixth of the grant amount each year until they are 100% vested. Payment
must be made in full upon exercise in cash or Common Stock. The option
holder may elect to have shares of Common Stock issuable upon exercise
withheld by Cognizant to pay withholding taxes due. Generally, all the
options shown include Limited SARs in tandem with the options. Limited SARs
are exercisable only if and to the extent that the related option is
exercisable and are exercisable only during the 30-day period following the
acquisition of at least 20% of the outstanding Common Stock pursuant to a
tender or exchange offer not made by Cognizant. Each Limited SAR permits
the holder to receive cash equal to the excess over the related option
exercise price of the highest price paid pursuant to a tender or exchange
offer for Common Stock which is in effect at any time during the 60 days
preceding the date upon which the Limited SAR is exercised. Limited SARs
can be exercised regardless of whether Cognizant supports or opposes the
offer.
The Effective Date Options designated as Purchased Options represent
options that were purchased by the named executive officers for cash at a
price of 10% of the exercise price. The remaining 90% is payable if and
when the options are exercised. The 10% purchase price is forfeited if the
options expire without being exercised, and the portion of the purchase
price attributable to vested options is also forfeitable upon termination
of employment in certain circumstances.
(2) Grant date present value is based on the Black-Scholes option valuation
model, which makes the following material assumptions:
(a) For the Effective Date Options, an expected stock-price volatility
factor of 25%, a risk-free rate of return of 5.8%, an annual dividend
yield of 0.30%, an assumed time of exercise of 4.5 years from grant
date, and a reduction of approximately 16% to reflect the probability
of forfeiture due to termination prior to vesting.
(b) For the Substitute Options, an expected stock-price volatility factor
of 25%, a risk-free rate of return ranging from 5.07% (for the
earliest expiring options) to 6.24% and 6.26% (for the latest expiring
options), an annual dividend yield of 0.30%, an assumed time of
exercise ranging from 0.1 year from grant date (for the earliest
expiring options) to 2.7 and 2.8 years from grant date (for the latest
expiring options) and a reduction to reflect the probability of
forfeiture due to termination prior to vesting, ranging from 5% (for
the earliest expiring unvested options) to 10% (for the latest
expiring unvested options).
These assumptions may or may not be fulfilled, and the amounts shown cannot
be considered predictions of future value. Options will gain value only to
the extent the stock price exceeds the option exercise price during the
life of the option.
15
AGGREGATE OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND
FISCAL YEAR-END OPTION/SAR VALUES
The following table provides information as to option exercises by each of
the named executive officers during 1996 and the value of unexercised
in-the-money Effective Date Options and Substitute Options at year-end.
(A) (B) (C) (D) (E)
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY
SHARES OPTIONS/SARS AT FISCAL OPTIONS/SARS
ACQUIRED VALUE YEAR-END (1) (#) AT FISCAL YEAR-END (2) ($)
ON EXERCISE REALIZED --------------------------- ----------------------------
NAME (#) ($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- -------- ----------- ------------- ----------- --------------
Robert E. Weissman .... Effective Date Options 0 0 0 975,000 $ 0 $ 0
Substitute Options 0 0 466,342 102,379 $2,082,233 $109,895
Dennis G. Sisco ....... Effective Date Options 0 0 0 400,000 $ 0 $ 0
Substitute Options 0 0 74,110 37,500 $ 252,883 $48,773
William G. Jacobi ..... Effective Date Options 0 0 0 400,000 $ 0 $ 0
Substitute Options 0 0 81,899 32,943 $ 234,923 $42,826
Victoria R. Fash ...... Effective Date Options 0 0 0 400,000 $ 0 $ 0
Substitute Options 0 0 17,663 16,954 $ 32,663 $21,413
Alan J. Klutch ........ Effective Date Options 0 0 0 225,000 $ 0 $ 0
Substitute Options 0 0 103,061 19,390 $ 468,976 $20,790
- -----------
(1) No SARs were outstanding at December 31, 1996.
(2) The values shown equal the difference between the exercise price of
unexercised in-the-money options and the fair market value of the
underlying Common Stock at December 31, 1996. Options are in-the-money if
the fair market value of the Common Stock exceeds the exercise price of the
option.
RETIREMENT BENEFITS
The following table sets forth the estimated aggregate annual benefits
payable under the Cognizant Retirement Plan, the Cognizant Corporation
Supplemental Executive Retirement Plan and the Cognizant Retirement Excess Plan
to persons in specified average final compensation and years-of-service
classifications upon retirement at age 65. Amounts shown in the table include
U.S. Social Security benefits and benefits payable under predecessor plans of
Dun & Bradstreet which would be deducted in calculating benefits payable under
these plans. These aggregate annual retirement benefits do not increase as a
result of additional service after 15 years.
Benefits vest after five years of service and are calculated as 5% of
average final compensation per year for the first 10 years of service, and 2%
per year for the next five years, up to a maximum of 60% of average final
compensation after 15 years of service.
ESTIMATED AGGREGATE ANNUAL RETIREMENT BENEFIT
AVERAGE ASSUMED SERVICE OF:
FINAL -------------------------------------------------------
COMPENSATION 15 YEARS 20 YEARS 25 YEARS 30 YEARS
- ------------ ---------- ---------- ----------- ------------
$ 550,000 $ 330,000 $ 330,000 $ 330,000 $ 330,000
700,000 420,000 420,000 420,000 420,000
850,000 510,000 510,000 510,000 510,000
1,000,000 600,000 600,000 600,000 600,000
1,300,000 780,000 780,000 780,000 780,000
1,600,000 960,000 960,000 960,000 960,000
1,900,000 1,140,000 1,140,000 1,140,000 1,140,000
The number of years of service for Messrs. Weissman, Sisco and Jacobi and
Ms. Fash are, respectively, 17, 8, 17 and 5.
16
Compensation, for the purpose of determining retirement benefits, consists
of base salary, annual bonuses, commissions and overtime pay. Severance pay,
income derived from equity-based awards, contingent payments and other forms of
special remuneration are excluded. 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. For 1996, compensation for purposes of determining retirement benefits
for the named executive officers differed by less than 10% from the amounts
shown in the table except that compensation for 1996 for purposes of determining
retirement benefits for Messrs. Weissman and Jacobi and Ms. Fash was,
respectively, $2,302,095, $916,723, and $621,734.
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 member's credited service. Members vest
in their accrued retirement benefit upon completion of five years' service. The
benefits shown in the table above are calculated on a straight-life annuity
basis.
Retirement benefits for Mr. Klutch are determined solely under the
Cognizant Retirement Plan and the Retirement Excess Plan. Under these plans,
Cognizant contributes 6% of the participant's compensation monthly to the
participant's cash balance in the plan. The cash balance earns monthly
investment credits based on the yield on 30-year Treasury bonds from time to
time. These plans also include a minimum monthly benefit for certain employees
who had attained age 50 and had earned 10 years of service as of October 31,
1996, including Mr. Klutch. The minimum benefit is equal to the excess of (i)
1.7% of final average compensation multiplied by years of credited service not
in excess of 25, plus 1.0% of average final compensation multiplied by years of
credited service in excess of 25, over (ii) 1.7% of the primary Social Security
insurance benefits multiplied by years of credited service not in excess of 25,
plus 0.5% of the primary Social Security insurance benefits multiplied by years
of credited service in excess of 25. Mr. Klutch's estimated annual benefits upon
retirement at age 65 are $194,490, based upon his credited service to date for
these plans of 22.5 years. This amount includes benefits payable under
predecessor plans of Dun & Bradstreet which would be deducted from the amount
payable under these plans.
CHANGE-IN-CONTROL AGREEMENTS
In 1996, Cognizant entered into agreements with the executive officers
named in the Summary Compensation Table above (as well as with other officers
and key employees of Cognizant and its subsidiaries), providing for certain
benefits upon termination of employment in the event of a Change in Control (as
defined below) of Cognizant. If, following a Change in Control, the employment
of a named executive officer is terminated without cause or he or she terminates
employment for "good reason" (generally, an adverse change in employment status,
compensation or benefits, a required relocation or the lapse of 12 months
following the Change in Control), the officer will receive a lump sum payment
equal to three times base salary and annual target bonus, reimbursement for
outplacement expenses, life and health insurance coverage for 36 months after
termination, retiree medical coverage, the accelerated vesting of stock options
and the accelerated payment of prorated annual and other bonuses. Messrs.
Weissman and Jacobi and Ms. Fash will also receive full vesting under the
Supplemental Executive Retirement Plan and crediting of the maximum years of
service for purposes of determining the amount of retirement benefits. A Change
in Control will generally have occurred under the following circumstances: (i)
an acquisition by any person of 20% of the combined voting power of Cognizant's
securities, (ii) during any period of twenty-four months a majority of the Board
ceases to consist of (x) directors in office at the beginning of such period or
(y) directors whose election was approved by two-thirds of the directors in
office at the beginning of the period or by directors whose election was so
approved, (iii) Cognizant's merger or consolidation with another entity (other
than one in which Cognizant's shares outstanding prior to the merger represent
66 2/3% of the voting power of the surviving company and no shareholder holds
20% or more of such remaining voting power) or (iv) the liquidation or sale of
substantially all of Cognizant's assets.
EXECUTIVE TRANSITION PLAN
The Cognizant Executive Transition Plan (the "ETP") provides severance
benefits to executive officers of Cognizant (including those named in the
Summary Compensation Table above) and certain of its subsidiaries,
17
selected by the Chief Executive Officer. The ETP generally provides for the
payment of severance benefits if the employment of a covered executive
terminates by reason of a reduction in force, job elimination, unsatisfactory
job performance or a mutually acceptable resignation. In the event of an
eligible termination, the executive will be paid 104 weeks of salary
continuation consisting of annual base salary and annual bonus opportunity for
the year of termination. However, if the executive is terminated by reason of
unsatisfactory performance, the bonus opportunity will not be included.
In addition, the ETP provides to eligible terminated executives (i)
continued medical, dental and life insurance coverage throughout the salary
continuation period; (ii) payment of the annual bonus for the year of
termination that would have been paid if employment continued, prorated based on
the number of months worked during that year; and (iii) in certain instances,
outplacement services and financial counseling. The Chief Executive Officer may
increase or decrease ETP benefits for executives other than the Chief Executive
Officer, provided such decision is reported to the Compensation and Benefits
Committee of the Board, and that committee may increase or decrease ETP benefits
for the Chief Executive Officer.
Neither the prorated annual bonus nor the financial counseling is provided
if employment terminates due to unsatisfactory performance.
COMPENSATION OF DIRECTORS
CASH COMPENSATION. Beginning in October 1996, each director not employed by
Cognizant was paid a retainer at an annual rate of $25,000 in quarterly
installments and each non-employee director who was Chairman of a committee of
the Board of Directors was paid an additional retainer at an annual rate of
$3,000 in quarterly installments. In addition, each non-employee director was
paid a fee of $1,000 for each Board or Committee meeting attended in 1996.
Directors who were employed by Cognizant received no retainers or fees.
Each non-employee director may elect to have all or a specified part of the
retainer and fees deferred until he or she ceases to be a director. Deferred
amounts may be credited to the account of directors as deferred cash, which
bears interest at prescribed rates, or as deferred share units in an amount
equal to the amount of deferred compensation divided by the fair market value of
a share of Common Stock on the date the compensation would otherwise have been
paid. Deferred share units are credited with dividend equivalents. Fair market
value is the average of the high and low trading prices of the Common Stock on
the date of determination. Deferred amounts and accrued interest and dividend
equivalents are paid in the form of cash or stock, as appropriate, on the first
business day of the calendar year following the date of the director's
termination of service on Cognizant's Board.
Upon the occurrence of a Change in Control (as defined above under
"Change-in-Control Agreements") of Cognizant, the Compensation and Benefits
Committee may take such action as it deems necessary or desirable with respect
to deferred amounts.
NON-EMPLOYEE DIRECTORS' STOCK INCENTIVE PLAN. This plan provides for the
granting of stock options and restricted stock to non-employee directors of
Cognizant on such terms as are determined by the Compensation and Benefits
Committee of the Board of Directors. On November 15, 1996 the committee granted
each non-employee director 898 shares of restricted Common Stock with a fair
market value on that date of $29,971, and a stock option to purchase 7,000
shares of Common Stock at an exercise price of $33.375 per share. The restricted
shares vest five years after the date of grant. Until the shares vest, the
director is not able to sell or dispose of them but is entitled to vote them and
receive dividends. These restrictions lapse if the director dies or becomes
disabled or, at the committee's discretion, if the director's service terminates
in other circumstances. The stock option expires 10 years after the grant date
and vests in six equal installments beginning one year after the grant date. The
plan provides for the accelerated vesting of options upon termination of service
due to death, disability or retirement.
Upon the occurrence of a Change in Control (as defined above under
"Change-in-Control Agreements") of Cognizant, the Compensation and Benefits
Committee may take such action as it deems necessary or desirable with respect
to awards, including acceleration of an award, payment of cash in exchange for
cancellation of an award, and/or issuing substitute awards that substantially
preserve the value, rights and benefits of previously granted awards.
18
PROPOSAL NO. 3:
ADOPTION OF EMPLOYEE STOCK PURCHASE PLAN
On February 18, 1997, the Board of Directors adopted the Cognizant
Corporation Employee Stock Purchase Plan (the "Purchase Plan"), subject to
approval by the Shareholders at the Annual Meeting. The Purchase Plan was
designed to align the interests of employees of Cognizant and its subsidiaries
("Participants") with those of Shareholders. The Purchase Plan affords
Participants the right to buy shares of Cognizant Common Stock through payroll
deductions at a discount from market price. The Shareholders are being asked to
approve the Purchase Plan so that it may qualify for the income tax treatment
described under "U.S. Tax Consequences" below. This is a summary of the major
provisions of the Purchase Plan:
1. SHARES COVERED AND PARTICIPANTS. A maximum number of 1,500,000
shares may be issued under the Purchase Plan. Employees of Cognizant or any
participating subsidiary are eligible to participate in the Purchase Plan,
except for part-time or temporary employees customarily working 20 hours or
less per week, employees who customarily work not more than 5 months in a
calendar year, employees who, immediately after the grant of an option
under the Purchase Plan, would own 5% or more of the combined voting power
or value of all classes of stock of Cognizant, and executive officers
subject to Section 16 of the Securities Exchange Act of 1934 who are
"highly compensated employees" within the meaning of the Code.
2. ADMINISTRATION. The Purchase Plan will be administered and
interpreted by the Compensation and Benefits Committee of the Board, which
comprises at least two "non-employee" directors within the meaning of Rule
16b-3 under the Exchange Act. The committee may delegate its duties to a
subcommittee or to specified individuals.
3. OFFERING PERIODS. Participants may authorize payroll deductions
over specified 3-month periods of time beginning July 1, 1997 until June
30, 2007. The Committee may change the duration of offering periods at its
discretion.
Payroll deductions will be credited to the Participant's payroll
deduction account without interest and will be applied at the end of each
offering period to purchase Common Stock. After electing to participate in
an offering period, a Participant will automatically participate in future
offering periods unless he or she changes the election or withdraws from an
offering period or from the Purchase Plan.
4. OPTIONS. Participants who are participating in any offering period
will be granted, as of the first day of the offering period (the "Offering
Date"), an option to purchase (the "Option"), as of the last day of the
offering period (the "Purchase Date"), a number of shares of Common Stock
equal to the lesser of (i) the number of shares determined by dividing the
amount accumulated in such Participant's payroll deduction account during
the offering period by the purchase price per share or (ii) the maximum
number of shares of Common Stock that the Participant may purchase, as
determined by the Committee.
The purchase price for a share of Common Stock in each offering period
shall be 90% of the lesser of the fair market value of a share on the
Offering Date or the fair market value of a share on the Purchase Date.
5. PAYMENT FOR AND ISSUANCE OF SHARES. Each Participant may elect
payroll deductions in each Offering Period as a percentage of the
Participant's compensation, in 1% increments from 1% to 20%. However, no
Participant may purchase shares under the Purchase Plan with an aggregate
fair market value which exceeds $25,000 for any calendar year.
On each Purchase Date, Cognizant will apply the funds in the
Participant's payroll deduction account to purchase a number of whole or
fractional shares pursuant to the Participant's Option. If the Purchase
Plan has been oversubscribed, Cognizant will proportionately reduce the
number of shares each Participant is entitled to purchase.
The shares purchased by each Participant will be deposited in an
account in the Participant's name at a brokerage firm designated by
Cognizant. Unless otherwise requested by the Participant, dividends on the
Common Stock shall be reinvested in whole or fractional shares of Common
Stock to be held in the brokerage account.
A Participant may withdraw from an Offering Period or the Purchase
Plan on such terms and conditions as the Committee establishes. In that
event, all funds in the Participant's payroll deduction account will be
returned to the Participant without interest.
19
6. TERMINATION OF EMPLOYMENT. A Participant shall cease to participate
in the Purchase Plan upon termination of employment for any reason and any
amounts in the Participant's payroll deduction account shall be returned,
without interest, to the Participant or, in case of the Participant's
death, to his or her beneficiary. A beneficiary in such event shall have no
further rights in any unexercised Option.
7. ADJUSTMENTS. In the event of any change in outstanding shares
pursuant to certain events specified in the Purchase Plan (e.g., a merger
or recapitalization), the Committee may make such substitutions or
adjustments as it deems equitable.
The Committee may take such actions as it deems necessary or desirable
with respect to Options in the event of a Change in Control of Cognizant. A
Change in Control is defined in the same way as under "Change-in-Control
Agreements", earlier in this Proxy Statement.
8. RESTRICTIONS ON TRANSFER. Options may not be transferred by a
Participant except by will or the laws of descent and distribution.
9. TERMINATION AND AMENDMENT. The Purchase Plan shall continue until
it is terminated by the Board, all shares of Common Stock reserved for
issuance under the Purchase Plan are issued, or June 30, 2007, whichever
occurs first. The Board may amend, alter or discontinue the Purchase Plan,
but no amendment, alteration or discontinuation may be made which, (a)
without the approval of the Shareholders of Cognizant, would increase the
total number of shares of Common Stock reserved for the Purchase Plan, or
(b) without the consent of a Participant, would impair any of the rights or
obligations under any Option granted to such Participant under the Purchase
Plan; provided, however, that the Committee may amend the Purchase Plan as
it deems necessary to permit the granting of Options meeting the
requirements of the Code or other applicable laws.
The Committee may amend the terms of the Purchase Plan or Options with
respect to Participants who reside or work outside of the United States in
order to conform to requirements of local law.
U.S. TAX CONSEQUENCES. The Purchase Plan is intended to qualify as an
"employee stock purchase plan" within the meaning of applicable provisions of
the Code. Therefore, an employee who elects to participate in the Purchase Plan
will not realize income at the time an Option is granted or at the time shares
are issued pursuant to the exercise of the Option.
If the employee disposes of a share after holding it for two years from the
Offering Date on which the Option to purchase such share was granted and one
year from the date such share was issued (the "Holding Period"), or if the
employee dies at any time while owning a share issued under the Plan, then the
employee will realize as ordinary income the lesser of (i) the excess of the
fair market value of the share at the time of disposition or death over the
purchase price of the share under the Option, or (ii) the excess of the fair
market value of the share at the time the Option was granted over the purchase
price of the share under the Option. Any gain upon disposition in excess of the
ordinary income realized shall be treated as long-term capital gain. If upon
such disposition the employee receives less than he or she paid for the share,
no ordinary income will be realized, and the loss will be treated as long-term
capital loss. Cognizant will not be entitled to a deduction for compensation
expenses equal to ordinary income recognized by the employee as a result of such
a disposition.
If the employee disposes of the share before the expiration of the Holding
Period (a "Disqualifying Disposition"), he or she will realize ordinary income
equal to the excess of the fair market value of the share on the date of
exercise over the purchase price of the share. Any additional amounts recognized
in excess of such ordinary income will be treated as long- or short-term capital
gain, depending upon how long such shares were held. Cognizant will be entitled
to a deduction for compensation expenses equal to the ordinary income recognized
by the employee upon such a Disqualifying Disposition.
OTHER INFORMATION. The number of Options that may be granted to Partcipants
under the Purchase Plan in the future is not determinable since this depends on
the amount of payroll deductions elected by each Participant. No Options have
been granted under the Purchase Plan to date. If the Purchase Plan is not
approved by the Shareholders, the plan will be terminated.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR APPROVAL OF THE PROPOSED
COGNIZANT CORPORATION EMPLOYEE STOCK PURCHASE PLAN.
20
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Cognizant knows of no person who did not file on a timely basis reports
required by Section 16(a) of the Securities Exchange Act of 1934 during 1996 or
prior years.
OTHER MATTERS
Cognizant knows of no matters, other than those referred to herein, which
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 vote the proxies in accordance with their best
judgment.
SHAREHOLDER PROPOSALS FOR 1998 ANNUAL MEETING
Shareholder proposals intended to be presented at the Cognizant Annual
Meeting of Shareholders in 1998 must be received by Cognizant no later than
December 26, 1997.
April 24, 1997
21
COGNIZANT CORPORATION
PROXY/VOTING INSTRUCTIONS FOR THE ANNUAL MEETING TO BE HELD MAY 27, 1997
AT 9:30 A.M. AT 1209 ORANGE STREET, WILMINGTON, DELAWARE
ROBERT E. WEISSMAN, VICTORIA R. FASH and KENNETH S. SIEGEL, or any of them,
with full power of substitution, are hereby authorized and/or instructed to
represent and/or vote all the shares of Common Stock of Cognizant Corporation
which the undersigned is entitled to vote at the Annual Meeting of Shareholders
on May 27, 1997, and at any adjournment thereof:
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR ELECTION OF ALL NOMINEES
IDENTIFIED IN ITEM (1) AND FOR ITEMS (2) AND (3).
(1) Election of Class I Directors for a three-year term expiring at the 2000
Annual Meeting of Shareholders. Nominees: John P. Imlay, Jr., Robert
Kamerschen and H. Eugene Lockhart.
[ ] FOR all nominees listed above, except [ ] WITHHOLD authority to
vote withheld from the following vote for all nominees
nominees (if any):
__________________________________
(2) Ratification of the appointment of Coopers & Lybrand L.L.P. as independent
public accountants to audit the Company's consolidated financial statements
for 1997. Mark only one.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
(3) Approval of the Cognizant Corporation Employee Stock Purchase Plan. Mark
only one.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
(Please Turn Over and Sign)
COGNIZANT CORPORATION
THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS. A PROXY WHICH IS SIGNED
AND RETURNED BY A SHAREHOLDER OF RECORD WITHOUT SPECIFICATION MARKED IN THE
INSTRUCTION BOXES WILL BE VOTED FOR ELECTION OF ALL NOMINEES IDENTIFIED IN ITEM
(1), AND FOR ITEMS (2) AND (3).
NOTICE TO PARTICIPANTS IN CERTAIN BENEFIT PLANS.
- ------------------------------------------------
The trustee of (i) the Cognizant Corporation Savings Plan (ii) The Dun &
Bradstreet Corporation Profit Participation Plan, (iii) the DonTech Profit
Participation Plan, and (iv) the ACNielsen Corporation Savings Plan, has agreed
that this proxy will also serve as voting instructions from participants in such
plans who have plan contributions for their respective account invested in
Common Stock. Proxies covering shares in these plans must be received prior to
May 20, 1997. If a proxy covering shares in the plans has not been received
prior to May 20, 1997 or if it is signed and returned without specification
marked in the instruction boxes, the trustee of these plans will vote the plan
shares in the same proportion as the respective shares in such plan for which it
has received instructions.
PLEASE INDICATE WHETHER YOU EXPECT TO ATTEND THE ANNUAL MEETING:
[ ] Yes [ ] No
Date ___________________________, 1997
_______________________________________
_______________________________________
Signature(s)
Please sign exactly as name appears at
left. Joint owners should each sign.
Executors, administrators, trustees,
etc. should so indicate when signing and
sign as required by the authority held.
Proxy form begins on the reverse side.
Please vote, date, sign and return
immediately.