<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY 31, 1996
REGISTRATION NO. 333-6117
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
AMENDMENT NO. 1
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
----------------
EXPERIAN INFORMATION SOLUTIONS, INC.
(FORMERLY INTELLIDATA, INC.)
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 7320 04-3315053
(STATE OR OTHER (PRIMARY STANDARD (I.R.S. EMPLOYER
JURISDICTION OF INDUSTRIAL IDENTIFICATION NUMBER)
INCORPORATION OR CLASSIFICATION CODE
ORGANIZATION) NUMBER)
C/O ROPES & GRAY
ONE INTERNATIONAL PLACE
BOSTON, MASSACHUSETTS 02110
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
----------------
PETER H. DODSON
C/O ROPES & GRAY
ONE INTERNATIONAL PLACE
BOSTON, MASSACHUSETTS 02110
(617) 951-7000
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF AGENT FOR SERVICE)
----------------
COPIES TO:
PETER H. DODSON CHARLES W. ROBINS DANIEL J. ZUBKOFF
ROPES & GRAY HUTCHINS, WHEELER CAHILL GORDON & REINDEL
ONE INTERNATIONAL PLACE & DITTMAR, A 80 PINE STREET
BOSTON, MASSACHUSETTS PROFESSIONAL CORPORATION NEW YORK, NEW YORK 10005
02110 101 FEDERAL STREET (212) 701-3000
(617) 951-7000 BOSTON, MASSACHUSETTS
02110
(617) 951-6600
APPROXIMATE DATE OF COMMENCEMENT OF THE PROPOSED SALE TO THE PUBLIC: AS SOON
AS PRACTICABLE AFTER THE EFFECTIVE DATE OF THIS REGISTRATION STATEMENT.
If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [_]
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [_]
___________
If this form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
___________
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]
----------------
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<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION BECOMES +
+EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE +
+SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE +
+SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE +
+UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF +
+ANY SUCH STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION, DATED JULY 31, 1996
PROSPECTUS
$250,000,000
EXPERIAN INFORMATION SOLUTIONS, INC.
to be merged into
INFORMATION SYSTEMS AND SERVICES, INC.
% SENIOR SUBORDINATED NOTES DUE 2006
Experian Information Solutions, Inc. ("Experian"), which will merge into
Information Systems and Services, Inc. ("IS&S"), the information systems and
services business of TRW Inc., is offering (the "Offering") $250,000,000
aggregate principal amount of % Senior Subordinated Notes due 2006 (the
"Notes"). As a result of the merger, IS&S will become liable for the Notes and
is expected to change its name to Experian Information Solutions, Inc. The net
proceeds from the Offering, together with the borrowings under the Credit
Facilities (as defined herein) and the Equity Investment (as defined herein),
will be used to finance the recapitalization (the "Recapitalization") of IS&S
and certain related transactions. The Offering is contingent upon, among other
things, consummation of the Recapitalization. The Recapitalization is being
effected in order to permit TRW to withdraw capital from IS&S and to permit the
shareholders of Experian Corporation, Experian's parent company, to acquire
equity interests in IS&S Holdings, Inc., IS&S's parent company. Neither
Experian nor Experian Corporation will have any operations prior or subsequent
to the consummation of the Recapitalization. See "The Recapitalization,
Financing and Related Transactions."
Interest on the Notes is payable semi-annually on and of each year,
commencing on , 1997, at the rate of % per annum. The Notes will mature on
, 2006. Except as described below, Experian may not redeem the Notes prior
to , 2001. On or after such date, Experian may redeem the Notes, in whole or
in part, at the redemption prices set forth herein, together with accrued and
unpaid interest, if any, to the date of redemption. In addition, at any time
and from time to time on or prior to , 1999, Experian may, subject to
certain requirements, redeem up to 40% of the original aggregate principal
amount of the Notes, with the net cash proceeds of one or more Equity Offerings
(as defined herein) at a price equal to % of the principal amount of the
Notes to be redeemed, plus accrued and unpaid interest, if any, to the date of
redemption, provided that at least $ million of the original aggregate
principal amount of the Notes remains outstanding after each such redemption.
The Notes will not be subject to any sinking fund requirement. Upon the
occurrence of a Change of Control Triggering Event (as defined herein),
Experian will be required to make an offer to repurchase the Notes at a price
equal to 101% of the principal amount thereof, together with accrued and unpaid
interest, if any, to the date of repurchase. See "Description of Notes."
The Notes will be unsecured obligations of Experian and will be subordinated to
all existing and future Senior Indebtedness (as defined herein), will rank pari
passu with any future Senior Subordinated Indebtedness (as defined herein) and
will rank senior to all future subordinated indebtedness of Experian. The Notes
will be effectively subordinated to all existing and future secured
indebtedness of Experian to the extent of the value of the assets securing such
indebtedness. At March 31, 1996, on a pro forma basis after giving effect to
the issuance of the Notes and the consummation of the Transactions (as defined
herein), the aggregate amount of Senior Indebtedness (including the Credit
Facilities) would have been approximately $561.7 million (all of which would
have been secured indebtedness) and unused commitments of up to $65.0 million
would have been available under the Credit Facilities and there would have been
no Senior Subordinated Indebtedness outstanding other than the Notes. The
indenture (the "Indenture") pursuant to which the Notes are to be issued
permits Experian and its subsidiaries to incur additional indebtedness. See
"Description of Notes."
-----------------------------------
SEE "RISK FACTORS" COMMENCING ON PAGE 15 OF THIS PROSPECTUS FOR A DISCUSSION OF
CERTAIN RISKS ASSOCIATED WITH AN INVESTMENT IN THE NOTES.
-----------------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
-----------------------------------
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<TABLE>
<CAPTION>
PRICE TO UNDERWRITING PROCEEDS TO
PUBLIC(/1/) DISCOUNT(/2/) EXPERIAN(/3/)
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C>
PER SENIOR SUBORDINATED
NOTE % % %
TOTAL $ $ $
</TABLE>
(1) Plus accrued interest, if any, from , 1996.
(2) Experian and Experian Corporation have agreed to indemnify the Underwriters
against certain liabilities, including liabilities under the Securities Act
of 1933, as amended. See "Underwriting."
(3) Before deducting expenses payable by Experian estimated at $ .
-----------------------------------
The Notes are offered by Chase Securities Inc., BT Securities Corporation and
Bear, Stearns & Co. Inc. (the "Underwriters"), subject to prior sale, when, as
and if issued to and accepted by the Underwriters, and subject to certain other
conditions. The Underwriters reserve the right to withdraw, cancel or modify
such offer and to reject orders in whole or in part. It is expected that the
delivery of the Notes will be made in book-entry form through the facilities of
The Depository Trust Company on or about , 1996 against payment therefor in
immediately available funds.
CHASE SECURITIES INC.
BT SECURITIES CORPORATION
, 1996 BEAR, STEARNS & CO. INC.
<PAGE>
AVAILABLE INFORMATION
Experian has filed with the Securities and Exchange Commission (the
"Commission") a Registration Statement on Form S-1 (the "Registration
Statement") under the Securities Act of 1933, as amended (the "Securities
Act"), with respect to the Notes offered hereby. This Prospectus does not
contain all of the information set forth in the Registration Statement,
certain parts of which have been omitted in accordance with the rules and
regulations of the Commission, and to which reference is hereby made.
Statements made in this Prospectus as to the provisions of any contract,
agreement or other document filed as an exhibit to the Registration Statement
are not necessarily complete, and reference is made to the exhibit for a more
complete description of the matter involved, and each such statement is
qualified in all respects by such reference.
Pursuant to the Indenture, Experian will to the extent permitted under the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and whether
or not it is subject to Section 13(a) or 15(d) of the Exchange Act, file with
the Commission, and provide the trustee for the Notes and the holders of the
Notes with copies of, annual and quarterly reports and other information,
documents and reports which are required to be filed by a person subject to
the reporting requirements of Section 13(a) or 15(d) of the Exchange Act as if
it were subject to such reporting requirements. If filing such documents is
not permitted under the Exchange Act, Experian will supply copies of such
documents to the trustee and to holders and prospective holders of the Notes
at Experian's cost.
The Registration Statement, including the exhibits and schedules thereto,
and information filed by Experian with the Commission may be inspected and
copied at the public reference facilities maintained by the Commission at Room
1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, and at
the following regional offices of the Commission: Citicorp Center, 500 W.
Madison Street, Suite 1400, Chicago, Illinois 60661, and Seven World Trade
Center, 13th Floor, New York, New York 10048. Copies of such material can be
obtained at prescribed rates from the Public Reference Section of the
Commission at 450 Fifth Street, N.W., Judiciary Plaza, Washington, D.C. 20549.
-------------------------
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE NOTES AT A
LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH
STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
2
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by, and should be read in
conjunction with, the more detailed information and financial statements, and
the related notes thereto, included elsewhere in this Prospectus. As used in
this Prospectus, unless the context otherwise requires, the "Company," for
periods prior to the Recapitalization (as described herein) refers to the
combined operations of TRW Information Services, IS&S International, Inc., TRW
REDI Property Data ("TRW REDI"), IS&S Staff, TRW Business Credit Services, TRW
Hotel Company Inc. and Information Systems and Services, Inc. (collectively,
"TRW IS&S"), which are business groups, divisions, majority-owned general
partnerships, or wholly owned subsidiaries of TRW Inc. ("TRW"), and for periods
after the Recapitalization refers to IS&S (which is expected to be renamed
Experian Information Solutions, Inc.) and its subsidiaries, after giving effect
to the Transactions (as defined herein). TRW will not have any obligations with
respect to the Notes or the sale thereof. See "The Recapitalization, Financing
and Related Transactions." The Company will have certain rights to use the TRW
name for a limited period of time following the Recapitalization. See "Certain
Relationships and Related Transactions."
THE COMPANY
OVERVIEW
The Company is a leading provider of credit, marketing and real estate
information on individuals, businesses and properties in the United States. The
Company's products and services play a key role in financial risk management as
well as customer identification, acquisition and retention for businesses in a
wide range of industries including financial services, retail, real estate,
telecommunications and utilities. For the latest twelve-month period ended
March 31, 1996, the Company generated sales of $550.2 million and pro forma
EBITDA (as defined) of $176.7 million. Increased demand for the Company's core
products and expanded applications for reliable credit and marketing
information have contributed to the Company's growth and profitability.
Over the last 25 years, the Company has developed expertise in collecting,
screening and organizing volumes of data into its five proprietary databases
(the "Databases"). The Databases--consumer credit, business credit, consumer
demographic, business marketing and real estate--contain information on over
190 million people, 93% of households and 12 million businesses in the United
States. The Company updates the Databases with an average of over 40 million
pieces of information daily from credit grantors, public records and
proprietary sources. Management believes that the Databases represent the
broadest and most current collection of such information in the United States.
The Company utilizes the Databases to create a variety of products and services
designed to address the information needs of its customers and continually
seeks to improve the quality and breadth of its product offerings. In [ ]
1996, the Company will implement a new relational database system ("File One")
for its consumer credit database which the Company believes (among other
benefits) will enhance and expedite product development in a cost-effective
manner.
The Company sells three major categories of information products and
services: credit, marketing and real estate. The Company's over 500-person
direct sales force emphasizes a consultative selling approach for the Company's
larger customers, substantially all of whom have had relationships with the
Company for more than a decade. In addition, the Company services smaller
customers through telemarketing facilities and through resellers, brokers and
credit bureaus.
Credit Information
Credit products and services are critical to issuers of credit because they
identify credit extension risks and provide a cost-effective method of
monitoring outstanding credit portfolios. Customers use the Company's credit
products and services in a variety of applications including the issuance and
monitoring of credit cards, mortgages, small business loans and trade credit.
These products and services include credit profile reports, credit scoring
services, customized account management, on-line support for instant credit
decisions, accounts receivable evaluations and fraud detection. The
3
<PAGE>
Company believes that it is one of the two largest providers of consumer credit
information and the second largest provider of business credit information in
the United States. Marketdata Enterprises estimates that the consumer credit
reporting industry has grown from approximately $1.37 billion in revenues in
1992 to approximately $1.63 billion in revenues in 1995, a compound annual
growth rate of 5.9%. Management believes that the portion of the market in
which the Company competes was approximately $875 million in revenues in 1995.
Furthermore, Marketdata Enterprises estimates the business credit reporting
industry has grown from approximately $920 million in revenues in 1992 to
approximately $1 billion in revenues in 1995, a compound annual growth rate of
2.8%. Management believes that the portion of the market in which the Company
competes was approximately $600 million in revenues in 1995.
Marketing Information
Marketing products and services enable businesses to identify, retain and
cross-sell both new and existing customers in a targeted, cost-effective
manner. The Company uses selected credit and demographic data to develop and
sell prescreened lists of individuals and businesses to whom financial
institutions and retailers extend pre-approved offers of credit. Additionally,
the Company uses its demographic and real estate data, enhanced by the non-
restricted information (primarily name, address, telephone number and social
security number) in its credit databases, to develop and sell targeted
marketing products and services to financial institutions, consumer products
companies, retailers, telecommunications companies and other consumer and
business-to-business marketers. Targeted marketing products and services
include the development of lists of potential customers, value-added
enhancements to customer lists, the creation of marketing databases and other
analytical tools. The Company believes it is the largest provider of prescreen
services in North America, an industry which the Company believes had revenues
of approximately $200 million in 1995, and which has grown at a compound annual
growth rate of 39% since 1992. According to a 1995 study commissioned by the
Direct Marketing Association, total direct mail related expenditures were
estimated to be approximately $31 billion in 1995, up from approximately $23
billion in 1990, a compound annual growth rate of 5.9%. Management believes
that the portion of the market in which the Company competes was approximately
$5 billion in 1995.
Real Estate Information
Real estate products and services provide appraisers, realtors, lenders,
government agencies and title companies with property, title and tax
information necessary for the property transfer and financing process. The
Company has detailed property data for 349 counties nationwide, and property
title and tax data for 80 counties in eight western states, representing
approximately 55% and 17%, respectively, of the U.S. population. The Company is
the national leader in both property data and title information services.
Management believes that the Company's 1995 sales of real estate products and
services were twice as large as the sales of its nearest competitors.
4
<PAGE>
The following table summarizes key characteristics of the Company's three
categories of products and services:
<TABLE>
<CAPTION>
CREDIT INFORMATION MARKETING INFORMATION REAL ESTATE INFORMATION
------------------ --------------------- -----------------------
<S> <C> <C> <C>
1995 COMPANY SALES...... $315 million $134 million $92 million
Credit Profile Reports Prescreen Services Property Characteristics
REPRESENTATIVE
PRODUCTS............... Credit Scoring Services Targeted Lists Tax/Title Data
Customized Account List Enhancement Sales Activity Reports
Management Marketing Databases Appraisal Models
On-Line Instant Credit Support Analytical Tools
Accounts Receivable
Evaluations
Fraud Detection
PRIMARY USERS........... Commercial Banks Credit Card Issuers Mortgage Lenders
Retailers Financial Service Title Companies
Consumer Finance Companies Companies Appraisers
Business Credit Issuers List Brokers Realtors
Telecom Providers Direct Marketers Government Agencies
Utilities Retailers
GROWTH FACTORS.......... New Credit Issuance Credit Solicitations Property Sales Activity
Portfolio Monitoring Target Marketing Trends Lending Process
New Products/Applications New Products/Applications Automation
</TABLE>
OPERATING STRENGTHS
The Company believes its operating strengths include its (i) unique
collection of proprietary Databases; (ii) extensive database expertise; (iii)
leading market positions; (iv) large base of established customers and
comprehensive network of sales channels; (v) reputation for integrity, quality
and reliability; and (vi) experienced management team and employees. The
Company believes that it can leverage its strengths to capitalize on continuing
growth in fundamental demand for credit and marketing information.
OPERATING STRATEGY
The Company has developed a customer-focused operating strategy to capitalize
on its strengths, the growing demand and expanding applications for its
products and economies of scale in the information services industry. The key
elements of this strategy include continuing to (i) maintain, expand and
enhance the Databases; (ii) develop new products and enter growing end-use
markets; (iii) exploit new delivery systems for its products, including client-
server networks, CD ROM and the Internet; (iv) improve operating efficiencies;
and (v) pursue strategic acquisitions and alliances.
5
<PAGE>
THE RECAPITALIZATION, FINANCING AND RELATED TRANSACTIONS
The Offering is part of the Recapitalization which is being effected pursuant
to the Recapitalization Agreement dated as of February 9, 1996 among TRW,
certain TRW subsidiaries and a Delaware corporation owned by the Investors
described below ("Experian Corporation"). TRW owns all of the outstanding stock
of IS&S Holdings, Inc. ("Holdings"), and Holdings owns all of the outstanding
stock of IS&S. IS&S will own substantially all of the assets of TRW IS&S and
will issue a demand promissory note to TRW in the face amount of approximately
$755.0 million (the "TRW Note"). The other principal components of the
Recapitalization, which will be consummated concurrently with the Offering,
include the following:
. Bain Capital, Inc. and its affiliates (collectively "Bain"), Thomas H.
Lee Company and its affiliates (collectively, "THL") and certain other
investors (Bain, THL and such other investors are collectively referred
to as the "Investors") will invest $255.0 million (the "Equity
Investment") in Experian Corporation. Experian Corporation owns all of
the outstanding capital stock of Experian. Bain and THL are two of the
most active private equity investors in the United States.
. Experian Corporation will merge into Holdings, and Experian will merge
into IS&S (the "IS&S Merger") with IS&S becoming liable for the Notes.
After the IS&S Merger, IS&S is expected to change its name to Experian
Information Solutions, Inc. Neither Experian nor Experian Corporation
will have any operations prior or subsequent to the consummation of the
Recapitalization.
. The proceeds of the Offering, together with estimated initial borrowings
by the Company of $560.0 million under the Credit Facilities and the
proceeds from the Equity Investment, will be used to (i) repay the TRW
Note; (ii) pay TRW $255.0 million in connection with the redemption of
certain stock of TRW in Holdings; and (iii) pay an estimated $55.0
million of fees and expenses relating to the Recapitalization, the
Offering, the Credit Facilities, the Equity Investment and the other
transactions contemplated by the Recapitalization Agreement
(collectively, the "Transactions").
Upon completion of the Recapitalization, Holdings will own all of the
outstanding capital stock of the Company. Bain will own approximately 33.6% of
the voting power of Holdings, THL will own approximately 33.6% of the voting
power of Holdings, TRW will retain securities entitled to approximately 19.6%
of the voting power of Holdings and certain other investors will own
approximately 13.2% of the voting power of Holdings. See "Risk Factors--
Controlling Stockholders," "Ownership of Capital Stock" and "Certain
Relationships and Related Transactions."
The Company will have certain rights to use the TRW name for a limited time
following the Recapitalization. See "Risk Factors--Effects of the
Recapitalization" and "Certain Relationships and Related Transactions."
6
<PAGE>
THE TRANSACTIONS
The following table sets forth the pro forma sources and uses of funds for
the Transactions as of March 31, 1996.(/1/)
<TABLE>
<CAPTION>
AMOUNTS
---------------------
(DOLLARS IN MILLIONS)
<S> <C>
SOURCES
Credit Facilities:
Revolving Facility (2)............................... $ 10.0
Tranche A Term Loan.................................. 200.0
Tranche B Term Loan.................................. 175.0
Tranche C Term Loan.................................. 175.0
Senior Subordinated Notes............................. 250.0
Equity Investment..................................... 255.0
--------
Total Sources....................................... $1,065.0
========
USES
Distribution to existing shareholder (3).............. $1,010.0
Fees and expenses related to the Transactions (4)..... 55.0
--------
Total Uses.......................................... $1,065.0
========
</TABLE>
- ------------
(1) The direct continuing equity interests of TRW in Holdings are excluded from
the table above, and consist of $47.2 million liquidation preference of
Voting Preferred Stock of Holdings ("Voting Preferred"), $27.8 million
liquidation preference of Non-voting Preferred Stock of Holdings ("Non-
voting Preferred," and together with the Voting Preferred, the "Preferred
Stock") and $15.0 million of Common Stock of Holdings, representing in the
aggregate 19.6% of the voting power of Holdings subsequent to the
Recapitalization. See "The Recapitalization, Financing and the Related
Transactions" and "Ownership of Capital Stock."
(2) Represents the drawn portion under the $75.0 million Revolving Facility.
(3) Consists of the repayment of the TRW Note of approximately $755.0 million
and the redemption of certain stock of TRW in Holdings for aggregate
consideration of $255.0 million. The face amount of the TRW Note is subject
to adjustment based upon working capital of the business at the date of
consummation of the Transactions (the "Closing Date").
(4) The estimated fees and expenses consist of underwriting fees, bank fees,
financial advisory fees and legal, accounting and other professional fees.
Certain affiliates of the Investors will receive compensation for their
services in connection with the Transactions. See "Certain Relationships
and Related Transactions."
7
<PAGE>
THE OFFERING
Issuer................ Experian Information Solutions, Inc. will issue the
Notes and will merge into IS&S in connection with the
Recapitalization, with IS&S becoming liable for the
Notes. After the merger, IS&S is expected to change its
name to Experian Information Solutions, Inc.
Securities Offered.... $250,000,000 aggregate principal amount of % Senior
Subordinated Notes due 2006.
Maturity.............. The Notes will mature on , 2006.
Interest Payment
Dates................. Interest on the Notes is payable on and ,
commencing , 1997.
Sinking Fund.......... None.
Optional Redemption... The Notes are redeemable, in whole or in part, at the
option of the Company on or after , 2001, at the
redemption prices set forth herein plus accrued and
unpaid interest, if any, to the date of redemption. In
addition, prior to , 1999, the Company, at its
option, may redeem up to 40% of the aggregate principal
amount of the Notes originally issued in the Offering
with the net cash proceeds of one or more Equity
Offerings, at a redemption price equal to % of the
principal amount thereof plus accrued and unpaid
interest, if any, to the date of redemption; provided
that at least $ million of the original principal
amount of Notes remains outstanding after any such
redemption.
Change of Control..... Upon a Change of Control Triggering Event, the Company
will be required to make an offer to repurchase the
Notes at a price equal to 101% of the principal amount
thereof, together with accrued and unpaid interest, if
any, to the date of repurchase. There can be no
assurance that the Company would have the financial
resources necessary to repurchase the Notes upon a
Change of Control Triggering Event. The occurrence of
certain of the events which would constitute a Change
of Control Triggering Event as well as the failure to
repurchase the Notes upon a Change of Control
Triggering Event would constitute a default under the
Credit Facilities. As of March 31, 1996, on a pro forma
basis after giving effect to the issuance of the Notes
and the consummation of the Transactions, the aggregate
indebtedness that would have become due upon the
occurrence of a Change of Control Triggering Event
under the Indenture and a default under the Credit
Facilities was $812.5 million.
Ranking............... The Notes will be general unsecured obligations of the
Company and will be subordinated in right of payment to
all existing and future Senior Indebtedness of the
Company. The Notes will rank pari passu with any future
Senior Subordinated Indebtedness of the Company and
will
8
<PAGE>
rank senior to all future subordinated indebtedness of
the Company. As of March 31, 1996, on a pro forma basis
after giving effect to the Transactions, the Company
would have had approximately $561.7 million of Senior
Indebtedness. The Indenture permits the Company to
incur indebtedness in addition to the Notes of up to
approximately $ million (including the Credit
Facilities) and certain other indebtedness as described
in the definition of "Permitted Indebtedness", as well
as an additional amount pursuant to a fixed charge
coverage ratio test that as of March 31, 1996, on a pro
forma basis after giving effect to the issuance of the
Notes and the consummation of the Transactions, would
have permitted the incurrence of an additional
approximately $ of indebtedness. See "Description of
Notes--Limitation on Incurrence of Additional
Indebtedness." The Indenture permits all of such
additional indebtedness to be Senior Indebtedness or
Secured Indebtedness.
Restrictive
Covenants............. The Indenture will contain certain covenants that limit
the ability of the Company and certain of its
subsidiaries to, among other things, incur additional
indebtedness, pay dividends or make certain other
restricted payments, consummate certain asset sales,
enter into certain transactions with affiliates, incur
indebtedness that is subordinate in right of payment to
any Senior Indebtedness and senior in right of payment
to the Notes, incur liens, impose restrictions on the
ability of a subsidiary to pay dividends or make
certain payments to the Company and its subsidiaries,
merge or consolidate with any other person or sell,
assign, transfer, lease, convey or otherwise dispose of
all or substantially all of the assets of the Company.
The Indenture permits the Company to incur substantial
additional indebtedness under certain circumstances.
See "Ranking" above.
Future Guarantees..... The Indenture will provide that any subsidiary of the
Company which guarantees the Company's indebtedness
under the Credit Facilities will guarantee the Notes,
on an unsecured senior subordinated basis.
Use of Proceeds....... The Company intends to use the proceeds from the
Offering, together with estimated initial borrowings of
approximately $560.0 million under the Credit
Facilities and the proceeds of the Equity Investment as
follows: (i) approximately $755.0 million will be
applied to repay the TRW Note; (ii) approximately
$255.0 will be paid to TRW in connection with the
redemption of certain stock of TRW in Holdings; and
(iii) an estimated $55.0 million will be applied to pay
fees and expenses relating to the Transactions. See
"Use of Proceeds" and "The Recapitalization, Financing
and Related Transactions."
For additional information regarding the Notes, see "Description of Notes."
RISK FACTORS
Prospective investors should carefully consider all the information set forth
in this Prospectus and, in particular, should evaluate the specific factors set
forth under "Risk Factors" for risks involved with an investment in the Notes.
See "Risk Factors."
9
<PAGE>
SUMMARY HISTORICAL COMBINED FINANCIAL DATA
The following selected summary historical combined financial data for the
three years in the period ended December 31, 1995 have been derived from the
audited combined financial statements of the Company, which have been audited
by Ernst & Young LLP, Independent Auditors. The summary historical combined
financial data set forth below for each of the two years in the period ended
December 31, 1992 have been derived from the Company's unaudited combined
financial statements, not included herein, and include all adjustments which
management considers necessary for a fair presentation of the results of the
Company for such periods. The summary historical combined unaudited financial
data set forth below for the three month periods ended March 31, 1995 and 1996
have been derived from, and are qualified by reference to, the Company's
unaudited condensed combined financial statements and the notes thereto
included elsewhere in this Prospectus and include all adjustments, consisting
only of normal recurring adjustments, which management considers necessary for
a fair presentation of the results of the Company for such periods. Results for
the interim periods are not necessarily indicative of the results for the full
year. The summary combined financial data should be read in conjunction with,
and are qualified by reference to, the audited combined financial statements
and the unaudited condensed combined financial statements of the Company and
the notes thereto appearing elsewhere in this Prospectus and "Management's
Discussion and Analysis of Financial Condition and Results of Operations." See
"Selected Historical Combined Financial Data."
10
<PAGE>
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
-------------------------------------- --------------
1991 1992 1993 1994 1995 1995 1996
------ ------ ------ ------ ------ ------ ------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Sales................... $427.2 $456.5 $486.4 $512.3 $540.2 $133.8 $143.8
Cost of sales........... 233.8 248.3 259.3 261.1 274.0 69.5 74.2
------ ------ ------ ------ ------ ------ ------
Gross profit............ 193.4 208.2 227.1 251.2 266.2 64.3 69.6
Administrative and sell-
ing expenses........... 145.7 141.1 140.7 147.3 151.1 38.1 38.1
Research and development
expenses............... 11.3 11.9 11.8 14.8 24.9 2.4 8.3
Restructuring (income)
expense (1)............ 46.9 (18.4) 3.6 12.7 (3.3) -- --
TRW corporate general
and administrative
expenses (2)........... 4.2 4.2 4.3 4.4 4.9 1.2 1.2
------ ------ ------ ------ ------ ------ ------
Income (loss) from oper-
ations................. (14.7) 69.4 66.7 72.0 88.6 22.6 22.0
Interest expense........ 0.3 0.3 0.2 0.2 0.7 0.1 0.3
Minority interest....... (2.9) 2.5 4.3 (2.6) 2.0 0.2 0.4
Other (income) expense,
net (3)................ 1.1 0.6 10.6 (18.7) (0.4) 0.2 0.7
------ ------ ------ ------ ------ ------ ------
Income (loss) before in-
come taxes............. (13.2) 66.0 51.6 93.1 86.3 22.1 20.6
Provision for (benefit
from) income taxes..... (1.0) 23.1 21.8 36.8 34.5 8.9 8.2
Cumulative effect of
changes in accounting
(4).................... -- 3.5 1.8 -- -- -- --
------ ------ ------ ------ ------ ------ ------
Net income (loss)....... $(12.2) $ 39.4 $ 28.0 $ 56.3 $ 51.8 $ 13.2 $ 12.4
====== ====== ====== ====== ====== ====== ======
OTHER FINANCIAL DATA:
EBITDA (5).............. 81.1 163.9 142.2 176.4 166.4 41.9 41.2
Adjusted EBITDA (6) .... 107.5 131.2 145.8 159.5 167.8 43.0 41.9
Depreciation and amorti-
zation................. 94.0 97.6 90.4 83.1 79.4 19.7 20.3
Cash flows from operat-
ing activities (7)..... NA 159.3 141.9 119.9 137.9 14.2 9.8
Capital expenditures.... 20.0 12.2 20.2 13.4 17.0 1.8 3.3
Expenditures for intan-
gibles (8)............. 82.5 55.9 48.2 61.5 64.5 13.7 15.5
Ratio of earnings to
fixed charges (9)(10).. -- 6.1x 4.9x 7.4x 6.0x 6.9x 5.2x
Working capital......... $ (9.5) $ (7.3) $(10.1) $(22.6) $(12.2) $ 3.1 $ 9.5
</TABLE>
- --------
(1) In 1991, the Company recorded restructuring charges totalling
approximately $47 million consisting of approximately: (i) $30 million
pursuant to workforce reductions and the consolidation of facilities; (ii)
$11 million in connection with the planned closing of one of its
businesses; and (iii) $6 million for severance costs, facility relocations
and personnel consolidations in connection with TRW REDI. In 1992, the
approximately $11 million reserve for the planned closure of one of its
businesses and approximately $7 million of additional unutilized reserves
recorded in 1991 were reversed. In 1993 and 1994, the Company recorded
restructuring charges totaling $3.6 million and $3.9 million,
respectively, principally relating to costs incurred for the relocation of
the Company's data center from Orange, California to Allen, Texas. In
1994, the Company recorded an additional restructuring charge of $8.8
million to cover the costs of closing, downsizing, and relocating
facilities and restructuring of TRW REDI. In 1995, the Company reduced
excess restructuring reserves by $3.3 million, none of which was recorded
in the first quarter.
(2) TRW corporate incurs certain general and administrative expenses including
treasury and tax management, benefits administration, shareholder services
and general corporate governance on behalf of all of its operating units
which are allocated based upon each operating unit's cost of operations.
(3) In 1993, the Company recorded other expense totaling $10.6 million, of
which $10.5 million related to the write-off of an intercompany note
receivable from TRW RELS, a real estate appraisal and lending support
business prior to its divestiture from TRW. In 1994, the Company recorded
a gain of $17.7 million on the sale of Credentials, a direct-to-consumer
credit monitoring business.
11
<PAGE>
(4) In 1992, the Company recorded a $3.5 million after tax charge for the
cumulative effect of adopting SFAS 109 "Accounting For Income Taxes" and
SFAS 106 "Accounting for Postretirement Benefits Other than Pensions." In
1993, the Company recorded a $1.8 million after tax charge for the
cumulative effect of adopting SFAS No. 112, "Employer's Accounting for
Postemployment Benefits."
(5) "EBITDA" is defined herein as income before income taxes, plus
depreciation and amortization expense and interest expense. EBITDA is
presented because the Company believes it is a widely accepted financial
indicator of a company's ability to service and/or incur indebtedness.
However, EBITDA should not be considered as an alternative to net income
as a measure of operating results or to cash flows as a measure of
liquidity in accordance with generally accepted accounting principles.
(6) "Adjusted EBITDA" is defined herein as EBITDA adjusted for certain items
of income and expense which are not expected to be incurred by the Company
subsequent to the Transactions. These items consist of: the inclusion of
the TRW REDI minority interest; restructuring charges (Note 1); operating
income (losses) of divested operations, net of related depreciation and
amortization expenses of $18.2, $18.7, $16.9, $11.2, $(2.2) and $(0.5)
million in 1991, 1992, 1993, 1994, 1995 and in the three months ended
March 31, 1995, respectively; elimination of TRW REDI royalty payments to
the Company's parent and minority partner of $0.6, $1.9, $2.1, $1.9, $1.8,
$0.4 and $0.3 million in 1991, 1992, 1993, 1994, 1995 and in the three
months ended March 31, 1995 and 1996, respectively; gain on sale of the
Credentials business in 1994, the Smart Charts/Search Access businesses in
1995 and the write-off of an intercompany note receivable from TRW RELS
(Note 3). See further explanation of these items in "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
See the tabular presentation of Adjusted EBITDA in "Management's
Discussion and Analysis of Financial Conditions and Results of
Operations--Liquidity and Capital Resources."
(7) Information is not available for 1991 and is estimated for 1992.
(8) Expenditures for intangibles consists principally of capitalized data
files and software products.
(9) For purposes of computing this ratio, earnings consist of income before
income taxes and minority interest plus fixed charges. Fixed charges
consist of interest expense and one-third of the rent expense from
operating leases, which management believes is a reasonable approximation
of an interest factor.
(10) Earnings were insufficient to cover fixed charges by $16.1 million during
the year ended December 31, 1991.
12
<PAGE>
SUMMARY UNAUDITED PRO FORMA FINANCIAL DATA
The following summary unaudited pro forma financial data set forth below give
effect in the manner described under "Unaudited Pro Forma Financial Data" and
the notes thereto to the Transactions as if they had occurred on January 1,
1995 in the case of Statement of Operations Data and Other Financial Data, and
as of March 31, 1996 in the case of Balance Sheet Data. The Unaudited Pro Forma
Combined Statements of Income do not purport to represent what the Company's
results of operations would have been if the Transactions had occurred as of
the date indicated or what such results will be for any future periods. The
unaudited summary pro forma financial data should be read in conjunction with
the Unaudited Pro Forma Combined Financial Statements and the notes thereto.
See "Unaudited Pro Forma Financial Data," the audited combined financial
statements and the unaudited condensed combined financial statements and the
accompanying notes thereto included elsewhere in this Prospectus.
13
<PAGE>
<TABLE>
<CAPTION>
PRO FORMA
THREE MONTHS PRO FORMA
PRO FORMA ENDED TWELVE MONTHS
YEAR ENDED MARCH 31, ENDED
DECEMBER 31, ---------------- MARCH 31,
1995(1) 1995(1) 1996(1) 1996(2)
------------ ------- ------- -------------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Sales.................... $540.7 $134.3 $143.8 $550.2
Cost of sales............ 266.8 67.8 73.0 272.0
------ ------ ------ ------
Gross profit............. 273.9 66.5 70.8 278.2
Administrative and sell-
ing expenses............ 152.6 38.7 38.8 152.7
Research and development
expenses................ 24.9 2.5 8.3 30.7
Restructuring (income)
expense (3)............. (3.3) -- -- (3.3)
------ ------ ------ ------
Income from operations... 99.7 25.3 23.7 98.1
Interest expense......... 82.6 20.4 20.4 82.6
Minority interest........ -- -- -- --
Other (income) expense,
net..................... 0.9 0.2 0.7 1.4
------ ------ ------ ------
Income before income tax-
es...................... 16.2 4.7 2.6 14.1
Provision for income tax-
es...................... 6.5 1.9 1.0 5.6
------ ------ ------ ------
Net income............... $ 9.7 $ 2.8 $ 1.6 $ 8.5
====== ====== ====== ======
OTHER FINANCIAL DATA:
EBITDA (4)............... 178.2 44.8 43.3 176.7
Ratio of EBITDA to inter-
est expense............. 2.2x 2.2x 2.1x 2.1x
Ratio of EBITDA to cash
interest expense (5).... 2.4x 2.4x 2.3x 2.3x
Depreciation and amorti-
zation.................. 79.4 19.7 20.3 80.0
Capital expenditures..... 17.0 1.8 3.3 18.5
Expenditures for intangi-
bles (6)................ 64.5 13.7 15.5 66.3
Ratio of earnings to
fixed charges (7)....... 1.2x 1.2x 1.1x 1.1x
</TABLE>
<TABLE>
<CAPTION>
PRO FORMA
MARCH 31,
1996
---------
<S> <C>
BALANCE SHEET DATA:
Working capital....................................................... $ 22.4
Total assets.......................................................... 735.3
Long-term debt........................................................ 811.7
Stockholders' equity (deficit)........................................ (156.0)
</TABLE>
- --------
(1) See "Unaudited Pro Forma Financial Data."
(2) Information for pro forma twelve months ended March 31, 1996 represents
the summation of the pro forma year ended December 31, 1995 and pro forma
three months ended March 31, 1996 information, less the pro forma three
months ended March 31, 1995 information.
(3) In 1995, the Company reduced excess restructuring reserves recorded in
prior years by $3.3 million, none of which was recorded in the first
quarter.
(4) "EBITDA" is defined herein as income before income taxes, plus
depreciation and amortization expense and interest expense. EBITDA is
presented because the Company believes it is a widely accepted financial
indicator of a company's ability to service and/or incur indebtedness.
However, EBITDA should not be considered as an alternative to net income
as a measure of operating results or to cash flows as a measure of
liquidity in accordance with generally accepted accounting principles.
(5) For purposes of computing this ratio, interest expense excludes
amortization of deferred financing fees of $7.1 million, $1.8 million, and
$1.8 million on a pro forma basis for the year ended December 31, 1995 and
the three months ended March 31, 1995 and 1996, respectively.
(6) Expenditures for intangibles consists principally of capitalized data
files and software products.
(7) For purposes of computing this ratio, earnings consist of income before
income taxes and minority interest plus fixed charges. Fixed charges
consist of interest expense, amortization of deferred financing fees and
one-third of the rent expense from operating leases, which management
believes is a reasonable approximation of an interest factor.
14
<PAGE>
RISK FACTORS
Prospective investors should carefully consider the following factors in
addition to other information included in this Prospectus before purchasing
any of the Notes.
SUBSTANTIAL LEVERAGE AND DEBT SERVICE OBLIGATIONS
In connection with the Transactions, the Company will incur a significant
amount of indebtedness. As of March 31, 1996, on a pro forma basis after
giving effect to the Transactions as if they had occurred on such date, the
Company would have had outstanding indebtedness of $811.7 million (excluding
unused commitments) and its stockholders' deficit would have been
approximately $156.0 million. See "Capitalization" and "Unaudited Pro Forma
Financial Data." The Indenture will permit the Company to incur or guarantee
additional indebtedness, including indebtedness under the Credit Facilities,
subject to certain limitations. The Company will have additional borrowing
capacity on a revolving credit basis under the Credit Facilities upon
consummation of the Transactions. See "Description of Credit Facilities."
The Company's high degree of leverage could have important consequences to
the holders of the Notes, including but not limited to the following: (i) a
substantial portion of the Company's cash flow from operations must be
dedicated to the payment of principal and interest on its indebtedness,
thereby reducing the funds available to the Company for other purposes; (ii)
the Company's ability to obtain additional financing for working capital,
capital expenditures, general corporate purposes or other purposes may be
impaired in the future; and (iii) the Company's flexibility to adjust to
changing market conditions and ability to withstand competitive pressures
could be limited, and the Company may be more vulnerable to a downturn in
general economic conditions or its business. See "Description of Credit
Facilities" and "Description of Notes."
The Company's ability to make scheduled payments or to refinance its
obligations with respect to its indebtedness will depend on its financial and
operating performance, which, in turn, is subject to prevailing economic and
competitive conditions and to certain financial, business and other factors
beyond its control, including operating difficulties, increased operating
costs, the response of competitors, regulatory developments and delays in
implementing strategic projects. The Company's ability to meet its debt
service and other obligations will depend in part on the extent to which the
Company can successfully implement its operating strategy. There can be no
assurance that the Company will be able to fully implement its strategy or
that the anticipated results of its strategy will be realized. See "Business--
Operating Strategy."
If the Company's cash flow and capital resources are insufficient to fund
its debt service obligations, the Company may be forced to reduce or delay
capital expenditures, sell assets, seek to obtain additional equity capital or
to restructure its debt. There can be no assurance that the Company's cash
flow and capital resources will be sufficient for payment of interest on and
principal of its indebtedness in the future, or that any such alternative
measures would be successful or would permit the Company to meet its scheduled
debt service obligations. In the absence of such operating results and
resources, the Company could face substantial liquidity problems and might be
required to dispose of material assets or operations to meet its debt service
and other obligations, and there can be no assurance as to the timing of such
sales or the proceeds which the Company could realize therefrom.
RESTRICTIVE FINANCING COVENANTS
The Credit Facilities will contain a number of significant covenants that,
among other things, will restrict the ability of the Company to dispose of
assets, incur additional indebtedness, incur guarantee obligations, repay debt
including the Notes, amend the terms of debt including the Indenture, pay
15
<PAGE>
dividends, create liens on assets, make investments or loans, make
acquisitions, engage in mergers or consolidations, make capital expenditures
or engage in certain transactions with affiliates and change its business and
will otherwise restrict corporate activities. In addition, under the Credit
Facilities, the Company will be required to comply with specified financial
ratios and tests, including a maximum leverage ratio, an interest coverage
ratio, a fixed charge coverage ratio and an EBITDA covenant. See "Description
of Credit Facilities." The Indenture will also contain certain restrictive
covenants. See "Description of Notes."
The Company's ability to comply with the covenants and restrictions
contained in the Credit Facilities and the Indenture may be affected by events
beyond its control, including prevailing economic, financial and industry
conditions. The breach of any such covenants or restrictions could result in a
default under the Credit Facilities or the Indenture which would permit the
lenders under the Credit Facilities or the holders of the Notes, as the case
may be, to declare all amounts outstanding thereunder to be due and payable,
together with accrued and unpaid interest, and the commitments of the lenders
under the Credit Facilities to make further extensions of credit under the
Credit Facilities could be terminated. If the Company were unable to repay its
indebtedness under the Credit Facilities, such lenders could proceed against
the collateral securing such indebtedness. See "Description of Credit
Facilities" and "Description of Notes."
UNSECURED STATUS OF THE NOTES
The Indenture will permit the Company to incur certain secured indebtedness,
including indebtedness under the Credit Facilities. The Credit Facilities will
be secured by a lien on substantially all of the assets of the Company,
including pledges of all or a portion of the capital stock of the Company's
subsidiaries. The Notes are unsecured and therefore do not have the benefit of
such collateral. Accordingly, if an event of default occurs under the Credit
Facilities, the lenders under the Credit Facilities will have a prior right to
the assets of the Company, to the exclusion of the holders of the Notes. In
such event, such assets would first be used to repay in full amounts
outstanding under the Credit Facilities, resulting in all or a portion of the
Company's assets being unavailable to satisfy the claims of the holders of
Notes and other unsecured indebtedness. See "Description of Credit Facilities"
and "Description of Notes."
SUBORDINATION OF THE NOTES
The payment of principal of and interest on, and any premium or other
amounts owing in respect of, the Notes will be subordinated to the prior
payment in full of all existing and future Senior Indebtedness, including all
amounts owing under the Credit Facilities. As of March 31, 1996, on a pro
forma basis after giving effect to the Transactions, the Company would have
had outstanding Senior Indebtedness of $561.7 million (excluding unused
commitments). Consequently, in the event of a bankruptcy, liquidation,
dissolution, reorganization or similar proceeding with respect to the Company,
assets of the Company (whether or not pledged as security to the holders of
Senior Indebtedness) would be available to pay obligations of the Notes only
after all Senior Indebtedness has been paid in full in cash or cash
equivalents, and there can be no assurance that there will be sufficient
assets to pay amounts due on all or any of the Notes. See "Description of
Notes."
CHANGE OF CONTROL
Upon the occurrence of a Change of Control Triggering Event (as defined in
the Indenture), the Company will be required to make an offer to purchase all
of the outstanding Notes at a price equal to 101% of the principal amount
thereof plus accrued and unpaid interest, if any, to the date of purchase. The
occurrence of certain of the events which would constitute a Change of Control
Triggering Event would constitute a default under the Credit Facilities. In
addition, the Credit Facilities will prohibit the purchase of the Notes by the
Company in the event of a Change of Control Triggering Event, unless and until
such time as the indebtedness under the Credit Facilities is repaid in full.
The Company's failure to purchase the Notes in such instance would result in a
default under the Indenture and the
16
<PAGE>
Credit Facilities. The inability to repay the indebtedness under the Credit
Facilities, if accelerated, would also constitute an event of default under
the Indenture, which could have materially adverse consequences to the Company
and to the holders of the Notes. In the event of a Change of Control
Triggering Event, there can be no assurance that the Company would have
sufficient assets to satisfy all of its obligations under the Credit
Facilities and the Notes and other indebtedness required to be repurchased
upon a Change of Control Triggering Event. As of March 31, 1996, on a pro
forma basis after giving effect to the issuance of the Notes and the
consummation of the Transactions, the aggregate indebtedness that would have
become due upon the occurrence of a Change of Control Triggering Event under
the Indenture and a default under the Credit Facilities was $812.5 million.
See "Description of Notes--Change of Control" and "Description of Credit
Facilities."
CONTROLLING STOCKHOLDERS
Upon completion of the Transactions, the Company will be a wholly-owned
subsidiary of Holdings. Bain will own approximately 33.6% of Holdings' voting
power, THL will own approximately 33.6% of Holdings' voting power and TRW will
retain securities entitled to approximately 19.6% of Holdings' voting power.
After the completion of the Transactions, Bain will be entitled to designate
up to four persons to the Board of Directors of Holdings and the Company, THL
will be entitled to designate up to four persons to the Board of Directors of
Holdings and the Company and TRW will be entitled to designate one person to
the Board of Directors of Holdings and the Company. An additional four
directors may be appointed jointly by Bain and THL, three from among
management and one a non-employee. Accordingly, Bain, THL and TRW will control
the board of directors and business and operations of the Company. See
"Certain Relationships and Related Transactions."
DEMAND FOR CONSUMER CREDIT INFORMATION
The Company's core product is its consumer credit profile. In general, the
usage of credit profiles (and related services) is driven by consumer demand
for credit (via new credit cards, automobile loans, home mortgages and
refinancings and other consumer loans) and lenders' efforts to develop new,
and monitor existing, credit relationships. Consumer demand for credit tends
to increase during periods of economic expansion, and lenders' efforts to
monitor existing credit relationships tend to increase during periods of
economic contraction. Consequently, revenue from consumer credit information
products is influenced by cyclical economic trends related to consumer debt.
GOVERNMENT REGULATION; PRIVACY ISSUES
The Company's business involves the collection of consumer and business data
and the distribution of such information to businesses making credit and
marketing decisions. Growing concerns about individual privacy and the
collection, distribution and use of information about individuals have led to
substantial governmental regulation of the credit reporting industry, limited
government regulation of the direct marketing industry and self-regulation by
the direct marketing industry through guidelines suggested by the Direct
Marketing Association.
The credit reporting industry is regulated under the federal Fair Credit
Reporting Act of 1970, as amended (the "FCRA") and by legislation in many
states. The credit reporting industry and the direct marketing industry have
recently been subject to increased legislative attention. Legislation has been
introduced in the United States Senate and House of Representatives seeking to
amend the FCRA to refine the legal treatment of certain credit reporting
practices, including provisions codifying rules applicable to prescreening. In
addition to the federal bills, numerous bills are pending in various state
legislatures. Such bills are generally intended to regulate how personal
information is used in the marketplace. The Federal Trade Commission (the
"FTC") also recently implemented rules governing telemarketing. While
management does not believe that any of the proposed federal or state bills,
if passed as currently drafted, would have a material adverse effect on the
Company, there can be no assurance that pending or additional federal or state
consumer-oriented legislation will not significantly limit demand for, or
increase the costs of, certain of the Company's products. See "Business--
Regulatory."
17
<PAGE>
EFFECTS OF THE RECAPITALIZATION
The Company has operated as a part of TRW for over 25 years and has
consistently identified itself during that time using the names TRW and TRW
Information Systems & Services. Subject to certain restrictions, the
Recapitalization Agreement permits the Company to (i) use the TRW name in
connection with its products and services for two years after the Closing Date
and (ii) identify itself for one year after the Closing Date as having
formerly been TRW Information Systems & Services. There can be no assurance
that the Company will succeed in transferring the franchise value associated
with the TRW Information Systems & Services name to its new corporate name,
and the failure to do so could have a material adverse effect on the Company.
Also, there also can be no assurance that the Company, which has never
operated as a stand-alone entity, will succeed in doing so. See "The
Recapitalization, Financing and Related Transactions" and "Certain
Relationships and Related Transactions--Trademark Agreement."
COMPETITION
The Company primarily competes with two national consumer credit reporting
companies, Equifax, Inc. and Trans Union Corp., and one national business
credit reporting company, Dun & Bradstreet Corp., which offer credit reporting
products that are similar to those offered by the Company. The Company also
competes with a number of companies which offer marketing information products
and services, including Acxiom Corporation, Database America Information
Services, Inc., Direct Marketing Technology, Inc., Donnelley Marketing, Inc.,
Equifax, Inc., Harte-Hanks Communications, May & Speh, Inc., Metromail
Corporation, Neodata Services, Inc., R.L. Polk & Co. and Trans Union Corp.
Certain of the Company's competitors are better capitalized than the Company
and may have greater financial and other resources than those available to the
Company. The Company believes that the principal competitive factors affecting
its business are price, product quality, customer service and technological
innovation.
Unit prices for many of the Company's products, including its consumer
credit profile, have declined in recent years, due in part to competitive
conditions and the effect of technological change on the demand for, and cost
of delivery of, many such products. To date, declines in unit prices have been
more than offset by increases in unit volumes. There can be no assurance that
the Company will be able to continue to sustain unit growth or that future
unit price declines, if any, will be offset by increases in demand for the
Company's products. See "Business--Competition."
ACQUISITIONS AND ALLIANCES
A key element of the Company's strategy is to pursue strategic acquisitions
of or alliances with companies that have products, services and technologies
or industry specializations that extend or complement those of the Company. To
date, the Company's management has had limited experience in making
acquisitions and entering into alliances. The process of integrating acquired
businesses may involve unforeseen difficulties and may require a
disproportionate amount of the time and attention of the Company's management
and the Company's financial and other resources. There can be no assurance
that the Company will be effective in identifying or making acquisitions or in
forging alliances, that any acquired business will be effectively integrated
or that any acquired business or alliance will be profitable.
RISKS ASSOCIATED WITH SYSTEMS UPGRADE
The Company has invested and will continue to invest significant resources
in software development. In [ ] 1996, the Company will implement File One
which, among other things, will redesign the file structure of the Company's
consumer credit database. In the three years ended December 31, 1995, the
Company expended approximately $61 million in connection with the development
of File One, with an additional $8.7 million being expended during the first
quarter of 1996. There can be no assurance that this upgrade will adequately
address clients' requirements for performance and functionality. If it does
not, the Company's ability to introduce new and enhanced
18
<PAGE>
products and services could be adversely affected. After the implementation of
File One, the Company will not continue to update the consumer credit
information in its existing flat file and will only update the consumer
information in File One. The Company has capitalized approximately $22.9
million of the expenditures associated with File One as of March 31, 1996. If
the Company is unable to recover its investment in File One, the Company would
be required to charge against earnings all or a portion of such capitalized
development costs, and such charge could be material.
RISK OF DATA CENTER FAILURE
The Company's operations are dependent upon its ability to protect its data
center against damage from fire, power loss, telecommunications failure,
natural disaster or a similar event. Substantially all of the Company's
computer equipment and data operations are located in a single facility in
Allen, Texas. While the Company maintains off-site copies of all information
contained in its data bases, the Company does not have any arrangement through
which it would be able to use alternative data processing sites in the event
the Company experiences a natural disaster, hardware or software malfunction
or other interruption of its data center. As a result, the Company could be
materially adversely affected by damage or failure that causes significant
interruptions in the Company's operations. The Company's property and business
interruption insurance may not be adequate to compensate the Company for all
such losses that may occur. The Company's current insurance program provides
an all-risk limit for property damage and business interruption of $900
million, with various sublimits for ancillary coverages and $100 million
sublimits applicable separately to flood and earthquake. If the Company's data
center were unable to operate for an extended period of time, the Company
could find it difficult or impossible to maintain the accuracy and
completeness of the Databases. See "Business--Information Technologies."
INTELLECTUAL PROPERTY RIGHTS
The Company's success depends in part upon its technological expertise and
proprietary information and technologies. The Company relies on a combination
of copyright, trade secret and contract protection to establish and protect
its proprietary rights in its products and technology. The Company generally
enters into confidentiality agreements with its management and technical staff
and limits access to and distribution of its proprietary information. The
Company also has implemented a number of procedures and controls designed to
prohibit unauthorized access to the Company's computerized database. There can
be no assurance that these steps will be adequate to deter misappropriation or
infringement of the Company's proprietary technologies. Although the Company
believes that its products and technologies do not infringe any proprietary
rights of others, the growing use of copyrights and patents to protect
proprietary rights has increased the risk that third parties will increasingly
assert claims of infringement in the future. See "Business--Proprietary
Information."
FRAUDULENT TRANSFER CONSIDERATIONS
In connection with the Transactions, IS&S will incur substantial
indebtedness, including the Credit Facilities and, through its assumption of
the Notes in connection with the IS&S Merger, the Notes. If, under relevant
federal and state fraudulent transfer and conveyance statutes, in a bankruptcy
or reorganization case or a lawsuit by or on behalf of unpaid creditors of
Experian or IS&S, a court were to find that, at the time the Notes were issued
by Experian or assumed by IS&S, (a) Experian issued or IS&S assumed the Notes
with the intent of hindering, delaying or defrauding current or future
creditors or (b) (i) Experian or IS&S received less than reasonably equivalent
value or fair consideration for issuing or assuming the Notes, as applicable,
and (ii) Experian or IS&S, as the case may be, (A) was insolvent or was
rendered insolvent by reason of any of the Transactions, including the
incurrence of the indebtedness to fund the Transactions, (B) was engaged, or
about to engage, in a business or transaction for which its assets constituted
unreasonably small capital, (C) intended to incur, or believed that it would
incur, debts beyond its ability to pay such debts as they matured (as all of
the foregoing
19
<PAGE>
terms are defined in or interpreted under the relevant fraudulent transfer or
conveyance statutes) or (D) was a defendant in an action for money damages, or
had a judgment for money damages docketed against it (if, in either case,
after final judgment the judgment is unsatisfied), such court could avoid or
subordinate the Notes to presently existing and future indebtedness of
Experian or IS&S and take other action detrimental to the holders of the
Notes, including, under certain circumstances, invalidating the Notes.
The measure of insolvency for purposes of the foregoing considerations will
vary depending upon the law of the jurisdiction that is being applied in any
such proceeding. Generally, however, Experian or IS&S would be considered
insolvent if, at the time it incurs the indebtedness constituting the Notes,
either (i) the sum of all its liabilities (including contingent liabilities)
is greater than its assets, at a fair valuation, or (ii) the present fair
saleable value of its assets is less than the amount required to pay the
probable liability on its debts and liabilities (including contingent
liabilities) as they become absolute and matured. There can be no assurance as
to what standards a court would use to determine whether Experian or IS&S was
solvent at the relevant time, or whether, whatever standard was used, the
Notes would not be avoided on another of the grounds set forth above.
Experian believes that, at the time the Notes are issued by Experian and
assumed by IS&S, each of Experian and IS&S (i) will be (a) neither insolvent
nor rendered insolvent thereby, (b) in possession of sufficient capital to run
its business effectively and (c) incurring debts within its abilities to pay
as the same mature or become due and (ii) will have sufficient assets to
satisfy any probable money judgment against it in any pending action. In
reaching the foregoing conclusions, Experian has relied upon its analyses of
internal cash flow projections and estimated values of assets and liabilities
of Experian and IS&S. There can be no assurance, however, that a court passing
on such questions would reach the same conclusions.
Initial borrowings under the Credit Facilities and the consummation of the
Offering is conditioned upon the receipt of an opinion from an independent
valuation firm to the effect that IS&S will be solvent as of the Closing Date
after giving effect to the Transactions. No assurance can be given, however,
that the assumptions and methodologies chosen by the independent valuation
firm in reaching its conclusions about the solvency of IS&S would be adopted
by a court or that a court would concur with those conclusions.
In rendering their opinions in connection with the Offering, counsel for the
Company and counsel for the Underwriters will not express any opinion as to
the applicability of Federal or state fraudulent transfer and conveyance laws.
ABSENCE OF PUBLIC MARKET FOR THE NOTES; POSSIBLE VOLATILITY OF THE NOTES
The Notes are a new issue of securities with no established trading market
and the Company does not intend to have the Notes listed for trading on any
national securities exchange. The Underwriters have advised the Company that
they currently intend to make a market in the Notes, but the Underwriters are
not obligated to do so and any such market-making activity may be discontinued
at any time, without notice, in their sole discretion. Accordingly, no
assurance can be given as to the prices or liquidity of, or trading markets
for, the Notes. The liquidity of any market for the Notes will depend upon the
number of holders of the Notes, the interest of securities dealers in making a
market in the Notes and other factors. The absence of an active market for the
Notes could adversely affect the liquidity of the Notes. The liquidity of, and
trading markets for, the Notes may also be adversely affected by general
declines in the market for non-investment grade debt. Future trading prices
for the Notes will depend upon many factors, including, among others, the
Company's operating results, the market for similar securities and interest
rates.
20
<PAGE>
EXPERIAN INFORMATION SOLUTIONS, INC.
Experian is a wholly owned subsidiary of Experian Corporation and was
organized to effectuate the Recapitalization. Upon consummation of the
Recapitalization, Experian will merge into IS&S, with IS&S becoming liable for
the Notes. After the merger, IS&S, an Ohio corporation, is expected to change
its name to Experian Information Solutions, Inc. Experian was incorporated in
May of 1996 under the laws of the State of Delaware.
The principal executive offices of Experian prior to the Recapitalization
will be located c/o Ropes & Gray, One International Place, Boston,
Massachusetts 02110, telephone number: (617) 951-7000, and the principal
executive offices of the Company after the Recapitalization will be located at
505 City Parkway West, Orange, California 92668, telephone number: (714) 385-
7000.
THE RECAPITALIZATION, FINANCING AND RELATED TRANSACTIONS
The Offering is part of the Recapitalization which is being effected
pursuant to the Recapitalization Agreement. TRW owns all of the outstanding
stock of Holdings, and Holdings owns all of the outstanding stock of IS&S.
IS&S owns substantially all of the assets of TRW IS&S and will issue the TRW
Note. The other principal components of the Recapitalization, which will be
consummated concurrently with the Offering, include the following:
. The Investors, including Bain and THL, will make the Equity Investment
in Experian Corporation. Experian Corporation owns all of the
outstanding capital stock of Experian. Bain and THL are two of the most
active private equity investors in the United States.
. Experian Corporation will merge into Holdings, and Experian will be
merged into IS&S with IS&S becoming liable for the Notes. After the IS&S
Merger, IS&S is expected to change its name to Experian Information
Solutions, Inc. Neither Experian nor Experian Corporation will have any
operations prior or subsequent to the consummation of the
Recapitalization.
. The proceeds of the Offering, together with estimated initial borrowings
by the Company of $560.0 million under the Credit Facilities and the
proceeds from the Equity Investment, will be used to (i) repay the TRW
Note; (ii) pay TRW $255.0 million in connection with the redemption of
certain stock of TRW in Holdings; and (iii) pay an estimated $55.0
million of fees and expenses relating to the Transactions. See "Use of
Proceeds."
Upon completion of the Recapitalization, Holdings will own all of the
outstanding capital stock of the Company. Bain will own approximately 33.6% of
the voting power of Holdings, THL will own approximately 33.6% of the voting
power of Holdings, TRW will retain securities entitled to approximately 19.6%
of the voting power of Holdings and certain other investors will own
approximately 13.2% of the voting power of Holdings. See "Risk Factors--
Controlling Stockholders," "Ownership of Capital Stock" and "Certain
Relationships and Related Transactions."
The Company will have certain rights to use the TRW name for a limited time
following the Recapitalization. See "Risk Factors--Effects of the
Recapitalization" and "Certain Relationships and Related Transactions."
21
<PAGE>
USE OF PROCEEDS
The Company intends to use the proceeds from the Offering, together with
estimated initial borrowings of approximately $560.0 million under the Credit
Facilities and the proceeds of the Equity Investment, as follows: (i)
approximately $755.0 million will be applied to repay the TRW Note; (ii)
approximately $255.0 million will be paid to TRW in connection with the
redemption of certain stock of TRW in Holdings; and (iii) an estimated $55.0
million will be applied to pay fees and expenses related to the Transactions.
See "The Recapitalization, Financing and Related Transactions." The TRW Note
is a demand note that does not bear any interest.
The following table sets forth the pro forma sources and uses of funds for
the Transactions as of March 31, 1996.(/1/)
<TABLE>
<CAPTION>
AMOUNTS
---------------------
(DOLLARS IN MILLIONS)
<S> <C>
SOURCES
Credit Facilities:
Revolving Facility (2)................................. $ 10.0
Tranche A Term Loan.................................... 200.0
Tranche B Term Loan.................................... 175.0
Tranche C Term Loan.................................... 175.0
Senior Subordinated Notes............................... 250.0
Equity Investment....................................... 255.0
--------
Total Sources......................................... $1,065.0
========
USES
Distribution to existing shareholder (3)................ $1,010.0
Fees and expenses related to the Transactions (4)....... 55.0
--------
Total Uses............................................ $1,065.0
========
</TABLE>
- --------
(1) The direct continuing equity interests of TRW in Holdings are excluded
from the table above, and consist of $47.2 million of Voting Preferred,
$27.8 million of Non-voting Preferred and $15.0 million of Common Stock of
Holdings, representing in the aggregate 19.6% of the voting power of
Holdings subsequent to the Recapitalization. See "The Recapitalization,
Financing and the Related Transactions" and "Ownership of Capital Stock."
(2) Represents the drawn portion under the $75.0 million Revolving Facility.
(3) Consists of the repayment of the TRW Note of approximately $755.0 million
and the redemption of a portion of TRW stock in Holdings for aggregate
consideration of $255.0 million. The face amount of the TRW Note is
subject to adjustment based upon working capital of the business at the
Closing Date.
(4) The estimated fees and expenses consist of underwriting fees, bank fees,
financial advisory fees and legal, accounting and other professional fees.
Certain affiliates of the Investors will receive compensation for their
services in connection with the Transactions. See "Certain Relationships
and Related Transactions."
22
<PAGE>
UNAUDITED PRO FORMA CAPITALIZATION
The following table sets forth the unaudited pro forma capitalization of the
Company as of March 31, 1996 as adjusted to give effect to the Transactions.
<TABLE>
<CAPTION>
AS OF
MARCH 31, 1996
--------------
(DOLLARS IN MILLIONS)
<S> <C>
Long-term debt:
Revolving Facility (1).................................. $ 10.0
Tranche A Term Loan..................................... 200.0
Tranche B Term Loan..................................... 175.0
Tranche C Term Loan..................................... 175.0
Senior Subordinated Notes................................. 250.0
Other notes payable....................................... 1.7
-------
Total long-term debt.................................. 811.7
-------
Stockholders' equity (deficit):
Common stock, no par value; 1,000 shares authorized;
100 shares issued and outstanding...................... --
Additional paid-in capital.............................. 599.0
Retained earnings (deficit) (2)......................... (755.0)
-------
Total stockholders' equity (deficit).................. (156.0)
-------
Total capitalization...................................... 655.7
=======
</TABLE>
- --------
(1) Represents the drawn portion under the $75.0 million Revolving Facility.
(2) Excludes the redemption by Holdings of certain stock of TRW in Holdings
totalling $255.0 million.
23
<PAGE>
UNAUDITED PRO FORMA FINANCIAL DATA
(DOLLARS IN THOUSANDS)
The following Unaudited Pro Forma Combined Balance Sheet as of March 31,
1996 gives effect to the Transactions as if they had occurred on such date.
The following Unaudited Pro Forma Combined Statements of Income give effect
to the Transactions as if they had occurred on January 1, 1995. See "The
Recapitalization, Financing, and Related Transactions." The Unaudited Pro
Forma Combined Statements of Income do not purport to represent what the
Company's results of operations would have been if the Transactions had
occurred as of the dates indicated or what such results will be for any future
periods. The unaudited pro forma financial data are based on the historical
combined financial statements of the Company and the assumptions and
adjustments described in the accompanying notes.
Management has identified cost reductions in excess of annual 1995 and three
months ended March 31, 1996 historical cost levels totalling approximately
$16,625 and $4,873, respectively. The foregoing cost reductions are not
included in pro forma income before income taxes and EBITDA. These cost
reductions are expected to be realized in part during 1996 and in full during
1997. These cost reductions are summarized as follows:
<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED ENDED
DECEMBER 31, MARCH 31,
1995 1996
------------ ------------
<S> <C> <C>
Reconfiguration of consumer and customer
operations...................................... $ 3,000 $ 750
Operating efficiencies resulting from changes to
staff and support organizations................. 4,075 1,019
Modification of data warehousing policies........ 1,000 250
Reduction of international affiliate operating
losses, exclusive of one time charges and
reduced international system development costs.. 1,750 1,154
Reduction of certain expenses relating to the
development of File One (a)..................... 6,600 1,650
Other miscellaneous cost reduction activities.... 200 50
-------- -------
$ 16,625 $4,873
======== =======
Pro Forma income before taxes, adjusted for cost
reductions...................................... $ 32,783 $ 7,514
======== =======
Pro Forma EBITDA, adjusted for cash cost
reductions (a).................................. $200,905 $49,752
======== =======
</TABLE>
--------
(a) The reduction in File One developmental expenses is net of additional
depreciation expense of $6,100 and $1,525 for the year ended December
31, 1995 and the three months ended March 31, 1996, respectively.
Excluding depreciation, the cash cost savings expected to be realized
upon the completion of File One total $12,700 and $3,175 for the year
ended December 31, 1995 and the three months ended March 31, 1996,
respectively.
The foregoing cost reductions are forward looking statements that involve
certain risks and uncertainties that could cause actual results to differ
materially from those contained herein. Potential risks and uncertainties
include such factors as the substantial leverage and debt service obligation
of the Company as a result of the Transactions, the demand for the Company's
products and services, government regulations and privacy issues, competition,
risk of data center failure, intellectual property rights and other risks
identified herein.
Historically, the recapitalized businesses operated principally as a
separate and distinct business unit within the combined group of companies
comprising TRW. The unaudited pro forma financial data are based upon
assumptions that the Company believes are reasonable and should be read in
conjunction with the Combined Financial Statements of the Company and the
related notes thereto included elsewhere in this Prospectus.
24
<PAGE>
UNAUDITED PRO FORMA COMBINED BALANCE SHEET
<TABLE>
<CAPTION>
AS OF MARCH 31, 1996
----------------------------------------------------------------
REORGANIZATION, PRO
HISTORICAL ACQUISITIONS AND FORMA TRANSACTIONS COMPANY
TRW IS&S DISPOSITIONS IS&S ADJUSTMENTS PRO FORMA
---------- ---------------- -------- ------------ ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents... $ 355 $ (355)(1) $ -- $ -- $ --
Accounts receivable......... 93,031 93,031 93,031
Prepaid expenses............ 9,031 9,031 9,031
-------- -------- -------- -------- --------
Total current assets...... 102,417 (355) 102,062 102,062
Property and equipment, net.. 48,264 48,264 48,264
Capitalized data files....... 213,299 213,299 213,299
Goodwill..................... 139,834 139,834 139,834
Other intangible assets...... 41,643 41,643 41,643
Other assets................. 13,108 (3,160)(1) 9,948 9,948
Deferred income taxes........ -- 125,259 (2) 125,259 125,259
Deferred financing costs..... -- -- 55,000(5) 55,000
-------- -------- -------- -------- --------
Total assets.............. $558,565 $121,744 $680,309 $ 55,000 $735,309
======== ======== ======== ======== ========
LIABILITIES AND NET
INVESTMENT/STOCKHOLDERS'
EQUITY
Current liabilities:
Accounts payable............ $ 19,956 $ (7,396)(1) $ 12,560 $ 12,560
Other accruals.............. 21,558 (2,721)(1) 18,837 18,837
Accrued compensation........ 22,889 (3,157)(1) 19,732 19,732
Deferred revenue and
advance billings........... 28,508 28,508 28,508
-------- -------- -------- -------- --------
Total current
liabilities.............. 92,911 (13,274) 79,637 79,637
Long-term liabilities........ 1,707 1,707 1,707
Minority interest............ 25,094 (25,094)(3) -- --
Demand promissory note to
Parent...................... -- 755,000 (4) 755,000 (755,000)(5) --
Credit Facilities:
Revolving Facility.......... -- -- 10,000 (5) 10,000
Tranche A Term Loan......... -- -- 200,000 (5) 200,000
Tranche B Term Loan......... -- -- 175,000 (5) 175,000
Tranche C Term Loan......... -- -- 175,000 (5) 175,000
Senior Subordinated Notes.... -- -- 250,000 (5) 250,000
-------- -------- -------- -------- --------
Total liabilities......... 119,712 716,632 836,344 55,000 891,344
Net Investment/Stockholders'
Equity:
Common stock, no par value;
1,000 shares authorized;
100 shares issued and
outstanding................ -- -- --
Net investment/additional
paid in capital............ 438,853(4) 9,759 (1) 598,965 598,965
25,094 (3)
125,259 (2)
Retained earnings
(deficit), including
distribution to
shareholder in excess of
book value arising from
the Reorganization........ (755,000)(4) (755,000) (755,000)
-------- -------- -------- -------- --------
Total net
investment/stockholders'
equity (deficit)........ 438,853 (594,888) (156,035) (156,035)
-------- -------- -------- -------- --------
Total liabilities and net
investment/stockholders'
equity (deficit)........ $558,565 $121,744 $680,309 $ 55,000 $735,309
======== ======== ======== ======== ========
</TABLE>
25
<PAGE>
NOTES TO UNAUDITED PRO FORMA COMBINED BALANCE SHEET
MARCH 31, 1996
(DOLLARS IN THOUSANDS)
(1) Represents certain assets and liabilities, generally of an intercompany
nature, not transferred to TRW's wholly owned subsidiary, IS&S, as a
result of TRW's reorganization of the IS&S business (the "Reorganization")
as set forth below. The aggregate net amount has been accounted for as a
contribution to capital.
<TABLE>
<S> <C>
Cash............................................................... $ (355)
Other assets-principally note receivable from sale of business..... (3,160)
------
Total assets..................................................... (3,515)
Trade accounts payable--principally the reclassification of cash
overdraft......................................................... 7,396
Other accruals--principally restructuring reserves and accrued
professional services............................................. 2,721
Accrued compensation-principally accrued payroll expenses.......... 3,157
------
Total liabilities................................................ 13,274
------
Contribution to capital............................................ $9,759
======
</TABLE>
(2) Represents the establishment of deferred income taxes resulting from the
Reorganization which results in a new basis for the Company's assets for
income tax reporting purposes (See Note 4 and the Recapitalization,
Financing, and Related Transactions). The following summary sets forth the
application of SFAS No. 109, "Accounting for Income Taxes," and EITF 94-10
"Accounting for Income Tax Effects of Transactions among or with
Shareholders" to reflect the new gross temporary differences between the
assets and liabilities of the Company, tax affected at an estimated
statutory income tax rate of 40%:
26
<PAGE>
NOTES TO UNAUDITED PRO FORMA COMBINED BALANCE SHEET
MARCH 31, 1996
(DOLLARS IN THOUSANDS)
PURCHASE PRICE FOR INCOME TAX REPORTING PURPOSES:
<TABLE>
<S> <C>
Proceeds to sellers of securities (including cash proceeds of
$1,010,000) (a).................................................. $1,100,000
Estimated fees and expenses....................................... 55,000
----------
Total........................................................... $1,155,000
==========
</TABLE>
ALLOCATED AS FOLLOWS:
<TABLE>
<S> <C>
Book value of deemed net assets acquired, excluding the
historical book value of intangible assets of approximately
$394,776........................................................ $ 78,930
Estimated increase in property and equipment to fair market
value........................................................... 50,000
Estimated fees and expenses...................................... 55,000
Increase in intangible assets for income tax reporting purposes.. 971,070
----------
Total.......................................................... $1,155,000
==========
</TABLE>
--------
(a) Consists of the repayment of the TRW Note of $755,000 (Note 5), the
redemption of a portion of Holdings stock for aggregate consideration
of $255,000 and common and preferred stock totalling $90,000.
Deferred taxes principally relating to the excess of intangible assets and
property and equipment for income tax reporting purposes over historical
net book value is determined as follows:
<TABLE>
<S> <C>
Noncurrent deferred tax asset relating to excess tax basis over
historical book basis........................................... $ 408,428
Noncurrent deferred tax liability relating to excess historical
book basis over tax basis (principally relating to intangible
assets totalling approximately $394,776)........................ (157,910)
---------
Noncurrent deferred tax asset, net............................... 250,518
Deferred tax valuation allowance................................. (125,259)
---------
Noncurrent deferred tax asset, net............................... $ 125,259
=========
</TABLE>
An appraisal of the Company's assets will be obtained shortly after the
Recapitalization and any change from the estimate will either increase or
decrease the final amount of intangible assets for income tax reporting
purposes. Management believes that the final appraisal will not vary
materially from the preliminary estimate.
The valuation allowance represents the amount of the deferred tax assets
which, based on management's forecasts for future taxable income and other
relevant factors, may not be realized.
(3) Reflects the purchase of the remaining 40% partnership interest in TRW
REDI which will be completed by TRW prior to, or contemporaneous with, the
Recapitalization. Pursuant to a confidentiality agreement between TRW and
the seller which precludes disclosure of the purchase price, management
has recorded a purchase price for pro forma purposes equal to the net book
value of the minority interest. As the acquisition of the remaining 40%
interest will be funded by TRW, the estimated purchase price is accounted
for as a contribution to capital, totalling $25,094.
(4) Represents the contribution of substantially all of the TRW IS&S
historical assets and liabilities and the equity of TRW Hotel Company Inc.
into TRW's wholly owned subsidiary, IS&S, and the issuance of the TRW Note
in connection with the Reorganization. The historical TRW IS&S net
investment account includes transactions of an intercompany nature related
to deferred income taxes, employee benefit plans, other intercompany
transactions and the residual net investment balance in TRW IS&S. At the
date of the contribution, IS&S had 100 shares of no par value common stock
outstanding.
27
<PAGE>
NOTES TO UNAUDITED PRO FORMA COMBINED BALANCE SHEET
MARCH 31, 1996
(DOLLARS IN THOUSANDS)
(5) Reflects the incurrence of debt relating to the Credit Facilities and
Notes and use of the cash proceeds to repay the TRW Note and the fees and
expenses incurred in connection with issuing the aforementioned debt.
SOURCES
<TABLE>
<S> <C>
Revolving Facility............................................... $ 10,000
Tranche A Term Loan.............................................. 200,000
Tranche B Term Loan.............................................. 175,000
Tranche C Term Loan.............................................. 175,000
Senior Subordinated Notes........................................ 250,000
--------
Total Sources.................................................. $810,000
========
USES
Payment of deferred financing costs (a).......................... $ 55,000
Payment of TRW Note.............................................. 755,000
--------
Total Uses..................................................... $810,000
========
</TABLE>
--------
(a) Consists of placement fees from the Senior Subordinated Notes, bank
fees from the Credit Facilities, financial advisory fees and legal,
accounting and other professional fees.
28
<PAGE>
UNAUDITED PRO FORMA COMBINED STATEMENT OF INCOME
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1995
-------------------------------------------------------------
REORGANIZATION,
ACQUISITIONS PRO
HISTORICAL AND FORMA TRANSACTIONS COMPANY
TRW IS&S DISPOSITIONS IS&S ADJUSTMENTS PRO FORMA
---------- --------------- -------- ------------ ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Sales................... $540,159 $ (855)(1) $540,730 $ -- $540,730
1,426 (2)
Cost of sales........... 273,941 (1,426)(1) 271,050 (2,965)(5) 266,850
380 (2) (1,235)(6)
(1,845)(3)
-------- ------ -------- -------- --------
Gross profit............ 266,218 3,462 269,680 4,200 273,880
Administrative and
selling expenses....... 151,150 (1,730)(1) 149,668 (1,235)(6) 152,573
248 (2) 4,800 (7)
(660)(7)
Research and development
expenses............... 24,928 24,928 24,928
Restructuring expense
(income)............... (3,317) (3,317) (3,317)
TRW corporate general
and administrative
expenses............... 4,826 4,826 (4,826)(7) --
-------- ------ -------- -------- --------
Income from operations.. 88,631 4,944 93,575 6,121 99,696
Minority interest....... 2,011 (2,011)(3) -- --
Interest expense........ 706 -- 706 81,943 (8) 82,649
Other (income) expense,
net.................... (368) 1,257 (1) 889 889
-------- ------ -------- -------- --------
Income (loss) before
income taxes........... 86,282 5,698 91,980 (75,822) 16,158
Provision for (benefit
from) income taxes..... 34,530 2,279 (4) 36,809 (30,329)(4) 6,480
-------- ------ -------- -------- --------
Net income (loss)....... $ 51,752 $3,419 $ 55,171 $(45,493) $ 9,678
======== ====== ======== ======== ========
OTHER DATA:
EBITDA (9)............................................................... $178,180
</TABLE>
29
<PAGE>
UNAUDITED PRO FORMA COMBINED STATEMENT OF INCOME
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31, 1995
------------------------------------------------------------
REORGANIZATION,
ACQUISITIONS PRO
HISTORICAL AND FORMA TRANSACTIONS COMPANY
TRW IS&S DISPOSITIONS IS&S ADJUSTMENTS PRO FORMA
---------- --------------- -------- ------------ ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Sales................... $133,752 $ (231)(1) $134,252 $ -- $134,252
731 (2)
Cost of sales........... 69,458 (500)(1) 68,773 (664)(5) 67,800
179 (2) (309)(6)
(364)(3)
-------- ------ -------- -------- --------
Gross profit............ 64,294 1,185 65,479 973 66,452
Administrative and
selling expenses....... 38,118 (269)(1) 37,965 (309)(6) 38,691
116 (2) 1,200 (7)
(165)(7)
Research and development
expenses............... 2,453 2,453 2,453
TRW corporate general
and administrative
expenses............... 1,201 1,201 (1,201)(7) --
-------- ------ -------- -------- --------
Income from operations.. 22,522 1,338 23,860 1,448 25,308
Minority interest....... 199 (199)(3) -- --
Interest expense........ 105 105 20,253 (8) 20,358
Other (income) expense,
net.................... 162 162 162
-------- ------ -------- -------- --------
Income (loss) before
income taxes........... 22,056 1,537 23,593 (18,805) 4,788
Provision for (benefit
from) income taxes..... 8,860 615 (4) 9,475 (7,522)(4) 1,953
-------- ------ -------- -------- --------
Net income (loss)....... $ 13,196 $ 922 $ 14,118 $(11,283) $ 2,835
======== ====== ======== ======== ========
OTHER DATA:
EBITDA (9)............................................................... $ 44,829
</TABLE>
30
<PAGE>
UNAUDITED PRO FORMA COMBINED STATEMENT OF INCOME
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31, 1996
------------------------------------------------------------
REORGANIZATION,
ACQUISITIONS PRO
HISTORICAL AND FORMA TRANSACTIONS COMPANY
TRW IS&S DISPOSITIONS IS&S ADJUSTMENTS PRO FORMA
---------- --------------- -------- ------------ ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Sales................... $143,825 $ $143,825 $ -- $143,825
Cost of sales........... 74,253 (333)(3) 73,920 (612)(5) 72,990
(318)(6)
-------- ----- -------- -------- --------
Gross profit............ 69,572 333 69,905 930 70,835
Administrative and
selling expenses....... 38,081 38,081 (318)(6) 38,798
1,200 (7)
(165)(7)
Research and development
expenses............... 8,296 8,296 8,296
TRW corporate general
and administrative
expenses............... 1,224 1,224 (1,224)(7) --
-------- ----- -------- -------- --------
Income from operations.. 21,971 333 22,304 1,437 23,741
Minority interest....... 364 (364) (3) -- --
Interest expense........ 255 255 20,121 (8) 20,376
Other (income) expense,
net.................... 724 724 724
-------- ----- -------- -------- --------
Income (loss) before
income taxes........... 20,628 697 21,325 (18,684) 2,641
Provision for (benefit
from) income taxes..... 8,257 279 (4) 8,536 (7,474)(4) 1,062
-------- ----- -------- -------- --------
Net income (loss)....... $ 12,371 $ 418 $ 12,789 $(11,210) $ 1,579
======== ===== ======== ======== ========
OTHER DATA:
EBITDA (9)............................................................... $ 43,354
</TABLE>
31
<PAGE>
NOTES TO UNAUDITED PRO FORMA COMBINED STATEMENTS OF INCOME
YEAR ENDED DECEMBER 31, 1995 AND THREE MONTHS ENDED MARCH 31, 1995 AND 1996
(DOLLARS IN THOUSANDS)
The Unaudited Pro Forma Statements of Income give effect to the following
unaudited pro forma adjustments:
(1) Reflects the exclusion of the results of operations for two niche
businesses which were sold in the third quarter of 1995, and the $1,257
gain recognized on these dispositions for the year ended December 31,
1995. The combined unaudited historical operating results for these two
businesses were as follows:
<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED ENDED
DECEMBER 31, MARCH 31,
1995 1995
------------ ------------
<S> <C> <C>
Sales............................................. $ 855 $ 231
Cost of sales..................................... 1,426 500
------- -----
Gross profit (loss)............................... (571) (269)
Selling, general and administrative expenses...... 1,730 269
------- -----
Income (loss) from operations..................... $(2,301) $(538)
======= =====
</TABLE>
(2) Reflects the inclusion of the unaudited historical operating results of
two acquired businesses, Professional Real Estate Tax Service, Inc. (PRE)
and American Business Corporation, Inc. (ABC), for the preacquisition
period. Results for PRE and ABC after June 30, 1995 are included in the
Company's historical results. Operating data for preacquisition periods
for the two businesses are set forth below:
<TABLE>
<CAPTION>
FOR THE
FOR THE SIX MONTH PERIOD ENDED THREE MONTH PERIOD ENDED
JUNE 30, 1995 MARCH 31, 1995
--------------------------------------------------------------
PRE ABC COMBINED PRE ABC COMBINED
--------- --------- --------------------- -------- -----------
<S> <C> <C> <C> <C> <C> <C>
Sales................... $ 833 $ 593 $ 1,426 $ 428 $ 303 $ 731
Cost of sales........... 98 282 380 43 136 179
--------- --------- ----------- -------- -------- --------
Gross profit (loss)..... 735 311 1,046 385 167 552
Administrative and
selling expenses....... 221 27 248 104 12 116
--------- --------- ----------- -------- -------- --------
Income (loss) from
operations............. $ 514 $ 284 $ 798 $ 281 $ 155 $ 436
========= ========= =========== ======== ======== ========
</TABLE>
(3) Reflects the elimination of the minority interest adjustment totaling
$2,011, $199 and $364 for the year ended December 31, 1995 and the three
months ended March 31, 1995 and 1996, respectively, resulting from the
purchase of the remaining 40% partnership interest in TRW REDI. In
addition, subsequent to the purchase and the Transactions, the Company
will no longer be required to make trademark royalty payments to the
minority partner and its parent totalling $1,845, $364 and $333 for the
year ended December 31, 1995 and the three months ended March 31, 1995 and
1996, respectively.
32
<PAGE>
NOTES TO UNAUDITED PRO FORMA COMBINED STATEMENTS OF INCOME
YEAR ENDED DECEMBER 31, 1995 AND THREE MONTHS ENDED MARCH 31, 1995 AND 1996
(DOLLARS IN THOUSANDS)
(4) Reflects the income tax adjustment required to result in a pro forma
income tax provision based on: (i) the Company's historical tax provision
using historical amounts and (ii) the direct tax effects of the pro forma
adjustments described herein.
(5) Reflects the estimated recurring costs of performing certain activities as
a result of the Transactions as described below:
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
YEAR ENDED MARCH 31,
DECEMBER 31, -------------
1995 1995 1996
------------ ------ ------
<S> <C> <C> <C>
Elimination of a contractual "corporate wide"
cash incentive plan between TRW and certain
Company executives no longer available to the
Company prospectively on a stand-alone basis.
The Company plans to implement a fixed option
plan on a stand-alone basis. All grants under
such plan are expected to equal the fair
market value of the common stock on the grant
date.......................................... $1,400 $ 350 $ 263
Replacement of a "corporate wide" TRW
telecommunication plan which resulted in TRW
allocations to the Company totalling $6,464,
$1,539 and $1,712 for the year ended December
31, 1995 and the three months ended March 31,
1995 and 1996, respectively, with the
estimated annual cost of this service to the
Company on a stand-alone basis of $4,899
($5,452 in 1996) based upon competitive bids.. 1,565 314 349
------ ------ ------
$2,965 $ 664 $ 612
====== ====== ======
</TABLE>
(6) Represents the estimated recurring cost of providing health and other
benefits to the Company's employees on a stand-alone basis. These benefits
were previously provided as part of "corporate wide" TRW plans which
resulted in allocations to the Company totalling $6,470, $1,618 and $1,666
for the year ended December 31, 1995 and the three months ended March 31,
1995 and 1996, respectively. As a result of the Transactions, the Company
will no longer be allowed to participate in these plans. As a result,
management has developed its own benefits package for its employees, at an
annual estimated recurring cost of $4,000 ($4,120 in 1996) resulting in a
net cost reduction of $2,470, $618 and $636 for the year ended December
31, 1995 and the three months ended March 31, 1995 and 1996, respectively.
These costs are allocated 50% to cost of sales and 50% to administrative
and selling expenses.
(7) Represents management's estimate of the recurring cost of performing
certain activities previously provided by TRW. Historically, TRW incurred
certain general and administrative expenses including treasury management,
benefits administration and governmental relations on behalf of all of its
operating units which were allocated based upon each operating unit's cost
of operations. As a result of the Transactions, these services are no
longer available from TRW. The summary of the Company's expected stand-
alone costs is set forth below:
33
<PAGE>
NOTES TO UNAUDITED PRO FORMA COMBINED STATEMENTS OF INCOME
YEAR ENDED DECEMBER 31, 1995 AND THREE MONTHS ENDED MARCH 31, 1995 AND 1996
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
YEAR ENDED MARCH 31,
DECEMBER 31, ----------------
1995 1995 1996
------------ ------- -------
<S> <C> <C> <C>
ALLOCATED COSTS:
TRW corporate general and administrative
expenses................................. $(4,826) $(1,201) $(1,224)
Other, principally allocated international
corporate occupancy charges.............. (660) (165) (165)
------- ------- -------
Total allocated costs................... (5,486) (1,366) (1,389)
ESTIMATED STAND-ALONE COSTS:
Finance, administration and consulting
fees (a)................................. 3,925 981 981
Government relations...................... 300 75 75
Human resources, including benefits
administration........................... 160 40 40
Communications............................ 415 104 104
------- ------- -------
Total estimated stand alone costs....... 4,800 1,200 1,200
------- ------- -------
Net cost reductions..................... $ (686) $ (166) $ (189)
======= ======= =======
</TABLE>
--------
(a) Includes the annual management fee to be paid to Bain and THL for
consulting and financial services to be provided to the Company.
(8) Addition to pro forma interest expense as a result of the Transactions is
summarized as follows:
<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED ENDED MARCH 31,
DECEMBER 31, ----------------
1995 1995(A) 1996(A)
------------ ------- -------
<S> <C> <C> <C>
Elimination of historical interest expense.. $ (706) $ (105) $ (255)
------- ------- -------
Interest on the borrowings under the Credit
Facilities (assuming LIBOR at 5.5%):
Revolving Facility--LIBOR plus 2.5%....... 800 197 197
Tranche A Term Loan--LIBOR plus 2.5%...... 16,000 3,945 3,945
Tranche B Term Loan--LIBOR plus 3.0%...... 14,875 3,668 3,668
Tranche C Term Loan--LIBOR plus 3.5%...... 15,750 3,884 3,884
Notes--(assumed 11.0% on $250,000).......... 27,500 6,781 6,781
Other notes payable (8.38%)................. 154 17 35
Other bank fees............................. 425 104 104
------- ------- -------
Cash interest expense....................... 75,504 18,596 18,614
Amortization of Transactions debt issuance
costs
($55.0 million over an average 7.70 year
amortization period)....................... 7,145 1,762 1,762
------- ------- -------
Interest from Transactions debt
requirements............................... 82,649 20,358 20,376
------- ------- -------
Net increase................................ $81,943 $20,253 $20,121
======= ======= =======
</TABLE>
34
<PAGE>
NOTES TO UNAUDITED PRO FORMA COMBINED STATEMENTS OF INCOME
YEAR ENDED DECEMBER 31, 1995 AND THREE MONTHS ENDED MARCH 31, 1995 AND 1996
(DOLLARS IN THOUSANDS)
If interest rates increase by 1/8%, interest expense on the debt
outstanding would increase by $1,013, $250 and $250 for the year ended
December 31, 1995 and the three months ended March 31, 1995 and 1996,
respectively.
--------
(a) Pro forma interest expense for the three months ended March 31, 1995
and 1996 assumes pro forma indebtedness as of December 31, 1995 was
outstanding for 90 days. The Credit Facilities do not require principal
payments until eighteen months subsequent to the Closing Date.
(9) "EBITDA" is defined herein as income before income taxes, plus
depreciation and amortization expense and interest expense. EBITDA is
presented because the Company believes it is a widely accepted financial
indicator of a company's ability to service and/or incur indebtedness.
However, EBITDA should not be considered as an alternative to net income
as a measure of operating results or to cash flows as a measure of
liquidity in accordance with generally accepted accounting principles.
35
<PAGE>
SELECTED HISTORICAL COMBINED FINANCIAL DATA
The following selected historical combined financial data for the three
years ended December 31, 1995 are derived from the audited combined financial
statements of the Company, which have been audited by Ernst & Young LLP,
independent auditors. The selected historical combined financial data set
forth below for each of the two years in the period ended December 31, 1992
have been derived from the Company's unaudited combined financial statements,
not included herein, and include all adjustments which management considers
necessary for a fair presentation of the results of the Company for such
periods. The selected historical combined unaudited financial data set forth
below for the three month periods ended March 31, 1995 and 1996 have been
derived from the Company's unaudited condensed combined financial statements
and the notes thereto included elsewhere in this Prospectus and include all
adjustments, consisting only of normal recurring adjustments, which management
considers necessary for a fair presentation of the results of the Company for
such periods. Results for the interim periods are not necessarily indicative
of the results for the full year. The selected combined financial data set
forth below should be read in conjunction with, and is qualified by reference
to the audited combined financial statements and the unaudited condensed
combined financial statements of the Company and notes thereto appearing
elsewhere in this Prospectus and "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
-------------------------------------- --------------
1991 1992 1993 1994 1995 1995 1996
------ ------ ------ ------ ------ ------ ------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Sales................... $427.2 $456.5 $486.4 $512.3 $540.2 $133.8 $143.8
Cost of sales........... 233.8 248.3 259.3 261.1 274.0 69.5 74.2
------ ------ ------ ------ ------ ------ ------
Gross profit............ 193.4 208.2 227.1 251.2 266.2 64.3 69.6
Administrative and
selling expenses....... 145.7 141.1 140.7 147.3 151.1 38.1 38.1
Research and development
expenses............... 11.3 11.9 11.8 14.8 24.9 2.4 8.3
Restructuring (income)
expense (1)............ 46.9 (18.4) 3.6 12.7 (3.3) -- --
TRW corporate general
and administrative
expenses (2)........... 4.2 4.2 4.3 4.4 4.9 1.2 1.2
------ ------ ------ ------ ------ ------ ------
Income (loss) from
operations............. (14.7) 69.4 66.7 72.0 88.6 22.6 22.0
Interest expense........ 0.3 0.3 0.2 0.2 0.7 0.1 0.3
Minority interest....... (2.9) 2.5 4.3 (2.6) 2.0 0.2 0.4
Other (income) expense,
net (3)................ 1.1 0.6 10.6 (18.7) (0.4) 0.2 0.7
------ ------ ------ ------ ------ ------ ------
Income (loss) before
income taxes........... (13.2) 66.0 51.6 93.1 86.3 22.1 20.6
Provision for (benefit
from) income taxes..... (1.0) 23.1 21.8 36.8 34.5 8.9 8.2
Cumulative effect of
changes in accounting
(4).................... -- 3.5 1.8 -- -- -- --
------ ------ ------ ------ ------ ------ ------
Net income (loss)....... $(12.2) $ 39.4 $ 28.0 $ 56.3 $ 51.8 $ 13.2 $ 12.4
====== ====== ====== ====== ====== ====== ======
OTHER FINANCIAL DATA:
EBITDA (5).............. 81.1 163.9 142.2 176.4 166.4 41.9 41.2
Adjusted EBITDA (5)..... 107.5 131.2 145.8 159.5 167.8 43.0 41.9
Depreciation and
amortization........... 94.0 97.6 90.4 83.1 79.4 19.7 20.3
Cash flow from operating
activities (6)......... NA 159.3 141.9 119.9 137.9 14.2 9.8
Capital expenditures.... 20.0 12.2 20.2 13.4 17.0 1.8 3.3
Expenditures for
intangibles (7)........ 82.5 55.9 48.2 61.5 64.5 13.7 15.5
Ratio of earnings to
fixed charges (8) (9).. -- 6.1x 4.9x 7.4x 6.0x 6.9x 5.2x
BALANCE SHEET DATA:
Working capital......... $ (9.5) $ (7.3) $(10.1) $(22.6) $(12.2) $ 3.1 $ 9.5
Total assets............ 592.7 557.0 545.9 533.7 555.4 538.0 558.6
Long-term debt.......... 0.6 0.2 -- 0.9 1.8 0.8 1.7
Net investment (10)..... 443.0 424.0 416.5 401.3 418.5 423.1 438.9
</TABLE>
(footnotes on following page)
36
<PAGE>
(1) In 1991, the Company recorded restructuring charges totalling
approximately $47 million consisting of approximately: (i) $30 million
pursuant to workforce reductions and the consolidation of the facilities;
(ii) $11 million in connection with the planned closing of one of its
businesses; and (iii) $6 million for severance costs, facility
relocations and personnel consolidations in connection with TRW REDI. In
1992, the approximately $11 million reserve for the planned closure of
one of its businesses and approximately $7 million of additional
unutilized reserves recorded in 1991 were reversed. In 1993 and 1994, the
Company recorded restructuring charges totaling $3.6 million and $3.9
million, respectively, principally relating to costs incurred for the
relocation of the Company's data center from Orange, California to Allen,
Texas. In 1994, the Company recorded an additional restructuring charge
of $8.8 million to cover the costs of closing, downsizing, and relocating
facilities and restructuring of TRW REDI. In 1995, the Company reduced
restructuring reserves by $3.3 million, none of which was recorded in the
first quarter.
(2) TRW corporate incurs certain general and administrative expenses
including treasury and tax management, benefits administration,
shareholder services and general corporate governance on behalf of all of
its operating units which are allocated based upon each operating unit's
cost of operations.
(3) In 1993, the Company recorded other expense totaling $10.6 million, of
which $10.5 million related to the write-off of an intercompany note
receivable from TRW RELS, a real estate appraisal and lending support
business prior to its divestiture from TRW. In 1994, the Company recorded
a gain of $17.7 million on the sale of Credentials, a direct-to-consumer
credit monitoring business.
(4) In 1992, the Company recorded a $3.5 million after tax charge for the
cumulative effect of adopting SFAS 109 "Accounting For Income Taxes" and
SFAS 106 "Accounting for Postretirement Benefits Other than Pensions." In
1993, the Company recorded a $1.8 million after tax charge for the
cumulative effect of adopting SFAS No. 112, "Employer's Accounting for
Postemployment Benefits."
(5) "EBITDA" is defined herein as income before income taxes, plus
depreciation and amortization expense and interest expense. EBITDA is
presented because the Company believes it is a widely accepted financial
indicator of a company's ability to service and/or incur indebtedness.
However, EBITDA should not be considered as an alternative to net income
as a measure of operating results or to cash flows as a measure of
liquidity in accordance with generally accepted accounting principles.
"Adjusted EBITDA" is defined herein as EBITDA adjusted for certain items
of income and expense which are not expected to be incurred by the
Company subsequent to the Transactions. See Note 6 to the "Summary
Historical Combined Financial Data" for a description of the principal
components of Adjusted EBITDA.
(6) Information is not available for 1991. The 1992 cash flow from operating
activities is estimated.
(7) Expenditures for intangibles consists principally of capitalized data
files and software products.
(8) For purposes of computing this ratio, earnings consist of income before
taxes and minority interest plus fixed charges. Fixed charges consist of
interest expense and one-third of the rent expense from operating leases,
which management believes is a reasonable approximation of an interest
factor.
(9) Earnings were insufficient to cover fixed charges by $16.1 million during
the year ended December 31, 1991.
(10) "Net Investment" includes transactions of an intercompany nature, related
to deferred income taxes, employee benefit plans, other intercompany
transactions and the residual net investment balance.
37
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
The Company is a leading provider of credit, marketing and real estate
information on individuals, businesses and properties in the United States.
The Company's products and services play a key role in financial risk
management as well as customer identification, acquisition and retention for
businesses in a wide range of industries including financial services, retail,
real estate, telecommunications and utilities. The Company sells three major
categories of information products and services: credit, marketing and real
estate. The Company's over 500-person direct sales force emphasizes a
consultative selling approach for its larger customers, substantially all of
whom have had relationships with the Company for more than a decade. In
addition, the Company services smaller customers through telemarketing
facilities and through resellers, brokers and credit bureaus.
Credit Information
The Company believes that it is one of the two largest providers of consumer
credit information and the second largest provider of business credit
information in the United States. Customers use the Company's credit products
and services in a variety of applications including the issuance and
monitoring of credit cards, mortgages, small business loans and trade credit.
These products and services include credit profile reports, credit scoring
services, customized account management, on-line support for instant credit
decisions, accounts receivable evaluations and fraud detection. Credit
products and services sales were approximately $278 million, $286 million and
$315 million in 1993, 1994 and 1995, respectively, representing approximately
57%, 56% and 58% of the Company's sales in 1993, 1994 and 1995, respectively.
Marketing Information
The Company believes it is the largest provider of prescreen services and a
leader in providing targeted marketing information services. The Company uses
its selected credit and demographic data to develop and sell prescreened lists
of individuals and businesses to whom financial institutions and retailers
extend pre-approved offers of credit. Additionally, the Company uses its
demographic and real estate data, enhanced by the non-restricted information
(primarily name, address, telephone number and social security number) in its
credit databases, to develop and sell targeted marketing products and services
to financial institutions, consumer products companies, retailers,
telecommunications companies and other consumer and business-to-business
marketers. Targeted marketing products and services include the development of
lists of potential customers, value-added enhancements to customer lists and
the creation of marketing databases and other analytical tools. Marketing
products and services sales were approximately $79 million, $112 million and
$134 million in 1993, 1994 and 1995, respectively, representing 16%, 22% and
25% of the Company's sales in 1993, 1994 and 1995, respectively.
Real Estate Information
Management believes that the Company's 1995 sales of real estate products
and services were twice as large as the sales of its nearest competitors. Real
estate products and services provide appraisers, realtors, lenders, government
agencies and title companies with property, title and tax information
necessary for the property transfer and financing process. The Company is the
national leader in both property data and title information services. Real
estate information products and services sales were approximately $105
million, $99 million and $92 million in 1993, 1994 and 1995, respectively,
representing approximately 22%, 19% and 17% of the Company's sales in 1993,
1994 and 1995, respectively. Due to higher data acquisition and production
costs, real estate information products and services are substantially less
profitable than the Company's other products and services and, therefore, do
not contribute proportionately to the Company's net income.
Credentials, a direct-to-consumer credit reporting service which was
divested in 1994, had sales of approximately $25 million (5% of the Company's
sales) in 1993 and $16 million (3% of the Company's sales) in 1994.
38
<PAGE>
The Company's sales and business operations benefit from well-established
customer relationships. Although the majority of the Company's sales is not
guaranteed under long-term contracts, a substantial portion of the Company's
sales are derived from customers with long-standing relationships with the
Company. Sales to the 25 largest customers amounted to approximately $97
million (20% of sales) in 1993, $122 million (24% of sales) in 1994, and $154
million (29% of sales) in 1995. No single customer accounted for more than
2.1% of sales in each of the three years.
The Company's revenues and operating results are affected by several
economic trends which drive activity in the financial services sector. In
particular, the rate of economic growth, interest rates, consumer spending,
and consumer confidence influence demand for the Company's credit, marketing
and real estate information products and services. The effect of these
economic factors may be pronounced, as a significant portion of the Company's
expenses is fixed in nature. Historically, however, the adverse effects of an
economic downturn on credit reporting revenues have been partially offset by
increased demand for risk management and portfolio monitoring services in
these periods.
The demand for target marketing services is also sensitive to the level of
postal rates and mailing costs, which may limit customers' solicitation and
marketing activities. List development and list enhancement services, which
allow Company customers to more closely target their product offerings, have
mitigated a portion of the revenue declines in periods when mailing costs
rise.
POTENTIAL OPERATING IMPROVEMENTS
As more fully described under "Unaudited Pro Forma Financial Data,"
management has identified certain areas which are expected to produce future
cost reductions in excess of annual 1995 and three months ended March 31, 1996
historical cost levels totaling approximately $16.6 million and $4.9 million,
respectively. These cost reductions are expected to be realized in part during
1996 and in full during 1997.
RESULTS OF OPERATIONS
The following table sets forth the percentage of sales for each of the
Company's product lines, and summarizes the related expenses and earnings
expressed as a percentage of sales for each of the three years ended December
31, 1993, 1994 and 1995 and for the three months ended March 31, 1995 and
1996:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
------------------------- --------------------
1993 1994 1995 1995 1996
------- ------- ------- --------- ---------
<S> <C> <C> <C> <C> <C>
Sales:
Credit information......... 57.0% 55.8% 58.1% 57.4% 58.9%
Marketing information...... 16.2 21.9 24.9 25.5 24.9
Real estate information.... 21.7 19.1 17.0 17.1 16.2
Credentials................ 5.1 3.2 -- -- --
------- ------- ------- --------- ---------
Total sales.................. 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of sales................ 53.3 51.0 50.7 51.9 51.6
------- ------- ------- --------- ---------
Gross profit................. 46.7 49.0 49.3 48.1 48.4
Administrative and selling
expenses.................... 28.9 28.7 28.0 28.5 26.5
Research and development
expenses.................... 2.4 2.9 4.6 1.9 5.8
Restructuring (income)
expense..................... 0.7 2.5 (0.6) -- --
TRW corporate general and
administrative expenses..... 0.9 0.9 0.9 0.9 0.9
Interest expense and minority
interest.................... 1.0 (0.5) 0.5 0.2 0.4
Other (income) expense....... 2.2 (3.7) (0.1) 0.1 0.5
------- ------- ------- --------- ---------
Income before income taxes... 10.6 18.2 16.0 16.5 14.3
Provision for income taxes... 4.5 7.2 6.4 6.6 5.7
Cumulative effect of change
in accounting for post
employment benefits......... 0.3 -- -- -- --
------- ------- ------- --------- ---------
Net income................... 5.8% 11.0% 9.6% 9.9% 8.6%
======= ======= ======= ========= =========
</TABLE>
39
<PAGE>
THREE MONTHS ENDED MARCH 31, 1996 COMPARED TO THREE MONTHS ENDED MARCH 31,
1995
Sales in the first quarter of 1996 increased 7.5% to $143.8 million, from
$133.8 million in the prior year's first quarter. Sales of credit products and
services rose 10.3% to $84.6 million, reflecting continuing gains in unit
volumes. Sales of marketing products and services increased by 5.3% to $35.9
million, principally as a result of higher sales of account management and
portfolio monitoring services.
Real estate information services sales increased by 1.7% in the first
quarter of 1996 to $23.3 million from $22.9 million in the comparable prior
year's first quarter. Lower subscription revenues from traditional microfiche
and hard copy property data products were more than offset by increased sales
of title information electronically imaged products.
Cost of sales amounted to $74.2 million in the first quarter of 1996, an
increase of 6.8% over the prior year's first quarter, reflecting the variable
costs associated with the increased sales volumes. Gross margin of 48.4% for
the first quarter of 1996 was comparable to 48.1% for the first quarter of
1995.
Administrative and selling expenses totaled $38.1 million in the first
quarter of 1996, representing 26.5% of sales, compared to $38.1 million or
28.5% of sales in the first quarter of 1995.
Research and development expenses in the first quarter of 1996 totaled $8.3
million, an increase of $5.9 million or 245.8% over the first quarter of 1995.
Development costs associated with File One and the introduction of improved
business processes for delivering consumer credit reporting services peaked in
the first quarter of 1996, as the Company prepared to launch the program into
production in the latter part of the second quarter of 1996. The Company does
not expect research and development expenses to be as high during subsequent
quarters.
Research and development expenses for the full year 1996 are expected to
exceed the amounts expended in 1995 due to the increased level of development
and implementation activities associated with the File One system upgrade, and
are expected to decline thereafter upon its completion.
The Company has invested in Comcred S.A. de CV ("Comcred"), a start-up
Mexican credit data company. The Company purchased 2,400 shares of Comcred's
Series B stock (20% interest) for $0.8 million. The Company has entered into
three note agreements which allow Comcred to draw down cash as necessary. As
of December 31, 1995 and March 31, 1996, the Company has principal and
interest totaling $4.5 million and $4.6 million, respectively, outstanding
under the notes. Two of the promissory notes have conversion features which
allow the Company to convert an amount of principal and interest that would
result in issuance of an additional 29% of Comcred's total voting securities.
The Company accounts for its investment in Comcred using the equity method of
accounting. During the three months ended March 31, 1996, the Company provided
an allowance of approximately $1.0 million, before tax, related to the notes
described above. Through March 31, 1996, the Company has recorded $1.0 million
of losses reflecting its share of the inception to date losses of Comcred.
1995 COMPARED TO 1994
Sales in 1995 increased 5.4% to $540.2 million, from $512.3 million in 1994.
Excluding $16 million of revenue from Credentials, sales from the Company's
continuing products increased 8.9% in 1995 from 1994.
Strong performances in both credit and marketing products and services drove
the increase in sales. Credit products and services sales in 1995 increased
10.1% from 1994 to $315 million, primarily as a result of a significant gain
in consumer credit unit volumes, which was partially offset by pricing
pressures. Sales of marketing products and services rose 19.7% to $134 million
in 1995, from $112 million in 1994. Approximately 42% of this increase came
from prescreening services used in conjunction with pre-approved credit
offerings. Consumer and business marketing list services comprised the balance
of this increase, reflecting the Company's increasing market penetration, as
well as investments in new products and increased selling efforts.
Sales of real estate information products and services in 1995 declined 7.1%
to $92 million, from $99 million in 1994, due largely to a continuing
recession in California real estate markets which adversely affected real
estate revenues.
40
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Gross profit increased to $266.2 million in 1995 from $251.2 million in 1994
and improved slightly in 1995 as a percentage of sales to 49.3%. The increase
in gross profits in 1995 was due primarily to the increase in net sales of
credit and marketing products and services and increased operating
efficiencies and strong cost controls in other areas, which more than offset
declining net sales and high fixed costs in real estate information.
Administrative and selling expenses increased 2.6% from 1994 to 1995 to
$151.1 million, but declined as a percentage of sales. The restructuring
effort in real estate information which began in 1994 led to reductions in
sales and administrative personnel and facility consolidations.
Research and development expenses in 1995 totaled $24.9 million, or 4.6% of
sales. Expenses in this area increased 68.2% from 1994 due to the development
costs associated with File One and the development of improved business
processes for delivering consumer credit reporting services.
Other income in 1994 totaled approximately $18.7 million, and was primarily
the result of a $17.7 million gain on the divestiture of Credentials, the
Company's direct-to-consumer credit reporting services.
1994 COMPARED TO 1993
Sales in 1994 increased 5.3% to $512.3 million, from $486.4 million in 1993.
Virtually all of the increase was a result of increased mail solicitations by
the Company's customers and increased market penetration in marketing
information products and services, sales of which increased by 41.8% from $79
million to $112 million in 1994.
Sales of credit products and services increased 2.9% in 1994 to $286 million
from $278 million in 1993, as a significant gain in consumer credit report
unit volumes was mostly offset by competitive pricing pressures.
Sales of real estate information products and services declined 5.7% in 1994
to $99 million from $105 million in 1993, as rising interest rates limited
mortgage refinancing activity.
Gross profit in 1994 increased to $251.2 million from $227.1 million in 1993
and increased as a percent of net sales to 49.0% in 1994 from 46.7% in 1993.
The Company's increased sales in credit and marketing products and services
more than offset the decline in real estate information sales, and the Company
realized cost efficiencies from the consolidation of data centers into the
Allen, Texas data processing center (the "Allen Data Center"), and other
quality and process improvement initiatives.
Administrative and selling expenses in 1994 increased 4.7% from 1993,
reflecting the increase in sales.
Research and development expenses in 1994 totaled $14.8 million, or 2.9% of
sales. Research and development expenses increased 25.4% in 1994 from 1993,
reflecting the Company's production costs associated with File One and the
development of improved business processes for delivering consumer credit
reporting services.
Other expense in 1993 totaled approximately $10.6 million. This amount
includes a $10.5 million write-off of an intercompany note receivable from TRW
RELS, a real estate appraisal and lending support business, prior to its
divestiture from TRW.
RESTRUCTURING (INCOME) EXPENSE
In 1993 and 1994, the Company recorded charges totaling $3.6 million and
$3.9 million, respectively, relating principally to the relocation and
consolidation of data centers from Orange, California and Richardson, Texas to
the Allen Data Center. This action was substantially completed during 1994. In
addition, the Company recorded a charge of $8.8 million in 1994 to provide for
the costs of downsizing, relocating facilities and restructuring of its real
estate information business. Several key elements of this program were
completed in 1995, including the payment of termination
41
<PAGE>
benefits to approximately 167 employees, facility buy-outs, and the
consolidation of several facilities. In 1995, the Company reduced excess
restructuring reserves by $3.3 million, none of which was recorded in the
first quarter of 1995. The Company believes it maintains adequate reserves for
completion of the remaining actions, which are expected to be completed in
1997.
TRW CORPORATE GENERAL AND ADMINISTRATIVE EXPENSES
TRW corporate expenses amounted to approximately 1.0% of sales, or $4.3
million, $4.4 million, $4.9 million, $1.2 million and $1.2 million in 1993,
1994, 1995 and in the three months ended March 31, 1995 and 1996,
respectively. Corporate headquarters costs, including treasury services, tax
management, shareholder services and general corporate governance are
allocated based upon each operating unit's cost of operations. The Company
believes that on a stand-alone basis, corporate general and administrative
expenses will be no more than in its historical experience.
EFFECTIVE INCOME TAX RATE
The effective income tax rate in the first quarter of 1996 and in 1995 was
40.0% compared to 39.5% in 1994 and 42.3% in 1993. The effective income tax
rate for the first quarter of 1996 represents management's forecast of the
full year effective income tax rate which is not expected to vary
significantly from the prior year. The increase in the 1995 effective rate was
primarily attributable to higher non-tax deductible amortization of
intangibles arising from certain acquisitions. Most of the decrease from 1993
to 1994 was the result of an increase in the federal tax rate in 1993. The
remaining decrease was due to lower non-tax deductible amortization of
intangibles in 1994. As described in note 2 to the Unaudited Pro Forma
Combined Balanced Sheet (See "Unaudited Pro Forma Financial Data"), TRW's
Reorganization of the Company results in a new basis for the Company's assets
for income tax reporting purposes. Based on management's current projections,
the resulting increase in tax basis amortization, combined with increased
interest expense as a result of the Transactions will result in no federal
cash tax liabilities in each of the next three years.
EFFECTS OF INFLATION
The Company believes inflation rates have been modest in recent years and
have not had a material effect on the Company's results of operations.
QUARTERLY DATA
The following table sets forth the Company's quarterly sales for 1996, 1995,
1994 and 1993.
<TABLE>
<CAPTION>
NET SALES
------------------------------------------
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
--------- --------- --------- ---------
SALES % SALES % SALES % SALES %
----- --- ----- --- ----- --- ----- ---
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1996................................... $144 100% -- -- -- -- -- --
1995................................... 134 25 $134 25% $136 25% $136 25%
1994................................... 124 24 132 26 132 26 124 24
1993................................... 114 23 122 25 126 26 124 26
</TABLE>
Seasonal variations in revenues have become less pronounced as the Company
has expanded its product offerings to serve a broader and more diverse
customer set.
LIQUIDITY AND CAPITAL RESOURCES
Net cash provided by operating activities for the three months ended March
31, 1996 totaled $9.8 million, a decrease of $4.4 million or 31.0% from the
three months ended March 31, 1995. This decrease was primarily the result of
the timing of cash disbursements between the quarters. Net cash provided by
operating activities in 1995 totaled $137.9 million, an increase of $18.0
million or 15% from the prior year. Growth in credit and marketing sales,
along with strong cost management contributed to the improvement in 1995
operating cash flow. Net cash provided by operating activities in 1993 totaled
$141.9 million, benefitting from a $38 million decrease in net working
capital.
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<PAGE>
In addition to cash flows from operations, management believes that the
following table provides useful supplemental information to assess the
Company's sustainable cash flows from operations based upon current and future
operating plans. As such, the table excludes one-time historical income and
expenses and certain other items which the Company does not expect to incur
subsequent to the Transactions.
<TABLE>
<CAPTION>
THREE
MONTHS
YEAR ENDED DECEMBER ENDED
31, MARCH 31,
---------------------- -----------
1993 1994 1995 1995 1996
------ ------ ------ ----- -----
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C>
EBITDA (1)................................ $142.2 $176.4 $166.4 $41.9 $41.2
------ ------ ------ ----- -----
Minority interest (2)..................... 4.3 (2.6) 2.0 0.2 0.4
Restructuring expenses (income) (3)....... 3.6 12.7 (3.3) -- --
Operating results of divested operations
(4)...................................... (16.9) (11.2) 2.2 0.5 --
Trademark royalty payment (5)............. 2.1 1.9 1.8 0.4 0.3
Gain on sale of divested businesses (6)... -- (17.7) (1.3) -- --
Write-off TRW RELS note (6)............... 10.5 -- -- -- --
------ ------ ------ ----- -----
Adjusted EBITDA........................... $145.8 $159.5 $167.8 $43.0 $41.9
====== ====== ====== ===== =====
</TABLE>
- --------
(1) EBITDA is defined herein as income before taxes, plus depreciation and
amortization expense and interest expense. EBITDA is presented because the
Company believes it is a widely accepted financial indicator of a
company's ability to service and/or incur indebtedness. However, EBITDA
should not be considered as an alternative to net income as a measure of
operating results or to cash flows as a measure of liquidity in accordance
with generally accepted accounting principles.
(2) Represents the inclusion of 100% of the TRW REDI minority interest. See
note (3) to "Pro Forma Combined Statements of Income."
(3) See note (1) to "Selected Historical Combined Financial Data" for further
explanation of restructuring charges.
(4) Represents historical operating (income) losses of divested operations
(Credentials in 1993 and 1994 and Smart Charts/Search Access in 1995), net
of related depreciation and amortization expense.
(5) Represents the elimination of TRW REDI royalty payments to the Company's
parent and minority partner which will not be payable subsequent to the
Transactions.
(6) Represents the gain on sale of divested businesses (Credentials in 1994
and Smart Charts/Search Access in 1995) and the write-off of an
intercompany note receivable from TRW RELS. See note (3) to "Selected
Historical Combined Financial Data" for further explanation.
The Company's investing activities consist primarily of expenditures for
intangible assets and capital expenditures. Spending for intangible assets
totaled $13.7 million and $15.5 million for the three months ended March 31,
1995 and 1996, respectively, and $64.5 million, $61.5 million and $48.2
million in 1995, 1994 and 1993, respectively. Intangible assets primarily
include capitalized data acquisition costs and software development. Capital
expenditures are made principally for data center computing, and
telecommunications equipment in support of growth in existing products and new
initiatives, and distributed computing and office automation tools for
increased productivity. Capital expenditures totaled $1.8 million and $3.3
million for the three months ended March 31, 1995 and 1996, respectively, and
$17.0 million, $13.4 million and $20.2 million in 1995, 1994 and 1993,
respectively. Management anticipates spending on intangible assets and capital
expenditures for 1996 and 1997, respectively, to be approximately $85 million
and $75 million and does not expect significant increases from the 1997 level
in the subsequent periods.
Historically, data acquisition costs, as well as capital expenditures and
research and development efforts sufficient to maintain competitiveness and
develop new product initiatives and normal working capital requirements were
met with internally generated funds.
In connection with the Recapitalization, the Company will incur new
indebtedness aggregating approximately $810.0 million. Substantially all of
the proceeds of such indebtedness will be used to pay the TRW Note and pay
fees and expenses related to the Transactions. See "The Recapitalization,
Financing and Related Transactions."
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<PAGE>
As a result of the Transactions, the Company will have significantly
increased cash requirements for debt service relating to the Notes and the
Credit Facilities. After the Transactions, the Company will rely on internally
generated funds and, to the extent necessary, on borrowings under the
Revolving Facility, which provides for borrowings up to $75.0 million, to meet
its liquidity needs. On a pro forma basis, at March 31, 1996, the Company
would have had borrowings of approximately $811.7 million and up to
approximately $65.0 million available under the Revolving Facility. The
Company's ability to borrow is limited under the Credit Facilities and the
Indenture. The Company's principal debt obligations, including the Credit
Facilities and the Notes, do not require principal payments within eighteen
months from the Closing Date. See "Description of Credit Facilities" and
"Description of Notes."
The Company had working capital deficits of $10.1 million, $22.6 million and
$12.2 million in 1993, 1994 and 1995, respectively. Historically the Company
participated in TRW's centralized cash management system whereby all cash
receipts were "swept" daily into centralized corporate accounts. Net cash
transferred by the Company to TRW exceeded net earnings in 1993 and 1994, and
approximated net earnings in 1995. See the combined financial statements of
the Company included herein. The Company will not participate in TRW's
centralized cash management system after the Closing Date. As such, the
Company does not believe that historical working capital deficits are
indicative of its future working capital position.
Management believes that based on the current level of operations and
anticipated internal growth, cash flow from operations, together with other
available sources of funds including borrowings under the Revolving Facility,
will be adequate to make required payments of principal and interest on the
Company's indebtedness and to fund anticipated capital expenditures and
working capital requirements. However, actual capital requirements may change.
The ability of the Company to meet its debt service obligations and reduce its
total debt will be dependent on the future performance of the Company, which
in turn, will be subject to general economic conditions and to financial,
business, and other factors, including factors beyond the Company's control. A
portion of the Company's debt bears interest at floating rates; therefore, its
financial condition is and will continue to be affected by changes in
prevailing interest rates.
CHANGES IN ACCOUNTING STANDARDS
In March, 1995, the Financial Accounting Standards Board issued SFAS No.
121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed Of," which is effective for fiscal years beginning after
December 15, 1995. The adoption of this standard did not have any effect on
the Company's consolidated results of operations or its financial condition.
In 1993, the Company adopted SFAS No. 112, "Employers' Accounting for
Postemployment Benefits," and recorded a one-time noncash charge of $1.8
million for the prior years' cumulative effect of the accounting change.
Earnings before the cumulative effect of the accounting change were $29.8
million.
OTHER MATTERS
As of December 31, 1995, the Company reduced the discount rate used to
measure the obligations for its pension and other postretirement benefit plans
from 8.5% to 7.0%, in recognition of lower prevailing long-term interest
rates. The effect of the discount rate change on 1996 pension and other
postretirement benefit costs is not material. In connection with the
Transactions, the Company will discontinue its participation in TRW's defined
benefit pension plan during 1996. In addition, in connection with the
Transactions, TRW will retain all liabilities relating to pension and other
post-retirement plans earned through the Closing Date.
Any statements set forth which are not historical facts are forward looking
statements that involve certain risks and uncertainties that could cause
actual results to differ materially from those in the forward looking
statements. Potential risks and uncertainties include such factors as the
substantial leverage and debt service obligation of the Company as a result of
the Transactions, the demand for the Company's products and services,
government regulations and privacy issues, competition, risk of data center
failure, intellectual property rights and other risks identified herein.
44
<PAGE>
BUSINESS
OVERVIEW
The Company is a leading provider of credit, marketing and real estate
information on individuals, businesses and properties in the United States.
The Company's products and services play a key role in financial risk
management as well as customer identification, acquisition and retention for
businesses in a wide range of industries including financial services, retail,
real estate, telecommunications and utilities. For the latest twelve-month
period ended March 31, 1996, the Company generated sales of $550.2 million and
pro forma EBITDA (as defined) of approximately $176.7 million. Increased
demand for the Company's core products and expanded applications for reliable
credit and marketing information have contributed to the Company's growth and
profitability.
Over the last 25 years, the Company has developed expertise in collecting,
screening and organizing volumes of data into its five proprietary Databases.
The Databases--consumer credit, business credit, consumer demographic,
business marketing and real estate--contain information on over 190 million
people, 93% of households and 12 million businesses in the United States. The
Company updates the Databases with an average of over 40 million pieces of
information daily from credit grantors, public records and proprietary
sources. Management believes that the Databases represent the broadest and
most current collection of such information in the United States. The Company
utilizes the Databases to create a variety of products and services designed
to address the information needs of its customers and continually seeks to
improve the quality and breadth of its product offerings. In [ ] 1996, the
Company will implement File One, a new relational database system, for its
consumer credit database which the Company believes (among other benefits)
will enhance and expedite product development in a cost-effective manner.
INDUSTRY BACKGROUND
Credit Information Industry
Credit information products and services are critical to issuers of credit
because they identify credit extension risks and provide a cost effective
method of monitoring outstanding pools of credit. The ability to select
creditworthy customers and extend the proper amount of credit to such
customers is a key determinant of profitability to issuers of credit. The cost
to a credit grantor of purchasing credit information is modest compared to the
potential losses from a bad credit decision. Likewise, timely and accurate
credit information on trading partners enables businesses to maximize revenue
opportunities while minimizing bad debt expense and to improve and more
accurately predict debt collection.
The credit reporting industry has enjoyed strong historic growth. Marketdata
Enterprises estimates the consumer credit reporting industry has grown from
approximately $1.37 billion in revenues in 1992 to approximately $1.63 billion
in revenues in 1995, a compound annual growth rate of 5.9%. Management
believes that the portion of such market in which the Company competes was
approximately $875 million in revenues in 1995. Furthermore, Marketdata
Enterprises estimates the business credit reporting industry has grown from
approximately $920 million in revenues in 1992 to approximately $1 billion in
revenues in 1995, a compound annual growth rate of 2.8%. Management believes
that the portion of such market in which the Company competes was
approximately $600 million in revenues in 1995.
The demand for credit information has been driven by a number of factors,
including growth in consumer credit and the number of cashless transactions,
expanding applications for and the development of new credit products, the
increasing importance of credit portfolio monitoring, and the need for quality
small business credit information. The Company also expects these to be the
principal factors affecting future growth in the credit information industry.
45
<PAGE>
Growth in consumer credit and cashless transactions increases the number of
transactions which require issuers to utilize credit information. The increase
in the number of people who carry credit cards, the average number of credit
cards per person and the average utilization of each card are indicative of
this trend. In addition, management estimates that every mortgage application
generates demand for two or three credit reports.
Expanding applications for credit information products and services have
also favorably affected demand. In many industries, businesses are
experiencing an increasing need to invest in their customer base, which makes
the need for sound credit decisions a more important component of
profitability. As an example, growth in wireless telecommunications, including
cellular phones, paging and personal communications services, has created
substantial customer acquisition costs and exposure to large monthly bills,
which have caused telecommunications providers to use credit information more
extensively to manage their businesses. Furthermore, as financial institutions
and retailers more frequently grant "instant" credit as a means of cross-
selling products or acquiring new customers, the need for credit information
increases.
In addition, the development of new, value-added credit information products
and the availability of more complete data have made these products and
services more valuable to existing and prospective customers. The declining
cost of providing credit information has stimulated usage by increasing its
cost effectiveness and accessibility to existing users.
Portfolio monitoring represents a growing and predictable source of demand
for credit information. As the aggregate outstanding consumer credit and
business loans have become a larger portion of business for financial
institutions, retailers and other users, the need to test outstanding credit
portfolios has become more important, particularly in deteriorating credit
environments. Early discovery of a potential credit problem can substantially
reduce a business' overall bad debt expense.
Finally, the increasing number of small businesses and home offices in the
economy have stimulated demand for credit information as well. These entities
represent greater credit risks with less availability of information from
sources other than the credit reporting industry. In addition, consumer credit
has become an important part of the small business credit decision process,
since both a proprietor's business and consumer credit information are often
required to evaluate the risk of extending credit to small enterprises.
Marketing Information Industry
Marketing information products and services enable businesses to identify,
retain and cross-sell new and existing customers in a targeted, cost-effective
manner. Through the development and enhancement of customer lists and other
analytical tools based on demographic, lifestyle and behavioral information,
businesses can channel resources toward groups of consumers and businesses
more likely to have a pointed interest in the products and services that they
are offering for sale. Businesses can thereby improve their return on
marketing investments by generating higher response rates from new or
prospective customers.
Several factors are contributing to the growth of the marketing information
industry. The principal driver of growth is the trend away from more costly,
less efficient mass marketing techniques, such as newspaper advertising and
mass mailings, toward micro-marketing techniques, including using information
about existing customers to stimulate additional purchases or using
demographic data for more cost effective identification and acquisition of
potential customers.
Improvements in technological capabilities and data availability have also
contributed to the growth of the marketing information industry. More
powerful, lower cost computer processing has facilitated the development of
more sophisticated databases. Better sources of information have resulted in
increasingly broad and accurate databases with more demographic and lifestyle
46
<PAGE>
characteristics. More powerful software and other analytical tools enable
users to access the data in a more precise manner. These improvements have
expanded the applications available for existing users of marketing
information and stimulated usage among businesses and in industries which had
previously not considered its capabilities.
Finally, the development and proliferation of non-store distribution formats
(including direct mail, telemarketing and electronic commerce), and the
emergence of pre-approved offers of credit as a way to attract new credit card
customers and encourage switching from competitors' cards have also enhanced
growth in the use of marketing information.
The Company believes it is the largest provider of targeted prescreen
services in North America, an industry which the Company believes had revenues
of approximately $200 million in 1995, and which has grown at a compound
annual growth rate of 39% since 1992. According to a 1995 study, commissioned
by the Direct Marketing Association, total direct marketing advertising
expenditures in the United States in 1995 were estimated to be $134 billion,
up from $101 billion in 1990. Of the total for 1995, total direct mail related
expenditures were estimated to be approximately $31 billion in 1995, up from
approximately $23 billion in 1990. Management believes that the portion of the
market in which the Company competes was approximately $5.0 billion in 1995.
Real Estate Information Industry
Real estate information products and services provide appraisers, realtors,
lenders, government agencies and title companies with property data and title
and tax information necessary for the property transfer and financing process.
Property data products and services provide customized reports detailing
property ownership, physical characteristics (such as lot size and dwelling
square footage) and comparable sales activity in a given area. Title companies
rely on title and tax information as a principal information source in the
evaluation of title integrity and tax liens.
Demand for real estate information products and services is principally
driven by automation of the property transfer and financing process, new and
existing home sales activity, commercial property transfers and mortgage
financings and re-financings. Delivery methods for property data in particular
have been shifting from microfiche to CD ROM and on-line products.
OPERATING STRENGTHS
The Company believes that it can leverage its strengths to capitalize on
continuing growth in fundamental demand for credit and marketing information.
The Company's operating strengths include the following:
Unique Collection of Proprietary Databases
Over the last 25 years, the Company has developed and maintained a unique
collection of five proprietary databases which the Company utilizes to create
a variety of products and services. These Databases--consumer credit, business
credit, consumer demographic, business marketing and real estate--contain
information on over 190 million people, 93% of households and 12 million
businesses in the United States, as well as detailed property data for 349
counties nationwide and property title and tax information for 80 counties in
eight Western states, representing approximately 55% and 17%, respectively, of
the U.S. population. Management believes that its Databases represent the
broadest and most current collection of such information in the U.S. In
addition to name, address, telephone number and credit history, the types of
information in the Databases include numerous demographic and lifestyle
characteristics relating to individuals, households and businesses, such as
age, length of residence at a particular address, dwelling unit type, gender
of the head of household, family composition, estimated household income and
home ownership. Since none of the Company's competitors possesses such a broad
range of databases, the Company has the unique ability to combine elements,
subject to applicable legal constraints, across the Databases to meet the
information needs of existing and potential customers.
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<PAGE>
Extensive Database Expertise
Over the last 25 years, the Company has developed extensive capabilities in
building, integrating, managing and utilizing large and complex transaction
oriented databases. The Company obtains data from a variety of proprietary and
publicly available sources, including credit grantors, bankruptcy courts, UCC
filings, driver's licenses, motor vehicle registrations, public real estate
records, U.S. census and postal data, telephone directories and warranty
cards. The Company updates the Databases with an average of over 40 million
pieces of information daily to ensure accuracy and timeliness. The Company
continues to package successfully the information contained in the Databases
to meet the changing demands of its clients. The Company expects that the new
relational architecture of its consumer credit database to be implemented in
[ ] 1996 will enhance the speed, ease and flexibility of searching, sorting,
linking and formatting information and, thereby, the data quality and
effectiveness of product development efforts.
The Allen Data Center employs highly automated advanced technology and a
team of technical professionals to manage its database requirements. The Allen
Data Center has 2,200 million instructions per second (MIPs) of central
processing unit capacity, uses 12 terabytes of direct access storage capacity
and currently operates 7 days a week, 24 hours a day. The Allen Data Center
can process 50 transactions per second with a 2-second response time for each
complex database query. A recent study of 200 large data centers conducted by
the Gartner Group ranks the Allen Data Center second in overall operating
efficiency.
Leading Market Positions
The Company has established strong positions in each of its markets and
sells its products to virtually all major credit issuers. The Company is one
of the two largest United States providers of consumer credit information in a
market with only two other national competitors. Also, the Company is the
second largest provider of business credit information in the United States.
The Company believes it is the largest provider of prescreen services and
among the largest providers of other targeted marketing information services.
The Company believes that its 1995 real estate information net sales were
twice as large as the sales of its nearest competitor. The Company's strong
market positions provide the critical mass and economies of scale necessary to
service its customers effectively and to sustain profitable growth.
Large Base of Established Customers and Comprehensive Network of Sales
Channels
The Company has built its business around its strong, long-standing customer
relationships in a variety of industries. The Company has had a continuing
business relationship with substantially all of its top 25 customers for over
a decade, or since their inception, and has sold to several of its customers
over much longer periods. The Company believes that relationships with its
customers are the core of its franchise. Major credit information customers
include the nation's largest banks, financial institutions, retailers,
telecommunications companies and utilities.
The Company markets its products and services through a combination of
channels, including its commission-based direct sales force of over 500
people, indirect sales representatives, credit bureaus and its telesales and
teleservicing center. The Company's direct sales force emphasizes a
consultative selling approach for its larger customers. In addition, the
Company services smaller customers through its telemarketing facility and
through local resellers and credit bureaus. The Company believes it sells a
higher percentage of its consumer credit products through Company salespeople
than either of the Company's national competitors. This strategy provides the
Company with closer customer contact, enabling better identification of their
information needs and market trends. The Company's business credit and
marketing services are sold through a direct sales force organized by
industry, since customers within the same industry often require similar types
of products and customer service. This network of channels and practice of
organizing its sales force by industry enhances the Company's ability to
identify emerging customer needs and expand its marketing efforts into new
markets.
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Reputation for Integrity, Quality and Reliability
The Company believes it is an industry leader in the handling of sensitive
information in its Databases and the quality and reliability of its products
and services. The Company believes it has been at the forefront of the
industry in terms of compliance with the regulations that affect its business,
including the FCRA and state regulations. The Company strives to treat
consumers fairly and efficiently, including utilization of its state of the
art National Consumer Assistance Center to service consumer inquiries and
complaints. The Company has implemented numerous compliance programs and
partners with, and assists, its key customers in dealing with and educating
their consumer customers.
Experienced Management Team and Employees
The Company believes it has been successful in attracting and retaining
qualified management, sales and technical personnel with extensive experience
in the information industry. The Company's sales force maintains long-standing
relationships with the Company's national clients and brings to those clients
knowledge of their industries and of the Company's products and services. The
Company's group of over 400 technical employees (programmers, system engineers
and system analysts) has enabled the development of proprietary database
management software for internal use, as well as software applications for
license to clients for their own credit and marketing analysis. The Company's
top 10 managers have an average of over 10 years of experience with the
Company and its information business predecessors. The Company believes its
ability to attract and retain key people will be further enhanced as an
independent company focused exclusively on the information services industry.
OPERATING STRATEGY
The Company has developed a customer-focused operating strategy to
capitalize on its strengths, the growing demand and expanding applications for
its products and economies of scale in the information services industry. The
key elements of this strategy include the following:
Maintain, Expand and Enhance the Databases
The Company plans to continue strengthening its core business by acquiring
and developing new types and sources of data, investing in the Databases and
developing new ways to screen information to maintain the breadth and quality
of the Company's database content. Recent examples include the addition of
automotive data to the consumer marketing database and the creation of
personal identification numbers (PIN's) to relate each piece of data in the
consumer credit database to a particular individual and thereby decrease the
likelihood of duplicate records.
Develop New Products and Enter Growing End-Use Markets
The Company intends to continue to utilize the Databases to develop value-
added products and services for its customers. In recent years, the Company
has successfully introduced new products across its business. The Company
intends to generate additional growth through the introduction of products
that address a broader range of its customers' credit decisions, products
developed through further integration of the Databases and products that
utilize new information sources such as automotive registration records and
expanded marketing and demographic information. The Company intends to
introduce industry-specialized products, such as new products for the
automotive industry.
The Company is focused on continuing the development of new products and
services to serve the needs of new and growing markets for credit, marketing
and real estate information. The demand for credit and marketing information
continues to expand in conjunction with the development of new industries as
well as the evolution of marketing and distribution methods in many other
industries. For example, growth in the cellular phone industry has resulted in
significant credit exposure for telecommunications companies, and the
Company's revenues from sales to telecommunications
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companies have doubled in the last three years. Additional new market
opportunities include small business markets, automotive information,
insurance underwriting, asset securitization, automated mortgage lending and
healthcare information services.
Exploit New Delivery Systems for its Products
As a provider of information content and analytical tools, the Company
continually seeks new ways to package and deliver its products and services to
its customers. Different delivery systems can stimulate usage by existing
customers and make the Company's products and services accessible to new
customers. Currently, the Company delivers a substantial portion of its
products through on-line links between mainframe computers and, to a lesser
extent, on paper and microfiche. Recently, the Company has begun to enhance
its delivery alternatives through the addition of CD ROM and the ability to
download to customer client server networks. In addition, the Company is
developing ways to enhance the accessability of its content through the
Internet and other data networks. The Company plans to expand its distribution
methods as new technologies emerge.
Improve Operating Efficiencies
As a result of the Recapitalization, the Company will operate as a stand-
alone entity for the first time. Management has identified approximately $16.6
million of future cost reductions in excess of 1995 historical cost levels,
primarily resulting from operating as an independent corporate entity. For
example, the Company believes a significant portion of the expenses associated
with the development and implementation of File One will be eliminated upon
the completion of the integration period by the end of 1996.
Pursue Strategic Acquisitions and Alliances
The Company intends to pursue strategic acquisitions of or alliances with
companies that have products and services, technologies or industry
specializations that enhance or complement those of the Company. In
particular, the Company believes that the domestic marketing information
industry is consolidating and that this trend will continue as economies of
scale become more significant. The Company will also pursue opportunities to
enter the credit reporting and marketing information industries in foreign
markets through acquisitions of, or partnerships with, established businesses.
The Company intends to pursue alliances and joint ventures as a cost-effective
method of offering its products and services in selected markets.
PRODUCTS AND SERVICES
Credit Information -- Products and Services
The Company's credit information products and services are critical to
issuers of credit because they identify credit extension risks as well as
provide a cost effective method of monitoring outstanding credit portfolios.
The Company's customers use its consumer and business credit products and
services in a variety of applications including the issuance and monitoring of
credit cards, lines of consumer credit, mortgages, small business loans and
trade credit. These products include credit profile reports, credit scoring
services, customized account management, on-line support for instant credit
decisions, accounts receivable evaluations and fraud detection.
Utilizing its proprietary consumer credit database, the Company provides up-
to-date consumer credit reports to various businesses, including banks,
retailers, consumer finance companies, credit unions, mortgage lenders,
utilities and telecommunications companies. The Company also provides other
credit decision support, portfolio management tools and fraud detection
services. For example, the Company offers products that provide ongoing
monitoring of a customer's portfolio of credit accounts for the occurrence of
delinquency and provide proactive assistance in finding delinquent customers.
Also, the Company provides various generic, industry specific, or custom
portfolio analysis models that enable its customers to evaluate, predict and
control consumer credit risks.
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The Company capitalizes on its ability to link its various databases to
provide fully integrated information products to its customers. The Company is
able to market unique business credit products to the fast-growing small
business lending market by drawing information from its consumer and business
databases. For example, the Company offers products that provide credit
information on business proprietors as a complement to credit information
provided on the businesses themselves. The Company also offers industry
specific business profiles containing special data relevant to credit issuers
with business customers in the health care, computer sales, governmental
contracting or nursing homes industries.
The Company's credit products and services are grouped into three major
categories: (i) Credit Verification; (ii) Analytic and Risk Scoring; and (iii)
Other Integrated Offerings. Major products in each category include:
<TABLE>
<CAPTION>
CATEGORY PRODUCTS AND SERVICES DESCRIPTION
- -------------------------------------------------------------------------------
<C> <C> <S>
Credit Verification Credit Profile Report Complete basic consumer profile
Select Check On-line support for instant
credit decisions
Connect Check Utilities/Telecommunications
credit checks
Business Profile On-line detailed business
profile
Industry Premiere Profile Industry specific profiles
Small Business Advisory Link between consumer and
Report business profiles
Analytic and Risk Risk, Profitability and Models providing analytical
Scoring Revenue Profiles support and predictive
capabilities of
revenue/profitability for new
accounts
FACS Fraud detection tools
Risk, Collection and Models providing analytical
Recovery Models support and predictive
capabilities of
collection/settlement for
existing accounts
Intelliscore Commercial risk scoring service
based on statistical model
Risk Model Analysis Risk score to companies on
client list to identify high
risk accounts
Employment Insight Consumer credit record provided
for employment purposes
Other Integrated Portfolio Management This service encompasses three
Offerings Tool Kit products that assist companies
in managing their accounts
receivable.
Credit Decision Disk This service provides summary
credit information on up to
three million companies in a CD
ROM format. This subscription
is updated six times annually.
Business Owner Link This is a capability that
enables qualified users to
access the credit history of
both the business and that of
the business owner, by linking
the business owner's credit
profile to the business'
profile.
</TABLE>
Marketing Information--Products and Services
Marketing information products and services enable businesses to
successfully identify, retain and cross-sell both new and existing customers
in a targeted, cost-effective manner. The Company works
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with its customers throughout the marketing process, from planning and project
design, to list enhancement, database creation and response analysis.
Financial institutions, retailers and other issuers of credit (including major
credit cards, gas cards and phone cards) utilize pre-screened lists of
potential customers to extend offers of pre-approved credit. Catalog mailers,
retailers, financial institutions, consumer products companies,
telecommunications providers and other direct marketers use the Company's
other marketing information products for list development, list enhancements
and creation of marketing databases and other analytical tools.
The Company draws on its extensive credit and demographic information on
over 190 million people and 93% of the households in the United States to
provide relevant consumer information to target marketers of pre-approved
offers of credit. The primary credit marketing information product offering is
prescreened lists, which are targeted lists of customers for credit card or
loan solicitations that meet the credit issuer's predetermined criteria.
Prescreened credit marketing programs can be more effective than random
solicitations and result in higher response levels and therefore lower
customer acquisition costs. Regulations limit the Company's ability to sell
consumer credit data for marketing purposes other than the creation of
prescreened lists of pre-approved credit customers. The use of business credit
information is not as extensively regulated as consumer credit information,
allowing the Company more flexibility in providing business-to-business
products that link business credit data with marketing information.
The Company utilizes its demographic and real estate databases, enhanced by
the non-restricted data (primarily name, address, telephone number and social
security number) in its credit databases, to develop and sell target marketing
products and services. These non-credit based marketing information products
and services include (i) the development of lists of potential customers based
on specified criteria such as behavioral and lifestyle information, purchasing
patterns and other demographic information; (ii) value-added enhancements to
existing customer lists, including elimination of duplicate names, address
correction, appendage of demographic data and sorting by specified criteria;
and (iii) the creation of marketing databases and other tools which companies
can use to analyze customer information and behavior. For example, the Company
can help businesses to create a profile of their target customer by analyzing
and identifying common lifestyle and behavioral characteristics across their
existing customer base. The Company can then search its Databases to develop a
list of individuals and/or businesses who should have the highest propensity
to purchase specified goods and services.
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Marketing products and services are grouped into three major categories: (i)
Credit Products; (ii) Behavioral and Demographic; and (iii) Interlinked
Data/Risk Models. Major products in each category include:
<TABLE>
<CAPTION>
CATEGORY PRODUCTS AND SERVICES DESCRIPTION
- -------------------------------------------------------------------------------
<C> <C> <S>
Credit Products Prescreen (Business Mailing lists according to
and Consumer) predetermined criteria for
offers of pre-approved credit
Quest Predetermined criteria for
reviewing existing account
relationships for risk
management, credit-limit
increases and cross-selling
efforts
Behavioral and Consumer Lists Lists of consumers with
Demographic information including:
demographic, motor vehicle, new
movers, etc.
Smart Targets Identifies prospects by product,
service or brand they are likely
to buy
PSYCLE Financial Predicts financial service usage
for 86 million households
Response Model Analysis Predicts likelihood of client
response rates
National Business Database Demographic and identifying
information on businesses
nationwide
Cottage Industry File Largest U.S. database of home-
based businesses
Interlinked Data/ Social Search Look-up feature based on social
Risk Models security number
Property Link Provides information regarding a
consumer's residential property
</TABLE>
Real Estate Information--Products and Services
Real estate information products and services provide appraisers, realtors,
lenders, government agencies and title companies with property, title and tax
information necessary for the property transfer and financing process. The
Company's property data services also provide customized reports detailing all
residential, commercial and industrial activity in a given area. Title
companies access the Company's title information services on-line as one of
their principal information sources in their evaluation of the condition of
titles for properties being transferred or financed. The Company is the
national leader in both property data and title information services.
The Company provides information, through license agreements with both end
users and re-marketers, to direct marketers, government agencies, law firms,
insurance companies, mortgage securities firms, tax service companies and
others regarding the names and addresses of new home-owners, refinancing and
equity borrowers. Included in this information is real property sales price,
loan-to-value ratio, tax and title data recorded by various governmental
agencies and lender's name. These license agreements relate primarily to
property data and to a lesser extent to title information.
The real estate products are delivered over multiple media, including print,
microfiche, CD ROM and on-line services. In addition to basic property
description reports, the Company offers maps of parcels of land (available in
all media), market research on trends in real estate values and lending
activity, and a home price index that includes predicted and historical real
estate values. In addition to the basic title review products, the Company has
developed a product which simplifies the title review process by storing
images of all title documents and making them available on-line as opposed to
having a reviewer search for these documents on microfiche.
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<PAGE>
COMPETITION
The Company faces different competitive dynamics in each of its product
areas. The Company, Equifax, Inc. and Trans Union Corp. are the only national
service providers in the consumer credit reporting industry. There are also
numerous small local bureaus in the consumer credit field. The Company's
products compete in the marketplace on the basis of quality of information,
price and customer service. In the business credit marketplace, the Company's
primary, and only national, competitor is Dun & Bradstreet Corp. The Company
competes in the business credit area largely on the basis of quality of data,
integrity and objectivity of data sources and the Company's ability to link
information on small businesses and their proprietors from the business and
consumer credit Databases. The Company competes in the consumer marketing and
business marketing information industries with several large national
companies and smaller regional providers. The Company's national competitors
include Acxiom Corporation, Database America Information Services, Inc.,
Direct Marketing Technology, Inc., Donnelley Marketing, Inc., Equifax, Inc.,
Harte-Hanks Communications, May & Speh, Inc., Metromail Corporation, Neodata
Services, Inc., R.L. Polk & Co. and Trans Union Corp. The Company's real
estate services compete based on breadth of product offerings, multiple
delivery media and geographic coverage. Generally, the Company's competitors
in the real estate information market provide either property data services or
title information services but not both. Real estate information competitors
include DataQuick Inc. in the property data business and Security Union Title
Insurance Company and MetroScan in the title information services business.
SALES AND MARKETING
The Company markets its products and services through different channels
including its direct sales forces, indirect sales representatives and
telemarketing services.
Consumer credit services and consumer marketing services are sold primarily
through a 330 person sales organization that includes a national account sales
force and a regional sales force and through a teleservicing center and
various affiliated credit bureaus.
The Company's business credit services and business information services are
sold through 93 direct sales representatives and 175 indirect sales
representatives. Currently, the direct channel sells to approximately 3,000
business customers and the indirect channel sells to approximately 17,000
business customers. As customers within the same industry often require
similar reports and data, this direct sales force is organized by industry
users, including healthcare, telecommunications, financial services, retail,
consumer goods, electronics, giftware, construction and banking. The Company
believes focusing its sales people by industry will enhance the Company's
ability to identify emerging needs for new products.
Property data services are sold through a commission-based national sales
organization of approximately 80 representatives organized into six regions.
The Company also utilizes telemarketing efforts to attract new customers and
sell additional products to its current customers. The Company's title
information services are marketed by a direct sales force of 10 people.
The primary customers of the Company's credit and marketing information
products and services include financial services organizations, retailers,
collection agencies, utilities, automotive companies, telecommunications
businesses and direct marketers. The principal customers of the Company's real
estate information services are title companies, lenders, real estate firms
and data licensing companies. For the year ended December 31, 1995, no
customer accounted for more than 2% of the Company's sales. The Company's top
25 customers accounted for approximately 28% of 1995 sales.
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<PAGE>
REGULATORY
Regulation of Consumer Products
The Company's consumer credit report and consumer prescreen products are
regulated by the FTC under the provisions of the FCRA. The FCRA was intended
to regulate the activities of consumer reporting agencies and was enacted to
prevent both real and perceived abuses in the business of collecting and
disseminating information on consumers. Since the FCRA was passed in 1970, the
information technology supporting the industry has changed significantly.
The FCRA created a framework for the industry by defining both the scope of
the data subject to regulation and setting forth the permissible uses of such
data. The FCRA defines, among other things, a "consumer report" and a
"consumer reporting agency" and specifies the permissible purposes for
furnishing a consumer report. The FCRA also specifies how long information may
be reported on a consumer report. The FCRA requires consumer reporting
agencies to employ "reasonable" procedures to: (i) limit the furnishing of
consumer reports for impermissible purposes, (ii) avoid obsolescence in a
consumer report and (iii) assure the maximum possible accuracy of such
reports. The FCRA regulates disclosures to governmental agencies and
consumers, specifies procedures for disputing information, specifies charges
for certain disclosures, and sets requirements for the users of consumer
reports and liability for non-compliance. The FCRA provides for recovery by a
consumer in federal or state court of actual damages, costs of the action, and
reasonable attorney's fees for the willful or negligent failure, as well as
punitive damages for a willful failure, of a consumer credit reporting agency
to comply with any requirement of the FCRA. The FTC has the responsibility for
the administrative enforcement of the FCRA, including the authority to issue
cease and desist orders in connection with a method of competition, act or
practice determined by the FTC to be unfair or deceptive.
The consumer credit reporting industry is also regulated by many state
credit reporting statutes. The state statutes typically regulate the
activities of credit reporting agencies in much the same way as the FCRA, but
impose different specific requirements.
The Company is subject to two consent decrees, one with the FTC and one with
eighteen individual states, pursuant to which the Company has agreed to comply
with the FCRA and applicable state regulations and report certain information
to the FTC and such states in connection with the Company's compliance
activities. This reporting requirement expires at the end of 1996. Also, the
Company has agreed to use only identifying information--name, address,
telephone number, social security number, age and gender--from its consumer
credit database for marketing purposes other than prescreen marketing
services. The Company is also subject to two Assurances of Discontinuance with
the State of Vermont whereby the Company is required to compensate consumers
for losses relating to a particular incident as well as to maintain listings
in certain Vermont phone books. The Company has satisfied its compensation
requirements to consumers and is satisfying such phone book listing
requirements.
Self Regulation
In response to growing concerns about individual privacy and the collection,
distribution and use of information about individuals, the Direct Marketing
Association (the "DMA"), which is the leading trade association of direct
marketers, has established certain guidelines for fair information practices
which it recommends be followed by participants in the direct marketing
industry. In addition to its compliance with the DMA guidelines, the Company
has adopted and implemented fair information practices, principles and
procedures which supplement those of the DMA. One of the guidelines suggested
by the DMA is that direct marketers refrain from soliciting by mail or
telephone those individuals who have contacted the DMA and have asked that
they not be the subject of unrequested solicitations. To make compliance with
this guideline possible, the DMA maintains the Mail Preference Service and the
Telephone Preference Service, consisting of lists of those individuals who
have notified the DMA that they wish to "opt out" of receiving mail or
telephone solicitations. The DMA makes these lists available to participants
in the direct marketing industry who subscribe to these services. The Company
is a subscriber and receives updated lists from the DMA monthly and promptly
removes from its database all information concerning the individuals who
appear on the DMA lists.
Other Regulation
Growing privacy concerns have also led to increased federal and state
regulation of the collection, use and transfer of information about
individuals and of direct marketers and their activities. Examples
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<PAGE>
of laws regulating the use of information include laws adopted by a number of
states precluding the use of voter registration and driver's license
information and the federal Driver's Privacy Protection Act of 1994, which
becomes effective in 1997. Under this Act, each state will be prohibited from
disclosing personal information contained in motor vehicle department records
for bulk use in surveys, marketing or solicitations, unless the state has
implemented a procedure whereby each driver has the opportunity to prohibit
such use of information about such driver. Examples of laws regulating direct
marketers and their activities include: state laws requiring telemarketers to
be bonded or registered; an FTC regulation prohibiting certain telemarketing
practices and solicitations; and federal and state restrictions on the use by
telemarketers of automatic dialing and artificial voices or prerecorded
messages. Some of the activities of the Company may be subject to the Real
Estate Settlement Procedures Act which regulates activities in connection with
real estate transactions.
Compliance Activities
The Company has adopted a policy of vigorously pursuing individual consumer
and compliance issues, handling them as promptly and unambiguously as
possible. For example, the Company has made a significant investment in its
National Consumer Assistance Center to promptly resolve consumer issues as a
key component of its commitment to compliance and customer service. Also, the
Company has pursued a comprehensive program of compliance and consumer
education activities. Such activities include the Company's: (i) comprehensive
employee training and education program; (ii) system of compliance officers
for its consumer credit business; (iii) advice and oversight by the law
department; (iv) formal adoption of Fair Information Practices and Privacy
Principles; (v) establishment of the Consumer Advisory Council; and (vi) an
ongoing communication program geared towards education of the consumer.
INFORMATION TECHNOLOGIES
Allen Data Center
The Company operates an information center in Allen, Texas. The Allen Data
Center incorporates state of the art technology with approximately 2,200
million instructions per second ("MIPS") of processing capacity and over 12
terabytes of direct access storage device ("DASD"--disk) storage capacity. The
advanced technology in the Allen Data Center supports 99.7% on-line system
availability. The Allen Data Center operates 7 days a week, 24 hours a day,
and encompasses 45,000 square feet of floor space. The major hardware systems
currently installed in the Allen Data Center include four Amdahl MVS/CICS
mainframe CPU's, 368 tape cartridge drives and 12 tape silos. The Company's
consumer credit database is among the largest transaction-oriented (as opposed
to archival) databases in the world, consisting of over 190 million consumer
credit records with an average of 10 trade lines per record. The Company has
built significant in-house software and hardware expertise related to the
management and manipulation of large, complex databases. Substantially all of
the Company's computer equipment and data operations are located at the Allen
Data Center. See "Risk Factors--Risk of Data Center Failure."
A recent study conducted by the Gartner Group ranked the Allen Data Center
second in cost efficiency among the population of data centers it studied.
According to the study, the Allen Data Center has a low weighted average cost
per unit of data processing work, ranking it in the top 2% of all data centers
in the Gartner Group sample. In addition, the Allen Data Center produces more
customer work per MIPS than all comparison groups in the Gartner Group study.
File One
In [ ] 1996, the Company will complete File One, a systems upgrade which
converts its consumer credit database from a flat file to a relational
database architecture. File One is structured to link as much relevant
information and as many differing versions of the same information (such as
duplicate records, social security numbers with transposed digits or name
misspellings) as possible to
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<PAGE>
each individual in the Company's consumer credit database with a unique
personal identification number. The linkages in this data structure are
designed to create more flexible methods of search and retrieval of
information by finding individuals in the consumer credit database faster and
more consistently. The Company initiated this upgrade in 1992 and as of
December 31, 1995 has spent approximately $61 million on the development and
implementation of File One over that time period (approximately $40 million of
which has been expensed and $21 million capitalized). The Company expects to
spend approximately $36 million on the implementation of File One in 1996. The
Company does not expect to need to develop or implement another upgrade of
this magnitude in the foreseeable future.
Management believes that the Company has been a leader in the consumer
credit information industry prior to the implementation of File One with
respect to technology and data quality. The Company believes, however, that
File One should provide a number of significant benefits. File One is expected
to enhance the quality of data content, simplify the expansion and addition of
new categories of information and facilitate the association of information in
new ways both within the consumer credit database as well as with the other
Databases. In particular, the Company expects that File One should enable it
to develop new products that respond to changing customer requirements more
quickly and cost effectively.
National Network
The Company's nationwide communications network is among the most advanced
in the country. It is a multi-layered, multi-protocol network. The Company's
Central Transport Network ("CTN") connects communication facilities in 13
cities throughout the United States and carries data, voice and video. This
network provides total redundancy for access to the Allen Data Center and is
part of an AT&T service (SecureNet) that guarantees automatic data switching
in the event of a fault. In addition to the CTN, the Company utilizes
CompuServe, IBM and Tymnet public networks for customer access from anywhere
in the United States. The use of the CTN and its technology allows for
significant cost reductions as well as improved reliability.
National Consumer Assistance Center
The Company has invested significant resources in the establishment of its
National Consumer Assistance Center (the "NCAC") located in Allen, Texas to
support its consumer credit products and services. The Company has pioneered
the concept of automated, centralized national consumer assistance. The NCAC's
staff of over 400 consumer relations specialists provides consumers with
timely and professional assistance on issues to assist consumers in
understanding the information contained in their credit report and correcting
errors, if any, in the report.
The NCAC staff handles over 8,000 telephone calls and 11,500 pieces of mail
each day. Management ensures a high level of performance by implementing
strong activity measurements and high standards for its associates in areas
including, among others, the number of calls answered in less than three
rings, average hold time and average number of days required to resolve
consumer disputes.
The Company believes that the NCAC provides it with a valuable capability by
facilitating a three-way partnership among the Company, its customers, and
consumers to maintain the integrity and accuracy of the information contained
in the consumer credit files, thereby enhancing both the customer's ability to
make accurate and timely credit granting decisions and the consumer's access
to credit.
PROPRIETARY INFORMATION
The Company's success is in large part dependent upon its proprietary
information and technology. The Company relies on a combination of copyright,
trade secret and contract protection to establish and protect its proprietary
rights in its products and technology. The Company generally
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<PAGE>
enters into confidentiality agreements with its management and programming
staff and limits access to and distribution of its proprietary information.
The Company also has implemented a number of procedures and controls designed
to prohibit unauthorized access to the Company's computerized databases. There
can be no assurance that the steps taken by the Company in this regard will be
adequate to deter misappropriation of its proprietary rights or information or
independent third party development of substantially similar products and
technology. Although the Company believes that its products and technology do
not infringe any proprietary rights of others, the growing use of copyrights
and patents to protect proprietary rights has increased the risk that third
parties will increasingly assert claims of infringement in the future.
FACILITIES
The Company primarily leases its facilities. The Company's principal
executive offices are located in Orange, California, where the Company leases
a 323,000 square foot facility pursuant to a lease expiring in 2002. The
Company also leases 308,000 square feet of space in Allen, Texas for its Allen
Data Center and the NCAC pursuant to a lease expiring in 2010. The Company
leases a total of 1.2 million square feet of facility space.
EMPLOYEES
As of the end of March, 1996, the Company had approximately 3,500 employees,
including approximately 50 officers and managerial employees, 800 employees
engaged in sales and marketing and 400 programmers and engineers. No employees
of the Company are covered by a collective bargaining agreement and management
believes that the Company enjoys a good relationship with employees.
LITIGATION
The Company is subject to various claims and legal actions which arise in
the ordinary course of business. The large majority of these claims are
brought by consumers and allege various violations of the FCRA or
corresponding state statutes. The Company does not believe that such claims
and legal actions, individually or in the aggregate, will have a material
adverse effect on the Company.
Subsequent to the execution of the Recapitalization Agreement, James
Springer ("Springer"), president and founder of McCall Springer, Inc. ("McCall
Springer"), sent letters to Bain, THL and others claiming that Bain, THL and
others have certain legal obligations to McCall Springer in connection with
the Recapitalization. In his letters, Springer claimed that Bain, THL and
others failed, in the context of the Recapitalization, to honor certain
alleged agreements with McCall Springer relating to McCall Springer's earlier
proposal to acquire TRW REDI as a separate entity. In February, 1996, each of
Bain and THL brought suit in the United States District Court for the District
of Massachusetts against McCall Springer seeking a declaratory judgment that
neither Bain nor THL has any obligations to McCall Springer in connection with
the Recapitalization Agreement or the Recapitalization. On April 11, 1996,
Springer and McCall Springer filed a lawsuit, in the Superior Court for the
County of Los Angeles, California naming TRW, TRW Information Systems &
Services Division, TRW REDI, D. Van Skilling, Elsevier, N.V., Experian
Corporation, Bain, THL, Acadia Partners, L.P., and Oak Hill Partners, Inc. The
complaint asserts claims sounding in tort and contract, as well as a claim
under the Uniform Trade Secrets Act. The suit seeks unspecified compensatory
and punitive damages and other equitable relief. McCall Springer has moved to
dismiss or to stay the Bain and THL Massachusetts actions brought in federal
court in favor of the California action brought in state court. Experian does
not expect that a judgment in favor of McCall Springer in the California
action will have a material adverse effect on the Company.
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MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
Effective as of the Closing Date, the directors and executive officers of
the Company are expected to be as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --- --------
<S> <C> <C>
D. Van Skilling................. 62 Chief Executive Officer, President and
Director
James Antal..................... 45 Vice President, Chief Financial Officer
Richard Cortese................. 49 Vice President & General Manager, Consumer
Information Services
Ann M. Delligatta............... 49 Vice President, Organization Alignment
Thomas A. Gasparini............. 49 Vice President, General Counsel & Secretary
George J. Jurkowich............. 57 Vice President, Communications
Donald E. Lavoie................ 48 Vice President & General Manager, Business
Information Services
Donald J. Miller................ 50 Vice President, Technology
Edwin P. Setzer................. 49 Vice President, Business Development and
International
Margaret B. Smith............... 43 Vice President, Marketing
John N. Taussig................. 60 Vice President, Data Solutions and Decision
Support
Anthony J. DiNovi............... 33 Director
Mark E. Nunnelly................ 37 Director
Scott M. Sperling............... 38 Director
Robert F. White................. 40 Director
</TABLE>
D. Van Skilling. Mr. Van Skilling joined TRW in 1970 and, in 1989, assumed
the position of Executive Vice President and General Manager, IS&S,
responsible for general management, including setting strategy and direction,
financial, operational, and administrative performance of IS&S, and for IS&S'
compliance with all legal and ethical standards. His prior positions at TRW
included: Corporate Vice President, Planning & Development, TRW Inc.,
responsible for worldwide strategic plans and related investment and business
development (1987-89); a comparable position in the Industrial and Energy
Sector (1983-87); director of sales and marketing for Energy Products Groups
(1978-83); and general manager, Transportation Control Systems (1976-1978).
James Antal. Mr. Antal joined TRW in 1978 and, in 1994, assumed the position
of Vice President, Finance, IS&S, responsible for all aspects of financial
planning and analysis, financial reporting and accounting, operational
internal audit, purchasing and facilities management. His prior positions
included: Director of Finance, Information Services Division, IS&S,
responsible for all division-level finance and administration functions (1991-
1994) and Assistant Corporate Controller, TRW Inc. (1989-1990).
Richard Cortese. Mr. Cortese joined TRW in 1991 and, in 1992, assumed the
position of Vice President, Sales & Services of TRW Information Services,
responsible for overseeing field sales operations throughout the United States
for the consumer credit services unit of the division. His prior position at
TRW was as Vice President of the National Accounts division.
Ann M. Delligatta. Ms. Delligatta joined TRW in 1978 and, in 1994, assumed
the position of Vice President and General Manager, Information Technology
Services, responsible for the financial, operational and administrative
performance of the information production capabilities of IS&S and its
divisions, including the Allen data center; for on-going systems and software
development and communications technology; and for planning for the production
operations of a systems upgrade of its consumer credit database. Her prior
positions at TRW included: Vice President, ITS, Copernicus Project,
responsible for technical systems and software development (1992-1994); and
Director, then Vice President, Decision Support Services, responsible for
marketing, product development and operations for ancillary credit products
(1991-1992).
59
<PAGE>
Thomas A. Gasparini. Mr. Gasparini joined TRW in 1979 and, in 1991, assumed
the position of Vice President and Assistant General Counsel, IS&S,
responsible for management and administration of all legal activities and
legal/regulatory compliance activities as well as for the chairmanship of the
privacy legislation oversight committee.
George J. Jurkowich. Mr. Jurkowich joined TRW in 1994 and assumed the
position of Vice President, Communications, IS&S, responsible for planning and
implementing internal and external communications; for managing consumer
education programs; for consumer policy and privacy issues; for representing
IS&S in senior business, educational and community commitments; and for
managing the IS&S legal and ethical compliance program. Prior to joining TRW,
he held positions as Senior Communications Executive of British Petroleum,
America (1989-1993).
Donald E. Lavoie. Mr. Lavoie joined TRW in 1988 and, in 1992, assumed the
position of Vice President and General Manager, TRW Business Information
Services (BIS), responsible for financial, operational, and administrative
performance of the Business Credit Division. His prior position at TRW was as
Vice President, National Sales and Services, Business Credit Services (1988-
1992).
Donald J. Miller. Dr. Miller joined TRW in 1976 and, in 1994, assumed the
position of Vice President and Program Director, Copernicus Program,
responsible for development and implementation of a multi-system, multi-
project data management and data processing hardware, software and integration
program. His prior positions at TRW included: Vice President and Division
Manager, TRW Financial Systems, Inc. (until recently the commercial systems
integration arm of IS&S) (1989-1994).
Edwin P. Setzer. Mr. Setzer joined TRW in 1975 and, in 1991, assumed the
position of President and General Manager, TRW REDI, a real estate information
business formerly owned by TRW and Reed Elsevier and now owned by the Company,
responsible to both joint venture partners for the financial, operational and
administrative performance of a real estate information and services business.
His prior positions at TRW included: General Manager, then Vice President and
General Manager, of the property data and associated real estate information
business that was predecessor to TRW REDI (1983-1991); and Director, Planning
and Development of Information Systems Group, predecessor to IS&S, responsible
for strategy and business development, including acquisitions and divestitures
(1981-1983).
Margaret B. Smith. Ms. Smith joined TRW in 1977 and, in 1994, assumed the
position of Vice President Operations & Copernicus Business Implementation,
responsible for the integration of relational database system. Her prior
positions at TRW included: Vice President, Marketing and Operations (1993),
Vice President, Product Assurance (1992) and Regional Vice President for the
Southeast Region (1986-1991).
John N. Taussig. Mr. Taussig joined TRW in 1985 and, in 1992, assumed the
position of Vice President and General Manager, TRW Information Services
Division (IS), responsible for financial, operational and administrative
performance of the largest division of IS&S, including consumer credit
reporting, credit marketing and target marketing consumer list services. His
prior positions at TRW included: Vice President and General Manager, TRW
Business Credit Services (1985-1992), responsible for business performance of
the commercial credit reporting and business information services division of
IS&S.
Anthony J. DiNovi. Mr. DiNovi is a Director of the Company. Mr. DiNovi has
been employed by the Thomas H. Lee Company since 1988 and currently serves as
a Managing Director. Mr. DiNovi is also a Vice President and Trustee of THL
Equity Trust III, the general partner of THL Equity Advisors III Limited
Partnership, which is the general partner of Thomas H. Lee Equity Fund III,
L.P. Mr. DiNovi also serves as a Vice President of Thomas H. Lee Advisors I
and Thomas H. Lee Mezzanine II, affiliates of ML-Lee Acquisition Fund, L.P.,
ML-Lee Acquisition Fund II, L.P. and ML-Lee Acquisition Fund II (Retirement
Accounts), L.P., respectively. Mr. DiNovi also serves as a Director of First
Alert, Inc. and of various private corporations.
60
<PAGE>
Mark E. Nunnelly. Mr. Nunnelly is a Director of the Company. Mr. Nunnelly
has been a Managing Director of Bain since April, 1993, and a General Partner
of Bain Venture Capital since 1990. Prior to joining Bain Venture Capital, Mr.
Nunnelly was a Partner at Bain & Company where he managed several
relationships in the manufacturing sector, and he also served with Procter &
Gamble Company Inc. in product management. He serves on the board of several
companies including Stream International, Inc., EduServ Technologies, SR
Research and Dade International Inc.
Scott M. Sperling. Mr. Sperling is expected to serve as a Director of the
Company. Mr. Sperling is a Managing Director of the Thomas H. Lee Company. Mr.
Sperling is also a Vice President and Trustee of THL Equity Trust III, the
general partner of THL Equity Advisors III Limited Partnership, which is the
general partner of Thomas H. Lee Equity Fund III, L.P. From 1984 to 1994 he
served as the Managing Partner of the Aeneas Group Inc., the affiliate of the
Harvard Management Company, responsible for all private capital market
investments. He is a Director of Beacon Properties, Inc., Softkey
International, Livent, Inc. and various private corporations.
Robert F. White. Mr. White is expected to serve as a Director of the
Company. Mr. White has been a Managing Director of Bain since April, 1993, and
a General Partner of Bain Venture Capital since 1987. Prior to joining Bain
Venture Capital, Mr. White was a Manager at Bain & Company and a Senior
Accountant with Price Waterhouse LLP. He is a Director of Stream
International, Inc., Totes Inc., and Brookstone, Inc.
61
<PAGE>
The Stockholders' Agreement (as defined herein) will provide, among other
things, that as of the Closing Date each of Bain, THL, certain members of the
Company's management, TRW and certain other investors will vote all of the
Common Stock of Holdings owned by it so as to elect a Board of Directors of
Holdings consisting of three designees of each of Bain and THL, one member of
the Company's management to be jointly designated by Bain and THL, and one
designee of TRW. Messrs. Nunnelly and White are expected to be two of the
designees of Bain and Messrs. DiNovi and Sperling are expected to be two of
the designees of THL. Mr. Van Skilling is expected to serve as the director
jointly designated by Bain and THL. The other designees have not yet been
determined. At any time thereafter, Bain and THL will each have the option to
designate an additional member of the Board of Directors who may not be an
employee of the Company. They will also have the option at any time thereafter
to jointly designate one additional member of the Board of Directors who may
not be an employee of the Company and up to two additional members of the
Board of Directors who must be members of the Company's management. The
Company will cause the directors and officers of the Company to be identical
to those of Holdings.
The term in office of each director will end when his successor has been
elected at the next following annual meeting of stockholders and qualified or
upon his removal or resignation. The term in office of each executive officer
ends when his successor has been elected and qualified or upon his removal or
resignation.
EXECUTIVE COMPENSATION
After the Closing Date, D. Van Skilling is expected to be the Company's
Chief Executive Officer. The following table and footnotes set forth certain
summary information concerning compensation paid or accrued by the Company on
behalf of each of D. Van Skilling and the other four most highly compensated
executive officers of the Company for the year ended December 31, 1995 (the
"Named Executive Officers").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
------------
ANNUAL COMPENSATION AWARDS(3)
--------------------------------- ------------
OTHER
ANNUAL COMPENSATION SECURITIES ALL OTHER COMPENSATION
------------------- UNDERLYING ----------------------
NAME AND SALARY OIP(1) SIP(2) OPTIONS HEALTH LIFE
PRINCIPAL POSITIONS YEAR ($) ($) ($) (#) SSP(4) INS.(5) INS.
------------------- ---- -------- --------- --------- ------------ ------- ------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
D. Van Skilling......... 1995 $303,278 $ 175,540 $ 580,404 9,000 $16,355 $3,456 $2,080
Chief Executive Officer
Ned W. Manashil(6)...... 1995 165,312 74,252 80,000 1,500 8,214 3,456 494
Vice President
Alden V. Munson,
Jr.(6)................. 1995 171,542 83,397 128,000 4,000 8,911 3,456 316
Vice President
Edwin P. Setzer......... 1995 187,500 72,954 120,000 -- -- 5,858 --
Vice President
John N. Taussig......... 1995 191,196 106,312 128,000 4,000 9,888 3,456 758
Vice President
</TABLE>
- --------
(1) Amounts shown represent payouts under the Company's annual operational
incentive plan.
(2) Amounts shown represent payouts under the Company's long-term strategic
incentive plan.
(3) Options granted were issued under the TRW Stock Option Plan and are
exercisable for common stock of TRW.
62
<PAGE>
(4) Amounts shown represent matching contributions to the 401k plan.
(5) For all Named Executive Officers except Mr. Setzer, amounts shown
represent the aggregate average cost of the Executive Health Care Plan in
excess of amounts contributed by participants. Amounts shown for Mr.
Setzer represent reimbursement for medical expenses.
(6) Messrs. Manashil and Munson are not expected to be executive officers of
the Company following the Closing Date.
STOCK OPTIONS
The following table contains information concerning the grant of stock
options under the TRW Stock Option Plan to the Named Executive Officers during
the year ended December 31, 1995.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
-------------------------------------------
POTENTIAL
REALIZABLE VALUE AT
ASSUMED ANNUAL
SECURITIES % OF TOTAL RATES OF STOCK PRICE
UNDERLYING OPTIONS APPRECIATION
OPTIONS GRANTED TO EXERCISE FOR OPTION TERM
GRANTED(1) EMPLOYEES IN PRICE EXPIRATION ---------------------
NAME (#) FISCAL YEAR ($/SH) DATE 5%($) 10%($)
---- ---------- ------------ -------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
D. Van Skilling......... 9,000 14.4% $64.63 2/7/05 $ 365,850 $ 927,180
Ned W. Manashil......... 1,500 2.4% 64.63 2/7/05 60,975 154,530
Alden V. Munson, Jr. ... 4,000 6.4% 64.63 2/7/05 162,600 412,080
Edwin P. Setzer......... -- -- -- -- -- --
John N. Taussig......... 4,000 6.4% 64.63 2/7/05 162,600 412,080
</TABLE>
- --------
(1) Options become exercisable in three equal annual installments beginning
one year after February 7, 1995, the date of grant.
OPTION EXERCISES AND YEAR-END INTERESTS
The following table provides information with respect to the Named Executive
Officers concerning the exercise of options during the fiscal year ended
December 31, 1995 and unexercised options held as of the end of such year.
AGGREGATE OPTION EXERCISES IN LAST FISCAL
YEAR AND FISCAL YEAR END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF VALUE OF
SECURITIES UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY
SHARES OPTIONS AT OPTIONS AT
ACQUIRED FISCAL YEAR-END (#) FISCAL YEAR-END(#)
ON VALUE EXERCISABLE/ EXERCISABLE/
NAME EXERCISE (#) REALIZED($) UNEXERCISABLE UNEXERCISABLE
---- ------------ ----------- ---------------------- -------------------
<S> <C> <C> <C> <C>
D. Van Skilling......... 3,000 $47,805 85,405/15,667 $2,610,658/$194,167
Ned W. Manashil......... 1,800 75,650 666/2,834 7,826/34,980
Alden V. Munson, Jr. ... 300 12,608 27,033/6,867 827,271/85,167
Edwin P. Setzer......... -- -- -- --
John N. Taussig......... 1,000 29,873 17,132/8,168 490,709/101,855
</TABLE>
63
<PAGE>
OWNERSHIP OF CAPITAL STOCK
Immediately after the consummation of the Transactions, Holdings will own
all of the outstanding common stock of the Company. Holdings' voting
securities are expected to be beneficially owned as follows:
<TABLE>
<CAPTION>
PERCENT(1)
OF VOTING
NAME OF BENEFICIAL OWNER(1) POWER
--------------------------- ----------
<S> <C>
TRW(2)........................................................... 19.6%
D. Van Skilling(3)...............................................
Bain............................................................. 33.6
c/o Bain Capital, Inc.
Two Copley Place, 7th Floor
Boston, MA 02116
Anthony J. DiNovi(5)............................................. 33.6
c/o Thomas H. Lee Company
75 State Street
Boston, MA 02109
Ned W. Manashil(3)...............................................
Alden V. Munson, Jr.(3)..........................................
Mark E. Nunnelly(4).............................................. 33.6
c/o Bain Capital, Inc.
Two Copley Place, 7th Floor
Boston, MA 02116
Edwin P. Setzer(3)...............................................
Scott M. Sperling(5)............................................. 33.6
c/o Thomas H. Lee Company
75 State Street
Boston, MA 02109
John N. Taussig(3)...............................................
THL.............................................................. 33.6
c/o Thomas H. Lee Company
75 State Street
Boston, MA 02109
Robert F. White(4)............................................... 33.6
c/o Bain Capital, Inc.
Two Copley Place, 7th Floor
Boston, MA 02116
Other Investors.................................................. 13.2
</TABLE>
- --------
(1) As used in this table, "beneficial ownership" means the sole or shared
power to vote or direct the voting or to dispose or direct the disposition
of any security.
(2) TRW will hold 5.56% of the Common Stock and all of the outstanding
Preferred Stock of Holdings. The Preferred Stock and the Common Stock held
by TRW in the aggregate will constitute approximately 19.6% of the voting
power of Holdings.
(3) The address of all officers of the Company after the Closing Date will be
c/o Experian Information Solutions, Inc., 505 City Parkway West, Orange,
CA 92668.
(4) All such voting securities are owned by Bain, of which the named
shareholder is deemed the beneficial owner by virtue of being a General
Partner of Bain Capital, Inc. or an affiliate of Bain Capital, Inc.
(5) All such voting securities are owned by the Thomas H. Lee Company and
attributed to Messrs. DiNovi and Sperling, Managing Directors of the
Thomas H. Lee Company, pursuant to the definition of beneficial ownership
provided in footnote(1).
64
<PAGE>
PREFERRED STOCK
In connection with the Recapitalization, a subsidiary of TRW will be issued
two classes of Preferred Stock of Holdings, the Voting Preferred will have
approximately $44.0 million of liquidation value and be convertible at any
time by the holder into 6.45% of the fully-diluted Common Stock of Holdings as
of the Closing Date, and the Non-voting Preferred will have $31.0 million of
liquidation value and be convertible at any time by the holder into 4.55% of
the fully-diluted Common Stock of Holdings as of the Closing Date. As of the
Closing Date, the Voting Preferred will represent 14.62% of the aggregate
voting power of Holdings. Dividends will accrue on each class of Preferred
Stock at a rate of 12% per year for as long as the Preferred Stock is
outstanding, payable, at Holdings option, in cash or equivalent accruals. The
effective conversion price of each class of Preferred Stock will increase on
each payment date in proportion to the accrual of dividends.
The Preferred Stock will be redeemable (a) by Holdings after two years at
the original issue price and (b) by Holdings upon an initial public offering
of Holdings' equity securities or other sale or upon a merger or a change of
control at 104% of the original issue price until the first anniversary of the
Closing Date and at 100% of the original issue price thereafter. Bain and THL
may not transfer more than 50% of their initial equity ownership in Holdings
to an unaffiliated third party unless a third party makes a bona fide offer to
purchase the Preferred Stock at the original issue price thereof.
65
<PAGE>
DESCRIPTION OF NOTES
The Notes will be issued under an indenture (the "Indenture"), to be dated
as of , 1996 by and between the Company and [ ], as Trustee (the
"Trustee"). A copy of the form of the Indenture has been filed as an exhibit
to the Registration Statement of which this Prospectus is a part. The
following is a summary of the material provisions of the Indenture. It does
not purport to be complete and is subject to, and is qualified in its entirety
by reference to, the Trust Indenture Act of 1939, as amended (the "TIA"), and
to all of the provisions of the Indenture, including the definitions of
certain terms therein and those terms made a part of the Indenture by
reference to the TIA as in effect on the date of the Indenture. The
definitions of certain capitalized terms used in the following summary are set
forth below under "Certain Definitions." For purposes of this section,
references to the "Company" include only the Company and not its subsidiaries.
The Notes will be unsecured obligations of the Company, ranking subordinate
in right of payment to all Senior Indebtedness of the Company.
The Notes will be issued in fully registered form only, without coupons, in
denominations of $1,000 and integral multiples thereof. Initially, the Trustee
will act as Paying Agent and Registrar for the Notes. The Notes may be
presented for registration of transfer and exchange at the offices of the
Registrar, which initially will be the Trustee's corporate trust office. The
Company may change any Paying Agent and Registrar without notice to holders of
the Notes (the "Holders"). The Company will pay principal (and premium, if
any) on the Notes at the Trustee's corporate office in New York, New York. At
the Company's option, interest may be paid at the Trustee's corporate trust
office or by check mailed to the registered address of Holders.
PRINCIPAL, MATURITY AND INTEREST
The Notes are limited in aggregate principal amount to $250 million and will
mature on , 2006. Interest on the Notes will accrue at the rate of % per
annum and will be payable semiannually in cash on each and commencing
on , 1997, to the Persons who are registered Holders at the close of
business on the and immediately preceding the applicable interest
payment date. Interest on the Notes will accrue from the most recent date to
which interest has been paid or, if no interest has been paid, from the date
of issuance.
The Notes will not be entitled to the benefit of any mandatory sinking fund.
66
<PAGE>
REDEMPTION
Optional Redemption. The Notes will be redeemable, at the Company's option,
in whole at any time or in part from time to time, on and after , 2001,
upon not less than 30 nor more than 60 days' notice, at the following
redemption prices (expressed as percentages of the principal amount thereof)
if redeemed during the twelve-month period commencing on of the year set
forth below, plus, in each case, accrued interest to the date of redemption:
<TABLE>
<CAPTION>
YEAR PERCENTAGE
---- ----------
<S> <C>
2001........................................................... %
2002...........................................................
2003...........................................................
2004 and thereafter............................................ 100.00
</TABLE>
Optional Redemption Upon Equity Offerings. At any time, or from time to
time, on or prior to , 1999, the Company may, at its option, use the net
cash proceeds of one or more Equity Offerings (as defined below) to redeem up
to 40% of the aggregate principal amount of Notes originally issued at a
redemption price equal to % of the principal amount thereof plus accrued
interest to the date of redemption; provided that at least $ million of the
original principal amount of Notes remains outstanding immediately after any
such redemption.
In order to effect the foregoing redemption with the proceeds of any Equity
Offering, the Company shall make such redemption not more than 120 days after
the consummation of any such Equity Offering.
As used in the preceding two paragraphs, "Equity Offering" means an offering
of Qualified Capital Stock of Holdings or the Company; provided that, in the
event of an Equity Offering by Holdings, Holdings contributes to the capital
of the Company the portion of the net cash proceeds of such Equity Offering
necessary to pay the aggregate redemption price (plus accrued interest to the
redemption date) of the Notes to be redeemed pursuant to the preceding
paragraph.
SELECTION AND NOTICE
In case of a partial redemption, selection of the Notes or portions thereof
for redemption shall be made by the Trustee by lot, pro rata or in such manner
as it shall deem appropriate and fair and in such manner as complies with any
applicable legal requirements; provided, however, that if a partial redemption
is made with the proceeds of an Equity Offering, selection of the Notes or
portion thereof for redemption shall be made by the Trustee only on a pro rata
basis, unless such method is otherwise prohibited. Notes may be redeemed in
part in multiples of $1,000 principal amount only. Notice of redemption will
be sent, by first class mail, postage prepaid, at least 30 days and not more
than 60 days prior to the date fixed for redemption to each Holder whose Notes
are to be redeemed at the last address for such Holder then shown on the
registry books. If any Note is to be redeemed in part only, the notice of
redemption that relates to such Note shall state the portion of the principal
amount thereof to be redeemed. A new Note in principal amount equal to the
unredeemed portion thereof will be issued in the name of the Holder thereof
upon cancellation of the original Note. On and after any redemption date,
interest will cease to accrue on the Notes or part thereof called for
redemption as long as the Company has deposited with the Paying Agent funds in
satisfaction of the redemption price pursuant to the Indenture.
RANKING OF NOTES
The indebtedness evidenced by the Notes will be unsecured Senior
Subordinated Indebtedness of the Company, will be subordinated in right of
payment, as set forth in the Indenture, to all existing
67
<PAGE>
and future Senior Indebtedness of the Company, will rank pari passu in right
of payment with all existing and future Senior Subordinated Indebtedness of
the Company and will be senior in right of payment to all existing and future
Subordinated Obligations of the Company. The Notes will also be effectively
subordinated to any Secured Indebtedness of the Company to the extent of the
value of the assets securing such Indebtedness, and to all Indebtedness of its
Subsidiaries. However, payment from the money or the proceeds of U.S.
government obligations held in any defeasance trust described under "--Legal
Defeasance and Covenant Defeasance" below is not subordinated to any Senior
Indebtedness or subject to the restrictions described above if the deposit to
such trust which is used to fund such payment was permitted at the time of
such deposit.
As of March 31, 1996, on a pro forma basis, after giving effect to the
Transactions, the Company would have had approximately $561.7 million of
Senior Indebtedness outstanding (excluding unused commitments) all of which
would have been Secured Indebtedness. Although the Indenture contains
limitations on the amount of additional Indebtedness which the Company and its
Restricted Subsidiaries may incur, under certain circumstances the amount of
such Indebtedness could be substantial and, in any case, such Indebtedness may
be Senior Indebtedness or Secured Indebtedness. See "--Certain Covenants--
Limitation on Incurrence of Additional Indebtedness" below.
Only Indebtedness of the Company that is Senior Indebtedness will rank
senior in right of payment to the Notes in accordance with the provisions of
the Indenture. The Notes will in all respects rank pari passu in right of
payment with all other Senior Subordinated Indebtedness of the Company. The
Company has agreed in the Indenture that it will not incur, directly or
indirectly, any Indebtedness which is expressly subordinate in right of
payment to Senior Indebtedness unless such Indebtedness is Senior Subordinated
Indebtedness or is expressly subordinated in right of payment to Senior
Subordinated Indebtedness. Without limiting the foregoing, unsecured
Indebtedness is not deemed to be subordinate or junior to Secured Indebtedness
merely because it is unsecured.
The Company may not pay principal of, premium (if any) or interest on, or
any other amount in respect of, the Notes or make any deposit pursuant to the
provisions described under "--Legal Defeasance and Covenant Defeasance" below
and may not otherwise purchase, redeem or otherwise retire any Notes
(collectively, "pay the Notes") if (i) any Senior Indebtedness is not paid
when due in cash or Cash Equivalents or (ii) any other default on Senior
Indebtedness occurs and the maturity of such Senior Indebtedness is
accelerated in accordance with its terms unless, in either case, the default
has been cured or waived and any such acceleration has been rescinded or such
Senior Indebtedness has been paid in full in cash or Cash Equivalents.
However, the Company may pay the Notes without regard to the foregoing if the
Company and the Trustee receive written notice approving such payment from the
Representative of the holders of the Designated Senior Indebtedness with
respect to which either of the events set forth in clause (i) or (ii) of the
immediately preceding sentence has occurred and is continuing.
In addition, during the continuance of any default (other than a default
described in clause (i) or (ii) of the first sentence of the immediately
preceding paragraph) with respect to any Designated Senior Indebtedness
pursuant to which the maturity thereof may be accelerated immediately without
further notice (except such notice as may be required to effect such
acceleration) or the expiration of any applicable grace periods, the Company
may not pay the Notes for a period (a "Payment Blockage Period") commencing
upon the receipt by the Trustee (with a copy to the Company) of written notice
(a "Blockage Notice") of such default from the Representative of the holders
of such Designated Senior Indebtedness specifying an election to effect a
Payment Blockage Period and ending 179 days thereafter (or earlier if such
Payment Blockage Period is terminated (i) by written notice to the Trustee and
the Company from the Person or Persons who gave such Blockage Notice, (ii)
because the default giving rise to such Blockage Notice is no longer
continuing or (iii) because such Designated Senior Indebtedness has been
repaid in full in cash or Cash Equivalents).
68
<PAGE>
Notwithstanding the provisions described in the immediately preceding
paragraph, unless any of the events described in clause (i) or (ii) of the
first sentence of the second immediately preceding paragraph is then
occurring, the Company may resume payments on the Notes after the end of such
Payment Blockage Period, including any missed payments. Not more than one
Blockage Notice may be given in any consecutive 360-day period, irrespective
of the number of defaults with respect to Designated Senior Indebtedness
during such period. However, if any Blockage Notice within such 360-day period
is given by or on behalf of any holders of Designated Senior Indebtedness
other than the Bank Indebtedness, a Representative of holders of Bank
Indebtedness may give another Blockage Notice within such period. In no event,
however, may the total number of days during which any Payment Blockage Period
or Periods is in effect exceed 179 days in the aggregate during any 360
consecutive day period.
Upon any payment or distribution of the assets or securities of the Company
upon a total or partial liquidation or dissolution or reorganization of or
similar proceeding relating to the Company or its property or in a bankruptcy,
insolvency, receivership or similar proceeding relating to the Company or its
property, or in an assignment for the benefit of creditors or any marshalling
of the assets and liabilities of the Company, the holders of Senior
Indebtedness will be entitled to receive payment in full in cash or Cash
Equivalents of the Senior Indebtedness before the holders of the Notes are
entitled to receive any payment and, until the Senior Indebtedness is paid in
full in cash or Cash Equivalents, any payment or distribution to which holders
of the Notes would be entitled but for the subordination provisions of the
Indenture will be made to holders of the Senior Indebtedness as their
interests may appear. If a payment or distribution is made to holders of the
Notes that due to the subordination provisions should not have been made to
them, such holders of the Notes are required to hold it in trust for the
holders of Senior Indebtedness and pay it over to them as their interests may
appear.
If payment of the Notes is accelerated because of an Event of Default, the
Company or the Trustee shall promptly notify the holders of the Designated
Senior Indebtedness or the Representative of such holders of the acceleration.
The Company may not pay the Notes until five business days after
such holders or the Representative of the holders of Designated Senior
Indebtedness receive notice of such acceleration and, thereafter, may pay the
Notes only if the subordination provisions of the Indenture otherwise permit
payment at that time.
By reason of such subordination provisions contained in the Indenture, in
the event of insolvency, creditors of the Company who are holders of Senior
Indebtedness may recover more, ratably, than the holders of the Notes, and
creditors of the Company who are not holders of Senior Indebtedness or of
Senior Subordinated Indebtedness (including the Notes) may recover less,
ratably, than holders of Senior Indebtedness and may recover more than the
holders of Senior Subordinated Indebtedness.
GUARANTEES
After the Issue Date, the Company will cause each Restricted Subsidiary of
the Company that guarantees payment of the Bank Indebtedness (each, a
"Subsidiary Guarantor") to execute and deliver to the Trustee a supplemental
indenture pursuant to which such Restricted Subsidiary will guarantee (each, a
"Guarantee") payment of the Notes. See "Certain Covenants--Future Guarantees."
Each such Subsidiary Guarantor will unconditionally guarantee, on a senior
subordinated basis, jointly and severally, to each Holder and the Trustee, the
full and prompt performance of the Company's obligations under the Indenture
and the Notes, including the payment of principal of and interest on the
Notes. The Guarantees will be subordinated to Guarantor Senior Indebtedness on
the same basis as the Notes are subordinated to Senior Indebtedness. The
obligations of each Subsidiary Guarantor are limited to the maximum amount
which, after giving effect to all other contingent and fixed liabilities of
such Subsidiary Guarantor and after giving effect to any collections from or
payments
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made by or on behalf of any other Subsidiary Guarantor in respect of the
obligations of such other Subsidiary Guarantor under its Guarantee or pursuant
to its contribution obligations under the Indenture, will result in the
obligations of such Subsidiary Guarantor under the Guarantee not constituting
a fraudulent conveyance or fraudulent transfer under federal or state law.
Each Subsidiary Guarantor that makes a payment or distribution under a
Guarantee shall be entitled to a contribution from each other Subsidiary
Guarantor in an amount pro rata, based on the Adjusted Net Assets (as defined
in the Indenture) of each Subsidiary Guarantor.
Each Subsidiary Guarantor may consolidate with or merge into, liquidate,
dissolve or sell its assets to the Company or another Subsidiary Guarantor
that is a Wholly Owned Restricted Subsidiary of the Company without
limitation, or with other Persons upon the terms and conditions set forth in
the Indenture. See "Certain Covenants--Merger, Consolidation and Sale of
Assets." In the event that (i) either all of the Capital Stock of a Subsidiary
Guarantor is sold by the Company (whether by merger, stock purchase or
otherwise) or all or substantially all of the assets of a Subsidiary Guarantor
are sold by such Subsidiary Guarantor and such sale complies with the
provisions set forth in "Certain Covenants--Limitation on Asset Sales" or (ii)
the lenders under the Bank Credit Agreement release a Subsidiary Guarantor of
all guarantees under the Bank Credit Agreement and release all Liens on the
property and assets of such Subsidiary Guarantor relating to the Bank
Indebtedness, then in each case the Subsidiary Guarantor's Guarantee will be
released.
CHANGE OF CONTROL
The Indenture will provide that upon the occurrence of a Change of Control
Triggering Event, each Holder will have the right to require that the Company
purchase all or a portion of such Holder's Notes pursuant to the offer
described below (the "Change of Control Offer"), at a purchase price equal to
101% of the principal amount thereof plus accrued interest to the date of
purchase.
The Indenture will provide that, prior to the mailing of the notice referred
to below, but in any event within 30 days following any Change of Control
Triggering Event, the Company covenants to (i) repay in full and terminate all
commitments under the Bank Indebtedness or offer to repay in full and
terminate all commitments under all Bank Indebtedness and to repay the Bank
Indebtedness owed to each holder of Bank Indebtedness which has accepted such
offer or (ii) obtain the requisite consents under the Bank Credit Agreement to
permit the repurchase of the Notes as provided below. The Company shall first
comply with the covenant in the immediately preceding sentence before it shall
be required to repurchase Notes pursuant to the provisions described below.
The Company's failure to comply with this covenant shall constitute an Event
of Default described in clause (iii) and not in clause (ii) under "Events of
Default" below.
Within 30 days following the date upon which the Change of Control
Triggering Event occurred, the Company must send, by first class mail, a
notice to each Holder, with a copy to the Trustee, which notice shall govern
the terms of the Change of Control Offer. Such notice shall state, among other
things, the purchase date, which must be no earlier than 30 days nor later
than 45 days from the date such notice is mailed, other than as may be
required by law (the "Change of Control Payment Date"). Holders electing to
have a Note purchased pursuant to a Change of Control Offer will be required
to surrender the Note, with the form entitled "Option of Holder to Elect
Purchase" on the reverse of the Note completed, to the Paying Agent at the
address specified in the notice prior to the close of business on the third
business day prior to the Change of Control Payment Date.
If a Change of Control Offer is made, there can be no assurance that the
Company will have available funds sufficient to pay the Change of Control
purchase price for all the Notes that might be delivered by Holders seeking to
accept the Change of Control Offer. In the event the Company is required to
purchase outstanding Notes pursuant to a Change of Control Offer, the Company
expects that it would seek third party financing to the extent it does not
have available funds to meet its purchase obligations. However, there can be
no assurance that the Company would be able to obtain such financing.
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The definition of Change of Control includes a phrase relating to the sale,
lease, exchange or other transfer of "all or substantially all" of the
Company's assets as such phrase is defined in the Revised Model Business
Corporation Act. Although there is a developing body of case law interpreting
the phrase "substantially all," there is no precise definition of the phrase
under applicable law. Accordingly, in certain circumstances there may be a
degree of uncertainty in ascertaining whether a particular transaction would
involve a disposition of "all or substantially all" of the assets of the
Company, and therefore it may be unclear as to whether a Change of Control has
occurred and whether the Holders have the right to require the Company to
repurchase such Notes.
Neither the Board of Directors of the Company nor the Trustee may waive the
covenant relating to a Holder's right to redemption upon a Change of Control
Triggering Event. Restrictions in the Indenture described herein on the
ability of the Company and its Restricted Subsidiaries to incur additional
Indebtedness, to grant Liens on their properties, to make Restricted Payments
and to make Asset Sales may also make more difficult or discourage a takeover
of the Company, whether favored or opposed by the management of the Company.
Consummation of any such transaction in certain circumstances may require
redemption or repurchase of the Notes, and there can be no assurance that the
Company or the acquiring party will have sufficient financial resources to
effect such redemption or repurchase. Such restrictions and the restrictions
on transactions with Affiliates may, in certain circumstances, make more
difficult or discourage any leveraged buyout of the Company or any of its
Subsidiaries by the management of the Company. While such restrictions cover a
wide variety of arrangements which have traditionally been used to effect
highly leveraged transactions, the Indenture may not afford the Holders of
Notes protection in all circumstances from the adverse aspects of a highly
leveraged transaction, reorganization, restructuring, merger or similar
transaction.
The Company will comply with the requirements of Rule 14e-1 under the
Exchange Act and any other securities laws and regulations thereunder to the
extent such laws and regulations are applicable in connection with the
repurchase of Notes pursuant to a Change of Control Offer. To the extent that
the provisions of any securities laws or regulations conflict with the "Change
of Control" provisions of the Indenture, the Company shall comply with the
applicable securities laws and regulations and shall not be deemed to have
breached its obligations under the "Change of Control" provisions of the
Indenture by virtue thereof.
CERTAIN COVENANTS
The Indenture contains, among others, the following covenants:
Limitation on Restricted Payments. The Company will not, and will not cause
or permit any of its Restricted Subsidiaries to, directly or indirectly, (a)
declare or pay any dividend or make any distribution (other than dividends or
distributions payable in Qualified Capital Stock) on or in respect of shares
of Capital Stock of the Company to holders of such Capital Stock, (b)
purchase, redeem or otherwise acquire or retire for value any Capital Stock of
the Company or any warrants, rights or options to purchase or acquire shares
of any class of such Capital Stock, other than the exchange of such Capital
Stock for Qualifield Capital Stock, or (c) make any Investment (other than
Permitted Investments) (each of the foregoing actions set forth in clauses
(a), (b) and (c) being referred to as a "Restricted Payment"), if at the time
of such Restricted Payment or immediately after giving effect thereto, (i) a
Default or an Event of Default shall have occurred and be continuing, (ii) the
Company is not able to incur at least $1.00 of additional Indebtedness (other
than Permitted Indebtedness) in compliance with the "Limitation on Incurrence
of Additional Indebtedness" covenant, or (iii) the aggregate amount of
Restricted Payments made subsequent to the Issue Date shall exceed the sum of:
(w) 50% of the cumulative Consolidated Net Income (or if cumulative
Consolidated Net Income shall be a loss, minus 100% of such loss) of the
Company earned subsequent to the Issue Date and on or prior to the date the
Restricted Payment occurs (the "Reference Date") (treating such period as a
single accounting period); plus (x) 100% of the aggregate net proceeds
received by the Company (including the fair market value of property other
than cash) from any Person (other than a Subsidiary of the Company) from the
issuance and sale subsequent to the Issue Date and on or prior to the
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Reference Date of Qualified Capital Stock of the Company (including Capital
Stock issued upon the conversion of convertible Indebtedness or in exchange
for outstanding Indebtedness); plus (y) without duplication of any amounts
included in clause (iii)(x) above, 100% of the aggregate net proceeds
(including the fair market value of property other than cash) of any equity
contribution received by the Company from a holder of the Company's Capital
Stock (excluding any net proceeds from an Equity Offering to the extent used
to redeem Notes in accordance with the optional redemption provisions of the
Notes other than in connection with an Equity Offering pursuant to a
registration statement filed with the Commission in accordance with the
Securities Act); plus (z) to the extent that any Investment (other than a
Permitted Investment) that was made after the Issue Date is sold for cash or
otherwise liquidated or repaid for cash, the lesser of (A) the cash received
with respect to such sale, liquidation or repayment of such Investment (less
the cost of such sale, liquidation or repayment, if any) and (B) the initial
amount of such Investment.
Notwithstanding the foregoing, the provisions set forth in the immediately
preceding paragraph do not prohibit: (1) the payment of any dividend or the
consummation of any irrevocable redemption within 60 days after the date of
declaration of such dividend or notice of such redemption if the dividend or
payment of the redemption price, as the case may be, would have been permitted
on the date of declaration or notice; (2) if no Event of Default shall have
occurred and be continuing as a consequence thereof, the acquisition of any
shares of Capital Stock of the Company, either (i) solely in exchange for
shares of Qualified Capital Stock of the Company, or (ii) through the
application of net proceeds of a substantially concurrent sale (other than to
a Subsidiary of the Company) of shares of Qualified Capital Stock of the
Company; (3) payments for the purpose of and in an amount equal to the amount
required to permit Holdings to redeem or repurchase Holdings' common equity or
options in respect thereof, in each case in connection with the repurchase
provisions under employee stock option or stock purchase agreements or other
agreements to compensate management employees; provided that such redemptions
or repurchases pursuant to this clause (3) shall not exceed $10 million (which
amount shall be increased by the amount of any proceeds to the Company from
(x) sales of Capital Stock of Holdings to management employees subsequent to
the Issue Date and (y) any "key-man" life insurance policies which are used to
make such redemptions or repurchases) in the aggregate; provided, further,
that the cancellation of Indebtedness owing to the Company from members of
management of the Company or any of its Restricted Subsidiaries in connection
with a repurchase of Capital Stock of Holdings will not be deemed to
constitute a Restricted Payment under the Indenture; (4) the making of
distributions, loans or advances in an amount not to exceed $1 million per
annum sufficient to permit Holdings to pay the ordinary operating expenses of
Holdings (including, without limitation, directors fees, indemnification
obligations, professional fees and expenses) related to Holdings' ownership of
Capital Stock of the Company (other than to the Principals or their Related
Parties); (5) the payment of any amounts pursuant to the Tax Allocation
Agreement; (6) the payment of fees and compensation as permitted under clause
(i) of paragraph (b) of the "Transactions with Affiliates" covenant; (7) so
long as no Default or Event of Default shall have occurred and be continuing,
payments not to exceed $100,000 in the aggregate, to enable Holdings to make
payments to holders of its Capital Stock in lieu of issuance of fractional
shares of its Capital Stock; and (8) repurchases of Capital Stock deemed to
occur upon the exercise of stock options if such Capital Stock represents a
portion of the exercise price thereof. In determining the aggregate amount of
Restricted Payments made subsequent to the Issue Date in accordance with
clause (iii) of the immediately preceding paragraph, (a) amounts expended (to
the extent such expenditure is in the form of cash or other property other
than Qualified Capital Stock) pursuant to clauses (1), (2) and (3) of this
paragraph shall be included in such calculation, provided that such
expenditures pursuant to clause (3) shall not be included to the extent of
cash proceeds received by the Company from any "key man" life insurance
policies and (b) amounts expended pursuant to clause (4), (5), (6), (7) and
(8) shall be excluded from such calculation.
Limitation on Incurrence of Additional Indebtedness. The Company will not,
and will not permit any of its Restricted Subsidiaries to, directly or
indirectly, create, incur, assume, guarantee, acquire,
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become liable, contingently or otherwise, with respect to, or otherwise become
responsible for payment of (collectively, "incur") any Indebtedness (other
than Permitted Indebtedness); provided, however, that if no Default or Event
of Default shall have occurred and be continuing at the time or as a
consequence of the incurrence of any such Indebtedness, the Company or any
Subsidiary Guarantor may incur Indebtedness if on the date of the incurrence
of such Indebtedness, after giving effect to the incurrence thereof, the
Consolidated Fixed Charge Coverage Ratio of the Company is greater than (a)
2.0 to 1.0 if such proposed incurrence of Indebtedness is prior to , 1999
or (b) 2.25 to 1.0 if such proposed incurrence of Indebtedness is on or after
, 1999.
Limitations on Transactions with Affiliates.
(a) The Company will not, and will not permit any of its Restricted
Subsidiaries to, directly or indirectly, enter into or permit to exist any
transaction or series of related transactions (including, without limitation,
the purchase, sale, lease or exchange of any property or the rendering of any
service) with, or for the benefit of, any of its Affiliates (an "Affiliate
Transaction"), other than (x) Affiliate Transactions permitted under paragraph
(b) below and (y) Affiliate Transactions on terms that are no less favorable
than those that might reasonably have been obtained in a comparable
transaction at such time on an arm's-length basis from a Person that is not an
Affiliate; provided, however, that for a transaction or series of related
transactions with an aggregate value of $5 million or more, at the Company's
option (i) such determination shall be made in good faith by a majority of the
disinterested members of the Board of the Directors of the Company or (ii) the
Board of Directors of the Company or any such Restricted Subsidiary party to
such Affiliate Transaction shall have received a favorable opinion from a
nationally recognized investment banking firm that such Affiliate Transaction
is on terms not materially less favorable than those that might reasonably
have been obtained in a comparable transaction at such time on an arm's-length
basis from a Person that is not an Affiliate; provided, further, that for a
transaction or series of related transactions with an aggregate value of $10
million or more, the Board of Directors of the Company shall have received a
favorable opinion from a nationally recognized investment banking firm that
such Affiliate Transaction is on terms not materially less favorable than
those that might reasonably have been obtained in a comparable transaction at
such time on an arm's-length basis from a Person that is not an Affiliate.
(b) The foregoing restrictions shall not apply to (i) reasonable fees and
compensation paid to, and indemnity provided on behalf of, officers,
directors, employees or consultants of the Company or any Subsidiary of the
Company as determined in good faith by the Company's Board of Directors or
senior management; (ii) transactions exclusively between or among the Company
and any of its Wholly Owned Restricted Subsidiaries or exclusively between or
among such Wholly Owned Restricted Subsidiaries, provided such transactions
are not otherwise prohibited by the Indenture; (iii) transactions effected as
part of a Qualified Receivables Transaction; (iv) any agreement as in effect
as of the Issue Date or any amendment thereto or any transaction contemplated
thereby (including pursuant to any amendment thereto) in any replacement
agreement thereto so long as any such amendment or replacement agreement is
not more disadvantageous to the Holders in any material respect than the
original agreement as in effect on the Issue Date; and (v) Restricted Payments
permitted by the Indenture.
Limitation on Liens. The Company will not, and will not permit any of its
Restricted Subsidiaries to, create, incur, assume or suffer to exist any Liens
of any kind against or upon any of its property or assets, or any proceeds
therefrom, unless (i) in the case of Liens securing Indebtedness that is
expressly subordinate or junior in right of payment to the Notes, the Notes
are secured by a Lien on such property, assets or proceeds that is senior in
priority to such Liens and (ii) in all other cases, the Notes are equally and
ratably secured, except for (A) Liens existing as of the Issue Date and any
extensions, renewals or replacements thereof; (B) Liens securing Senior
Indebtedness and Guarantor Senior Indebtedness; (C) Liens securing the Notes
and the Guarantees; (D) Liens of the Company or a Wholly Owned Restricted
Subsidiary on assets of any Subsidiary of the Company; (E) Liens securing
Indebtedness which is incurred to refinance Indebtedness which has been
secured by a Lien permitted
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under the Indenture and which has been incurred in accordance with the
provisions of the Indenture; provided, however, that such Liens do not extend
to or cover any property or assets of the Company or any of its Restricted
Subsidiaries not securing the Indebtedness so refinanced; and (F) Permitted
Liens.
Prohibition on Incurrence of Senior Subordinated Debt. Neither the Company
nor any Subsidiary Guarantor will incur or suffer to exist Indebtedness that
is senior in right of payment to the Notes or such Subsidiary Guarantor's
Guarantee and subordinate in right of payment to any other Indebtedness of the
Company or such Subsidiary Guarantor, as the case may be.
Limitation on Dividend and Other Payment Restrictions Affecting
Subsidiaries. The Company will not, and will not permit any of its Restricted
Subsidiaries to, directly or indirectly, create or otherwise cause or permit
to exist or become effective any encumbrance or restriction on the ability of
any Restricted Subsidiary to (a) pay dividends or make any other distributions
on or in respect of its Capital Stock; (b) make loans or advances or to pay
any Indebtedness or other obligation owed to the Company or any other
Restricted Subsidiary of the Company; or (c) transfer any of its property or
assets to the Company or any other Restricted Subsidiary of the Company,
except for such encumbrances or restrictions existing under or by reason of:
(1) applicable law; (2) the Indenture; (3) non-assignment provisions of any
contract or any lease entered into in the ordinary course of business; (4) any
instrument governing Acquired Indebtedness, which encumbrance or restriction
is not applicable to the Company or any Restricted Subsidiary of the Company,
or the properties or assets of any such Person, other than the Person or the
properties or assets of the Person so acquired; (5) agreements existing on the
Issue Date (including, without limitation, the Bank Credit Agreement); (6)
restrictions on the transfer of assets subject to any Lien permitted under the
Indenture imposed by the holder of such Lien; (7) restrictions imposed by any
agreement to sell assets permitted under the Indenture to any Person pending
the closing of such sale; (8) any agreement or instrument governing Capital
Stock of any Person that is acquired after the Issue Date; (9) Indebtedness or
other contractual requirements of a Receivables Entity in connection with a
Qualified Receivables Transaction; provided that such restrictions apply only
to such Receivables Entity; or (10) an agreement effecting a refinancing,
replacement or substitution of Indebtedness issued, assumed or incurred
pursuant to an agreement referred to in clause (2), (4) or (5) above;
provided, however, that the provisions relating to such encumbrance or
restriction contained in any such refinancing, replacement or substitution
agreement are no less favorable to the Company or the Holders in any material
respect as determined by the Board of Directors of the Company than the
provisions relating to such encumbrance or restriction contained in agreements
referred to in such clause (2), (4) or (5).
Limitation on Preferred Stock of Subsidiaries. The Company will not permit
any of its Restricted Subsidiaries to issue any Preferred Stock (other than to
the Company or to a Wholly Owned Restricted Subsidiary of the Company) or
permit any Person (other than the Company or a Wholly Owned Restricted
Subsidiary of the Company) to own any Preferred Stock of any Restricted
Subsidiary of the Company.
Merger, Consolidation and Sale of Assets. The Company will not, in a single
transaction or a series of related transactions, consolidate with or merge
with or into, or sell, assign, transfer, lease, convey or otherwise dispose of
all or substantially all of its assets to, another Person or Persons unless
(i) either (A) the Company shall be the survivor of such merger or
consolidation or (B) the surviving Person is a corporation existing under the
laws of the United States, any state thereof or the District of Columbia and
such surviving Person shall expressly assume all the obligations of the
Company under the Notes and the Indenture; (ii) immediately after giving
effect to such transaction (on a pro forma basis, including any Indebtedness
incurred or anticipated to be incurred in connection with such transaction and
including adjustments that are (i) directly attributable to such transaciton
and (ii) factually supportable), the Company or the surviving Person is able
to incur at least $1.00 of additional Indebtedness (other than Permitted
Indebtedness) in compliance with the "Limitation on Incurrence of
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Additional Indebtedness" covenant; (iii) immediately before and immediately
after giving effect to such transaction (including any Indebtedness incurred
or anticipated to be incurred in connection with the transaction), no Default
or Event of Default shall have occurred and be continuing; (iv) each
Subsidiary Guarantor, unless it is the other party to the transaction, shall
have by supplemental indenture confirmed that after consummation of such
transaction its Guarantee shall apply, as such Guarantee applied on the date
it was granted under the Indenture to the obligations of the Company under the
Indenture and the Notes, to the obligations of the Company or such Person, as
the case may be, under the Indenture and the Notes; and (v) the Company has
delivered to the Trustee an officers' certificate and opinion of counsel, each
stating that such consolidation, merger or transfer complies with the
Indenture, that the surviving Person agrees to be bound thereby, and that all
conditions precedent in the Indenture relating to such transaction have been
satisfied. For purposes of the foregoing, the transfer (by lease, assignment,
sale or otherwise, in a single transaction or series of transactions) of all
or substantially all of the properties and assets of one or more Subsidiaries
of the Company, the Capital Stock of which constitutes all or substantially
all of the properties and assets of the Company, shall be deemed to be the
transfer of all or substantially all of the properties and assets of the
Company. Notwithstanding the foregoing clauses (ii) and (iii) of the preceding
sentence, (a) any Restricted Subsidiary of the Company may consolidate with,
merge into or transfer all or part of its properties and assets to the Company
and (b) the Company may merge with an Affiliate incorporated solely for the
purpose of reincorporating the Company in another jurisdiction.
The Indenture will provide that upon any consolidation, combination or
merger or any transfer of all or substantially all of the assets of the
Company in accordance with the foregoing, the surviving entity shall succeed
to, and be substituted for, and may exercise every right and power of, the
Company under the Indenture and the Notes with the same effect as if such
surviving entity had been named as such; provided that solely for purposes of
computing amounts described in clause (iii) of the first paragraph of the
covenant "Limitation on Restricted Payments" above, any such surviving entity
to the Company shall only be deemed to have succeeded to and be substituted
for the Company with respect to periods subsequent to the effective time of
such merger, consolidation, combination or transfer of assets.
Each Subsidiary Guarantor (other than any Subsidiary Guarantor whose
Guarantee is to be released in accordance with the terms of its Guarantee and
the Indenture in connection with any transaction complying with the provisions
of "--Limitation on Asset Sales" or as otherwise provided in the Indenture)
will not, and the Company will not cause or permit any Subsidiary Guarantor
to, consolidate with or merge with or into any Person other than the Company
or any other Subsidiary Guarantor unless: (i) the entity formed by or
surviving any such consolidation or merger (if other than the Subsidiary
Guarantor) or to which such sale, lease, conveyance or other disposition shall
have been made is a corporation organized and existing under the laws of the
United States or any State thereof or the District of Columbia; (ii) such
entity assumes by supplemental indenture all of the obligations of the
Subsidiary Guarantor on the Guarantee; (iii) immediately after giving effect
to such transaction, no Default or Event of Default shall have occurred and be
continuing; and (iv) immediately after giving effect to such transaction and
the use of any net proceeds therefrom, on a pro forma basis, including
adjustments that are (i) directly attributable to such transaction and (ii)
factually supportable, the Company could satisfy the provisions of clause (ii)
of the first paragraph of this covenant.
Limitation on Asset Sales. The Company will not, and will not permit any of
its Restricted Subsidiaries to, consummate an Asset Sale unless (i) the
Company or the applicable Restricted Subsidiary, as the case may be, receives
consideration at the time of such Asset Sale at least equal to the fair market
value of the assets sold or otherwise disposed of (as determined in good faith
by the Company's Board of Directors), (ii) at least 75% of the consideration
received by the Company or such Restricted Subsidiary, as the case may be,
from such Asset Sale shall be cash or Cash Equivalents and is received at the
time of such disposition; provided that the amount of (x) any liabilities (as
shown on the Company's or such Restricted Subsidiary's most recent balance
sheet or in the notes thereto)
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of the Company or such Restricted Subsidiary (other than liabilities that are
by their terms subordinated to the Notes or such Restricted Subsidiary's
Guarantee, if any) that are assumed by the transferee of any such assets and
(y) any notes or other obligations received by the Company or any such
Restricted Subsidiary from such transferee that are immediately converted by
the Company or any such Restricted Subsidiary into cash or Cash Equivalents
(to the extent of the cash or Cash Equivalents received) shall be deemed to be
cash for purposes of this provision; and (iii) upon the consummation of an
Asset Sale, the Company shall apply, or cause such Restricted Subsidiary to
apply, the Net Cash Proceeds relating to such Asset Sale within 365 days of
receipt thereof either (A) to prepay any Senior Indebtedness or Guarantor
Senior Indebtedness and, in the case of any Senior Indebtedness under any
revolving credit facility, effect a permanent reduction in the availability
under such revolving credit facility, (B) to reinvest in Productive Assets, or
(C) a combination of prepayment and investment permitted by the foregoing
clauses (iii)(A) and (iii)(B). On the 366th day after an Asset Sale or such
earlier date, if any, as the Board of Directors of the Company or of such
Restricted Subsidiary determines not to apply the Net Cash Proceeds relating
to such Asset Sale as set forth in clauses (iii)(A), (iii)(B) and (iii)(C) of
the immediately preceding sentence (each, a "Net Proceeds Offer Trigger
Date"), such aggregate amount of Net Cash Proceeds which have not been applied
on or before such Net Proceeds Offer Trigger Date as permitted in clauses
(iii)(A), (iii)(B) and (iii)(C) of the immediately preceding sentence (each a
"Net Proceeds Offer Amount") shall be applied by the Company or such
Restricted Subsidiary to make an offer to purchase (the "Net Proceeds Offer")
on a date (the "Net Proceeds Offer Payment Date") not less than 30 nor more
than 45 days following the applicable Net Proceeds Offer Trigger Date, from
all Holders on a pro rata basis that amount of Notes equal to the Net Proceeds
Offer Amount at a price equal to 100% of the principal amount of the Notes to
be purchased, plus accrued and unpaid interest thereon, if any, to the date of
purchase; provided, however, that if at any time any non-cash consideration
received by the Company or any Restricted Subsidiary of the Company, as the
case may be, in connection with any Asset Sale is converted into or sold or
otherwise disposed of for cash (other than interest received with respect to
any such non-cash consideration), then such conversion or disposition shall be
deemed to constitute an Asset Sale hereunder and the Net Cash Proceeds thereof
shall be applied in accordance with this covenant.
Notwithstanding the foregoing, if a Net Proceeds Offer Amount is less than
$10 million, the application of the Net Cash Proceeds constituting such Net
Proceeds Offer Amount to a Net Proceeds Offer may be deferred until such time
as such Net Proceeds Offer Amount plus the aggregate amount of all Net
Proceeds Offer Amounts arising subsequent to the Net Proceeds Offer Trigger
Date relating to such initial Net Proceeds Offer Amount from all Asset Sales
by the Company and its Restricted Subsidiaries aggregates at least $10
million, at which time the Company or such Restricted Subsidiary shall apply
all Net Cash Proceeds constituting all Net Proceeds Offer Amounts that have
been so deferred to make a Net Proceeds Offer (the first date the aggregate of
all such deferred Net Proceeds Offer Amounts is equal to $10 million or more
shall be deemed to be a "Net Proceeds Offer Trigger Date").
Notwithstanding the two immediately preceding paragraphs, the Company and
its Restricted Subsidiaries will be permitted to consummate an Asset Sale
without complying with such paragraphs to the extent (i) at least 75% of the
consideration for such Asset Sale constitutes Productive Assets and (ii) such
Asset Sale is for at least fair market value (as determined in good faith by
the Company's Board of Directors); provided that any consideration not
constituting Productive Assets received by the Company or any of its
Restricted Subsidiaries in connection with any Asset Sale permitted to be
consummated under this paragraph shall constitute Net Cash Proceeds and shall
be subject to the provisions of the two preceding paragraphs.
Each Net Proceeds Offer will be mailed to the record Holders as shown on the
register of Holders within 25 days following the Net Proceeds Offer Trigger
Date, with a copy to the Trustee, and shall comply with the procedures set
forth in the Indenture. Upon receiving notice of the Net Proceeds Offer,
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Holders may elect to tender their Notes in whole or in part in integral
multiples of $1,000 in exchange for cash. To the extent Holders properly
tender Notes in an amount exceeding the Net Proceeds Offer Amount, Notes of
tendering Holders will be purchased on a pro rata basis (based on amounts
tendered). A Net Proceeds Offer shall remain open for a period of 20 business
days or such longer period as may be required by law. To the extent that the
aggregate amount of Notes tendered pursuant to a Net Proceeds Offer is less
than the Net Proceeds Offer Amount, the Company may use any remaining Net
Proceeds Offer Amount for general corporate purposes. Upon completion of any
such Net Proceeds Offer, the Net Proceeds Offer Amount shall be reset at zero.
The Company will comply with the requirements of Rule 14e-1 under the
Exchange Act and any other securities laws and regulations thereunder to the
extent such laws and regulations are applicable in connection with the
repurchase of Notes pursuant to a Net Proceeds Offer. To the extent that the
provisions of any securities laws or regulations conflict with the "Asset
Sale" provisions of the Indenture, the Company shall comply with the
applicable securities laws and regulations and shall not be deemed to have
breached its obligations under the "Asset Sale" provisions of the Indenture by
virtue thereof.
Future Guarantees. The Company will not permit any of its Restricted
Subsidiaries, directly or indirectly, to incur, guarantee or secure through
the granting of Liens the payment of the Bank Indebtedness or any refunding or
refinancing thereof, in each case unless such Restricted Subsidiary, the
Company and the Trustee execute and deliver a supplemental indenture
evidencing such Restricted Subsidiary's Guarantee, such Guarantee to be a
senior subordinated unsecured obligation of such Restricted Subsidiary.
Neither the Company nor any such Subsidiary Guarantor shall be required to
make a notation on the Notes or the Guarantees to reflect any such subsequent
Guarantee. Nothing in this covenant shall be construed to permit any
Restricted Subsidiary of the Company to incur Indebtedness otherwise
prohibited by the "Limitation on Incurrence of Additional Indebtedness"
covenant. Thereafter, such Restricted Subsidiary shall be a Subsidiary
Guarantor for all purposes of the Indenture.
Conduct of Business. The Company and its Restricted Subsidiaries will not
engage in any businesses which are not the same, similar, related or ancillary
to the businesses in which the Company and its Restricted Subsidiaries are
engaged on the Issue Date.
EVENTS OF DEFAULT
The following events are defined in the Indenture as "Events of Default":
(i) the failure to pay interest on any Notes when the same becomes due and
payable and the default continues for a period of 30 days (whether or not such
payment shall be prohibited by the subordination provisions of the Indenture);
(ii) the failure to pay the principal on any Notes, when such principal
becomes due and payable, at maturity, upon redemption or otherwise (including
the failure to make a payment to purchase Notes tendered pursuant to a Change
of Control Offer or a Net Proceeds Offer) (whether or not such payment shall
be prohibited by the subordination provisions of the Indenture); (iii) a
default in the observance or performance of any other covenant or agreement
contained in the Indenture which default continues for a period of 30 days
after the Company receives written notice specifying the default (and
demanding that such default be remedied) from the Trustee or the Holders of at
least 25% of the outstanding principal amount of the Notes; (iv) the failure
to pay at final maturity (giving effect to any applicable grace periods and
any extensions thereof) the principal amount of any Indebtedness of the
Company or any Restricted Subsidiary (other than a Receivables Entity) of the
Company, or the acceleration of the final stated maturity of any such
Indebtedness if the aggregate principal amount of such Indebtedness, together
with the principal amount of any other such Indebtedness in default for
failure to pay principal at final maturity or which has been accelerated,
aggregates $10 million or more at any time; (v) one or more judgments in an
aggregate amount in excess of $10 million shall have been rendered against the
Company or any of its Restricted Subsidiaries and such judgments remain
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undischarged, unpaid or unstayed for a period of 60 days after such judgment
or judgments become final and non-appealable; (vi) certain events of
bankruptcy affecting the Company or any of its Significant Subsidiaries; and
(vii) any of the Guarantees of the Subsidiary Guarantors that are also
Significant Subsidiaries of the Company ceases to be in full force and effect
or any of such Guarantees is declared to be null and void and unenforceable or
any of such Guarantees is found to be invalid or any of such Subsidiary
Guarantors denies its liability under its Guarantee (other than by reason of
release of such Subsidiary Guarantor in accordance with the terms of the
Indenture).
Upon the happening of any Event of Default specified in the Indenture, the
Trustee or the Holders of at least 25% in principal amount of outstanding
Notes may declare the principal of and accrued interest on all the Notes to be
due and payable by notice in writing to the Company and the Trustee specifying
the respective Event of Default and that it is a "notice of acceleration", and
the same shall become immediately due and payable. If an Event of Default with
respect to bankruptcy proceedings of the Company occurs and is continuing,
then such amount shall ipso facto become and be immediately due and payable
without any declaration or other act on the part of the Trustee or any holder
of Notes.
The Indenture will provide that, at any time after a declaration of
acceleration with respect to the Notes as described in the preceding
paragraph, the Holders of a majority in principal amount of the Notes may
rescind and cancel such declaration and its consequences (i) if the rescission
would not conflict with any judgment or decree, (ii) if all existing Events of
Default have been cured or waived except nonpayment of principal or interest
that has become due solely because of the acceleration, (iii) to the extent
the payment of such interest is lawful, interest on overdue installments of
interest and overdue principal, which has become due otherwise than by such
declaration of acceleration, has been paid, (iv) if the Company has paid the
Trustee its reasonable compensation and reimbursed the Trustee for its
expenses, disbursements and advances and (v) in the event of the cure or
waiver of an Event of Default of the type described in clause (vi) or (vii) of
the description above of Events of Default, the Trustee shall have received an
officers' certificate and an opinion of counsel that such Event of Default has
been cured or waived. The holders of a majority in principal amount of the
Notes may waive any existing Default or Event of Default under the Indenture,
and its consequences, except a default in the payment of the principal of or
interest on any Notes.
LEGAL DEFEASANCE AND COVENANT DEFEASANCE
The Company may, at its option and at any time, elect to have its
obligations and the obligations of the Subsidiary Guarantors discharged with
respect to the outstanding Notes ("Legal Defeasance"). Such Legal Defeasance
means that the Company shall be deemed to have paid and discharged the entire
indebtedness represented by the outstanding Notes, except for (i) the rights
of holders of the Notes to receive payments in respect of the principal of,
premium, if any, and interest on the Notes when such payments are due, (ii)
the Company's obligations with respect to the Notes concerning issuing
temporary Notes, registration of Notes, mutilated, destroyed, lost or stolen
Notes and the maintenance of an office or agency for payments, (iii) the
rights, powers, trust, duties and immunities of the Trustee and the Company's
obligations in connection therewith and (iv) the Legal Defeasance provisions
of the Indenture. In addition, the Company may, at its option and at any time,
elect to have the obligations of the Company released with respect to certain
covenants that are described in the Indenture ("Covenant Defeasance") and
thereafter any omission to comply with such obligations shall not constitute a
Default or Event of Default with respect to the Notes. In the event Covenant
Defeasance occurs, certain events (not including non-payment, bankruptcy,
receivership, reorganization and insolvency events) described under "Events of
Default" will no longer constitute an Event of Default with respect to the
Notes.
In order to exercise either Legal Defeasance or Covenant Defeasance, (i) the
Company must irrevocably deposit with the Trustee, in trust, for the benefit
of the holders of the Notes cash in U.S. dollars, non-callable U.S. government
obligations, or a combination thereof, in such amounts as will
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be sufficient, in the opinion of a nationally recognized firm of independent
public accountants, to pay the principal of, premium, if any, and interest on
the Notes on the stated date for payment thereof or on the applicable
redemption date, as the case may be; (ii) in the case of Legal Defeasance, the
Company shall have delivered to the Trustee an opinion of counsel in the
United States reasonably acceptable to the Trustee confirming that (A) the
Company has received from, or there has been published by, the Internal
Revenue Service a ruling or (B) since the date of the Indenture, there has
been a change in the applicable federal income tax law, in either case to the
effect that, and based thereon such opinion of counsel shall confirm that, the
holders of the Notes will not recognize income, gain or loss for federal
income tax purposes as a result of such Legal Defeasance and will be subject
to federal income tax on the same amounts, in the same manner and at the same
times as would have been the case if such Legal Defeasance had not occurred;
(iii) in the case of Covenant Defeasance, the Company shall have delivered to
the Trustee an opinion of counsel in the United States reasonably acceptable
to the Trustee confirming that the holders of the Notes will not recognize
income, gain or loss for federal income tax purposes as a result of such
Covenant Defeasance and will be subject to federal income tax on the same
amounts, in the same manner and at the same times as would have been the case
if such Covenant Defeasance had not occurred; (iv) no Default or Event of
Default shall have occurred and be continuing on the date of such deposit
(other than a Default or Event of Default with respect to the Indenture
resulting from the incurrence of Indebtedness, all or a portion of which will
be used to defease the Notes concurrently with such incurrence); (v) such
Legal Defeasance or Covenant Defeasance shall not result in a breach or
violation of, or constitute a default under the Indenture or any other
material agreement or instrument to which the Company or any of its
Subsidiaries is a party or by which the Company or any of its Subsidiaries is
bound; (vi) the Company shall have delivered to the Trustee an officers'
certificate stating that the deposit was not made by the Company with the
intent of preferring the holders of the Notes over any other creditors of the
Company or with the intent of defeating, hindering, delaying or defrauding any
other creditors of the Company or others; (vii) the Company shall have
delivered to the Trustee an officers' certificate and an opinion of counsel,
each stating that all conditions precedent provided for or relating to the
Legal Defeasance or the Covenant Defeasance have been complied with; (viii)
the Company shall have delivered to the Trustee an opinion of counsel to the
effect that (A) the trust funds will not be subject to any rights of holders
of Indebtedness of the Company other than the Notes and (B) assuming no
intervening bankruptcy of the Company between the date of deposit and the 91st
day following the deposit and that no Holder of the Notes is an insider of the
Company, after the 91st day following the deposit, the trust funds will not be
subject to the effect of any applicable bankruptcy, insolvency, reorganization
or similar laws affecting creditors' rights generally; and (ix) certain other
customary conditions precedent are satisfied.
SATISFACTION AND DISCHARGE
The Indenture will be discharged and will cease to be of further effect
(except as to surviving rights or registration of transfer or exchange of the
Notes, as expressly provided for in the Indenture) as to all outstanding Notes
when (i) either (a) all the Notes theretofore authenticated and delivered
(except lost, stolen or destroyed Notes which have been replaced or paid and
Notes for whose payment money has theretofore been deposited in trust or
segregated and held in trust by the Company and thereafter repaid to the
Company or discharged from such trust) have been delivered to the Trustee for
cancellation or (b) all Notes not theretofore delivered to the Trustee for
cancellation have become due and payable and the Company has irrevocably
deposited or caused to be deposited with the Trustee funds in an amount
sufficient to pay and discharge the entire Indebtedness on the Notes not
theretofore delivered to the Trustee for cancellation, for principal of,
premium, if any, and interest on the Notes to the date of deposit together
with irrevocable instructions from the Company directing the Trustee to apply
such funds to the payment thereof at maturity or redemption, as the case may
be; (ii) the Company has paid all other sums payable under the Indenture by
the Company; and (iii) the Company has delivered to the Trustee an officers'
certificate and an opinion of counsel stating that all conditions precedent
under the Indenture relating to the satisfaction and discharge of the
Indenture have been complied with.
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MODIFICATION OF THE INDENTURE
From time to time, the Company, the Subsidiary Guarantors and the Trustee,
without the consent of the Holders of the Notes, may amend the Indenture for
certain specified purposes, including curing ambiguities, defects or
inconsistencies, so long as such change does not, in the opinion of the
Trustee, adversely affect the rights of any of the Holders in any material
respect. In formulating its opinion on such matters, the Trustee will be
entitled to rely on such evidence as it deems appropriate, including, without
limitation, solely on an opinion of counsel. Other modifications and
amendments of the Indenture may be made with the consent of the Holders of a
majority in principal amount of the then outstanding Notes issued under the
Indenture, except that, without the consent of each holder of the Notes
affected thereby, no amendment may: (i) reduce the amount of Notes whose
holders must consent to an amendment; (ii) reduce the rate of or change or
have the effect of changing the time for payment of interest, including
defaulted interest, on any Notes; (iii) reduce the principal of or change or
have the effect of changing the fixed maturity of any Notes, or change the
date on which any Notes may be subject to redemption or repurchase, or reduce
the redemption or repurchase price therefor; (iv) make any Notes payable in
money other than that stated in the Notes; (v) make any change in provisions
of the Indenture protecting the right of each holder of a Note to receive
payment of principal of and interest on such Note on or after the due date
thereof or to bring suit to enforce such payment, or permitting holders of a
majority in principal amount of the Notes to waive Defaults or Events of
Default (other than Defaults or Events of Default with respect to the payment
of principal of or interest on the Notes); (vi) amend, change or modify in any
material respect the obligation of the Company to make and consummate a Change
of Control Offer in the event of a Change of Control Triggering Event or make
and consummate a Net Proceeds Offer with respect to any Asset Sale that has
been consummated or modify any of the provisions or definitions with respect
thereto; (vii) modify the subordination provisions (including the related
definitions) of the Indenture to adversely affect the holders of Notes in any
material respect; or (viii) release any Subsidiary Guarantor that is a
Significant Subsidiary of the Company from any of its obligations under its
Guarantee or the Indenture otherwise than in accordance with the terms of the
Indenture.
ADDITIONAL INFORMATION
The Indenture provides that the Company will deliver to the Trustee within
15 days after the filing of the same with the Commission, copies of the
quarterly and annual reports and of the information, documents and other
reports, if any, which the Company is required to file with the Commission
pursuant to Section 13 or 15(d) of the Exchange Act. The Indenture further
provides that, notwithstanding that the Company may not be subject to the
reporting requirements of Section 13 or 15(d) of the Exchange Act, the Company
will file with the Commission, to the extent permitted, and provide the
Trustee and Holders with such annual reports and such information, documents
and other reports specified in Sections 13 and 15(d) of the Exchange Act. The
Company and the Subsidiary Guarantors will also comply with the other
provisions of TIA (S) 314(a).
CERTAIN DEFINITIONS
Set forth below is a summary of certain of the defined terms used in the
Indenture. Reference is made to the Indenture for the definition of other
terms used herein for which no definition is provided.
"Acquired Indebtedness" means Indebtedness (i) of a Person or any of its
Subsidiaries existing at the time such Person becomes a Restricted Subsidiary
of the Company or (ii) assumed in connection with the acquisition of assets
from such Person, in each case whether or not incurred by such Person in
connection with, or in anticipation or contemplation of, such Person becoming
a Restricted Subsidiary of the Company or such acquisition. Acquired
Indebtedness shall be deemed to have been incurred, with respect to clause (i)
of the preceding sentence, on the date such Person becomes a Restricted
Subsidiary of the Company and, with respect to clause (ii) of the preceding
sentence, on the date of consummation of such acquisition of assets.
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"Affiliate" means a Person who directly or indirectly through one or more
intermediaries controls, or is controlled by, or is under common control with,
the Company. The term "control" means the possession, directly or indirectly,
of the power to direct or cause the direction of the management and policies
of a Person, whether through the ownership of voting securities, by contract
or otherwise. Notwithstanding the foregoing, no Person (other than the Company
or any Subsidiary of the Company) in whom a Receivables Entity makes an
Investment in connection with a Qualified Receivables Transaction shall be
deemed to be an Affiliate of the Company or any of its Subsidiaries solely by
reason of such Investment.
"all or substantially all" shall have the meaning given such phrase in the
Revised Model Business Corporation Act.
"Asset Acquisition" means (a) an Investment by the Company or any Restricted
Subsidiary of the Company in any other Person pursuant to which such Person
shall become a Restricted Subsidiary of the Company or any Restricted
Subsidiary of the Company, or shall be merged with or into the Company or any
Restricted Subsidiary of the Company, or (b) the acquisition by the Company or
any Restricted Subsidiary of the Company of the assets of any Person which
constitute all or substantially all of the assets of such Person, any division
or line of business of such Person or any other properties or assets of such
Person other than in the ordinary course of business.
"Asset Sale" means any direct or indirect sale, issuance, conveyance,
transfer, lease (other than operating leases entered into in the ordinary
course of business), assignment or other transfer for value by the Company or
any of its Restricted Subsidiaries (including any Sale and Leaseback
Transaction) to any Person other than the Company or a Wholly Owned Restricted
Subsidiary of the Company of (a) any Capital Stock of any Restricted
Subsidiary of the Company; or (b) any other property or assets of the Company
or any Restricted Subsidiary of the Company other than in the ordinary course
of business; provided, however, that Asset Sales shall not include (i) a
transaction or series of related transactions for which the Company or its
Restricted Subsidiaries receive aggregate consideration of less than $1
million, (ii) the sale, lease, conveyance, disposition or other transfer of
all or substantially all of the assets of the Company as permitted under
"Merger, Consolidation and Sale of Assets," (iii) the sale or discount, in
each case without recourse, of accounts receivable arising in the ordinary
course of business, but only in connection with the compromise or collection
thereof, (iv) the factoring of accounts receivable arising in the ordinary
course of business pursuant to arrangements customary in the industry, (v) the
licensing of intellectual property, (vi) disposals or replacements of obsolete
equipment in the ordinary course of business, (vii) the sale, lease,
conveyance, disposition or other transfer by the Company or any Restricted
Subsidiary of assets or property to one or more Wholly Owned Restricted
Subsidiaries in connection with Investments permitted under the "Limitations
on Restricted Payments" covenant, (viii) sales of accounts receivable and
related assets of the type specified in the definition of "Qualified
Receivables Transaction" to a Receivables Entity for the fair market value
thereof, including cash in an amount at least equal to 75% of the book value
thereof as determined in accordance with GAAP, and (ix) transfers of accounts
receivable and related assets of the type specified in the definition of
"Qualified Receivables Transaction" (or a fractional undivided interest
therein) by a Receivables Entity in a Qualified Receivables Transaction. For
the purposes of clause (viii), Purchase Money Notes shall be deemed to be
cash.
"Bain Related Party" means Bain Capital, Inc. and any Affiliate of Bain
Capital, Inc.
"Bank Credit Agreement" means the Credit Agreement to be dated as of the
Issue Date, among Holdings, the Company, the other borrowers thereto from time
to time, if any, the lenders party thereto from time to time and Chemical Bank
and Bankers Trust Company, as agents, together with the related documents
thereto (including, without limitation, any guarantee agreements, promissory
notes and collateral documents), in each case as such agreements may be
amended, supplemented or otherwise
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modified from time to time, or refunded, refinanced, restructured, replaced,
renewed, repaid or extended from time to time (whether with the original
agents and lenders or other agents and lenders or otherwise, and whether
provided under the original Bank Credit Agreement or other credit agreements
or otherwise).
"Bank Indebtedness" means any and all amounts, whether outstanding on the
Issue Date or thereafter incurred, payable under or in respect of the Bank
Credit Agreement and any related notes, collateral documents, letters of
credit and guarantees, including principal, premium (if any), interest
(including interest accruing on or after the filing of any petition in
bankruptcy or for reorganization relating to Holdings, the Company or any
Restricted Subsidiary of the Company whether or not a claim for post-filing
interest is allowed in such proceedings), fees, charges, expenses,
reimbursement obligations, guarantees and all other amounts payable thereunder
or in respect thereof.
"Board of Directors" means, as to any Person, the board of directors of such
Person or any duly authorized committee thereof.
"Capitalized Lease Obligation" means, as to any Person, the obligations of
such Person under a lease that are required to be classified and accounted for
as capital lease obligations under GAAP and, for purposes of this definition,
the amount of such obligations at any date shall be the capitalized amount of
such obligations at such date, determined in accordance with GAAP.
"Capital Stock" means (i) with respect to any Person that is a corporation,
any and all shares, interests, participations or other equivalents (however
designated) of corporate stock, including each class of common stock and
preferred stock of such Person and (ii) with respect to any Person that is not
a corporation, any and all partnership or other equity interests of such
Person.
"Cash Equivalents" means (i) marketable direct obligations issued by, or
unconditionally guaranteed by, the United States Government or issued by any
agency thereof and backed by the full faith and credit of the United States,
in each case maturing within one year from the date of acquisition thereof;
(ii) marketable direct obligations issued by any state of the United States of
America or any political subdivision of any such state or any public
instrumentality thereof maturing within one year from the date of acquisition
thereof and, at the time of acquisition, having one of the two highest ratings
obtainable from either S&P or Moody's; (iii) commercial paper maturing no more
than one year from the date of creation thereof and, at the time of
acquisition, having a rating of at least A-1 from S&P or at least P-1 from
Moody's; (iv) certificates of deposit or bankers' acceptances (or, with
respect to foreign banks, similar instruments) maturing within one year from
the date of acquisition thereof issued by any bank organized under the laws of
the United States of America or any state thereof or the District of Columbia
or any U.S. branch of a foreign bank having at the date of acquisition thereof
combined capital and surplus of not less than $200 million; (v) repurchase
obligations with a term of not more than seven days for underlying securities
of the types described in clause (i) above entered into with any bank meeting
the qualifications specified in clause (iv) above; and (vi) investments in
money market funds which invest substantially all their assets in securities
of the types described in clauses (i) through (v) above.
"Change of Control" means the occurrence of one or more of the following
events: (i) any sale, lease, exchange or other transfer (in one transaction or
a series of related transactions) of all or substantially all of the assets of
the Company to any Person or group of related Persons (other than one or both
of the Principals or their respective Related Parties) for purposes of Section
13(d) of the Exchange Act (a "Group"), together with any Affiliates thereof
(whether or not otherwise in compliance with the provisions of the Indenture);
(ii) the approval by the holders of Capital Stock of the Company of any plan
or proposal for the liquidation or dissolution of the Company (whether or not
otherwise in compliance with the provisions of the Indenture); (iii) any
Person or Group (other than one or both of the Principals or their respective
Related Parties) shall become the owner, directly or indirectly, beneficially
or of record, of shares representing more than 50% of the aggregate ordinary
voting power
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represented by the issued and outstanding Capital Stock of the Company or
Holdings; or (iv) the first day on which a majority of the members of the
Board of Directors of the Company or Holdings are not Continuing Directors.
"Change of Control Triggering Event" means the occurrence of a Change of
Control and the failure of the Notes to have a Minimum Rating on the 30th day
after the occurrence of such Change of Control.
"Consolidated EBITDA" means, with respect to any Person, for any period, the
sum (without duplication) of (i) Consolidated Net Income and (ii) to the
extent Consolidated Net Income has been reduced thereby, (A) all income taxes
of such Person and its Restricted Subsidiaries paid or accrued in accordance
with GAAP for such period, (B) Consolidated Interest Expense and (C)
Consolidated Non-cash Charges.
"Consolidated Fixed Charge Coverage Ratio" means, with respect to any
Person, the ratio of Consolidated EBITDA of such Person during the four full
fiscal quarters (the "Four Quarter Period") ending on or prior to the date of
the transaction giving rise to the need to calculate the Consolidated Fixed
Charge Coverage Ratio (the "Transaction Date") to Consolidated Fixed Charges
of such Person for the Four Quarter Period. In addition to and without
limitation of the foregoing, for purposes of this definition, "Consolidated
EBITDA" and "Consolidated Fixed Charges" shall be calculated after giving
effect on a pro forma basis for the period of such calculation to (i) the
incurrence of any Indebtedness of such Person or any of its Restricted
Subsidiaries (and the application of the proceeds thereof) giving rise to the
need to make such calculation and any incurrence or repayment of other
Indebtedness (and the application of the proceeds thereof) occurring during
the Four Quarter Period or at any time subsequent to the last day of the Four
Quarter Period and on or prior to the Transaction Date, as if such incurrence
or repayment, as the case may be (and the application of the proceeds
thereof), occurred on the first day of the Four Quarter Period, (ii) any Asset
Sales or Asset Acquisitions (including, without limitation, any Asset
Acquisition giving rise to the need to make such calculation as a result of
such Person or one of its Restricted Subsidiaries (including any Person who
becomes a Restricted Subsidiary as a result of the Asset Acquisition)
incurring, assuming or otherwise being liable for Acquired Indebtedness and
also including any Consolidated EBITDA (including any pro forma expense and
cost reductions that are (i) directly attributable to such transaction and
(ii) factually supportable) attributable to the assets which are the subject
of the Asset Acquisition or Asset Sale during the Four Quarter Period)
occurring during the Four Quarter Period or at any time subsequent to the last
day of the Four Quarter Period and on or prior to the Transaction Date, as if
such Asset Sale or Asset Acquisition (including the incurrence, assumption or
liability for any such Indebtedness or Acquired Indebtedness) occurred on the
first day of the Four Quarter Period, (iii) with respect to any such Four
Quarter Period commencing prior to the Recapitalization, the Recapitalization
(including any pro forma expense and cost reductions related thereto that are
(i) directly attributable to such transaction and (ii) factually supportable)
shall be deemed to have taken place on the first day of such Four Quarter
Period and (iv) any asset sales or asset acquisitions (including any
Consolidated EBITDA (including any pro forma expense and cost reductions that
are (i) directly attributable to such transaction and (ii) factually
supportable) attributable to the assets which are the subject of the asset
acquisition or asset sale during the Four Quarter Period) that have been made
by any Person that has become a Restricted Subsidiary of the Company or has
been merged with or into the Company or any Restricted Subsidiary of the
Company during the Four Quarter Period or at any time subsequent to the last
day of the Four Quarter Period and on or prior to the Transaction Date that
would have constituted Asset Sales or Asset Acquisitions had such transactions
occurred when such Person was a Restricted Subsidiary of the Company or
subsequent to such Person's merger into the Company, as if such asset sale or
asset acquisition (including the incurrence, assumption or liability for any
Indebtedness or Acquired Indebtedness in connection therewith) occurred on the
first day of the Four Quarter Period; provided that to the extent that clause
(ii) or (iv) of this sentence requires that pro forma effect be given to an
asset sale or asset acquisition, such pro forma calculation shall be based
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upon the four full fiscal quarters immediately preceding the Transaction Date
of the Person, or division or line of business of the Person, that is acquired
or disposed for which financial information is available. If such Person or
any of its Restricted Subsidiaries directly or indirectly guarantees
Indebtedness of a third Person, the preceding sentence shall give effect to
the incurrence of such guaranteed Indebtedness as if such Person or any
Restricted Subsidiary of such Person had directly incurred or otherwise
assumed such guaranteed Indebtedness. Furthermore, in calculating
"Consolidated Fixed Charges" for purposes of determining the denominator (but
not the numerator) of this "Consolidated Fixed Charge Coverage Ratio," (1)
interest on outstanding Indebtedness determined on a fluctuating basis as of
the Transaction Date and which will continue to be so determined thereafter
shall be deemed to have accrued at a fixed rate per annum equal to the rate of
interest on such Indebtedness in effect on the Transaction Date; (2) if
interest on any Indebtedness actually incurred on the Transaction Date may
optionally be determined at an interest rate based upon a factor of a prime or
similar rate, a eurocurrency interbank offered rate, or other rates, then the
interest rate in effect on the Transaction Date will be deemed to have been in
effect during the Four Quarter Period; and (3) notwithstanding clause (1)
above, interest on Indebtedness determined on a fluctuating basis, to the
extent such interest is covered by agreements relating to Interest Swap
Obligations, shall be deemed to accrue at the rate per annum resulting after
giving effect to the operation of such agreements.
"Consolidated Fixed Charges" means, with respect to any Person for any
period, the sum, without duplication, of (i) Consolidated Interest Expense
(before amortization or write-off of debt issuance costs in connection with
the Transactions) plus (ii) the product of (x) the amount of all dividend
payments on any series of Preferred Stock of such Person (other than dividends
paid in Qualified Capital Stock) times (y) a fraction, the numerator of which
is one and the denominator of which is one minus the then current effective
consolidated Federal, state and local tax rate of such Person expressed as a
decimal.
"Consolidated Interest Expense" means, with respect to any Person for any
period, the sum of, without duplication, (i) the aggregate of all cash and
non-cash interest expense with respect to all outstanding Indebtedness of such
Person and its Restricted Subsidiaries, including the net costs associated
with Interest Swap Obligations, for such period determined on a consolidated
basis in conformity with GAAP, and (ii) the interest component of Capitalized
Lease Obligations paid, accrued and/or scheduled to be paid or accrued by such
Person and its Restricted Subsidiaries during such period as determined on a
consolidated basis in accordance with GAAP.
"Consolidated Net Income" of the Company means, for any period, the
aggregate net income (or loss) of the Company and its Restricted Subsidiaries
for such period on a consolidated basis, determined in accordance with GAAP;
provided that there shall be excluded therefrom (a) gains and losses from
Asset Sales (without regard to the $1 million limitation set forth in the
definition thereof) or abandonments or reserves relating thereto and the
related tax effects according to GAAP, (b) gains and losses due solely to
fluctuations in currency values and the related tax effects according to GAAP,
(c) items classified as extraordinary, unusual or nonrecurring gains and
losses, and the related tax effects according to GAAP, (d) the net income (or
loss) of any Person acquired in a pooling of interests transaction accrued
prior to the date it becomes a Restricted Subsidiary of the Company or is
merged or consolidated with the Company or any Restricted Subsidiary of the
Company, (e) the net income of any Restricted Subsidiary of the Company to the
extent that the declaration of dividends or similar distributions by that
Restricted Subsidiary of that income is restricted by contract, operation of
law or otherwise, (f) only for purposes of clause (iii) (w) of the first
paragraph of the "Limitation on Restricted Payments" covenant, any amounts
included pursuant to clause (iii) (z) of the first paragraph of such covenant,
(g) the net loss of any Person other than a Restricted Subsidiary of the
Company, (h) the net income of any Person, other than a Restricted Subsidiary,
except to the extent of cash dividends or distributions paid to the Company or
a Restricted Subsidiary of the Company by such Person unless, in the case of a
Restricted Subsidiary of the Company who receives such dividends or
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distributions, such Restricted Subsidiary is subject to clause (e) above and
(i) one time non-cash compensation charges, including any arising from
existing stock options resulting from any merger or recapitalization
transaction.
"Consolidated Non-cash Charges" means, with respect to any Person for any
period, the aggregate depreciation, amortization and other non-cash expenses
of such Person and its Restricted Subsidiaries reducing Consolidated Net
Income of such Person and its Restricted Subsidiaries for such period,
determined on a consolidated basis in accordance with GAAP (excluding any such
charges which require an accrual of or a reserve for cash charges for any
future period).
"Continuing Directors" means, as of any date of determination, any member of
the Board of Directors of the Company or Holdings, as the case may be, who (i)
was a member of such Board of Directors on the Issue Date, (ii) was nominated
for election or elected to such Board of Directors with, or whose election to
such Board of Directors was approved by, the affirmative vote of a majority of
the Continuing Directors who were members of such Board of Directors at the
time of such nomination or election or (iii) is any designee of the Principals
or their Affiliates or was nominated by the Principals or their Affiliates or
any designees of the Principals or their Affiliates on the Board of Directors.
"Currency Agreement" means any foreign exchange contract, currency swap
agreement or other similar agreement or arrangement designed to protect the
Company or any Restricted Subsidiary of the Company against fluctuations in
currency values.
"Default" means an event or condition the occurrence of which is, or with
the lapse of time or the giving of notice or both would be, an Event of
Default.
"Designated Senior Indebtedness" means (i) the Bank Indebtedness and (ii)
any other Senior Indebtedness which, at the date of determination, has an
aggregate principal amount outstanding of, or under which, at the date of
determination, the holders thereof, are committed to lend up to, at least $25
million and is specifically designated by the Company in the instrument
evidencing or governing such Senior Indebtedness or another writing as
"Designated Senior Indebtedness" for purposes of the Indenture.
"Disqualified Capital Stock" means that portion of any Capital Stock which,
by its terms (or by the terms of any security into which it is convertible or
for which it is exchangeable), or upon the happening of any event (other than
an event which would constitute a Change of Control Triggering Event), matures
(excluding any maturity as the result of an optional redemption by the issuer
thereof) or is mandatorily redeemable, pursuant to a sinking fund obligation
or otherwise, or is redeemable at the sole option of the holder thereof
(except, in each case, upon the occurrence of a Change of Control Triggering
Event) on or prior to the final maturity date of the Notes.
"fair market value" means, unless otherwise specified, with respect to any
asset or property, the price which could be negotiated in an arm's-length,
free market transaction, for cash, between a willing seller and a willing and
able buyer, neither of whom is under undue pressure or compulsion to complete
the transaction. Fair market value shall be determined by the Board of
Directors of the Company acting reasonably and in good faith and shall be
evidenced by a resolution of the Board of Directors of the Company delivered
to the Trustee.
"GAAP" means generally accepted accounting principles in the United States
of America as in effect on the Issue Date, including, without limitation,
those set forth in the opinions and pronouncements of the Accounting
Principles Board of the American Institute of Certified Public Accountants and
statements and pronouncements of the Financial Accounting Standards Board or
in such other statements by such other entity as approved by a significant
segment of the accounting profession.
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"Guarantor Senior Indebtedness" means, with respect to any Subsidiary
Guarantor, (i) any Indebtedness of such Subsidiary Guarantor under the Bank
Credit Agreement or in respect of Bank Indebtedness and (ii) all Indebtedness
of such Subsidiary Guarantor, including in the case of both (i) and (ii)
interest thereon (including interest accruing on or after the filing of any
petition in bankruptcy or for reorganization relating to such Subsidiary
Guarantor whether or not a claim for post-filing interest is allowed in such
proceedings), whether outstanding on the Issue Date or thereafter incurred,
unless in the instrument creating or evidencing the same or pursuant to which
the same is outstanding it is expressly provided that such obligations are not
superior in right of payment to the Guarantee of such Subsidiary Guarantor;
provided, however, that Guarantor Senior Indebtedness shall not include (1)
any obligation of such Subsidiary Guarantor to a Subsidiary of such Subsidiary
Guarantor or to any Subsidiary of the Company, (2) any liability for Federal,
state, local or other taxes owed or owing by such Subsidiary Guarantor, (3)
any accounts payable or other liability to trade creditors arising in the
ordinary course of business (including guarantees thereof or instruments
evidencing such liabilities), (4) any Indebtedness of such Subsidiary
Guarantor which is expressly subordinate in right of payment to any other
Indebtedness of such Subsidiary Guarantor, (5) any obligations with respect to
any Capital Stock or (6) that portion of any indebtedness incurred in
violation of the "Limitation on Incurrence of Additional Indebtedness"
covenant (but, as to any such obligation, no such violation shall be deemed to
exist for purposes of this clause (6) if the holder(s) of such obligation or
their representative and the Trustee shall have received an Officers'
Certificate of such Subsidiary Guarantor to the effect that the incurrence of
such Indebtedness does not (or, in the case of revolving credit Indebtedness,
that the incurrence of the entire committed amount thereof at the date on
which the initial borrowing thereunder is made would not) violate such
provisions of the Indenture).
"Indebtedness" means with respect to any Person, without duplication, (i)
all obligations of such Person for borrowed money, (ii) all obligations of
such Person evidenced by bonds, debentures, notes or other similar
instruments, (iii) all Capitalized Lease Obligations of such Person, (iv) all
obligations of such Person issued or assumed as the deferred purchase price of
property, all conditional sale obligations and all obligations under any title
retention agreement (but excluding trade accounts payable arising in the
ordinary course of business), (v) all obligations for the reimbursement of any
obligor on any letter of credit, banker's acceptance or similar credit
transaction, (vi) guarantees and other contingent obligations in respect of
Indebtedness referred to in clauses (i) through (v) above and clause (viii)
below, (vii) all obligations of any other Person of the type referred to in
clauses (i) through (vi) which are secured by any lien on any property or
asset of such Person but which obligations are not assumed by such Person, the
amount of such obligation being deemed to be the lesser of the fair market
value of such property or asset or the amount of the obligation so secured,
(viii) all obligations under currency swap agreements and interest swap
agreements of such Person and (ix) all Disqualified Capital Stock issued by
such Person with the amount of Indebtedness represented by such Disqualified
Capital Stock being equal to the greater of its voluntary or involuntary
liquidation preference and its maximum fixed repurchase price, but excluding
accrued dividends, if any. For purposes hereof, (x) the "maximum fixed
repurchase price" of any Disqualified Capital Stock which does not have a
fixed repurchase price shall be calculated in accordance with the terms of
such Disqualified Capital Stock as if such Disqualified Capital Stock were
purchased on any date on which Indebtedness shall be required to be determined
pursuant to the Indenture, and if such price is based upon, or measured by,
the fair market value of such Disqualified Capital Stock, such fair market
value shall be determined reasonably and in good faith by the Board of
Directors of the issuer of such Disqualified Capital Stock and (y) any
transfer of accounts receivable or other assets which constitute a sale for
purposes of GAAP shall not constitute Indebtedness hereunder.
"Interest Swap Obligations" means the obligations of any Person, pursuant to
any arrangement with any other Person, whereby, directly or indirectly, such
Person is entitled to receive from time to time periodic payments calculated
by applying either a floating or a fixed rate of interest on a stated notional
amount in exchange for periodic payments made by such other Person calculated
by applying a fixed or a floating rate of interest on the same notional
amount.
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"Investment" means, with respect to any Person, any direct or indirect loan
or other extension of credit (including, without limitation, a guarantee) or
capital contribution to (by means of any transfer of cash or other property to
others or any payment for property or services for the account or use of
others), or any purchase or acquisition by such Person of any Capital Stock,
bonds, notes, debentures or other securities or evidences of Indebtedness
issued by, any Person. "Investment" shall exclude extensions of trade credit
by the Company and its Restricted Subsidiaries on commercially reasonable
terms in accordance with normal trade practices of the Company or such
Restricted Subsidiary, as the case may be. For the purposes of the "Limitation
on Restricted Payments" covenant, (i) "Investment" shall include and be valued
at the fair market value of the net assets of any Restricted Subsidiary at the
time that such Restricted Subsidiary is designated an Unrestricted Subsidiary
and shall exclude the fair market value of the net assets of any Unrestricted
Subsidiary at the time that such Unrestricted Subsidiary is designated a
Restricted Subsidiary and (ii) the amount of any Investment shall be the
original cost of such Investment plus the cost of all additional Investments
by the Company or any of its Restricted Subsidiaries, without any adjustments
for increases or decreases in value, or write-ups,
write-downs or write-offs with respect to such Investment, reduced by the
payment of dividends or distributions (including tax sharing payments) in
connection with such Investment or any other amounts received in respect of
such Investment; provided that no such payment of dividends or distributions
or receipt of any such other amounts shall reduce the amount of any Investment
if such payment of dividends or distributions or receipt of any such amounts
would be included in Consolidated Net Income. If the Company or any Restricted
Subsidiary of the Company sells or otherwise disposes of any Common Stock of
any direct or indirect Restricted Subsidiary of the Company such that, after
giving effect to any such sale or disposition, the Company no longer owns,
directly or indirectly, 100% (or 80% in the case of clause (ix) of the
definition of "Permitted Investments") of the outstanding Common Stock of such
Restricted Subsidiary, the Company shall be deemed to have made an Investment
on the date of any such sale or disposition equal to the fair market value of
the Common Stock of such Restricted Subsidiary not sold or disposed of.
"Issue Date" means the date of original issuance of the Notes.
"Lien" means any lien, mortgage, deed of trust, pledge, security interest,
charge or encumbrance of any kind (including any conditional sale or other
title retention agreement, any lease in the nature thereof and any agreement
to give any security interest).
"Minimum Rating" means either (i) a rating of at least BBB- (or equivalent
successor rating) by S&P and (ii) a rating of at least Baa3 (or equivalent
successor rating) by Moody's.
"Moody's" means Moody's Investors Service, Inc. and its successors.
"Net Cash Proceeds" means, with respect to any Asset Sale, the proceeds in
the form of cash or Cash Equivalents including payments in respect of deferred
payment obligations when received in the form of cash or Cash Equivalents
(other than the portion of any such deferred payment constituting interest)
received by the Company or any of its Subsidiaries from such Asset Sale net of
(a) out-of-pocket expenses and fees relating to such Asset Sale (including,
without limitation, legal, accounting and investment banking fees and sales
commissions), (b) taxes paid or payable after taking into account any
reduction in consolidated tax liability due to available tax credits or
deductions and any tax sharing arrangements, (c) repayment of Senior
Indebtedness that is required to be repaid in connection with such Asset Sale,
(d) any portion of cash proceeds which the Company determines in good faith
should be reserved for post-closing adjustments, it being understood and
agreed that on the day that all such post-closing adjustments have been
determined, the amount (if any) by which the reserved amount in respect of
such Asset Sale exceeds the actual post-closing adjustments payable by the
Company or any of its Subsidiaries shall constitute Net Cash Proceeds on such
date; provided that, in the case of the sale by the Company of an asset
constituting an Investment (other than a
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Permitted Investment), the "Net Cash Proceeds" in respect of such Asset Sale
shall not include the lesser of (x) the cash received with respect to such
Asset Sale and (y) the initial amount of such Investment, less, in the case of
clause (y), all amounts (up to an amount not to exceed the initial amount of
such Investment) received by the Company with respect to such Investment,
whether by dividend, sale, liquidation or repayment, in each case prior to the
date of such Asset Sale.
"Permitted Indebtedness" means, without duplication, (i) the Notes and the
Guarantees, (ii) Indebtedness incurred pursuant to the Bank Credit Agreement
in an aggregate principal amount at any time outstanding not to exceed $625.0
million (A) less the aggregate amount of Indebtedness of a Receivables Entity
in a Qualified Receivables Transaction, (B) less the amount of all mandatory
principal payments actually made by the Company in respect of term loans
thereunder (excluding any such payments to the extent refinanced at the time
of payment under a replaced Bank Credit Agreement) and (C) in the case of a
revolving facility, reduced by any required permanent repayments (which are
accompanied by a corresponding permanent commitment reduction) thereunder,
(iii) other Indebtedness of the Company and its Restricted Subsidiaries
outstanding on the Issue Date reduced by the amount of any scheduled
amortization payments or mandatory prepayments when actually paid or permanent
reductions thereon, (iv) Interest Swap Obligations of the Company or any of
its Restricted Subsidiaries covering Indebtedness of the Company or any of its
Restricted Subsidiaries; provided that any Indebtedness to which any such
Interest Swap Obligations correspond is otherwise permitted to be incurred
under the Indenture; provided, further, that such Interest Swap Obligations
are entered into, in the judgment of the Company, to protect the Company and
its Restricted Subsidiaries from fluctuation in interest rates on their
respective outstanding Indebtedness, (v) Indebtedness under Currency
Agreements, (vi) intercompany Indebtedness owed by the Company to any Wholly
Owned Restricted Subsidiary of the Company or by any Restricted Subsidiary of
the Company to the Company or any Wholly Owned Restricted Subsidiary of the
Company, (vii) Acquired Indebtedness of the Company or any Restricted
Subsidiary of the Company to the extent the Company could have incurred such
Indebtedness in accordance with the "Limitation on Incurrence of Additional
Indebtedness" covenant on the date such Indebtedness became Acquired
Indebtedness; provided that, in the case of Acquired Indebtedness of a
Restricted Subsidiary of the Company, such Acquired Indebtedness was not
incurred in connection with, or in anticipation or contemplation of, such
Person becoming a Restricted Subsidiary of the Company, (viii) guarantees by
the Company and its Wholly Owned Restricted Subsidiaries of each other's
Indebtedness; provided that such Indebtedness is permitted to be incurred
under the Indenture, including, with respect to guarantees by Wholly Owned
Restricted Subsidiaries of the Company, the covenant entitled "Future
Guarantees," (ix) Indebtedness arising from the honoring by a bank or other
financial institution of a check, draft or other similar instrument
inadvertently drawn against insufficient funds in the ordinary course of
business; provided that such Indebtedness is extinguished within five business
days of its incurrence, (x) any refinancing, modification, replacement,
renewal, restatement, refunding, deferral, extension, substitution,
supplement, reissuance or resale of existing or future Indebtedness, including
any additional Indebtedness incurred to pay interest or premiums required by
the instruments governing such existing or future Indebtedness as in effect at
the time of issuance thereof ("Required Premiums") and fees in connection
therewith; provided that any such event shall not (1) result in an increase in
the aggregate principal amount of Permitted Indebtedness (except to the extent
such increase is a result of a simultaneous incurrence of additional
Indebtedness (A) to pay Required Premiums and related fees or (B) otherwise
permitted to be incurred under the Indenture) of the Company and its
Restricted Subsidiaries and (2) create Indebtedness with a Weighted Average
Life to Maturity at the time such Indebtedness is incurred that is less than
the Weighted Average Life to Maturity at such time of the Indebtedness being
refinanced, modified, replaced, renewed, restated, refunded, deferred,
extended, substituted, supplemented, reissued or resold (except that this
subclause (2) will not apply in the event the Indebtedness being refinanced,
modified, replaced, renewed, restated, refunded, deferred, extended,
substituted, supplemented, reissued or resold was originally incurred in
reliance upon clause (vi) or (xvi) of this definition); provided that no
Restricted Subsidiary of the Company that is not a
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Subsidiary Guarantor may refinance any Indebtedness pursuant to this clause
(x) other than its own Indebtedness, (xi) Indebtedness (including Capitalized
Lease Obligations) incurred by the Company or any of its Restricted
Subsidiaries to finance the purchase, lease or improvement of property (real
or personal) or equipment (whether through the direct purchase of assets or
the Capital Stock of any Person owning such assets) in an aggregate principal
amount outstanding not to exceed 5% of Total Assets at the time of any
incurrence thereof (which amount may, but need not, be incurred in whole or in
part under the Bank Credit Agreement), (xii) the incurrence by a Receivables
Entity of Indebtedness in a Qualified Receivables Transaction that is not
recourse to the Company or any Subsidiary of the Company (except for Standard
Securitization Undertakings), (xiii) Indebtedness incurred by the Company or
any of its Restricted Subsidiaries constituting reimbursement obligations with
respect to letters of credit issued in the ordinary course of business,
including, without limitation, letters of credit in respect of workers'
compensation claims or self-insurance, or other Indebtedness with respect to
reimbursement type obligations regarding workers' compensation claims, (xiv)
Indebtedness arising from agreements of the Company or a Restricted Subsidiary
of the Company providing for indemnification, adjustment of purchase price,
earn out or other similar obligations, in each case, incurred or assumed in
connection with the disposition of any business, assets or a Restricted
Subsidiary of the Company, other than guarantees of Indebtedness incurred by
any Person acquiring all or any portion of such business, assets or Restricted
Subsidiary for the purpose of financing such acquisition, provided that the
maximum assumable liability in respect of all such Indebtedness shall at no
time exceed the gross proceeds actually received by the Company and its
Restricted Subsidiaries in connection with such disposition, (xv) obligations
in respect of performance and surety bonds and completion guarantees provided
by the Company or any Restricted Subsidiary of the Company in the ordinary
course of business, and (xvi) additional Indebtedness of the Company and its
Restricted Subsidiaries in an aggregate principal amount not to exceed $[ ]
million at any one time outstanding (which amount may, but need not, be
incurred in whole or in part under the Bank Credit Agreement).
"Permitted Investments" means (i) Investments by the Company or any
Restricted Subsidiary of the Company in any Wholly Owned Restricted Subsidiary
of the Company (whether existing on the Issue Date or created thereafter) and
Investments in the Company by any Restricted Subsidiary of the Company;
provided that, in the case of an Investment by the Company or any Restricted
Subsidiary of the Company in any Wholly Owned Restricted Subsidiary of the
Company, such Wholly Owned Restricted Subsidiary is not restricted from making
dividends or similar distributions by contract, operation of law or otherwise;
(ii) cash and Cash Equivalents; (iii) Investments existing on the Issue Date;
(iv) loans and advances to employees and officers of the Company and its
Restricted Subsidiaries not in excess of $[ ] million at any one time
outstanding; (v) accounts receivable created or acquired in the ordinary
course of business; (vi) Currency Agreements and Interest Swap Obligations
entered into in the ordinary course of the Company's or its Restricted
Subsidiaries' businesses and otherwise in compliance with the Indenture; (vii)
Investments in securities of trade creditors or customers received pursuant to
any plan of reorganization or similar arrangement upon the bankruptcy or
insolvency of such trade creditors or customers; (viii) guarantees by the
Company or any of its Restricted Subsidiaries of Indebtedness otherwise
permitted to be incurred by the Company or any of its Restricted Subsidiaries
under the Indenture; (ix) Investments by the Company or any Restricted
Subsidiary of the Company in a Person, if as a result of such Investment (A)
such Person becomes at least a 80% owned Restricted Subsidiary of the Company
or (B) such Person is merged, consolidated or amalgamated with or into, or
transfers or conveys all or substantially all of its assets to, or is
liquidated into, the Company or a Wholly Owned Restricted Subsidiary of the
Company; (x) additional Investments having an aggregate fair market value,
taken together with all other Investments made pursuant to this clause (x)
that are at the time outstanding, not exceeding 5% of Total Assets at the time
of such Investment (with the fair market value of each Investment being
measured at the time made and without giving effect to subsequent changes in
value), plus an amount equal to (A) 100% of the aggregate net proceeds
received by the Company (including the fair market value of property other
than cash) from any Person (other than a Subsidiary of the Company) from the
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issuance and sale subsequent to the Issue Date of Qualified Capital Stock of
the Company (including Qualified Capital Stock issued upon the conversion of
convertible Indebtedness or in exchange for outstanding Indebtedness or as
capital contributions to the Company (other than from a Subsidiary)) and (B)
without duplication of any amounts included in clause (x)(A) above, 100% of
the aggregate net proceeds (including the fair market value of property other
than cash) of any equity contribution received by the Company from a holder of
the Company's Capital Stock, that in the case of amounts described in clause
(x)(A) or (x)(B) are applied by the Company within 180 days after receipt, to
make additional Permitted Investments under this clause (x) (such additional
Permitted Investments being referred to collectively as "Stock Permitted
Investments"); (xi) any Investment by the Company or a Wholly Owned Subsidiary
of the Company in a Receivables Entity or any Investment by a Receivables
Entity in any other Person in connection with a Qualified Receivables
Transaction; provided that any Investment in a Receivables Entity is in the
form of a Purchase Money Note or an equity interest; (xii) Investments in
Unrestricted Subsidiaries in an amount at any one time outstanding not to
exceed $[ ] million; and (xiii) Investments received by the Company or its
Restricted Subsidiaries as consideration for asset sales, including Asset
Sales; provided in the case of an Asset Sale, such Asset Sale is effected in
compliance with the "Limitation on Asset Sales" covenant. Any net cash
proceeds that are used by the Company or any of its Restricted Subsidiaries to
make Stock Permitted Investments pursuant to clause (x) of this definition
shall not be included in subclause (y) of clause (iii) of the first paragraph
of the covenant described under the caption "Certain Covenants--Limitation on
Restricted Payments."
"Permitted Liens" means the following types of Liens:
(i) Liens for taxes, assessments or governmental charges or claims either
(a) not delinquent or (b) contested in good faith by appropriate
proceedings and as to which the Company or its Restricted Subsidiaries
shall have set aside on its books such reserves as may be required pursuant
to GAAP;
(ii) statutory Liens of landlords and Liens of carriers, warehousemen,
mechanics, suppliers, materialmen, repairmen and other Liens imposed by law
incurred in the ordinary course of business for sums not yet delinquent or
being contested in good faith, if such reserve or other appropriate
provision, if any, as shall be required by GAAP shall have been made in
respect thereof;
(iii) Liens incurred or deposits made in the ordinary course of business
in connection with workers' compensation, unemployment insurance and other
types of social security, including any Lien securing letters of credit
issued in the ordinary course of business consistent with past practice in
connection therewith, or to secure the performance of tenders, statutory
obligations, surety and appeal bonds, bids, leases, government contracts,
performance and return-of-money bonds and other similar obligations
(exclusive of obligations for the payment of borrowed money);
(iv) judgment Liens not giving rise to an Event of Default;
(v) easements, rights-of-way, zoning restrictions and other similar
charges or encumbrances in respect of real property not interfering in any
material respect with the ordinary conduct of the business of the Company
or any of its Restricted Subsidiaries;
(vi) any interest or title of a lessor under any Capitalized Lease
Obligation;
(vii) purchase money Liens to finance property or assets of the Company
or any Restricted Subsidiary of the Company acquired in the ordinary course
of business; provided, however, that (A) the related purchase money
Indebtedness shall not exceed the cost of such property or assets and shall
not be secured by any property or assets of the Company or any Restricted
Subsidiary of the Company other than the property and assets so acquired
and (B) the Lien securing such Indebtedness shall be created within 90 days
of such acquisition;
(viii) Liens upon specific items of inventory or other goods and proceeds
of any Person securing such Person's obligations in respect of bankers'
acceptances issued or created for the account of such Person to facilitate
the purchase, shipment, or storage of such inventory or other goods;
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(ix) Liens securing reimbursement obligations with respect to commercial
letters of credit which encumber documents and other property relating to
such letters of credit and products and proceeds thereof;
(x) Liens encumbering deposits made to secure obligations arising from
statutory, regulatory, contractual, or warranty requirements of the Company
or any of its Restricted Subsidiaries, including rights of offset and set-
off;
(xi) Liens securing Interest Swap Obligations which Interest Swap
Obligations relate to Indebtedness that is otherwise permitted under the
Indenture;
(xii) Liens securing Indebtedness under Currency Agreements;
(xiii) Liens securing Acquired Indebtedness incurred in reliance on
clause (vii) of the definition of Permitted Indebtedness; provided that
such Liens do not extend to or cover any property or assets of the Company
or of any of its Restricted Subsidiaries other than the property or assets
that secured the Acquired Indebtedness prior to the time such Indebtedness
became Acquired Indebtedness of the Company or a Restricted Subsidiary of
the Company;
(xiv) Liens on assets transferred to a Receivables Entity or on assets of
a Receivables Entity, in either case incurred in connection with a
Qualified Receivables Transaction;
(xv) leases or subleases granted to others that do not materially
interfere with the ordinary course of business of the Company and its
Restricted Subsidiaries;
(xvi) Liens arising from filing Uniform Commercial Code financing
statements regarding leases;
(xvii) Liens on property of a Person existing at the time such Person is
acquired by, or such Person is merged into or consolidated or amalgamated
with, the Company or any Restricted Subsidiary of the Company; provided
that such Liens were not created in contemplation of such acquisition,
merger, consolidation or amalgamation and do not extend to any assets other
than those of the Person acquired by, or merged into or consolidated or
amalgamated with, the Company or any Restricted Subsidiary of the Company.
(xviii) Liens in favor of customs and revenue authorities arising as a
matter of law to secure payment of custom duties in connection with the
importation of goods; and
(xix) Liens existing on the Issue Date, together with any Liens securing
Indebtedness incurred in reliance on clause (x) of the definition of
Permitted Indebtedness in order to refinance the Indebtedness secured by
Liens existing on the Issue Date; provided that the Liens securing the
refinancing Indebtedness shall not extend to property other than that
pledged under the Liens securing the Indebtedness being refinanced.
"Person" means an individual, partnership, corporation, unincorporated
organization, trust or joint venture, or a governmental agency or political
subdivision thereof.
"Preferred Stock" of any Person means any Capital Stock of such Person that
has preferential rights to any other Capital Stock of such Person with respect
to dividends or redemptions or upon liquidation.
"Principals" means Bain Capital, Inc. and Thomas H. Lee Company.
"Productive Assets" means assets (including Capital Stock) of a kind used or
usable in the businesses of the Company and its Restricted Subsidiaries as, or
related to such business, conducted on the date of the relevant Asset Sale.
"Purchase Money Note" means a promissory note of a Receivables Entity
evidencing a line of credit, which may be irrevocable, from the Company or any
Subsidiary of the Company in connection with a Qualified Receivables
Transaction to a Receivables Entity, which note shall be repaid from cash
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available to the Receivables Entity, other than amounts required to be
established as reserves pursuant to agreements, amounts paid to investors in
respect of interest, principal and other amounts owing to such investors and
amounts owing to such investors and amounts paid in connection with the
purchase of newly generated receivables.
"Qualified Capital Stock" means any stock that is not Disqualified Capital
Stock.
"Qualified Receivables Transaction" means any transaction or series of
transactions that may be entered into by the Company or any of its
Subsidiaries pursuant to which the Company or any or its Subsidiaries may
sell, convey or otherwise transfer to (a) a Receivables Entity (in the case of
a transfer by the Company or any of its Subsidiaries) and (b) any other Person
(in the case of a transfer by a Receivables Entity), or may grant a security
interest in, any accounts receivable (whether now existing or arising in the
future) of the Company or any of its Subsidiaries, and any assets related
thereto including, without limitation, all collateral securing such accounts
receivable, all contracts and all guarantees or other obligations in respect
of such accounts receivable, proceeds of such accounts receivable and other
assets which are customarily transferred or in respect of which security
interests are customarily granted in connection with asset securitization
transactions involving accounts receivable.
"Receivables Entity" means a Wholly Owned Subsidiary of the Company (or
another Person in which the Company or any Subsidiary of the Company makes an
Investment and to which the Company or any Subsidiary of the Company transfers
accounts receivable and related assets) which engages in no activities other
than in connection with the financing of accounts receivable and which is
designated by the Board of Directors of the Company (as provided below) as a
Receivables Entity (a) no portion of the Indebtedness or any other Obligations
(contingent or otherwise) of which (i) is guaranteed by the Company or any
Subsidiary of the Company (excluding guarantees of Obligations (other than the
principal of, and interest on, Indebtedness)) pursuant to Standard
Securitization Undertakings, (ii) is recourse to or obligates the Company or
any Subsidiary of the Company in any way other than pursuant to Standard
Securitization Undertakings or (iii) subjects any property or asset of the
Company or any Subsidiary of the Company, directly or indirectly, contingently
or otherwise, to the satisfaction thereof, other than pursuant to Standard
Securitization Undertakings, (b) with which neither the Company nor any
Subsidiary of the Company has any material contract, agreement, arrangement or
understanding other than on terms no less favorable to the Company or such
Subsidiary than those that might be obtained at the time from Persons that are
not Affiliates of the Company, other than fees payable in the ordinary course
of business in connection with servicing accounts receivable, and (c) to which
neither the Company nor any Subsidiary of the Company has any obligation to
maintain or preserve such entity's financial condition or cause such entity to
achieve certain levels of operating results. Any such designation by the Board
of Directors of the Company shall be evidenced to the Trustee by filing with
the Trustee a certified copy of the resolution of the Board of Directors of
the Company giving effect to such designation and an Officers' Certificate
certifying that such designation complied with the foregoing conditions.
"Related Party" means, with respect to Bain Capital, Inc., any Bain Related
Party and, with respect to Thomas H. Lee Company, any Thomas Lee Related
Party.
"Representative" means the indenture trustee or other trustee, agent or
representative in respect of any Designated Senior Indebtedness; provided that
if, and for so long as, any Designated Senior Indebtedness lacks such a
representative, then the Representative for such Designated Senior
Indebtedness shall at all times constitute the holders of a majority in
outstanding principal amount of such Designated Senior Indebtedness in respect
of any Designated Senior Indebtedness.
"Restricted Subsidiary" of any Person means any Subsidiary of such Person
which at the time of determination is not an Unrestricted Subsidiary.
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"S&P" means Standard & Poor's Corporation and its successors.
"Sale and Leaseback Transaction" means any direct or indirect arrangement
with any Person or to which any such Person is a party, providing for the
leasing to the Company or a Restricted Subsidiary of any property, whether
owned by the Company or any Restricted Subsidiary at the Issue Date or later
acquired, which has been or is to be sold or transferred by the Company or
such Restricted Subsidiary to such Person or to any other Person from whom
funds have been or are to be advanced by such Person on the security of such
Property.
"Secured Indebtedness" means any Indebtedness of the Company secured by a
Lien.
"Senior Indebtedness" means (i) the Bank Indebtedness and (ii) all
Indebtedness of the Company, including interest thereon (including interest
accruing on or after the filing of any petition in bankruptcy or for
reorganization relating to the Company or any Restricted Subsidiary of the
Company whether or not a claim for post-filing interest is allowed in such
proceedings), whether outstanding on the Issue Date or thereafter incurred,
unless in the instrument creating or evidencing the same or pursuant to which
the same is outstanding it is expressly provided that such obligations are not
superior in right of payment to the Notes; provided, however, that Senior
Indebtedness shall not include (1) any obligation of the Company to any
Subsidiary of the Company, (2) any liability for Federal, state, local or
other taxes owed or owing by the Company, (3) any accounts payable or other
liability to trade creditors arising in the ordinary course of business
(including guarantees thereof or instruments evidencing such liabilities), (4)
any Indebtedness of the Company which is expressly subordinate in right of
payment to any other Indebtedness of the Company, including any Senior
Subordinated Indebtedness and any Subordinated Obligations, (5) any
obligations with respect to any Capital Stock or (6) that portion of any
Indebtedness incurred in violation of the Indenture provisions set forth under
"Limitation on Incurrence of Additional Indebtedness" (but, as to any such
obligation, no such violation shall be deemed to exist for purposes of this
clause (6) if the holders(s) of such obligation or their representative and
the Trustee shall have received an Officers' Certificate of the Company to the
effect that the incurrence of such Indebtedness does not (or, in the case of
revolving credit Indebtedness, that the incurrence of the entire committed
amount thereof at the date on which the initial borrowing thereunder is made
would not) violate such provisions of the Indenture).
"Senior Subordinated Indebtedness" means the Notes and any other
Indebtedness of the Company that specifically provides that such Indebtedness
is to rank pari passu with the Notes and is not by its express terms
subordinate in right of payment to any Indebtedness of the Company which is
not Senior Indebtedness.
"Significant Subsidiary" means, as of any date of determination, for any
Person, each Restricted Subsidiary of such Person which (i) for the most
recent fiscal year of such Person (on or prior to December 31, 1996, the
fiscal period beginning on the Issue Date and ending on the most recently
completed fiscal quarter of such Person) accounted for more than 10% of
consolidated revenues or consolidated net income of such Person or (ii) as at
the end of such fiscal year (on or prior to December 31, 1996, the fiscal
period beginning on the Issue Date and ending on the most recently completed
fiscal quarter of such Person), was the owner of more than 10% of the
consolidated assets of such Person.
"Standard Securitization Undertakings" means representations, warranties,
covenants and indemnities entered into by the Company or any Subsidiary of the
Company which are reasonably customary in an accounts receivable transaction.
"Subordinated Obligation" means any Indebtedness of the Company (whether
outstanding on the Issue Date or thereafter incurred) which is expressly
subordinate in right of payment to the Notes pursuant to a written agreement.
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"Subsidiary" means, with respect to any Person, (i) any corporation of which
the outstanding Capital Stock having at least a majority of the votes entitled
to be cast in the election of directors under ordinary circumstances shall at
the time be owned, directly or indirectly, by such Person or (ii) any other
Person of which at least a majority of the voting interest under ordinary
circumstances is at the time, directly or indirectly, owned by such Person.
"Tax Allocation Agreement" means the tax allocation agreement between the
Company and Holdings and certain Subsidiaries of the Company as in effect on
the Issue Date.
"Thomas Lee Related Party" means Thomas H. Lee Company and any Affiliate of
the Thomas Lee Company.
"Total Assets" means the total consolidated assets of the Company and its
Restricted Subsidiaries, as set forth on the Company's most recent
consolidated balance sheet in accordance with GAAP.
"Unrestricted Subsidiary" of any Person means (i) any Subsidiary of such
Person that at the time of determination shall be or continue to be designated
an Unrestricted Subsidiary by the Board of Directors of such Person in the
manner provided below and (ii) any Subsidiary of an Unrestricted Subsidiary.
The Board of Directors may designate any Subsidiary (including any newly
acquired or newly formed Subsidiary) to be an Unrestricted Subsidiary unless
such Subsidiary owns any Capital Stock of, or owns or holds any Lien on any
property of, the Company or any other Subsidiary of the Company that is not a
Subsidiary of the Subsidiary to be so designated; provided that (x) the
Company certifies to the Trustee that such designation complies with the
"Limitation on Restricted Payments" covenant and (y) each Subsidiary to be so
designated and each of its Subsidiaries has not at the time of designation,
and does not thereafter, create, incur, issue, assume, guarantee or otherwise
become directly or indirectly liable with respect to any Indebtedness pursuant
to which the lender has recourse to any of the assets of the Company or any of
its Restricted Subsidiaries. The Board of Directors may designate any
Unrestricted Subsidiary to be a Restricted Subsidiary only if (x) immediately
after giving effect to such designation and treating all Indebtedness of such
Unrestricted Subsidiary as being incurred on such date, the Company is able to
incur at least $1.00 of additional Indebtedness (other than Permitted
Indebtedness) in compliance with the "Limitation on Incurrence of Additional
Indebtedness" covenant and (y) immediately before and immediately after giving
effect to such designation, no Default or Event of Default shall have occurred
and be continuing. Any such designation by the Board of Directors shall be
evidenced to the Trustee by promptly filing with the Trustee a copy of the
resolution giving effect to such designation and an officers' certificate
certifying that such designation complied with the foregoing provisions.
"Weighted Average Life to Maturity" means, when applied to any Indebtedness
at any date, the number of years obtained by dividing (a) the then outstanding
aggregate principal amount of such Indebtedness into (b) the sum of the total
of the products obtained by multiplying (i) the amount of each then remaining
installment, sinking fund, serial maturity or other required payment of
principal, including payment at final maturity, in respect thereof, by (ii)
the number of years (calculated to the nearest one-twelfth) which will elapse
between such date and the making of such payment.
"Wholly Owned Restricted Subsidiary" of any Person means any Restricted
Subsidiary of such Person of which all the outstanding voting securities
(other than directors' qualifying shares or an immaterial amount of shares
required to be owned by other Persons pursuant to applicable law) are owned by
such Person or any Wholly Owned Restricted Subsidiary of such Person.
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DESCRIPTION OF CREDIT FACILITIES
Chemical Bank and Bankers Trust Company have committed to provide, or
arrange for a syndicate of lenders to provide, to the Company, subject to
certain terms and conditions, the Credit Facilities in an aggregate principal
amount not to exceed $625.0 million. At the closing of the Transactions, (i)
approximately $550.0 million is expected to be drawn under the Term Loan
Facility (as defined below) and (ii) $10.0 million is expected to be borrowed
under the Revolving Facility (as defined below) under which $75.0 million is
available on a revolving credit basis for general corporate purposes of the
Company and its subsidiaries.
Structure. The Credit Facilities will consist of (a) a term loan facility in
an aggregate principal amount of $550.0 million (the "Term Loan Facility"),
consisting of three tranches in principal amounts of $200.0 million, $175.0
million and $175.0 million (the "Tranche A Term Loan," "Tranche B Term Loan"
and "Tranche C Term Loan," respectively) and (b) a revolving credit facility
providing for revolving loans to the Company and the issuance of letters of
credit for the account of the Company in an aggregate principal amount
(including the aggregate stated amount of letters of credit and the aggregate
reimbursement and other obligations in respect thereof) at any time not to
exceed $75.0 million (the "Revolving Facility").
Availability. The availability of the Credit Facilities will be subject to
various conditions precedent typical for bank loans, and Chemical Bank's and
Bankers Trust Company's commitments to provide the Credit Facilities are also
subject to, among other things, the completion of Chemical Bank's and Bankers
Trust Company's financial and legal review of the Company and the
Transactions, and the absence of any material adverse change with respect to
the Company in particular or the financial, banking or capital markets in
general. The full amount of the Term Loan Facility must be drawn in a single
drawing at the closing of the Transactions and amounts repaid or prepaid under
the Term Loan Facility may not be reborrowed.
The Tranche A Term Loan and the Revolving Facility will mature on the sixth
anniversary of the Closing Date. The Tranche B Term Loan will mature on the
seventh anniversary of the Closing Date and the Tranche C Term Loan will
mature on the eighth anniversary of the Closing Date. Amortization of the Term
Loan Facility will be in quarterly payments, in amounts to be agreed upon,
commencing 18 months from Closing. The Tranche A Term Loan will amortize
quarterly over six years, the Tranche B Term Loan will amortize quarterly over
seven years and the Tranche C Term Loan will amortize quarterly over eight
years. (The Tranche B and C Term Loans will amortize in nominal amounts during
the first 6 and 7 years, respectively). In addition, the Credit Facilities are
subject to mandatory prepayment and reductions (to be applied first to the
Term Loan Facility) in an amount equal to, subject to certain exceptions, (a)
100% of the net proceeds of (i) certain debt offerings by Holdings or any of
its subsidiaries and (ii) certain asset sales or other dispositions and (b) a
percentage of up to 75% of the Company's excess operating cash flow, such
percentage to be determined in accordance with the terms of the definitive
documentation.
Security; Guaranty. The obligations of the Company under the Credit
Facilities will be unconditionally and irrevocably guaranteed by Holdings and
its domestic subsidiaries. In addition, the Credit Facilities and the
guarantees thereunder will be secured by security interests in and pledges of
or liens on substantially all the material tangible and intangible assets of
the Company and the guarantors, including pledges of all the capital stock of,
or other equity interests in, the Company and each direct or indirect domestic
subsidiary of the Company and 65%, subject to increase, of the capital stock
of, or other equity interests in, each foreign subsidiary of the Company.
Interest. At the Company's election, the interest rates per annum applicable
to the loans under the Credit Facilities will be a fluctuating rate of
interest measured by reference to either (a) an adjusted
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London inter-bank offered rate ("LIBOR") plus a borrowing margin or (b) an
alternate base rate ("ABR") (equal to the higher of Chemical Bank's published
prime rate and the Federal Funds effective rate plus 1/2 of 1%) plus a
borrowing margin. The borrowing margins applicable to Tranche A Term Loan and
loans under the Revolving Facility will be 1.50% for ABR loans and 2.50% for
LIBOR loans. These margins will be subject to reduction after the first
anniversary of the Closing Date if certain financial performance thresholds
are met. The interest rate borrowing margins applicable to the Tranche B Term
Loan and the Tranche C Term Loan will be 2.00% and 2.50%, respectively, for
ABR loans and 3.00% and 3.50%, respectively, for LIBOR loans and will not be
subject to reduction. Amounts under the Credit Facilities not paid when due
bear interest at a default rate equal to 2.00% above the rate otherwise
applicable.
Fees. The Company has agreed to pay certain fees with respect to the Credit
Facilities, including (i) fees on the unused commitments of the lenders equal
to 1/2 of 1% of the undrawn portion of the commitments in respect of the
facilities; (ii) letter of credit fees on the aggregate face amount of
outstanding letters of credit equal to the then applicable borrowing margin
for LIBOR Revolving Loans plus a per annum fronting bank fee for the letter of
credit issuing bank; (iii) annual administration fees; and (iv) agent,
arrangement and other similar fees.
Covenants. The Credit Facilities will contain a number of covenants that,
among other things, will restrict the ability of Holdings, the Company and its
subsidiaries to dispose of assets, incur additional indebtedness, incur
guarantee obligations, prepay other indebtedness or amend other debt
instruments, pay dividends, create liens on assets, make investments, loans or
advances, make acquisitions, create subsidiaries, engage in mergers or
consolidations, change the business conducted by the Company, make capital
expenditures, or engage in certain transactions with affiliates and otherwise
restrict certain corporate activities. In addition, under the Credit
Facilities, the Company will be required to comply with specified financial
ratios and minimum tests, including minimum interest coverage ratios, maximum
leverage ratios and minimum EBITDA covenants.
The Credit Facilities will also contain provisions that will limit the
Company's ability to make any amendment or modification of the Indenture and
the Company's ability to prepay or refinance the Notes without the consent of
such lenders.
Events of Default. The Credit Facilities will contain customary events of
default including non-payment of principal, interest or fees, violation of
covenants, inaccuracy of representations or warranties in any material
respect, cross default and cross acceleration to certain other indebtedness,
bankruptcy, material judgments and liabilities and change of control.
The description of the Credit Facilities set forth above does not purport to
be complete and is qualified in its entirety by reference to the Credit
Agreement setting forth the principal terms and conditions of the Credit
Facilities which has been filed as an exhibit to the Registration Statement of
which this Prospectus forms a part.
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CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The summary of the following agreements does not purport to be complete and
is subject to, and qualified in its entirety by reference to, the
Recapitalization Agreement and the other agreements summarized below,
including the definitions therein of certain terms.
RECAPITALIZATION AGREEMENT
The Recapitalization Agreement contains customary provisions for such
agreements, including representations and warranties with respect to the
condition and operations of the business, covenants with respect to the
conduct of the business prior to the Closing Date and various closing
conditions, including the obtaining of financing and the continued accuracy of
representations and warranties and the expiration of the waiting period under
the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended.
The Recapitalization Agreement contains indemnification provisions binding
on each of Holdings, the Company and TRW after the Closing Date. Specifically,
each of the Company and Holdings will indemnify TRW and its subsidiaries
against any and all liabilities resulting from (i) any misrepresentation or
breach of warranty in the Recapitalization Agreement, a claim for which must
be made (in most cases) no later than one year after the Closing Date, (ii)
the failure to satisfy liabilities assumed by the Company under the
Recapitalization Agreement, (iii) nonperformance by Experian or Experian
Corporation, prior to the Recapitalization, or the Company or Holdings, after
the Recapitalization, of any obligation to be performed on their respective
parts under the Recapitalization Agreement and (iv) any claim by a third party
relating to the exercise of the rights granted to the Company under the
Trademark Agreement. The Company and Holdings will also indemnify TRW and its
affiliates, and their directors, employees, representatives, controlling
persons and agents against all liabilities resulting from any offer or sale of
securities in connection with the financing of all or any portion of the
Transactions.
TRW will indemnify Holdings and its subsidiaries against any and all
liabilities resulting from (i) any misrepresentation or breach of warranty in
the Recapitalization Agreement, a claim for which must be made (in most cases)
no later than one year after the Closing Date, (ii) the failure to satisfy
liabilities retained by TRW under the Recapitalization Agreement, (iii)
nonperformance by TRW or TRW IS&S, prior to the Recapitalization, or TRW,
after the Recapitalization, of any obligation to be performed on their
respective parts under the Recapitalization Agreement, (iv) any claim that the
exercise by the Company of the rights granted to it under the Trademark
Agreement infringes any proprietary right of any third party or (v) the
failure of TRW to satisfy certain tax liabilities in respect of periods prior
to the Closing Date under the Recapitalization Agreement.
STOCKHOLDERS AGREEMENT
In connection with the Recapitalization, Bain, THL, management, TRW and
other investors will enter into a stockholders agreement (the "Stockholders
Agreement"), that, among other things, is expected to provide for transfer
restrictions on capital stock of Holdings and drag-along rights, registration
rights, tag-along rights and certain preemptive rights for certain
stockholders including Bain, THL and TRW. The Stockholders Agreement also is
expected to provide that each of Bain and THL will be entitled to designate up
to four directors of Holdings and that TRW will be entitled to designate one
director of Holdings. An additional four directors may be appointed jointly by
Bain and THL, three from among management and one a non-employee.
TRADEMARK AGREEMENT
In connection with the Recapitalization, TRW and the Company will enter into
a trademark license agreement (the "Trademark Agreement"). Subject to certain
restrictions, the Trademark Agreement permits the Company to (i) use the TRW
name in connection with its products and services for two years after the
Closing Date and (ii) identify itself for one year after the Closing Date as
having formerly
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been TRW Information Systems & Services. The Trademark Agreement restricts the
Company's use of the TRW name and the TRW trademark and service mark and logo
associated therewith. See "Risk Factors--Effect of the Recapitalization."
TRANSITION SERVICES AGREEMENT
An agreement will be entered into by and among Holdings, the Company and TRW
which will provide for certain matters relating to the orderly transition of
the Company to a stand alone operating entity.
STRUCTURING FEE
The Company will pay each of Bain and THL a structuring fee of approximately
$11 million and reimburse each of Bain and THL for out-of-pocket expenses in
consideration of their facilitating the Recapitalization.
MANAGEMENT AGREEMENTS
After the Closing Date pursuant to a management agreement among Bain, THL
and the Company (the "Management Agreement"), Bain and THL will provide
management consulting services to the Company for an annual fee of $1.5
million to each plus reimbursement for reasonable out-of-pocket expenditures.
The Management Agreement will include customary indemnification provisions in
favor of Bain and THL. In addition, if the Company enters into transactions
involving at least $25 million per transaction, Bain and THL will each receive
a fee in an amount which will approximate 1% of the gross purchase price of
the transaction (including assumed debt).
PRIOR RELATIONSHIPS
The Company has had a number of relationships with TRW which will not
continue after the Closing Date. The Company paid corporate allocations to TRW
in an aggregate amount of $4.3 million, $4.4 million, $4.9 million and $1.2
million in 1993, 1994, 1995 and in the three months ended March 31, 1996,
respectively. Corporate headquarter costs, including, among others, treasury
services, tax management, shareholder services and general corporate
governance have been allocated by TRW based upon each operating unit's cost of
operations. Such services will not be available to the Company from TRW after
the Closing Date. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
NONCOMPETITION AGREEMENT
In connection with the Recapitalization, TRW will enter into a
noncompetition agreement with the Company and Holdings, under which TRW,
subject to the terms of such agreement, (i) will agree not to compete with the
Company in the credit, marketing or real estate information businesses for
five years after the Closing Date and (ii) will agree not to use the TRW name
and the TRW trademark and service mark and logo associated therewith in
connection with a credit, marketing or real estate information business for
ten years after the Closing Date.
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UNDERWRITING
Subject to the terms and conditions set forth in the Underwriting Agreement
dated , 1996 (the "Underwriting Agreement"), each of the Underwriters
named below has severally agreed to purchase from the Company the respective
principal amounts of Notes set forth opposite its name below:
<TABLE>
<CAPTION>
PRINCIPAL AMOUNT
UNDERWRITER OF NOTES
----------- ----------------
<S> <C>
Chase Securities Inc........................................ $
BT Securities Corporation...................................
Bear, Stearns & Co. Inc. ...................................
------------
Total..................................................... $250,000,000
============
</TABLE>
The Underwriting Agreement provides that the obligations of the Underwriters
thereunder are subject to approval of certain legal matters by counsel and
various other conditions. In the Underwriting Agreement, the Underwriters have
agreed, subject to the terms and conditions set forth therein, to purchase all
of the Notes offered hereby if any of the Notes are purchased. The Company has
been advised by the Underwriters that they propose initially to offer the
Notes to the public at the public offering price set forth on the cover page
of this Prospectus. After the initial public offering, the public offering
price may be changed.
There is currently no established trading market for the Notes, and the
Company does not intend to have the Notes listed for trading on any national
securities exchange or on any automated dealer quotation system. The
Underwriters have advised the Company that they presently intend to make a
market in the Notes, but they are not obligated to do so and any such market-
making may be discontinued at any time at the sole discretion of any of the
Underwriters. Accordingly, no assurance can be given as to the prices or
liquidity of, or trading markets for, the Notes.
Experian and Experian Corporation have agreed to indemnify the Underwriters
against certain liabilities, including liabilities under the Securities Act,
or to contribute to payments that the Underwriters may be required to make in
respect hereof.
Chase Securities Inc. is an affiliate of Chemical Bank, which will be an
agent and a lender under the Credit Facilities. BT Securities Corporation is
an affiliate of Bankers Trust Company, which will be an agent and a lender
under the Credit Facilities. See "Description of Credit Facilities." Chemical
Bank and Bankers Trust Company will receive customary fees in connection with
the Credit Facilities. Chemical Bank, Bankers Trust New York Corporation (an
affiliate of BT Securities Corporation) and The Bear Stearns Companies Inc.
(an affiliate of Bear, Stearns & Co. Inc.) have agreed to provide up to $300
million of debt financing in connection with the Recapitalization in the event
the Offering does not occur. Chase Securities Inc. and BT Securities
Corporation are providing financial advisory services to Experian and Experian
Corporation in connection with the Transactions for which they will receive
financial advisory fees. Bear, Stearns & Co. Inc. is providing financial
advisory services to TRW in connection with the Recapitalization, for which it
is receiving investment banking fees and indemnification. It is expected that
affiliates of Chase Securities Inc. will own approximately 9.3% of the
outstanding common stock of Holdings after the Transactions and that
affiliates of BT Securities Corporation will own approximately 3.7% of the
outstanding common stock of Holdings after the Transactions.
99
<PAGE>
LEGAL MATTERS
The validity of the Notes will be passed upon for the Company by Ropes &
Gray, Boston, Massachusetts, who have acted as counsel to the Company in
connection with the Offering. Certain legal matters regarding the Notes will
be passed upon for the Underwriters by Cahill Gordon & Reindel (a partnership
including a professional corporation), New York, New York.
EXPERTS
The combined financial statements and schedule of TRW Information Systems &
Services at December 31, 1995 and 1994, and for each of the three years in the
period ended December 31, 1995, appearing in this Prospectus and Registration
Statement, have been audited by Ernst & Young LLP, independent auditors, as
set forth in their reports thereon appearing elsewhere herein, and are
included in reliance upon such reports given upon the authority of such firm
as experts in accounting and auditing.
The Experian Information Solutions, Inc. balance sheet as of June 12, 1996
included in this Prospectus has been so included in reliance on the report of
Price Waterhouse LLP, independent accountants, given on the authority of said
firm as experts in auditing and accounting.
100
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
FINANCIAL STATEMENTS OF EXPERIAN INFORMATION SOLUTIONS, INC.:
Report of Independent Accountants........................................ F-2
Balance Sheet--June 12, 1996............................................. F-3
Notes to Balance Sheet................................................... F-4
FINANCIAL STATEMENTS OF TRW INFORMATION SYSTEMS & SERVICES:
Report of Independent Auditors........................................... F-5
Combined Balance Sheets--December 31, 1994 and 1995...................... F-6
Combined Statements of Earnings--Years ended December 31, 1993, 1994 and
1995.................................................................... F-7
Combined Statements of Cash Flows--Years ended December 31, 1993, 1994
and 1995................................................................ F-8
Notes to Combined Financial Statements................................... F-9
Condensed Combined Balance Sheet--March 31, 1996......................... F-20
Condensed Combined Statements of Earnings--Three Months ended March 31,
1995 and 1996........................................................... F-21
Condensed Combined Statements of Cash Flows--Three Months ended March 31,
1995 and 1996........................................................... F-22
Notes to Condensed Combined Financial Statements......................... F-23
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors
and Stockholders of Experian Information Solutions, Inc.
In our opinion, the accompanying balance sheet presents fairly, in all
material respects, the financial position of Experian Information Solutions,
Inc. (formerly known as IntelliData, Inc.) at June 12, 1996 (Inception) in
conformity with generally accepted accounting principles. The balance sheet is
the responsibility of the Company's management; our responsibility is to
express an opinion on the balance sheet based on our audit. We conducted our
audit of the balance sheet in accordance with generally accepted auditing
standards which require that we plan and perform the audit to obtain
reasonable assurance about whether the balance sheet is free of material
misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the balance sheet, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall balance sheet presentation. We believe that our audit
provides a reasonable basis for the opinion expressed above.
/s/ PRICE WATERHOUSE LLP
Boston, Massachusetts
June 12, 1996
F-2
<PAGE>
EXPERIAN INFORMATION SOLUTIONS, INC.
BALANCE SHEET
JUNE 12, 1996 (INCEPTION)
(AMOUNTS IN WHOLE DOLLARS)
<TABLE>
<S> <C>
Assets:
Cash.................................................................... $100
----
Total assets.......................................................... $100
====
Stockholder's Equity:
Common stock; $.01 par value; 100 shares authorized, issued and out-
standing............................................................... $ 1
Additional paid-in capital.............................................. 99
----
Total stockholder's equity............................................ $100
====
</TABLE>
See Notes to Balance Sheet
F-3
<PAGE>
EXPERIAN INFORMATION SOLUTIONS, INC.
NOTES TO BALANCE SHEET
JUNE 12, 1996 (INCEPTION)
1. BASIS OF PRESENTATION
Experian Information Solutions, Inc. (the "Company" or the "Registrant")
(formerly known as IntelliData, Inc.), a wholly owned subsidiary of Experian
Corporation, was formed as a Delaware corporation on May 9, 1996 for purposes
of filing an initial Registration Statement with the Securities and Exchange
Commission. Immediately following issuance of the securities covered by the
Registration Statement, the Company will be merged into Information Systems
and Services, Inc. which will be a wholly owned subsidiary of IS&S Holdings,
Inc. Information Systems and Services, Inc. will survive the merger. The
Company has not, and will not, conduct any business activities other than
those described above.
2. SIGNIFICANT ACCOUNTING POLICIES
Cash Equivalents
The Company considers all highly liquid investments purchased with a
maturity of three months or less to be cash equivalents.
F-4
<PAGE>
REPORT OF INDEPENDENT AUDITORS
TRW Inc.
We have audited the accompanying combined balance sheets of TRW Information
Systems & Services as of December 31, 1994 and 1995, and the related combined
statements of earnings and cash flows for each of the three years in the
period ended December 31, 1995. These financial statements are the
responsibility of TRW Inc.'s management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the combined financial position of TRW Information
Systems & Services at December 31, 1994 and 1995, and the combined results of
its operations and its cash flows for each of the three years in the period
ended December 31, 1995, in conformity with generally accepted accounting
principles.
As discussed in Note B to the combined financial statements, effective
January 1, 1993, TRW Information Systems & Services changed its method of
accounting for post-employment benefits.
January 29, 1996 /s/ Ernst & Young LLP
Cleveland, Ohio
F-5
<PAGE>
TRW INFORMATION SYSTEMS & SERVICES
COMBINED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31
-----------------------
1994 1995
----------- -----------
(THOUSANDS OF DOLLARS)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents............................ $ 81 $ 865
Accounts receivable.................................. 76,746 86,877
Prepaid expenses..................................... 9,283 10,438
----------- -----------
Total current assets............................... 86,110 98,180
Property and equipment--net............................ 48,013 48,634
Capitalized data files................................. 225,590 216,382
Goodwill............................................... 142,726 140,542
Other intangible assets................................ 24,969 38,467
Other assets........................................... 6,316 13,238
----------- -----------
Total assets....................................... $ 533,724 $ 555,443
=========== ===========
LIABILITIES AND NET INVESTMENT
Current liabilities:
Accounts payable..................................... $ 19,370 $ 27,485
Other accruals....................................... 28,541 20,053
Accrued compensation................................. 32,671 34,617
Deferred revenue and advance billings................ 28,132 28,264
----------- -----------
Total current liabilities.......................... 108,714 110,419
Long-term liabilities.................................. 942 1,839
Minority interest...................................... 22,719 24,730
Net investment......................................... 401,349 418,455
----------- -----------
Total liabilities and net investment............... $ 533,724 $ 555,443
=========== ===========
</TABLE>
See notes to combined financial statements.
F-6
<PAGE>
TRW INFORMATION SYSTEMS & SERVICES
COMBINED STATEMENTS OF EARNINGS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
----------------------------
1993 1994 1995
-------- -------- --------
(THOUSANDS OF DOLLARS)
<S> <C> <C> <C>
Sales............................................ $486,427 $512,264 $540,159
Cost of sales.................................... 259,360 261,021 273,941
-------- -------- --------
Gross profit..................................... 227,067 251,243 266,218
Administrative and selling expenses.............. 140,694 147,284 151,150
Research and development expenses................ 11,779 14,817 24,928
Restructuring (income) expense................... 3,600 12,716 (3,317)
TRW corporate general and administrative ex-
penses.......................................... 4,302 4,444 4,826
Minority interest................................ 4,327 (2,576) 2,011
Interest expense................................. 174 193 706
Other (income) expense, net...................... 10,609 (18,689) (368)
-------- -------- --------
Earnings before income taxes and cumulative
effect of accounting change..................... 51,582 93,054 86,282
Income taxes:
Current:
Federal...................................... 10,633 31,610 20,342
State and local.............................. 877 2,724 1,689
-------- -------- --------
11,510 34,334 22,031
Deferred:
Federal...................................... 9,654 2,342 11,554
State and local.............................. 639 91 945
-------- -------- --------
10,293 2,433 12,499
-------- -------- --------
21,803 36,767 34,530
-------- -------- --------
Earnings before cumulative effect of accounting
change.......................................... 29,779 56,287 51,752
Cumulative effect at beginning of the year of
change in method of accounting for post-
employment benefits, net of income taxes of
$1,200.......................................... (1,761)
-------- -------- --------
Net earnings..................................... $ 28,018 $ 56,287 $ 51,752
======== ======== ========
</TABLE>
See notes to combined financial statements.
F-7
<PAGE>
TRW INFORMATION SYSTEMS & SERVICES
COMBINED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31
----------------------------
1993 1994 1995
-------- -------- --------
(THOUSANDS OF DOLLARS)
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net earnings..................................... $ 28,018 $ 56,287 $ 51,752
Adjustments to reconcile net earnings to net cash
provided by operating activities:
Cumulative effect of accounting change......... 1,761
Depreciation and amortization.................. 90,444 83,109 79,445
Gain on sale of product lines.................. (17,728) (1,257)
Disposal of intangibles........................ 4,681
Deferred income taxes.......................... (1,934) 2,261 10,589
Restructuring.................................. (15,196) (2,549) (3,039)
Equity loss in affiliated company.............. 1,000
Other, net..................................... 652 1,621 3,179
Changes in operating assets and liabilities,
net of effect of businesses acquired or sold:
Accounts receivable.......................... (7,422) (5,333) (12,445)
Prepaid expenses............................. (3,060) 1,272 (1,155)
Accounts payable and other accruals.......... 43,735 (2,802) 9,041
Other, net................................... 4,923 (917) 770
-------- -------- --------
Net cash provided by operating activities........ 141,921 119,902 137,880
INVESTING ACTIVITIES
Capital expenditures............................. (20,232) (13,374) (16,968)
Expenditures for intangible assets............... (48,164) (61,501) (64,488)
Proceeds from divestiture........................ 12,000 1,025
Acquisitions, net of cash acquired............... (5,750) (124)
Proceeds from sale of property and equipment..... 453 1,434 697
Investment in/Advances to affiliated companies... (5,389)
Other, net....................................... (968) 1,753 (1,687)
-------- -------- --------
Net cash used in investing activities............ (68,911) (65,438) (86,934)
FINANCING ACTIVITIES
Net transfers and payments with TRW Inc. ........ (61,292) (61,334) (50,068)
Distributions to partners of TRW REDI............ (10,000) (4,000)
Change in debt................................... (133) 1,430 (94)
-------- -------- --------
Net cash used in financing activities............ (71,425) (63,904) (50,162)
-------- -------- --------
(Decrease) increase in cash and cash equiva-
lents........................................... 1,585 (9,440) 784
Cash and cash equivalents at beginning of year... 7,936 9,521 81
-------- -------- --------
CASH AND CASH EQUIVALENTS AT END OF YEAR......... $ 9,521 $ 81 $ 865
======== ======== ========
</TABLE>
See notes to combined financial statements.
F-8
<PAGE>
TRW INFORMATION SYSTEMS & SERVICES
NOTES TO COMBINED FINANCIAL STATEMENTS
DECEMBER 31, 1993, 1994 AND 1995
(THOUSANDS OF DOLLARS)
A. BASIS OF PRESENTATION
These combined financial statements of TRW Information Systems & Services
(TRW IS&S) include: TRW Information Services, TRW Business Credit Services and
IS&S Staff, which are divisions of TRW Inc. (TRW); IS&S International, Inc.,
Hotel Management Inc. and Information Systems and Services, Inc., which are
wholly-owned subsidiaries of TRW; and TRW REDI Property Data (TRW REDI), in
which TRW owns a 60% partnership interest. All significant intragroup accounts
and transactions have been eliminated in combination. The combined financial
statements exclude certain operating units historically included in TRW's
Information Systems & Services business segment.
TRW IS&S operates in a single line of business, substantially all of which
is domestic--the sale of consumer and business information--organized along
three product lines: Consumer Information Services, Business Information
Services, and Real Estate Information Services. Consumer Information Services
provides consumer credit reports to retailers, financial organizations, and
other credit-granting organizations. Business Information Services provides
business credit decision support and demographic information for business-to-
business credit granting and direct marketing efforts to retailers and other
credit-granting organizations. Real Estate Information Services provides
property data services and title information services to title companies,
appraisers, and real estate brokers.
B. SIGNIFICANT ACCOUNTING POLICIES
Revenue Recognition
Revenue is recognized as credit reports are issued or customer inquiries of
TRW IS&S' databases are made. Billings to customers prior to the completion of
the earnings process are deferred on the balance sheet.
Cash Equivalents
For purposes of the statement of cash flows, TRW IS&S considers all highly
liquid investments purchased with a maturity of three months or less to be
cash equivalents.
Accounts Receivable
Credit risk with respect to accounts receivable is concentrated principally
with financial institutions, retail organizations, and property data and title
information users. Customers are not required to provide collateral. TRW IS&S
has established receivable reserves of $4,699 and $4,704 at December 31, 1994
and 1995, respectively.
Property and equipment--on the basis of cost
<TABLE>
<CAPTION>
1994 1995
-------- --------
<S> <C> <C>
Land..................................................... $ 1,545 $ 1,455
Buildings................................................ 25,188 18,443
Furniture and fixtures, equipment, and leasehold
improvements............................................ 115,937 124,892
-------- --------
142,670 144,790
Less allowances for depreciation and amortization........ 94,657 96,156
-------- --------
$ 48,013 $ 48,634
======== ========
</TABLE>
Depreciation is computed using the straight-line method over the estimated
useful lives of the assets: buildings - 30 years; furniture and fixtures, and
equipment - four to ten years; and leasehold improvements - life of the lease.
F-9
<PAGE>
TRW INFORMATION SYSTEMS & SERVICES
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
B. SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
Investment
TRW IS&S has invested in Comcred S.A. de CV ("Comcred"), a start-up Mexican
credit data company. TRW IS&S purchased 2,400 shares of Comcred's Series B
stock (20% interest) for $750. TRW IS&S has entered into three note agreements
which allow Comcred to draw down cash as necessary. As of December 31, 1995,
TRW IS&S has principal and interest totaling $4,518 outstanding under the
notes. Two of the promissory notes have conversion features which allow TRW
IS&S to convert an amount of principal and interest that would result in
issuance of an additional 29% of Comcred's total voting securities. TRW IS&S
accounts for its investment in Comcred using the equity method of accounting.
During 1995, TRW IS&S recorded $1,000 of losses to reflect its estimated share
of the inception to date loss of Comcred.
Intangible Assets
<TABLE>
<CAPTION>
ACCUMULATED NET BOOK
COST AMORTIZATION VALUE
-------- ------------ --------
<S> <C> <C> <C>
December 31, 1994:
Capitalized data files..................... $436,688 $211,098 $225,590
Intangibles arising from acquisitions...... 164,969 22,243 142,726
Capitalized software....................... 25,341 8,650 16,691
Other...................................... 15,117 6,839 8,278
-------- -------- --------
$642,115 $248,830 $393,285
======== ======== ========
December 31, 1995:
Capitalized data files..................... $478,977 $262,595 $216,382
Intangibles arising from acquisitions...... 166,289 25,747 140,542
Capitalized software....................... 40,143 10,503 29,640
Other...................................... 17,558 8,731 8,827
-------- -------- --------
$702,967 $307,576 $395,391
======== ======== ========
</TABLE>
For the years ended December 31, 1993, 1994 and 1995 amortization expense
was $69,098, $65,767 and $63,702, including $3,320, $2,383 and $1,853 for
capitalized software, respectively.
Capitalized Data Files--Costs associated with modifying data files with
current data to create updated and new files are capitalized. Purchased data
files, with a net book value of $124,267 and $110,831 at December 31, 1994 and
1995, respectively, are amortized by the straight-line method over 15 years,
and other capitalized data file information is amortized over three to five
years.
Intangibles Arising from Acquisitions--Intangibles arising from acquisitions
prior to 1971 of $24,907 are not being amortized because there is no
indication of diminished value. Intangibles arising from acquisitions after
1970 are being amortized by the straight-line method over 40 years.
Other Intangible Assets--Costs incurred for new software products are
charged to research and development expense until technological feasibility is
established. Thereafter, certain costs are capitalized. Amortization begins
when the product is used in a revenue producing capacity. During 1992, TRW
IS&S began development of a new system to provide on-line decision-support
services. For the years ended December 31, 1993, 1994 and 1995, charges to
research and development expense related to this project were $5,196, $10,682
and $24,322, respectively. During 1994, the project attained technological
feasibility and $10,960 and $9,654 were capitalized in 1994 and 1995,
F-10
<PAGE>
TRW INFORMATION SYSTEMS & SERVICES
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
B. SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
respectively. Initial operation of the system is planned for the second
quarter of 1996. Capitalized software is amortized by the straight-line method
over three to five years.
Other intangible assets are being amortized on a straight-line basis over
their estimated useful lives, typically no more than seven years. Based upon
its most recent analysis, management believes that no material impairment of
intangible assets exists at December 31, 1995. Title plants are not amortized.
Accounting Change
Effective January 1, 1993, TRW IS&S adopted Statement of Financial
Accounting Standards No. 112, Employers' Accounting for Postemployment
Benefits, which requires accrual of the cost of benefits provided to former or
inactive employees after employment but before retirement. TRW IS&S' previous
practice was to record the cost of certain of these benefits as incurred.
Income Taxes
TRW IS&S, except for TRW REDI, is included in the TRW consolidated tax
return. Income taxes have been provided on a separate return basis. Deferred
income taxes reflect the net tax effects of temporary differences between the
carrying amounts of assets and liabilities for financial reporting purposes
and the amounts used for income tax purposes.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from these estimates.
Other Matters
In 1993, other (income) expense includes expense of $10,512 before tax
($6,938 after tax) to write off an intercompany note receivable from TRW RELS.
In 1993, a reserve of $1,100 before tax ($720 after tax) for employee
related benefits for former employees was reversed.
In 1994, other (income) expense includes a gain of $17,728 before tax
($11,523 after tax) on the sale of Credentials, a direct-to-consumer credit
monitoring business.
In 1995, other (income) expense includes gains of $1,257 before tax ($817
after tax) on the sale of two product lines.
Pending Accounting Standards
The Financial Accounting Standards Board has issued Statement of Financial
Accounting Standards No. 121, Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to Be Disposed Of. Statement No. 121
establishes accounting standards for determining the impairment of long-lived
assets to be held and used, certain identifiable intangibles, and goodwill
related to those assets and for long-lived assets and certain identifiable
intangibles to be disposed of. TRW IS&S is required to adopt Statement No. 121
during the first quarter of 1996 and it will not have a material effect on the
financial condition or results of operations.
F-11
<PAGE>
TRW INFORMATION SYSTEMS & SERVICES
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
C. NET INVESTMENT
The net investment account includes transactions of an intercompany nature,
related to deferred income taxes, employee benefit plans, other intercompany
transactions and the residual net investment balance in TRW IS&S. The
following table sets forth the components of net investment recognized in TRW
IS&S' balance sheets at December 31, 1994 and 1995.
<TABLE>
<CAPTION>
1994 1995
-------- --------
<S> <C> <C>
Net Investment:
Deferred income taxes--net............................ $ 41,937 $ 54,163
Payables to other TRW units--net...................... 12,954 26,902
Employee benefit plans................................ 16,905 18,369
Residual TRW net investment........................... 329,553 319,021
-------- --------
$401,349 $418,455
======== ========
</TABLE>
A summary of the activity in the net investment account is as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------
1993 1994 1995
-------- -------- --------
<S> <C> <C> <C>
Beginning balance................................ $423,980 $416,457 $401,349
Net earnings..................................... 28,018 56,287 51,752
Net transfers to parent company.................. (61,292) (60,828) (62,284)
Net intercompany transactions.................... 31,751 (8,167) 27,638
Distribution to majority partner of TRW REDI..... (6,000) (2,400)
-------- -------- --------
Ending balance................................... $416,457 $401,349 $418,455
======== ======== ========
</TABLE>
F-12
<PAGE>
TRW INFORMATION SYSTEMS & SERVICES
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
D. EMPLOYEE BENEFIT PLANS
Pension Plans
Substantially all TRW IS&S employees, except for employees of TRW REDI, are
covered by TRW defined benefit pension plans (noncontributory). Plans for most
salaried employees provide pay-related benefits based on years of service.
Under TRW's funding policy, annual contributions are made to fund the plans
during the participants' working lifetimes, except for nonqualified plans
which are funded as benefits are paid to participants. Annual contributions to
funded plans have met or exceeded ERISA's minimum funding requirements.
Employees of TRW IS&S, except for employees of TRW REDI, may participate in
a TRW sponsored contributory stock savings plan. TRW matches employee
contributions up to 3% of the participant's qualified compensation. TRW
contributions are held in an unleveraged employee stock ownership plan.
TRW REDI sponsors a defined contribution pension plan covering substantially
all of its employees. TRW REDI matches employee contributions up to 3% of the
participant's qualified compensation.
TRW allocates pension cost to TRW IS&S on the basis of payroll for funded
plans and projected liabilities for unfunded plans. The following is a summary
of the components of net periodic pension cost for defined benefit plans and
the total cost for the stock savings plan and the defined contribution plan.
<TABLE>
<CAPTION>
1993 1994 1995
------- ------- --------
<S> <C> <C> <C>
Defined benefit plans:
Service cost-benefits earned during the
year........................................ $ 2,400 $ 2,809 $ 2,620
Interest cost on projected benefit
obligation.................................. 3,743 4,030 4,045
Actual (return) loss on plan assets.......... (7,406) 994 (12,624)
Deferred gain (loss) on plan assets.......... 3,024 (6,224) 7,896
Net amortization and other................... (455) (58) (55)
------- ------- --------
Total pension cost of defined benefit plans.... 1,306 1,551 1,882
Stock savings plan............................. 1,839 1,922 2,219
Defined contribution plan...................... 771 853 790
------- ------- --------
$ 3,916 $ 4,326 $ 4,891
======= ======= ========
</TABLE>
F-13
<PAGE>
TRW INFORMATION SYSTEMS & SERVICES
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
D. EMPLOYEE BENEFIT PLANS--(CONTINUED)
The following table sets forth the funded status and amounts recognized in
TRW IS&S' balance sheets for its defined benefit pension plans.
<TABLE>
<CAPTION>
1994 1995
------- -------
<S> <C> <C>
Actuarial present value of benefit obligations:
Vested benefit obligation............................... $31,132 $42,221
======= =======
Accumulated benefit obligation.......................... $36,856 $49,775
======= =======
Projected benefit obligation.............................. $45,678 $62,071
Plan assets at fair value (primarily listed stocks and
bonds)................................................... 48,138 60,739
------- -------
Plan assets (less than) in excess of projected benefit
obligation............................................... 2,460 (1,332)
Unrecognized net gain..................................... (4,112) (943)
Unrecognized net assets................................... (1,730) (1,324)
Unrecognized prior service cost........................... 1,533 1,070
Additional minimum liability.............................. (1,102) (1,055)
------- -------
Net pension (liability) recognized in the balance
sheet................................................ $(2,951) $(3,584)
======= =======
</TABLE>
As of December 31, 1994 and 1995, the discount rate used in determining the
actuarial present value of benefit obligations was 8 1/2% and 7%,
respectively, and the projected rate of increase in future compensation levels
was 3% for 1994 and 4% for 1995. The expected long-term rate of return on
assets was 9% for 1994 and 1995.
Postretirement Benefits Other than Pensions
A majority of TRW IS&S' retired employees are provided health care and life
insurance benefits by TRW. TRW REDI provides no postretirement benefits other
than pensions. The health care plans provide for cost sharing, in the form of
employee contributions, deductibles, and coinsurance, between TRW IS&S and its
retirees. The postretirement health care plan covering a majority of employees
who retired since August 1, 1988 limits the annual increase in TRW IS&S'
contribution toward the plan's cost to a maximum of the lesser of 50% of
medical inflation or 4%. Life insurance benefits are generally
noncontributory. TRW IS&S' policy is to fund the cost of postretirement health
care and life insurance benefits in amounts determined at the discretion of
TRW management. The Plans are currently not prefunded.
The following table sets forth the funded status and amounts recognized in
TRW IS&S' balance sheets at December 31, 1994 and 1995 for its postretirement
benefit plans.
<TABLE>
<CAPTION>
1994 1995
-------- --------
<S> <C> <C>
Accumulated postretirement benefit obligation:
Retirees.............................................. $ 3,116 $ 3,463
Fully eligible active participants.................... 131 42
Other active participants............................. 6,242 7,262
-------- --------
9,489 10,767
Plan assets at fair value............................... 0 0
-------- --------
Accumulated postretirement benefit obligation in excess
of plan assets......................................... (9,489) (10,767)
Unrecognized net gain................................... (2,622) (2,128)
-------- --------
Net (liability) recognized in the balance sheet..... $(12,111) $(12,895)
======== ========
</TABLE>
F-14
<PAGE>
TRW INFORMATION SYSTEMS & SERVICES
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
D. EMPLOYEE BENEFIT PLANS--(CONTINUED)
Net periodic postretirement benefit cost includes the following components:
<TABLE>
<CAPTION>
1993 1994 1995
------ ------ ------
<S> <C> <C> <C>
Service cost.......................................... $ 481 $ 525 $ 432
Interest cost......................................... 785 753 722
Net amortization and deferral......................... (88) (36)
------ ------ ------
$1,178 $1,278 $1,118
====== ====== ======
</TABLE>
The discount rate used in determining the accumulated postretirement benefit
obligation as of December 31, 1994 and 1995 was 8 1/2% and 7%, respectively.
At December 31, 1994, the 1995 annual rate of increase in the per capita cost
of covered health care benefits was assumed to be 10% for participants under
age 65 and 9% for participants age 65 or older. The rates were assumed to
decrease gradually to 6% and 5%, respectively, in the year 2021 and remain at
that level thereafter. At December 31, 1995, the 1996 annual rate of increase
in the per capita cost of covered health care benefits was assumed to be 10%
for participants under age 65 and 9% for participants age 65 or older. The
rates were assumed to decrease gradually to 6% and 5%, respectively, in the
year 2021 and remain at that level thereafter. A one percent annual increase
in these assumed cost trend rates would increase the accumulated
postretirement benefit obligation at December 31, 1995 by approximately 8%,
and the aggregate of the service and interest cost components of net periodic
postretirement benefit cost for 1995 by approximately 9%.
The change in discount rate and the assumed annual rates of increase in the
per capita cost of covered health care benefits at December 31, 1994, reflect
higher prevailing interest rates and lower expected medical inflation. The
change in discount rate at December 31, 1995, reflects lower prevailing
interest rates.
E. INCOME TAXES
Income taxes differ from the statutory rate principally due to the
following:
<TABLE>
<CAPTION>
1993 1994 1995
---- ---- ----
<S> <C> <C> <C>
U.S. statutory income tax rate........................... 35.0% 35.0% 35.0%
Amortization of intangibles arising from acquisitions.... 2.3 1.1 1.3
State and local income taxes net of federal tax benefit.. 2.9 2.9 3.0
Effect of enacted tax law and tax rate change on
temporary differences................................... 2.0
Other.................................................... .1 .5 .7
---- ---- ----
Effective income tax rate.............................. 42.3% 39.5% 40.0%
==== ==== ====
</TABLE>
F-15
<PAGE>
TRW INFORMATION SYSTEMS & SERVICES
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
E. INCOME TAXES--(CONTINUED)
The following is a summary of the significant components of TRW IS&S'
deferred tax assets and liabilities as of December 31, 1994 and 1995:
<TABLE>
<CAPTION>
DEFERRED
-------------------------------
TAX ASSETS TAX LIABILITIES
--------------- ---------------
1994 1995 1994 1995
------- ------- ------- -------
<S> <C> <C> <C> <C>
Capitalized data files..................... $50,965 $53,564
Other intangible assets.................... $ 3,030 $ 2,697 5,620 10,392
Pension and postretirement benefits other
than pensions............................. 5,134 5,410
State and local taxes...................... 1,268 968 4,529 5,180
Reserves and accruals...................... 3,707 2,113
Fixed assets............................... 2,572 374
Other...................................... 3,621 3,660 155 249
------- ------- ------- -------
Total.................................... $19,332 $15,222 $61,269 $69,385
======= ======= ======= =======
</TABLE>
Amounts paid to TRW for income taxes in 1993, 1994 and 1995 were $9.1
million, $32.6 million and $22.0 million, respectively.
F. LEASE COMMITMENTS
TRW IS&S leases certain buildings, offices, computer and office equipment,
and automobiles under operating leases. Such leases, some of which are
noncancelable and in some cases include renewals, expire at various dates. TRW
IS&S pays most maintenance, insurance, and tax expense relating to leased
assets. Rental expense for operating leases was $42,000 in 1993 and 1994 and
$51,000 in 1995.
At December 31, 1995, future minimum lease payments for noncancelable
operating leases totaled $131,000 and are payable as follows: 1996 - $30,000;
1997 - $21,000; 1998 - $12,000; 1999 - $10,000; 2000 - $9,000; and $49,000
thereafter.
G. ACQUISITIONS
In 1995, TRW IS&S purchased substantially all of the assets of Professional
Real Estate Tax Service, Inc. (PRE) and American Business Corporation (ABC).
TRW IS&S issued $1,250 of 8% promissory notes that require payment in 20 equal
quarterly installments of principal plus interest on the unpaid principal
balance starting October 1, 1995 and ending July 1, 2000. At December 31,
1995, $1,211 is outstanding under the notes. In addition to the promissory
notes, TRW IS&S agreed to pay additional consideration as follows: for a
period of 120 calendar months, commencing July 1995 and ending July 2005, TRW
IS&S shall pay to the seller of PRE and ABC amounts equal to 3% and 7%,
respectively, of the monthly gross billable revenues for tax services rendered
during such months by PRE and ABC.
In 1994, TRW IS&S acquired all of the outstanding stock of Rufus S. Lusk &
Son, Inc. (Lusk) for $5,750 in a purchase business combination. The estimated
excess purchase price of $5,533 has been determined based on the allocation of
the purchase price to the assets acquired and liabilities assumed and is being
amortized on the straight-line basis over 40 years. The operating results of
Lusk are included in the combined statement of earnings from the date of
acquisition.
A note payable was issued to the shareholders of Lusk in connection with the
acquisition. The note balance is $925 at December 31, 1995 and bears interest
at a variable rate (8.75% at December 31, 1995) and is payable in monthly
installments of $42 through October 1997.
F-16
<PAGE>
TRW INFORMATION SYSTEMS & SERVICES
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
H. DIVESTITURE
In 1995, TRW IS&S sold the California C&I Business and the C&I Data Extract
Business (in certain territories) to COMPS Infosystems, Inc. (COMPS). TRW IS&S
retained all liabilities related to the divested businesses. As consideration,
TRW IS&S received $225 in cash and promissory notes with a face value of $750.
At December 31, 1995, TRW IS&S has a note receivable from COMPS of $425. TRW
IS&S recorded a before tax gain on sale of $543.
In 1995, TRW IS&S sold the Search Access product line for $800 in cash and
recorded a before tax gain of $714.
I. RESTRUCTURING
Prior to 1994, TRW IS&S recognized restructuring and related costs when
management and the Board of Directors of TRW approved a formal plan of action
to restructure and amounts were reasonably estimable and probable to be paid.
At that time, incremental costs directly associated with the restructuring
plan were accrued by a charge to operations. Beginning in 1994, restructuring
and related costs were recognized in accordance with Emerging Issues Task
Force Issue No. 94-3, Liability Recognition for Certain Employee Termination
Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred
in a Restructuring).
At December 31, 1994 and 1995, other accruals include $10,666 and $2,673,
respectively, relating to restructuring reserves:
<TABLE>
<CAPTION>
1994 1995
------- ------
<S> <C> <C>
Facilities relocation and lease terminations................. $ 6,664 $1,314
Employee related costs....................................... 3,724 1,359
Other........................................................ 278
------- ------
$10,666 $2,673
======= ======
</TABLE>
In 1994, restructuring expense of $8,800 was recorded to cover the costs of
closing, downsizing, and relocating certain facilities and restructuring of
the TRW REDI organization. Key elements of the restructuring program, which is
expected to be completed in 1997, included termination benefits for
approximately 370 employees from throughout the organization, including data
entry personnel, supervisors, and management.
Additional restructuring expense of $3,600 and $3,916 in 1993 and 1994,
respectively, principally relates to costs incurred for the relocation of the
data center from Orange, California, to Allen, Texas.
The following summarizes the 1995 restructuring reserve activity:
<TABLE>
<S> <C>
Balance at December 31, 1994...................................... $10,666
Excess reserves returned to profit, resulting principally from
cost reimbursements being higher than estimated.................. (3,317)
Used for intended purpose......................................... (4,676)
-------
Balance at December 31, 1995...................................... $ 2,673
=======
</TABLE>
F-17
<PAGE>
TRW INFORMATION SYSTEMS & SERVICES
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
J. RELATED PARTY TRANSACTIONS
TRW REDI entered into trademark agreements with its partners, which require
the payment to each partner of a fee equal to 1% of the net sales price (as
defined) of services sold by TRW REDI for a five year period which commenced
September 1, 1991. Expenses under the agreements for the years ended December
31, 1993, 1994 and 1995 were $2,079, $1,945 and $1,845, respectively. At
December 31, 1994 and 1995, $349 and $1,000, respectively, are payable to TRW,
and $201 and $199, respectively, are payable to the minority partner of TRW
REDI, which represents trademark expense and other obligations of TRW REDI.
Under the terms of a Cash Management and Loan Agreement with TRW, TRW REDI
has an overdraft line of credit of $8,000 to June 30, 1996, reduced to $5,000
to January 1, 1997 and $4,000 to December 1, 1997. The interest rate is the
30-day commercial paper rate plus 1%. The balance outstanding at December 31,
1995 was $4,859.
Other assets at December 31, 1995 include an investment in VR Limited
Partnership ("VRLP") of $195. TRW REDI leases office space from VRLP through
an operating lease. During 1994 and 1995, TRW REDI paid rent of $62 and $165,
respectively, to VRLP.
Certain of the units in the combined financial statements participate in
TRW's cash management system, under which TRW withdraws daily the unit's cash
receipts and covers any disbursements that have cleared the bank.
TRW Corporate incurs general and administrative expenses that relate to all
of TRW's operating units, which are allocated based upon each operating unit's
cost of operations. TRW IS&S recorded these expenses with an offsetting entry
to the net investment account after related income taxes. Group Staff expenses
are included in cost of sales and administrative and selling expenses for
financial statement presentation purposes and were $12,405, $11,463 and
$10,171 in 1993, 1994 and 1995, respectively.
K. COMMITMENTS AND CONTINGENCIES
TRW IS&S paid $565 in 1995, which was accrued at December 31, 1994, to
settle two shareholder derivative actions. The payment represented plaintiffs'
attorneys' fees. The settlement includes the adoption of certain therapeutic
measures involving the oversight of the consumer credit reporting business.
TRW IS&S terminated two credit bureau contracts with certain plaintiffs as a
result of a merger. Plaintiffs filed suit alleging that TRW IS&S breached the
bureaus' contracts by retaining and using the credit information owned by the
bureaus after the contracts expired. TRW IS&S won the liability phase at
trial. The judgment was subsequently reversed by the appellate division and
the case was remanded for a trial on damages. TRW IS&S has accrued $600 at
December 31, 1994 and 1995. Trial is scheduled for June 1996. While the
ultimate outcome of the litigation cannot be determined, management does not
expect that this matter will have a material adverse effect on the combined
financial position of TRW IS&S.
A plaintiff contends that TRW IS&S breached a commercial lease by failing to
restore the premises to its pre-occupancy condition and by holding-over after
the termination of the lease. The court found that TRW IS&S breached the lease
and that TRW IS&S owed the landlord double rent. The court found in favor of
the Plaintiff for $446, including pre-judgment interest, which was accrued at
December 31, 1994 and 1995. Plaintiffs have demanded $2,000 to settle. This
judgment was affirmed on appeal. TRW IS&S will petition the Supreme Court of
New Jersey for review of the judgment.
F-18
<PAGE>
TRW INFORMATION SYSTEMS & SERVICES
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONCLUDED)
K. COMMITMENTS AND CONTINGENCIES--(CONTINUED)
TRW IS&S is subject to various other legal proceedings and claims that arise
in the ordinary course of its business activities. Management believes that
any liability that may ultimately result from the resolution of these matters
will not have a material adverse effect on the combined financial position or
results of operations of TRW IS&S.
L. EVENT SUBSEQUENT TO DATE OF INDEPENDENT AUDITORS REPORT [UNAUDITED]
In February 1996, TRW entered into an agreement to sell substantially all of
TRW IS&S. The sale is subject to corporate and regulatory approval and other
conditions. Subsequent to the sale, TRW will maintain 19.6% of the voting
power of Holdings.
F-19
<PAGE>
TRW INFORMATION SYSTEMS & SERVICES
CONDENSED COMBINED BALANCE SHEET
<TABLE>
<CAPTION>
MARCH 31,
1996
-----------
(THOUSANDS
OF DOLLARS)
(UNAUDITED)
<S> <C>
ASSETS
Current assets
Cash and cash equivalents......................................... $ 355
Accounts receivable............................................... 93,031
Prepaid expenses.................................................. 9,031
--------
Total current assets............................................ 102,417
Property and equipment--net......................................... 48,264
Capitalized data files.............................................. 213,299
Goodwill............................................................ 139,834
Other intangible assets............................................. 41,643
Other assets........................................................ 13,108
--------
Total assets.................................................... $558,565
========
LIABILITIES AND NET INVESTMENT
Current liabilities
Accounts payable.................................................. $ 19,956
Other accruals.................................................... 21,558
Accrued compensation.............................................. 22,889
Deferred revenue and advance billings............................. 28,508
--------
Total current liabilities....................................... 92,911
Long-term liabilities............................................... 1,707
Minority interest................................................... 25,094
Net investment...................................................... 438,853
--------
Total liabilities and net investment............................ $558,565
========
</TABLE>
See notes to condensed combined financial statements.
F-20
<PAGE>
TRW INFORMATION SYSTEMS & SERVICES
CONDENSED COMBINED STATEMENTS OF EARNINGS
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
-----------------------
1995 1996
----------- -----------
(THOUSANDS OF DOLLARS)
(UNAUDITED)
<S> <C> <C>
Sales.................................................. $133,752 $143,825
Cost of sales.......................................... 69,458 74,253
----------- -----------
Gross profit........................................... 64,294 69,572
Administrative and selling expenses.................... 38,118 38,081
Research and development expenses...................... 2,453 8,296
TRW corporate general and administrative expenses...... 1,201 1,224
Minority interest...................................... 199 364
Interest expense....................................... 105 255
Other expense, net .................................... 162 724
----------- -----------
Earnings before income taxes........................... 22,056 20,628
Provision for income taxes............................. 8,860 8,257
----------- -----------
Net earnings........................................... $ 13,196 $ 12,371
=========== ===========
</TABLE>
See notes to condensed combined financial statements.
F-21
<PAGE>
TRW INFORMATION SYSTEMS & SERVICES
CONDENSED COMBINED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
------------------------
1995 1996
----------- -----------
(THOUSANDS OF DOLLARS)
(UNAUDITED)
<S> <C> <C>
OPERATING ACTIVITIES:
Net cash provided by operating activities............ $ 14,207 $ 9,812
INVESTING ACTIVITIES:
Expenditures for intangible assets................. (13,650) (15,480)
Other, net......................................... (2,194) (3,808)
----------- -----------
Net cash used in investing activities................ (15,844) (19,288)
FINANCING ACTIVITIES:
Net transfers and payments with TRW Inc. .......... 1,697 9,106
Change in debt..................................... (137) (140)
----------- -----------
Net cash provided by financing activities............ 1,560 8,966
----------- -----------
Decrease in cash and cash equivalents................ (77) (510)
Cash and cash equivalents at beginning of period..... 81 865
----------- -----------
Cash and cash equivalents at end of period........... $ 4 $ 355
=========== ===========
</TABLE>
See notes to condensed combined financial statements.
F-22
<PAGE>
TRW INFORMATION SYSTEMS & SERVICES
NOTES TO CONDENSED COMBINED FINANCIAL STATEMENTS
MARCH 31, 1995 AND 1996
(THOUSANDS OF DOLLARS)
A. BASIS OF PRESENTATION
These combined financial statements of TRW Information Systems & Services
(TRW IS&S) include: TRW Information Services, TRW Business Credit Services and
IS&S Staff, which are divisions of TRW Inc. (TRW); IS&S International, Inc.,
Hotel Management Inc. and Information Systems and Services, Inc., which are
wholly-owned subsidiaries of TRW; and TRW REDI Property Data (TRW REDI), in
which TRW owns a 60% partnership interest. All significant intragroup accounts
and transactions have been eliminated in combination. The combined financial
statements exclude certain operating units historically included in TRW's
Information Systems & Services business segment.
TRW IS&S operates in a single line of business, substantially all of which
is domestic--the sale of consumer and business information--organized along
three product lines: Consumer Information Services, Business Information
Services, and Real Estate Information Services. Consumer Information Services
provides consumer credit reports to retailers, financial organizations, and
other credit-granting organizations. Business Information Services provides
business credit decision support and demographic information for business-to-
business credit granting and direct marketing efforts to retailers and other
credit-granting organizations. Real Estate Information Services provides
property data services and title information services to title companies,
appraisers, and real estate brokers.
The accompanying condensed combined financial statements have been prepared
by TRW IS&S without audit; however, in the opinion of TRW IS&S, the
accompanying condensed combined financial statements include all adjustments
(which are of a normal and recurring nature) necessary for a fair presentation
of the results for the interim periods. The condensed combined results for any
interim period may not be indicative of the results for the entire year. These
interim condensed combined financial statements should be read in conjunction
with the financial statements for the years ended December 31, 1993, 1994 and
1995.
B. RECAPITALIZATION TRANSACTION
As more fully described in "The Recapitalization, Financing and Related
Transactions" section of the Registration Statement on Form S-1 of Experian
Information Solutions, Inc., a Recapitalization Agreement was entered into as
of February 9, 1996 among TRW, certain TRW subsidiaries and a Delaware
corporation owned by certain Investors, as defined. As a result of the
Recapitalization and certain other Transactions, as defined, Experian
Information Solutions, Inc. will merge into IS&S and is expected to change its
name to Experian Information Solutions, Inc.
C. INVESTMENT IN COMCRED
TRW IS&S has invested in Comcred S.A. de CV ("Comcred"), a start-up Mexican
credit data company. TRW IS&S purchased 2,400 shares of Comcred's Series B
stock (20% interest) for $750. TRW IS&S has entered into three note agreements
which allow Comcred to draw down cash as necessary. As of December 31, 1995
and March 31, 1996, TRW IS&S has principal and interest totaling $4,518 and
$4,572, respectively, outstanding under the notes. Two of the promissory notes
have conversion features which allow TRW IS&S to convert an amount of
principal and interest that would result in issuance of an additional 29% of
Comcred's total voting securities. TRW IS&S accounts for its investment in
Comcred using the equity method of accounting. During the three months ended
F-23
<PAGE>
TRW INFORMATION SYSTEMS & SERVICES
NOTES TO CONDENSED COMBINED FINANCIAL STATEMENTS--(CONTINUED)
March 31, 1996, the Company provided an allowance of $968, before tax, related
to the notes described above. Through March 31, 1996 TRW IS&S has recorded
$1,000 of losses reflecting its share of the inception to date losses of
Comcred.
D. ACCOUNTING STANDARDS
The Financial Accounting Standards Board issued Statement of Financial
Accounting Standards No. 121 (SFAS No. 121), Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of. SFAS No. 121
establishes accounting standards for determining the impairment of long-lived
assets to be held and used, certain identifiable intangibles, and goodwill
related to those assets and for long-lived assets and certain identifiable
intangibles to be disposed of. TRW IS&S adopted the provisions of SFAS No. 121
during the first quarter of 1996 and it did not have an effect on the
financial condition or results of operations.
E. COMMITMENTS AND CONTINGENCIES
TRW IS&S terminated two credit bureau contracts with certain plaintiffs as a
result of a merger. Plaintiffs filed suit alleging that TRW IS&S breached the
bureaus' contracts by retaining and using credit information owned by the
bureaus after the contracts expired. TRW IS&S won the liability phase at
trial. The judgment was subsequently reversed by the appellate division and
the case was remanded for a trial on damages. As a result, TRW IS&S had
accrued $600 as of December 31, 1995 and March 31, 1996. Trial is scheduled
for June 1996. While the ultimate outcome of the litigation cannot be
determined, management does not expect that this matter will have a material
adverse effect on the Company.
F. OTHER MATTERS
In February 1996, TRW entered into an agreement to sell substantially all of
TRW IS&S. The sale is subject to corporate and regulatory approval and other
conditions. Subsequent to the sale, TRW will maintain 19.6% of the voting
power of Holdings.
F-24
<PAGE>
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFOR-
MATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PRO-
SPECTUS IN CONNECTION WITH THE OFFER CONTAINED HEREIN, AND, IF GIVEN OR MADE,
SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AU-
THORIZED BY HOLDINGS, THE COMPANY OR THE UNDERWRITERS. THIS PROSPECTUS DOES
NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY OF
THE SECURITIES OTHER THAN THE SECURITIES TO WHICH IT RELATES OR ANY OFFER TO
SELL, OR THE SOLICITATION OF AN OFFER TO BUY, SUCH SECURITIES IN ANY CIRCUM-
STANCES IN WHICH SUCH OFFER OR SOLICITATION IS UNLAWFUL. NEITHER THE DELIVERY
OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER WILL, UNDER ANY CIRCUMSTANCES,
CREATE AN IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COM-
PANY SINCE THE DATE HEREOF OR THAT THE INFORMATION CONTAINED HEREIN IS CORRECT
AS OF ANY TIME SUBSEQUENT TO ITS DATE.
-------------------
UNTIL , 1996 (90 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL DEALERS EF-
FECTING TRANSACTIONS IN THE NOTES, WHETHER OR NOT PARTICIPATING IN THIS DIS-
TRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS IS IN ADDITION TO THE
OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND
WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
- -------------------------------------------------------------------------------
TABLE OF CONTENTS
<TABLE>
<S> <C>
Available Information..................................................... 2
Prospectus Summary........................................................ 3
Risk Factors.............................................................. 15
Experian Information Solutions, Inc....................................... 21
The Recapitalization, Financing and Related Transactions.................. 21
Use of Proceeds........................................................... 22
Unaudited Pro Forma Capitalization........................................ 23
Unaudited Pro Forma Financial Data........................................ 24
Selected Historical Combined Financial Data............................... 36
Management's Discussion and Analysis of Financial Condition and Results of
Operations............................................................... 38
Business.................................................................. 45
Management................................................................ 59
Ownership of Capital Stock................................................ 64
Description of Notes...................................................... 66
Description of Credit Facilities.......................................... 95
Certain Relationships and Related Transactions............................ 97
Underwriting.............................................................. 99
Legal Matters............................................................. 100
Experts................................................................... 100
Index to Financial Statements............................................. F-1
</TABLE>
PROSPECTUS
$250,000,000
EXPERIAN INFORMATION SOLUTIONS, INC.
TO BE MERGED INTO
INFORMATION SYSTEMS AND SERVICES, INC.
% SENIOR SUBORDINATED NOTES DUE 2006
CHASE SECURITIES INC.
BT SECURITIES CORPORATION
BEAR, STEARNS & CO. INC.
, 1996
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The estimated costs (other than underwriting discounts and commissions) of
issuance and distribution of the securities being registered are as follows:
<TABLE>
<S> <C>
SEC Registration Filing Fee...................................... $103,449
NASD Filing Fee.................................................. 30,500
Blue Sky Fee and Expenses........................................ *
Accounting Fees and Expenses..................................... *
Legal Fees and Expenses.......................................... *
Printing......................................................... *
Trustee Fee...................................................... *
Miscellaneous.................................................... *
--------
Total........................................................ $ *
========
</TABLE>
- --------
*To be completed by amendment
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145 of the Delaware General Corporation Law ("DGCL") provides that a
corporation may indemnify any person who was or is a party or is threatened to
be made a party to any threatened, pending or completed action, suit or
proceeding, whether civil, criminal or investigative (other than an action by
or in the right of the corporation) by reason of the fact that he is or was a
director, officer, employee or agent of the corporation, or is or was serving
at the request of the corporation as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust or other enterprise,
against expenses (including attorneys' fees), judgments, fines and amounts
paid in settlement actually and reasonably incurred by him in connection with
such action, suit or proceeding if he acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests of the
corporation, and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his conduct was unlawful. Section 145 further
provides that a corporation similarly may indemnify any such person serving in
any such capacity who was or is a party or is threatened to be made a party to
any threatened, pending or completed action or suit by or in the right of the
corporation to procure a judgment in its favor, against expenses actually and
reasonably incurred in connection with the defense or settlement of such
action or suit if he acted in good faith and in a manner he reasonably
believed to be in or not opposed to the best interests of the corporation and
except that no indemnification shall be made in respect of any claim, issue or
matter as to which such person shall have been adjudged to be liable to the
corporation unless and only to the extent that the Delaware Court of Chancery
or such other court in which such action or suit was brought shall determine
upon application that, despite the adjudication of liability but in view of
all the circumstances of the case, such person is fairly and reasonably
entitled to indemnity for such expenses which the Court of Chancery or such
other court shall deem proper.
Section 102(b)(7) of the DGCL permits a corporation to include in its
certificate of incorporation a provision eliminating or limiting the personal
liability of a director to the corporation or its stockholders for monetary
damages for breach of fiduciary duty as a director, provided that such
provision shall not eliminate or limit the liability of a director (i) for any
breach of the director's duty of loyalty to the corporation or its
stockholders, (ii) for acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law, (iii) under Section 174
of the DGCL (relating to unlawful payment of dividends and unlawful stock
purchase and redemption) or (iv) for any transaction from which the director
derived an improper personal benefit.
II-1
<PAGE>
The Certificate of Incorporation of Experian provides that its Directors
shall not be liable to the Company or its stockholders for monetary damages
for breach of fiduciary duty as a director, except to the extent that
exculpation from liabilities is not permitted under the Delaware General
Corporation Law as in effect at the time such liability is determined. The
Certificate of Incorporation of Experian further provides that it shall
indemnify its directors and officers to the full extent permitted by the laws
of the State of Delaware.
After consummation of the Recapitalization, the Company, as survivor of the
IS&S Merger, will be incorporated under the laws of the State of Ohio. Ohio
Revised Code Section 1701.13 (E) provides that a corporation may indemnify or
agree to indemnify any person who was or is a party, or is threatened to be
made a party, to any threatened, pending, or completed action, suit, or
proceeding, whether civil, criminal, administrative, or investigative, other
than an action by or in the right of the corporation, by reason of the fact
that he is or was a director, officer, employee, or agent of the corporation,
or is or was serving at the request of the corporation as a director, trustee,
officer, employee, member, manager, or agent of another corporation, domestic
or foreign, nonprofit or for profit, a limited liability company, or a
partnership, joint venture, trust, or other enterprise, against expenses,
including attorney's fees, judgments, fines, and amounts paid in settlement
actually and reasonably incurred by him in connection with such action, suit,
or proceeding, if he acted in good faith and in a manner he reasonably
believed to be in or not opposed to the best interests of the corporation,
and, with respect to any criminal action or proceeding, if he had no
reasonable cause to believe his conduct was unlawful. The termination of any
action, suit, or proceeding by judgment, order, settlement, or conviction, or
upon a plea of nolo contendere or its equivalent, shall not, of itself, create
a presumption that the person did not act in good faith or in a manner he
reasonably believed to be in or not opposed to the best interests of the
corporation, and, with respect to any criminal action or proceeding, he had
reasonable cause to believe that his conduct was unlawful.
The Company's Articles of Incorporation will provide the Company with the
power to indemnify its present and past directors, officers, employees and
agents to the full extent permitted under, and subject to the limitations of,
Title 17 of the Ohio Revised Code.
The Stockholders Agreement is expected to provide for indemnification of
each of the Registrant's directors and officers in certain circumstances.
The Company will purchase a Directors and Officers Liability Insurance
Policy for certain losses arising from certain claims and charges, including
claims and charges under the Securities Act, which may be made against such
persons while acting in their capacities as directors and officers of the
Company.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
In May 1996, 100 shares of Common Stock, $.01 par value per share, of the
Registrant were sold by the Registrant to Experian Corporation for an
aggregate offering price of $100.00 in a transaction exempt from the
Securities Act pursuant to Section 4(2) thereof.
II-2
<PAGE>
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits
The following exhibits are filed as a part of this Registration Statement.
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
------- -----------
<S> <C>
1.1 Form of Underwriting Agreement.*
2.1 Recapitalization Agreement dated February 9, 1996, as amended June
17, 1996.
3.1 Certificate of Incorporation of the Registrant.**
3.2 Certificate of Amendment to the Certificate of Incorporation.**
3.3 Bylaws of the Registrant.**
3.4 Certificate of Amendment to the Certificate of Incorporation.
4.1 Form of Note (included in Exhibit 4.2 hereto).*
4.2 Form of Indenture.*
5.1 Opinion of Ropes & Gray.*
10.1 Lease and Agreement between Allen Office Investment Limited
Partnership and TRW Inc.
10.2 Form of Credit Facilities*
12.1 Statement re: Computation of ratios of earnings to fixed charges.
23.1 Consent of Ropes & Gray (contained in Exhibit 5.1).*
23.2 Consent of Ernst & Young LLP.
23.3 Consent of Price Waterhouse LLP.
24.1 Powers of Attorney (contained on the signature page to this
Registration Statement).**
25.1 Statement of Eligibility and Qualification of Trustee, on Form T-
1.*
27.1 Financial Data Schedule.**
</TABLE>
- --------
* To be filed by amendment
** Previously filed
(b)Financial Statement Schedules
The following financial statement schedules not included in the prospectus
appear on the following pages of this Registration Statement:
<TABLE>
<CAPTION>
PAGE SCHEDULE
---- --------
<S> <C>
II-5 Report of Independent Auditors.
II-6 TRW Information Systems & Services--Valuation Accounts.
</TABLE>
All other schedules are either inapplicable or the information is included
in the Financial Statements or the Notes thereto have therefore been omitted.
ITEM 17. UNDERTAKINGS
(a) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the Company pursuant to the foregoing provisions, or otherwise, the Company
has been advised that in the opinion of the Securities and Exchange
Commission, such indemnification is against public policy as expressed in the
Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Company of expenses incurred or paid by a director, officer or controlling
person of the Company in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Company will, unless in
the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the Act
and will be governed by the final adjudication of such issue.
II-3
<PAGE>
ITEM 17. CONTINUED
(b) The Company hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act of
1933, the information omitted from the form of prospectus filed as part of
this registration statement in reliance upon Rule 430A and contained in a
form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities Act
of 1933, each post-effective amendment that contains a form of prospectus
shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at this
time shall be deemed to be the initial bona fide offering thereof.
II-4
<PAGE>
REPORT OF INDEPENDENT AUDITORS
TRW Inc.
We have audited the combined financial statements of TRW Information Systems
& Services as of December 31, 1994 and 1995, and for each of the three years
in the period ended December 31, 1995, and have issued our report thereon
dated January 29, 1996 (included elsewhere in this Registration Statement).
Our audits also included the financial statement schedule listed in Item 16(b)
of this Registration Statement. This schedule is the responsibility of TRW
Inc.'s management. Our responsibility is to express an opinion based on our
audits.
In our opinion, the financial statement schedule referred to above, when
considered in relation to the basic financial statements taken as a whole,
presents fairly in all material respects the information set forth therein.
January 29, 1996 /s/ Ernst & Young LLP
Cleveland, Ohio
II-5
<PAGE>
TRW INFORMATION SYSTEMS & SERVICES
VALUATION ACCOUNTS
FOR THE THREE YEARS ENDED DECEMBER 31, 1995
(THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
ADDITIONS
----------------------
BALANCE AT CHARGED TO RECOVERIES DEDUCTIONS- BALANCE
BEGINNING COSTS AND ON ACCOUNTS ACCOUNTS AT END
OF YEAR EXPENSES CHARGED OFF CHARGED OFF OF YEAR
---------- ---------- ----------- ----------- -------
<S> <C> <C> <C> <C> <C>
Allowance for Doubtful
Accounts:
1995.................. $4,699 $4,694 -- $(4,689) $4,704
====== ====== ===== ======= ======
1994.................. $4,587 $3,898 -- $(3,786) $4,699
====== ====== ===== ======= ======
1993.................. $4,073 $4,514 -- $(4,000) $4,587
====== ====== ===== ======= ======
</TABLE>
II-6
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, AS AMENDED, THE
COMPANY HAS DULY CAUSED THIS REGISTRATION STATEMENT TO BE SIGNED ON ITS BEHALF
BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF BOSTON, THE
STATE OF MASSACHUSETTS, ON THIS 30 DAY OF JULY, 1996.
Experian Information Solutions, Inc.
/s/ Mark E. Nunnelly
By: _________________________________
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, AS AMENDED, THIS
REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE
CAPACITIES INDICATED ON THIS 30 DAY OF JULY, 1996.
SIGNATURE TITLE
/s/ Mark E. Nunnelly Director (Principal
- ------------------------------------- Executive) Officer)
MARK E. NUNNELLY
/s/ Anthony J. DiNovi Director (Principal
- ------------------------------------- Financial and
ANTHONY J. DINOVI Accounting Officer)
II-7
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION PAGE
------- ----------- ----
<C> <S> <C>
1.1 Form of Underwriting Agreement.*
2.1 Recapitalization Agreement dated February 9, 1996, as amended
June 17, 1996.
3.1 Certificate of Incorporation of the Registrant.**
3.2 Certificate of Amendment to the Certificate of Incorporation.**
3.3 Bylaws of the Registrant.**
3.4 Certificate of Amendment to the Certificate of Incorporation.
4.1 Form of Note (included in Exhibit 4.2 hereto).*
4.2 Form of Indenture.*
5.1 Opinion of Ropes & Gray.*
10.1 Lease and Agreement between Allen Office Investment Limited
Partnership and TRW Inc.
10.2 Form of Credit Facilities*
12.1 Statement re: Computation of ratios of earnings to fixed
charges.
23.1 Consent of Ropes & Gray (contained in Exhibit 5.1).*
23.2 Consent of Ernst & Young LLP.
23.3 Consent of Price Waterhouse LLP.
24.1 Powers of Attorney (contained on the signature page to this
Registration Statement).**
25.1 Statement of Eligibility and Qualification of Trustee, on Form
T-1.*
27.1 Financial Data Schedule.**
</TABLE>
- --------
* To be filed by amendment
** Previously Filed
<PAGE>
RECAPITALIZATION AGREEMENT
THIS RECAPITALIZATION AGREEMENT ("Agreement") is made the 9th day of
February, 1996, by and among TRW INC. ("TRW"), an Ohio corporation, TRW IS&S
INTERNATIONAL, INC. ("IS&S International"), an Ohio corporation, IS&S HOLDINGS,
INC. ("Holdings"), a Delaware corporation, TRW HOTEL COMPANY
INC. ("TRW Hotel"), an Ohio corporation, TRW MICROWAVE INC. ("Microwave"), a
California corporation, INFORMATION SYSTEMS & SERVICES, INC. ("Operating
Company"), an Ohio corporation, and EXPERIAN CORPORATION ("Purchaser"), a
Delaware corporation.
RECITALS
A. The TRW Information Systems & Services Business provides consumer
and business credit decision support, marketing information services and real
estate information services to a variety of customers (the "Business").
B. The Business is organized as follows:
Consumer Information Services provides consumer credit reports
to banks, retailers, financial organizations and other
credit-granting organizations and provides information used for
targeted marketing by businesses in the credit, real estate,
banking and direct marketing industries.
Business Information Services provides business credit decision
support and demographic information for business-to-business
credit granting and direct marketing efforts.
Real Estate Information Services, through TRW REDI Property
Data, an Ohio general partnership ("Partnership"), provides
property data services and title information services to title
companies, appraisers, real estate brokers, lenders, county
governments and other organizations.
C. TRW, Holdings, IS&S International, Microwave, Operating Company,
TRW Hotel and Purchaser desire to consummate the recapitalization transactions
contemplated by this Agreement on the terms and conditions set forth herein,
D. The Recapitalization will consist of the following transactions
(collectively, the "Recapitalization"), which transactions will be consummated
in the following order and, with the exception of steps 1 through 3 below, each
will be conditioned upon the occurrence of the other transactions:
<PAGE>
1. IS&S International will distribute to TRW, as a dividend, the
Mexican Investments (as herein defined) and all other Acquired
Assets (as herein defined) held by IS&S International;
2. TRW will transfer to Microwave, as a capital contribution,
TRW's 60% interest in the Partnership;
3. Microwave will acquire from TRW and assume, and TRW will assign
and transfer to Microwave, as a capital contribution, the
Acquired Assets (including, without limitation, the Mexican
Investments and all TRW Hotel Shares) and the Assumed
Liabilities, and TRW and Microwave will enter into a
trademark agreement substantially in the form of the Trademark
Agreement;
4. Microwave will transfer to TRW Hotel, as a capital contribution,
Microwave's 60% interest in the Partnership;
5. TRW Hotel will purchase from Elsevier Realty Information, Inc.
("Elsevier"), Elsevier's 40% interest in the Partnership, with
the result that TRW Hotel will have 100% of the interests in
the Partnership and the Partnership's existence will terminate;
6. Operating Company will purchase from Microwave and assume, and
Microwave will sell, assign and transfer to Operating Company,
the Acquired Assets (including, without limitation, the Mexican
Investments, all TRW Hotel Shares and an assignment of
Microwave's rights and interests under the trademark agreement
between TRW and Microwave referred to above) and the Assumed
Liabilities for an aggregate consideration of One Billion One
Hundred Million Dollars ($1,100,000,000), consisting of a Seven
Hundred Fifty-Five Million Dollars ($755,000,000) demand
promissory note payable by Operating Company to Microwave (the
"Demand Note") and shares of stock in Operating Company with an
aggregate issuance price of Three Hundred Forty-Five Million
Dollars ($345,000,000);
7. TRW will transfer to Microwave, as a capital contribution, all
remaining outstanding shares of stock of Operating Company;
8. TRW will transfer to Microwave, as a capital contribution, all
issued and outstanding shares of stock of Holdings;
9. Holdings will purchase from Microwave, and Microwave will sell
and transfer to Holdings, all issued and outstanding shares of
stock of Operating Company in consideration of the issuance by
Holdings to Microwave of shares of stock in
-2-
<PAGE>
Holdings with an aggregate issuance price of Three Hundred
Forty-Five Million Dollars ($345,000,000);
10. In connection with the Recapitalization, TRW, Microwave and
Holdings will make an election under Section 338(h)(10) of the
Internal Revenue Code of 1986, as amended (the "Code") and other
related elections as described in Article VI hereof;
11. Certain investors (the "Equity Investors") will make capital
contributions to Purchaser in an aggregate cash amount of not
less than Two Hundred Fifty-Five Million Dollars ($255,000,000)
and Purchaser will issue to the Equity Investors shares of
stock in respect thereof;
12. Purchaser will merge with and into Holdings, with Holdings
surviving the merger (the "Merger");
13. Pursuant to and immediately following the Merger, (a) the Equity
Investors in the aggregate will hold not more than 94.44% of
the shares of Holdings' outstanding common stock, (b) Microwave
will hold not less than 5.56% of Holdings' then outstanding
common stock, and (c) Microwave will receive Two Hundred
Fifty-Five Million Dollars ($255,000,000) in cash and shares of
Holding's senior convertible preferred stock with an aggregate
issuance price of Seventy-Five Million Dollars ($75,000,000) and
having the other terms set forth on Appendix Q hereto;
14. Operating Company will obtain debt financing in an aggregate
amount of not less than Eight Hundred Five Million Dollars
($805,000,000) in the form of senior secured credit facilities
and senior subordinated notes;
15. Operating Company will pay Seven Hundred Fifty-Five Million
Dollars ($755,000,000) in cash to Microwave as payment in full
of the Demand Note; and
16. Operating Company and TRW will enter into the Trademark Agreement
as a replacement of the trademark agreement referred to in
paragraphs 3 and 6 above which will be cancelled.
-3-
<PAGE>
TERMS AND CONDITIONS
NOW, THEREFORE, in consideration of the premises and of other good and
valuable consideration, and intending to be legally bound hereby, the parties
hereto hereby agree as follows:
ARTICLE I
General Provisions
1.1. Definitions: Appendix A to this Agreement sets forth the
definitions of certain terms used in this Agreement.
1.2. Other Definitions and Meanings; Interpretation: For purposes
of this Agreement, the term "parties" means (except where the context otherwise
requires) TRW, Holdings, IS&S International, Microwave, Operating Company, TRW
Hotel and Purchaser; the term "person" includes any natural person, firm,
association, partnership, corporation, governmental agency, or other entity
other than the parties; and the words "hereof", "herein", "hereby" and other
words of similar import refer to this Agreement as a whole. The table of
contents and the headings of the Articles and Sections of this Agreement have
been included herein for convenience of reference only and will not be deemed to
affect the meaning of the operative provisions of this Agreement. All dollar ($)
amounts referred to herein are in United States Dollars.
1.3. TRW's Knowledge: Where a statement contained in this
Agreement or an Appendix hereto is said to be to "TRW's knowledge" (or words of
similar import) such expression means that, after having conducted a reasonable
due diligence review and in reliance on due diligence certifications resulting
from that review, both as described in Appendix B hereto, TRW believes the
statement to be true, accurate, and complete in all material respects.
1.4. Parts of Disclosure Package; Disclosure of Exceptions:
Neither the reference to any item or matter in any of the nineteen (19) Parts to
the Disclosure Package (as herein defined), nor the inclusion of any document
therein, will disclose an exception to any representation or warranty, except to
the extent that such item, matter or document is disclosed under the caption
"Exceptions" in the Part referred to in such representation and warranty. In
addition to any item, matter or document which is specifically referenced in any
Part and thereby disclosed by such reference, any item, matter or document so
disclosed in any of said Parts will be deemed to have been disclosed in any
other Part to the extent that (a) it should have been disclosed on such other
Part and (b) it is apparent from the disclosure on such first Part that the
information disclosed is germane to the representation to which such other Part
relates.
-4-
<PAGE>
ARTICLE II
Recapitalization
2.1. Pre-Merger Recapitalization Transactions: On and subject to the
terms and conditions of this Agreement, prior to the Effective Time (as herein
defined), TRW will cause the following to occur:
(a) IS&S International will distribute to TRW, as a dividend, the Mexican
Investments and all other Acquired Assets held by IS&S International;
(b) TRW will transfer to Microwave, as a capital contribution, TRW's 60%
interest in the Partnership;
(c) Microwave will acquire from TRW and assume, and TRW will assign and
transfer to Microwave, as a capital contribution, the Acquired Assets
(including, without limitation, the Mexican Investments and all TRW
Hotel Shares) and the Assumed Liabilities and TRW Microwave will
enter into a trademark agreement substantially in the form of the
Trademark Agreement;
(d) Microwave will transfer to TRW Hotel, as a capital contribution,
Microwave's 60% interest in the Partnership;
(e) TRW Hotel will purchase from Elsevier Elsevier's 40% interest in the
Partnership, with the result that TRW Hotel will hold 100% of the
interests in the Partnership and the Partnership's existence will
terminate;
(f) Operating Company will purchase from Microwave and assume, and
Microwave will sell, assign and transfer to Operating Company, the
Acquired Assets (including, without limitation, the Mexican
Investments, all TRW Hotel shares and an assignment of its rights and
interests under the trademark agreement between TRW and Microwave
referred to above) and the Assumed Liabilities for an aggregate
consideration of One Billion One Hundred Million Dollars
($1,100,000,000), consisting of the Demand Note and shares of stock
in Operating Company with an aggregate issuance price of Three
Hundred Forty-Five Million Dollars ($345,000,000);
(g) TRW will transfer to Microwave, as a capital contribution, all
remaining outstanding shares of stock of Operating Company;
(h) TRW will transfer to Microwave, as a capital contribution, all issued
and outstanding shares of stock of Holdings;
-5-
<PAGE>
(i) Holdings will purchase from Microwave, and Microwave will sell
and transfer to Holdings, all issued and outstanding shares of
stock of Operating Company in consideration of the issuance by
Holdings to Microwave of shares of stock in Holdings with an
aggregate issuance price of Three Hundred Forty-Five Million
Dollars ($345,000,000); and
(j) In connection with the Recapitalization, TRW, Microwave and
Holdings will make an election under Section 338(h)(10) of the
Code and other related elections as described in Article VI
hereof.
2.2. Acquired Assets: For purposes hereof, the term "Acquired
Assets" means all assets, properties, and rights held or used by the members of
the TRW Group as of the Closing which relate to the conduct of the Business and,
in the case of tangible assets, are located on or at a Business Facility,
subject, however, to the provisions of Section 7.2 hereof and excluding the
Excluded Assets. Without limiting the generality of the foregoing, the Acquired
Assets will include all of the following assets which are used or held by the
members of the TRW Group in the conduct of the Business and, in the case of
tangible assets, are located on or at a Business Facility as of the Closing and
are not identified as Excluded Assets:
(a) The Databases;
(b) All Proprietary Software, Non-Proprietary Software, computer
systems, telecommunication systems and other systems and services
used primarily in the conduct of the Business;
(c) All notes and accounts receivable other than those to be
retained by TRW under the Supplemental Accounting Principles set
forth in Appendix E-1 hereto;
(d) All prepaid and similar items, including, without limitation,
all prepaid expenses, deferred charges, advance payments and
other prepaid items other than those to be retained by TRW under
the Supplemental Accounting Principles set forth in Appendix E-1
hereto;
(e) All inventories, wherever located, including, without limitation,
inventories of finished goods and operating supplies;
(f) All real property (whether as owner, lessor, lessee or
otherwise), including, without limitation, all land, buildings,
improvements, fixtures and appurtenances thereto and all such
items under construction;
(g) All personal property (whether as owner, lessor, lessee or
otherwise), including, without limitation, all computer hardware,
communications equipment, machinery, furniture, office equipment,
cars, trucks and other vehicles;
-6-
<PAGE>
(h) All supplier lists and all orders, contracts and commitments for the
purchase of goods and/or services, including, without limitation,
all such items relating to the purchase of data, products and
supplies;
(i) All customer lists and all orders, contracts, commitments and
proposals for the sale of products and services, including, without
limitation, all agency agreements and all distribution and similar
arrangements;
(j) All other orders, contracts and commitments, including, without
limitation, all leases, licenses, causes of action, rights of action
and warranty and product liability claims against other persons;
(k) All IS&S Intellectual Property (whether as owner, inventor, employer
of an inventor, licensor, licensee or otherwise);
(l) The Mexican Investments;
(m) The TRW Hotel Shares;
(n) The CCB Shares;
(o) The capital stock of Lusk;
(p) The capital stock of Operating Company;
(q) The REDI Trademark;
(r) All permits, approvals, qualifications and the like issued by any
government or governmental unit, agency, board, body or
instrumentality, whether federal, state or local and all applications
therefor;
(s) The goodwill of the Business in or arising from the Acquired Assets;
and
(t) Subject to the provisions of Section 7.3 hereof, all business books
and records of the Business, including, without limitation, all
financial, operating, inventory, legal, personnel, payroll and
customer records and all sales and promotional literature,
correspondence and files; provided, however, that in the event that
any such books or records are subject to any legal privilege, the
parties agree to cooperate to protect such privilege to the extent
practicable.
Notwithstanding the foregoing, any asset of the Business that requires a consent
for transfer or assignment and as to which consent for such transfer or
assignment has not been obtained by TRW
-7-
<PAGE>
prior to the Closing will be treated in accordance with Section 7.2 hereof and
will not be deemed to be transferred or assigned to Purchaser as part of the
Acquired Assets.
2.3. Excluded Assets: Notwithstanding anything contained herein to
the contrary, TRW will retain the Excluded Assets. Subject only to the
provisions of the Other Agreements, for purposes hereof the term "Excluded
Assets" means all tangible assets used by TRW at a location other than a
Business Facility including, without limitation, the following rights,
properties and assets of TRW as the same will exist as of the Closing:
(a) All cash and cash equivalent items on the books of TRW as of the
Closing, including, without limitation, certificates of deposit, time
deposits, marketable securities and the proceeds of accounts
receivable received on or prior to the Closing Date;
(b) All rights, properties and assets of TRW used exclusively in
businesses other than the Business;
(c) All rights, properties and assets of the Business which will have been
transferred or disposed of prior to the Closing in transactions
conducted in the Ordinary Course of Business and not in breach of this
Agreement;
(d) The name and trademark and service mark "TRW" and the stylized "TRW"
logo or their variations which are used by TRW as part of any
trademark or trade name except for the rights granted pursuant to the
Trademark Agreement;
(e) All assets, whether or not used by TRW in its conduct of the Business,
which are identified as Additional Excluded Assets on Appendix C
hereto;
(f) All accounts or other receivables of the Business payable from TRW
or any subsidiary or affiliate of TRW; and
(g) All current and deferred income tax assets and refunds (including
interest) arising out of the conduct of the Business prior to the
Closing.
2.4. Assumed Liabilities: Subject to any contrary terms contained in
the Other Agreements, the term "Assumed Liabilities" means all liabilities and
obligations of the TRW Group as of the Closing arising out of the conduct of the
Business, other than the Excluded Liabilities. Without limiting the generality
of the foregoing, the Assumed Liabilities will include the following liabilities
and obligations which arise or have arisen out of the conduct of the Business at
or prior to the Closing and are not identified as Excluded Liabilities:
(a) All liabilities and obligations incurred by TRW in its conduct of the
Business which are accrued on the books of the Business as of the
Closing;
-8-
<PAGE>
(b) All liabilities and obligations of TRW under (i) purchase orders,
contracts, and other commitments for the purchase by TRW of products,
data, information, supplies, leases or services in the conduct of the
Business, and (ii) contracts, leases and purchase orders included in
the Acquired Assets, including, without limitation, rights arising as
a consequence of the assignment of the same by TRW to Purchaser
hereunder;
(c) All liabilities and obligations arising out of, resulting from or
relating to claims arising out of the conduct of the Business which
have not been resolved or settled prior to the Closing;
(d) All liabilities and obligations arising out of, resulting from or
relating to claims, whether founded upon negligence, breach of
warranty, strict liability in tort or other similar legal theory,
seeking compensation or recovery for or relating to injury to person
or damage to property arising out of the conduct of the Business
whether before or after the Closing;
(e) All liabilities and obligations arising out of, resulting from or
relating to any violation of any statute, ordinance, regulation, order
or other governmental requirement, including, without limitation, (i)
the FCRA (ii) the Consent Orders or (iii) the Assurances of
Discontinuance, in connection with the conduct of the Business before
the Closing;
(f) All liabilities and obligations arising out of Purchaser's
obligations in connection with this Agreement and all liabilities and
obligations arising out of the obligations of Holdings, Operating
Company and TRW Hotel under Articles VII, VIII, IX and X hereof,
(g) All liabilities and obligations arising out of, resulting from or
relating to claims of infringement or other misappropriation of the
Intellectual Property rights of other persons with respect to the
production, preparation, use and sale of products and services by the
Business whether before or after the Closing; and
(h) All liabilities and obligations which are the responsibility of the
Transaction Companies under the Shared Liabilities Agreement.
2.5. Excluded Liabilities: Notwithstanding anything contained herein
to the contrary, TRW will retain and timely discharge the Excluded Liabilities.
For the purposes hereof the term "Excluded Liabilities" means the following
liabilities and obligations of TRW:
-9-
<PAGE>
(a) All liabilities and obligations (including, without limitation,
any Environmental Claim) incurred by TRW and its subsidiaries in
connection with the conduct of their businesses other than the Business;
(b) All liabilities and obligations of the Business which have been fully
discharged or satisfied by the members of the TRW Group before the Closing
in transactions in the Ordinary Course of Business and not in breach of
this Agreement;
(c) All liabilities and obligations arising out of, resulting from or relating
to any violation of any statute, ordinance, regulation, order or other
governmental requirement in existence prior to the Closing, including,
without limitation, (i) the FCRA, (ii) the Consent Orders or (iii) the
Assurances of Discontinuance, with respect to which either (x) to the
knowledge of TRW prior to the Closing, there exists a threat of claim
whether or not in writing other than in the Ordinary Course of Business or
(y) a written claim has been filed against any member of the TRW Group
prior to the Closing before any court or by or before any administrative
agency or any governmental authority;
(d) All obligations arising out of litigation, legal proceedings or
investigations at law or in equity or by or before governmental agencies
pending against TRW or any of its subsidiaries before the Closing,
including, without limitation, the matters listed in Part H of the
Disclosure Package;
(e) All liabilities and obligations arising out of the obligations of the TRW
Group in connection with this Agreement, excluding all liabilities and
obligations arising out of the obligations of Holdings, Operating Company
and TRW Hotel under Articles VII, VIII, IX and X hereof;
(f) All accounts and notes payable of the Business payable to TRW or any
subsidiary or affiliate of TRW on the Closing Date;
(g) All liabilities and obligations, whether or not arising primarily out of
the conduct of the Business, which (1) are to be retained by TRW in
accordance with Appendix E-1 or (2) which are identified as Additional
Excluded Liabilities on Appendix C hereto;
(h) All liability Of the TRW Group for unpaid Taxes (i) related to the
operation of the Business for periods ending on or prior to the Closing
Date, or (ii) arising in connection with the transfer of the Acquired
Assets by TRW and Microwave to Operating Company;
(i) All liabilities and obligations arising out of, resulting from or relating
to the purchase of the Elsevier Partnership Interest and all obligations of
the parties
-10-
<PAGE>
arising out of, resulting from or relating to the Partnership Agreement
between TRW and Elsevier;
(j) Except as otherwise expressly provided by Article VIII hereof, all
liabilities and obligations arising out of, resulting from or relating to
any employee benefit plan, program, arrangement or agreement maintained or
contributed to by TRW or any entity (other than the Partnership) which is
or has been aggregated with TRW for purposes of section 414 of the Code or
section 4001 of ERISA; and
(k) All liabilities and obligations arising out of, resulting from or relating
to any Environmental Condition relating to the operations of the Business
or the Business Facilities existing on or before the Closing and known to
TRW.
2.6. Merger of Purchaser into Holdings:
(a) The Merger: On and subject to the terms and conditions of this
Agreement, the Purchaser will merge with and into Holdings at the Effective
Time. Holdings will be the corporation surviving the Merger.
(b) The Closing: For purposes hereof, the term "Closing" means the
consummation of the transactions contemplated hereby.
(c) Time, Date, and Place of Closing: The Closing will occur at 10:00
a.m. (Eastern Standard U.S.A. Time) on the later of (i) the date on which
all of the conditions set forth in Article V of this Agreement are
satisfied or waived and (ii) the date which is 45 days after satisfaction
of the condition in Section 5.1(g) hereof (the "Closing Date"). The
Closing will take place at the offices of TRW at 1900 Richmond Road,
Lyndhurst, Ohio, or at such other place as the parties may agree in
writing. The Closing will be deemed to have occurred as of the close of
business on the Closing Date.
(d) Actions at the Closing: At the Closing (i) the members of the TRW
Group will deliver to Purchaser the various certificates, instruments and
documents referred to on Appendix M hereto, (ii) Purchaser will deliver
to the members of the TRW Group the various certificates, instruments and
documents referred to on Appendix N hereto, (iii) Holdings and Purchaser
will file with the Secretary of State of the State of Delaware a
Certificate of Merger in the customary form (the "Certificate of Merger"),
and (iv) Purchaser will cause Holdings to deliver the Merger Consideration
to Microwave.
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(e) Effect of Merger:
(i) General: The Merger will become effective at the time (the
"Effective Time") Holdings and Purchaser file the Certificate of
Merger with the Secretary of State of the State of Delaware. The
Merger will have the effects set forth in the Delaware General
Corporation Law. Holdings may, at any time after the Effective
Time, take any action (including executing and delivering any
document) in the name and on behalf of either Holdings or
Purchaser in order to carry out and effectuate the transactions
contemplated by this Agreement.
(ii) Certificate of Incorporation: The Certificate of Incorporation
of Holdings will be amended and restated at and as of the
Effective Time to read as did the Certificate of Incorporation of
Purchaser immediately prior to the Effective Time.
(iii) Bylaws: The Bylaws of Holdings will be amended and restated at
and as of the Effective Time to read as did the Bylaws of
Purchaser immediately prior to the Effective Time.
(iv) Directors and Officers: The directors and officers of Purchaser
will become the directors and officers of Holdings at and as of
the Effective Time (retaining their respective positions and
terms of office) and one director will be designated by TRW.
(v) Conversion of Holdings Shares: At and as of the Effective Time,
(A) all the Holdings Shares (other than the Retained Holdings
Shares) will be converted into the right to receive an aggregate
Two Hundred Fifty-Five Million Dollars ($255,000,000) cash
payment, plus shares of Holdings' Senior Convertible Preferred
Stock, with an issuance price of Seventy-Five Million Dollars
($75,000,000), and having the other terms set forth in Appendix Q
hereto (collectively, the "Merger Consideration"), and (B)
Microwave will retain the Retained Holdings Shares. No Holdings
Shares will be deemed to be outstanding or to have any rights
other than those set forth above in this Section 2.6(e)(v) after
the Effective Time.
(vi) Conversion of Capital Stock of Purchaser: At and as of the
Effective Time, each share of capital stock of Purchaser will be
converted into one share of capital stock of Holdings
representing in the aggregate not more than 94.44% of the then
issued and outstanding common equity of Holdings .
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(f) Procedure for Payment: Immediately after the Effective Time, (i)
Holdings will make full payment of the Merger Consideration to
the holders of all the outstanding Holdings Shares (other than
the Retained Holdings Shares) (i.e., such payment will be made to
Microwave), and (ii) Operating Company will make payment of the
Demand Note to Microwave, each in the manner set forth in Section
2.10 hereof for payment of the Adjustment.
(g) Trademark Agreement: Immediately after the Effective Time,
Operating Company and TRW will enter into the Trademark Agreement
as a replacement of the trademark agreement referred to in
Section 2.1(c) hereof, and such Section 2.1(c) trademark
agreement will be cancelled.
2.7. Purchase Price: For purposes hereof, the term "Purchase Price"
means the sum of (a) the Seven Hundred Fifty-Five Million Dollars ($755,000,000)
original principal amount of the Demand Note plus (b) the Two Hundred Fifty-Five
Million Dollars ($255,000,000) cash and Seventy-Five Million Dollars
($75,000,000) value of the Senior Convertible Preferred Stock constituting the
Merger Consideration, plus (c) the Retained Holdings Shares with a value of
Fifteen Million Dollars ($15,000,000) which sum will be One Billion One Hundred
Million Dollars ($1,100,000,000) plus or minus the Adjustment.
2.8. Adjustment: The Adjustment will be determined as follows:
(a) Determination of Adjustment: The Adjustment will be:
(i) the amount, if any, of the Closing Date Net Working
Capital Excess; plus
(ii) the aggregate amount of foreign investments made and the
consideration paid for business acquisitions by the
Business commencing on the date hereof and ending on the
Closing Date that in each case are approved by Purchaser
in accordance with Section 4.3 hereof ("Approved
Investments"); less
(iii) the amount, if any, of the Closing Date Net Working
Capital Deficiency.
(b) Certain Definitions: For the purposes hereof:
(i) "Closing Date Net Working Capital Excess" means the
amount by which Net Working Capital on the Closing Date
exceeds Fifty-Three Million Dollars ($53,000,000);
(ii) "Closing Date Net Working Capital Deficiency" means the
amount by which Net Working Capital on the Closing Date
is less than Forty-Five Million Dollars ($45,000,000);
and
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(iii) "Net Working Capital" means the account balance of those
current assets of Holdings on a consolidated basis less the
account balance of those current liabilities of Holdings on a
consolidated basis determined by reference to the specific
accounts identified as a "Closing-Acquired Assets" account or a
"Closing-Assumed Liability" account, but excluding those
accounts identified as a "Closing-Excluded Assets" account or a
"Closing-Excluded Liabilities" account (and excluding those
amounts indicated as "to be determined pursuant to the Shared
Liabilities Agreement") in the Supplemental Accounting
Principles attached hereto as Appendix E-2, but will exclude any
step-up in the basis of the REDI assets or liabilities resulting
from the acquisition of the remaining 40% interest in the REDI
partnership.
(c) Closing Audit: Promptly after the Closing, TRW will cause Ernst &
Young LLP (the "Auditors"), independent certified public accountants, to
conduct an audit of the Net Working Capital on Closing Date and the Approved
Investments. Within ninety (90) days after the Closing, the Auditors will
deliver to Operating Company and TRW a report (the "Auditors' Report") based
on the audit stating the amount of the Net Working Capital and the Approved
Investments reflected on the books of the Business as of the Closing in
accordance with the Supplemental Accounting Principles described in Appendix
E-2. Operating Company, if it so elects, will have the right to have its own
independent certified public accountants or internal auditors observe the
audit to be conducted by the Auditors.
(d) Review by Operating Company: Following receipt of the Auditors'
Report, Operating Company will be afforded a period of thirty (30) days to
review the Auditor's Report (the "Review Period"). Operating Company will be
deemed to have accepted the entire Auditors' Report unless, prior to the
expiration of the Review Period, Operating Company delivers to TRW and the
Auditors written notice and a detailed written explanation of those items in
the Auditors' Report which Operating Company disputes, in which case the
Auditors' Report and the items identified by Operating Company will be
deemed to be in dispute. Within a further period of thirty (30) days from
the end of the Review Period, the parties will attempt to resolve in good
faith any disputed items. Failing such resolution, the unresolved disputed
items will be referred for final binding resolution to the firm of Arthur
Andersen & Co. The items of Net Working Capital and Approved Investments
affected by such unresolved disputed items (if any) will be deemed to be as
determined by such firm in accordance with the Supplemental Accounting
Principles described in Appendix E-2 within thirty (30) days of such
reference. One half of the cost of the determination by Arthur Andersen &
Co. will be paid by Operating Company and one half by TRW. The decision of
Arthur Andersen
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& Co. will be final and binding on the parties and will not be subject to
appeal or challenge for any reason.
2.9. Payment of Adjustment: The Adjustment will be paid as follows:
(a) If the Adjustment is a positive amount, Operating Company will pay
Microwave the amount of the Adjustment, together with interest thereon
(compounded monthly) at an annual rate equal to the Prime Rate for the
period from the Closing Date through and including the date on which the
Adjustment is paid, such payment to be made within ten (10) business days
after the final determination of the Adjustment.
(b) If the Adjustment is a negative amount, then TRW will cause Microwave to
refund to Operating Company the amount of the Adjustment together with
interest thereon (compounded monthly) at an annual rate equal to the Prime
Rate for the period from the Closing Date through and including the date on
which the Adjustment is paid, such payment to be made within ten (10)
business days after the final determination of the Adjustment.
(c) Any payment of the Adjustment will be treated for tax purposes as an
adjustment to the Demand Note.
2.10. Method of Payment of Adjustment: Payments of the Adjustment
will be made by delivery to the payee upon the prior request of the payee, by
depositing, by bank wire transfer, the required amount (in immediately available
funds) in an account of the payee, which account will be designated by the payee
for such purpose at least five (5) business days prior to the date of the
required payment.
2.11. No Set Off: The obligation of Microwave or Operating Company,
as the case may be, to pay the Adjustment as determined in accordance with the
provisions of Section 2.8 hereof will be absolute and unconditional and will not
be affected by any circumstance, including, without limitation, any set off,
counterclaim, recoupment, defense (other than payment itself), or other right
which either party may have or allege to have against the other for any reason
whatsoever.
2.12. Real Estate Conveyance: TRW's conveyance of the owned real
estate included as part of the Acquired Assets will be carried out as follows:
(a) Title Insurance Commitment: Prior to the Closing, TRW will obtain or will
cause to be obtained a commitment from a nationally-recognized title
insurance company (the "Title Company"), with a copy to Purchaser, that the
Title Company will issue to Operating Company or TRW Hotel, as the case may
be, as the owner of the real property listed in Annex E-1 to Part E of the
Disclosure Package at the
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Closing an ALTA Owner's Policy of Title Insurance in an amount equal to the
fair market value of the insured real estate and in form and substance
satisfactory to Purchaser insuring fee simple title to such real estate to
be in Operating Company or TRW Hotel, as the case may be, as the owner of
the real property listed in Annex E-1 to Part E of the Disclosure Package
subject only to applicable zoning and building laws and regulations, the
lien of real estate taxes and assessments not yet due and payable and such
other Encumbrances that do not have a material adverse impact on the use of
the real estate in the Business (the "Exceptions"), and the standard survey
reservations and any other standard reservations of the Title Company.
(b) Limited Warranty Deed: Prior to the Closing, the owner of each of the
parcels of real property will execute and deliver to the Title Company for
safekeeping a limited warranty deed conveying and warranting title to such
real estate to be free and clear of all liens and encumbrances created by,
through or under such owner, subject to the Exceptions and to minor
encroachments which, in the aggregate, do not have a significant effect on
the marketability of such real estate, together with such affidavits,
certificates, and other instruments as are ordinarily delivered to a
purchaser of real estate or filed in the public records of the county in
which the property is located.
(c) Instructions: At the time such limited warranty deeds are delivered to the
Title Company, TRW, the owners of the real property and Purchaser will
deliver to the Title Company a joint letter instructing the Title Company to
hold such warranty deed until the Closing and, at the Closing:
(1) if the Title Company is then prepared to issue to Operating
Company or TRW Hotel as the owner of the real estate the Title
Company's Owner's Policy of Title Insurance in the form set forth
in the commitment described in Section 2.12(a) hereof, and upon
joint telephonic instructions from TRW, Operating Company and TRW
Hotel, to file the limited warranty deed for record in
appropriate public records, or
(2) otherwise, to return such limited warranty deed to TRW.
(d) Confirmation: If the Title Company is instructed to file the
warranty deed for record, then such warranty deed will be deemed to have
been filed as of the close of business on the Closing Date.
(e) Title Company's Fee: TRW will pay the Title Company's fee or
premium in respect of the Owner's Policy of Title Insurance described in
Section 2.12(a) hereof.
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ARTICLE III
Representations and Warranties
3.1. TRW's General Representations and Warranties: TRW as of the date
hereof hereby represents and warrants to Purchaser the following:
(a) Organization and Existence: Each of the TRW Signatories is a
corporation duly organized, validly existing and in good standing under the
laws of the state of its incorporation.
(b) Power and Authority: Each of the TRW Signatories has full power
and authority under its incorporating and governing documents and the laws
of its state of incorporation to execute, deliver and perform this Agreement
and each of the Other Agreements to which it is a party and to consummate
the transactions contemplated by this Agreement and, if such other entity is
a party thereto, the Other Agreements.
(c) Authorization: The execution, delivery and performance of this
Agreement and the Other Agreements by each of the TRW Signatories which is a
party thereto has been duly authorized by all requisite corporate action on
the part of each such company.
(d) Binding Effect: This Agreement and, to the extent the TRW
Signatories are parties thereto, the Other Agreements are valid, binding and
legal obligations of each of the TRW Signatories.
(e) No Default: Neither the execution and delivery of this Agreement
nor the full performance of its obligations hereunder by each of the TRW
Signatories will violate or breach or otherwise constitute or give rise to a
Default under the terms or provisions of such entity's incorporating and
governing documents or of any material contract, commitment or other
obligation to which any of such entities is a party.
(f) Finders: Except by and pursuant to a certain agreement with Bear,
Stearns & Co. Inc., neither TRW nor any of its subsidiaries has engaged and
none are directly or indirectly obligated to any person acting as a broker,
finder or in any similar capacity in connection with the transactions
contemplated hereby.
(g) Representations and Warranties True and Complete: Neither this
Agreement, including, without limitation, the representations and warranties
contained in this Section 3.1 and in Section 3.2 hereof, the information set
forth in the Disclosure
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Package, nor any certificate furnished or to be furnished by or on behalf of
the TRW Group, contains or will contain any untrue statement of a material
fact.
3.2. TRW's Representations and Warranties: Concurrently with the
execution and delivery of this Agreement, TRW will deliver to Purchaser a
disclosure package (the "Disclosure Package") which will consist of nineteen
(19) parts, consecutively lettered A - S, inclusive. TRW hereby represents and
warrants to Purchaser that the Disclosure Package will contain the information
required by Appendix F hereto. In addition, TRW as of the date hereof hereby
represents and warrants to Purchaser the following:
(a) Financial Statements: Except as otherwise disclosed on Annex A-
3(B) to Part A, (1) the audited combined financial statements contained in
Annex A-1 to Part A are true and correct in all material respects and
present fairly, in all material respects, the combined financial position of
the Business, at December 31, 1995, 1994 and 1993 and the results of its
operations and its cash flows for the years then ended in conformity with
generally accepted accounting principles consistently applied; and (2) the
audited financial statements contained in Annex A-2 to Part A are true and
correct in all material respects and present fairly, in all material
respects, the financial position of the Partnership at December 31, 1995,
1994 and 1993 and the results of its operations and its cash flows for the
years then ended in conformity with generally accepted accounting principles
consistently applied.
(b) Investments: Except as otherwise disclosed on Annex B-2 to Part B, (1) Annex
B-1 to Part B contains a complete list as of the date hereof of (a) all
direct or indirect interests of TRW or the Partnership in the securities of
any corporation or in any partnership, joint venture or other entity
relating to the Business and (b) any agreement, understanding, contract or
commitment relating to an interest or investment in any such entity; (2) the
CCB Shares are fully paid and non-assessable and there are no restrictions
on the ability of TRW to sell and transfer the CCB Shares; and (3) subject
to investments arising out of the temporary investment of short term cash
and of TRW employee benefit plans, neither TRW, the Partnership, IS&S
International nor Lusk owns or holds, directly or indirectly, any equity
interest, directly or indirectly, in any corporation, partnership, joint
venture, business, firm or other entity which, to TRW's knowledge, engages
in any business in competition with the Business, and no member of the TRW
Group is a party to a commitment or agreement to acquire any such interest.
As provided in Appendix M, TRW will represent on and as of the Closing as to
the direct and indirect interests of TRW in the securities of any
partnership, joint venture or other entity relating to the Business after
giving effect to the transactions referred to in Section 2.1 hereof
(c) Subsidiary Companies: Except as otherwise disclosed on Annex C-6(B)
to Part C, (1) as of the date hereof (A) Microwave is a wholly owned
subsidiary of TRW,
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(B) Holdings is a wholly owned subsidiary of TRW, (C) Operating Company is a
wholly owned subsidiary of TRW, (D) TRW Hotel is a wholly owned subsidiary
of TRW and (E) Lusk is a wholly owned subsidiary of the Partnership; (2)
Annex C-1 to Part C lists the authorized and issued share capital of each of
Holdings, Operating Company, TRW Hotel and Lusk (the "Transaction
Companies") (including all options, warrants, convertible securities or
other rights to acquire such share capital) (collectively the "Shares"); (3)
as of the date hereof, the Shares are legally and beneficially owned as set
forth on Annex C-1 free and clear of all preemptive rights, Encumbrances,
restrictions, and limitations; (4) all of the Shares are fully paid and non-
assessable; (5) each of the Transaction Companies is duly organized, validly
existing and in good standing under the laws of its jurisdiction of
incorporation and has the requisite corporate power and authority to conduct
its business as presently being conducted by it (although certain filings
and registrations may be required following the Recapitalization which will
not be undertaken by TRW); (6) each of the Transaction Companies is duly
qualified or licensed and in good standing to do business in each
jurisdiction where the failure to be so duly qualified or licensed and good
standing as of the date hereof (prior to giving effect to the
Recapitalization) would be likely to have, individually or in the aggregate,
a Material Adverse Effect; (7) set forth as Annexes to Part C are the
Certificates or Articles of Incorporation and By-Laws or Regulations, as the
case may be, currently in effect and the minutes of meetings of the board of
directors and shareholders of each of the Transaction Companies. As of
immediately prior to the Closing, the ownership of the Transaction Companies
will be as set forth in clauses (1) and (3) above, as modified by the
effectiveness of the transactions referred to in Section 2.1 hereof.
(d) Receivables: Except as otherwise disclosed on Annex D-3 to Part D,
(1) TRW, directly or indirectly, Lusk or the Partnership owns all notes
receivable and accounts receivable listed on Annexes D-1 and D-2 to Part D
and Microwave will own as of the Closing all notes receivable and accounts
receivable that are Acquired Assets; (2) all of such notes receivable and
accounts receivable are or will be valid receivables arising in the Ordinary
Course of Business and the reserves with respect thereto have been
determined in accordance with generally accepted accounting principles
consistently applied; and (3) none of such receivables are or will be owing
to the Business by other subsidiaries or affiliates of TRW except as may be
described in the Supplemental Accounting Principles set forth in
Appendix E-1.
(e) Real Estate: Except as otherwise disclosed on Annex E-3(B) to Part E,
(1) TRW or the Partnership owns all of the real properties listed as
"owned" on Annex E-1 to Part E; (2) in all material respects, TRW, Lusk or
the Partnership has the right under valid and existing leases to occupy and
control as a lessee (subject to the terms of such leases and to the possible
effect of the Bankruptcy Code or similar
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laws in the event of a lessor's bankruptcy after the Closing or the
effect of a condemnation or confiscation of the leased premises after
the Closing) all of the real property listed as "leased" on Annex E-2
to Part E (such leased properly together with all "owned" real property
listed on Annex E-1 to Part E hereinafter referred to as the "Business
Facilities"); (3) neither TRW nor the Partnership is in Default under
any such lease, which Default has had or is likely to have,
individually or in the aggregate, a Material Adverse Effect; (4) to
TRW's knowledge, the real properties listed on Annexes E-1 and E-2 are
subject to no zoning or similar restrictions which prohibit conduct of
tile Business as the same is being conducted; and (5) the improvements
to the real property listed on Annexes E-1 and E-2 to Part E are in
reasonably good condition and repair, ordinary wear and tear excepted
except for such failures to be in such condition and repair would have
individually or in the aggregate a Material Adverse Effect.
(f) Personal Property: (i) Except as otherwise disclosed on Annex F-5(B) to
Part F, (1) neither TRW nor the Partnership nor Lusk is in Default
under any lease of personal property listed in the Annexes to Part F,
which Default has had or is likely to have, individually or in the
aggregate, a Material Adverse Effect; (2) either TRW or the Partnership
or Lusk has good and marketable title to, or a valid leasehold interest
in, or license for, all of the items of personal property which are
Acquired Assets, free and clear of all Encumbrances except for (x)
properties and assets disposed of in the Ordinary Course of Business
since December 31, 1995 and (y) Encumbrances which have not had and are
not likely to have, individually or in the aggregate, a Material
Adverse Effect; (3) without limiting the generality of the foregoing,
TRW or the Partnership has, and upon the consummation of the Closing
one of the Transaction Companies will have, good and marketable title
to, or a valid leasehold interest in, or license for, all of the
Acquired Assets, free and clear of all Encumbrances, other than (x)
Encumbrances and restrictions on transfers which have not had, and are
not likely to have, individually or in the aggregate, a Material
Adverse Effect and (y) Encumbrances created by, through or under the
Transaction Companies, including, without limitation, liens granted by
the Transaction Companies to their lenders; and (4) the items of
personal property which are Acquired Assets are in reasonably good
condition and repair, ordinary wear and tear excepted except for such
failures to be in such condition and repair would have individually or
in the aggregate a Material Adverse Effect and (ii) in addition,
without limiting the generality of this or any other clause in this
Section 3.2, the Acquired Assets constitute au of the assets necessary
for the conduct of the Business as currently conducted, except for such
assets the absence of which would not have a Material Adverse Effect.
(g) Liabilities: Except as otherwise disclosed on Annex G-3(B) to Part G,
no member of the TRW Group is in Default under or with respect to any
agreement, undertaking, note, bond, debenture, mortgage, indenture,
security agreement,
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guaranty or other instrument, which Default has had or is likely to have,
individually or in the aggregate, a Material Adverse Effect.
(h) Litigation: Except as otherwise disclosed on Annex H-4(B) to Part
H, (1) there presently exists no litigation, proceedings, actions, claims or
investigations, pending, or to TRW's knowledge, threatened against or
affecting the Business which would, individually or in the aggregate, have a
Material Adverse Effect; and (2) no member of the TRW Group is subject to
any injunction, order or decree of any court, agency or other governmental
authority which has had or is likely to have, individually or in the
aggregate, a Material Adverse Effect.
(i) Contracts: Except as otherwise disclosed on Annex I-10(B) to Part
I, (1) each of the agreements, contracts, commitments and other obligations
listed or included in Annexes I-1 through I-9 to Part I is a valid and
binding obligation of the member of the TRW Group party thereto and, to
TRW's knowledge, the other party or parties thereto; (2) neither TRW nor the
Partnership nor to TRW's knowledge, any other party thereto has terminated,
canceled or substantially modified any such contract, commitment or other
obligation; (3) neither TRW nor the Partnership nor, to TRW's knowledge, any
other party thereto is in Default under any such agreement, contract,
commitment or other obligation, which Default is likely to have a Material
Adverse Effect; and (4) neither TRW nor the Partnership is a party to any
collective bargaining agreement with respect to the employees of the
Business.
(j) Intellectual Property: Except as set forth on Annex J-8(B) to
Part J, (1) Annex J-7 is a complete and accurate list of the IS&S
Significant Intellectual Property; (2) a member of the TRW Group is the
owner of, or otherwise has a valid license or other right to use, the IS&S
Significant Intellectual Property reasonably necessary for the conduct of
the Business in the Ordinary Course of Business or as proposed to be
conducted in connection with present plans for the Copernicus/File One
system under development; (3) to TRW's knowledge, the use of the IS&S
Significant Intellectual Property in the conduct of the Business in the
Ordinary Course of Business and as proposed to be conducted in connection
with present plans for the Copernicus/File One system under development does
not infringe any Intellectual Property of any third party; (4) to TRW's
knowledge, no member of the TRW Group has received notice of any claim and
there is no basis for any valid claim that any IS&S Significant Intellectual
Property is invalid and unenforceable by a member of the TRW Group in the
conduct of the Business; (5) members of the TRW Group have taken reasonable
security measures to protect the secrecy and confidentiality of, and to
restrict the use of, the IS&S Significant Intellectual Property primarily as
against Competing Businesses, as defined in the Non-Competition Agreement,
and have entered, generally and as a matter of practice, into
confidentiality agreements with their employees and other persons who,
either
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alone or in concert with others, develop, invent or create IS&S Significant
Intellectual Property or who have knowledge of or access to source code for
the IS&S Significant Intellectual Property; (6) no member of the TRW Group
has granted any third party the right to use, sublicense, distribute or
acquire any IS&S Significant Intellectual Property except such rights as
have been entered into in the Ordinary Course of Business; and (7) neither
the execution and delivery of this Agreement nor the consummation of the
transactions contemplated hereby will cause a default under or alter or
impair any rights or give rise to any rights of termination or cancellation
or loss of any right or benefit with respect to any IS&S Significant
Intellectual Property provided that members of the TRW Group first have
ninety (90) days to cure such as by way of obtaining a license. Consents
required to be obtained in connection with the assignment to any of the
Transaction Companies of any IS&S Intellectual Property will be obtained, to
the extent required, in accordance with the procedures set forth Sections
4.5 and 7.2 of this Agreement.
(k) Employee Benefits: (1) Except as otherwise listed on Annex K-6(B)
to Part K, neither TRW nor the Partnership has any material pension, profit-
sharing, employee stock option or stock purchase, bonus, incentive
compensation, life insurance or health insurance plan applicable to any
employees of the Business; (2) Annex K-3 to Part K contains a complete list
of each "Employee Welfare Benefit Plan" (as defined in Section 3(l) of
ERISA) and Annex K-2 to Part K contains a list of each "Employee Pension
Benefit Plan" (as defined in Section 3(2, of ERISA) sponsored or maintained
by TRW or the Partnership for the benefit of employees engaged in the
operation of the Business; and (3) except as otherwise disclosed in Part K,
(x) each of TRW and the Partnership has been and currently is in compliance
in all material respects with the applicable provisions of ERISA and the
Code with respect to each Employee Welfare Benefit Plan and each Employee
Pension Benefit Plan maintained by TRW or the Partnership for the benefit of
employees engaged in the operation of the Business, and (y) to the knowledge
of TRW, no event has occurred, and there exists no condition or set of
circumstances, which has resulted in or which could result in the imposition
of any liability on TRW or the Partnership under ERISA or the Code with
respect to any Employee Welfare Benefit Plan or Employee Pension Benefit
Plan maintained by TRW or the Partnership for the benefit of employees
engaged in the operation of the Business.
(l) Permits and Approvals: Except as otherwise disclosed on Annex L-
2(B) to Part L, the members of the TRW Group have been granted and currently
hold all material permits, approvals, qualifications and other
authorizations under any legal requirement of any government agency or
board, whether foreign, federal, state or local, which are necessary for the
conduct of the Business as the same is currently being conducted or
currently proposed to be conducted by TRW, the Partnership, Lusk and IS&S
International as of Closing, except where failure to
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have such permits, approvals, qualifications or other authorizations has not
had and is not likely to have, individually or in the aggregate, a Material
Adverse Effect.
(m) Compliance with Laws and Environmental Matters: Except as
otherwise disclosed on Annex M-l to Part M, (1) the operations of the
Business as heretofore and currently conducted were not and are not in
violation of, nor is any member of the TRW Group in Default or in violation
under, any laws, regulations or other legal requirements except for such
violations or Defaults as have not had and are not likely to have,
individually or in the aggregate, a Material Adverse Effect; and (2) the
operations of the Business are not subject to any Environmental Conditions,
and TRW has not received any Environmental Claims nor, to TRW's knowledge,
are any such claims threatened, which have had or are likely to have,
individually or in the aggregate, a Material Adverse Effect.
(n) Taxes: Except as otherwise disclosed on Annex N-1 to Part N, (1)
TRW, the Partnership and the Transaction Companies (i) have timely filed
with the appropriate taxing authorities all material Tax Returns required to
be filed and will file all such Tax Returns required to be filed through the
Closing related to the operation of the Business and all such Tax Returns
are true and correct in all material respects and (ii) have paid in full all
Taxes shown to be due on such filed Tax Returns; (2) TRW, the Partnership
and all of the Transaction Companies have paid in full all other Taxes that
are due; (3) neither TRW, the Partnership nor any of the Transaction
Companies have received any written notice of deficiency or assessment from
any taxing authority with respect to liabilities for income or other
material Taxes of the Business which have not been fully paid or finally
settled; (4) there are no liens with respect to Taxes upon any of the
properties or assets of the Business other than customary Liens for current
Taxes not yet due and payable with respect to any material Taxes of TRW
(relating to the Business), the Partnership or the Transaction Companies;
and (5) none of TRW, the Partnership and the Transaction Companies have
filed a consent under Code Section 341(f) concerning collapsible
corporations. With respect to the Business, neither TRW, the Partnership nor
the Transaction Companies have made any payment, are obligated to make any
payment, or are a party to any agreement that could obligate them to make
any payments that will not be deductible under Code section 280G or subject
to the excise tax of Code section 4999 by reason of the change in control
contemplated by this Agreement (but not including any representation with
respect to any other change in control, including that of TRW). None of TRW,
the Partnership and the Transaction Companies have been a United States real
property holding corporation within the meaning of Code Section 897(c)(2)
during the applicable period specified in Code Section 897(c)(1)(A)(ii) and
each of TRW, the Partnership and the Transaction Companies are a U.S. Person
within the meaning of Code Section 7701(a)(30). TRW is the "common parent"
of an "affiliated group" of corporations (as those terms are used in section
1504(a) of the Code and
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the Treasury regulations promulgated under section 1502 of the Code) that
includes Microwave and all of the Transaction Companies except Lusk. TRW,
Microwave and the Transaction Companies except Lusk were and are eligible to
file consolidated federal income Tax Returns for the taxable periods ending
on or before the date hereof. Microwave and the Transaction Companies except
Lusk will be included in the U.S. federal consolidated return of TRW for the
period including the Closing Date. TRW, the Partnership and the Transaction
Companies have withheld from their employees, customers, and other payees
(and timely paid to the appropriate governmental authority) all amounts
required by the Tax withholding provisions of applicable federal, state,
local, and foreign laws (including, without limitation, income, social
security, and employment Tax withholding for all types of compensation, and
withholding or payments to non-United States persons) for all periods,
through the date hereof. For federal income Tax purposes, none of the
Transaction Companies is a partner nor treated as a partner in any
partnership; joint venture, or any other entity treated as a partnership
related to the operation of the Business except as described in the
Recapitalization transactions.
(o) Partnership: Except as otherwise disclosed on Annex 0-2 to Part 0, (1) a
copy of the Partnership Agreement between TRW and Elsevier as currently in
effect is set forth in Annex 0-1 to Part 0; (2) the Partnership is a general
partnership, duly organized and validly existing under the laws of the State
of Ohio; (3) the Partnership is duly qualified or licensed to do business in
each jurisdiction where the failure to be so qualified or licensed would
have a Material Adverse Effect; (4) TRW's percentage ownership of the
Partnership is 60% ("TRW Partnership Interest") and the Elsevier percentage
ownership of the Partnership is 40% (the "Elsevier Partnership Interest")
(the TRW Partnership Interest and the Elsevier Partnership Interest are
collectively referred to as the "Partnership Interests"); (5) pursuant to an
Agreement of Purchase and Sale among TRW, Elsevier and Reed Elsevier, Inc.
dated as of August 22, 1995, TRW has the right to purchase the Elsevier
Partnership Interest on the Closing Date; and (6) upon the consummation of
the transactions contemplated by this Agreement, Purchaser will acquire good
and marketable title to the Partnership Interests, free and clear of all
liens, charges, encumbrances or security interests of any kind or nature.
(p) No Material Events: Except as otherwise disclosed on Annex P-1 (B)
to Part P, the Business has been conducted only in the Ordinary Course of
Business since December 31, 1995, and no Material Events have occurred since
that date. Without limiting the generality of the foregoing, except for
those matters set forth in Part P, which matters have not had, individually
or in the aggregate, a Material Adverse Effect, (1) TRW, the Partnership,
Lusk and IS&S International have conducted the Business since December 31,
1995 so that TRW would not have been in violation of Section 4.2 hereof if
such Section had been applicable during
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the period from December 31, 1995 through the date hereof, and (2)
since December 31, 1995, none of TRW, the Partnership, Lusk and IS&S
International has taken any action which would have required the
approval of the Purchaser under Section 4.3 hereof if such action
had occurred after the date hereof and before the Closing.
(q) Customers and Suppliers: Except as otherwise disclosed on Annex Q-1
to Part Q, since December 31, 1995, (1) no significant subscriber,
reseller or other customer of the Business (or group of subscribers,
resellers and other customers which is significant in the aggregate)
has given TRW, the Partnership, Lusk or IS&S International notice
or, to the knowledge of TRW, has taken any other action to reduce
materially the amount purchased of, data or other goods or services
from the Business as compared to 1995, the result of which has
caused or is likely to cause, individually or in the aggregate, a
Material Adverse Effect; and (2) no significant vendor, contributor
or other supplier to the Business (or group of vendors, contributors
and suppliers which is significant in the aggregate) has given TRW,
the Partnership, Lusk or IS&S International notice or, to the
knowledge of TRW, has taken any action to cease to sell, contribute
or supply data or other goods or services to the Business or
restrict the amount, or change the price or terms to the Business,
of data or other goods or services in a manner which has had or is
likely to have, individually or in the aggregate, a Material Adverse
Effect.
(r) Employees: Except as otherwise disclosed on Annex R-2 to Part R,
none of the employees of the Business is represented by a labor
union. To TRW's knowledge, no petition has been filed or proceedings
instituted by any employee or group of employees with any labor
relations board seeking recognition of a bargaining representative
and there is no organizational effort currently being made or
threatened by or on behalf of any labor union to organize any
employees of the Business. There are no controversies or disputes
pending between the Business on the one hand and any of its
employees on the other hand, except for controversies and disputes
with individual employees arising in the Ordinary Course of Business
which have not had and are not likely to have, individually or in
the aggregate, a Material Adverse Effect,
(s) Transactions with Affiliates: Except as otherwise disclosed on Annex
S-5 to Part S, set forth in Annexes S-1 through S-3 are lists of (1)
all Contractual Obligations relating to the Business between or
among any of the Partnership, Lusk, IS&S International, Holdings,
Operating Company and TRW Hotel, on the one hand, and TRW or any of
its subsidiaries on the other hand; (2) all other Contractual
Obligations relating to the Business, if any, between or among any
of TRW and its subsidiaries; and (3) the material services provided
to the Business by, and all material transactions between the
Business and, TRW or any of its subsidiaries
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(other than the Partnership, Lusk and IS&S International) during the
fiscal year ended December 31, 1995 not listed in Clauses (1) and
(2) above; and 14) all material tangible assets used in the conduct
of the Business which are not located at a Business Facility.
(t) Required Consents: Except as listed in Appendix G, no consent or
approval is required under any of the contracts, leases, licenses,
permits, approvals and other similar items constituting part of the
Acquired Assets in order to consummate the transactions contemplated
hereby without breach, violation or loss of right thereunder, other
than such consents or approvals the absence of which would not,
individually, have a Material Adverse Effect.
3.3. Purchaser's Representations and Warranties: Purchaser, as of the
date hereof, hereby represents and warrants to TRW the following:
(a) Organization and Existence: Purchaser is a corporation duly
organized, validly existing and in good standing under the
laws of Delaware.
(b) Power and Authority: Purchaser has full corporate power and
authority under its Certificate of Incorporation and By-Laws and
under the laws of Delaware to execute, deliver and perform this
Agreement and the Other Agreements and to consummate the
transactions contemplated hereby and thereby.
(c) Authorization: The execution, delivery and performance of this
Agreement and the Other Agreements have been duly authorized by all
requisite corporate actions on the part of Purchaser.
(d) Binding Effect: This Agreement is a valid, binding and legal
obligation of Purchaser.
(e) No Default: Neither the execution and delivery of this Agreement nor
Purchaser's full performance of its obligations hereunder will
violate or breach or otherwise constitute or give rise to a Default
under the terms or provisions of Purchaser's Certificate of
Incorporation or By-laws or of any material contract, commitment or
other obligation to which Purchaser is a party.
(f) Finders: Other than in connection with the debt financing, Purchaser
has not engaged and is not directly or indirectly obligated to any
person acting as a broker, finder or in any other similar capacity
in connection with the transactions contemplated hereby.
(g) Representations and Warranties True and Complete: Neither this
Agreement, including, without limitation, Purchaser's
representations and warranties of
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Purchaser in this Section 3.3, nor any certificate furnished or
to be furnished by or on behalf of Purchaser contains or will
contain any untrue statement of material fact.
3.4. Disclaimer: Except as set forth in Article III of this
Agreement, in the Other Agreements or in the certificates furnished in
connection herewith or therewith, neither party has made any further
representation or warranty, either express or implied, concerning the subject
matter of this Agreement or the Other Agreements and neither party has relied on
any such further representation or warranty. This Agreement will not be
governed by the warranties provided by Article 2 of the Uniform Commercial Code
or similar laws applicable to commercial sales as adopted in any jurisdiction.
3.5. Survival: The parties' respective representations and
warranties contained in this Agreement will survive the Closing as set forth in
this Section 3.5. Neither party will have any liability to the other arising out
of a breach of any representation or warranty contained in Article III of this
Agreement, and any claim or cause of action based thereupon will expire and
terminate, unless the party claiming that such breach occurred delivers to the
other party written notice and a reasonably full explanation of the alleged
breach in light of the facts then known:
(a) On or before 5:00 p.m. (Eastern Standard U.S.A. Time) on the
first anniversary of the Closing with respect to all
representations and warranties, except as set forth in (b) and
(c) below;
(b) On or before 5:00 p.m. (Eastern Standard U.S.A. Time) on the
third anniversary of the Closing for the representations
contained in Section 3.2(m) hereof; and
(c) On or before 5:00 p.m. (Eastern Standard U.S.A. Time) on the
thirtieth day following the expiration of the applicable statute
of limitations with respect to the matters covered in Sections
3.2(k) and 3.2(n) hereof;
provided, however, that there will be no limitation as to the time in respect of
which any claim or cause of action may be made or initiated based on knowing,
intentional conduct that constitutes common law fraud.
ARTICLE IV
Actions Before Closing
4.1. Access to Records: Between the date of this Agreement and the
Closing, and subject to the obligation of confidentiality imposed by Section
11.2 hereof, TRW will afford, and will cause each member of the TRW Group to
afford, duly authorized representatives of Purchaser, displaying appropriate
credentials, free and full access during normal business hours to all of the
assets, properties, books, contracts, records and documents of the Business and
will
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permit such representatives to make abstracts from, or take copies of, such
books, records or other documentation, or to obtain temporary possession of any
thereof as may be reasonably required by Purchaser, and TRW will furnish, and
will cause each member of the TRW Group to furnish, to Purchaser such
information concerning the Business and its assets, liabilities or condition as
Purchaser may reasonably request. Notwithstanding the foregoing, TRW will not
be obligated to afford, nor will it be obligated to cause each member of the TRW
Group to afford, such access, right to make abstracts or copies, obtain
temporary possession or provide information with respect to any books, records
or other documents that are subject to an attorney-client privilege, attorney
work product privilege or other legal privilege in connection with any
litigation, proceedings, actions, claims or investigations pending or threatened
against any member of the TRW Group or affecting the Business, provided that TRW
will supply to Purchaser a general description of the matter to which they
relate.
4.2. Interim Conduct of the Business: TRW hereby covenants to
Purchaser that, from the date of this Agreement to the Closing, TRW will conduct
the Business, and will cause each member of the TRW Group to conduct the
Business, only in the Ordinary Course of Business, subject to Purchaser's
approval of certain transactions pursuant to Section 4.3 hereof. Without
limiting the generality of the foregoing, insofar as the Business is concerned,
TRW will use all reasonable efforts, and will cause each member of the TRW Group
to use all reasonable efforts, to:
(a) preserve the Business' relationships with suppliers, customers,
employees, creditors and others having business dealings with
the Business;
(b) maintain in full force and effect existing policies of insurance
which materially affect the Business;
(c) maintain all Intellectual Property to be included as part of the
Acquired Assets in substantially the same standing as exists on
the date of this Agreement;
(d) continue performance in the ordinary course of their obligations
under contracts, commitments or other obligations to be included
as part of the Acquired Assets; and
(e) continue to discharge liabilities and obligations in the
Ordinary Course of Business.
4.3. Purchaser's Approval of Certain Transactions: Except as may
otherwise be required under this Agreement, from the date of
this Agreement to the Closing, insofar as the Business is
concerned, the members of the TRW Group will refrain, and TRW
will cause the Partnership to refrain, from any of the following
without the prior approval of Purchaser, which approval will not
be unreasonably withheld:
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(a) incur or permit the incurrence of any obligation or other
liability which would constitute an Assumed Liability, except in the
Ordinary Course of Business or incur or permit the incurrence of any
obligation or other liability relating to debt for borrowed money,
including, without limitation, capitalized lease obligations;
(b) purchase or dispose of any real property or real property interest
to be included as part of the Acquired Assets;
(c) enter into any lease of real property used primarily in the
Business or any renewals thereof involving a term of more than one
(1) year or rental obligation exceeding One Hundred Thousand Dollars
($100,000) per annum in any single case or Five Hundred Thousand
Dollars ($500,000) per annum in the aggregate;
(d) enter into any lease of personal property used primarily in the
Business or any renewals thereof involving a term of more than one
(1) year or rental obligation exceeding Five Hundred Thousand Dollars
($500,000) per annum in any single case or One Million Dollars
($1,000,000) per annum in the aggregate;
(e) voluntarily permit to be incurred any Encumbrances on any of the
Acquired Assets, except in the Ordinary Course of Business;
(f) increase the rate of compensation for any of the employees of the
Business or otherwise enter into or alter any employment agreement
primarily affecting the Business, except for normal merit or cost-of-
living increases and incentive payments in accordance with the past
practices of TRW and the Partnership, including the withholding or
application of special incentives relating to project performance but
not to exceed Five Hundred Thousand Dollars ($500,000) per annum in
the aggregate of special incentives;
(g) commence, enter into or alter any pension, profit-sharing, employee
stock option or stock purchase, bonus, incentive compensation plans,
life insurance or health insurance plans applicable to any of the
employees of the Business;
(h) make any single new commitment or increase any single previous
commitment for capital expenditures which will be an Assumed
Liability in an amount exceeding Five Hundred Thousand Dollars
($500,000) or One Million Dollars ($ 1,000,000) per annum in the
aggregate;
(i) accelerate or delay the delivery or sale of products or services, the
incurrence of capital expenditures, the satisfaction of payables or
other liabilities or the collection of receivables of the Business
except in the Ordinary Course of Business;
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(j) waive any right of substantial value, cancel any debt or claim
except in the Ordinary Course of Business or voluntarily suffer any
extraordinary loss;
(k) sell, assign, transfer, license or convey any of the Intellectual
Property to be included as part of the Acquired Assets, except in the
Ordinary Course of Business; or
(l) make any investment in international operations or enter into any
agreement to make any such investment, except for investments in
existing international operations in the Ordinary Course of Business
but not to exceed Five Hundred Thousand Dollars ($500,000) in the
aggregate per annum.
Representatives of TRW, the Partnership and Purchaser will meet periodically to
discuss the matters listed in this Section 4.3 that may occur within the
following sixty-day period, with the objective of TRW and the Partnership
obtaining preapproval from Purchaser of as many matters as may be reasonably
possible. For items not preapproved as set forth above, Purchaser will provide
a response within 72 hours.
4.4. Other Agreements: Between the date of this Agreement and the
Closing, the parties will negotiate, in good faith, such other and further
agreements as they may deem appropriate for the consummation of the
Recapitalization. In addition, at the Closing, the parties will execute and
deliver the Noncompetition Agreement, the Transition Agreement, the Trademark
Agreement and the Shared Liabilities Agreement in substantially the form set
forth in Appendices H, I, J and L, respectively, hereto and the shareholders'
agreement with the terms set forth in Annex P hereto; provided, however, that at
the request of the Purchaser made prior to the Closing, TRW agrees to negotiate
in good faith to make such modifications to such form of Transition Agreement as
may be required to provide for the provision by TRW, at a cost equal to TRW's
internal cost, of such additional services currently provided to the Business as
the parties may agree for such reasonable period as the parties may mutually
agree upon.
4.5. Consents to Assignment: Between the date of this Agreement and
the Closing, TRW will use all reasonable efforts to obtain, and will cause each
member of the TRW Group to use all reasonable efforts to obtain, the consents or
approvals (or effective waivers thereof) of assignment from those persons whose
consents or approvals are required for the assignment of TRW's rights under
those contracts, leases, licenses, permits, approvals and other items included
in the Acquired Assets identified on Appendix G hereto. TRW further covenants
to Purchaser that, between the date of this Agreement and the Closing, TRW will
use all reasonable efforts to obtain, and will cause each member of the TRW
Group to use all reasonable efforts to obtain, the consents or approvals (or
effective waivers thereof) of other persons whose consents or approvals are
required for the assignment of TRW's rights under other contracts, leases,
licenses, permits, approvals and other similar items constituting part of the
Acquired Assets. Failure of the TRW Group to obtain, after a good faith attempt
and use of all reasonable efforts, the consents or approvals described in this
Section 4.5 will not give rise to monetary damages against TRW.
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4.6. Government Approvals: Purchaser and the members of the TRW
Group will make all necessary filings, as promptly as practicable, including,
without limitation, those required under the HSR Act, in order to facilitate
prompt consummation of the transactions contemplated hereby and by the Other
Agreements. In addition, each of Purchaser and the members of the TRW Group
will use its best efforts (including, without limitation, payment of any
required fees) and will cooperate fully with each other to (i) comply as
promptly as practicable with all governmental requirements applicable to the
transactions contemplated by this Agreement and the Other Agreements and (ii)
obtain promptly all approvals, permits, orders or other consents of any
applicable governmental authorities necessary for the consummation of the
transactions contemplated by this Agreement and the Other Agreements. Each of
the parties hereto will furnish to the other party such necessary information
and reasonable assistance as such other party may reasonably request in
connection with the foregoing. Purchaser will pay the statutory HSR fee in its
entirety. Subject to the Confidentiality Agreement, each member of the TRW
Group and Purchaser will coordinate and cooperate fully with each other in
exchanging such information and providing such assistance as the other may
reasonably request in connection with the foregoing and in seeking early
termination of any applicable waiting periods under the HSR Act or in connection
with other regulatory approvals and consents. Each of TRW and Purchaser agrees
to respond promptly to and comply fully with any request for additional
information or documents under the HSR Act. Subject to the Confidentiality
Agreement, each member of the TRW Group will provide Purchaser and Purchaser
will provide TRW with copies of all correspondence, filings or communications
(or memoranda setting forth the substance thereof) between such party or any of
its representatives, on the one hand, and any governmental agency or authority
or members of their respective staffs, on the other hand, with respect to this
Agreement and the transactions contemplated hereby.
4.7. Consent Orders and Assurances of Discontinuance: Between the
date of this Agreement and the Closing, the parties will cooperate fully with
each other in obtaining a release of TRW effective as of the Closing Date from
the Consent Orders and the Assurances of Discontinuance and the substitution of
Holdings or Operating Company (as the case may be) as the affected party
thereunder.
4.8. Public Announcements: Except as the parties will mutually
agree, no party will issue any report, statement or press release or otherwise
make any public statements with respect to this Agreement or the Other
Agreements and the transactions contemplated hereby and thereby, except as in
the reasonable judgment of the party may be required by law or in connection
with the obligations of a publicly-held, exchange-listed company, in which case
the language of any such report, statement or press release will, to the extent
practicable, be mutually agreed to by the parties, which agreement will not be
unreasonably withheld.
4.9. Exclusivity: During the term of this Agreement, TRW will not,
and will cause each member of the TRW Group and their respective affiliates,
directors, officers, employees, representatives and agents (including, without
limitation, Bear, Stearns & Co. Inc.) not to, directly
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or indirectly, solicit or initiate or enter into discussions or transactions
with, or encourage, or provide any information to, any corporation, partnership
or other entity or group (other than Purchaser and its designees) concerning any
sale of stock or partnership interests of, or any merger or sale of securities
or substantial assets of, or any similar transaction involving, the Business or
any of its component corporations or partnerships. TRW represents that neither
it nor any of its affiliated entities is a party to or bound by any agreement
with respect to any such transaction other than as contemplated by this
Agreement.
4.10. Termination of Intercompany Obligations: Prior to the Closing,
TRW and its subsidiaries will have terminated all arrangements, contracts,
obligations, liabilities and understandings with each of the Transaction
Companies other than this Agreement and the Other Agreements.
4.11. Name Changes: Between the date hereof and the Closing,
Purchaser will advise TRW of new corporate names chosen by Purchaser for each of
Holdings, Operating Company and TRW Hotel, such names to contain no reference to
TRW or any of its subsidiaries or affiliates, and TRW will take appropriate
action to cause such entities to amend their respective articles of
incorporation to change their names to the names so designated by Purchaser as
of or prior to the Closing.
ARTICLE V
Conditions
5.1. Conditions to Purchaser's Obligations: The obligation of
Purchaser to consummate the transactions contemplated by this Agreement is
subject to the satisfaction of the following conditions at or before the
Closing, any one or more of which may be waived in writing, in whole or in part,
by Purchaser:
(a) The representations and warranties made by TRW in Sections 3.1 and
3.2 of this Agreement will be true, accurate and complete as of the
Closing as if such representations and warranties had been made anew
as of the Closing, except with respect to the effect of the
Recapitalization described in Section 2.1 or transactions permitted
by this Agreement, provided, however, that such transactions will not
affect those representations and warranties in Section 3.2(t) and in
no event will the effect of such transactions limit the provisions of
Sections 4.5 or 7.2 hereof;
(b) Each member of the TRW Group will have performed and complied with
all covenants and conditions required by this Agreement and the Other
Agreements to be performed or satisfied by the members of the TRW
Group, and each member of the TRW Group will have delivered to
Purchaser all documents, certificates and instruments required to be
delivered by members of the TRW Group under the
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terms of this Agreement, including, without limitation, the documents
referred to on Appendix M hereto;
(c) Each member of the TRW Group will have taken all corporate actions
and other proceedings to be taken by it in connection with the
transactions contemplated by this Agreement, and all documents
incidental thereto will be reasonably satisfactory in form and
substance to Purchaser;
(d) All requisite governmental approvals and authorizations necessary for
consummation of the transactions contemplated hereby will have been
duly issued or granted, and the waiting period as prescribed by the
HSR Act and the rules of the Federal Trade Commission thereunder will
have expired;
(e) There will not have been issued and in effect any injunction or
similar legal order prohibiting or restraining consummation of any of
the transactions herein contemplated and no legal action or
governmental investigation which might reasonably be expected to
result in any such injunction or order will be pending;
(f) Purchaser will have received adequate assurances to its reasonable
satisfaction that Operating Company will receive the funds
contemplated by the financings described in (i) the Senior
Subordinated Notes Forward Underwriting Commitment Letter dated
February 7, 1996 from Chemical Securities, Inc. and BT Securities
Corporation to Purchaser and (ii) the Senior Secured Credit
Facilities Commitment Letter dated February 7, 1996 from Chemical
Bank, Chemical Securities, Inc., Bankers Trust Company and BT
Securities Corporation to Purchaser;
(g) TRW will have Activated the Copernicus system and will have
reasonably and in good faith determined that such system will permit
continuity of normal business operations, will implement the new
relational database architecture and will provide overall performance
and overall functionality no worse than the predecessor legacy
system, and TRW will share with Purchaser the basis for its
determination;
(h) The Partnership will have assigned the REDI Trademark to Operating
Company;
(i) Subject to the provisions of Section 7-2(b) hereof, TRW, IS&S
International and Microwave will have obtained all of the consents
and approvals listed in Appendix G or effective waivers thereof,
(j) TRW and TRW Hotel will have delivered to Holdings a FIRPTA
Certificate as provided in Treasury Regulation section 1. 1445-
2(b)(2); and
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(k) Since December 31, 1995, there will have been no material adverse
change in the business, assets, results of operations or condition
(financial or otherwise) of the Business taken as a whole and the
Purchaser will have received a certificate to this effect signed by
the chief executive officer of Operating Company on behalf of TRW.
5.2. Conditions to TRW's Obligations: The obligation of the members
of the TRW Group to consummate the transactions contemplated by this Agreement
is subject to the satisfaction of the following conditions at or before the
Closing, any one or more of which may be waived in writing, in whole or in part,
by the members of the TRW Group:
(a) The representations and warranties made by Purchaser in Section 3.3
of this Agreement will be true, accurate and complete as of the
Closing as if such representations and warranties had been made anew
as of the Closing, except with respect to the effect of transactions
contemplated or permitted by this Agreement;
(b) Purchaser will have performed and complied with all covenants and
conditions required by this Agreement to be performed or satisfied by
Purchaser, and Purchaser will have delivered all documents,
certificates and instruments required to be delivered by Purchaser
under the terms of this Agreement, including, without limitation, the
documents referred to on Appendix N hereto;
(c) Purchaser will have taken all corporate actions and other proceedings
to be taken by it in connection with the transactions contemplated by
this Agreement, and all documents incidental thereto will be
reasonably satisfactory in form and substance to TRW;
(d) All requisite governmental approvals and authorizations necessary for
consummation of the transactions contemplated hereby will have been
duly issued or granted, and the waiting period as prescribed by the
HSR Act and the rules of the Federal Trade Commission thereunder will
have expired;
(e) There will not have been issued and in effect any injunction or
similar legal order prohibiting or restraining consummation of any of
the transactions herein contemplated and no legal action or
governmental investigation which might reasonably be expected to
result in any such injunction or order will be pending;
(f) The Equity Investors will have made capital contributions to
Purchaser in an aggregate cash amount of not less than Two Hundred
Fifty-Five Million Dollars ($255,000,000), unless the failure to make
such capital contributions is caused by a breach by any member of the
TRW Group of any provision hereof or duty in connection herewith;
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(g) TRW will have received adequate assurances to its reasonable
satisfaction that Operating Company will obtain debt financing
in an aggregate amount of not less than Eight Hundred Five
Million Dollars ($805,000,000), unless the failure to obtain
such debt financing is caused by a breach by any member of the
TRW Group of any provision hereof or duty in connection
herewith;
(h) The Holdings shareholders agreement will contain the terms set
forth in Appendix P hereof, and any other provisions in such
agreement materially affecting TRW's rights thereunder will be
reasonably satisfactory to TRW;
(i) The terms of the Senior Convertible Preferred Stock of Holdings
will contain the terms set forth in Appendix Q hereof, and the
other terms, if any, of the Senior Convertible Preferred Stock
of Holdings will be reasonably satisfactory to TRW;
(j) Purchaser (x) will have disclosed to investors (including bank,
institutional or other investors), in a manner reasonably
satisfactory to TRW, in any financing of all or a portion of the
Purchase Price that TRW will have no obligations with respect to
the placement of bank debt or debt securities and (y) will have
included provisions to that effect in any terms of any such debt
placement; and
(k) Purchaser, Holdings, Operating Company and TRW will have entered
into an agreement reasonably satisfactory to TRW pursuant to
which Holdings and Operating Company will indemnify, defend and
hold harmless TRW and its subsidiaries and affiliates, and their
respective officers, directors, employees, representatives,
controlling persons and agents from and against any and all
liabilities, damages, losses, claims, costs and expenses
(including attorneys' fees) arising out of or resulting from any
offer or sale of securities in connection with the financing of
all or any portion of the Purchase Price; provided, however,
that Holdings and Operating Company will not have any liability
with respect to any diminution in the value of shares of capital
stock in Holdings. The indemnity agreement to which reference is
made in the preceding sentence shall be in the exact form of
Appendix R hereto.
ARTICLE VI
Tax Matters
6.1. Characterization of Transaction and Reporting of Purchase Price:
The parties hereto recognize that the transactions that are contemplated by this
Agreement constitute a fully taxable sale for all Tax purposes of all of the
assets of the Business. The parties hereto agree to allocate the Purchase Price
(and all other capitalized costs) plus liabilities assumed to the Acquired
Assets, for all Tax purposes based upon the relative fair market value of such
assets as determined by an independent appraisal to be obtained by Purchaser at
its expense; provided, however, that the parties hereto agree that the Trademark
License will be valued at $26 million and the tangible assets in California will
be valued at their net book value as detailed on Schedule 6.1 hereto and
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no value is assigned to the covenant not to compete. Except as provided below
in this Section 6.1, it is the intention of the parties that TRW will accept
liability for and pay any and all Taxes of the TRW Group due for or attributable
to Tax periods ending on or before the Closing Date and that portion related to
the operation of the Business on or prior to the Closing Date for any Tax period
ending after the Closing Date. It is the intention of the parties that the TRW
affiliated group (other than the Transaction Companies) will accept liability
for and pay any and all Taxes attributable to the transfer of Acquired Assets by
TRW and Microwave to Operating Company. It is the intention of the parties that
the TRW affiliated group (other than the Transaction Companies) will accept
liability for and pay all Taxes for any Transaction Companies attributable to
the deemed sale of assets pursuant to the Section 338(h)(10) Election; provided,
however, for those state jurisdictions which do not respect or allow the Section
338(h)(10) Election, the TRW affiliated group (other than the Transaction
Companies) will pay Taxes on the sale of stock, but its obligations to pay Taxes
on the deemed asset sale under the Section 338(h)(10) Election will be reduced
correspondingly. Thus, it is the intention of the parties that the TRW
affiliated group's gain from the transactions contemplated in this Agreement
will be subject to Tax only once for any state or local purposes. The following
provisions are intended to effectuate these principles and will be interpreted
by the parties in a manner consistent with these principles.
6.2. Tax Returns:
(a) TRW will file with the appropriate taxing authorities all Tax
Returns required to be filed on its behalf and on behalf of the
Partnership and the Transaction Companies for any taxable period
ending on or before the Closing Date, and TRW will include the
taxable income of the Partnership and the Transaction Companies
(to the extent permitted by law) for each such period in its
consolidated federal income Tax Return and in any consolidated,
combined or unitary Tax Return (including Tax Returns based on
or measured by net income) filed by TRW or any affiliate thereof
in which such income can be included under applicable state or
local law. Each Transaction Company will furnish Tax information
to TRW for inclusion in such consolidated, combined or unitary
Tax Returns filed by TRW or an affiliate thereof for the period
which includes the Closing Date in accordance with such
corporation's past custom and practice and TRW will make a
reasonable effort to notify the Transaction Company if it
utilizes the Tax information in a manner inconsistent with the
manner in which it is provided. TRW and its affiliates will take
no position on such Tax Returns that relate to any Transaction
Company or any of its subsidiaries that is inconsistent with
each of such entity's past custom and practice. TRW and its
affiliates agree that they will take all actions necessary to
treat the transactions contemplated by this Agreement as being a
fully taxable sale of all of the assets of the Business pursuant
to Section 338(h)(10) of the Code or otherwise and not subject
to the anti-churning rules of Code Section 197(f)(9). TRW and
its affiliates further agree that they will not take, or cause
to be taken, any action which would be inconsistent with or
prejudicial to the immediately preceding sentence.
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(b) Holdings will cause the Transaction Companies to file with the
appropriate taxing authorities all Tax Returns required to be
filed by them for any taxable period ending after the Closing
Date and will remit any Taxes due in respect of such Tax
Returns. TRW will pay to Holdings the Taxes for which TRW is
liable pursuant to Sections 6.1 and 6.3 hereof, but which are
payable in respect of Tax Returns to be filed by Holdings
pursuant to this Section 6.2(b) within 10 business days prior to
the due date (taking account of any extensions of time for
filing) for the filing of such Tax Returns but no earlier than
20 business days after such Tax Returns and the tax allocation
calculations have been submitted to TRW for review and approval.
(c) TRW will not be obligated or responsible for filing any returns
or amended returns to reflect any carrybacks of post-Closing net
operating losses of the Transaction Companies.
6.3. Liability for Pre-Closing Taxes: TRW will be liable for and
will pay, and hereby indemnifies, each Transaction Company for all Taxes,
including, but not limited to, Taxes resulting from the Transaction Companies
except Lusk ceasing to be members of the affiliated group (as defined in Section
1504(a) of the Code without regard to the limitations contained in Section
1504(d) of the Code) that includes TRW or any predecessors; Taxes imposed on any
person for any taxable year (a) under Treas. Reg. (S)1.1502-6 (or any similar
provision of state, local or foreign law), (b) as a transferee or successor, or
(c) by contract in or otherwise; amounts pursuant to any guaranty,
indemnification, tax sharing, or similar agreement made on or before the Closing
Date relating to the sharing of liability for payment of Taxes; Taxes resulting
from the breach of any representation or warranty in Section 3.2(n) hereof
imposed on TRW, the Partnership or any Transaction Company, or for which any of
TRW, the Partnership, and the Transaction Companies may otherwise be liable;
Taxes imposed by reason of, attributable to, or resulting from the Section
338(h)(10) Election as set forth in Sections 6.1 and 6.5 hereof, and Taxes
resulting from transactions described in Sections 2.1(a) through 2.1(i) hereof,
for any taxable year ending on or prior to the Closing Date and for the portions
of such taxable year or period ending on or prior to the Closing Date (or, in
the case of consolidated, combined or unitary Tax Returns, including TRW, any
period including the Closing Date) and any costs and expenses (including,
without limitation, costs of collection and attorneys' fees) arising out of or
resulting from TRW's liability and indemnity for Taxes hereunder. TRW will be
entitled to retain any refund of Taxes with respect to the Partnership and the
Transaction Companies relating to any such periods. In order appropriately to
apportion any income Taxes relating to any taxable year or period that begins
before and ends after the Closing Date, the parties hereto will, to the extent
permitted by applicable law, elect with the relevant taxing authority to
terminate the taxable year as of the Closing Date (provided, however, that any
Taxes related to the Section 338(h)(10) Election will be determined as provided
in Section 6.1 and 6.5 hereof). In any case where applicable law does not
permit any company to treat the Closing Date as the end of a taxable year of
such corporation, then whenever it is necessary to calculate the liability for
income or franchise
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Taxes of such company for a portion of a taxable year, such determination will
(unless otherwise agreed to in writing by Holdings and TRW) be determined by a
closing of such corporation's books at the end of the Closing Date (provided,
however, that any Taxes related to the Section 338(h)(10) Election will be
determined as provided in Section 6.1 and 6.5 hereof), except that exemptions,
allowances or deductions that are calculated on an annual basis, such as the
deduction for depreciation, will be apportioned on a daily basis. In order
appropriately to apportion any Taxes, other than income or franchise Taxes,
relating to any taxable year or period that begins before and ends after the
Closing Date, (i) ad valorem Taxes (including, without limitation, real and
personal property Taxes) will be accrued on a monthly basis over the period for
which the Taxes are levied, or if it cannot be determined over what period the
Taxes are being levied, over the fiscal period of the relevant taxing authority,
in each case irrespective of the lien or assessment date of such Taxes, and (ii)
franchise and other privilege Taxes not measured by income will be accrued on a
monthly basis over the period to which the privilege relates.
6.4. Tax Audits Relating to the Business:
(a) TRW will give notice to Holdings of any audits of or
administrative or court proceedings relating to TRW's or any
affiliate's consolidated, combined or unitary Tax Returns
related to the operations of the Business for periods ending
prior to the Closing Date, and will keep Holdings and its
counsel informed of the progress of, and issues involved in, the
same, all to the extent that such returns relate to the
Partnership or the Transaction Companies. TRW will be entitled
to control the defense of any such audits or proceedings.
(b) Holdings will give notice to TRW of any Tax claim relating to
any taxable year or period that includes the Closing Date, and
will keep TRW and its counsel informed of the progress of, and
the issues involved in, the same, in each case which may be the
subject of indemnification by TRW pursuant to this Agreement.
Holdings will be entitled to control the defense and resolutions
of any such audits or proceedings; provided, however, that if
any Transaction Company settles any Tax claim for the portion of
a taxable year or period ending on or prior to or after the
Closing Date or including the Closing Date which may be the
subject of indemnification by TRW pursuant to this Agreement
without the prior written consent of TRW, which consent will not
be unreasonably withheld, TRW will be released from any
indemnification obligations hereunder.
6.5. Code Section 338(h)(10) Election and Code Section 197(f)(9)(B):
TRW agrees to join with Holdings in making an election under Section 338(h)(10)
of the Code (and any corresponding elections under state, local, or foreign tax
law) (collectively, a "Section 338(h)(10) Election") with respect to the actual
or deemed purchase and sale of the stock of Operating Company, TRW Hotel and
Lusk. TRW will pay any Tax, including any federal, foreign, state and local
Taxes, whether determined on a consolidated, combined, unitary, separate or
other return basis, attributable to, arising out of or resulting from the making
of the Section 338(h)(10)
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Election in accordance with Section 6.1 hereof and will indemnify the
Partnership and the Transaction Companies against any Taxes arising out of any
failure to pay such Tax. TRW will also pay any state, local, or foreign Tax
(and indemnify the Partnership and the Transaction Companies against any Taxes
arising out of any failure to pay such Tax) attributable to an election under
state, local or foreign law similar to the election available under Section
338(g) of the Code (or which results from the actual or deemed making of an
election under Section 338(g) of the Code) with respect to the actual or deemed
purchase and sale of the stock of the Transaction Companies hereunder where the
state, local, or foreign tax jurisdiction does not provide or recognize a Code
Section 338(h)(10) Election. Notwithstanding the above, TRW's obligations
hereunder will be reduced with respect to the state Taxes on the deemed sale of
assets under Section 338(h)(10) Election in any state, where both (i) TRW or
Microwave actually recognizes gain on the sale of Operating Company stock to
Holdings that is taxed in that state and (ii) such state does not recognize the
Section 338(h)(10) Election, by the amount of Taxes paid with respect to the
sale of stock in Operating Company in that particular state. In addition, TRW
will pay that portion of any income or similar Tax for the Transaction Companies
(including Taxes in Texas and Ohio) due for a Tax period ending after the
Closing Date to the extent such Tax is measured by gain or income recognized on
account of the Section 338(h)(10) Election or the transfer of Acquired Assets.
TRW and its affiliates will comply fully with all filing and other requirements
necessary to effect the Section 338(h)(10) Election. In addition, at the
request of Holdings), TRW and its affiliates will make an election under Code
Section 197(f)(9)(B) in connection with the Transactions contemplated by this
Agreement.
6.6. Cooperation Regarding Tax Matters: The parties hereto will
provide such necessary information as any other party hereto may reasonably
request in connection with the preparation of such party's Tax Returns, or to
respond to or contest any audit, prosecute any claim for refund or credit or
otherwise satisfy any legal requirement relating to Taxes of each party hereto
or their respective affiliates.
6.7. Tax Sharing Agreements: All Tax sharing agreements, policies,
arrangements and practices between TRW or any of its affiliates and the
Partnership or the Transaction Companies will terminate as of the Closing Date
and will have no further effect for any taxable year (whether the current year,
a future year, or a past year). TRW and its affiliates on the one hand and the
Partnership and each of the Transaction Companies on the other will cancel any
intercompany accounts in respect of Taxes with each other as of the Closing Date
as provided in Section 4.10 hereof. Any powers of attorney with respect to
Taxes of the Partnership or the Transaction Companies currently in force will be
terminated effective as of the Closing.
6.8. Payment of Transfer Taxes and Other Charges: TRW will pay all
transfer Taxes, if any, including, but not limited to, sales, use, and value
added Taxes due on account of the Recapitalization transactions described in
this Agreement. Purchaser and the Transaction Companies assume responsibility
for and will pay any and all Taxes, fees and assessments due to or attributable
to actions following the Recapitalization transactions including, but not
limited to, filing fees, franchise Taxes, license fees or other costs for
qualification or
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registration of, or for registration of shares of, TRW Hotel, Holdings,
Operating Company, Comcred, S.A. de C.V., Servicred, S.A. de C.V., Lusk and CCB
in any state or local jurisdiction, or any foreign jurisdiction including,
without limitation, costs or fees, if any, to register or file articles or
certificates or amended articles of incorporation with or to qualify to do
business in any state or local jurisdiction.
6.9. Survival of Obligations, Etc.: The obligations of the parties
set forth in this Article VI relating to Taxes will, except as otherwise agreed
in writing, be unconditional and absolute and will remain in effect without
limitation as to time or amount of recovery by any party hereto until thirty
(30) days after the expiration of the applicable statute of limitations
governing the Tax to which such obligations relate (after giving effect to any
agreement extending or tolling such statute of limitations).
6.10. Other: Any indemnification payments or Adjustment to the
Purchase Price made under this Agreement will be treated for Tax purposes as an
adjustment to the Demand Note portion of the Purchase Price paid to Microwave by
Operating Company.
ARTICLE VII
Actions After Closing
7.1. Further Conveyances: After the Closing and without further cost
or expense to the Transaction Companies, TRW will execute and deliver to the
Transaction Companies such additional instruments of conveyance and take such
other and further actions as Operating Company may reasonably request, and as
are ordinarily provided by a seller, more completely to sell, transfer and
assign to Operating Company and vest Ownership in the appropriate Transaction
Company to the Acquired Assets and to consummate the transactions contemplated
hereby.
7.2. Further Consents to Assignment: As and to the extent any member
of the TRW Group will have failed to obtain prior to Closing the consent or
approval (or an effective waiver thereof) of any person or persons in respect of
any item described in Section 4.5 hereof;
(a) the parties will fully cooperate with each other to obtain from
such person or persons the consents or approvals (or effective
waivers thereof);
(b) if the consent or approval is listed in Appendix G and is not
obtained prior to the Closing, then (1) the members of the TRW
Group will (x) use reasonable efforts to provide the Transaction
Companies with an alternative arrangement providing the benefit
of all the rights of the members of the TRW Group under such
contract, lease, license, permit, approval or similar item
including, without limitation, enforcement (at TRW's expense) of
any and all rights of the members of the TRW Group against such
person as the Transaction Companies may reasonably request
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and (y) indemnify and hold harmless the Transaction Companies
from and against any and all liabilities, damages, losses,
claims, costs and expenses (including, without limitation,
attorneys' fees and expenses) arising out of or related to the
failure to obtain such consent, approval or waiver; (2)
Purchaser, in its good faith reasonable judgment, may elect to
accept or reject such proposed alternative arrangement; and (3)
if Purchaser elects to reject such proposed alternative (or if
an alternative is not proposed), such election (or failure to
propose an alternative) will be deemed to constitute, pursuant
to Section 5.1 hereof, a failure to satisfy a condition to
Purchaser's obligation to consummate the transactions
contemplated by this Agreement, but will not constitute a breach
of covenant or a breach of warranty by any member of the TRW
Group; and
(c) if the parties are unable to obtain any consent or approval (or
effective waiver thereof) under any of the contracts, leases,
licenses, permits, approvals or other similar items constituting
part of the Acquired Assets that are not listed in Appendix G,
then after the Closing (1) this Agreement will not constitute or
be deemed to be a contract to assign the same if an attempted
assignment without such consent, approval or waiver would
constitute a breach of such item or create in the issuer or any
party thereto the right or power to cancel or terminate such
item and, in such case, the consummation of the transactions
contemplated hereby will not be deemed to constitute such an
assignment and (2) TRW, IS&S International and Microwave will
use reasonable efforts to cooperate with the Transaction
Companies in any reasonable arrangement designed to provide the
Transaction Companies with the benefit of all the rights of the
members of the TRW Group under such contract, lease, license,
permit, approval or similar item, including, without limitation,
enforcement (at TRW's expense) of any and all rights of the
members of the TRW Group against such person as the Transaction
Companies may reasonably request.
7.3. Access to Former Business Records: For a period of ten (10)
years following the Closing, or until any audits of the Tax Returns of the TRW
Group relating to periods prior to the Closing are completed, whichever occurs
later, Operating Company will retain all business records of the Business other
than those records destroyed in accordance with normal record retention
procedures. During such period, Operating Company will afford duly authorized
representatives of TRW or an appropriate tax auditor displaying appropriate
credentials free and full access to all of such records and will permit such
representatives, at TRW's expense, to make abstracts from, or to take copies of
any of such records or to obtain temporary possession of any thereof as may be
reasonably required by TRW. During such period, Operating Company will cooperate
with TRW or an appropriate tax auditor, and cause employees of the Business to
cooperate with TRW or an appropriate tax auditor, at TRW's expense, in
furnishing information, evidence, testimony and other assistance in connection
with any action, proceeding or investigation relating to TRW's conduct of the
Business prior to the Closing. If Operating Company desires to dispose of any
such records prior to the expiration of such period other than
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in accordance with normal record retention procedures, Operating Company will,
prior to such disposition, give TRW the opportunity, at TRW's expense, to
segregate and remove such records as TRW may select.
7.4. Access to Former Employees: After the Closing, Operating Company
will make available to TRW any employees of Operating Company whom TRW may
reasonably need in order to defend or prosecute any legal or administrative
action to which TRW is a party and which relates to the conduct of the Business
prior to the Closing. TRW will pay or reimburse Operating Company for all
reasonable expenses which may be incurred by such employees in connection
therewith, including, without limitation, all travel, lodging and meal expenses,
and TRW will compensate Operating Company for the number of whole business days
spent by each such employee in providing such services at the rate of one
hundred thirty percent (130%) of the average daily gross pay per business day
(excluding the value of employee benefits) of such employee during the calendar
month in which such services are performed.
7.5. Use of TRW Trademark: The Transaction Companies will not use
the TRW name or Trademark, except as authorized in accordance with the Trademark
Agreement.
7.6. Nondisclosure:
(a) For a period of five (5) years after the Closing, TRW will not,
and will cause each of its affiliates, and their respective
successors and assigns not to, (i) use any Confidential
Information (as hereinafter defined) for its own benefit or the
benefit of any person, firm or corporation other than the
Transaction Companies and their respective successors and
assigns, or (ii) disclose any Confidential Information to any
person, firm or corporation, other than to (x) the Transaction
Companies and their respective successors and assigns or (y)
entities controlled by TRW. The term "Confidential Information"
will mean any trade secrets, any confidential or proprietary
information and any tangible items which record such trade
secrets or confidential or proprietary information that TRW or
any of its affiliates has in its possession on or before the
Closing Date concerning operations, inventions, developments,
products, services, processes, discoveries or other matters
relating to the Business, except for any information which (x)
is or becomes publicly known or within the public domain other
than as a result of disclosure by TRW or any of its affiliates
in violation of the terms of this Agreement or (y) becomes
available subsequent to the Closing to TRW or any of its
affiliates on a non-confidential basis from a source other than
the Transaction Companies, provided that such source is not
prohibited from disclosing such information to TRW or any of its
affiliates by a contractual, legal or fiduciary obligation to
the Transaction Companies. The covenant set forth in this
Section 7.6 will not be applicable to TRW's use of any
information concerning the Business in connection with (i) the
payment or contesting of any Excluded Liability or (ii) the
preparation and publication of TRW's financial statements and
all reports and disclosures provided
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for in the Securities Act of 1933, as amended, and the
Securities Exchange Act of 1934, as amended, and the respective
regulations thereunder.
(b) In the event that TRW or any of its affiliates receives a
request or is required (by deposition, interrogatory, request
for documents, subpoena, civil investigation or similar process)
to disclose any or all of the Confidential Information, TRW
agrees to (i) provide Operating Company with prompt notice of
the existence, terms and circumstances surrounding such a
request, (ii) consult with Operating Company on the advisability
of taking legally available steps to resist or narrow such
request, and (iii) provide reasonable assistance to Operating
Company, at Operating Company's expense, in seeking a protective
order or other appropriate remedy. In the event that a
protective order or other remedy is not obtained or that
Operating Company waives compliance with the provisions hereof,
(i) the entity which received such a request may disclose only
that portion of the Confidential Information which it is advised
by opinion of its counsel is legally required to be disclosed
and will cooperate with Operating Company in seeking to obtain
reasonable assurance confidential treatment will be accorded to
such portion of the Confidential Information, and (ii) such
entity will not be liable for such disclosure unless such
disclosure to any such tribunal was caused by or resulted from a
previous disclosure by TRW or any of its affiliates not
permitted by this Section 7.6.
(c) The parties further agree that damages at law for violation of
the foregoing covenant would not be an adequate or proper remedy
and that, if TRW or any of its affiliates violates or threatens
to violate the foregoing covenant, the Transaction Companies and
their respective successors and assigns will be entitled, upon
application to a court of competent jurisdiction and notice to
TRW, to obtain a temporary or permanent injunction, without the
posting of any bond, against TRW or any of its affiliates
prohibiting any threatened or further violation of this
covenant, and also to seek damages, compensatory, exemplary or
otherwise, for such violation. Such remedies will not be deemed
to be the exclusive remedies for a breach of this Section 7.6
available to the Transaction Companies and their respective
successors and assigns, but will be in addition to any and all
other remedies available at law or in equity.
ARTICLE VIII
Employees and Employee Benefits
8.1. Employment of Initial Employees: Reasonably in advance of the
Closing, Purchaser will offer to substantially all TRW Employees and all
Partnership Employees employment with Operating Company effective as of the
Closing, with initial job responsibilities and cash compensation comparable in
the aggregate to those extended to such employees by TRW
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or the Partnership, as the case may be. TRW will use all reasonable efforts to
assist Purchaser in making arrangements for Operating Company to hire the TRW
Employees and the Partnership Employees (other than those who elect to retire)
as of the Closing. Effective as of the Closing, all TRW Employees and all
Partnership Employees who accept Purchaser's offer of employment will become
employees of Operating Company ("Hired Employees"). Purchaser may identify up
to ten (10) individuals who will not become Hired Employees as of the Closing
but who will remain employees of TRW and provide services to Operating Company
on such terms and conditions (not less favorable to such individuals than the
terms and conditions of their current employment) as Purchaser and TRW may
agree. TRW and its subsidiaries will neither employ nor offer employment to any
Hired Employee during the twelve (12) month period following the Closing without
the prior written consent of Operating Company. During such period, Holdings
and its subsidiaries will not, without the prior written consent of TRW, employ
or offer employment to any former employee of the Business within six months of
such person's retirement under any applicable TRW pension plan.
8.2. Subsequent Terminations or Layoffs: In any termination or
layoff by Operating Company of any Hired Employee after the Closing, Operating
Company will comply fully (where applicable) with the Worker Adjustment and
Retraining Notification Act of 1988 ("WARN") and all other applicable Federal,
state and local laws, including those prohibiting discrimination and requiring
notice. The Operating Company will be solely responsible for any severance
expenses due a Hired Employee as a result of any such termination or layoff and
will bear the cost of compliance with (or failure to comply with) any such laws.
For six months after the Closing, Operating Company will maintain severance
benefits comparable to severance benefits in effect, immediately prior to the
Closing, for TRW Employees or Partnership Employees as the case may be.
8.3. Employee Benefits: The Transaction Companies are not assuming
and will not have any responsibility for the continuation of any Plan maintained
by TRW for the Business, and no Plan adopted or maintained by Operating Company
with respect to the Business will be deemed a Successor Plan of TRW. The
Operating Company will assume and maintain for the Partnership Employees for a
reasonable period of time (not less than three months) after the Closing all
employee benefit plans (which will include all employee pension benefit plans
and employee welfare benefit plans) in effect as of the Closing which covered
Partnership Employees, and Operating Company will be deemed a successor employer
to all such plans. Without limiting the foregoing, TRW will be responsible for
any claims incurred prior to the Closing under any group health, disability,
life insurance or similar plan maintained by TRW. For purposes of this Section
8.3, a claim will be incurred upon (a) the rendering of a covered service or the
commencement of hospitalization or confinement, in the case of a group health
plan, (b) the disabling event, in the case of a disability plan, and (c) death,
in the case of a life insurance plan.
8.4. Pension Plan: TRW will retain all assets and liabilities in the
TRW Salaried Pension Plan (the "Pension Plan") allocable to the TRW Employees,
including all Hired Employees. All benefit service and vesting service accruals
for the TRW Employees, including
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the Hired Employees, under the Pension Plan will cease as of the Closing. TRW
will amend the Pension Plan to provide those Hired Employees who (i) are covered
under the Pension Plan at the Closing, (h) have five or more years of vesting
service under the Pension Plan at the Closing and (iii) are employed by
Operating Company for at least one year from the Closing with a supplemental
benefit. The supplemental benefit will be based upon the formula of 2.5% times
-----
pensionable earnings times years of benefit service where "benefit service"
-----
means the benefit service credited to such Hired Employee under the Pension Plan
at the Closing and "pensionable earnings" (as defined in the Pension Plan but
limited to 1995 earnings only) means the 1995 pensionable earnings of such Hired
Employee. The parties may agree to allocate among such Hired Employees the
aggregate amount of the supplemental benefit determined under such formula on a
basis weighted for age or benefit service. The supplemental benefit will be
paid as a single sum payment upon receipt of a deferred vested benefit or
retirement benefit from the Pension Plan. Both the vested Pension Plan benefit
and the supplemental benefit described herein will not be payable to the Hired
Employee until such employee has (i) attained at least age 55, (ii) terminated
employment from Operating Company (or any successor of Operating Company or
purchaser of substantially all of the Business) and (iii) filed a written
application therefore with the Pension Plan's Board of Administration. (Hired
Employees still employed with Operating Company (or successor) after attainment
of age 65 may file a written application for receipt of benefits from the
Pension Plan.)
8.5. Medical, Dental and Vision Benefits: As of the Closing and
without any waiting period, Operating Company will provide all Hired Employees
(and their dependents) with medical, dental and vision benefit coverage under
group health plans maintained by Operating Company, which may include the
medical, dental and vision plans which cover Partnership Employees as of the
Closing and which are being assumed by Operating Company. The Operating Company
will waive any pre-existing condition exclusions or limitations applicable to
such persons under such medical, dental and vision plans.
8.6. Life Insurance: As of the Closing, Operating Company will
provide all Hired Employees with coverage under life insurance benefit plans
maintained by Operating Company, which may include the life insurance benefit
plans which cover Partnership Employees as of the Closing and which are being
assumed by Operating Company.
8.7. Vacation: As of the Closing, Operating Company will assume an
obligations of TRW and the Partnership to Hired Employees for any accrued but
unused vacation days in accordance with the Supplemental Accounting Principles
set forth on Appendix E-1. TRW will have no obligation to make any payment to
Hired Employees after the Closing with respect to any such vacation days.
8.8. 401(k) Plans: TRW currently maintains the TRW Employee Stock
Ownership and Stock Savings Plan ("SSP") and the Partnership currently maintains
the TRW REDI Employee Savings Plan ("Partnership Plan"), both plans being
qualified under Sections 401(a) and 401(k) of the Code. All contributions to
the SSP by TRW Employees and matching contributions by
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TRW will cease as of the Closing. The Operating Company will assume and
maintain the Partnership Plan with an employer matching contribution no less
than that in effect under the Partnership Plan at the Closing. The Operating
Company agrees to either (i) cover all Hired Employees under the Partnership
Plan being assumed by Operating Company as of the Closing or (ii) establish,
effective as of the Closing, a 401(k) plan which will provide an employer
matching contribution at least equal to the employer matching contribution in
effect under the SSP at the Closing (the "Purchaser 401(k) Plan"). The
Purchaser 401(k) Plan will recognize service of Hired Employees rendered to TRW
and recognized by the TRW 401(k) Plan for all purposes for which service counts
under the Purchaser 401(k) Plan. As soon as practicable thereafter, TRW and
Purchaser will agree in good faith on a valuation date ("Valuation Date"). On a
date as further agreed upon by the Purchaser and TRW after the Valuation Date,
TRW will (i) cause the interests of each TRW Employee in the Insured Return,
Equity, Bond Index and Small Company Equity Funds maintained pursuant to the SSP
to be liquidated into an amount of cash equal to the value of each such person's
interest in such fund as of the close of business on the Valuation Date; (ii)
cause the interests of each TRW Employee in the TRW Stock Fund maintained
pursuant to the SSP to be converted into shares of TRW Common Stock; and (iii)
cause the cash amounts and shares of TRW Common Stock as so determined to be
spun off and transferred to the Purchaser 401(k) Plan, once satisfactory
evidence of intended IRS qualification of the Purchaser 401(k) Plan has been
provided to TRW.
8.9. Workers' Compensation: TRW will bear the entire cost and
expense of all workers' compensation claims arising out of injuries identifiably
sustained by Hired Employees before the Closing. Operating Company will bear
the entire cost and expense of all workers' compensation claims arising out of
injuries and illnesses identifiably sustained by Hired Employees after the
Closing. TRW will bear the entire cost and expense of all workers' compensation
claims arising out of injuries without an identifiable date of occurrence and
which are alleged to have arisen before the Closing and which are filed before
the Closing. Notwithstanding any state law to the contrary, Operating Company
will bear the entire cost and expense of all workers' compensation claims
arising out of injuries and illnesses sustained by Hired Employees without an
Identifiable date of occurrence and which are alleged to have arisen before or
after the Closing which are filed after the Closing. From and after the
Closing, Operating Company will use its good faith efforts to facilitate the
return to work in the employment of Operating Company of any Hired Employee who
is on disability leave on the Closing as a result of a work-related injury or
illness.
8.10. No Rights: No former, present or future employees of either
party (or any dependents of such employees) will be treated as third party
beneficiaries in or under this Agreement. Except as provided in Section 8.2
hereof, nothing herein is to be construed to require the Transaction Companies
to maintain any benefit or condition of employment for a period longer than
three (3) months following the Closing.
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8.11. Family and Medical Leave Act: Purchaser acknowledges that
effective as of the Closing, Operating Company is a successor employer of the
Hired Employees for purposes of compliance with the Family and Medical Leave
Act.
ARTICLE IX
Indemnification
9.1. Indemnification of TRW: Subject to the limitations set forth in
Section 9.5 hereof, each of the Transaction Companies hereby agrees and
covenants that after the Closing each will jointly and severally indemnify,
defend and hold TRW and its subsidiaries harmless from and against any and all
liabilities, damages, losses, claims, costs and expenses (including, without
limitation, costs of collection and reasonable attorneys' fees) arising out of
or resulting from (a) either (i) any misrepresentation or breach of warranty by
Purchaser for which notice is given by TRW within the applicable periods
specified in Section 3.5 hereof or (ii) any claim by a person other than TRW and
its subsidiaries, which claim is based upon one or more allegations that, if
true, would give rise to a right of indemnification under clause (a)(i) of this
sentence and for which notice is given by TRW within the applicable periods
specified in Section 3.5 hereof; (b) any failure to pay or satisfy or cause to
be paid or satisfied any of the Assumed Liabilities when due and payable; (c)
nonperformance by Purchaser of any obligation to be performed on the part of the
Purchaser under this Agreement prior to the Closing and the non-performance by
any of the Transaction Companies of any obligation to be performed on their
respective parts under this Agreement after the Closing including, without
limitation, the obligations of each of the Transaction Companies under Article
VIII hereof; or (d) any claim by a third party relating to the use after the
Closing of the Trademark by Licensee (each as defined in the Trademark
Agreement), including, without limitation, product liability; provided, however,
that (a) there shall be no right of indemnification under this clause (d) in
respect to (i) claims by any of the Transaction Companies under this Agreement
or (ii) claims that the use of the Trademark (as defined in the Trademark
Agreement) after the Closing (as distinct from the use of a mark or component of
a mark not including TRW) infringes any third party's rights, and (b) the
Transaction Companies shall not have any liability under this clause (d) with
respect to any diminution in the value of shares of capital stock in Holdings.
9.2. Indemnification of Transaction Companies: Subject to the
limitations set forth in Section 9.4 hereof, TRW hereby agrees and covenants
that after the Closing it will indemnify, defend and hold each of the
Transaction Companies and their subsidiaries harmless from and against any and
all liabilities, damages, losses, claims, costs and expenses (including, without
limitation, costs of collection and reasonable attorneys' fees) arising out of
or resulting from (a) either (i) any misrepresentation or breach of warranty by
TRW for which notice is given by such Transaction Company within the applicable
periods specified in Section 3.5 hereof or (ii) any claim by a person other than
the Transaction Companies and their subsidiaries, which claim is based upon one
or more allegations that, if true, would give rise to a right of indemnification
under clause (a)(i) of this sentence and for which notice is given by
Transaction Companies within
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the applicable periods specified in Section 3.5 hereof; (b) any failure fully to
pay or satisfy or cause to be paid or satisfied any of the Excluded Liabilities
when due and payable; (c) nonperformance by any member of the TRW Group of any
obligation to be performed on the part of any member of the TRW Group under this
Agreement prior to the Closing and the nonperformance by TRW, Microwave or IS&S
International of any obligation to be performed on their respective parts after
the Closing, including, without limitation, the obligations of TRW under Article
VIII hereof; or (d) any claim that the use of the Trademark (as defined in the
Trademark Agreement after the Closing in accordance with the terms of the
Trademark Agreement infringes any trademark, service mark, trade name or other
proprietary right of any third party. Any payments made by TRW pursuant to this
Article IX will be made to Operating Company.
9.3. Claims: If Section 6.4 hereof applies, the following provisions
of this Section 9.3 do not apply. If an indemnified person (a "Claimant")
desires to make a claim under Section 9.1 or Section 9.2 hereof against an
indemnifying person (the "Indemnitor") which does not involve a claim by any
person other than the parties and their subsidiaries, then such Claimant will
make such claim by promptly delivering written notice to the other; provided,
however, that, subject to Section 3.5 hereof, the failure to give such notice
will not relieve any Indemnitor from any obligation hereunder except where, and
then solely to the extent that, such failure actually and materially prejudices
the rights of such Indemnitor. If a Claimant desires to make a claim against an
Indemnitor under Section 9.1 or Section 9.2 hereof, as the case may be, which
involves a claim by a person other than the parties and their subsidiaries, then
such claim will be made in the following manner and be subject to the following
terms and conditions:
(a) Notice: The Claimant will give prompt written notice to the
Indemnitor of any demand, claim or threat of litigation or the
actual institution of any action, suit or proceeding
(collectively, a "Claim") served on or instituted against the
Claimant with respect to which the Claimant believes it would
have a right of indemnification under Section 9.1 or Section 9.2
hereof. In providing such notice, the Claimant will only state
the existence of such Claim and need not admit or deny the
validity of the facts or circumstances out of which such Claim
arose. The failure to give such notice will not relieve an
Indemnitor from any obligation hereunder except where, and then
solely to the extent that, such failure actually and materially
prejudices the rights of such Indemnitor.
(b) Responsibility for Defense: Within thirty (30) days after
receipt of any such notice, but not less than five (5) working
days prior to the time the Claimant is required to respond to a
Claim, the Indemnitor may, by giving written notice to the
Claimant, and provided that in such notice the Indemnitor also
agrees that it has responsibility hereunder to indemnify the
Claimant with respect to such Claim, assume responsibility for
the defense of the Claim (thereby becoming the "Defending
Party") in the name of the Claimant or otherwise as the
Indemnitor may elect. The Claimant will assume responsibility
for the defense of such Claim
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as the Defending Party if the Indemnitor does not elect to
assume responsibility for the defense of such Claim as provided
in the previous sentence, in which event the Indemnitor will
reimburse the Claimant for the costs of defending against such
Claim, including reasonable attorneys' fees and expenses, and
will be responsible for any Losses (as defined in Section 9(c)
hereof) the Claimant may suffer as a result of such Claim, if,
but only to the extent that, the Claimant is in fact entitled to
indemnification under this Agreement with respect to such Claim.
Subject to the provisions of Sections 9.3(c) and 9.3(d) hereof,
the Defending Party will have full authority to defend, cure,
adjust, compromise or settle such Claim or appeal any judgment
or ruling of a court or other tribunal in connection with such
Claim in its own name and/or in the name of the other party.
(c) Right to Participate/Right to Assume Responsibility for Defense
of a Claim: Notwithstanding a Defending Party's responsibility
for the defense of a Claim, the other party will have the right
to participate, at its own expense and with its own counsel, in
the defense of a Claim and, upon receiving a written request
from the other party, the Defending Party will consult with the
other party from time to time on matters relating to the defense
of such Claim and provide the other party with copies of all
pleadings and material correspondence relating to such Claim. In
the event that a Claim seeks equitable or injunctive relief, the
Claimant may, at its option, and notwithstanding anything to the
contrary in Section 9.3(b) hereof, assume responsibility for the
defense of such portion of the Claim seeking equitable or
injunctive relief. In the event that pursuant to the preceding
sentence the Claimant has assumed responsibility for the defense
of such portion of the Claim as seeks equitable or injunctive
relief, the Indemnitor will reimburse Claimant for the costs of
defending the Claim including reasonable attorneys' fees and
expenses, and the Indemnitor will remain monetarily responsible
for any and all liabilities, damages, losses, claims, costs and
expenses (including, without limitation, costs of collection and
reasonable attorneys' fees) (collectively "Losses") the Claimant
may suffer as a result of such Claim, if, but only to the extent
that, such defense costs and such Losses are otherwise subject
to indemnification pursuant to this Agreement.
(d) Settlement: A Defending Party will provide the other party with
timely written notice of any proposed adjustment, compromise or
other settlement, including equitable or injunctive relief, of a
Claim which the Defending Party intends to propose or accept, in
which event the other party will within five business days after
receipt thereof provide the Defending Party with a written
notice (a "Response Notice") to the effect that (i) the other
party consents to the settlement or (ii) the other party objects
to the settlement, and in which event the following additional
provisions will apply.
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(A) In the event that the other party (i) consents to the
settlement in a timely Response Notice, or (ii) fails to provide
the Defending Party with a timely Response Notice, the Defending
Party will have the right to propose or accept, as the case may
be, such settlement and to enter into any agreement, in its own
name and/or in the name of the other party, giving legal effect
to all aspects of such settlement.
(B) When the Defending Party is also the Indemnitor, and the
Claimant objects to the settlement by means of a timely Response
Notice, then the Defending Party may, if it so elects, and
provided that the settlement in question is purely monetary in
nature and provides for a complete release of the Claim, tender
the defense of the Claim to the Claimant by tendering the
Claimant the amount of money proposed to be paid in settlement
of the Claim (the "Tendered Amount"), in which case the
Defending Party will have no further liability to the Claimant
hereunder with respect to such Claim, and in which case the
Claimant will have full responsibility for any and all defense
costs and Losses thereafter resulting from such Claim (the
"Claimant's Costs") and, in addition, once the Claimant's Costs
have been fully and finally determined, will reimburse the
Defending Party for the amount (if any) by which the Tendered
Amount exceeds the Claimant's Costs.
(C) When the Defending Party is the Claimant, the Claim in
question is not one that the Claimant assumed responsibility of
pursuant to the second sentence of Section 9.3(c) hereof, and
the Indemnitor objects to the settlement by means of a timely
Response Notice, the Indemnitor will have the right to assume
responsibility for the defense of the Claim by delivering with
the Response Notice a notice in the form contemplated by the
first sentence of Section 9.3(b) hereof. If the Indemnitor fails
to exercise such right, and if the settlement in question would
impose purely monetary obligations on the Indemnitor, the
Defending Party will have the right to propose or accept, as the
case may be, such settlement and to enter into any agreement, in
its own name and/or in the name of the Indemnitor, giving legal
effect to all aspects of such settlement, whereupon, if, but
only to the extent that, the Defending Party is entitled to
indemnification from the Indemnitor in respect to the Claim, and
further subject to Sections 9.4 and 9.5 hereof, the amount paid
under the terms of such settlement will be deemed to be Losses
subject to indemnification to the extent, and only to the
extent, such settlement is reasonable under all the facts and
circumstances at the time of the settlement. Otherwise, Losses
subject to indemnification will be deemed to be that portion of
the amount paid under the terms of such settlement that would
have been reasonable to pay under the terms of such settlement
under all of the facts and circumstances at the time of such
settlement.
(D) Except as provided in Section 9.3(d)(C) hereof, the
Defending Party will have no authority to enter into any
proposed settlement that the other party has
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objected to by means of a timely Response Notice. If the other
party has acted unreasonably in objecting to a proposed
settlement by means of a timely Response Notice, and the
Defending Party did not have either the right to tender the
defense of the Claim in question to the other party pursuant to
Section 9.3(d)(B) hereof or the right to enter into the proposed
settlement of the Claim pursuant to Section 9.3(d)(C) hereof,
then the other party will indemnify the Defending Party against
any and all Losses that the Defending Party may suffer as a
result of such unreasonable objection.
9.4. Limitation on TRW Indemnification: Notwithstanding the
provisions of Section 9.2(a) hereof, TRW will be obligated to indemnify, defend,
and hold the Transaction Companies and their subsidiaries harmless from or
against any Losses arising out of a misrepresentation or breach of warranty by
TRW only if, and then to the extent, the aggregate amount of all timely claims
exceeds Five Million Dollars ($5,000,000). In no event will TRW's total
obligation to the Transaction Companies and their subsidiaries under Section
9.2(a) hereof exceed, in the aggregate, Fifty Million Dollars ($50,000,000). The
foregoing $5,000,000 and $50,000,000 limitations will not apply to claims based
upon (i) knowing, intentional conduct that constitutes common law fraud or (ii)
any misrepresentation or breach of warranty with respect to the following
representations: Section 3.2(n) (captioned "Taxes") and Section 3.2(k)
(captioned "Employee Benefits").
9.5. Limitation on Transaction Companies Indemnification:
Notwithstanding the provisions of Section 9.1(a) hereof, the Transaction
Companies will be obligated to indemnify, defend, and hold TRW and its
subsidiaries harmless from or against any Losses arising out of a
misrepresentation or breach of warranty by the Purchaser only if, and then to
the extent, the aggregate amount of all timely claims exceed Two Million Dollars
($2,000,000). In no event will the Transaction Companies' total obligation to
TRW and its subsidiaries under Section 9.1(a) hereof exceed, in the aggregate,
Seventy Million Dollars ($70,000,000).
9.6. Miscellaneous:
(a) Certain Matters of Construction: References in this Article IX
to representations or warranties set forth in a particular
Section will be deemed to include without limitation (i) all
representations and warranties in Parts specifically referred to
in such Section and (ii) such representations and warranties as
confirmed by the certificates referred to in Sections 5.1(a),
5.1(k) and 5.2(a) hereof.
(b) Waiver of Subrogation: Each of the parties hereby waive any
insurer's right of subrogation under this Agreement except
solely to the extent such waiver would result in a limitation or
termination of coverage under any policy.
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ARTICLE X
Amendment, Waiver, and Termination
10.1. Amendment: This Agreement may be amended at any time, but only
by written instrument executed by all the parties hereto.
10.2. Waiver: Waiver of compliance by any party with any covenants
or conditions contained in this Agreement may only be by written instrument
executed by the party waiving such compliance. No such waiver, however, will be
deemed to constitute the waiver of any such covenant or condition in any other
circumstance or the waiver of any other covenant or condition.
10.3. Termination: This Agreement may be terminated and the
transactions contemplated hereby may be abandoned:
(a) at any time, by mutual written consent of TRW and Purchaser; or
(b) by either TRW or Purchaser if the other party will be in
material breach of one or more of the provisions of this
Agreement and has not cured such breach within 30 days following
notice of such breach; or
(c) by either TRW or Purchaser if, through no fault of the party
seeking termination, the Closing has not occurred on or prior to
December 3, 1996.
10.4. Procedure and Effect of Termination: In the event of the
termination of this Agreement and the abandonment of the transactions
contemplated hereby pursuant to Section 10.3 hereof, written notice thereof will
forthwith be given by the party so terminating to the other party and this
Agreement will terminate and the transaction contemplated hereby will be
abandoned, without further action. If this Agreement is terminated pursuant to
Section 10.3 hereof:
(a) each party will redeliver all documents, work papers and other
materials of the other parties relating to the transactions
contemplated hereby, whether so obtained before or after the
execution hereof, to the party furnishing the same, and all
confidential information received by any party hereto with
respect to the other party will be treated in accordance with
Section 11.2 hereof;
(b) all filings, applications and other submissions made pursuant
hereto will, at the option of TRW or Purchaser and to the extent
practicable, be withdrawn from the agency or other person to
which made;
(c) there will be no liability or obligation hereunder on the part
of TRW or Purchaser or any of their respective directors,
officers, employees, affiliates, controlling
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persons, agents or representatives, except that any liability or
obligation of TRW or Purchaser (the "Responsible Party"), as the
case may be, arising from a material breach by the Responsible
Party of one or more of the provisions of this Agreement will
survive such termination; and
(d) the obligations provided for in this Section 10.4 and the
obligation to treat information in a confidential manner as set
forth in Section 11.2 hereof will survive any such termination.
ARTICLE XI
Miscellaneous
11.1. Cooperation: Each of the parties will cooperate with the other
parties, at the request and expense of the requesting party, in furnishing
information, testimony and other assistance in connection with any actions,
proceedings, arrangements and disputes with other persons or governmental
inquiries or investigations involving the conduct of the Business by the TRW
Group or the transactions contemplated hereby.
11.2. Confidentiality: Reference is made to the Confidentiality
Agreement (the "Confidentiality Agreement") dated January 19, 1996 between
Purchaser and TRW. Both parties will continue to be bound by and will continue
to abide by the terms and conditions of the Confidentiality Agreement. TRW
agrees to cooperate with Purchaser, after the Closing, to obtain the return of
all documents and information supplied to other prospective purchasers of the
Business or part thereof pursuant to Confidentiality Agreements executed by such
prospective purchasers. TRW will seek, and Purchaser agrees to accept,
assignments of Confidentiality Agreements that TRW entered into with other
prospective purchasers of the Business.
11.3. Severability: If any provision of this Agreement will finally
be determined to be unlawful, then such provision will be deemed to be severed
from this Agreement and every other provision of this Agreement will remain in
full force and effect to the extent that such provisions can be given reasonable
effect in accordance with the intentions of the parties.
11.4. Expenses: Except as otherwise provided in this Agreement, each
party will bear its own expenses incurred in connection with this Agreement and
the transactions contemplated hereby, whether or not such transactions will be
consummated. For purposes of the preceding sentence, all expenses of TRW and
its subsidiaries (including, without limitation, expenses of the Business) in
connection with this transaction and the transactions contemplated hereby,
including, without limitation, all legal, accounting and other advisory costs
and expenses, broker's or finder's fees and expenses, investment banking fees
and expenses, corporate staff expenses and all retention or deal bonuses, if
any, will be paid by TRW and will not be charged by TRW to the Business;
provided, however, that the Business may pay or be charged for the salaries and
benefits
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(excluding retention or deal bonuses) of employees who are full time employees
of the Business or whose salaries and benefits are allocated to the Business in
the Ordinary Course of Business.
11.5. Bulk Sales: The parties waive compliance with the provisions of
any so-called bulk sales law of any state.
11.6. Notices: All notices, requests and other communications
hereunder will be in writing and will be deemed to have been duty given at the
time of receipt if delivered by hand or communicated by electronic transmission,
or, if mailed, three (3) days after mailing registered or certified air mail,
return receipt requested, with postage prepaid:
If to Purchaser, to: IS&S Acquisition Corp.
c/o both of:
Ropes & Gray
One International Place
Boston, MA 02110-2624
Telefax: (617) 951-7050
Attention: R. Bradford Malt
and
Hutchins, Wheeler & Dittmar
A Professional Corporation
101 Federal Street
Boston, MA 02110
Telefax. (617) 951-1295
Attention: Charles W. Robins
If to TRW, to: TRW Inc.
1900 Richmond Road
Cleveland, OH 44124
Telefax: (216) 291-7070
Attention: Secretary
provided, however, that if either party will have designated a different address
by notice to the other given as provided above, then to the last address so
designated.
11.7. Dispute Resolution: Except as provided in Section 2.8 hereof
concerning the Adjustment, if, after the Closing, the parties should have any
dispute among each other arising out of or relating to this Agreement or the
parties' respective rights and duties hereunder, then the parties will attempt
to resolve such dispute in the following manner:
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(a) Notice: Either party may at any time deliver to the other a
written dispute notice setting forth a brief description of the
issue for which such notice initiates the dispute resolution
mechanism contemplated by this Section 11.7.
(b) Negotiation: During the ninety (90) day period following the
delivery of the notice described in Section 11.7(a) above,
appropriate representatives of the parties will meet and seek to
resolve the disputed issue through negotiation.
(c) Referral: If representatives of the parties are unable to
resolve the disputed issue through negotiation within the first
sixty (60) days of the period described in Section 11.7(b)
hereof, the parties will refer the issue to an officer or
executive officer of each party or a neutral person or persons
satisfactory to both parties ("Referral Committee"). The
procedures to be followed for presentation of each party's
position with respect to the disputed issue and the method by
which the Referral Committee will consider the issue and attempt
to reach a decision will be determined by agreement of the
parties at the time the matter is referred. Unless the parties
have otherwise agreed in advance in writing, a decision of the
Referral Committee pursuant to this Section 11.7 will not be
binding upon the parties.
(d) Stay: No party will bring any action against another with
respect to such dispute until expiration of such ninety (90) day
period, unless the party bringing an action determines, based
upon written advice of legal counsel, that an applicable statute
of limitation may expire prior to the expiration of such ninety
(90) day period. Nothing in this Section 11.7 will preclude any
party from taking interim measures of protection in the form of
seeking preliminary or temporary equitable relief.
11.8. Exclusive Remedy: The parties agree, to the fullest extent
permitted by law, that after the Closing none of them or any of their directors,
officers, employees, affiliates, controlling persons, agents, successors,
permitted assigns, or representatives will have any liability or responsibility
whatsoever to the other or such other's directors, officers, employees,
affiliates, controlling persons, agents, successors, permitted assigns, or
representatives' on any basis (including, without limitation, in contract or
tort, under federal or state securities laws or otherwise) based upon any
information provided or made available, or statements made, to Purchaser or the
members of the TRW Group or their respective directors, officers, employees,
affiliates, controlling persons, agents, successors, permitted assigns, or
representatives (or any omissions therefrom), including, without limitation,
information provided or statements made in the specific representations and
warranties set forth in this Agreement, except as and only to the extent
expressly set forth herein with respect to such representations and warranties,
covenants and rights to indemnification and subject to the limitations and
restrictions contained herein or to the extent any such liability or
responsibility is based upon a fraudulent representation or claim.
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11.9. Assignment: This Agreement will be binding upon and inure to the
benefit of the successors of each of the parties hereto, but will not be
assignable by either party without the prior written consent of the other;
provided, however, that Purchaser may (i) assign its rights and delegate its
duties hereunder, in whole or in part, to Holdings pursuant to the Merger, (ii)
assign its rights and delegate its duties hereunder, in whole or in part, to one
or more of its subsidiaries, provided that Purchaser gives TRW prior written
notice of such assignment and unconditionally guarantees performance by
Purchaser's assignee, (iii) assign its rights hereunder, but subject to all
limitations contained hereunder including, without limitation, the provisions of
Article IX and Section 11.8 hereof, to one or more lenders of Operating Company
to secure obligations to such lender or lenders, or (iv) assign its rights and
delegate its duties hereunder, but subject to all limitations contained
hereunder including, without limitation, the provisions of Article IX and
Section 11.8 hereof, to the purchaser or purchasers of all or substantially all
of the Business (whether through a sale of assets or stock, merger or
otherwise).
11.10 No Third Parties: Neither this Agreement nor any provision set
forth herein is intended to, or will, create any rights in or confer any benefit
upon any person other than Lusk and the parties hereto and their successors and
permitted assigns.
11.11. Incorporation by Reference: The Appendices to this Agreement
constitute integral parts of this Agreement and are hereby incorporated into
this Agreement by this reference.
11.12. Governing Law: This Agreement will be governed by and construed
in accordance with the internal substantive laws of the State of New York,
except where the substantive laws of another jurisdiction mandatorily apply.
11.13. Counterparts: More than one counterpart of this Agreement may be
executed by the parties hereto, and each fully executed counterpart will be
deemed an original without production of the others.
11.14. Complete Agreement: This sets forth the entire understanding of
the parties hereto with respect to the subject matter hereof and supersedes all
prior letters of intent, agreements, covenants, arrangements, communications,
representations or warranties, whether oral or written, by any officer, employee
or representative of either party relating thereto.
11.15. Consent to Jurisdiction: Each of the parties agrees that all
actions, suits or proceedings arising out of or based upon this Agreement or the
Other Agreements or the subject matter hereof or thereof will be brought and
maintained exclusively in the United States District Court for the Southern
District of New York or the Supreme Court of the State of New York, county of
New York. Each of the parties hereto by execution hereof (i) hereby irrevocably
submits to the United States District Court for the Southern District of New
York
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or the Supreme Court of the State of New York, county of New York for the
purpose of any action, suit or proceeding arising out of or based upon this
Agreement or the Other Agreements or the subject matter hereof or thereof and
(ii) hereby waives, as a defense or otherwise, in any such action, suit or
proceeding, any claim that he or it is not subject personally to the
jurisdiction of the above-named courts, that he or it is immune from
extraterritorial injunctive relief or other injunctive relief, that his or its
property is exempt or immune from attachment or execution, that any such action,
suit or proceeding may not be brought or maintained in one of the above-named
courts, that any such action, suit or proceeding brought or maintained in one of
the above-named courts should be dismissed on grounds of forum non conveniens,
----- ----------
should be transferred to any court other than one of the above-named courts,
should be stayed by virtue of the pendency of any other action, suit or
proceeding in any court other than one of the above-named courts, or that this
Agreement, the Other Agreements or the subject matter hereof or thereof may not
be enforced in or by any of the above-named courts. Each of the parties hereto
hereby consents to service of process in any such suit, action or proceeding in
any manner permitted by the Federal Rules of Civil Procedure or the Civil
Practice Laws and Rules of New York, agrees that service of process by
registered or certified mail, return receipt requested, at the address specified
in or pursuant to Section 11.6 is reasonably calculated to give actual notice
and waives and agrees not to assert by way of motion, as a defense or otherwise,
in any such action, suit or proceeding any claim that service of process made in
accordance with Section 11.6 hereof does not constitute good and sufficient
service of process. The provisions of this Section 11.15 will not restrict the
ability of any party to enforce in any court any judgment obtained in the United
States District Court for the Southern District of New York or the Supreme Court
of the State of New York, county of New York.
11.16. Waiver of Jury Trial: To the extent not prohibited by applicable
law which cannot be waived, each of the parties hereto hereby waives, and
covenants that he or it will not assert (whether as plaintiff, defendant, or
otherwise), any right to trial by jury in any forum in respect of any issue,
claim, demand, cause of action, action, suit or proceeding arising out of or
based upon this Agreement, the Other Agreements or the subject matter hereof or
thereof, in each case whether now existing or hereafter arising and whether in
contract to tort or otherwise. Any of the parties hereto may file an original
counterpart or a copy of this Section 11.15 with any court as written evidence
of the consent of each of the parties hereto to the waiver of his or its right
to trial by jury.
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IN WITNESS WHEREOF, the parties have each caused this Agreement to be
executed by their respective duly authorized officers as of the date first above
written.
EXPERIAN CORPORATION
By:
------------------------------
Authorized Officer
By:
------------------------------
Authorized Officer
ATTEST: TRW INC.
_________________________ By:
------------------------------
Authorized Officer
By:
------------------------------
Authorized Officer
TRW IS&S INTERNATIONAL, INC.
By:
------------------------------
Authorized Officer
TRW MICROWAVE INC.
By:
------------------------------
Authorized Officer
IS&S HOLDINGS, INC.
By:
------------------------------
Authorized Officer
INFORMATION SYSTEMS AND SERVICES,
INC.
By:
------------------------------
Authorized Officer
TRW HOTEL COMPANY INC.
By:
------------------------------
Authorized Officer
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APPENDIX A
CERTAIN DEFINITIONS
The following terms have the meanings set forth below where used in the
Agreement and identified with initial capital letters:
Acquired Assets As defined in Section 2.2 of the Agreement.
Activated Activated means that the Copernicus System
has been placed in service and produces
substantially all consumer credit reports
sold by the Business.
Additional Excluded Assets As defined in Appendix C.
Additional Excluded Liabilities As defined in Appendix C.
Adjustment As determined under Section 2.8 of the
Agreement.
Agreement As defined in the Preamble to the Agreement.
Approved Investments As defined in Section 2.8(a) of the
Agreement.
Assumed Liabilities As defined in Section 2.4 of the Agreement.
Assurances of Discontinuance State of Vermont, Washington County Superior
Court, Docket No. S-790-92 Assurance of
Discontinuance dated December 16, 1992
between TRW and the State of Vermont; and
State of Vermont, Washington County Superior
Court, Docket No. ___________, Assurance of
Discontinuance dated September 14, 1995
between TRW and the State of Vermont.
Auditors As defined in Section 2.8(c) of the
Agreement.
Auditors' Report As defined in Section 2.8(c) of the
Agreement.
Business As defined in Recital A of the Agreement.
Business Facility As defined in Section 3.2(e) of the
Agreement.
<PAGE>
CCB Shares The 10,000 shares of Consumer Credit Bureau
(Japan) Common Stock owned by TRW.
Certificate of Merger As defined in Section 2.6(d) of the
Agreement.
Claim As defined in Section 9.3(a) of the
Agreement.
Claimant As defined in Section 9.3 of the Agreement.
Closing As defined in Section 2.6(b) of the
Agreement.
Closing Date As defined in Section 2.6(c) of the
Agreement.
Closing Date Net Working
Capital Deficiency As defined in Section 2.8(b) of the
Agreement.
Closing Date Net Working
Capital Excess As defined in Section 2.8(b) of the
Agreement.
Code As defined in Recital D of the Agreement.
Confidential Information As defined in Section 7.6(a) of the
Agreement.
Confidentiality Agreement As defined in Section 11.2 of the Agreement.
Consent Orders The Consent Order dated December 10, 1991
in the case of Federal Trade Commission v.
TRW INC. U.S. District Court for the
Northern District of Texas, Civil Action
No. 3-91CV2661-H, as amended by Agreed Order
Amending Consent Order dated January 14,
1993; and the Consent Order dated December
10, 1991 in the case of TRW INC. v. Dan
Morales, Attorney General of the State of
Texas, et al, U.S. District Court for the
Northern District of Texas, Civil Action
No. 3-91-1340-H.
Contractual Obligations As to any person, any written contract,
agreement, deed, mortgage, lease, license,
commitment, undertaking or arrangement,
including, without limitation, any document
or instrument evidencing or otherwise
relating to any indebtedness to which or by
which such person is subject or bound or, to
the
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knowledge of such person, to which or by
which any property or right of such person
is subject or bound, specifically excluding,
however, all leases of real or personal
property.
Databases Any and all proprietary and original
compilation of data.
Default An occurrence which constitutes a breach or
default under a contract, order, or other
commitment, after the expiration of any
grace period provided, without cure.
Defending Party As defined in Section 9.3(b) of the
Agreement.
Demand Note As defined in Recital D of the Agreement.
Disclosure Package As defined in Section 3.2 of the Agreement.
Effective Time As defined in Section 2.6(e) of the
Agreement.
Elsevier As defined in Recital D of the Agreement.
Elsevier Partnership Interest As defined in Section 3.2(o) of the
Agreement.
Employee Pension Benefit Plan As defined in Section 3.2(k) of the
Agreement.
Employee Welfare Benefit Plan As defined in Section 3.2(k) of the
Agreement.
Encumbrance Any encumbrance or lien, including, without
limitation, any mortgage, judgment lien,
materialman's lien, mechanic's lien,
security interest, encroachment, easement,
or other restriction, in each case having a
material adverse effect on the thing or
right so encumbered.
Environmental Claim Any claim, written notice or written
request for information by a governmental
body or agency or by any other third party,
whether based upon violation of statute or
regulation,
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strict liability, tort or otherwise, with
respect to an Environmental Condition.
Environmental Condition Any condition affecting the environment or
natural resources arising out of the conduct
of the Business or the use of the Acquired
Assets based upon the generation,
management, handling, transportation,
treatment, storage, disposal, delivery,
discharge, release or emission of any waste,
pollutant, toxic or other hazardous
substance; provided, however, for the
purposes of Section 2.5(a) of the Agreement
"Environmental Condition" means any
condition affecting the environment or
natural resources based upon the generation,
management, handling, transportation,
treatment, storage, disposal, delivery,
discharge, release or emission of any waste,
pollutant, toxic or other hazardous
substance.
Equity Investors As defined in Recital D of the Agreement.
ERISA Employee Retirement Income Security Act of
1974, as amended.
Exceptions As defined in Section 2.12(a) of the
Agreement.
Excluded Assets As defined in Section 2.3 of the Agreement.
Excluded Liabilities As defined in Section 2.5 of the Agreement.
FCRA Fair Credit Reporting Act, as amended,
15 United States Code Sections 1681 et seq.
Hired Employees As defined in Section 8.1 of the Agreement.
Holdings As defined in the Preamble to the Agreement.
Holdings Shares All issued and outstanding shares of common
stock in Holdings.
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HSR Act The Hart-Scott-Rodino Antitrust Improvements
Act of 1976, as amended.
Indemnitor As defined in Section 9.3 of the Agreement.
Intellectual Property All rights with respect to patents,
trademarks, service marks, trade names,
copyrights (and applications for
registration of any of the foregoing),
computer software, computerized data and
information (including without limitation
databases), trade secrets, know-how,
inventions, product designs, processes and
techniques, testing and quality control
processes and techniques, drawings and
customer lists.
IS&S Intellectual Property All rights with respect to the Proprietary
Software, Non-Proprietary Software and other
Intellectual Property held or used by the
TRW Group in the conduct of the Business as
currently conducted or as proposed to be
conducted in connection with present plans
for the Copernicus/File One system under
development as such Intellectual Property
may exist as of Closing, as well as all
claims against other persons arising out of
such rights.
IS&S International As defined in the Preamble of the Agreement.
IS&S Significant Intellectual
Property All IS&S Intellectual Property, the absence
of which or inability to use, individually
or in the aggregate, is likely to have a
Material Adverse Effect.
Losses As defined in Section 9.3(c) of the
Agreement.
Lusk Lusk - TRW REDI, Inc., a District of
Columbia corporation.
Material Adverse Effect An event which has, or is likely to have, a
material adverse effect on the business,
assets, results of operations, condition
(financial or otherwise) of the Business
taken as a whole as
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the same is currently conducted by TRW and
the Partnership.
Material Event Any event, condition, circumstance or
occurrence which has had a Material Adverse
Effect on the Business.
Merger As defined in Recital D of the Agreement.
Merger Consideration As defined in Section 2.6(e) of the
Agreement.
Mexican Investments All of IS&S International's equity interests
in Comcred, S.A. de C.V., a corporation
organized under the laws of Mexico, and
Servicred, S.A. de C.V., a corporation
organized under the laws of Mexico, and all
of IS&S International's rights, title and
interests under the agreements and
instruments set forth in Part B-1-3 and Part
B-1-4 of Appendix F to the Agreement,
including, without limitation, the
promissory notes set forth therein.
Microwave As defined in the Preamble to the Agreement.
Net Working Capital As defined in Section 2.8(b) of the
Agreement.
Non-Proprietary Software All computer software and programs licensed
or leased from third parties including,
without limitation, all existing versions,
drafts and components modules of source code
or object code or natural language code
currently provided under license, whether
recorded on paper, magnetic media or other
electronic device, all existing
descriptions, flow-charts and such other
writings currently provided under license,
including without limitation, documentation,
manuals, catalogs, leaflets and training
materials relating to the foregoing.
Noncompetition Agreement An agreement to be dated the Closing Date
between Holdings, Operating Company and TRW
relating to TRW's post-Closing participation
in activities competitive with the
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<PAGE>
Business, such agreement to be substantially
in the form of Appendix H to the Agreement.
Operating Company As defined in the Preamble to the Agreement.
Ordinary Course of Business The ordinary course of business consistent
with past custom and practice (including,
without limitation, with respect to
quantity, timing and frequency).
Other Agreements Collectively, the Transition Agreement, the
Noncompetition Agreement, the Trademark
Agreement, the Shared Liabilities Agreement,
and such other agreements relating to the
transactions contemplated hereby as the
parties may hereafter execute and deliver.
Ownership Such ownership as confers upon a person
having it, good and marketable title to and
control over the thing or right owned, free
and clear of any and all Encumbrances except
permitted encumbrances.
Partnership As defined in Recital B of the Agreement.
Partnership Employees All persons actively employed by the
Partnership who are (i) on the payroll of
the Partnership as active employees
immediately prior to the Closing or (ii) on
leave for medical or other reasons as of the
Closing at such time as such person is
released to return to work, but excluding
those persons who are listed on Appendix M.
Partnership Interests As defined in Section 3.2(o) of the
Agreement.
Partnership Plan As defined in Section 8.8 of the Agreement.
Pension Plan As defined in the 8.4 of the Agreement.
Plan An employee benefit plan within the meaning
of Section 3.3 of ERISA.
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<PAGE>
Prime Rate The rate of interest publicly announced by
National City Bank (Cleveland) from time to
time at its prime or base rate for U.S.
Dollar loans.
Proprietary Software Any and all software other than
Non-Proprietary Software owned as developed,
expanded, or otherwise modified from time to
time including, without limitation, all
existing versions and component modules of
source code or object code or natural
language code therefor, whether recorded on
paper, magnetic media or other electronic
device, all existing descriptions, flow-
charts and such other writings currently
used to develop such software and all
existing documentation, including, without
limitation, manuals, catalogs, leaflets and
training materials relating to the
foregoing.
Purchase Price As defined in Section 2.7 of the Agreement.
Purchaser As defined in the Preamble to the Agreement,
including any successor thereto by reason of
merger or otherwise.
Purchaser 401(k) Plan As defined in Section 8.8 of the Agreement.
Recapitalization As defined in Recital D of the Agreement.
Referral Committee As defined in Section 11.7(c) of the
Agreement.
REDI Trademark All of the right, title and interest of
Elsevier in the Trademark and U.S. Trademark
Registrations licensed to the Partnership
under the trademark license agreement
between Elsevier and the Partnership dated
August 31, 1991.
Responsible Party As defined in Section 10.4(c) of the
Agreement.
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<PAGE>
Retained Holdings Shares That number of Holdings Shares which will
result in Microwave owning an aggregate of
5.56% of the issued and outstanding shares
of common equity in Holdings immediately
following the Closing
Review Period As defined in Section 2.8(d) of the
Agreement.
Section 338(h)(10) Election As defined in Section 6.5 of the Agreement.
Shared Liabilities Agreement An Agreement to be dated the Closing Date
between Holdings, Operating Company and TRW
relating to the sharing of certain
liabilities, such Agreement to be
substantially in the form of Appendix L to
the Agreement.
Shares As defined in Section 3.2(c) of the
Agreement.
SSP As defined in Section 8.8 of the Agreement.
Successor Plan A continuation of a predecessor Plan, as
defined in Section 4021(a) of the ERISA.
Tax Return Any federal, state, local and foreign
return, declaration, report, claim for
refund, amended return, declarations of
estimate Tax or information return or
statement relating to Taxes, and any
schedule or attachment thereto, filed or
maintained, or required to be filed or
maintained in connection with the
calculation, determination, assessment or
collection of any Tax, and including any
amendment thereof.
Tax, Taxes, Taxable All federal, state and local and foreign
taxes, levies, deficiencies or other
assessments and other charges of whatever
nature (including, without limitation, all
net income, sales, use, ad valorem,
transfer, franchise, profits, license,
withholding, payroll, employment, excise,
estimated, occupation, or property taxes)
imposed by any taxing authority as well as
any obligation to contribute to the payment
of Taxes determined on a consolidated,
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combined or unitary basis with respect to
TRW or any affiliate, together with any
interest and any penalties, additions to tax
or additional amounts relating thereto.
Title Company As defined in Section 2.12(a) of the
Agreement.
Trademark Agreement An agreement to be dated the Closing Date
between Operating Company and TRW relating
to Operating Company's post-closing use of
the TRW Trademark, such agreement to be
substantially in the form of Appendix J to
the Agreement.
Transition Agreement An agreement to be dated the Closing Date
between Holdings, Operating Company and TRW
pursuant to which the parties will establish
certain procedures for the orderly transfer
of the Business, such agreement to be in the
form of Appendix I to the Agreement, as
modified by the provisions of Section 4.4 of
the Agreement.
Transaction Companies Holdings, Operating Company, TRW Hotel and
Lusk.
TRW As defined in the Preamble to the Agreement.
TRW Employees All persons actively employed by TRW in
TRW's conduct of the Business who are (i) on
the payroll of the Business as active
employees as of the Closing or (ii) on leave
for medical or other reasons as of the
Closing at such time as such person is
released to return to work, but excluding
those persons who are listed on Appendix M
and any person who has qualified for
benefits under TRW's Long Term Disability
Plan as of the Closing.
TRW Group TRW, IS&S International, Microwave, the
Transaction Companies and the Partnership.
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TRW Hotel As defined n the Preamble to the Agreement.
TRW Hotel Shares All issued and outstanding shares of
capital stock of TRW Hotel.
TRW Partnership Interest As defined in Section 3.2(o) of the
Agreement.
TRW's Knowledge As defined in Section 1.3 of the Agreement.
TRW Signatories TRW, Microwave, IS&S International,
Holdings, Operating Company and TRW Hotel.
WARN Work Adjustment and Retaining Act of 1988,
as amended.
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APPENDIX H
NONCOMPETITION AGREEMENT
This NONCOMPETITION AGREEMENT ("Noncompetition Agreement") is made
this day of , 1996 by and between IS&S INFORMATION SYSTEMS
------ ----------
AND SERVICES, INC., an Ohio corporation ("Operating Company"), IS&S HOLDINGS,
INC., a Delaware corporation ("Holdings" and together with Operating Company at
times collectively referred to herein as the "Purchaser Group"), TRW INC.
("TRW"), an Ohio corporation.
RECITALS
A. TRW, Holdings and Operating Company are parties to a Recapitalization
Agreement, dated February 9, 1996 (the "Recapitalization Agreement"), by and
among TRW; TRW Microwave Inc.; TRW Hotel Company Inc.; Holdings; Operating
Company; and IS&S Acquisition Corp., a Delaware corporation, whereby through a
number of recapitalization transactions Operating Company has acquired TRW's
Information Systems and Services Business (the "Business").
B. In order to preserve and assure to the Purchaser Group the full
anticipated benefit of the transactions contemplated by the Recapitalization
Agreement, the Purchaser Group and TRW are entering into this Noncompetition
Agreement.
TERMS AND CONDITIONS
NOW, THEREFORE, in further consideration of the consideration received by
TRW, directly or indirectly, under the Recapitalization Agreement and of the
premises and of other good and valuable consideration, and intending to be
legally bound hereby, the Purchaser Group and TRW hereby agree as follows:
ARTICLE I
Definitions
-----------
1.1 General: In addition to the terms defined elsewhere in this
Noncompetition Agreement, this Article contains the definition of certain terms
used herein. Except with respect to Sections 1.2 through and including 1.8
hereof, the headings of the Articles and Sections have been included for
convenience of reference only and shall not be deemed to affect the meaning of
the operative provisions of this Noncompetition Agreement.
1.2 Competing Business: Means each of the businesses of providing (a)
consumer credit reports to credit-granting entities, (b) information used for
target marketing,
1
<PAGE>
(c) business credit decision support and demographic and other information for
business-to-business credit granting and direct marketing efforts and (d)
property data services and title information services to entities with any need
for real property information, but does not include any other business which
Purchaser may hereafter conduct with the rights and assets purchased by
Purchaser from TRW pursuant to the Purchase Agreement or otherwise.
1.3 Controlled Affiliate: Means any corporation, partnership or other
business entity with respect to which TRW holds, directly or indirectly, the
power to direct or cause the direction of the management and policies of such
entity, whether through the ownership of voting securities, by contract or
otherwise.
1.4 Basic Covenant Term: Means the period commencing with the date of this
Noncompetition Agreement and ending on the fifth anniversary of the date hereof.
1.5 Trademark Covenant Term: Means the period commencing on the date of this
Noncompetition Agreement and ending on the tenth anniversary of the date hereof.
1.6 Covenant Territory: Means anywhere in the world in which the business
and activities of the Business were conducted by the TRW Group during the fiscal
year ended December 31, 1995, including, but without limitations, each state of
the United States; Canada; and each other geographic territory referred to on
Annex A hereto.
1.7 TRW Group: Means TRW and the Controlled Affiliates.
1.8 Other Definitions and Meanings: For purposes of this Noncompetition
Agreement, the term "parties" means (except where the context otherwise
requires) Holdings, Operating Company and TRW, the term "person" includes any
natural person, firm, association, partnership, corporation, governmental agency
or other entity other than the parties; and the words "hereof", "herein",
"hereby" and other words of similar import refer to this Noncompetition
Agreement as a whole.
ARTICLE II
Noncompetition and Nonsolicitation; Permitted Activities
--------------------------------------------------------
2.1 Noncompetition Covenant: TRW hereby covenants to the Purchaser Group
that during the Basic Covenant Term the TRW Group will not, for its own account
or for the account of others, either as an owner, partner, joint venturer,
shareholder, advisor, consultant or otherwise, participate in the promotion,
financing, ownership, operation, development, selling or management of or assist
in or carry on any Competing Business, through a corporation, partnership or any
other medium, within or into the Covenant Territory; provided, however, that
such covenant shall not preclude any member of the
2
<PAGE>
TRW Group from engaging in any of the Permitted Activities. Moreover the TRW
Group shall not, for a period of ten (10) years from date of Closing, directly
or indirectly, use, allow to be used, or license any third party to use, the
Trademark (as defined in the Trademark Agreement) in connection with a Competing
Business anywhere in the Covenant Territory. The provisions of the immediately
preceding sentence with respect to the Trademark shall survive termination of
this Agreement for any reason. Without limiting any right or remedy available
Licensee, Licensor acknowledges that breach by Licensor of the provisions of
this Section 8 would cause Licensee irreparable harm for which monetary damages
would be inadequate and that Licensee will be entitled to an injunction by any
court of competent jurisdiction to enjoin and restrain any violation or
threatened violation of this Section 8 by Licensor.
2.2 Permitted Activities: For purposes hereof, the term "Permitted
Activities" includes the following:
(a) Acquiring and holding an equity interest in any publicly-held
corporation which has a Competing Business, provided that such interest
does not provide, directly or indirectly, the power to direct or cause
the direction of the management and policies of such corporation,
whether through the ownership of voting securities, contract or
otherwise, and provided further that such interest does not exceed five
percent (5%) of the issued and outstanding voting securities of such
corporation;
(b) Acquiring and holding a controlling interest in any corporation,
partnership or other business entity having a Competing Business (a) in
the calendar year preceding such acquisition, the revenues of such
Competing Business constituted not more than twenty percent (20%) of
the total revenues of the acquired entity and (b) at the time of
acquisition, the annual revenues of the Competing Business for the
preceding fiscal year were less than U.S.$50,000,000, but only until
such time as such annual revenues have exceeded that amount; and
(c) Acquiring and holding a controlling interest in any corporation,
partnership or other business entity having a Competing Business whose
annual revenues exceeded U.S.$50,000,000 for the preceding fiscal year
if the acquiring member of the TRW Group first, (a) for sixty (60) days
-----
from the later of(x) the date of acquisition or (y) the date on which
such Competing Business may no longer be held by such member of the TRW
Group, negotiates in good faith with the Purchaser for the sale of
Competing Business to the Purchaser Group on terms and conditions and
at a price mutually agreeable to the parties, and second, (b) within
------
one hundred eighty (180) days after the end of such sixty (60) day
period, either transfers the Competing Business to the Purchaser Group
or, if the negotiations are unsuccessful, to a person or entity which
is not a member of the TRW Group.
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<PAGE>
Notwithstanding the foregoing provisions of this Section 2.2, the term
"Permitted Activities" does not include the acquisition or holding of an equity
interest in any of the following corporations: Dun & Bradstreet; Equifax; Trans
Union; Axciom; and First Data Corporation; provided, however, that so long as
the equity securities of the corporation in question are publicly traded, the
acquisition or holding of an equity interest in that corporation that does not
exceed five percent (5%) of its issued and outstanding voting securities shall
be permitted.
2.3 Nonsolicitation: TRW hereby covenants to the Purchaser Group that
during the Covenant Term, each member of the TRW Group will not, directly or
indirectly, for its own account or for the account of others, either as an
owner, partner, shareholder, joint venturer, advisor, consultant or otherwise,
solicit or attempt to solicit any person or entity who is or has been a
customer, supplier, licensor, licensee or business relation of the Business
prior to or during the Covenant Term to cease its particular business
relationship with the Business.
TRW further covenants to the Purchaser Group that during the Covenant
Term, each member of the TRW Group will not, directly or indirectly, for its own
account or for the account of others, either as an owner, partner, shareholder,
joint venturer, advisor, consultant or otherwise, solicit or induce any person
or entity who is a director, officer, employee or agent of either the Business
or any member of the Purchaser Group to terminate his, her or its relationship
with, or employment by, either the Business or any member of the Purchaser
Group.
2.4 Notice and Opportunity to Cure: If, during the Basic Covenant Term
or the Trademark Covenant Term, Purchaser believes any member of the TRW Group
has breached or intends to breach a covenant set forth in Section 2.1 or Section
2.3 hereof, then Purchaser will provide TRW with prompt written notice of such
actual or anticipated breach and afford TRW a reasonable opportunity to prevent,
remedy, cure or defend against such breach, not to exceed sixty (60) days.
2.5 Remedies: TRW hereby acknowledges and affirms that any breach of the
provisions of this Noncompetition Agreement may result in irreparable injury to
each member of the Purchaser Group and that a remedy at law alone may not be an
adequate remedy for such a breach, and that in addition to any other remedy it
may have but subject to the provisions of Section 2.4 hereof, each member of the
Purchaser Group shall be entitled to enforce the specific performance of this
Noncompetition Agreement and to obtain an immediate temporary injunction,
without having to post bond, to prevent any threatened or further violation for
this Noncompetition Agreement.
4
<PAGE>
ARTICLE III
Miscellaneous
-------------
3.1 Severability: If any provision of this Noncompetition Agreement shall
finally be determined to be unlawful, then such provision shall be deemed to be
severed from this Noncompetition Agreement and every other provision of this
Noncompetition Agreement shall remain in full force and effect. Notwithstanding
the foregoing, TWR agrees that the provisions of this Noncompetition Agreement
are reasonable as to geographic area, scope of prescribed activities and
duration, but that if any court or arbitrator should find any provison of this
Noncompetition Agreement not to be reasonable as to any geographical area, scope
of prescribed activities or duration, then such geographical area, scope of
prescribed activities shall be regarded as severable and stricken from this
Noncompetition Agreement to the extent found by such court or arbitrator not to
be reasonable with the result that this Noncompetition Agreement shall be in
full force and effect with respect to such lesser geographic area, scope of
prescribed activities or duration which such court or arbitrator determines to
be reasonable.
3.2 Notices: Any notice or other communication required or permitted to be
given under this Noncompetition Agreement shall be given in the manner provided
in the Recapitalization Agreement.
3.3 Assignment: This Noncompetition Agreement shall be binding upon and
inure to the benefit of the successors of each of the parties, but shall not be
assignable by TRW without the prior written consent of Holdings and Operating
Company. Each member of the Purchaser Group may either (i) assign its rights
hereunder, in whole or in part, but subject to all limitations contained herein,
to one or more lenders; (ii) assign its rights hereunder, in whole or in part,
but subject to all limitations contained herein, to a purchaser or purchasers of
all or substantially all of the Business(whether through a sale of assets or
stock, a merger or otherwise); or (iii) assign this Noncompetition Agreement to
one or more subsidiaries of any member of the Purchaser Group, provided that
Purchaser gives TRW prior written notice of such assignment.
3.4 No Third Parties: This Noncompetition Agreement is not intended to, and
shall not, create any rights in or confer any benefits upon any person other
than the parties hereto.
3.5 Governing Law: This Noncompetition Agreement will be governed by and
construed in accordance with the internal substantive laws of the State of Ohio,
except where the substantive laws of another jurisdiction mandatorily apply.
<PAGE>
3.6 Counterparts: More than one counterpart of this Noncompetition Agreement
may be executed by the parties hereto, and each fully executed counterpart shall
be deemed an original without production of the others.
3.7 Complete Agreement: This Noncompetition Agreement sets forth the entire
understanding of the parties with respect to the subject matter hereof and
supersedes all prior letters of intent, agreements, covenants, arrangements,
communications, representations or warranties, whether oral or written, by any
officer, employee or representative of either party relating thereto.
IN WITNESS WHEREOF, TRW, Holdings and Operating Company have each caused this
Noncompetition Agreement to be executed by their respective duly authorized
officers as of the date first above written.
TRW INC.
By:
--------------------------------------
Authorized Officer
IS&S SYSTEMS AND SERVICES, INC.
By:
--------------------------------------
Authorized Officer
IS&S HOLDINGS, INC.
By:
--------------------------------------
Authorized Officer
6
<PAGE>
ANNEX A to APPENDIX H
[List geographic areas in which any significant business was
conducted in fiscal 1995]
<PAGE>
APPENDIX J
TRADEMARK LICENSE AGREEMENT
This TRADEMARK LICENSE AGREEMENT ("Trademark License Agreement") is made
this ____ day of ________, 1996 by and between TRW Inc., an Ohio corporation
("Licensor"), and _______________________ ("Licensee"), the Parties hereto.
WITNESSETH
WHEREAS, Licensor and Licensee are parties to a Recapitalization Agreement
dated as of _________, 1996 (the "Recapitalization Agreement") whereby through a
number of recapitalization transactions Licensee has acquired the Business (as
defined in the Recapitalization Agreement); and
WHEREAS, Licensor has been engaged for many years in developing and
marketing a broad range of products and services throughout the world including
information products and services of the Business, and is the owner of the TRW
name and the TRW trademark and service mark and logo associated therewith (such
TRW mark and logo and the use of the TRW mark as a prefix in a secondary mark
with another component used by the Business as of the Closing hereinafter
collectively referred to as the "Trademark") that identifies its various
businesses, products and services including those of the Business and symbolizes
the goodwill and reputation of the business connected therewith throughout the
world; and
WHEREAS, Licensee recognizes the worldwide marketing value of Licensor's
good will and reputation as symbolized by the Trademark and is desirous of using
the Trademark in the Business that it is acquiring from Licensor and benefiting
from its goodwill and reputation in connection with Licensee's business
throughout the world; and
WHEREAS, Licensee acknowledges that the reputation and goodwill as
symbolized by the TRW name and Trademark are of great value to Licensor and that
Licensor will suffer irreparable damage if Licensee engages in any activity or
course of conduct which threatens to diminish or negatively impact Licensor's
goodwill or reputation; and
WHEREAS, the execution and delivery of this Agreement is a condition to
closing of the transactions contemplated by the Recapitalization Agreement; and
WHEREAS, Licensor has imposed certain terms and conditions as to the use of
the Trademark which Licensee has accepted in order to protect Licensor's rights;
and
<PAGE>
WHEREAS, the Parties wish to provide formal evidence of their Agreement.
NOW, THEREFORE, for valuable consideration, the receipt of which is hereby
acknowledged, it is mutually agreed as follows:
1. Definitions. Terms defined in the Recapitalization Agreement and not
otherwise defined herein are used herein as such terms are defined in the
Recapitalization Agreement.
"Products and/or Services" shall mean the products and services sold or
provided by Licensee in the conduct of the Business following Closing that are
(i) the same as the products and services sold or provided by Licensor prior to
Closing, (ii) the same as the products and services of Licensor substantially
developed by Licensor as of the Closing, and (iii) with Licensor's prior written
approval, substantially similar to the products and services sold or provided
and/or substantially developed for sale by Licensor prior to Closing.
2. Subject Matter. Subject to the terms and conditions hereinafter set
forth, Licensor hereby grants to Licensee the right to use the Trademark in
association with selling throughout the world the Products and/or Services.
Licensee shall, during the term of this Agreement, identify itself by stating
its corporate or trade name on all the Products and Services and related
promotions, advertising and public announcements. Moreover, Licensee may, for
the shorter of (i) one year from the date hereof or (ii) the date that is ninety
(90) days from the termination of this Agreement, whichever is earlier, identify
itself by stating that Licensee was formerly TRW Information Systems & Services
Division. A list of the relevant trademark and service mark registrations and
applications for registration of the Trademark throughout the world as of the
date hereof is attached hereto as Schedule "A" and is incorporated herein by
reference.
3. Term. This Agreement shall continue for a term of 24 months from the
date of this Agreement through and including __________, 1998 unless sooner
terminated as provided below.
4. Limitations. Notwithstanding anything in this Agreement, expressed or
implied, to the contrary:
(a) Licensee may not use the Trademark as part of any corporate, business or
trading name.
(b) Licensee may not use the Trademark other than in connection with the
Products and/or Services and as allowed under Section 2 hereof. With respect
to any other products or services, Licensee shall use its own name and
marks. However, resellers, affiliated bureaus, distributors and agents of
the Business may, during the term hereof, continue to use the Trademark in
connection with the Products and/or Services within the terms, conditions
and limitations of their agreements with Licensor and resellers,
-2-
<PAGE>
affiliated bureaus, distributors and agents of the Business added following
Closing may, during the term hereof, use the Trademark in connection with
the Products and/or Services bearing the Trademark, provided they have
executed agreements with substantially similar terms, conditions and
limitations governing use of the Trademark and confirming that Licensor
retains all right, title and interest to the Trademark.
(c) Licensee may not assign its rights or obligations under this Agreement
to any other person without the express prior written approval of Licensor,
which Licensor may withhold in its sole discretion, provided, however, that
Licensor will cooperate with Licensee in granting written licenses by
Licensor to use the Trademark to such legal entities related to or
succeeding Licensee in connection with the Business as Licensee may select,
provided any such entities expressly undertake in writing to be bound by
terms, conditions and limitations substantially identical to those of this
Agreement. Licensor, however, shall have the right to assign this Agreement
and its rights hereunder.
(d) Any and all use of the Trademark by Licensee shall inure to the benefit
of Licensor and Licensee acknowledges that Licensor owns all right, title
and interest to the Trademark and, except as set forth in this Agreement,
reserves all rights thereto, specifically including, without limitation,
all rights to license or authorize use of the Trademark.
(e) Following the Closing, Licensee shall be permitted to utilize in the
conduct of the Business all inventories, existing as of the Closing, of
marketing collateral, including brochures, product and service
descriptions, catalogs and similar material, manuals, instruction
materials, packaging and other printed material with or without modifying
the same, provided that Licensee uses reasonable efforts to advise the
users and/or recipients that the new source of such Products and Services
is Licensee and not Licensor.
5. Fees. Upon execution of this Agreement, Licensee shall pay to TRW, by
wire transfer in immediately available funds to the account previously specified
in writing by TRW, the sum of Twenty-Six Million Dollars ($26M) as a lump sum
paid-up by royalty for the use of the Trademark in connection with the Products
and/or Services during the term of this Agreement.
6. Quality Control. In order to assure the quality and nature of the
Products and/or Services bearing the Trademark and protect the reputation of
Licensor:
(a) Licensor acknowledges that the quality standards, specifications, and
related policies, procedures and processes for products and/or services
bearing the Trademark as of the Closing (the "Standards") are deemed
acceptable to Licensor and Licensee
-3-
<PAGE>
agrees to continue to maintain the quality of the Products and/or Services
bearing the Trademark consistent with Licensor's Standards in effect prior
to Closing.
(b) On or before the twentieth day of each calendar quarter during the term
of this Agreement, Licensee shall make available for Licensor's review
copies of all material complaints, claims, suggestions and regulatory or
judicial inquiries, requests, recommendations, actions or orders
("Comments") as to the Products and/or Services bearing the Trademark as
embodied in any medium of tangible expression from third parties received
by Licensee at its principal offices, and all correspondence from or to
such third party concerning any Comments received during the preceding
quarter.
(c) Licensor shall have the right to enter Licensee's premises, upon
reasonable prior notice during regular business hours, and have the right
to inspect and examine the Products and/or Services bearing the Trademark
and to review all records of Licensee relating to the quality of the
Products and/or Services bearing the Trademark. Licensor shall be able to
exercise such right, as a minimum, every four months and in any case where
an event may arise that, in its reasonable good faith judgment, requires
such on-site review. Licensor shall conduct such activities in a manner not
to interfere with Licensee's business operations.
(d) In the event that any Products and/or Services bearing the Trademark
are found by Licensor or its designee not to meet the Standards, Licensor
shall so notify Licensee in writing. Licensor shall specify to Licensee in
reasonable detail the respects in which the Standards are not being met
and, unless Licensee, within ninety (90) days of its receipt of such
notice, takes corrective measures which reasonably rectify the deficiency,
Licensee's right to use the Trademark shall immediately terminate upon
notice to that effect from Licensor and this Agreement shall thereupon
terminate.
7. Intellectual Property Control. (i) Licensee undertakes to use
reasonable efforts to cooperate with Licensor, at Licensor's expense, in
protecting the Trademark. In furtherance of such purposes Licensee shall:
(a) Use the Trademark only in accordance with the terms of this Agreement;
(b) At Licensor's request, affix appropriate trademark and service mark
notations (e.g. "TM" or "(R)") and wording and otherwise make proper use of
the Trademark by using it as a proprietary trademark and/or service mark
and indicating that the Trademark is owned by Licensor and used by Licensee
with Licensor's permission, on all promotional and advertising materials
and Products and/or Services;
(c) Not use any name, mark, device, symbol, insignia, designation, labeling
or packaging in connection with the Trademark, other than such of the
foregoing as Licensee may from time to time use in the ordinary course of
Licensee's conduct of the
-4-
<PAGE>
Business, without the prior written approval of Licensor, and not apply to
register the Trademark in any manner anywhere in the world, with or without
a secondary component;
(d) Comply with all applicable laws and regulations with respect to the
production, distribution and sale of the Products and Services; and
(e) Execute documents and take such reasonable actions as may be required
by Licensor in connection with the protection of the Trademark and the
registrations thereof, including, without limitation, cooperate with
Licensor in executing and filing Registered User Agreements as necessary or
desirable, and in applying to register and renew registrations of the
Trademark in such classes and countries as Licensor may wish to do so in
its sole discretion.
(ii) Each of Licensee and Licensor shall promptly provide the other written
notice in the event either party becomes aware of any actual or threatened
use of the Trademark in connection with a Competing Business (as defined in
the Non-Competition Agreement) by any third party. In such event, Licensor
shall have the first right at its own expense to take such action,
including the initiation of legal proceedings, to prevent and terminate
such use. If within ninety (90) days, Licensor elects not to pursue any
action, Licensee shall then have the right, at its own expense, to take
such action, including the initiation of legal proceedings, to prevent and
terminate such use. The party conducting such action shall control its
conduct and the other party shall cooperate in any such proceeding, such
cooperation to include, without limitation, the joining of the other party
as a party to the action when either party is required by law to join the
other party to such an action in order to bring the action. Any recovery in
any such action or proceeding shall first be paid to reimburse the parties
for their respective out-of-pocket expenses associated with such action or
proceeding (such amounts to be paid on a pro rata basis in the event any
recovery is less than the total of the parties' out-of-pocket expenses) and
any remaining recovery shall be paid to Licensee.
(ii) Licensor shall, at its own expense, file all applications, affidavits
and other documents necessary to maintain the effective registration of the
Trademark in the United States Patent and Trademark Office and in each
other country in which the Trademark is registered in connection with the
Business on the date of Closing but Licensor and/or Licensee shall not
apply to register any marks that include the Trademark in connection with
the Business.
8. Termination. Notwithstanding anything to the contrary, this Agreement
shall automatically terminate upon notice by Licensor to Licensee upon the
occurrence of any of the following events:
-5-
<PAGE>
(a) Breach by Licensee of any material term or condition of this Agreement,
which breach is not cured within ninety (90) days after Licensee's receipt
of written notice setting forth the particular breach. It is expressly
understood that breach of the Standards shall be governed by the provisions
of Section 5(d).
(b) Any assignment of Licensee's assets or business for the benefit of
creditors, or appointment of a trustee or receiver, or like official to
administer or conduct the business of Licensee or adjudication in any legal
proceeding that Licensee is either insolvent or otherwise unable to meet
its financial obligations as they become due or is a voluntary or
involuntary bankrupt.
(c) Licensee or all or substantially all of its operations or assets are
confiscated, nationalized or expropriated or in any other manner
controlled, either directly or indirectly, by any government, national,
state or municipal, or any agency thereof.
(d) Licensee engages in any course of conduct or activities which generate
materially negative national publicity asserting that Licensee's business
practices do not conform to applicable law or standard industry practices
and the TRW name, mark and/or logo is referenced in a negative manner in
two or more print or television or radio media with national circulation or
exposure over the course of any week or is the subject of significant use
on the Internet over the course of any week and which negative publicity is
not responded to by Licensee in a reasonable period after Licensee receives
notice of such from Licensor with Licensee's press releases and written
responses directly to the media outlets creating such publicity, and if
appropriate, to the customer, consumer or government agency that is the
subject of such publicity and/or with nationally published advertisements
of Licensee. Such press releases, responses and/or advertisements of
Licensee shall (i) announce that corrective action is being undertaken, if
in Licensee's reasonable judgment, that is necessary or desirable, to
maintain legal and industry standards, and (ii) clarify, among other
things, that Licensee is a separate legal entity that has acquired the
Business which was formerly Licensor's and which Business is no longer
operated by TRW.
9. Rights Upon Termination. The parties expressly agree that upon
termination or expiration of this Agreement, Licensee's right to make any use
whatsoever of the Trademark shall immediately and permanently cease. Licensee
shall thereafter immediately and permanently discontinue and any all further use
of the Trademark and take any further steps, at Licensor's expense, reasonably
required to effectuate and confirm the exclusive rights of Licensor in and to
the Trademark throughout the world. To that end, Licensee shall immediately
execute any and all appropriate documents and shall also assist Licensor in
terminating any Registered User agreements and registrations. Specifically,
without limitation of the foregoing, Licensee shall cooperate fully and assist
Licensor, at Licensor's expense, in protecting the Trademark and the
registrations thereof throughout the world. In the event this Agreement
terminates for any reason prior to the date that is 24 months from the date
hereof,
-6-
<PAGE>
Licensee and the resellers affiliated bureaus, distributors and agents of the
Business that have the right to use the Trademark shall have the right for a
period of ninety (90) days thereafter to use up their existing inventory of
written materials selling or providing the Products and/or Services bearing the
Trademark, provided that Licensee affixes stickers with its own trademark and/or
service mark, to the extent necessary, to clarify the identity of the source of
the Products and/or Services.
10. Failure to Enforce Agreement. Any failure by Licensor to enforce at
any time or for any period of time any term or condition of this Agreement shall
not be deemed a waiver of such term or condition or of any other term or
condition.
11. Notice. All notices and communications required or permitted to be
given under this Agreement will be written in English and will be deemed to have
been duly given at the time of receipt if delivered by hand or communicated by
electronic transmission or, if mailed, three (3) days after deposit in the
official mail as registered or certified air mail, postage prepaid and addressed
to the other party at their respective addresses set forth below, unless a
different person or address shall have been designated by notice:
To Licensee: _____________________________
_____________________________
_____________________________
Telefax: _____________________________
Attention: _____________________________
To Licensor: TRW Inc.
1900 Richmond Road
Cleveland, Ohio 44124 U.S.A.
Telefax: (216) 291-7070
Attention: Secretary
12. Successors. This Agreement shall be binding on the successors to the
Parties hereto subject to the provisions of Paragraph 3(c).
13. Entire Agreement. This Agreement, which may not be amended or
modified, except in writing executed by both parties, together with the
Recapitalization Agreement, is the entire Agreement between the parties with
respect to its subject matter hereof and supersedes all prior agreements,
covenants, arrangements, communications, representations or warranties between
the parties with respect to the subject matter hereof, whether written or oral.
14. Survival of Obligations. Other provisions hereof notwithstanding, any
obligation of a party incurred under this Agreement prior to the termination or
expiration hereof will survive such termination or expiration.
-7-
<PAGE>
15. Headings. The headings and titles to the paragraphs of this Agreement
are inserted for convenience only and will not be deemed a part hereof or affect
the construction or interpretation of any provision hereof.
16. Controlling Law. This Agreement shall be construed, interpreted and
enforced according to the laws of the State of Ohio, except where the
substantive laws of another jurisdiction mandatorily apply.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their duly authorized representatives as of the day and year first
above written.
Licensor:
Witness: TRW Inc.
By:
- ----------------------------------- ------------------------------
Name: Name:
-----------------------------
Title:
----------------------------
Witness: Licensee:
By:
- ----------------------------------- ------------------------------
Name: Name:
-----------------------------
Title:
----------------------------
-8-
<PAGE>
Prepared February 5, 1996
Trademark License Agreement
Schedule "A"
TRADEMARK REGISTRATIONS AND APPLICATIONS FOR THE TRW
TRADEMARK IN CONNECTION WITH THE BUSINESS
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------
App./Reg. App./Reg.
Country Mark Number Date Class Goods
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Argentina TRW Block/1/ 1383876 1/31/92 36 Financial services.
- ------------------------------------------------------------------------------------------------------
Australia TRW Beam Logo/2/ B526296 4/1/90 36 Financial services.
- ------------------------------------------------------------------------------------------------------
Austria TRW Beam Logo/2/ 136383 7/4/91 36 Financial services.
- ------------------------------------------------------------------------------------------------------
Benelux TRW Block/1/ 477356 12/15/89 36 Financial services.
- ------------------------------------------------------------------------------------------------------
Brazil TRW Block/1/ 815471084 6/16/92 36.10 Financial services.
36.20
36.70
- ------------------------------------------------------------------------------------------------------
Canada TRW Beam Logo/2/ 429273 6/24/94 N/A Financial services.
- ------------------------------------------------------------------------------------------------------
Canada TRW Block/1/ 425462 3/25/94 N/A Financial services.
- ------------------------------------------------------------------------------------------------------
Chile TRW Block/1/ 355038 5/11/90 36 Financial services.
- ------------------------------------------------------------------------------------------------------
China TRW Block/1/ 543838 2/20/91 16 Business documents, pamphlets,
brochures, stationery./3/
- ------------------------------------------------------------------------------------------------------
</TABLE>
- --------------------------------
/1/ Capital letters.
/2/ The current TRW logo.
/3/ Used also in connection with other TRW business besides IS&S.
-9-
<PAGE>
Prepared February 5, 1996
Trademark License Agreement
Schedule "A"
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------
App./Reg. App./Reg.
Country Mark Number Date Class Goods
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
France TRW Block/1/ 1626023 12/21/89 36 Financial services.
- -------------------------------------------------------------------------------------------------------------
Germany TRW Beam Logo/2/ 2050215 11/23/93 36 Financial services.
- -------------------------------------------------------------------------------------------------------------
Greece TRW Block/1/ 97009 1/14/92 16 Printed matter and publications./3/
- -------------------------------------------------------------------------------------------------------------
India TRW Beam Logo/2/ App. 522734 1/12/90 16 Prints and publications./3/
- -------------------------------------------------------------------------------------------------------------
Ireland TRW Beam Logo/2/ B137872 12/18/89 16 Printed matter and printed
publications./3/
- -------------------------------------------------------------------------------------------------------------
Italy TRW Beam Logo/2/ 588359 2/25/93 36 Financial services.
- -------------------------------------------------------------------------------------------------------------
Japan TRW Beam Logo/2/ 1870843 6/27/86 26 Printed matter, paintings,
calligraphs, sculptures,
photographs, accessories for any
of these./3/
- -------------------------------------------------------------------------------------------------------------
Japan TRW Block/1/ 2596906 11/30/93 26 Printed matter, paintings,
calligraphs, sculptures,
photographs, accessories for any
of these./3/
- -------------------------------------------------------------------------------------------------------------
Korea TRW Beam Logo/2/ 13751 3/20/91 102 Financial services.
- -------------------------------------------------------------------------------------------------------------
</TABLE>
- --------------------------------
/1/ Capital letters.
/2/ The current TRW logo.
/3/ Used also in connection with other TRW businesses besides IS&S.
-10-
<PAGE>
Prepared February 5, 1996
Trademark License Agreement
Schedule "A"
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------
App./Reg. App./Reg.
Country Mark Number Date Class Goods
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Korea TRW Block/1/ 13750 3/20/91 102 Financial services.
- -----------------------------------------------------------------------------------------------------------
Mexico TRW Beam Logo/2/ 453785 4/26/93 36 Financial services.
- -----------------------------------------------------------------------------------------------------------
Mexico TRW Block/1/ 381345 8/20/90 36 Financial services.
- -----------------------------------------------------------------------------------------------------------
Norway TRW Beam Logo/2/ 147850 12/5/91 36 Financial services.
- -----------------------------------------------------------------------------------------------------------
Portugal TRW Block/1/ 261373 8/6/92 36 Financial services.
- -----------------------------------------------------------------------------------------------------------
Spain TRW Block/1/ 1542053 2/3/92 36 Financial services.
- -----------------------------------------------------------------------------------------------------------
Switzerland TRW Beam Logo/2/ App. 9433/89 12/12/90 16 Printed matter and publications./3/
- -----------------------------------------------------------------------------------------------------------
Taiwan TRW Beam Logo/2/ 48055 10/16/90 12 Financial services.
- -----------------------------------------------------------------------------------------------------------
Taiwan TRW Block/1/ 47925 10/16/90 12 Financial services.
- -----------------------------------------------------------------------------------------------------------
Turkey TRW Beam Logo/2/ 127220 12/10/90 N/A Computers, computer discs and
computer programs; books,
magazines, brochures,
monographs and business forms./3/
- -----------------------------------------------------------------------------------------------------------
</TABLE>
- ------------------------------------
/1/ Capital letters.
/2/ The current TRW logo.
/3/ Used also in connection with other TRW businesses besides IS&S.
-11-
<PAGE>
Prepared February 5, 1996
Trademark License Agreement
Schedule "A"
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------
App./Reg. App./Reg.
Country Mark Number Date Class Goods
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Turkey TRW Block/1/ 127221 12/10/90 N/A Computers, computer discs
and computer programs;
books, magazines, brochures,
monographs and business
forms./3/
- ------------------------------------------------------------------------------------------------
United TRW Beam App. 1572614 5/19/94 36 Financial services
Kingdom Logo/2/
- ------------------------------------------------------------------------------------------------
United States TRW Beam 1362434 9/24/85 36 For assembling and reporting
Logo/2,4/ of credit information.
- ------------------------------------------------------------------------------------------------
Venezuela TRW Block/1/ App. 1709-90 2/6/90 36 Financial services.
- ------------------------------------------------------------------------------------------------
</TABLE>
- -------------------------------
/1/ Capital letters.
/2/ The current TRW logo.
/3/ Used also in connection with other TRW businesses besides IS&S.
/4/ With few exceptions, use of the TRW Trademark/service mark (as
opposed to the TRW name) in connection with the Business is in
the U.S. and in the logo form.
-12-
<PAGE>
APPENDIX P
THE SHAREHOLDERS AGREEMENT
CONTINUING SHAREHOLDER TERMS
Continuing Shareholder: Microwave
Lead Investors: Affiliates of Bain Capital, Inc. and Thomas H.
Lee Company that are shareholders of Holdings.
Restrictions on Transfer: The Continuing Shareholder may transfer or
otherwise sell any of its shares to any person
other than a competitor of the Company. In
addition, prior to the sale of all or any
portion of the Continuing Shareholder's shares,
the Company will have the right to purchase such
shares at a price equal to any bona fide third
party offer.
Co-Sale: Except in the case of a public offering, the
Continuing Shareholder will have pro rata tag-
along rights and be subject to pro rata drag-
along rights with respect to shares of common
stock (including shares of common stock issued
upon conversion of preferred stock) when the
Lead Investors sell shares of the Company to
third parties.
Registration Rights: The Continuing Shareholder will have piggyback
registration rights with respect to the
preferred shares and shares of common stock
which are subject to pro rata cut backs with the
Lead Investors.
Preemptive Rights: Only in the event of equity sales to the Lead
Investors. No preemptive rights for sales to
parties other than the Lead Investors.
Anti-Dilution Provisions: Anti-dilution provisions, if any, in addition to
the preemptive rights above, will be the same as
those for the Lead Investors. Incentive options
for management or consultants to Holdings will
not trigger an anti-dilution adjustment.
<PAGE>
Board Representation: The Continuing Shareholder will have one Board
seat as long as it owns at least the number of
shares of common stock that equal the number of
shares of common stock owned by the Continuing
Shareholder immediately following the
consummation of the Recapitalization, after
giving effect to stock splits, stock dividends,
recapitalizations and the like.
-2-
<PAGE>
APPENDIX R
INDEMNIFICATION AGREEMENT
THIS AGREEMENT is made this ___ day of _____, 1996, by and among TRW INC.
("TRW"), an Ohio corporation, IS&S HOLDINGS, INC. ("Holdings"), a Delaware
--------
corporation, INFORMATION SYSTEMS AND SERVICES, INC. ("Operating Company"), an
-----------------
Ohio corporation, and EXPERIAN CORPORATION ("Purchaser"), a Delaware
corporation.
W I T N E S S E T H
-------------------
WHEREAS, the parties to this Agreement, together with TRW IS&S
International, Inc., an Ohio corporation, TRW Hotel Company Inc., an Ohio
corporation, and TRW Microwave Inc., a California corporation, have entered into
a Recapitalization Agreement (the "Recapitalization Agreement"), dated February
--------------------------
9, 1996, providing for the recapitalization of the business of TRW Information
Systems & Services (the "IS&S Business");
-------------
WHEREAS, the Purchaser has decided to offer and sell securities through a
subsidiary in connection with the financing of the recapitalization of the IS&S
Business (the "Recapitalization"); and
----------------
WHEREAS, pursuant to the terms of the Recapitalization Agreement, it is a
condition to the obligations of the members of the TRW Group (as defined in the
Recapitalization Agreement) to consummate the Recapitalization that Holdings,
Operating Company, Purchaser and TRW enter into this Agreement.
NOW THEREFORE, in consideration of the premises and of other good and
valuable consideration, and intending to be legally bound hereby, the parties
agree as follows:
ARTICLE 1
1.1. Indemnity
1.1.1. Indemnification. Subject to Section 1.1.2 below, Holdings and
---------------
Operating Company (the "Indemnifying Parties") will jointly and severally
--------------------
indemnify, defend, and hold harmless TRW and its subsidiaries and affiliates,
and their respective past, present and future officers, directors, employees,
representatives, controlling persons and agents (the "Indemnified Parties") from
-------------------
and against any and all liabilities, damages, losses, claims, costs and expenses
(including, without limitation, costs of collection and reasonable attorneys'
fees incurred in connection with such liabilities, damages, losses, claims,
costs and expenses) (collectively, "Losses") arising out of or resulting from
------
any offer or sale of securities in
<PAGE>
connection with the financing of all or any portion of the Purchase Price (as
defined in the Recapitalization Agreement), including, without limitation, (a)
liabilities directly or indirectly resulting from statements made, whether oral
or written, or acts by any employee of TRW, including employees of the IS&S
Business, in connection with such offer or sale, and (b) liabilities resulting
from information furnished to Purchaser or its agents for use in a registration
statement, preliminary prospectus, prospectus, or any amendment or supplement
thereto in connection with such offer or sale (the "Indemnification").
---------------
1.1.2. Limitation on Indemnifying Parties Indemnification. The
--------------------------------------------------
Indemnified Parties shall not be entitled to Indemnification for (i) any Losses,
arising out of or resulting from any actions which are determined by a final
judicial decision to be fraud on the part of the Indemnified Parties, other than
employees of the IS&S Business, (in which event such Indemnified Party will
reimburse the Indemnifying Parties for all amounts previously paid to such
Indemnified Party by the Indemnifying Parties under this Agreement in connection
with the Losses arising from such fraud); (ii) any oral or written information
or statements furnished by any of the Indemnified Parties, other than employees
of the IS&S Business, to any person or entity (other than in the normal course
of its business operations or in the discharge of its disclosure obligations
under the securities laws to furnish information to its stockholders and the
financial markets) other than (w) Purchaser or Purchaser's subsidiaries, (x)
Purchaser or Purchaser's agents or advisers, (y) Ernst & Young LLP, or (z) any
other person whom such Indemnified Party reasonably believed was acting on
behalf of any of the persons or entities described in the preceding clauses (w),
(x) or (y); or (iii) any diminution in the value of the shares of capital stock
in Holdings held by TRW or TRW's affiliates.
1.1.3. Overlapping Indemnification Claims. To the extent any set of facts
----------------------------------
(the "Facts") shall give rise to a Claim (as defined in Section 1.2 below) by
-----
the Indemnified Parties under this Section 1.1 and the Facts shall also give
rise to a claim under the Recapitalization Agreement by the Transaction
Companies (as defined therein) pursuant to the provisions of Section 9.2(a)(ii)
of the Recapitalization Agreement, the Indemnified Parties shall be entitled to
Indemnification for Losses pursuant to the provisions of this Agreement by the
Indemnifying Parties without setoff for any claim based on the Facts which might
be asserted under the provisions of clause (i) or (ii) of Section 9.2(a) of the
Recapitalization Agreement until such time as the parties shall have agreed to
(or there shall have been a final settlement or full payment shall have been
made in respect of a final judicial decision as to) the scope and extent of the
Losses. Following any such agreement, settlement or decision, the parties shall
determine the scope and extent of the Losses (as defined in the Recapitalization
Agreement) of the Transaction Companies under the provisions of Section
9.2(a)(i) of the Recapitalization Agreement in respect of the Facts. The
parties shall seek to resolve any disputes regarding the application of the
provisions to which reference is made in this Section 1.1.3 in accordance with
the provisions of Section 11.7 of the Recapitalization Agreement.
<PAGE>
1.2. Defense of Actions. If an Indemnified Party desires to make a claim
------------------
against the Indemnifying Parties under Section 1.1 hereof, then such claim will
be made in the following manner and be subject to the following terms and
conditions:
a. Notice: The Indemnified Party will give prompt written notice to the
Indemnifying Parties of any demand, claim or threat of litigation or
the actual institution of any action, suit or proceeding
(collectively, a "Claim") served on or instituted against the
-----
Indemnified Party with respect to which the Indemnified Party
believes it would have a right of indemnification under Section 1.1
hereof. In providing such notice, the Indemnified Party will only
state the existence of such Claim and need not admit or deny the
validity of the facts or circumstances out of which such Claim
arose. The failure to give such notice will not relieve the
Indemnifying Parties from any obligation hereunder except where, and
then solely to the extent that, such failure actually and materially
prejudices the rights of the Indemnifying Parties.
b. Responsibility for Defense: Within thirty (30) days after receipt of
any such notice, but not less than five (5) working days prior to
the time the Indemnified Party is required to respond to a Claim,
the Indemnifying Parties shall, by giving written notice to the
Indemnified Party, assume responsibility for the defense of the
Claim (thereby becoming the "Defending Party") in the name of the
---------------
Indemnified Party; provided, however, that the Indemnifying Parties
and the Indemnified Party may agree at such time or at any time
thereafter that the Indemnified Party will assume defense of such
Claim (thereby becoming the "Defending Party") in which event the
---------------
Indemnifying Parties will reimburse the Indemnified Party for the
costs of defending against such Claim, including reasonable
attorneys' fees and expenses, and will be responsible for any Losses
the Indemnified Party may suffer as a result of such Claim, if, but
only to the extent that, the Indemnified Party is in fact entitled
to indemnification under this Agreement with respect to such Claim.
Subject to the provisions of Sections 1.2(c), 1.2(d), 1.2(e) and
1.2(f) hereof, the Defending Party will have full authority to
defend, cure, adjust, compromise or settle such Claim or appeal any
judgment or ruling of a court or other tribunal in connection with
such Claim in its own name and/or in the name of the other party.
The parties who are not the Defending Party shall reasonably
cooperate in the defense of any action for which an Indemnified
Party seeks indemnification under this Agreement.
c. Right to for Participate: Notwithstanding a Defending Party's
responsibility for the defense of a Claim, the other party will have
the right to participate, at its own expense and with its own
counsel, in the defense of a Claim and, upon receiving a written
request from the other party, the Defending Party will consult with
the other party from time to time on matters relating to the defense
<PAGE>
of such Claim and provide the other party with copies of all
pleadings and material correspondence relating to such Claim.
d. Equitable or Injunctive Relief: In the event that a Claim seeks
equitable or injunctive relief, the Indemnified Party may, at its
option, and notwithstanding anything to the contrary in Section
1.2(b) hereof, assume responsibility for the defense of such portion
of the Claim seeking equitable or injunctive relief. In the event
that pursuant to the preceding sentence the Indemnified Party has
assumed responsibility for the defense of such portion of the Claim
as seeks equitable or injunctive relief, the Indemnifying Parties
will reimburse the Indemnified Party for the costs of defending the
Claim including reasonable attorneys' fees and expenses, and the
Indemnifying Parties will remain monetarily responsible for any and
all Losses the Indemnified Party may suffer as a result of such
Claim, if, but only to the extent that, such defense costs and such
Losses are otherwise subject to indemnification pursuant to this
Agreement.
e. Financial Difficulty: In the event that any of the Indemnifying
Parties is subject to Financial Difficulty (as defined below), the
Indemnified Party may, at its option, and notwithstanding anything
to the contrary in Section 1.2(b) hereof, assume responsibility for
the defense of any Claim then pending. In the event that pursuant to
the preceding sentence the Indemnified Party has assumed
responsibility for the defense of such Claim, the Indemnifying
Parties will reimburse the Indemnified Party for the costs of
defending the Claim including reasonable attorneys' fees and
expenses, and the Indemnifying Parties will remain monetarily
responsible for any and all Losses the Indemnified Party may suffer
as a result of such Claim, if, but only to the extent that, such
defense costs and such Losses are otherwise subject to
indemnification pursuant to this Agreement. "Financial Difficulty"
--------------------
shall mean:
(1) that there shall have occurred and be continuing any of the
following events under the governing instrument or agreement
relating to any Indemnifying Party's indebtedness for borrowed
money which has an unpaid principal amount in excess of
$25,000,000 ("Debt"): (A) such Indemnifying Party shall have
----
failed to pay when due the principal of, or interest on, the Debt
and such failure shall not have been cured, waived or otherwise
remedied within thirty (30) days of such failure, (B) the
holder(s) of any Indemnifying Party's Debt shall have accelerated
the payment of the entire principal amount thereof, or (C) such
Indemnifying Party shall have failed to comply with the financial
covenants set forth in any such governing instrument or agreement
and such failure shall not have been cured, waived or otherwise
remedied within sixty (60) days of such failure;
<PAGE>
(2) that such Indemnifying Party shall have commenced or become
subject to a case under Title 11 of the United States Code or
shall be adjudged or found by a court of competent jurisdiction
to be bankrupt or insolvent; or
(3) there shall have occurred the sale of all or substantially
all of the assets of the Indemnifying Parties.
During the pendency of any Claim, the Indemnifying Parties will
promptly provide the Indemnified Parties with a copy of any notice
sent to or received from the holder of any Debt to the effect that any
event constituting a Financial Difficulty has occurred.
f. Settlement: A Defending Party will provide the other party with
timely written notice of any proposed adjustment, compromise or other
settlement, including equitable or injunctive relief, of a Claim which
the Defending Party intends to propose or accept, in which event the
other party will within five (5) business days after receipt thereof
provide the Defending Party with a written notice (a "Response
--------
Notice") to the effect that (i) the other party consents to the
settlement or (ii) the other party objects to the settlement, and in
which event the following additional provisions will apply:
(1) In the event that the other party (i) consents to the
settlement in a timely Response Notice, or (ii) fails to provide
the Defending Party with a timely Response Notice, the Defending
Party will have the right to propose or accept, as the case may
be, such settlement and to enter into any agreement, in its own
name and/or in the name of the other party, giving legal effect
to all aspects of such settlement.
(2) When the Defending Party is also an Indemnifying Party, and
the Indemnified Party objects to the settlement by means of a
timely Response Notice, then the Defending Party may, if it so
elects, and provided that the settlement in question is purely
monetary in nature and provides for a complete release of the
Claim, tender the defense of the Claim to the Indemnified Party
by tendering the Indemnified Party the amount of money proposed
to be paid in settlement of the Claim (the "Tendered Amount"), in
---------------
which case the Defending Party will have no further liability to
the Indemnified Party hereunder with respect to such Claim, and
in which case the Indemnified Party will have full responsibility
for any and all defense costs and Losses thereafter resulting
from such Claim (the "Indemnified Party's Costs") and, in
-------------------------
addition, once the Indemnified Party's Costs have been fully and
finally
<PAGE>
determined, will reimburse the Defending Party for the amount (if
any) by which the Tendered Amount exceeds the Indemnified Party's
Costs.
(3) When the Defending Party is the Indemnified Party, the Claim
in question is not one that the Indemnified Party assumed
responsibility of pursuant to Section 1.2(d) or 1.2(e) hereof,
and the Indemnifying Parties object to the settlement by means of
a timely Response Notice, the Indemnifying Parties will have the
right to assume responsibility for the defense of the Claim by
delivering with the Response Notice a notice in the form
contemplated by the first sentence of Section 1.2(b) hereof. If
the Indemnifying Parties fail to exercise such right, and if the
settlement in question would impose purely monetary obligations
on the Indemnifying Parties, the Defending Party will have the
right to propose or accept, as the case may be, such settlement
and to enter into any agreement, in its own name and/or in the
name of the Indemnifying Parties, giving legal effect to all
aspects of such settlement, whereupon, if, but only to the extent
that, the Defending Party is entitled to indemnification from the
Indemnifying Parties in respect to the Claim, the amount paid
under the terms of such settlement will be deemed to be Losses
subject to indemnification to the extent, and only to the extent,
such settlement is reasonable under all the facts and
circumstances at the time of the settlement. Otherwise, Losses
subject to indemnification will be deemed to be that portion of
the amount paid under the terms of such settlement that would
have been reasonable to pay under the terms of such settlement
under all of the facts and circumstances at the time of such
settlement.
(4) Except as provided in Section 1.2(f)(3) hereof, the
Defending Party will have no authority to enter into any proposed
settlement that the other party has objected to by means of a
timely Response Notice. If the other party has acted
unreasonably in objecting to a proposed settlement by means of a
timely Response Notice, and the Defending Party did not have
either the right to tender the defense of the Claim in question
to the other party pursuant to Section 1.2(f)(2) hereof or the
right to enter into the proposed settlement of the Claim pursuant
to Section 1.2(f)(3) hereof, then the other party will indemnify
the Defending Party against any and all Losses that the Defending
Party may suffer as a result of such unreasonable objection.
<PAGE>
ARTICLE 2
Miscellaneous
2.1. Term. Upon execution by the parties hereto, this Agreement shall
----
become effective as of February 9, 1996 and shall terminate on that date which
is six years and thirty days from the later of (i) the Closing Date (as defined
in the Recapitalization Agreement) or (ii) the effective date of any
registration statement filed with the Securities and Exchange Commission in
connection with the financing of the Purchase Price (as defined in the
Recapitalization Agreement), except in the case where indemnification is based
on a claim of fraud or concealment and any person is able to sustain a tolling
of the applicable statute of limitations.
2.2. Notices. All notices, requests and other communications required or
-------
permitted to be given pursuant to this Agreement will be in writing and will be
deemed to have been duly given at the time of receipt if delivered by hand or
communicated by electronic transmission, or, if mailed, three (3) days after
mailing registered or certified air mail, return receipt requested, with postage
prepaid to the following addresses (or to such other address as the notified
party shall have most recently designated to the notifying party in writing
pursuant to this Section):
If to TRW: TRW Inc.
1900 Richmond Road
Cleveland, Ohio 44124
Attention: Secretary
If to Holdings,
Operating Company,
or Purchaser: Experian Corporation
c/o Ropes & Gray
One International Place
Boston, Massachusetts 02110
Attention: Peter H. Dodson
2.3. Governing Law. This Agreement shall be construed and enforced in
-------------
accordance with the laws of the State of New York.
2.4. Entire Agreement. This Agreement constitutes the entire Agreement
----------------
and understanding between the parties, and supersedes all oral statements and
other understandings relating hereto.
2.5. Effect. This Agreement shall be binding on and inure to the benefit
------
of the parties hereto and their respective successors and assigns.
<PAGE>
2.6. Satisfaction of Conditions to TRW's Recapitalization Agreement
--------------------------------------------------------------
Obligations. TRW acknowledges and agrees that the execution of this Agreement
- -----------
by Purchaser, Holdings, Operating Company and TRW shall satisfy fully the
condition of Section 5.2(k) of the Recapitalization Agreement.
2.7. Dispute Resolution, Consent to Jurisdiction, Waiver of Jury Trial.
-----------------------------------------------------------------
The parties to this Agreement agree that the terms and provisions of Sections
11.7, 11.15 and 11.16 of the Recapitalization Agreement pertaining to dispute
resolution, consent to jurisdiction and waiver of jury trial, respectively,
shall apply to this Agreement as if such Sections were included herein and (i)
references to Section 11.6 in those Sections should be understood to mean
Section 2.2 of this Agreement for all actions, suits or proceedings arising out
of or based upon this Agreement and (ii) references to "this Agreement" and
"Other Agreements or the subject matters hereof or thereof" in those Sections
should be understood to mean this Indemnification Agreement exclusively.
<PAGE>
IN WITNESS WHEREOF, the undersigned have set forth their signatures as of
the date first shown above.
Attest TRW INC.
By:________________________ By:______________________________
Title:
Attest IS&S Holdings, Inc.
By:_________________________ By:______________________________
Title:
Attest Information Systems and Services, Inc.
By:________________________ By:______________________________
Title:
Attest Experian Corporation
By:________________________ By:______________________________
Title:
<PAGE>
Exhibit 3.4
CERTIFICATE OF AMENDMENT
TO THE CERTIFICATE OF INCORPORATION OF
INTELLIDATA, INC.
IntelliData, Inc., a Corporation organized and existing under and by virtue of
the General Corporation Law of the State of Delaware, DOES HEREBY CERTIFY:
FIRST: That the Board of Directors of said corporation has adopted by
written consent the following resolution:
RESOLVED, That it is advisable and in the best interest of this
Corporation that Article 1 of the Certificate of Incorporation of this
Corporation be amended to read in its entirety as follows:
"FIRST: The name of this Corporation shall be
Experian Information Solutions, Inc."
SECOND: That said amendment has been consented to and authorized by the
holder of a majority of the issued and outstanding stock entitled to vote by
written consent given in accordance with the provisions of Section 228 of the
General Corporation Law of the State of Delaware.
THIRD: That the aforesaid amendment was duly adopted in accordance with
the applicable provisions of Section 242 and 228 of the General Corporation Law
of the State of Delaware.
IN WITNESS WHEREOF, IntelliData, Inc., has caused this certificate to be
executed and acknowledged by its authorized officer, this 30th day of July,
1996.
By: /s/ Mark E. Nunnelly
-------------------------
MARK E. NUNNELLY
<PAGE>
LEASE AND AGREEMENT, dated as of April 15, 1993, between Allen
Office Investment Limited Partnership, a Texas limited partnership (herein, as
further defined in Section 32(c), called "Landlord"), having an address at 711
High Street, Des Moines, Iowa 50392, Attention: Commercial Real Estate Loan
Administration, Reference No. D-399815, and TRW Inc., an Ohio corporation
(herein, called "Tenant"), having an address at 500 City Parkway West, Orange,
California 92668, Attention: John L. Dettbarn.
1. Demise of Premises; Purchase Option.
-----------------------------------
(a) In consideration of the rents and covenants herein stipulated to
be paid and performed, Landlord hereby demises, and lets to Tenant, and Tenant
hereby lets from Landlord, for the terms herein described, the premises (herein
called the "Premises") consisting of (i) the land described in Exhibit A
---------
attached hereto and made a part hereof (herein called the "Land Parcel"); (ii)
all buildings, structures and other improvements constructed and to be
constructed thereon (including all building equipment and fixtures, if any,
owned by Landlord, but excluding trade equipment and fixtures owned by Tenant)
(herein called the "Improvements"); (iii) all the personal property as described
in Exhibit A-1 attached hereto and made a part hereof; and (iv) all easements,
-----------
rights and appurtenances relating thereto, all upon the terms and conditions
herein specified. Landlord shall have the right, after the date of this Lease
and at any time, to sell, convey, encumber or transfer the Premises, subject to
the rights of Tenant under this Lease.
(b) After the expiration of the Primary Term (as hereinafter defined
in Section 4), Tenant shall have the option, and Landlord hereby grants to
Tenant the option, to purchase the Premises at the then fair market value of the
Premises, which fair market value shall be determined prior to the end of the
Primary Term as provided in Attachment 3 attached hereto and made a part hereof.
------------
2. Title and Condition. The Premises are demised and let in their
-------------------
present condition and without warranty or representation by Landlord, and
subject to (a) the rights of any parties in possession, (b) the state of the
title thereto existing at the time Landlord acquired title to the Premises and
as of the commencement of the Term (as hereinafter defined in Section 4) of this
Lease, (c) any state of facts which an accurate survey or physical inspection
thereof might show, (d) all private deed restrictions and protective covenants,
and all applicable laws, rules, regulations, ordinances and restrictions now in
effect or hereafter adopted by any governmental authority, including, without
limitation, all zoning regulations, restrictions, rules and ordinances, building
restrictions and other laws and regulations, (e) any violations of such
restrictions, covenants, laws, rules, regulations or ordinances which may exist
at the time of the commencement of the Term of this Lease, and (f) the condition
of any buildings, structures and other improvements located thereon, as of the
commencement of the Term of this Lease, including, without limitation,
construction currently in progress and commenced prior to the date of this
Lease, and any liens, inchoate or choate, unperfected or perfected, previously,
currently or in the future arising therefrom. Tenant represents that it
<PAGE>
has examined the title to and the condition of the Premises and has found the
same to be satisfactory to it. Tenant acknowledges and confirms that Tenant is
fully familiar with the physical condition of the Premises and that Landlord
makes no representation or warranty, expressed or implied, with respect to same
or with respect to the location, use, description, design, merchantability,
fitness for use for particular purpose, condition or durability thereof, or as
to quality of the material or workmanship therein, or as to Landlord's title
thereto or ownership thereof, or otherwise; and all risks incidental to the
Premises shall be borne by Tenant to the extent of matters that arise during the
Term of this Lease. Landlord leases and Tenant accepts the Premises as is, with
all faults and in the event of any defect or deficiency of any nature in the
Premises or any fixture or other item constituting a portion of Premises,
whether patent or latent, neither Landlord nor Permitted Beneficiary shall have
any responsibility or liability with respect thereto. THE PROVISIONS OF THIS
SECTION HAVE BEEN NEGOTIATED AND ARE INTENDED TO BE A COMPLETE EXCLUSION AND
NEGATION BY LANDLORD OF, AND LANDLORD DOES HEREBY DISCLAIM ANY AND ALL
WARRANTIES BY LANDLORD, EXPRESS OR IMPLIED, WITH RESPECT TO THE PREMISES OR ANY
FIXTURE OR OTHER ITEM CONSTITUTING A PORTION OF THE PREMISES, WHETHER ARISING
PURSUANT TO THE UNIFORM COMMERCIAL CODE OR OTHER LAW, NOW OR HEREAFTER IN
EFFECT, OR OTHERWISE.
3. Use of Premises.
---------------
(a) Tenant and any permitted sublessee or assignee may use the
Premises for any lawful purpose, provided that, in Landlord's reasonable
judgment, such use (i) creates no detrimental environmental effects or increased
environmental risks to the Promises or to other property and does not result in
any increased risk of liability to Landlord, (ii) creates or requires no
modifications to the physical structure of any portion of the Premises except in
accordance with the provisions of Section 11 of this Lease, unless all such
modifications are approved in advance and in writing by Landlord and Permitted
Beneficiary as provided herein, (iii) creates no adverse tax consequences for
Landlord, (iv) will not lessen the fair market value of the Premises to an
amount which is below its fair market value immediately prior to the
commencement of such use, (v) does not change the primary character of the
Premises, and (vi) does not violate any other provisions of this Lease or any
term of any other agreement or restriction to which the Premises are subject, or
cause the Premises to be in violation of any laws, ordinances, rules,
regulations, covenants, or requirements applicable thereto. The restrictions
set forth in (i) through (vi) inclusive in this subsection (a) are hereinafter
collectively referred to as the "Use Restrictions." Tenant and any permitted
sublessee or assignee shall not create or suffer to exist any public or private
nuisance, hazardous or illegal condition or waste on or with respect to the
Premises.
(b) Tenant shall not conduct its business operation in the Premises
unless and until (and only during such time as) all necessary certificates of
occupancy, permits, licenses and
-2-
<PAGE>
consents from any and all appropriate governmental authorities have been
obtained by Tenant and are in full force and effect.
4. Terms. Subject to the terms and conditions hereof, Tenant shall
-----
have and hold the Premises for a primary term (herein called the "Primary Term")
commencing on April 15, 1993, and continuing through October 15, 2010.
Thereafter, Tenant shall have the right and option to extend this Lease for four
(4) consecutive terms of five (5) years each (herein collectively and
individually called an "Extended Term," and together with the Primary Term,
called the "Term") unless this Lease shall be sooner terminated pursuant to the
terms hereof. Each Extended Term shall commence on the day immediately
succeeding the expiration date of the Primary Term or the preceding Extended
Term. This Lease shall not be extended for an Extended Term and Tenant shall be
deemed not to have exercised its option to extend, unless (a) Tenant has given
written notice to Landlord at least two (2) years prior to the end of the then
Term of this Lease of Tenant's intention to so extend this Lease, and (b) at the
time at which any such extension would otherwise take effect, no default or
Event of Default exists under this Lease. If Tenant does not timely and
properly give such notice of Tenant's intention to so extend this Lease, Tenant
shall have no further option or obligation to extend this Lease. Further, if
Tenant does not timely and properly notify Landlord of Tenant's intention to
extend this Lease, or if any default or any Event of Default exists and is
continuing at such time under this Lease, then Landlord shall have the right
during the remainder of the Term of this Lease to advertise the availability of
the Premises for sale or reletting and to erect upon the Premises signs
appropriate for the purpose of indicating such availability; provided, that such
signs do not unreasonably interfere with the use of the Premises by Tenant.
5. Rent and Termination Values.
---------------------------
(a) Tenant covenants to pay directly to Permitted Beneficiary (as
hereinafter defined) as installments of rent to Landlord for the Premises during
the Term of this Lease, the amounts determined pursuant to Exhibit B hereto,
---------
subject to adjustment as provided in Section 5(c) below (herein called the
"Basic Rent") on the dates set forth in said Exhibit B (herein called the "Basic
---------
Rent Payment Dates") in arrears. Basic Rent payments shall be allocated to
Tenant's use of the Premises during the Lease period in which the Basic Rent
Payment Date for such Basic Rent payment falls. Tenant covenants to pay the
Basic Rent by wire transfer of immediately available funds to Permitted
Beneficiary at Norwest Bank Iowa, N. A., Seventh and Walnut Streets, Des Moines,
Iowa 50309, for credit to Principal Mutual Life Insurance Company, General
Account No. 014752 Re: D-399815 and/or to such other person or such other place
or account as Landlord and Permitted Beneficiary, if any, from time to time may
designate to Tenant in writing.
(b) Tenant covenants that all other amounts, liabilities and
obligations which Tenant assumes or agrees to pay or discharge pursuant to this
Lease, together with every fine, penalty, interest and cost which may be added
for nonpayment or late payment thereof, shall
-3-
<PAGE>
constitute additional rent hereunder (herein called "Additional Rent"). In the
event of any failure by Tenant to pay or discharge any of the foregoing,
Landlord shall have all rights, powers and remedies provided herein or by law in
the case of nonpayment of Basic Rent. Tenant also covenants to pay to Landlord
on demand an amount equal to four percent (4%) of the payment amount then due,
on all overdue installments of Basic Rent or Additional Rent not paid within any
applicable grace period. In addition, Tenant further covenants to pay to
Landlord on demand, after the expiration of five (5) days after notice from
Landlord of payment by Landlord on behalf of Tenant of any of Tenant's
obligations under this Lease, interest on all such obligations paid by Landlord
and not reimbursed by Tenant, at the rate of the lesser of (i) fifteen percent
(15%) per annum, or (ii) the maximum rate not prohibited by applicable law,
which interest shall accrue from and after the fifth day after such notice from
Landlord, and shall continue to accrue until Landlord is repaid in full for such
payment made on behalf of Tenant. Notwithstanding anything in this Lease to the
contrary, with respect to any portion of Additional Rent comprised solely of
late charges and/or default rate interest, any failure of Tenant to pay any such
amounts shall not constitute an Event of Default under this Lease until the
expiration of five (5) days after notice from Landlord that such amounts have
become due and payable, specifying the nature and amount of such late charges
and/or default rate interest.
(c) The calculation of Basic Rent and the calculation of the amount
to be paid to Landlord by Tenant in the event of certain occurrences as
expressly provided in this Lease wherein the term "Termination Value" is used
(the amounts set forth on Exhibit D attached hereto and made a part hereof, as
---------
may be adjusted from time to time pursuant to the provisions of this subsection
being referred to in this Lease as the "Termination Value") initially payable
pursuant to this Lease have been based on the assumptions described on
Exhibit C. The Basic Rent and the Termination Value have been calculated to
- ---------
provide Landlord with a certain after-tax rate of return, total after-tax return
per dollar of equity invested and present value of after-tax lease income [as
booked under FAS 13 (defined in Section 32), per dollar of equity invested]
(hereinafter collectively called "Lessor's Anticipated Economics"). Subject to
the provisions of (i), (ii), (iii), (iv) and (v) of this subsection 5(c) and the
provisions of subsection 5(d), if either Landlord or Tenant determines at any
time (within the notice period provided below in this Section 5(c)) that any of
such assumptions are inaccurate or are not as set forth on Exhibit C, whether
---------
due to being inaccurate when made or due to any changes in facts or
circumstances (an "Inaccurate Assumption"), then the Basic Rent and the
Termination Value shall be appropriately adjusted, as provided below, from and
effective as of the date that such Inaccurate Assumption first became
inaccurate, by such amounts as shall preserve Lessor's Anticipated Economics
(such adjustments being hereinafter called, respectively, the "Rent Adjustments"
and the "Termination Value Adjustments" and collectively "Rent/Termination Value
Adjustments"). Notwithstanding anything in this Section 5 to the contrary but
only in connection with the procedure for effecting Rent/Termination Value
Adjustments pursuant to this Section 5(c), (i) the amount of Basic Rent and the
Termination Value must be in amounts which, in all respects, continue to comply
with all relevant Code (as defined in Exhibit C hereto) provisions, and all
---------
regulations, published rulings, procedures and announcements
-4-
<PAGE>
pertaining thereto, (ii) Landlord shall be entitled to require that all
provisions of the Code, and regulations, published rulings, procedures and/or
announcements pertaining thereto shall be taken into account in making any
calculation of any Rent/Termination Value Adjustment, (iii) a Rent/Termination
Value Adjustment which results from a Federal Tax Law Change (as defined in
Exhibit C) and which would, absent this restriction, result in an increase in
the Basic Rent or Termination Value shall not be made if the result of such
adjustment would cause (in the opinion of tax counsel for Landlord) the failure
of the Lease to qualify as a true lease for federal income tax purposes unless
the Landlord in its sole discretion elects to waive this restriction, (iv) a
Rent/Termination Value Adjustment which results from a Federal Tax Law Change
and which would, absent this restriction, result in a decrease in the Basic Rent
or Termination Value shall not be made if the result of such adjustment would
cause (in the opinion of tax counsel for Landlord) the failure of the Lease to
qualify as a true lease for federal income tax purposes, and (v) the Basic Rent
shall in no event be adjusted to an amount which is less than the regularly
scheduled debt service payments due to any Permitted Beneficiary (the "Debt
Service Amounts"). The procedure for effecting Rent Adjustments and Termination
Value Adjustments shall be as provided below. Either party may submit any
proposed Rent/Termination Value Adjustment calculated in accordance with the
provisions of this Section 5(c), along with the basis for such Rent/Termination
Value Adjustment, to the other party, and if the other party does not object to
such proposed Rent/Termination Value Adjustment in writing within twenty (20)
days following such submission, setting forth in specific detail the basis for
its objection, the Basic Rent and Termination Value shall be deemed adjusted in
accordance with such proposed Rent/Termination Value Adjustment without the
necessity of any further action or documentation by any party; provided,
however, Tenant shall not be allowed to submit any proposed Rent/Termination
Value Adjustment unless it has first given Landlord written notice that it
intends to make such submission and Landlord fails to make a proposed
Rent/Termination Value Adjustment within thirty (30) days of such notice. If the
other party objects to the proposed Rent/Termination Value Adjustment in writing
and in detail within said twenty (20) day period, Landlord and Tenant shall use
their best efforts to reach agreement as to any such proposed Rent/Termination
Value Adjustment. If agreement is reached, the Basic Rent and Termination Values
shall be adjusted in accordance with such agreement when reduced to writing. If
Landlord and Tenant are unable to reach a written agreement within thirty (30)
days of the submitting party's receipt of the other party's written objection,
then Ernst & Young or such other nationally recognized accounting firm as agreed
upon by Landlord and Tenant (the "Third Party Accounting Firm") shall be engaged
to review the proposed Rent/Termination Value Adjustment and shall make a
determination as to the resolution of the proposed Rent/Termination Value
Adjustment so as to cause such Rent/Termination Value Adjustment to be properly
made in accordance with the provisions of this Lease. The determination of the
Third Party Accounting Firm made in accordance with the provisions of this
Section 5(c) shall be final, conclusive and binding upon Landlord and Tenant.
Tenant shall pay all fees, costs and expenses of Landlord and the Third Party
Accounting Firm in connection with the determination of any Rent/Termination
Value Adjustment. In the determination of any Rent/Termination Value Adjustment,
all assumptions set forth on Exhibit C shall continue to apply other than the
---------
Inaccurate Assumption(s) resulting
-5-
<PAGE>
in any Rent/Termination Value Adjustment. From and after such Rent/Termination
Value Adjustment, Exhibit C shall be deemed amended so as to substitute the
---------
appropriate revised assumption for the Inaccurate Assumption. In all cases, any
Rent/Termination Value Adjustment shall serve to preserve (but not improve or
adversely affect) Lessor's Anticipated Economics. Unless a notice shall have
been given pursuant to this Section 5(c) by December 31 of the seventh calendar
year following the last calendar year in which a Federal Tax Law Change may
occur, the Rent/Termination Values then in effect shall be conclusive and
binding upon the parties for all purposes hereunder.
(d) With respect to any Rent Adjustment effectuated pursuant to this
Section 5 which has the effect of decreasing the amount of Basic Rent, the
amount of any such decrease in Basic Rent shall be limited as may be necessary
so that in no event shall the resulting amount of Basic Rent payable be an
amount which is less than the Debt Service Amounts payable; provided, however,
that an amount equal to the difference between (i) the full amount by which the
Basic Rent would have been decreased each month by such Rent Adjustment but for
such limitation, and (ii) the limiting Debt Service Amount (such difference
being hereinafter referred to as the "Unrealized Basic Rent Reduction Amount")
shall be periodically calculated by Landlord and a record thereof retained for
all periods during which the Basic Rent would, but for said limitation to the
Debt Service Amount, be less than the Debt Service Amount. Any Unrealized Basic
Rent Reduction Amounts which may be created from time to time during the Term of
this Lease, plus an amount equal to three percent (3%) per annum calculated on
such Unrealized Basic Rent Reduction Amounts from the date each is created, are
hereinafter collectively referred to as the "Total Accumulated Credit Amounts."
In the event that any Extended Term is properly effected in accordance with the
terms of this Lease, Landlord shall grant Tenant a rent concession in the form
of no Basic Rent being payable from the first day of any such Extended Term, for
the period of time during which the total Basic Rent which would otherwise be
payable during such portion of the Extended Term equals the Total Accumulated
Credit Amounts; provided, however, that during any such portion of an Extended
Term when Total Accumulated Credit Amounts are applied in lieu of Basic Rent,
Additional Rent and any other amounts payable by Tenant in accordance with the
terms of this Lease during such portion of the Extended Term shall continue to
be due and payable. In the event that Tenant purchases the Premises from
Landlord in accordance with any of the provisions of this Lease other than
provisions regarding (a) any condemnation of all or any portion of the Premises,
and (b) any default by Tenant in any of its obligations under this Lease, then,
to the extent that Total Accumulated Credit Amounts exist, not previously
credited against future Basic Rent as contemplated by the immediately preceding
sentence, Landlord shall reduce the purchase price in connection with such
purchase by an amount equal to the Total Accumulated Credit Amounts.
Notwithstanding anything in this subsection 5(d) to the contrary, in no event
shall Landlord be obligated to make any payments to Tenant or, other than as
expressly provided in this subsection 5(d), grant Tenant any rights or
concessions in connection with any Total Accumulated Credit Amounts or any
portion thereof.
-6-
<PAGE>
(e) If any Rent Adjustment results in this Lease being characterized
as a "capital lease" for Tenant under FAS 13, as verified to Landlord and
Permitted Beneficiary in writing by Tenant's regularly retained independent
accounting firm, Tenant or Landlord may terminate this Lease within thirty (30)
days of such Rent Adjustment. Any such termination of this Lease by Tenant
shall be effected only by Tenant paying to Landlord the applicable Termination
Value (as adjusted), the amount of the Lease Make-Whole Premium (as defined in
Section 32), the applicable Loan Make-Whole Premium (as defined in Section 32),
and all installments of Basic Rent, Additional Rent and all other sums then due
and payable hereunder to and including the date of termination, without offset
or deduction for any reason. Tenant shall pay all charges, fees and expenses
incident to such termination by Tenant, including counsel fees and expenses, and
all applicable federal, state, and local taxes (other than any income or
franchise taxes levied upon or assessed against Landlord and those taxes assumed
in determining the Termination Value) which may be incurred or imposed by reason
of such termination.
(f) Subject to the provisions of subsection 5(d) above, the Basic
Rent payable by Tenant during any Extended Term of this Lease shall be an amount
equal to ninety-five percent (95%) of the then fair rental value of the Premises
(calculated without regard to the existence of this Lease) based upon rentals
for properties similar to the Premises in size, use and occupancy in the
Dallas/Fort Worth greater metropolitan area, determined at the beginning of each
such Extended Term by the procedure set forth on Attachment 3 to this Lease.
------------
(g) Any payment of a Termination Value made pursuant to this Lease
shall be made only on a date which is also a Basic Rent Payment Date.
(h) In the event that Landlord is entitled to any investment tax
credit due to or in connection with the acquisition of the Premises or the
construction of any improvements (whether Previous Construction, Renovations,
Permitted Alterations or other construction) performed on any portion of the
Premises, there shall be no Rent/Termination Value Adjustments caused thereby,
and Tenant shall not receive any advantage therefrom, whether in the form of
rent concessions, any other concessions with respect to any of Tenant's
obligations under this Lease, or otherwise; provided, however, that (A) if
Landlord is permitted and able to "pass through" to Tenant any such investment
tax credit without cost or expense of any kind to Landlord, Landlord shall do
so, so long as Landlord shall be satisfactorily indemnified by Tenant as to (1)
any recapture which may later result or be required, and (2) any other costs or
expenses which may be incurred by Landlord in connection with such transfer of
any such investment tax credit, and (B) to the extent that Landlord is unable to
"pass through" to Tenant any such investment tax credit as provided in (A) above
notwithstanding Tenant's satisfaction of the indemnification requirement set
forth above, Landlord shall, upon receipt from Tenant of a satisfactory
indemnification agreement indemnifying Landlord with respect to any recapture
which may later result or be required of Landlord because of such investment tax
credit, pay to Tenant an amount equal to any actual tax credit Landlord receives
and is able to apply, as a result of such investment tax credit, against tax
which would otherwise be payable,
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<PAGE>
which payment to Tenant shall be made within thirty (30) days after Landlord
files the subject tax return with the Internal Revenue Service.
6. Net Lease; Non-Terminability.
----------------------------
(a) This is an absolutely net lease to Landlord. It is the intent of
the parties hereto that the Basic Rent payable under this Lease shall be an
absolutely net return to the Landlord and that Tenant shall pay all costs and
expense relating to the Premises and the business carried on therein, unless
otherwise expressly provided in this Lease. Any amount or obligation herein
relating to the Premises which is not expressly declared to be that of the
Landlord shall be deemed to be an obligation of Tenant to be performed by Tenant
at Tenant's expense. Basic Rent, Additional Rent and all other sums payable
hereunder by Tenant, shall be paid without notice (except as otherwise expressly
provided in subsection 5(b) with respect to interest on payments made by
Landlord), demand, setoff, counterclaim, abatement, suspension, deduction or
defense.
(b) This Lease shall not terminate, nor shall Tenant have any right
to terminate this Lease, nor shall Tenant be entitled to any abatement or
reduction of rent hereunder (except as otherwise expressly provided in
subsection 5(d) and subsection 14(c)), nor shall the obligations of Tenant under
this Lease be affected. by reason of (i) any damage to or destruction of all or
any part of the Premises from whatever cause; (ii) the taking of the Premises or
any portion thereof by condemnation, requisition or otherwise; (iii) the
prohibition, limitation or restriction of Tenant's use of all or any part of the
Premises, or any interference with such use; (iv) any eviction by paramount
title or otherwise; (v) Tenant's acquisition or ownership of all or any part of
the Premises otherwise than as expressly provided herein; (vi) any default on
the part of Landlord under this Lease, or under any other agreement to which
Landlord and Tenant may be parties; (vii) the failure of Landlord to deliver
possession of the Promises on the commencement of the term hereof; or (viii) any
other cause whether similar or dissimilar to the foregoing, any present or
future law to the contrary notwithstanding. It is the intention of the parties
hereto that the obligations of Tenant hereunder shall be separate and
independent covenants and agreements, that the Basic Rent, the Additional Rent
and all other sums payable by Tenant hereunder shall continue to be payable in
all events and that the obligations of Tenant hereunder shall continue
unaffected, unless the requirement to pay or perform the same shall have been
terminated pursuant to an express provision of this Lease. Notwithstanding
anything to the contrary contained above, Tenant does retain a separate and
independent right to sue the Landlord; provided, however, any judgment in favor
of Tenant shall not abate Basic Rent or Additional Rent or terminate Tenant's
obligations hereunder.
(c) Tenant agrees that it will remain obligated under this Lease in
accordance with its terms (except as otherwise expressly provided in subsection
5(d) and subsection 14(c)), and that it will not take any action to terminate,
rescind or avoid this Lease, notwithstanding (i) the bankruptcy, insolvency,
reorganization, composition, readjustment. liquidation, dissolution, or winding-
up or other proceeding affecting Landlord or its successors in interest, or (ii)
any
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<PAGE>
action with respect to this Lease which may be taken by any trustee or receiver
of Landlord or its successors in interest or by any court in any such
proceeding.
(d) Tenant waives all rights which may now or hereafter be conferred
by operation of law (i) to quit, terminate or surrender this Lease or the
Premises or any part thereof, or (ii) to any abatement, suspension, deferment or
reduction of the Basic Rent, Additional Rent or any other sums payable under
this Lease.
(e) If Landlord shall voluntarily breach its covenant of quiet
enjoyment under this Lease, Tenant's obligations under this Lease shall
thereafter be equitably and appropriately reduced by Landlord and Tenant to
reflect the effect of such breach by Landlord.
7. Taxes and Assessments; Compliance with Law; Environmental Matters.
-----------------------------------------------------------------
(a) Tenant shall pay or discharge all Impositions, as hereinafter
defined, when due. Notwithstanding the foregoing provision of this subsection
7(a), the term "Imposition" shall not include and Tenant shall not be required
to pay any franchise, corporate, estate, inheritance, succession, transfer
(other than transfer taxes, recording fees, or similar charges payable in
connection with a conveyance hereunder to Tenant), income, excess profits or
revenue taxes of any Landlord hereunder, other than any gross receipts or
similar taxes imposed or levied upon, assessed against or measured by the Basic
Rent, Additional Rent or any other sums payable by Tenant hereunder or levied
upon or assessed against the Premises (unless such gross receipts or similar
taxes are in lieu of an income, profit or revenue tax of Landlord, but only to
the extent of such substitution and only to the extent that such tax, assessment
or other charge would be payable if the Premises were the only property of
Landlord subject thereto). The exclusion contained in the immediately preceding
sentence shall not apply to any tax, assessment, charge or levy imposed or
levied upon or assessed against Landlord in substitution for or in place of an
Imposition. Tenant agrees to furnish to Landlord, within thirty (30) days after
written demand therefor, evidence of the payment of all Impositions. In the
event that any Imposition levied or assessed against the Premises becomes due
and payable during the Term hereof and may be legally paid in installments,
Tenant shall have the option to pay such Imposition in installments. In such
event, Tenant shall be liable only for those installments which become due and
payable during the Term. To the extent that any Impositions accrue during the
Term of this Lease but do not become due and payable until after the Term of
this Lease, and/or to the extent that Impositions are paid by Tenant which
relate to periods of time after the expiration of the Term of this Lease,
appropriate adjustments and prorations of the amounts of such Impositions shall
be made between Landlord and Tenant promptly after such expiration of the Term
of this Lease.
(b) Tenant shall, at its expense, comply with and, subject to the
provisions of the Environmental Indemnity Agreement (hereinafter defined) with
respect to the environmental matters which are Landlord's responsibility as
therein provided, shall take such action as is necessary to cause the Premises
to comply with, all restrictive covenants, private restrictions,
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<PAGE>
and governmental statutes, laws, rules, orders, regulations and ordinances, the
failure to comply with which at any time would affect the Premises or any part
thereof, or the use thereof, including those which require the making of any
structural, unforeseen or extraordinary changes, alterations, or repairs,
whether or not any of the same involve a change of policy on the part of the
body enacting the same, including, but not limited to the Americans With
Disabilities Act of 1990, 42 U.S.C. Section 12101 et seq., and any requirements
-- ---
of the State of Texas concerning accessibility standards for the handicapped,
including, without limitation, Tex. Rev. Civ. Stat. Ann. art. 601(b) (to the
extent applicable) and approval of plans and specifications by the Department of
Licensing and Regulation as required by Tex. Rev. Civ. Stat. Ann. art. 9102.
Tenant shall, at its expense, comply with and perform all changes required in
order to obtain the Required Insurance (as hereinafter defined), and with the
provisions of all contracts, agreements, instruments and restrictions existing
at the commencement of this Lease or thereafter suffered or permitted by Tenant
affecting the Premises or any part thereof or the ownership, occupancy or use
thereof.
(c) Tenant, Landlord and Principal Mutual Life Insurance Company have
executed and delivered to one another, contemporaneously with the execution and
delivery of this Lease, original counterparts of that certain Environmental
Indemnity Agreement, a copy of which is attached hereto as Exhibit L and made a
---------
part hereof for all purposes (the "Environmental Indemnity Agreement"), and the
provisions of which are incorporated herein by this reference. To the extent
that the provisions of (A) this Section 7(c) and Section 32, and (B) the
Environmental Indemnity Agreement conflict, the Environmental Indemnity
Agreement shall control. Tenant shall:
(i) not cause, suffer or permit a release or discharge of any
Hazardous Material (as defined in Section 32) at the Premises
(whether originating thereon or migrating to the Premises
from other property), or cause, suffer or permit any
Hazardous Material to be introduced to the Premises on or
after the date of this Lease, without the express prior
written approval of Landlord and Permitted Beneficiary, which
may be withheld without cause and in their sole discretion,
and shall promptly: (A) pay any claim against Tenant,
Landlord, Permitted Beneficiary or the Premises, (B) remove
any charge or lien upon any of the Premises, and (C) defend,
indemnify and hold Landlord and Permitted Beneficiary
harmless from any and all claims, expenses, liability, loss
or damage, resulting from any Hazardous Material released or
discharged at or from, or introduced to, the Premises (1) by
Tenant, on any date prior to the date of this Lease, or (2)
by Tenant or any other party on or after (but not prior to)
the date of this Lease;
(ii) not cause, suffer or permit any Hazardous Material to exist
on or discharge from any property owned or used by Tenant
which would result in any charge or lien upon the Premises
and shall promptly: (A)
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<PAGE>
pay any claim against Tenant, Landlord, Permitted Beneficiary
or the Premises, (B) remove any charge or lien upon the
Premises, and (C) defend, indemnify and hold Landlord and
Permitted Beneficiary harmless from any and all claims,
expenses, liability, loss or damage, resulting from the
existence of any such Hazardous Material;
(iii) notify Landlord and Permitted Beneficiary in writing of any
Hazardous Material that exists on or is released or
discharged from, at or onto the Premises (whether originating
thereon or migrating to the Premises from other property)
within ten (10) days after Tenant first has knowledge of such
existence of discharge;
(iv) comply, and cause the Premises to comply, with all statutes,
laws, ordinances, rules and regulations of all local, county,
state or federal authorities having authority over the
Premises or any portion thereof or their use; [and comply at
Tenant's sole cost and expense, with each and every
recommendation set forth in that certain report entitled
"Closure Confirmation Document" concerning the Premises
prepared by Albert H. Halff & Associates, Inc., dated April
1, 1993;]
(v) perform all of the environmental remediation work described
on Exhibit J attached hereto and made a part hereof (the
---------
"Remediation") in a careful, proper and timely manner,
completing same no later than December 31, 1993, in
accordance with the specifications and requirements set forth
on Exhibit J hereto. and subject to Landlord's approval in
---------
its sole and absolute discretion. and the approval of such
inspecting environmental remediation experts as Landlord may
designate or employ; and
(vi) to the extent that the Renovations involve the installation
at the Premises of any underground storage tanks ("USTs"),
Tenant shall, in connection with any installation,
maintenance, operation and any future removal of such USTS,
comply in all respects with all applicable statutes, laws,
ordinances, rules, and regulations of all local, county,
state, or federal authorities having jurisdiction over the
USTs. Without limiting the foregoing, Tenant agrees that it
shall: (A) comply with the regulations, guidance documents,
and requirements of the Texas Water Commission ("TWC
Regulations") in the design, technical specifications,
installation, and operation of the USTs; (B) to the extent
registration is required, register the USTs as the operator
with the Texas Water Commission ("TWC"); (C) provide the
financial assurance required in connection with such
registration; (D) respond to and remediate any releases or
spills associated with the USTs in full compliance with TWC
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<PAGE>
Regulations; (E) at the option of Landlord, excavate, remove
and dispose of the USTs at the expiration or termination of
this Lease in full compliance with TWC regulations and
restore the area from which the USTs were removed to
substantially the same condition as before the USTs were
installed, it being understood and agreed that, if Landlord
elects not to require the removal of USTs as provided above,
the USTs shall be and thereafter remain the property of
Landlord after the expiration or termination of this Lease;
and (F) defend, indemnify, and hold Landlord and Permitted
Beneficiary harmless from any and all claims, expenses,
liability, costs, obligations, loss or damage arising in any
manner in connection with such USTs.
Tenant's obligations and liabilities under this subsection 7(c) shall survive
the expiration of this Lease. The date of Tenant's satisfactory completion of
the Remediation as required by subsection 7(c)(v) above shall be the date upon
which Tenant delivers to Landlord, at Tenant"s sole cost and expense, an
environmental report acceptable in all respects to Landlord in the exercise of
its sole and absolute discretion, from an environmental audit firm designated by
Landlord, certifying to Landlord that the Remediation has been satisfactorily
completed; provided, however, that nothing herein shall be interpreted as
relieving Tenant of Tenant's obligation to complete the Remediation and to
deliver the report herein described on or before the date set forth above in
subsection 7(c)(v).
8. Indemnification. Tenant agrees to pay, and to protect, defend,
---------------
indemnify and save harmless Landlord, Permitted Beneficiary and their agents
from and against any and all liabilities, losses, damages, costs, expenses
(including all reasonable attorney's fees and expenses of Landlord), causes of
action, suits, claims, demands or judgments of any nature whatsoever (i) arising
from any injury to, or the death of, any person or damage to property on the
Premises or upon adjoining sidewalks, streets or right of ways, in any manner
growing out of or connected with the use, non-use, condition or occupation of
the Premises, adjoining sidewalks, streets or right of ways, so long as not
occasioned by a grossly negligent act of Landlord, Permitted Beneficiary, or
their agents, servants, employees or assigns, and/or (ii) arising from violation
by Tenant of any agreement or condition of this Lease, or any contract or
agreement to which Tenant is a party or any restriction, law, ordinance or
regulation, in each case affecting the Premises or any part thereof or the
ownership, occupancy or use thereof, so long as not occasioned by a grossly
negligent act of Landlord, Permitted Beneficiary, or their agents, servants,
employees or assigns. If Landlord, Permitted Beneficiary or any agent of
Landlord or Permitted Beneficiary shall be made a party to any such litigation
commenced against Tenant, and if Tenant, at its expense, shall fail to provide
Landlord, Permitted Beneficiary or their agents with counsel (upon Landlord's
request) selected by Tenant, approved by Landlord, which approval shall not be
unreasonably withheld, Tenant shall pay all costs and attorneys' fees and
expenses incurred or paid by Landlord, Permitted Beneficiary or their agents in
connection with such litigation. Tenant's obligations and liabilities under
this Section 8 shall survive the expiration or termination of this Lease.
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<PAGE>
9. Liens; Grants of Easements.
--------------------------
(a) Tenant will not, directly or indirectly, (i) create or permit to
be created, or (ii) except for those caused by Landlord's gross negligence,
permit to remain, and will promptly discharge, at its expense, any mortgage,
lien, encumbrance or charge on, pledge of, or conditional sale or other title
retention agreement with respect to, the Promises or any part thereof or
Tenant's interest therein or the Basic Rent, Additional Rent or other sums
payable by Tenant under this Lease, other than (1) any encumbrances permitted by
a Permitted Deed of Trust (as defined in subsection 32) and (2) any encumbrance
or charge permitted in the subsections below. Nothing contained in this Lease
shall be construed as constituting the consent or request, expressed or implied,
by Landlord to or for the performance of any labor or services or of the
furnishing of any materials for any construction, alteration, addition, repair
or demolition of or to the Premises or any part thereof by any contractor,
subcontractor, laborer, materialman or vendor, except with respect to the
Previous Construction (hereinafter defined). Notice is hereby given that
Landlord will not be liable for any labor, services or materials furnished or to
be furnished to Tenant, or to anyone holding the Premises or any part thereof,
and that no mechanic's or other liens for any such labor, services or materials
shall attach to or affect the interest of Landlord in and to the Premises.
(b) Pursuant to an agreement with the prior owner of the Premises,
Tenant commenced construction of certain improvements prior to Landlord's
purchase of the Premises and prior to the date of this Lease (the "Previous
Construction"), and Tenant has indemnified Landlord and Principal Mutual Life
Insurance Company with respect to such Previous Construction by executing and
delivering to Landlord contemporaneously with the execution of this Lease that
certain Agreement Regarding Liens dated as of even date herewith. Tenant
represents and warrants to Landlord that all costs of labor and material in
connection with the Previous Construction have been paid in full or will be paid
in full in a manner consistent with industry practice, from time to time as such
expenses become payable. Tenant shall deliver lien waivers relating to all
portions of the Previous Construction, any Permitted Alterations, and all
portions of the Renovations (defined in Section 11 hereof) undertaken after the
date of this Lease. Tenant covenants to pay all contractors, subcontractors,
materialmen and other parties providing labor, services or material in
connection with the Previous Construction, any Permitted Alterations and/or the
Renovations in a manner which is in accordance with industry practice, and to
take all actions to prevent any mechanic's or materialmen's liens or affidavits
in connection with the Previous Construction, any Permitted Alterations and/or
the Renovations from being recorded or remaining effective against any portion
of the Premises. Tenant will deliver to Landlord and Permitted Beneficiary no
sooner than 150 days after the completion of all Previous Construction, any
Permitted Alterations and the Renovations, respectively, and no later than 185
days after the completion of each, an abstractor's certificate or other title
update report, in form satisfactory to Landlord (a "Title Update"), together
with copies of all documents listed therein, which Title Update shall describe
all documents recorded in connection with the Premises since the date of this
Lease, and Tenant shall obtain
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a release of or bond off of the Premises any mechanic's, materialmen's or other
lien described in the Title Update within 30 days after Tenant's receipt of the
Title Update.
(c) Landlord hereby appoints Tenant its agent and attorney-in-fact and
authorizes Tenant (i) to grant easements, licenses, rights-of-way and other
rights and privileges in the nature of easements; (ii) to release existing
easements and appurtenances which are for the benefit of the Premises; and (iii)
to execute and deliver any instrument necessary or appropriate to confirm such
grants, releases or consents to any person, with or without consideration, in
each case, however, only if such action does not materially or adversely impact
the value of the Premises and only upon compliance with the provisions of any
Permitted Deed of Trust. Tenant agrees that it will notify Landlord of any such
grant or release and will forward to Landlord promptly after the execution
thereof a copy of any instrument confirming such grant or release. Any
consideration paid for such grant or release shall be apportioned between Tenant
and Landlord as their interests may then appear. Tenant agrees that Tenant will
remain obligated under the terms of this Lease to the same extent as if such
easement, license, right-of-way, other right or privilege had not been granted,
such easement or appurtenance had not been released, such transfer had not been
consented to, and such instrument had not been executed and delivered, and that
Tenant will perform all obligations of the grantor, releasor or transferee under
such instrument of grant, release or consent.
10. Maintenance and Repair; Completion of Improvements.
--------------------------------------------------
(a) Tenant acknowledges that it has received the Premises in its "as
is" condition. Tenant agrees that. at its expense, it shall keep and maintain
the Premises, including any altered, rebuilt, additional or substituted
buildings, structures and other improvements thereto, in good repair and
appearance, except for ordinary wear and tear. Tenant shall also make promptly
all structural and nonstructural, foreseen and unforeseen, ordinary and
extraordinary changes and repairs of every kind which may be required to be made
to keep and maintain the Premises in such good condition, repair and appearance
as a class A office facility, of similar size, use, occupancy and appearance,
located in the Dallas/Fort Worth greater metropolitan area, and Tenant will keep
the Premises orderly and free and clear of rubbish. Tenant covenants to perform
or observe all terms, covenants or conditions of any reciprocal easement or
maintenance agreement to which it may at any time be a party or to which the
Premises are currently subject. Tenant shall, at its expense, use its best
efforts to enforce compliance with any reciprocal easement or maintenance
agreement benefitting the Premises by any other person subject to such
agreement. Landlord shall not be required to maintain, repair or rebuild, or to
make any alterations, replacements or renewals of any nature to the Premises, or
any part thereof, whether ordinary or extraordinary, structural or
nonstructural, foreseen or not foreseen to maintain the Premises or any part
thereof in any way. Tenant hereby expressly waives the right to make repairs at
the expense of Landlord which may be provided for in any law in effect at the
time of the commencement of the Term or which may thereafter be
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enacted. If Tenant shall abandon the Premises, it shall give Landlord and any
Permitted Beneficiary immediate notice thereof.
(b) If any Improvements situated on the Premises at any time during
the Term shall encroach upon any property, street or right-of-way adjoining or
adjacent to the Premises, or shall violate the agreements or conditions
contained in any restrictive covenant affecting the Premises or any part
thereof, or shall impair the rights of others under or hinder or obstruct any
easement or right-of-way to which the Premises are subject, then, promptly after
the written request of Landlord or any person affected by any such encroachment,
violation, impairment, hindrance or obstruction, Tenant shall, at its expense,
either (i) obtain effective waivers or settlements of all claims, liabilities
and damages resulting from each such encroachment, violation, impairment,
hindrance or obstruction whether the same shall affect Landlord, Tenant or both,
or (ii) make such changes in the improvements on the Premises and take such
other action as shall be necessary to remove such encroachments, hindrances or
obstructions and to end such violations or impairments, including, if necessary,
the alteration or removal of any improvement on the Premises. Any such
alteration or removal shall be made in conformity with the requirements of
subsection 11(a) to the same extent as if such alteration or removal were an
alteration under the provisions of subsection 11(a).
11. Alterations.
-----------
(a) Subject to Tenant's covenants in Section 17, Tenant may, at
expense, at any time after written notice to Landlord and Permitted Beneficiary
of its plans (which notice shall include a description of the plans and
specifications for the proposed additions or alterations), but without the
consent of such parties other than the approval of the plans and specifications
therefor, make Permitted Alterations to the Premises, provided, that (i) all
Permitted Alterations are architecturally consistent with existing Improvements,
as verified by an architect's certificate addressed to Landlord and Permitted
Beneficiary, from a nationally recognized architectural firm; (ii) such actions
shall be performed in a good and workmanlike manner; (iii) such Permitted
Alterations shall be expeditiously completed in compliance with all laws,
ordinances, rules, regulations and requirements applicable thereto, (iv) whether
or not any subletting or assignment regarding any portion of the Premises has
occurred, any such Permitted Alterations, whether performed by any sublessee or
assignee, or by Tenant, shall not violate or be inconsistent with any of the Use
Restrictions, and (v) Tenant is otherwise in compliance with the provisions of
this Lease. Tenant shall promptly pay all costs and expenses of each Permitted
Alteration, discharge all liens arising therefrom and procure and pay for all
permits and licenses required in connection therewith.
(b) Subject to Tenant's covenants contained in Section 17, Tenant may,
at its expense, but only with Landlord's and Permitted Beneficiary's prior
written consent, construct upon the Promises additions to or alterations,
substitutions or replacements of the Improvements, other than Permitted
Alterations, upon compliance with all the terms and conditions set forth in
subsection 11(a). Landlord's and Permitted Beneficiary's written
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<PAGE>
consent may be withheld or denied in the exercise of such parties' sole and
absolute discretion, and shall be granted only if such parties are able to
obtain the opinion of such parties' respective tax counsel that such additions,
alterations, substitutions or replacements by Tenant (other than Permitted
Alterations) will not result in Tenant obtaining an ownership interest in any
portion of the Premises, or result in any taxable income to Landlord. Tenant
shall pay all costs, fees and expenses associated with obtaining such legal
opinions. All Improvements [including, without limitation, those described in
Section 11(a)] shall be and remain part of the realty and the property of
Landlord and subject to this Lease. Tenant may, at its expense, install,
assemble or place any items of trade fixtures, machinery or equipment upon the
Promises. Such trade fixtures, machinery or equipment shall be and remain the
property of Tenant and Tenant may remove the same from the Premises at any time
prior to the termination of this Lease, provided that Tenant shall repair any
damage to the Premises resulting from such removal. Notwithstanding anything in
this subsection 11(b) to the contrary, (i) so long as no default then exists
under this Lease, Tenant may, within thirty (30) days of the expiration or
termination of the Term of this Lease, remove (but shall not be obligated to
remove) from the Premises any trade fixtures of Tenant and such trade fixtures
so removed shall remain the property of Tenant, but any trade fixtures of Tenant
or other property not removed from the Premises within thirty (30) days of the
expiration or termination of the Term of this Lease shall immediately become the
property of Landlord, (ii) all costs of repair of the Premises necessitated by
Tenant's removal from the Premises of Tenant's trade fixtures or other property
shall be borne solely by Tenant, (iii) all costs of removal of any of Tenant's
trade fixtures or other property which is not removed from the Premises by
Tenant within thirty (30) days of the expiration or termination of this Lease,
as well as the cost of any repair of the remainder of the Premises necessitated
by any removal of such trade fixtures or other property by Landlord, shall be
borne solely by Tenant, and (iv) the provisions of this subsection shall survive
any expiration or termination of the Lease.
(c) Subject to Tenant's covenants in Section 17, Tenant shall
construct and accomplish certain improvements, renovations and retrofitting in
connection with the Improvements (collectively the "Renovations") in accordance
with the plans and specifications described in the documents attached hereto and
made a part hereof as Exhibit K, and the development budget set forth on Exhibit
--------- -------
I, which Renovations shall be completed no later than April 30, 1994, and
- -
without any expenditures other than those specified in Exhibit I (except for
---------
expenditures for Permitted Alterations). Tenant shall obtain all necessary
consents, permits, certificates, easements and approvals as may be necessary or
appropriate for the construction and/or completion of the Renovations. Landlord
shall pay to Tenant for construction of the Renovations on behalf of Landlord
and for the Fees and Costs (as defined in Section 32), the amount of
$15,932,616.00 contemporaneously with the execution of this Lease (the
"Renovation Cost"). The cost of the Renovations, all Fees and Costs, and any
related costs shall not, in the aggregate, exceed the Renovation Cost except to
the extent that the Renovations constitute Permitted Alterations. In the event
that any portion of the Renovation Cost remains unspent by Tenant after
completion of the Renovations, any such remaining funds shall be repaid to
Landlord, the Basic Rent and Termination Values shall be
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adjusted as provided in Section 5 of this Lease (due to the change in the
assumption as to the cost of the Renovations), and Tenant shall pay to Landlord
with the payment of such remaining funds (i) a Lease Make Whole Premium, and
(ii) any Loan Make-Whole Premium. Monthly during the course of the construction
of the Renovations, Tenant shall deliver to Landlord and Permitted Beneficiary
(and, upon direction by Landlord and/or Permitted Beneficiary, any title company
as may be designated) as evidence of the application by Tenant of portions of
the Renovation Cost toward the completion of the Renovations (1) American
Institute of Architects form draw requests, completed and executed by Tenant's
supervising architect, (2) a certification executed by Tenant, addressed to
Landlord and Permitted Beneficiary, specifying with respect to the Development
Budget set forth on Exhibit I, and with respect to the categories set forth on
---------
Attachment 2, the category of each expenditure during such month, the amount
- ------------
previously expended with respect to each such category, and the amount which
will be necessary to be expended to complete the items designated in each such
category, and (3) lien waivers executed by the contractors, subcontractors and
materialmen with respect to all expenditures indicated in the documentation
described in (1) and (2) above, in form and substance reasonably satisfactory to
Landlord and Permitted Beneficiary. From time to time during the construction
of the Renovations, and upon completion of the Renovations, Tenant will deliver
to the title company designated by Landlord and Permitted Beneficiary, lien
waivers and other documentation as may be required by such title company, and
take such other action as may be necessary (including, without limitation,
payment of any premiums and other charges by the title company) (A) to obtain
and deliver to Landlord and Permitted Beneficiary, respectively, endorsements to
Landlord's Owner Policy of Title Insurance and Permitted Beneficiary's Mortgagee
Policy of Title Insurance received contemporaneously with the execution and
delivery of this Lease, increasing the coverage thereof to the extent of amounts
paid for construction of the Renovations, and (B) upon completion of the
Renovations, to increase the actual coverage of each of such policies to the
full face amount of each of such policies as set forth on Schedule A thereto,
and to delete from both of such title insurance policies any "pending
disbursements" exception and any "completion of improvements" exception, without
inclusion of any exceptions to either of said policies not present on the date
of the original issuance of such policies. In the event that all of the
Renovations are not completed and the Renovations and all other portions of the
Improvements "placed in service" (as that term is used in the Code, hereinafter
referenced as "Placed In Service") on or before April 30, 1994 (the "Renovation
Deadline"), Tenant shall purchase the Premises from Landlord for a purchase
price equal to the Termination Value, plus a Lease Make Whole Premium, plus any
Loan Make Whole Premium, plus any taxes not imputed into the Termination Value;
provided, however, that the Renovation Deadline may, at Tenant's option, be
extended by Tenant until October 30, 1994, by paying an extension fee to
Landlord equal to one half of one percent (.5%) of the total amount of
Landlord's investment in the Premises (including all acquisition costs and the
Renovation Cost), plus all expenses incurred in connection with any such
extension, so long as the Basic Rent and Termination Values are adjusted, if
necessary, as set forth in Section 5 of this Lease. The date on which the
Renovations are Placed in Service shall be conclusively determined by the date
on which Tenant delivers to Landlord a certificate of occupancy for all
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of the space which is the subject of the Renovations, together with an executed
architect's certificate addressed to Landlord and Permitted Beneficiary,
certifying that the Renovations have been completed in accordance with the plans
and specifications described in Exhibit K and as otherwise required by the terms
---------
of this Lease. In the event that the Renovations do not conform to the
component depreciation assumptions described in Exhibit C of this Lease or, if
---------
the Renovations are completed prior to the Renovation Deadline but after the
assumed dates for the Renovations and Improvements being Placed in Service as
set forth on Exhibit C, the Basic Rent and Termination Values shall be adjusted
---------
as provided in Section 5 of this Lease. After the completion of the Renovations
as they pertain to Building A (as defined in Exhibit C hereto) and again after
---------
the completion of the Renovations as they pertain to Building B (as defined in
Exhibit C hereto) and to Building C (as defined in Exhibit C hereto),
- --------- ---------
determination as to the conformity of such Renovations with the previously
approved plans and specifications therefor, and confirmation that the
depreciation components therefor described in Attachment 2 are included in the
------------
Renovations as completed, shall be accomplished, and, as to each such building
after its completion, shall be effected by (I) the delivery by Tenant to
Landlord of a certificate addressed to Landlord, describing all actual costs
incurred to date in connection with the Renovations and allocating all of such
costs among the various categories of expenditures described in Attachment 2,
------------
and (II) the preparation of an updated appraisal of the Premises provided to
Landlord at Tenant's sole cost and expense, updating the appraisal received by
Landlord contemporaneously with the execution of this Lease, prepared by Artura
Singer and Harry Schroeder of Joseph J. Blake & Associates, Inc. containing a
valuation dated as of April 1, 1993 (the "April, 1993 Appraisal"). The form of
said certificates and appraisal updates is to be satisfactory to Landlord in its
sole discretion, and such items are to be delivered for the purpose of
confirming that such Renovations have been completed in accordance with Exhibit
-------
K, adjusting the component depreciation amounts to reflect the actual costs
- -
incurred in completing such Renovations, and calculating any necessary
Rent/Termination Value Adjustments as may be appropriate in accordance with the
provisions of Section 5(c) of this Lease as a result of the information set
forth on such updated appraisals and certificates delivered to Landlord. The
appraisal updates are not intended to adjust the specific items from one
depreciable class to another. Notwithstanding anything in this Lease to the
contrary, in addition to the requirements set forth above, all Renovations shall
be completed in a manner reasonably satisfactory to Landlord, and Landlord shall
have the right, from time to time, to inspect the progress of the Renovations
and to require correction of any defects or deficiencies or any non-compliance
with the plans and specifications attached to this Lease in Exhibit K or with
---------
the development budget attached hereto as Exhibit I.
---------
(d) Notwithstanding anything in this Section 11 to the contrary with
respect to (i) the source of funds to be used, or (ii) the cost of construction
of improvements by Tenant or the cost of completion of the Renovations by
Tenant, Tenant may, without Landlord or Permitted Beneficiary's prior consent,
but in any event subject to the provisions of Section 17 of this Lease, expend
Tenant's own funds for construction of Permitted Alterations.
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<PAGE>
12. Insurance. (a) Tenant shall maintain, or cause to be
---------
maintained, at its sole expense, the following insurance on the Premises (the
"Required Insurance"):
(i) Property insurance insuring the building and improvements
for perils covered by the causes of loss - special form (all
risk) and in addition, ordinance or law coverage, flood,
earthquake and boiler and machinery (if applicable). Such
insurance shall be written on a replacement cost basis with
an agreed value equal to the full insurable replacement
value of the foregoing. The policy shall name Landlord as an
additional insured and loss payee and all Permitted
Beneficiaries or mortgagee of any deed of trust or mortgage
encumbering the Premises shall be shown as a mortgage
holder. Not more frequently than every year if in the
opinion of the Landlord, the amount of Tenant's property
insurance is found to be inadequate, Tenant will increase
the insurance Amount as required by the Landlord.
(ii) Commercial general liability insurance naming the Landlord
and Permitted Beneficiary as additional insureds against any
and all claims as are customarily covered under a standard
policy form routinely accepted by Permitted Beneficiary, for
bodily injury and property damage occurring in, or about the
Premises arising out of Tenant's use and occupancy of the
Premises. Such insurance shall have a combined single limit
of not less than Two Million Dollars ($2,000,000) per
occurrence with a Twenty Million Dollar ($20,000,000)
aggregate limit and excess umbrella liability insurance in
the amount of at least Five Million Dollars ($5,000,000).
Tenant shall be required to increase its insurance limits as
may be required from time to time by the Permitted
Beneficiary or as may reasonably be required by Landlord
consistent with coverage on properties similarly
constructed, occupied and maintained. Such liability
insurance shall be primary and not contributing to any
insurance available to Landlord and Landlord's insurance
shall be in excess thereto. In no event shall the limits of
such insurance be considered as limiting the liability of
Tenant under this Lease.
(iii) Workers' compensation insurance in accordance with statutory
law and employers' liability insurance with a limit of not
less than $100,000 per employee and $500,000 per occurrence.
(iv) Builders risk insurance insuring perils covered by the
causes of loss-special form (all risk) shall be purchased
for the value of the alteration and/or additions made to the
Premises when the work is not insured under Tenant's
property insurance policy.
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<PAGE>
(v) Such other insurance as Landlord may, from time to time,
reasonably require, or which may, from time to time, be
required by Landlord's beneficiaries or mortgagees of any
deed of trust or mortgage encumbering the Premises, so long
as such other insurance is customarily required to be
carried on similar properties by institutional lenders in
the industry.
(b) The policies required to be maintained by Tenant shall be with
companies having a rating of not less than A with a financial class of at least
X in the most current issue of Best's Insurance Reports. Insurers shall be
licensed to do business in the state in which the Premises are located and
domiciled in the USA. Any deductible amounts under any insurance policies
required hereunder shall not exceed (1) $500,000.00, so long as Tenant's
financial condition is rated not less than "BBB+" by Standard & Poor's
Corporation and "Baa1" by Moody's Investment Service; (2) $250,000.00, so long
as Tenant's financial condition is rated not less than "BBB" by Standard &
Poor's Corporation and "Baa2" by Moody's Investment Service; (3) $100,000.00, so
long as Tenant's financial condition is rated not less than "BBB-" by Standard &
Poor's Corporation and "Baa3" by Moody's Investment Service; or (4) $5,000.00,
at any time during which Tenant's financial condition is rated less than "BBB-"
by Standard & Poor's Corporation or "Baa3" by Moody's Investment Service.
Certificates of insurance shall be delivered to Landlord prior to the
commencement date and annually thereafter at least fifteen (15) days prior to
the expiration date of the old policy. Tenant shall have the right to provide
insurance coverage which it is obligated to carry pursuant to the terms hereof
in a blanket policy, provided such blanket policy expressly affords coverage to
the Premises and to Landlord as required by this Lease. Each policy of
insurance shall provide notification to Landlord at least thirty (30) days prior
to any cancellation or modification to reduce the insurance coverage.
(c)(i) Insurance claims by reason of damage to or destruction of any
portion of the Premises shall be adjusted by Tenant; provided, however, that
although Tenant shall make the final decision with respect to any such
adjustment, Tenant shall, promptly after such damage or destruction, advise
Landlord and Permitted Beneficiary of such occurrence and consult with Landlord
and Permitted Beneficiary throughout the process of adjusting any such claim,
and provided further that both Landlord and any Permitted Beneficiary shall have
the right to be and remain involved in the adjustment process and to receive
copies of all correspondence and documentation pertaining thereto. Tenant shall
keep Landlord and Permitted Beneficiary fully advised as to all matters on a
current basis. Landlord shall not be required to prosecute any claim against,
or to contest any settlement proposed by, an insurer. Tenant may, at its
expense, prosecute, any such claim or contest any such settlement in the name of
Landlord, Tenant or both, and Landlord will join therein at Tenant's written
request upon the receipt by Landlord of an indemnity from Tenant against all
costs, liabilities and expenses in connection therewith.
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(c)(ii) Subject to the provisions of Section 13, proceeds from the
property insurance policy shall be made available from Landlord or Permitted
Beneficiary to Tenant, but only against certificates of Tenant delivered to
Landlord from time to time as such work or repair progresses, each such
certificate describing the work or repair for which Tenant is requesting payment
and the cost incurred by Tenant in connection therewith and stating that Tenant
has not theretofore received payment for such work and has sufficient funds
remaining to complete the work free of liens or claims. Subject to the
provisions of Section 13, any proceeds remaining after Tenant has repaired the
Premises pursuant to Section 13 shall be delivered to Tenant but only to the
extent that the aggregate amount of such proceeds so remaining and all amounts
theretofore paid to Tenant pursuant to this sentence do not exceed $100,000.00.
If such aggregate amounts exceed $100,000.00, the excess may be retained by
Landlord and applied in reduction of the principal amount of the indebtedness
secured by any Permitted Deed of Trust or paid to Tenant at Landlord's sole
option. After the retention of any such amount by Landlord, each installment of
Basic Rent payable on and after the second Basic Rent Payment Date occurring
after such retention shall be equitably reduced but in no event shall Basic Rent
be reduced lover than the monthly debt service payments due under any Permitted
Deed of Trust. No payment shall be made to Tenant pursuant to this subsection
12(c) if any default shall have happened and be continuing under this Lease.
Notwithstanding anything herein to the contrary, this subsection (c)(ii) shall
not apply or have any effect at any time during which Tenant's financial
condition is rated no less than "BBB" by Standard & Poor's Corporation and
"Baa2" by Moody's Investment Service.
(d) In the event Tenant does not purchase the insurance required by
this Lease or keep the same in full force and effect, Landlord may, but shall
not be obligated to, purchase the necessary insurance and pay the premium.
Tenant shall repay to Landlord, as Additional Rent, the amount so paid promptly
upon demand. In addition, Landlord may recover from Tenant and Tenant agrees to
pay, as Additional Rent, any and all reasonable expenses (including attorneys'
fees) and damages which Landlord may sustain by reason of the failure to Tenant
to obtain and maintain such insurance.
(e) Landlord or Permitted Beneficiary shall not be limited in the
proof of any damages which Landlord or Permitted Beneficiary may claim against
Tenant arising out of or by reason of Tenant's failure to provide and keep in
force insurance, as provided above, to the amount of the insurance premium or
premiums not paid or incurred by Tenant and which would have been payable under
such insurance; but Landlord and Permitted Beneficiary shall also be entitled to
recover as damages for such breach, the uninsured amount of any loss, to the
extent of any deficiency in the Required Insurance and damages, costs and
expenses of suit suffered or incurred by reason of or damage to, or destruction
of, provide the Required Insurance. Tenant shall indemnify and hold harmless
Landlord and Permitted Beneficiary for any liability incurred by Landlord or
Permitted Beneficiary arising out of any deductibles for Required Insurance.
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(f) Provided (i) no Event of Default has occurred and is continuing;
(ii) Tenant maintains a Consolidated Tangible Net Worth of at least
$750,000,000.00 determined in accordance with generally accepted accounting
principals; and (iii) Tenant's financial condition is not rated less than "BBB+"
by Standard & Poor's Corporation and "Baa1" by Moody's Investment Service,
Tenant may self-insure the Required Insurance. Tenant shall provide annually to
the Landlord a certificate indicating its decision to self-insure in the form
attached hereto as Exhibit E. For purposes of this subsection (f), the term
---------
"Consolidated Tangible Net Worth" shall mean "equity, plus the liability
appearing on the balance sheet of Tenant for post retirement benefits other than
pensions recorded in accordance with Statement of Financial Accounting Standards
No. 106, less net intangibles arising from acquisitions (or goodwill)"
calculated as of the end of each fiscal quarter year. Notwithstanding anything
in this subsection 12(f) to the contrary, in the event that a breach of this
subsection 12(f) is caused solely by the effect of a future change in accounting
principle, Landlord agrees to negotiate with Tenant in good faith to resolve
and/or remedy such breach.
13. Casualty.
--------
(a) If, during the Primary Term, a part of the Premises shall be
damaged or destroyed by casualty, and if the estimated cost of rebuilding,
replacing and repairing the same shall be or exceed $100.000.00, Tenant shall
promptly notify Landlord and Permitted Beneficiary thereof; and (whether or not
such estimated cost shall be or exceed $100,000.00 and whether or not all or a
portion of the Premises is destroyed) Tenant shall, with reasonable promptness
and diligence, rebuild, replace and repair any damage or destruction to the
Premises, at its expense, in conformity with the requirements of subsection
11(a) in such manner as to restore the same to the same condition, as nearly as
possible, as existed prior to such casualty and there shall be no abatement of
Basic Rent or Additional Rent.
(b) If, after the Primary Term and during any Extended Term, the
Premises is substantially (75% of the Improvements) or totally destroyed by
casualty, Tenant shall have the option to either (i) rebuild or restore the
Premises and receive the necessary portion of the insurance proceeds generated
therefrom to pay for such rebuilding or restoration, or (ii) terminate this
Lease not less than one (1) year after delivery of notice to Landlord of
Tenant's intention to do so and upon payment to Landlord of all amounts then due
and payable under this Lease, with all insurance proceeds being paid to and
retained by Landlord, or, in the event of and to the extent of self insurance,
an amount equal to the insurance proceeds which would have been available if
insurance coverage had then been in place.
(c) Notwithstanding anything in this Section 13 to the contrary,
during any period of time when there continues to exist a default by Tenant
under the terms of this Lease, Landlord, in the exercise of its sole and
absolute discretion, shall have the right to receive any insurance proceeds from
any casualty and to apply same toward payment of any indebtedness owed to any
Permitted Beneficiary instead of allowing such proceeds to be used by Tenant for
the rebuilding or restoration of the damaged portion of the Premises. In such
event, there
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shall be an equitable adjustment in the Rent/Termination Value after any cure of
such default, to become effective as of the date of such cure.
14. Condemnation.
------------
(a) Subject to the rights of Tenant set forth in this Section 14,
Tenant hereby irrevocably assigns to Landlord any award or payment to which
Tenant may be or become entitled with respect to the taking of the Premises or
any part thereof, by condemnation or other eminent domain proceedings pursuant
to any law, general or special, or by reason of the temporary taking of the use
or occupancy of the Premises or any part thereof, by any governmental authority,
civil or military, whether the same shall be paid or payable in respect of
Tenant's leasehold interest hereunder or otherwise. Landlord shall be entitled
to participate in any such proceeding and the expenses thereof (including
counsel fees and expenses) shall be paid by Tenant.
(b) (1) If, during the Primary Term (i) the entire Premises shall be
taken by or on account of any actual or threatened condemnation or other eminent
domain proceeding pursuant to any law, general or special or (ii) if 25% of the
Improvements or 50% of the Land Parcel is taken and said portion renders the
remaining premises uneconomic for the continued use or occupancy in the business
of Tenant, in the good faith judgment of Tenant's Board of Directors, Tenant's
Chief Executive Officer, or the Executive Vice President of TRW Information
Systems and Services, then Tenant shall deliver a Purchase Offer (as defined in
Section 32) to Landlord, specifying a termination date (the "Termination Date")
occurring not less than one (1) year after the delivery of such Purchase Offer
and a purchase price equal to the Termination Value plus all other amounts then
due and payable under this Lease, and this Lease shall continue in full force
and effect without any abatement of rent, notwithstanding any taking, until the
Termination Date. The Purchase Offer shall be for a purchase of the Premises and
any Net Award (as hereinafter defined) and shall be accompanied by a Tenant's
Certificate stating either that the conditions set forth in clause (i) or (ii)
of this subsection 14(b)(1) have been fulfilled. If the conditions set forth in
clause (i) or (ii) of this subsection 14(b)(1) are fulfilled and if Tenant shall
have failed to deliver a Purchase Offer as required above, Tenant conclusively
shall be presumed to have made a Purchase Offer on a date which is sixty (60)
days after any such taking (or such later date as is agreed to in writing by
Landlord), and in the event Tenant is so presumed to have made a Purchase Offer,
the Termination Date shall be deemed to be ninety (90) days after such Purchase
Offer is presumed to have been made; but nothing in this sentence shall relieve
Tenant of its obligation actually to deliver such Purchase Offer.
(b) (2) If, after the Primary Term and during any Extended Term, the
Premises is substantially (25% of the Improvements or 50% of the Land Parcel) or
totally condemned or taken pursuant to other eminent domain proceedings, Tenant
shall have the option to either (i) rebuild or restore the Premises to the
extent possible and receive the necessary portion of the proceeds from the
condemnation or other eminent domain proceedings, or (ii) terminate this
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Lease not less than one (1) year after delivery of notice to Landlord of
Tenant's intention to do so and upon payment to Landlord of all amounts then due
and payable under this Lease, with all condemnation or other eminent domain
proceeds being paid to and retained by Landlord.
(c) If during any Term (i) a portion of the Premises shall be taken by
condemnation or other eminent domain proceedings, which taking is not sufficient
to require that Tenant give a Purchase Offer or (ii) the use or occupancy of the
Premises or any part thereof shall be temporarily taken by any governmental
authority; then this Lease shall continue in full effect without abatement or
reduction of Basic Rent, Additional Rent or other sums payable by Tenant
hereunder notwithstanding such partial or temporary taking. Tenant shall,
promptly after any such temporary taking ceases, at its expense, repair any
damage caused thereby in conformity with the requirements of subsection 11(a) so
that, thereafter, the Premises shall be, as nearly as possible, in a condition
as good as the condition thereof immediately prior to such taking. In the event
of any such partial taking, Landlord shall make the Net Award (as hereinafter
defined) available to Tenant to make such repair but, if such Net Award shall be
in excess of $250,000.00, only against certificates of Tenant delivered to
Landlord from time to time as such work or repair progresses, each such
certificate describing the work or repair for which Tenant is requesting payment
and the cost incurred by Tenant in connection therewith and stating that Tenant
has not theretofore received payment for such work. Any Net Award remaining
after such repairs have been made, shall be delivered to Tenant; but only to the
extent that the aggregate amount of such Net Award so remaining and all amounts
theretofore paid to Tenant pursuant to this sentence do not exceed $250,000.00.
If such amounts exceed $250,000.00, the excess may be retained by Landlord and
applied in reduction of the principal amount of the indebtedness secured by any
Permitted Deed of Trust then outstanding at Landlord's sole option. If Landlord
retains any such amount the Basic Rent payable on or after the second Basic Rent
Payment Date occurring after such retention shall be reduced equitably, but in
no event shall the Basic Rent be reduced to an amount less than the Debt Service
Amounts. In the event of such temporary requisition, Tenant shall be entitled
to receive the entire Net Award payable by reason of such temporary requisition
or portion of such temporary requisition occurring during the term hereof, less
any costs incurred by the Landlord in connection therewith. If the cost of any
repairs required to be made by Tenant pursuant to this subsection 14(c) shall
exceed the amount of the Net Award, the deficiency shall be paid by Tenant.
Notwithstanding anything herein to the contrary, no payments shall be made to
Tenant pursuant to this subsection 14(c) if any default or Event of Default
shall have happened and shall be continuing under this Lease.
(d) For the purposes of this Lease the term "Net Award" shall mean: (i)
all amounts payable as a result of any condemnation or other eminent domain
proceeding, less all expenses for such proceeding not otherwise paid by Tenant
in the collection of such amounts, plus (ii) all amounts payable pursuant to any
agreement with any condemning authority (which agreement shall be deemed to be a
taking) which has been made in settlement of or under threat of any condemnation
or other eminent domain proceeding affecting the Premises, less all
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expenses incurred as a result thereof not otherwise paid by Tenant and the
collection of such amounts.
(e) Any minor condemnation or taking of the Premises for the construction
or maintenance of streets or highways shall not be considered a condemnation or
taking for purposes of this Section 14 so long as the Premises shall not be
materially or adversely affected, ingress and egress for the remainder of the
Premises shall be adequate for the business of Tenant and the provisions of any
Permitted Deed of Trust relating thereto shall be complied with. Tenant agrees
that it will notify Landlord of any such condemnation.
(f) Notwithstanding anything in this Section 14 to the contrary, during any
period of time when there continues to exist a default by Tenant under the terms
of this Lease, Landlord, in the exercise of its sole and absolute discretion,
shall have the right to receive any Net Award and to apply same toward payment
of any indebtedness owed to any Permitted Beneficiary instead of allowing such
Net Award to be used by Tenant for the rebuilding or restoration of any affected
portion of the Premises. In such event, there shall be an equitable adjustment
in the Rent/Termination Value after any cure of such default, to become
effective as of the date of such cure.
15. Procedure After Purchase Offer; Procedure in Event of Purchase.
--------------------------------------------------------------
(a) If Landlord shall reject any Purchase Offer not later than the tenth
(10th) day prior to the Termination Date or purchase date specified in such
Purchase Offer, this Lease shall terminate on such date (except with respect to
obligations and liabilities of Tenant under this Lease, actual or contingent,
which have arisen on or prior to such termination, all of which shall survive
any termination of this Lease), upon payment by Tenant of the Basic Rent,
Additional Rent and all other sums then due and payable hereunder to and
including the date of termination without offset or deduction for any reason.
Upon a purchase of the Premises pursuant to subsection 14(c) and the payment to
the Landlord of the purchase price set forth on Exhibit F, Landlord shall convey
---------
the Premises and all its right, title and interest in and to the Net Award
(whether or not such Award shall have been received by Landlord), to Tenant or
its designee, as provided in subsections 15(b), 15(c) and 15(e) below.
(b) If the Premises or any part thereof shall be purchased by Tenant
pursuant to any provision of this Lease, Landlord need not transfer and convey
to Tenant or its designee any better title thereto than existed on the date of
the commencement of this Lease, and Tenant shall accept such title subject to
such liens, encumbrances, charges, exceptions and restrictions on, against or
relating to the Premises (including those arising pursuant to the terms of this
Lease) and to all applicable laws, regulations and ordinances, but free of the
Permitted Deed of Trust and all other mortgages, liens, encumbrances, charges,
exceptions and restrictions which shall have been created by or resulted from
acts or failures to act of Landlord.
(c) On the date fixed for any such purchase, Tenant shall pay to Landlord,
at any place within the United States of America designated by Landlord, the
applicable purchase
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price set forth on Exhibit F therefor, together will all installments of Basic
---------
Rent and all other sums then due under this Lease and unpaid to and including
the date of purchase without offset or deduction for any reason, and Landlord
shall deliver to Tenant a special warranty deed conveying title to the Premises
of the character described in subsection 15(b) above and subsection 15(e) below,
and describing the Premises or portion thereof being sold and conveying the
title thereto, together with such instruments as shall be necessary to transfer
to Tenant or its designee any other property then required to be transferred by
Landlord pursuant to this Lease. Tenant shall pay all charges incident to such
conveyance and transfer, including counsel fees, escrow fees, recording fees,
title insurance premiums and all applicable federal, state and local taxes
(other than any income or franchise taxes levied upon or assessed against
Landlord) which may be incurred or imposed by reason of such conveyance and
transfer (collectively, the "Transfer Costs").
(d) Upon the completion of such purchase, but not prior thereto (whether or
not any delay in the completion of, or the failure to complete such purchase
shall be the fault of Landlord), this Lease and all obligations hereunder
(including the obligations to pay Basic Rent and Additional Rent) shall
terminate, except with respect to (i) obligations and liabilities of Tenant,
actual or contingent, under this Lease which arose on or prior to such date of
purchase, (ii) those obligations contained in subsection 7(c) and Section 8,
(iii) the Environmental Indemnity Agreement, and (iv) those obligations which
are to survive the expiration or termination of this Lease as expressly provided
by the terms of this Lease.
(e) The special warranty deed to be delivered pursuant to Section 15(c)
above shall contain, without limitation, the following provisions: "(a) GRANTEE
ACKNOWLEDGES AND AGREES THAT, EXCEPT AS SET FORTH IN THIS DEED, GRANTOR HAS NOT
MADE, DOES NOT MAKE AND SPECIFICALLY NEGATES AND DISCLAIMS ANY REPRESENTATIONS,
WARRANTIES, PROMISES, COVENANTS, AGREEMENTS OR GUARANTIES OF ANY KIND OR
CHARACTER WHATSOEVER, WHETHER EXPRESS OR IMPLIED, ORAL OR WRITTEN, PAST, PRESENT
OR FUTURE, OF, AS TO, CONCERNING OR WITH RESPECT TO (A) THE VALUE, NATURE,
QUALITY OR CONDITION OF THE PROPERTY, INCLUDING, WITHOUT LIMITATION, THE WATER,
SOIL AND GEOLOGY, (B) THE INCOME TO BE DERIVED FROM THE PROPERTY, (C) THE
SUITABILITY OF THE PROPERTY FOR ANY AND ALL ACTIVITIES AND USES WHICH GRANTEE
MAY CONDUCT THEREON, (D) THE COMPLIANCE OF OR BY THE PROPERTY OR ITS OPERATION,
WITH ANY LAWS, RULES, ORDINANCES OR REGULATIONS OF ANY APPLICABLE GOVERNMENTAL
AUTHORITY OR BODY, (E) THE HABITABILITY, MERCHANTABILITY, MARKETABILITY,
PROFITABILITY OR FITNESS FOR A PARTICULAR PURPOSE OF THE PROPERTY, (F) THE
MANNER OR QUALITY OF THE CONSTRUCTION OR MATERIALS, IF ANY, INCORPORATED INTO
THE PROPERTY, (G) THE MANNER, QUALITY, STATE OF REPAIR OR LACK OF REPAIR OF THE
PROPERTY, OR (H) ANY OTHER MATTER WITH RESPECT TO THE PROPERTY, EXCEPT WITH
RESPECT TO THE CONTINUING OBLIGATION OF GRANTOR TO REMEDIATE
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CERTAIN PRE-EXISTING ENVIRONMENTAL CONDITIONS SHOULD THE NEED ARISE, AS
EXPRESSLY SET FORTH IN THE ENVIRONMENTAL INDEMNITY AGREEMENT, (b) GRANTEE
FURTHER ACKNOWLEDGES AND AGREES THAT HAVING BEEN IN OCCUPANCY OF THE PROPERTY
AND HAVING BEEN GIVEN THE OPPORTUNITY TO INSPECT THE PROPERTY, GRANTEE IS
RELYING SOLELY ON ITS OWN INVESTIGATION OF THE PROPERTY AND NOT ON ANY
INFORMATION PROVIDED OR TO BE PROVIDED BY GRANTOR, (c) GRANTEE FURTHER
ACKNOWLEDGES AND AGREES THAT ANY INFORMATION PROVIDED BY GRANTOR WITH RESPECT TO
THE PROPERTY WAS OBTAINED FROM A VARIETY OF SOURCES AND THAT GRANTOR HAS NOT
MADE ANY INDEPENDENT INVESTIGATION OR VERIFICATION OF SUCH INFORMATION AND MAKES
NO REPRESENTATIONS AS TO THE ACCURACY OR COMPLETENESS OF SUCH INFORMATION, (d)
GRANTOR IS NOT LIABLE OR BOUND IN ANY MANNER BY ANY VERBAL OR WRITTEN
STATEMENTS, REPRESENTATIONS OR INFORMATION PERTAINING TO THE PROPERTY, OR THE
OPERATION THEREOF, FURNISHED BY ANY REAL ESTATE BROKER, AGENT, EMPLOYEE,
SERVANT OR OTHER PERSON, (e) GRANTEE FURTHER ACKNOWLEDGES AND AGREES THAT TO THE
MAXIMUM EXTENT PERMITTED BY LAW, THE SALE OF THE PROPERTY AS PROVIDED FOR HEREIN
IS MADE ON AN "AS IS" CONDITION AND BASIS, WITH ALL FAULTS, EXCEPT WITH RESPECT
TO THE CONTINUING OBLIGATION OF GRANTOR TO REMEDIATE CERTAIN PRE-EXISTING
ENVIRONMENTAL CONDITIONS SHOULD THE NEED ARISE, AS EXPRESSLY SET FORTH IN THE
ENVIRONMENTAL INDEMNITY AGREEMENT, (f) GRANTOR HAS NOT MADE, DOES NOT MAKE, AND
SPECIFICALLY DISCLAIMS ANY REPRESENTATIONS REGARDING COMPLIANCE OF THE PROPERTY
OR ANY ACTIVITY OCCURRING PRIOR TO THE CLOSING DATE WITH APPLICABLE
ENVIRONMENTAL LAWS, THE EXISTENCE, IN OR ON THE PROPERTY, OF ANY HAZARDOUS
MATERIALS, SUBSTANCES, OR WASTES AS THOSE TERMS ARE DEFINED UNDER ENVIRONMENTAL
LAWS OR ANY OTHER SUBSTANCE THAT IS CONSIDERED HAZARDOUS OR TOXIC, OR THE
EXISTENCE IN OR ON THE PROPERTY OF ANY INDUSTRIAL OR SOLID WASTE OR ANY
FACILITY, AS THOSE TERMS ARE DEFINED UNDER APPLICABLE ENVIRONMENTAL LAWS, (g)
NOTWITHSTANDING ANY OTHER PROVISION OF THIS AGREEMENT TO THE CONTRARY, EXCEPT
WITH RESPECT TO THE CONTINUING OBLIGATION OF GRANTOR TO REMEDIATE CERTAIN PRE-
EXISTING ENVIRONMENTAL CONDITIONS SHOULD THE NEED ARISE, AS EXPRESSLY SET FORTH
IN THE ENVIRONMENTAL INDEMNITY AGREEMENT, GRANTEE HEREBY WAIVES AND RELEASES
GRANTOR, OF AND FROM ANY CLAIMS, ACTIONS, CAUSES OF ACTION, DEMANDS, RIGHTS,
DAMAGES, COSTS, EXPENSES OR COMPENSATION WHATSOEVER, DIRECT OR INDIRECT, KNOWN
OR UNKNOWN, FORESEEN OR UNFORESEEN, WHICH GRANTEE NOW HAS OR WHICH MAY ARISE IN
THE FUTURE ON ACCOUNT OF OR IN ANY WAY GROWING OUT OF OR CONNECTED WITH THE
PHYSICAL OR ENVIRONMENTAL CONDITION OF THE PROPERTY OR ANY LAW OR
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REGULATION APPLICABLE TO IT, INCLUDING BUT NOT LIMITED TO THE COMPREHENSIVE
ENVIRONMENTAL RESPONSE, COMPENSATION AND LIABILITY ACT, 42 U.S.C. SECTION 9601
ET SEQ. OR SIMILAR STATE STATUTES, (h) NOTWITHSTANDING ANY OTHER PROVISION OF
- ------
THIS AGREEMENT TO THE CONTRARY, EXCEPT WITH RESPECT TO THE CONTINUING OBLIGATION
OF GRANTOR TO REMEDIATE CERTAIN PRE-EXISTING ENVIRONMENTAL CONDITIONS SHOULD THE
NEED ARISE, AS EXPRESSLY SET FORTH IN THE ENVIRONMENTAL INDEMNITY AGREEMENT,
GRANTEE ASSUMES THE RISK THAT ADVERSE PHYSICAL AND ENVIRONMENTAL CONDITIONS MAY
NOT HAVE BEEN REVEALED BY ITS OWN INVESTIGATION AND AGREES TO INDEMNIFY AND HOLD
GRANTEE HARMLESS AGAINST, ANY CLAIMS, ACTIONS, CAUSES OF ACTION, DEMANDS,
RIGHTS, COSTS, EXPENSES OR COMPENSATION WHATSOEVER, DIRECT OR INDIRECT, KNOWN OR
UNKNOWN, FORESEEN OR UNFORESEEN, ARISING OUT OF THE CURRENT OR PRIOR PHYSICAL
AND ENVIRONMENTAL CONDITION OF THE PROPERTY."
16. Assignment and Subletting. Tenant may sublet all or any part of the
-------------------------
Premises and may assign all of its rights and interests under this Lease without
the consent of Landlord, so long as (i) each such sublease or assignment shall
expressly be made subject to the provisions of this Lease, (ii) any such
sublessee or assignee shall, upon request of Permitted Beneficiary, execute a
Non-Disturbance and Attornment Agreement with Landlord and any Permitted
Beneficiary as may be reasonably required by either of such parties, (iii)
Tenant shall remain primarily liable to Landlord under this Lease and Tenant's
liability shall not in any way be reduced, limited or released, (iv) any such
sublease or assignment has no adverse impact or effect on any tax treatment of
Landlord in connection with the Premises or any transaction, (v) any such
sublease shall not extend beyond the Term of this Lease (either the Primary Term
or, if this Lease has been extended as hereinbefore provided, any Extended
Term), and (vi) any such sublease or assignment shall not be for or affect less
than 15,000 square feet of the leased space of the Premises, or have the effect
of creating more than a total of five (5) parties then having an interest in the
Premises as a tenant, subtenant and/or assignee. If Tenant assigns all its
rights and interests under this Lease, the assignee under such assignment shall
expressly assume all the obligations of Tenant hereunder in an instrument,
approved by Landlord as to form and substance (which approval will not be
unreasonably withheld or delayed), delivered to Landlord at the time of such
assignment. No assignment or sublease made as permitted by this Section 16
shall affect or reduce any of the obligations of Tenant hereunder, and all such
obligations shall continue in full force and effect as obligations of a
principal and not as obligations of a guarantor or surety, to the same extent as
though no assignment or subletting had been made; provided that performance by
any such assignee or sublessee of any of the obligations of Tenant under this
Lease shall be deemed to be performance by Tenant. No sublease or assignment
made as permitted by this Section 16 shall impose any obligations on Landlord or
otherwise affect any of the rights of Landlord under this lease. Neither this
Lease nor the Term hereby demised shall be mortgaged, pledged or hypothecated by
Tenant, nor shall Tenant mortgage or pledge the interest of Tenant in and
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to any sublease of the Premises or the rentals payable thereunder. Any
mortgage, pledge, sublease or assignment made in violation of this Section 16
shall be void. Tenant shall, within ten (10) days after the execution and
delivery of any such assignment or sublease of all or substantially all of the
Premises, deliver a conformed copy thereof to Landlord. Within ten (10) days
after the execution and delivery of any sublease of a portion of the Premises,
Tenant shall give notice to Landlord of the existence and term thereof, and of
the name and address of the sublessee thereunder. Notwithstanding anything in
this Lease to the contrary, Tenant shall not sublease any portion of the
Premises or assign this Lease if the effect of such sublease or assignment would
be to cause the Premises or any portion thereof to be considered as being
property used by a tax-exempt entity or other entity, with the result that some
or all of the federal, state or municipal income tax deductions which Landlord
otherwise would be permitted to report with respect to the Premises or with
respect to the Lease would be deferred or denied, or cause this Lease not to be
considered as a true lease for federal income tax purposes.
17. Additional Tenant Covenants and Representations. Notwithstanding any
-----------------------------------------------
other provisions of this Lease to the contrary, Tenant covenants and represents
to Landlord and to Permitted Beneficiary as follows:
(a) Except as may be otherwise expressly provided in Section 11 of this
Lease with respect to Permitted Alterations, Tenant shall not expend any of
Tenant's funds for any portion of the Renovations or for the Fees and Costs,
without the prior written consent of Landlord and Permitted Beneficiary (which
consent may be withheld or denied by such parties in their sole and absolute
discretion), and the total cost of all Renovations shall be provided by Landlord
in the amounts set forth on the development budget attached hereto as Exhibit I;
----------
(b) The Premises are currently and, after the Renovations are complete,
will be susceptible to use by parties other than Tenant;
(c) Tenant shall, at all times and for all purposes, treat this Lease as
and consider it to be an operating lease, including, without limitation, for
purposes of all federal income tax returns, and all reports and information
supplied or reported to the Internal Revenue Service; and
(d) Tenant shall not make any Permitted Alterations, Renovations,
improvements, alterations, additions, replacements or substitutions to or of any
portion of the Premises which could (i) constitute or be construed as taxable
income to Landlord, (ii) result in some or all of the federal, state or
municipal income tax deductions which Landlord would otherwise be permitted to
report with respect to Premises or this Lease being deferred or denied, (iii)
cause Tenant to be deemed to have acquired an interest in the fee title to the
Premises, or (iv) cause this Lease not to be considered as a true lease for
federal income tax purposes.
18. Financial Statements.
--------------------
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(a) Tenant shall provide (i) within sixty (60) days of the end of each
fiscal quarter of Tenant, other than the fourth fiscal quarter of each year,
unaudited quarterly balance sheets, statements of earnings, and statements of
cash flow for the quarter then ended; and (ii) within one hundred twenty (120)
days of the end of each fiscal year of Tenant, annual audited balance sheets,
statements of earnings, and statements of cash flow for Tenant for the year then
ended. Quarterly reports on Form 10-Q as filed with the Securities and Exchange
Commission shall satisfy the requirements contained in (i) above. Audited
financial statements contained in, or incorporated by reference in, an Annual
Report on Form 10-K as filed with the Securities and Exchange Commission shall
satisfy the requirements contained in (ii) above.
(b) Landlord and/or Permitted Beneficiary shall have the right to visit and
inspect the Premises, at all reasonable times and as often as may be reasonably
requested. Tenant shall also provide to Landlord and/or Permitted Beneficiary
any information regarding the business, affairs or financial condition of Tenant
as Landlord or Permitted Beneficiary may reasonably request from time to time
including, but not limited to, any information requested of Landlord or
Permitted Beneficiary from (i) a governmental agency having jurisdiction over
Landlord or Permitted Beneficiary, (ii) any investment financial rating service
such as Standard & Poor's Corporation or Moody's Investment Service, or (iii)
the United States National Association of Insurance Commissioners or similar
organizations or their successors.
(c) In no event shall Tenant be required to provide for review or copying of
any information which is (i) subject to an attorney-client or attorney work-
product privilege, (ii) not customarily provided to Standard & Poor's
Corporation, Moody's Investment Service, or any other investment/financial
rating service, or (iii) prohibited from disclosure by applicable law.
(d) Tenant shall not be required to pay or reimburse Landlord or Permitted
Beneficiary for expenses of inspection or for copies as contemplated above
unless an Event of Default has occurred.
(e) Landlord will use its best efforts to treat any information from Tenant
as confidential information, if such information is marked "confidential" by
Tenant when provided to Landlord; provided, however, that nothing herein
-----------------
contained shall limit or impair the right or obligation of Landlord to disclose
such information: (i) to its auditors, attorneys, employees or agents, (ii) when
required by any law, ordinance or governmental order, regulation, rule, policy,
investigation or any regulatory request, (iii) as may be requested or
appropriate in any report, statement or testimony submitted to any municipal,
state, provincial or Federal regulatory body having or claiming to have
jurisdiction over Landlord, or to the United States National Association of
Insurance Commissioners, the National Association of Securities Dealers or
similar organizations or their successors, (iv) as may be requested in any
report, statement or testimony provided or submitted to any financial investment
rating service, such as Standard & Poor's Corporation or Moody's Investment
Service, (v) which is publicly available to Landlord, (vi) in connection with
any proceeding, case or matter pending
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(or on its face purported to be pending) before any court, tribunal, arbitration
board or any governmental agency, commission authority, board or similar entity,
(vii) in connection with the enforcement of its rights under or in respect of
this Lease after the occurrence of an Event of Default, or (viii) in connection
with any transfer of any of Landlord's interest in this Lease (it being
understood and agreed that any such assignee shall itself be bound by the terms
and provisions hereof).
19. Permitted Contests. Tenant shall not be required to (i) pay any
------------------
Imposition (as hereinafter defined); (ii) comply with any statute, law, rule,
order, regulation or ordinance; (iii) discharge or remove any lien, encumbrance
or charge (except with respect to the Previous Construction, Permitted
Alterations and the Renovations), or (iv) obtain any waivers or settlements or
make any changes to take any action with respect to any encroachment, hindrance,
obstruction, violation or impairment referred to in subsection 10(b), so long as
Tenant shall contest, in good faith and at its expense, the existence, the
amount or the validity thereof, the amount of the damages caused thereby, or the
extent of its liability therefor, by appropriate proceedings during the pendency
of which there is prevented (A) the collection of, or other realization upon,
the tax, assessment, levy, fee, rent or charge or lien, encumbrance or charge so
contested; (B) the sale, forfeiture or loss of the Premises, or any part
thereof, or the Basic Rent or any Additional Rent, or any portion thereof; (C)
any interference with the use or occupancy of the Premises or any part thereof;
and (D) any interference with the payment of the Basic Rent or any Additional
Rent, or any portion thereof. While any such proceedings are pending, Landlord
shall not have the right to pay, remove or cause to be discharged the tax,
assessment, levy, fee, rent or charge or lien, encumbrance or charge thereby
being contested. Tenant further agrees that each such contest shall be promptly
prosecuted to a final conclusion. Tenant shall pay, indemnify and save Landlord
and Permitted Beneficiary harmless against, any and all losses, judgments,
decrees and costs (including all attorneys' fees, appearance costs and expenses)
in connection with any such contest and shall, promptly after the final
settlement, compromise or determination of such contest, fully pay and discharge
the amounts which shall be levied, assessed, charged or imposed or be determined
to be payable therein or in connection therewith, together will all penalties,
fines, interests, costs and expenses thereof or in connection therewith, and
perform all acts, the performance of which shall be ordered or decreed as a
result thereof; provided, however, that nothing herein contained shall be
construed to (a) require Tenant to pay or discharge any lien, encumbrance or
other charge created by any act or failure to act of Landlord or the payment of
which by Tenant is not otherwise required hereunder, or (b) apply in any respect
to the Previous Construction or the Renovations. No such contest shall subject
Landlord or any Permitted Beneficiary to the risk of any criminal liability.
Tenant shall give such reasonable security to Landlord or such Permitted
Beneficiary as may be demanded by Landlord or such Permitted Beneficiary to
insure compliance with the foregoing provision of this Section 19.
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20. Conditional Limitations; Default Provisions.
-------------------------------------------
(a) Any of the following occurrences or acts shall constitute an event of
default (herein called an "Event of Default") under this Lease:
(i) If Tenant, at any time during the continuance of this Lease (and
regardless of the pendency of any bankruptcy, reorganization,
receivership, insolvency or other proceedings, at law, in equity, or
before any administrative tribunal, which have or might have the effect
of preventing Tenant from complying with the terms of this Lease), shall
(1) fail to make any payment when due of Basic Rent, Additional Rent or
other sum herein required to be paid by Tenant hereunder and such
failure continues for five (5) business days, or (2) fail to observe or
perform any other provision hereof or any provision of any Assignment of
Lease and Rents, dated as of the date hereof (the "Assignment"), or any
Tenant Certificate from Landlord and/or Tenant to Permitted Beneficiary,
for thirty (30) days after notice to Tenant of such failure has been
given (provided, that in the case of any default referred to in this
Lease which cannot with diligence be cured within such 30-day period,
then upon receipt by Landlord of a Tenant's Certificate stating the
reason such default cannot be cured within thirty (30) days and
providing that Tenant is proceeding with due diligence to cure such
default, the time within which such failure may be cured shall be
extended for such period as may be necessary to complete the curing of
the same with diligence); or
(ii) if any representation or warranty of Tenant set forth in any notice,
certificate, demand, request or other instrument delivered pursuant to,
or in connection with, this Lease, or Assignment shall prove to be
either false or misleading in any material respect as of the time when
the same shall have been made; or
(iii) if Tenant shall file a petition commencing a voluntary case under the
Federal Bankruptcy Code or any other federal or state law (as now or
hereafter in effect) relating to bankruptcy, insolvency, reorganization,
winding-up or adjustment of debts (hereinafter collectively called
"Bankruptcy Law") or if Tenant shall (A) apply for or consent to the
appointment of, or the taking of possession by, any receiver, custodian,
trustee, United States Trustee or liquidator (or other similar official)
of the Premises or any part thereof or of any substantial portion of
Tenant's property, or (B) generally not pay its debts as they become
due, or admit in writing its inability to pay its debts generally as
they become due or (C) make a general assignment for the benefit of its
creditors, or (D) fail to controvert in timely and appropriate manner,
or in writing acquiesce to, any petition commencing an involuntary case
against Tenant, or otherwise filed against Tenant pursuant to any
Bankruptcy Law, or (E) take any action in furtherance of any of the
foregoing; or
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(iv) if an order for relief against Tenant shall be entered in any
involuntary case under the Federal Bankruptcy Code or any similar order
against Tenant shall be entered pursuant to any other Bankruptcy Law, or
if a petition commencing an involuntary case against Tenant or proposing
the reorganization of Tenant under any Bankruptcy Law shall be filed and
not be discharged or denied within sixty (60) days after such filing, or
if a proceeding or case shall be commenced in any court of competent
jurisdiction seeking (A) the liquidation, reorganization, dissolution,
winding-up or adjustment of debts of Tenant or (B) the appointment of a
receiver, custodian, trustee, United States Trustee or liquidator (or
any similar official) of the Premises or any part thereof or of Tenant
or of any substantial portion of Tenant's property, or (C) any similar
relief as to Tenant pursuant to any Bankruptcy Law, and any such
proceeding or case shall continue undismissed, or an order, judgement or
decree approving or ordering any of the foregoing shall be entered and
continue unstayed and in effect for sixty (60) days; or
(v) if the Premises shall be left both unattended and without maintenance as
provided herein, for a period of ten (10) business days; or
(vi) if there occurs any default under any of Tenant's obligations under (1)
that certain Tax Indemnity Agreement executed by Tenant in favor of
Landlord dated as of even date with this Lease (the "Tax Indemnity
Agreement"), (2) the Environmental Indemnity Agreement, (3) that certain
Local Tax Benefits Indemnity Agreement executed by Tenant in favor of
Landlord and Principal Mutual Life Insurance Company, dated as of even
date with this Lease, (4) that certain Agreement Regarding Liens
executed by Tenant in favor of Landlord and Principal Mutual Life
Insurance Company, dated as of even date with this Lease, and (5) that
certain Tenant Certificate (with Nondisturbance, Attornment, Notice and
Estoppel Agreement) executed by Tenant, Landlord and Principal Mutual
Life Insurance Company contemporaneously with this Lease; provided,
however, that if any notice and/or grace periods are specifically
provided for any of such defaults by the terms of any of such documents,
such default shall not constitute an Event of Default under this Lease
until such default continues uncured beyond any such notice and/or grace
periods as may be specifically provided therefor in such document, and
provided further, that no notice or grace periods provided for in this
Lease shall apply to any such defaults under any of such other
documents; or
(vii) if Tenant fails to deliver to Landlord and Permitted Beneficiary, no
sooner than 150 days after completion of the Previous Construction, any
Permitted Alterations, or the Renovations and no later than 185 days
after the completion of the Previous Construction, any Permitted
Alterations and the Renovations, a
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<PAGE>
Title Update, together with copies of all documents listed therein,
describing all documents recorded in connection with the Premises since
the date of this Lease; or
(viii) any failure of Tenant to obtain the written, recordable release of or to
bond off the Premises any mechanic's, materialman or other lien described
in the Title Update pertaining to the Renovations, any Permitted
Alterations or the Previous Construction, within 30 days after receipt of
the Title Update by Tenant.
(b) If an Event of Default shall have happened and be continuing, Landlord
shall have, in its sole discretion, the following rights:
(i) To give Tenant written notice of Landlord's intention to terminate the
Term of this Lease on a date specified in such notice. Thereupon, the
Term of this Lease and the estate hereby granted shall terminate on such
date as completely and with the same effect as if such date were the date
fixed herein for the expiration of the Term of this Lease, and all rights
of Tenant hereunder shall terminate, but Tenant shall remain liable as
provided herein.
(ii) To (A) re-enter and repossess the Premises or any part thereof by force,
summary proceedings, ejections or otherwise and (B) remove all persons
and property therefrom, whether or not the Lease has been terminated
pursuant to subsection 20(b)(i) above, Tenant hereby expressly waiving
any and all notices to quit, cure or vacate provided by current or any
future law. Landlord shall have no liability by reason of any such re-
entry, repossession or removal. No such re-entry or taking of possession
of the Premises by Landlord shall be construed as an election on
Landlord's part to terminate this Lease unless a written notice of such
intention be given to Tenant pursuant to subsection 20(b)(i) above.
(iii) To (but shall be under no obligation to) relet the Premises or any part
thereof for the account of Tenant, in the name of Tenant or Landlord or
otherwise, without notice to Tenant, for such term or terms (which may be
greater or less than the period which would otherwise have constituted
the balance of the term of this Lease) and on such conditions (which may
include concessions or free rent) and for such uses Landlord, in its
absolute discretion, may determine. Landlord may collect and receive any
rents payable by reason of such reletting. Landlord shall not be
responsible or liable for any failure to relet the Premises or any part
thereof or for any failure to collect any rent due upon any such
reletting.
(iv) To recover from Tenant, and Tenant shall pay to Landlord on demand, as
and for liquidated and agreed final damages, and not as a penalty, for
Tenant's
-34-
<PAGE>
default, and in lieu of all current damages beyond the date of such
demand, an amount determined in accordance with Exhibit F, it being
---------
acknowledged and agreed by both Landlord and Tenant that during the
continuation of any Event of Default, an amount determined in accordance
with Exhibit F shall be fair and appropriate, and payable as liquidated
---------
damages, and not as a penalty, and is an amount which is discounted to
present net value. If any law shall limit the amount of such liquidated
final damages to less than the amount above agreed upon, Landlord shall
be entitled to the maximum amount allowable under such statute or rule of
law.
(v) To accept Tenant's irrevocable Purchase Offer which Tenant shall be
conclusively presumed to have made upon the occurrence of an Event of
Default. The Purchase Offer shall be deemed to contain an immediate
closing date and the purchase shall be governed by the terms and
conditions set forth in subsections 15(b), 15(c), 15(d) and 15(e) of this
Lease.
(vi) To continue this Lease in effect for so long as Landlord does not
terminate Tenant's right to possession of the Premises and Landlord may
enforce all of its rights and remedies hereunder including without
limitation the right to recover all Basic Rent, Additional Rent and other
sums payable hereunder as the same become due.
(c) No termination of this Lease pursuant to subsection 20(b)(i), or by
operation of law or otherwise, and no repossession of the Premises or any part
thereof pursuant to subsection 20(b)(ii) or otherwise, and no reletting of the
Premises or any part thereof pursuant to subsection 20(b)(iii), shall relieve
Tenant of its liabilities and obligations hereunder, all of which shall survive
such expiration, termination, repossession or reletting.
(d) Notwithstanding anything in this Section 20 to the contrary, Landlord
agrees that Landlord shall pursue the remedy described above in subsection
(b)(iv) only after Landlord has pursued and been denied the remedy described
above in subsection (b)(v).
21. Additional Rights of Landlord.
-----------------------------
(a) No right or remedy herein conferred upon or reserved to Landlord is
intended to be exclusive of any other right or remedy, and each and every right
and remedy shall be cumulative and in addition to any other right or remedy
given hereunder or now or hereafter existing at law or in equity or by statute.
The failure of Landlord to insist at any time upon the strict performance of any
covenant or agreement or to exercise any option, right, power or remedy
contained in this Lease shall not be construed as a waiver or a relinquishment
thereof for the future. A receipt by Landlord of any Basic Rent, any Additional
Rent or any other sum payable hereunder with knowledge of the breach of any
covenant or agreement contained in this Lease shall not be deemed a waiver of
such breach, and no waiver by Landlord of any
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<PAGE>
provision of this Lease shall be deemed to have been made unless expressed in
writing and signed by Landlord. In addition to other remedies provided in this
Lease, Landlord shall be entitled, to the extent permitted by applicable law, to
injunctive relief in case of the violation, or attempted or threatened
violation, of any of the covenants, agreements, conditions or provisions of this
Lease, or to decree compelling performance of any of the covenants, agreements,
conditions or provisions of this Lease, or to any other remedy allowed to
Landlord at law or in equity.
(b) Tenant hereby waives and surrenders for itself and all those claiming
under it, including creditors of all kinds, (i) any right or privilege which it
or any of them may have under any present or future constitution, statute or
rule of law to redeem the Premises or to have a continuance of this Lease for
the term hereby demigod after termination of Tenant's right of occupancy by
order or judgment of any court or by any legal process or writ, or under the
terms of this Lease or after the termination of the term of this Lease as herein
provided, and (ii) the benefits of any present or future constitution, statute
or rule of law which exempts property from liability for debt or for distress
for rent.
22. Notices, Demands and Other Instruments. All notices, demands,
--------------------------------------
requests. consents, approvals and other instruments required or permitted to be
given pursuant to the terms of this Lease shall be in writing and shall be
deemed to have been properly given if (a) with respect to Tenant, sent by
certified or registered mail, postage prepaid, or sent by telegram, overnight
express courier, facsimile followed by overnight express delivery or delivered
by hand, in each case addressed to Tenant at its address first above set forth,
and (b) with respect to Landlord, sent by certified or registered mail, postage
prepaid, or sent by telegram, overnight express courier, facsimile followed by
overnight express delivery or delivered by hand in each case, addressed to
Landlord at its address first above set forth along with a copy to the Permitted
Beneficiary delivered in the same manner. Landlord and Tenant shall each have
the right from time to time to specify as its address for purposes of this Lease
any other address in the United States of America upon fifteen (15) days'
written notice thereof, similarly given, to the other party and Permitted
Beneficiary.
23. Estoppel Certificate.
--------------------
(a) Tenant shall at any time and from time to time, upon not less than
twenty (20) days' prior request by Landlord or by Permitted Beneficiary,
execute, acknowledge and deliver to Landlord or Permitted Beneficiary an
executed Tenant's Certificate on the form attached hereto as Exhibit H
---------
(appropriately modified to reflect facts as of the date so delivered). Any such
certificate may be relied upon by any mortgagee or prospective purchaser or
prospective mortgagee of the Premises.
(b) From time to time during the term of this Lease, Landlord expects to
secure financing of its interest in the Premises by assigning Landlord's
interest in this Lease and the sums payable hereunder. In the event of any such
assignment to a Permitted Beneficiary,
-36-
<PAGE>
Tenant will, upon not less than ten (10) days' prior request by Landlord,
execute, acknowledge and deliver to Landlord a consent to such assignment
addressed to such Permitted Beneficiary in a form satisfactory to such Permitted
Beneficiary: and Tenant will produce. at Landlord's expense, such certificates.
opinions of counsel and other documents as may be reasonably requested by such
Permitted Beneficiary.
24. No Merger. There shall be no merger of this Lease or the
---------
leasehold estate hereby created with the fee estate in the Premises or any part
thereof by reason of the same person acquiring or holding, directly or
indirectly, this Lease or the leasehold estate hereby created or any interest in
this Lease or in such leaseholder estate as well as the fee estate in the
Premises or any portion thereof.
25. Surrender. Upon the termination of this Lease, Tenant shall
---------
peaceably surrender the Premises to Landlord in the same condition in which they
were received from Landlord at the commencement of this Lease, except as altered
as permitted or required by this Lease and except for ordinary wear and tear,
and in the condition of a class A office building of similar size, use,
appearance and occupancy located in the Dallas/Fort Worth greater metropolitan
area; provided, however, that the condition of the Premises surrendered upon
termination may not be the same as received from Landlord at the commencement of
this Lease to the extent of any construction in progress at the time of the
execution of this Lease, and the Premises shall be in sound, completed
condition, in good order and broom clean upon termination and without any
construction then being in progress. So long as Tenant is not in default
hereunder, Tenant may remove from the Premises, prior to or within a reasonable
time (not to exceed thirty (30) days) after the expiration or termination of the
Term of this Lease, all property owned by Tenant, and, at Tenant's expense,
shall at such times of removal, repair any damage caused by such removal.
Property not removed within said thirty (30) day period (including, without
limitation, any trade fixtures of Tenant) shall become the property of Landlord.
Landlord may, after the expiration of such thirty (30) day period, cause such
property to be removed and the cost of removal and disposition, as well as the
cost of repairing any damage caused by such removal, shall be borne by Tenant.
Notwithstanding anything to the contrary contained herein, upon termination or
expiration of this Lease, all fixtures, excluding Tenant's trade fixtures timely
removed as hereinbefore described, but including, without limitation, the
heating, ventilation and air conditioning systems, shall remain on the Promises
at all times and shall become the property of Landlord. The provisions of this
Section 25 shall survive any termination or expiration of this Lease.
26. Separability. Each and every covenant and agreement contained in
------------
this Lease is separate and independent, and the breach of any thereof by
Landlord shall not discharge or relieve Tenant from any obligation hereunder.
If any term or provision of this Lease or the application thereof to any person
or circumstances shall at any time be invalid and unenforceable, the remainder
of this Lease, or the application of such term or provision to persons or
circumstances or at any time other than those to which it is invalid or
-37-
<PAGE>
unenforceable, shall not be affected thereby, and each term and provision of
this Lease shall be valid and shall be enforced to the extent permitted by law.
27. Savings Clause. No provision contained in this Lease which
--------------
purports to obligate Tenant to pay any amount of interest or any fees, costs or
expenses which are in excess of the maximum permitted by applicable law, shall
be effective to the extent that it calls for payment of any interest or other
sums in excess of such maximum.
28. Binding Effect. All of the covenants, conditions and obligations
--------------
contained in this Lease shall be binding upon and inure to the benefit of the
respective successors and assigns of Landlord, Tenant and Permitted Beneficiary.
29. Memorandum of Lease. If requested by Landlord, Tenant or
-------------------
Permitted Beneficiary, Landlord and Tenant shall enter into a memorandum of this
Lease reasonably acceptable to both parties and record the same in the
appropriate public records. Such memorandum shall be recorded and shall reflect
the fact that the provisions of this Lease shall be superior to the lien of any
Permitted Deed of Trust.
30. Table of Contents, Headings. The table of contents and headings
---------------------------
used in this Lease are for convenient reference only and shall not to any extent
have the effect of modifying, amending or changing the provisions of this Lease.
31. Governing Law. This Lease shall be governed by and interpreted
-------------
under the laws of the state in which the Premises are located.
32. Certain Definitions.
-------------------
(a) The term "Imposition" means:
(i) all taxes, assessments (including assessments for benefits from
public works or improvements, whether or not begun or completed
prior to the commencement of the term of this Lease and whether
or not to be completed within said term), levies, fees, water
and sewer rents and charges, and all other governmental charges
of every kind, general and special, ordinary and extraordinary,
whether or not the same shall have been within the express
contemplation of the parties hereto, together with any interest
and penalties thereon, which are, at any time, imposed or levied
upon or assessed against (A) the Premises or any part thereof,
(B) any Basic Rent, any Additional Rent reserved or payable
hereunder, (C) this Lease or the leasehold estate hereby created
or which arise in respect of the operation, possession,
occupancy or use of the Premises;
-38-
<PAGE>
(ii) any gross receipts or similar taxes imposed or levied upon,
assessed against or measured by the Basic Rent, Additional Rent
or any other sums payable by Tenant hereunder or levied upon or
assessed against the Premises;
(iii) all sales and use taxes which may be levied or assessed against
or payable by Landlord or Tenant on account of the acquisition,
leasing or use of the Premises or any portion thereof; and
(iv) all charges for water, gas, light, heat, telephone, electricity,
power and other utilities and communications services rendered
or used on or about the Premises.
(b) The term "Lease" means:
this Lease and Agreement as amended and modified from time to time,
together with any memorandum or short form of lease entered into for
the purpose of recording.
(c) The term "Landlord" means:
the owner, for the time being, of the rights of the lessor under this
Lease and his heirs, successors and assigns, and upon any assignment
or transfer of such rights, except an assignment or transfer made as
security for an obligation, the assignor or transferor shall be
relieved of all future duties and obligations under this Lease and the
assignee or the transferee shall expressly agree in writing to be
bound by and to assume all the covenants of Landlord hereunder.
(d) The term "Permitted Deed of Trust" means:
that certain Deed of Trust, Security Agreement and Assignment of Rents
executed by Landlord contemporaneously with the execution of this
Lease, in favor of Principal Mutual Life Insurance Company, and any
mortgage, deed of trust, security agreement, assignment of lease or
other security instrument relating to the Premises and this Lease,
subject and junior in priority to the rights of Tenant under this
Lease, and securing the borrowing by Landlord from the Permitted
Beneficiary.
(e) The term "Permitted Beneficiary" means:
Principal Mutual Life Insurance Company, its successors and assigns
if, and only if, a Permitted Deed of Trust exists.
-39-
<PAGE>
(f) The term "Purchase Offer" means:
a rejectable, written offer delivered by Tenant to Landlord, executed
by the president or any vice president of Tenant, irrevocably offering
to purchase the Premises pursuant to the provisions of this Lease at a
price determined in accordance with Exhibit F.
---------
(g) The term "FAS 13" means:
Statement of Financial Accounting Standards No. 13 as promulgated by
the Financial Accounting Standards Board.
(h) The term "Lease Make-Whole Premium" means:
that amount required to be paid to Landlord by Tenant at the time of a
Lease termination as a yield maintenance protection of Landlord's
equity investment in the Premises. The Lease Make-Whole Premium shall
be calculated as follows:
(i) Determine the "Reinvestment Yield." The Reinvestment Yield will
be determined in the following manner: (A) Landlord will select
a U.S. Treasury Bond, Note or Bill which Landlord deems to be
appropriate and which matures or is repayable as close as
possible to October 15, 2010, (B) the yield for the Treasury
Bond, Note or Bill selected as described in (A) above will be as
published two weeks prior to the date of the termination of this
Lease, (C) the yield determined in (B) above is to be converted
to an equivalent monthly nominal yield, (D) the monthly nominal
yield determined in (C) above shall be adjusted to an after tax
yield by multiplying said yield by 1 minus .34. If there has
been a tax rate change due to Federal Tax Law Changes as defined
on Exhibit C, the yield will be by 1 minus the new rate due to
---------
Federal Tax Law Changes. The yield resulting in (D) is the
Reinvestment Yield.
(ii) Calculate the "Present Value of the Leased Premises." The
Present Value of the Leased Premises is the present value of the
original after-tax cash flows anticipated by Landlord from this
Lease and the Premises, assuming a sale of the Premises on
October 15, 2010, only modified by Rent Adjustments as provided
for in Section 5, discounted at the Reinvestment Yield.
(iii) Determine the applicable equity investment balance as it is
shown or would be shown on Landlord's financial statements if
accounted for under GAP, utilizing the original assumptions used
by Landlord for the
-40-
<PAGE>
purchase of the Premises and modified only by Rent Adjustments as
provided for in Section 5. Then, subtract the amount of the equity
investment balance from the Present Value of the Leased Premises as of
the date of Lease termination. Any resulting positive differential
shall be divided by 1 minus .34. If there has been a tax rate change
due to Federal Tax Law Changes as defined on Exhibit C, the positive
differential will be divided by 1 minus the new rate due to the-
Federal Tax Law Changes. Any positive quotient that results shall be
the Lease Make-Whole Premium.
(i) The term "Loan Make-Whole Premium" means:
the make whole premium set forth in those two certain Deed of Trust Notes
executed by Landlord contemporaneously with the execution of this Lease,
payable to Principal Mutual Life Insurance Company, and any prepayment
premium or make whole premium or amount which Landlord is obligated to pay
any other Permitted Mortgagee pursuant to the terms of loan documents
executed by Landlord in favor of Permitted Mortgagee, including, without
limitation, any Permitted Deed of Trust or note secured thereby, to the
extent that the method of calculation of such amount shall have been
disclosed in writing to Tenant prior to or concurrently with the execution
of this Lease.
(j) The term "Hazardous Material" means:
any hazardous or toxic material, substance or waste which is defined by
those or similar terms or is regulated as such under any Environmental
Laws.
(k) The term "Environmental Laws" means:
any statute, law, ordinance, rule or regulation of any local, county,
state or federal authority having jurisdiction over the Property or any
portion thereof or its use, including but not limited to: the Federal
Water Pollution Control Act (33 U.S.C. (S)1317 et seq.) as amended; (b)
the Federal Resource Conservation and Recovery Act (42 U.S.C. (S)6901 et
seq.) as amended; (c) the Comprehensive Environmental Response
Compensation and Liability Act (42 U.S.C. (S)9601 et seq.) as amended; (d)
the Toxic Substance Control Act (15 U.S.C. (S)2601 et seq.), amended; and
(e) the Clean Air Act (42, U.S. (S)7401 et seq.), as amended.
(l) The term "Fees and Costs" means:
project consultant fees, architect fees and engineering fees.
-41-
<PAGE>
(m) The term "Permitted Alterations" means:
(i) whether or not constituting any portion of the Renovations, any
severable additions to or alterations, substitutions or replacements
of the Improvements on the Premises, provided that (a) such
additions, alterations, substitutions or replacements are readily
removable without causing material damage to the Premises; (b) such
additions, alterations, substitutions or replacements are not
required in order to render the Premises complete for its intended
use by Tenant; and (c) such additions, alterations, substitutions or
replacements are not subject to a contract or option for purchase or
sale between Landlord and Tenant at other than fair market value at
the time of such purchase or sale; or
(ii) whether or not constituting any portion of the Renovations, any non-
severable additions to or alterations, substitutions or replacements
of the Improvements on the Premises, provided that (a) such
additions, alterations, substitutions or replacements are not needed
to complete the Premises for its intended use by Tenant; (b) Tenant
is not entitled to any compensation for such additions, alterations,
substitutions or replacements; (c) such additions, alterations,
substitutions or replacements do not cause the Premises to become
limited use property; and (d) such additions, alterations,
substitutions or replacements are required by governmental health,
safety, or environmental standards; or
(iii) whether or not constituting any portion of the Renovations, any non-
severable additions to or alterations, substitutions or replacements
of the Improvements on the Premises, provided that (a) such
additions, alterations, substitutions or replacements are not needed
to complete the Premises for its intended use by Tenant; (b) Tenant
is not entitled to any compensation for such additions, alterations,
substitutions or replacements; (c) such additions, alterations,
substitutions or replacements do not cause the Premises to become
limited use property; and (d) the cost of such additions,
alterations, substitutions or replacements, when added to all
previous Permitted Alterations by Tenant pursuant to this clause
(iii), does not exceed $3,000,000.
33. Exhibits and Attachments. The following are Exhibits A, B, C, D, E,
------------------------
F, G, H, I, J, K and L and Attachments 1, 2 and 3 referred to in this Lease,
which are hereby incorporated by reference herein and made a part thereof.
(a) Exhibit A to Lease: Legal Description
(b) Exhibit A-1 to Lease: Personal Property
-42-
<PAGE>
(c) Exhibit B to Lease: Basic Rent Payments
(d) Exhibit C to Lease: Assumptions
(e) Exhibit D to Lease: Termination Values
(f) Exhibit E to Lease: Self Insurance Certificate
(g) Exhibit F to Lease: Computation of Purchase Prices
(h) Exhibit G to Lease: [Reserved]
(i) Exhibit H to Lease: Tenant's Certificate
(j) Exhibit I to Lease: Development Budget
(k) Exhibit J to Lease: Environmental Remediation
(l) Exhibit K to Lease: Renovations
(m) Exhibit L to Lease: Environmental Indemnity Agreement
(n) Attachment 1 to Lease: Amortization Schedule
(o) Attachment 2 to Lease: Depreciation Components
(p) Attachment 3 to Lease: Calculation of Fair Market Values
34. Time for Performance of Obligations. Whenever a date required for
-----------------------------------
the performance of any obligations under this Lease, including, without
limitation, the payment of any amounts due under this Lease, is a Saturday,
Sunday or nationally recognized business holiday, the date for the performance
of such obligation shall be deemed to be the first business day immediately
following the date originally scheduled for such performance, a "business day"
being a day on which national banks are open for business as usual.
35. Nature of Landlord's Obligations. Anything in this Lease to the
--------------------------------
contrary notwithstanding, no recourse or relief shall be had under any rule of
law or equity, statute, constitution, or by any enforcement of any assessments
or penalties, or otherwise, or based on or in respect of this Lease (whether by
breach of any obligation, monetary or nonmonetary), against Landlord (or any
officer or partner of Landlord or any predecessor or successor corporation, or
other entity, of Landlord), it being expressly understood and agreed that any
obligations of Landlord under or relating to this Lease are solely obligations
payable out of the
-43-
<PAGE>
Premises and are compensable solely therefrom. It is expressly understood that
all such liability has been and is being expressly waived and released as a
consideration for and as a condition of the execution of this Lease, and Tenant
expressly waives and releases all such liability as a condition of, and as a
consideration for, the execution of this Lease.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
-44-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Lease as of the day
and year first above set forth.
LANDLORD: Allen Office Investment Limited
Partnership, a Texas limited
partnership
By: Principal Mutual Life Insurance
Company, an Iowa corporation, its
sole general partner
By:___________________________
Name:_________________________
Title:________________________
By:___________________________
Name:_________________________
Title:________________________
TENANT: TRW Inc., an Ohio corporation
By:___________________________
Name:_________________________
Title:________________________
-45-
<PAGE>
EXHIBIT B
---------
BASIC RENT PAYMENTS
<TABLE>
<CAPTION>
--------------------------------
Date Rental Payment
---- --------------
--------------------------------
<S> <C>
11/15/93 $87,560.25
--------------------------------
12/15/93 $87,560.25
--------------------------------
1/15/94 $132,927.05
--------------------------------
2/15/94 $1,074,597.97
--------------------------------
3/15/94 $178,293.86
--------------------------------
4/15/94 $178,293.86
--------------------------------
5/15/94 $178,293.86
--------------------------------
6/15/94 $178,293.86
--------------------------------
7/15/94 $178,293.86
--------------------------------
8/15/94 $178,293.86
--------------------------------
9/15/94 $178,293.86
--------------------------------
10/15/94 $178,293.86
--------------------------------
11/15/94 $178,293.86
--------------------------------
12/15/94 $178,293.86
--------------------------------
1/15/95 $178,293.86
--------------------------------
2/15/95 $405,772.67
--------------------------------
3/15/95 $178,293.86
--------------------------------
4/15/95 $178,293.86
--------------------------------
5/15/95 $178,293.86
--------------------------------
6/15/95 $178,293.86
--------------------------------
7/15/95 $178,293.86
--------------------------------
8/15/95 $178,293.86
--------------------------------
</TABLE>
3142768.01
<PAGE>
<TABLE>
<CAPTION>
--------------------------------
Date Rental Payment
---- --------------
--------------------------------
<S> <C>
--------------------------------
9/15/95 $178,293.86
--------------------------------
10/15/95 $620,285.14
--------------------------------
11/15/95 $175,576.97
--------------------------------
12/15/95 $175,576.97
--------------------------------
1/15/96 $175,576.97
--------------------------------
2/15/96 $175,576.97
--------------------------------
3/15/96 $175,576.97
--------------------------------
4/15/96 $175,576.97
--------------------------------
5/15/96 $175,576.97
--------------------------------
6/15/96 $175,576.97
--------------------------------
7/15/96 $175,576.97
--------------------------------
8/15/96 $175,576.97
--------------------------------
9/15/96 $175,576.97
--------------------------------
10/15/96 $877,648.68
--------------------------------
11/15/96 $171,261.39
--------------------------------
12/15/96 $171,261.39
--------------------------------
1/15/97 $171,261.39
--------------------------------
2/15/97 $171,261.39
--------------------------------
3/15/97 $171,261.39
--------------------------------
4/15/97 $171,261.39
--------------------------------
5/15/97 $171,261.39
--------------------------------
6/15/97 $171,261.39
--------------------------------
7/15/97 $171,261.39
--------------------------------
8/15/97 $171,261.39
--------------------------------
</TABLE>
-2-
3142768.01
<PAGE>
<TABLE>
<CAPTION>
----------------------------------
Date Rental Payment
---- --------------
----------------------------------
<S> <C>
----------------------------------
9/15/97 $171,261.39
----------------------------------
10/15/97 $925,121.08
----------------------------------
11/15/97 $166,627.48
----------------------------------
12/15/97 $166,627.48
----------------------------------
1/15/98 $166,627.48
----------------------------------
2/15/98 $166,627.48
----------------------------------
3/15/98 $166,627.48
----------------------------------
4/15/98 $166,627.48
----------------------------------
5/15/98 $166,627.48
----------------------------------
6/15/98 $166,627.48
----------------------------------
7/15/98 $166,627.48
----------------------------------
8/15/98 $166,627.48
----------------------------------
9/15/98 $166,627.48
----------------------------------
10/15/98 $976,094.12
----------------------------------
11/15/98 $161,651.75
----------------------------------
12/15/98 $161,651.75
----------------------------------
1/15/99 $161,651.75
----------------------------------
2/15/99 $161,651.75
----------------------------------
3/15/99 $161,651.75
----------------------------------
4/15/99 $161,651.75
----------------------------------
5/15/99 $161,651.75
----------------------------------
6/15/99 $161,651.75
----------------------------------
7/15/99 $161,651.75
----------------------------------
8/15/99 $161,651.75
----------------------------------
</TABLE>
-3-
3142768.01
<PAGE>
<TABLE>
<CAPTION>
----------------------------------
Date Rental Payment
---- --------------
----------------------------------
<S> <C>
----------------------------------
9/15/99 $161,651.75
----------------------------------
10/15/99 $1,030,827.08
----------------------------------
11/15/99 $156,390.00
----------------------------------
12/15/99 $156,390.00
----------------------------------
1/15/00 $156,390.00
----------------------------------
2/15/00 $156,390.00
----------------------------------
3/15/00 $156,390.00
----------------------------------
4/15/00 $156,390.00
----------------------------------
5/15/00 $156,390.00
----------------------------------
6/15/00 $156,390.00
----------------------------------
7/15/00 $156,390.00
----------------------------------
8/15/00 $156,390.00
----------------------------------
9/15/00 $156,390.00
----------------------------------
10/15/00 $1,089,597.31
----------------------------------
11/15/00 $150,572.16
----------------------------------
12/15/00 $150,572.16
----------------------------------
1/15/01 $150,572.16
----------------------------------
2/15/01 $1,861,036.70
----------------------------------
3/15/01 $140,058.08
----------------------------------
4/15/01 $140,058.08
----------------------------------
5/15/01 $140,058.08
----------------------------------
6/15/01 $140,058.08
----------------------------------
7/15/01 $140,058.08
----------------------------------
8/15/01 $140,058.08
----------------------------------
</TABLE>
-4-
3142768.01
<PAGE>
<TABLE>
<CAPTION>
----------------------------------
Date Rental Payment
---- --------------
----------------------------------
<S> <C>
----------------------------------
9/15/01 $140,058.08
----------------------------------
10/15/01 $140,058.08
----------------------------------
11/15/01 $140,058.08
----------------------------------
12/15/01 $140,058.08
----------------------------------
1/15/02 $140,058.08
----------------------------------
2/15/02 $1,983,216.89
----------------------------------
3/15/02 $128,728.33
----------------------------------
4/15/02 $128,728.33
----------------------------------
5/15/02 $128,728.33
----------------------------------
6/15/02 $128,728.33
----------------------------------
7/15/02 $128,728.33
----------------------------------
8/15/02 $128,728.33
----------------------------------
9/15/02 $128,728.33
----------------------------------
10/15/02 $128,728.33
----------------------------------
11/15/02 $128,728.33
----------------------------------
12/15/02 $128,728.33
----------------------------------
1/15/03 $128,728.33
----------------------------------
2/15/03 $2,114,875.58
----------------------------------
3/15/03 $116,519.65
----------------------------------
4/15/03 $116,519.65
----------------------------------
5/15/03 $116,519.65
----------------------------------
6/15/03 $116,519.65
----------------------------------
7/15/03 $116,519.65
----------------------------------
8/15/03 $116,519.65
----------------------------------
</TABLE>
-5-
3142768.01
<PAGE>
<TABLE>
<CAPTION>
----------------------------------
Date Rental Payment
---- --------------
----------------------------------
<S> <C>
----------------------------------
9/15/03 $116,519.65
----------------------------------
10/15/03 $116,519.65
----------------------------------
11/15/03 $116,519.65
----------------------------------
12/15/03 $116,519.65
----------------------------------
1/15/04 $116,519.65
----------------------------------
2/15/04 $2,256,748.07
----------------------------------
3/15/04 $103,363.85
----------------------------------
4/15/04 $103,363.85
----------------------------------
5/15/04 $103,363.85
----------------------------------
6/15/04 $103,363.85
----------------------------------
7/15/04 $103,363.85
----------------------------------
8/15/04 $103,363.85
----------------------------------
9/15/04 $103,363.85
----------------------------------
10/15/04 $103,363.85
----------------------------------
11/15/04 $103,363.85
----------------------------------
12/15/04 $103,363.85
----------------------------------
1/15/05 $103,363.85
----------------------------------
2/15/05 $2,409,626.73
----------------------------------
3/15/05 $89,187.44
----------------------------------
4/15/05 $89,187.44
----------------------------------
5/15/05 $89,187.44
----------------------------------
6/15/05 $89,187.44
----------------------------------
7/15/05 $89,187.44
----------------------------------
8/15/05 $89,187.44
----------------------------------
</TABLE>
-6-
3142768.01
<PAGE>
<TABLE>
<CAPTION>
----------------------------------
Date Rental Payment
---- --------------
----------------------------------
<S> <C>
----------------------------------
9/15/05 $89,187.44
----------------------------------
10/15/05 $89,187.44
----------------------------------
11/15/05 $89,187.44
----------------------------------
12/15/05 $89,187.44
----------------------------------
1/15/06 $89,187.44
----------------------------------
2/15/06 $2,574,365.40
----------------------------------
3/15/06 $73,911.26
----------------------------------
4/15/06 $73,911.26
----------------------------------
5/15/06 $73,911.26
----------------------------------
6/15/06 $73,911.26
----------------------------------
7/15/06 $73,911.26
----------------------------------
8/15/06 $73,911.26
----------------------------------
9/15/06 $73,911.26
----------------------------------
10/15/06 $73,911.26
----------------------------------
11/15/06 $73,911.26
----------------------------------
12/15/06 $73,911.26
----------------------------------
1/15/07 $73,911.26
----------------------------------
2/15/07 $2,751,884.16
----------------------------------
3/15/07 $57,449.98
----------------------------------
4/15/07 $57,449.98
----------------------------------
5/15/07 $57,449.98
----------------------------------
6/15/07 $57,449.98
----------------------------------
7/15/07 $57,449.98
----------------------------------
8/15/07 $57,449.98
----------------------------------
</TABLE>
-7-
3142768.01
<PAGE>
<TABLE>
<CAPTION>
----------------------------------
Date Rental Payment
---- --------------
----------------------------------
<S> <C>
----------------------------------
9/15/07 $57,449.98
----------------------------------
10/15/07 $57,449.98
----------------------------------
11/15/07 $57,449.98
----------------------------------
12/15/07 $57,449.98
----------------------------------
1/15/08 $57,449.98
----------------------------------
2/15/08 $2,943,174.45
----------------------------------
3/15/08 $39,711.67
----------------------------------
4/15/08 $39,711.67
----------------------------------
5/15/08 $39,711.67
----------------------------------
6/15/08 $39,711.67
----------------------------------
7/15/08 $39,711.67
----------------------------------
8/15/08 $39,711.67
----------------------------------
9/15/08 $39,711.67
----------------------------------
10/15/08 $39,711.67
----------------------------------
11/15/08 $39,711.67
----------------------------------
12/15/08 $39,711.67
----------------------------------
1/15/09 $39,711.67
----------------------------------
2/15/09 $3,149,304.64
----------------------------------
3/15/09 $20,597.26
----------------------------------
4/15/09 $20,597.26
----------------------------------
5/15/09 $20,597.26
----------------------------------
6/15/09 $20,597.26
----------------------------------
7/15/09 $20,597.26
----------------------------------
8/15/09 $20,597.26
----------------------------------
</TABLE>
-8-
3142768.01
<PAGE>
<TABLE>
<CAPTION>
----------------------------------
Date Rental Payment
---- --------------
----------------------------------
<S> <C>
----------------------------------
9/15/09 $20,597.26
----------------------------------
10/15/09 $20,597.26
----------------------------------
11/15/09 $20,597.26
----------------------------------
12/15/09 $20,597.26
----------------------------------
1/15/10 $20,597.26
----------------------------------
2/15/10 $3,371,425.99
----------------------------------
3/15/10 $0.00
----------------------------------
4/15/10 $0.00
----------------------------------
5/15/10 $0.00
----------------------------------
6/15/10 $0.00
----------------------------------
7/15/10 $0.00
----------------------------------
8/15/10 $0.00
----------------------------------
9/15/10 $0.00
----------------------------------
10/15/10 $0.00
----------------------------------
</TABLE>
-9-
3142768.01
<PAGE>
EXHIBIT C
---------
ASSUMPTIONS
Closing Date: April 15, 1993
Commencement of Primary Term: April 15, 1993
Basic Rent and Basic Rent
Payment Dates during Primary Term:
Basic Rent payments will be paid
monthly in arrears in accordance with
Exhibit B to the Lease on the 15th day
---------
of each month during the Primary Term
of the Lease, except that no rent will
be due for or during the first six
months of the Primary Term.
Lease Term: From the date of this Lease until
October 15, 2010.
Tax Rate of Landlord: The Federal rate of tax on the taxable
income of Landlord will be thirty-four
percent (34%) as of the Closing Date:
provided, however, a change in the
taxable income of Landlord within the
time periods set forth under Federal
Tax Law Changes below shall be
considered a Federal Tax Law Change for
the purposes of the assumptions on this
Exhibit C.
Debt Assumption by Landlord: Landlord shall borrow $29,005,412.88
at an interest 7.3763% per annum to be
amortized in accordance with
Attachment 1 hereto.
------------
Landlord's Cost as set forth in
the Development Budget: The total costs of Landlord shall not
differ from those costs set forth in
the Development Budget attached as
Exhibit I to the Lease, and there shall
---------
be no fees or costs of any kind to
Landlord other than those set forth in
the Development Budget, with any cost
overruns being paid solely by
<PAGE>
Tenant in accordance with the terms of
this Lease; provided, however, that (i)
there shall be no Rent Adjustment with
respect to any increase in Landlord's
Cost resulting from any costs paid by
Landlord other than those described on
the Development Budget attached as
Exhibit I, which costs are not
---------
disclosed to Tenant, and (ii) Landlord
shall bear all responsibility for any
such undisclosed additional costs paid
by Landlord.
Depreciation Component Assumptions: Landlord shall be entitled to depreci-
ation (MACRS) deductions for federal
income tax purposes in accordance with
the Internal Revenue Code of 1986, as
amended (hereinafter, the "Code") based
upon the assumed depreciation
components set forth on Attachment 2
------------
hereto.
Placed In Service date for two story,
113,000 square foot building subject
to this Lease together with those
improved walkways connecting such
building with Building B
("Building A"): Building A and its pro rata portion of
the land, land improvements and
personal property, and Renovations to
Building A, will be Placed in Service
in accordance with the Code, on
June 30, 1993 (the "Placed In Service
Date For Building A").
Placed In Service date for two story,
192,000 square foot building subject
to this Lease ("Building B") and
Renovations to Building B: Building B and its pro rata portion of
the land, land improvements and
personal property will be Placed in
Service in accordance with the Code as
of the Closing Date (the "Placed In
Service Date For Building B"). the
Renovations to Building B will be
Placed in Service in accordance with
the Code on December 31, 1993 (the
-2-
<PAGE>
"Placed in Service Date For Building B
Renovations").
Placed In Service date for the 3,200
square foot building subject to this
Lease ("Building C"): Building C and its pro rata portion of
the land improvements and personal
property will be Placed In Service in
accordance with the Code, on June 30,
1993 (the "Placed In Service Date For
Building C").
Appraisal of Premises periodically
after completion of certain portions
of the Renovations: The updates of the April, 1993
Appraisal (the "Appraisal Updates") as
such are described in Section 11(c) of
this Lease, as to (i) the Premises with
respect to Building A, Building B and
Building C, and each Building's pro
rata portion of the land, land
improvements and personal property, and
(ii) the Renovations to each Building,
shall (a) confirm that the Renovations
have been completed in accordance with
the previously approved plans and
specifications therefor, (b) be used to
adjust the component depreciation
amounts to reflect the actual costs
incurred in completing such Renovations,
and (c) shall be used as may be
necessary to calculate any
Rent/Termination Value Adjustments as
may be appropriate in accordance with
the provisions of Section 5(c) of this
Lease as a result of the information set
forth thereon.
Federal Tax Law Changes: There will be no "Federal Tax Law
Changes". (a) With respect to Building A
and its pro rata portion of the land,
land improvements, and personal
property, and with respect to
Renovations to Building A, "Federal Tax
Law Changes" shall mean and be limited
to (i) amendments or additions to the
Code that are enacted or
-3-
<PAGE>
promulgated before the end of the first
session of the United States Congress
that ends immediately following the
Placed In Service Date For Building A,
provided that such amendments or
additions are retroactive to a date on
or before the Placed In Service Date For
Building A, and (ii) regulations,
including proposed or temporary
regulations, relating to such amendments
or additions, administrative
interpretations of such amendments or
additions, and any judicial
interpretations of such amendments or
additions, so long as such regulations
or interpretations are promulgated on or
before December 31 of the year following
the year of the Placed In Service Date
For Building A and such regulations are
retroactive to a date on or before the
Placed In Service Date For Building A.
(b) With respect to Building B and its
land improvements, and personal
property, "Federal Tax Law Changes"
shall mean and be limited to (i)
amendments or additions to the Code that
are enacted or promulgated before the
end of the first session of the United
States Congress that ends immediately
following the Placed In Service Date For
Building B, provided that such
amendments or additions are retroactive
to a date on or before the Placed In
Service Date For Building B, and (ii)
regulations, including proposed or
temporary regulations, relating to such
amendments or additions, administrative
interpretations of such amendments or
additions, any judicial interpretation
of such amendments or additions, so long
as such regulations interpretations are
promulgated on or before December 31 of
the year following the year of the
Placed in Service Date For Building B
and such regulations and such
regulations are retroactive to a date on
or before the Placed
-4-
<PAGE>
in Service Date for Building B. (c) With
respect to Renovations to Building B,
"Federal Tax Law Changes" shall mean and
be limited to (i) amendments or
additions to the Code that are enacted
or promulgated before the end of the
first session of the United Stated
Congress that ends immediately following
the Placed In Service Date For Building
B Renovations, provided that such
amendments or additions are retroactive
to a date on or before the Placed In
Service Date For Building B Renovations,
and (ii) regulations, including proposed
or temporary regulations, relating to
such amendments or additions, and any
judicial interpretations of such
amendments or additions, so long as such
regulations or interpretations are
promulgated on or before December 31 of
the year following the year of the Place
In Service Date For Building B
Renovations and such regulations or
interpretations are retroactive to a
date on or before the Placed In Service
Date For Building B Renovations. (d)
With respect to Building C and its pro
rata portion of the land, land
improvements, and personal property
"Federal Tax Law Changes" shall mean and
be limited to (i) amendments or
additions to the Code that are enacted
or promulgated before the end of the
first session of the United States
Congress that ends immediately following
the Placed In Service Date For Building
C, provided that such amendments or
additions are retroactive to a date on
or before the Placed In Service Date For
Building C, and (ii) regulations,
including proposed or temporary
regulations, relating to such amendments
or additions, administrative
interpretations of such amendments or
additions, and any judicial
interpretations of such amendments or
additions so long as such regulations or
interpretations are
-5-
<PAGE>
promulgated on or before December 31 of
the year following the of the Placed In
Service Date For Building C and such
regulations or interpretations are
retroactive to a date on or before the
Placed In Service Date For Building C.
Notwithstanding the provisions of
subsections (a), (b), (c) and (d)
hereto, Federal Tax Law Changes shall
not include any amendments or additions
to the Code, regulations administrative
interpretations, or judicial
interpretations which cause the Lease to
be treated as other than a "true lease"
for Federal income tax purposes
("Excluded Federal Tax Law Changes")
solely as a result of any such Excluded
Federal Tax Law Change .
Building A Cafeteria Costs: For the purpose of the above
assumptions the costs of constructing
the cafeteria in Building A shall be
Placed In Service with the Renovations
to Building B even though the cafeteria
is located in Building A.
Capitalized Interest During
Period of Renovations to
Building B: The construction of the Renovations to
Building B will commence on August 15,
1993 and the interest paid or accrued on
the portion of the Note (as defined in
the Tax Indemnity Agreement) allocable
to the cost of Building B (including the
Renovations to Building B) for the
period from such commencement date to
the Place in Service Date For Building B
Renovations shall be capitalized and
added to the basis of the Renovations to
Building B.
All capitalized terms used on this Exhibit C and not defined in these
---------
assumptions shall have the meanings ascribed thereto in the Lease.
-6-
<PAGE>
EXHIBIT D
---------
TERMINATION VALUES
Date Termination Value
---- -----------------
4/15/93 31,860,846.10
5/15/93 32,057,696.22
6/15/93 32,255,717.54
7/15/93 32,452,983.57
8/15/93 32,651,016.22
9/15/93 32,851,812.21
10/15/93 33,051,417.04
11/15/93 33,166,231.02
12/15/93 33,283,429.19
1/15/94 33,352,313.96
2/15/94 32,480,860.59
3/15/94 32,493,234.26
4/15/94 32,505,288.47
5/15/94 32,517,016.00
6/15/94 32,528,719.16
7/15/94 32,538,493.07
8/15/94 32,556,592.43
9/15/94 32,589,739.45
10/15/94 32,261,284.68
11/15/94 32,653,117.38
12/15/94 32,685,240.15
1/15/95 32,715,751.80
2/15/95 32,519,062.68
3/15/95 32,874,664.79
4/15/95 32,901,987.49
5/15/95 32,927,945.78
6/15/95 32,954,141.98
7/15/95 32,978,963.51
8/15/95 33,004,012.62
9/15/95 33,029,291.38
10/15/95 32,611,195.87
11/15/95 32,635,310.81
12/15/95 32,659,646.93
1/15/96 32,682,591.50
2/15/96 32,705,746.59
3/15/96 32,729,114.15
4/15/96 32,752,696.12
5/15/96 32,775,309.25
<PAGE>
EXHIBIT D
---------
TERMINATION VALUES(cont.)
Date Termination Value
---- -----------------
6/15/96 32,798,129.33
7/15/96 32,819,974.86
8/15/96 32,842,020.36
9/15/96 32,864,268.28
10/15/96 32,183,462.55
11/15/96 32,204,924.87
12/15/96 32,336,584.33
1/15/97 32,247,257.52
2/15/97 32,268,120.67
3/15/97 32,389,175.54
4/15/97 32,310,423.88
5/15/97 32,331,026.57
6/15/97 32,351,818.64
7/15/97 32,371,960.94
8/15/97 32,392,288.44
9/15/97 32,412,802.85
10/15/97 31,678,805.29
11/15/97 31,698,850.12
12/15/97 31,719,079.30
1/15/98 31,738,653.66
2/15/98 31,758,408.13
3/15/98 31,778,344.35
4/15/98 31,798,463.99
5/15/98 31,818,007.22
6/15/98 31,837,730.31
7/15/98 31,856,873.40
8/15/98 31,876,192.75
9/15/98 31,895,689.96
10/15/98 31,105,138.50
11/15/98 31,124,227.90
12/15/98 31,143,493.12
1/15/99 31,162,174.24
2/15/99 31,181,027.49
3/15/99 31,200,054.44
4/15/99 31,219,256.69
5/15/99 31,237,952.85
6/15/99 31,256,821.33
<PAGE>
EXHIBIT D
---------
TERMINATION VALUES(cont.)
Date Termination Value
---- -----------------
7/15/99 31,275,180.71
8/15/99 31,293,709.37
9/15/99 31,312,408.86
10/15/99 30,461,422.42
11/15/99 30,479,779.08
12/15/99 30,498,305.05
1/15/00 30,516,318.89
2/15/00 30,534,498.94
3/15/00 30,552,846.74
4/15/00 30,571,363.84
5/15/00 30,589,782.95
6/15/00 30,608,372.04
7/15/00 30,626,863.84
8/15/00 30,654,526.31
9/15/00 30,664,361.01
10/15/00 29,749,812.40
11/15/00 29,768,725.08
12/15/00 29,787,812.32
1/15/01 29,806,806.90
2/15/01 28,115,512.30
3/15/01 28,134,859.20
4/15/01 28,154,384.69
5/15/01 28,175,110.48
6/15/01 28,196,027.47
7/15/01 28,218,157.48
8/15/01 28,240,491.51
9/15/01 28,263,031.45
10/15/01 28,286,799.24
11/15/01 28,310,786.04
12/15/01 28,334,993.85
1/15/02 28,360,444.77
2/15/02 26,542,971.28
3/15/02 26,568,893.14
4/15/02 26,595,053.73
5/15/02 26,622,638.07
6/15/02 26,650,476.33
7/15/02 26,679,753.68
<PAGE>
EXHIBIT D
---------
TERMINATION VALUES(cont.)
Date Termination Value
---- -----------------
8/15/02 26,709,300.40
9/15/02 26,739,118.97
10/15/02 26,770,394.73
11/15/02 26,801,958.13
12/15/02 26,833,811.82
1/15/03 26,867,141.31
2/15/03 24,914,629.97
3/15/03 24,948,575.10
4/15/03 24,982,832.30
5/15/03 25,018,762.69
6/15/03 25,055,023.27
7/15/03 25,092,975.34
8/15/03 25,131,276.08
9/15/03 25,169,928.68
10/15/03 25,210,294.62
11/15/03 25,251,031.29
12/15/03 25,292,142.08
1/15/04 25,334,988.69
2/15/04 23,238,000.27
3/15/04 23,281,637.28
4/15/04 23,325,674.92
5/15/04 23,371,664.15
6/15/04 23,418,075.50
7/15/04 23,466,460.11
8/15/04 23,515,288.72
9/15/04 23,564,565.39
10/15/04 23,615,841.50
11/15/04 23,667,588.02
12/15/04 23,719,809.28
1/15/05 23,774,056.87
2/15/05 21,522,539.14
3/15/05 21,577,786.42
4/15/05 21,633,540.42
5/15/05 21,691,556.73
6/15/05 21,750,105.05
7/15/05 21,810,941.18
8/15/05 21,872,335.07
<PAGE>
EXHIBIT D
---------
TERMINATION VALUES(cont.)
Date Termination Value
---- -----------------
9/15/05 21,934,291.82
10/15/05 21,998,567.52
11/15/05 22,063,432.40
12/15/05 22,128,891.83
1/15/06 22,196,702.23
2/15/06 19,779,956.11
3/15/06 19,849,015.11
4/15/06 19,918,707.00
5/15/06 19,991,007.99
6/15/06 20,063,971.47
7/15/06 20,139,573.92
8/15/06 20,215,869.00
9/15/06 20,292,863.04
10/15/06 20,372,532.86
11/15/06 20,452,932.46
12/15/06 20,534,068.51
1/15/07 20,617,918.18
2/15/07 18,024,562.89
3/15/07 18,109,955.48
4/15/07 18,196,130.13
5/15/07 18,285,300.94
6/15/07 18,375,288.29
7/15/07 18,468,306.60
8/15/07 18,562,176.58
9/15/07 18,656,906.03
10/15/07 18,754,709.74
11/15/07 18,853,408.81
12/15/07 18,953,011.45
1/15/08 19,055,732.85
2/15/08 16,273,670.06
3/15/08 16,378,280.62
4/15/08 16,483,848.73
5/15/08 16,592,892.44
6/15/08 16,702,934.17
7/15/08 16,816,492.33
8/15/08 16,931,089.72
9/15/08 17,046,735.83
<PAGE>
EXHIBIT D
---------
TERMINATION VALUES(cont.)
Date Termination Value
---- -----------------
10/15/08 17,165,949.54
11/15/08 17,286,254.11
12/15/08 17,407,659.51
1/15/09 17,352,685.10
2/15/09 14,549,261.64
3/15/09 14,676,585.53
4/15/09 14,805,074.35
5/15/09 14,937,570.18
6/15/09 15,071,278.13
7/15/09 15,209,040.72
8/15/09 15,348,063.50
9/15/09 15,488,358.01
10/15/09 15,632,767.27
11/15/09 15,778,497.41
12/15/09 15,925,560.50
1/15/10 16,076,800.14
2/15/10 12,211,042.69
3/15/10 12,365,842.83
4/15/10 12,511,967.59
5/15/10 12,666,807.61
6/15/10 12,823,063.83
7/15/10 12,988,127.71
8/15/10 13,154,701.03
9/15/10 13,322,797.58
10/15/10 13,500,000.01
<PAGE>
EXHIBIT J
---------
ENVIRONMENTAL REMEDIATION
The Remediation required to be performed by Tenant pursuant to Section
7(c)(v), and the plans and specifications and other requirements for the
performance of the Remediations, are as follows:
1. The removal from Building B of: (a) all asbestos-containing materials
("ACM") identified by Law Engineering, Inc. ("Law") in its "Law Engineering
Report Asbestos-Containing Materials Survey," dated October 16, 1992 and
prepared for InteCom, Inc. by Law; (b) all ACM subsequently identified by Law or
Albert H. Halff Associates, Inc., or such outer consultant engaged by Landlord
(collectively referred to for convenience as verifications inspection to be
conducted by Halff. Tenant shall reimburse Landlord for all expenses incurred
by Landlord in engaging Halff to perform the verification inspection.
2. The Remediation shall be performed by National Abatement Services, Inc.
("NAS"). Law shall act as project supervisor and shall perform the same
functions it performed in connection with the removal of ACM from Building A,
including without limitation, observations of the work practices of NAS, air
monitoring, and the preparation of a final report after the completion of the
Remediation.
3. The Remediation shall be performed in accordance with the "InteCom,
Inc. Work Procedures, Asbestos-Containing Materials Removal, Law Engineering
Proposal No. DP-8712-93A, January 5, 1993," prepared by Law (the "Law
Engineering Technical Specifications").
4. The Remediation shall not be complete until Landlord has received from
Law a final report (the "Law Report") stating that all ACM identified Intecom,
inc. or The Koll Company has been removed from Building B, that all categories
of construction material reasonably suspected to contain ACM which are
accessible without the destruction of interior or exterior walls or ceilings
have been sampled and tested in accordance with Environmental Protection Agency
("EPA) guidelines and have been found to not be ACM, that the plans and
specifications for Building B have been reviewed in an attempt to determine
whether ACM's are present in Building B in inaccessible areas and do not reveal
the presence of ACM, and that the abatement agreement in connection with
Building B has been fully performed by NAS in accordance with the Law
Engineering Technical Specifications.
5. The Remediation shall also not be deemed complete until Landlord has
received a final report from Halff, or another consultant engaged by Landlord,
stating that, based on its review of the Law Report and as a result of Halff's
or such other consultant's verification inspection, the Remediation at Building
B has been performed and completed in accordance with the Law Engineering
Technical Specifications for the removal of ACM; all ACM
<PAGE>
previously identified by Law or Halff has been removed; all reasonably suspect
categories of materials that are accessible without the destruction of interior
or exterior walls, ceilings, or roofs have been visually inspected or sampled
and tested in accordance with EPA regulations and determined not to be ACM.
6. The Remediation shall include all work that is necessary to be
performed in order for Law and Halff to issue the reports described in
paragraphs 4 and 5 above.
7. For the purpose of this Exhibit J, the term "Building B" shall include
any part of the Improvements that were not the subject of the asbestos abatement
of Building A as described in "Law Engineering Progress Report, Intecom, Inc.,
Building A - Areas A1 and A2, 601 Intecom Drive, Allen, Texas, Law Engineering
Project No. 321-03583-01," dated March 3, 1993.
-2-
<PAGE>
EXHIBIT 12.1
TRW INFORMATION SYSTEMS & SERVICES
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
<TABLE>
<CAPTION>
PRO FORMA
THREE MONTHS
THREE MONTHS PRO FORMA ENDED
YEAR ENDED DECEMBER 31, ENDED MARCH 31, YEAR ENDED MARCH 31,
----------------------------------------------- ---------------- DECEMBER 31, --------------
1991 1992 1993 1994 1995 1995 1996 1995 1995 1996
-------- ------- ------- ------- ------- ------- ------- ------------ ------ ------
(THOUSANDS OF DOLLARS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Earnings before
income taxes and
cumulative effect of
accounting changes.. $(13,186) $66,048 $51,582 $93,054 $86,282 $22,056 $20,628 $16,158 $4,788 $2,641
Minority interest... (2,908) 2,528 4,327 (2,576) 2,011 199 364 -- -- --
Fixed charges:
Interest expense.. 331 335 174 193 706 105 255 82,649 20,358 20,376
Rentals:
1/3 of all lease
rentals........... 10,963 13,248 14,000 14,000 17,000 3,685 4,747 17,000 3,685 4,747
-------- ------- ------- ------- ------- ------- ------- ------- ------ ------
Total fixed
charges......... 11,294 13,583 14,174 14,193 17,706 3,790 5,002 99,649 24,043 25,123
-------- ------- ------- ------- ------- ------- ------- ------- ------ ------
Earnings before
income taxes and
cumulative effect of
accounting changes,
minority interest
and fixed charges... (4,800)(1) 82,159 70,083 104,671 105,999 26,045 25,994 115,807 28,831 27,764
Ratio of earnings to
fixed charges....... -- 6.1x 4.9x 7.4x 6.0x 6.9x 5.2x 1.2x 1.2x 1.1x
<CAPTION>
PRO FORMA
TWELVE MONTHS
ENDED
MARCH 31,
1996
-------------
<S> <C>
Earnings before
income taxes and
cumulative effect of
accounting changes.. $14,011
Minority interest... --
Fixed charges:
Interest expense.. 82,667
Rentals:
1/3 of all lease
rentals........... 18,062
-------------
Total fixed
charges......... 100,729
-------------
Earnings before
income taxes and
cumulative effect of
accounting changes,
minority interest
and fixed charges... 114,740
Ratio of earnings to
fixed charges....... 1.1x
</TABLE>
(1) Earnings were insufficient to cover fixed charges by $16.1 million in 1991.
<PAGE>
EXHIBIT 23.2
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" and to
the use of our reports dated January 29, 1996, with respect to the combined
financial statements and schedule of TRW Information Systems & Services
included in Amendment No. 1 to the Registration Statement (Form S-1) and
related Prospectus of Experian Information Solutions, Inc. for the
registration of $250,000,000 aggregate amount of senior subordinated notes.
Cleveland, Ohio /s/ Ernst & Young LLP
July 30, 1996
<PAGE>
EXHIBIT 23.3
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Prospectus constituting part of this
Registration Statement on Form S-1 of our report dated June 12, 1996 relating
to the balance sheet of Experian Information Solutions, Inc. (formerly known
as IntelliData, Inc.), which appears in such Prospectus. We also consent to
the reference to us under the heading "Experts" in such Prospectus.
/s/ PRICE WATERHOUSE LLP
Boston, Massachusetts
July 30, 1996
