<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON AUGUST 28, 1996
REGISTRATION NO. 333-6117
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
AMENDMENT NO. 2
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>
CROSS REFERENCE SHEET
<TABLE>
<CAPTION>
ITEM NUMBER AND CAPTION LOCATION IN PROSPECTUS
----------------------- ----------------------
<S> <C>
1.Forepart of the Registration
Statement and Outside Front
Cover Page of Prospectus...... Outside Front Cover Page; Cross Reference
Sheet; Inside Front Cover Page
2.Inside Front and Outside Back
Cover Page of Prospectus...... Inside Front Cover Page; Outside Back Cover
Page
3.Summary Information, Risk
Factors and Ratio of Earnings
to Fixed Charges.............. Prospectus Summary; Risk Factors; Selected
Historical Combined Financial Data
4.Use of Proceeds................. Use of Proceeds
5.Determination of Offering
Price......................... Underwriting
6.Dilution........................ Not applicable
7.Selling Security Holders........ Not applicable
8.Plan of Distribution............ Underwriting
9.Description of Securities to be
Registered.................... Description of Notes
10.Interests of Named Experts and
Counsel....................... Not applicable
11.Information with Respect to the
Registrant.................... Experian Information Solutions, Inc.; The
Recapitalization, Financing and Related
Transactions; Use of Proceeds; Unaudited
Pro Forma Capitalization; Unaudited Pro
Forma Financial Data; Selected Historical
Combined Financial Data; Management's
Discussion and Analysis of Financial
Condition and Results of Operations;
Business; Management; Ownership of Capital
Stock; Certain Relationships and Related
Transactions; Financial Statements.
12.Disclosure of Commission
Position on Indemnification
for Securities Act
Liabilities................... Not applicable
</TABLE>
<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 AUGUST 28, 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 $125 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 June 30, 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 $561.6 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
BEAR, STEARNS & CO. INC.
, 1996
<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 June
30, 1996, the Company generated pro forma sales of $554.8 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 June
1996, the Company implemented 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 June 30, 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 Interest on the Notes is payable on and ,
Dates................. 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 $125 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 June 30, 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 June 30, 1996, on a pro forma basis
after giving effect to the Transactions, the Company
would have had approximately $561.6 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 June 30, 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 The Indenture will contain certain covenants that limit
Covenants............. 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 six month periods ended June 30, 1995 and 1996
have been derived from, and are qualified by reference to, the Company's
unaudited 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 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>
SIX MONTHS
ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
-------------------------------------- --------------
1991 1992 1993 1994 1995 1995 1996
------ ------ ------ ------ ------ ------ ------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Sales................... $427.2 $456.5 $486.4 $512.3 $540.2 $267.7 $286.1
Cost of sales........... 233.8 248.3 259.3 261.1 274.0 137.0 149.3
------ ------ ------ ------ ------ ------ ------
Gross profit............ 193.4 208.2 227.1 251.2 266.2 130.7 136.8
Administrative and sell-
ing expenses........... 145.7 141.1 140.7 147.3 151.1 74.5 73.9
Research and development
expenses............... 11.3 11.9 11.8 14.8 24.9 9.5 20.2
Restructuring (income)
expense (1)............ 46.9 (18.4) 3.6 12.7 (3.3) -- (1.1)
TRW corporate general
and administrative
expenses (2)........... 4.2 4.2 4.3 4.4 4.9 2.4 2.5
------ ------ ------ ------ ------ ------ ------
Income (loss) from oper-
ations................. (14.7) 69.4 66.7 72.0 88.6 44.3 41.3
Interest expense........ 0.3 0.3 0.2 0.2 0.7 0.3 0.6
Minority interest....... (2.9) 2.5 4.3 (2.6) 2.0 0.8 2.3
Other (income) expense,
net (3)................ 1.1 0.6 10.6 (18.7) (0.4) (0.1) 0.4
------ ------ ------ ------ ------ ------ ------
Income (loss) before in-
come taxes............. (13.2) 66.0 51.6 93.1 86.3 43.3 38.0
Provision for (benefit
from) income taxes..... (1.0) 23.1 21.8 36.8 34.5 17.3 15.2
Cumulative effect of
changes in accounting
(4).................... -- 3.5 1.8 -- -- -- --
------ ------ ------ ------ ------ ------ ------
Net income (loss)....... $(12.2) $ 39.4 $ 28.0 $ 56.3 $ 51.8 $ 26.0 $ 22.8
====== ====== ====== ====== ====== ====== ======
OTHER FINANCIAL DATA:
EBITDA (5).............. 81.1 163.9 142.2 176.4 166.4 83.4 79.8
Adjusted EBITDA (6) .... 107.2 129.4 144.6 157.9 166.1 85.3 82.4
Depreciation and amorti-
zation................. 94.0 97.6 90.4 83.1 79.4 39.8 41.2
Cash flows from operat-
ing activities (7)..... NA 159.3 141.9 119.9 137.9 48.6 47.3
Capital expenditures.... 20.0 12.2 20.2 13.4 17.0 5.8 5.9
Expenditures for intan-
gibles (8)............. 82.5 55.9 48.2 61.5 64.5 28.0 33.2
Ratio of earnings to
fixed charges (9)(10).. -- 6.1x 4.9x 7.4x 6.0x 6.4x 4.9x
Working capital......... $ (9.5) $ (7.3) $(10.1) $(22.6) $(12.2) $ 4.5 $ 10.7
</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 and for the six months
ended June 30, 1996, the Company reduced excess restructuring reserves by
$3.3 million and $1.1 million, respectively.
(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. During 1996, the Company recorded a $3.7
million gain on TRW REDI's sale of the Sanborn Mapping and Geographic
Information Services ("Sanborn") business and a loss of $4.8 million
pertaining to the full reserve of the Comcred S.A. de CV ("Comcred") notes
receivable.
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 $18.5, $20.5, $18.1, $12.8, ($0.5), ($0.2) and
$0.6 million in 1991, 1992, 1993, 1994, 1995 and in the six months ended
June 30, 1995 and 1996, 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, $0.9 and $0.9 million in 1991, 1992, 1993, 1994, 1995 and in
the six months ended June 30, 1995 and 1996, respectively; gain on sale of
the Credentials business in 1994, the Smart Charts/Search Access
businesses in 1995 and the Sanborn business in the second quarter of 1996;
and the write-off of an intercompany note receivable from TRW RELS in 1993
and the full reserve of the Comcred notes receivable in 1996 (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 June 30, 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 combined financial statements and the accompanying
notes thereto included elsewhere in this Prospectus.
13
<PAGE>
<TABLE>
<CAPTION>
PRO FORMA
SIX MONTHS PRO FORMA
PRO FORMA ENDED TWELVE MONTHS
YEAR ENDED JUNE 30, ENDED
DECEMBER 31, ---------------- JUNE 30,
1995(1) 1995(1) 1996(1) 1996(2)
------------ ------- ------- -------------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Sales.................... $537.4 $267.3 $284.7 $554.8
Cost of sales............ 266.7 134.0 146.2 278.9
------ ------ ------ ------
Gross profit............. 270.7 133.3 138.5 275.9
Administrative and sell-
ing expenses............ 152.0 75.1 75.0 151.9
Research and development
expenses................ 24.9 9.5 20.2 35.6
Restructuring (income)
expense (3)............. (3.3) -- (1.1) (4.4)
------ ------ ------ ------
Income from operations... 97.1 48.7 44.4 92.8
Interest expense......... 82.4 40.9 40.9 82.4
Minority interest........ -- -- -- --
Other (income) expense,
net..................... -- (0.6) (3.7) (3.1)
------ ------ ------ ------
Income before income tax-
es...................... 14.7 8.4 7.2 13.5
Provision for income tax-
es...................... 5.9 3.4 2.9 5.4
------ ------ ------ ------
Net income............... $ 8.8 $ 5.0 $ 4.3 $ 8.1
====== ====== ====== ======
OTHER FINANCIAL DATA:
EBITDA (4)............... 176.5 89.1 89.3 176.7
Ratio of EBITDA to inter-
est expense............. 2.1x 2.2x 2.2x 2.1x
Ratio of EBITDA to cash
interest expense (5).... 2.3x 2.4x 2.4x 2.3x
Depreciation and amorti-
zation.................. 79.4 39.8 41.2 80.8
Capital expenditures..... 17.0 5.8 5.9 17.1
Expenditures for intangi-
bles (6)................ 64.5 28.0 33.2 69.7
Ratio of earnings to
fixed charges (7)....... 1.1x 1.2x 1.1x 1.1x
</TABLE>
<TABLE>
<CAPTION>
PRO FORMA
JUNE 30,
1996
---------
<S> <C>
BALANCE SHEET DATA:
Working capital....................................................... $ 21.1
Total assets.......................................................... 726.8
Long-term debt........................................................ 811.6
Stockholders' equity (deficit)........................................ (161.4)
</TABLE>
- --------
(1) See "Unaudited Pro Forma Financial Data."
(2) Information for pro forma twelve months ended June 30, 1996 represents the
summation of the pro forma year ended December 31, 1995 and pro forma six
months ended June 30, 1996 information, less the pro forma six months
ended June 30, 1995 information.
(3) In 1995 and 1996, the Company reduced excess restructuring reserves
recorded in prior years by $3.3 million and $1.1 million, respectively.
(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 $7.0 million, $3.5 million, and
$3.5 million on a pro forma basis for the year ended December 31, 1995 and
the six months ended June 30, 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 June 30, 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 long-term indebtedness of $811.6 million (excluding
unused commitments) and its stockholders' deficit would have been
approximately $161.4 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 June 30, 1996, on a pro forma
basis after giving effect to the Transactions, the Company would have had
outstanding Senior Indebtedness of $561.6 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 June 30, 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 June 1996, the Company implemented File One which,
among other things, redesigned 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 $19.9 million being expended during the first six
months 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. Since the implementation of
File One, the Company has not updated the consumer credit information in its
existing flat file and will only update the consumer information in File One.
The Company has capitalized approximately $24.6 million of the expenditures
associated with File One as of June 30, 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 June 30, 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 June 30, 1996, as adjusted to give effect to the Transactions.
<TABLE>
<CAPTION>
AS OF
JUNE 30, 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....................................... 1.6
-------
Total long-term debt.................................. 811.6
-------
Stockholders' equity (deficit):
Common stock, no par value; 1,000 shares authorized;
100 shares issued and outstanding...................... --
Additional paid-in capital.............................. 593.6
Retained earnings (deficit) (2)......................... (755.0)
-------
Total stockholders' equity (deficit).................. (161.4)
-------
Total capitalization...................................... $ 650.2
=======
</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 June 30, 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 six
months ended June 30, 1996 historical cost levels totalling approximately
$16,625 and $12,650, respectively. The foregoing cost reductions are not
included in pro forma income before income taxes and EBITDA. These cost
reductions, exclusive of one-time charges unless otherwise noted, are expected
to be realized in part during 1996 and in full during 1997. These cost
reductions are summarized as follows:
<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED ENDED
DECEMBER 31, JUNE 30,
1995 1996
------------ ----------
<S> <C> <C>
Reconfiguration of consumer and customer
operations......................................... $ 3,000 $ 1,500
Operating efficiencies resulting from changes to
staff and support organizations.................... 4,075 2,038
Modification of data warehousing policies........... 1,000 500
Reduction of international affiliate operating
losses, inclusive of one time charges, and reduced
international system development costs (a)......... 1,750 5,212
Reduction of certain expenses relating to the
development of File One (b)........................ 6,600 3,300
Other miscellaneous cost reduction activities....... 200 100
-------- --------
$ 16,625 $12,650
======== ========
Pro Forma income before taxes, adjusted for cost
reductions......................................... $ 31,282 $ 19,839
======== ========
Pro Forma EBITDA, adjusted for cash cost reductions
(a)................................................ $199,191 $104,938
======== ========
</TABLE>
--------
(a) The six months ended June 30, 1996 amount includes the $4,837 full
reserve of the Comcred notes receivable. See Investment footnote C of
notes to Combined Interim Financial Statements.
(b) The reduction in File One developmental expenses is net of additional
depreciation expense of $6,100 and $3,050 for the year ended December
31, 1995 and the six months ended June 30, 1996, respectively.
Excluding depreciation, the cash cost savings expected to be realized
upon the completion of File One total $12,700 and $6,350 for the year
ended December 31, 1995 and the six months ended June 30, 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 JUNE 30, 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... $ 362 $ (362)(1) $ -- $ $ --
Accounts receivable......... 87,667 87,667 87,667
Prepaid expenses............ 10,419 (273)(1) 10,146 10,146
-------- -------- -------- -------- --------
Total current assets...... 98,448 (635) 97,813 97,813
Property and equipment, net.. 47,093 47,093 47,093
Capitalized data files....... 211,173 211,173 211,173
Goodwill..................... 139,131 139,131 139,131
Other intangible assets...... 45,505 45,505 45,505
Other assets................. 7,981 (3,464)(1) 4,517 4,517
Deferred income taxes........ -- 126,610 (2) 126,610 126,610
Deferred financing costs..... -- -- 55,000(5) 55,000
-------- -------- -------- -------- --------
Total assets.............. $549,331 $122,511 $671,842 $ 55,000 $726,842
======== ======== ======== ======== ========
LIABILITIES AND NET
INVESTMENT/STOCKHOLDERS'
EQUITY
Current liabilities:
Accounts payable............ $ 16,940 $ (6,056)(1) $ 10,884 $ 10,884
Other accruals.............. 18,918 (4,881)(1) 14,037 14,037
Accrued compensation........ 24,147 (67)(1) 24,080 24,080
Deferred revenue and
advance billings........... 27,720 27,720 27,720
-------- -------- -------- -------- --------
Total current
liabilities.............. 87,725 (11,004) 76,721 76,721
Long-term liabilities........ 1,561 1,561 1,561
Minority interest............ 27,006 (27,006)(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......... 116,292 716,990 833,282 55,000 888,282
Net Investment/Stockholders'
Equity:
Common stock, no par value;
1,000 shares authorized;
100 shares issued and
outstanding................ -- -- --
Net investment/additional
paid in capital............ 433,039(4) 6,905 (1) 593,560 593,560
27,006 (3)
126,610 (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)........ 433,039 (594,479) (161,440) (161,440)
-------- -------- -------- -------- --------
Total liabilities and net
investment/stockholders'
equity (deficit)........ $549,331 $122,511 $671,842 $ 55,000 $726,842
======== ======== ======== ======== ========
</TABLE>
25
<PAGE>
NOTES TO UNAUDITED PRO FORMA COMBINED BALANCE SHEET
JUNE 30, 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............................................................... $ (362)
Prepaid expenses................................................... (273)
Other assets-principally note receivable from sale of business..... (3,464)
------
Total assets..................................................... (4,099)
Trade accounts payable--principally the reclassification of cash
overdraft......................................................... 6,056
Other accruals--principally restructuring reserves and accrued pro-
fessional services................................................ 4,881
Accrued compensation-principally accrued payroll expenses.......... 67
------
Total liabilities................................................ 11,004
------
Contribution to capital............................................ $6,905
======
</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
JUNE 30, 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 histori-
cal book value of intangible assets of approximately $395,809... $ 71,141
Estimated increase in property and equipment to fair market val-
ue.............................................................. 50,000
Estimated fees and expenses...................................... 55,000
Increase in intangible assets for income tax reporting purposes.. 978,859
----------
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........................................... $ 411,544
Noncurrent deferred tax liability relating to excess historical
book basis over tax basis (principally relating to intangible
assets totalling approximately $395,809)........................ (158,324)
---------
Noncurrent deferred tax asset, net............................... 253,220
Deferred tax valuation allowance................................. (126,610)
---------
Noncurrent deferred tax asset, net............................... $ 126,610
=========
</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 $27,006.
(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
JUNE 30, 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 $(4,140)(1) $537,445 $ $537,445
1,426 (2)
Cost of sales........... 273,941 (2,461)(1) 270,937 (2,965)(5) 266,737
380 (2) (1,235)(6)
(923)(3)
-------- ------- -------- -------- --------
Gross profit............ 266,218 290 266,508 4,200 270,708
Administrative and sell-
ing expenses........... 151,150 (2,311)(1) 149,087 (1,235)(6) 151,992
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 ex-
penses................. 4,826 4,826 (4,826)(7) --
-------- ------- -------- -------- --------
Income from operations.. 88,631 2,353 90,984 6,121 97,105
Minority interest....... 2,011 (2,011)(3) -- --
Interest expense........ 706 706 81,775 (8) 82,481
Other (income) expense,
net.................... (368) 1,257 (1) (33) (33)
(922)(3)
-------- ------- -------- -------- --------
Income (loss) before in-
come taxes............. 86,282 4,029 90,311 (75,654) 14,657
Provision for (benefit
from) income taxes..... 34,530 1,612 (4) 36,142 (30,262)(4) 5,880
-------- ------- -------- -------- --------
Net income (loss)....... $ 51,752 $ 2,417 $ 54,169 $(45,392) $ 8,777
======== ======= ======== ======== ========
OTHER DATA:
EBITDA (9)............................................................... $176,466
</TABLE>
29
<PAGE>
UNAUDITED PRO FORMA COMBINED STATEMENT OF INCOME
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30, 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................... $267,665 $(1,793)(1) $267,298 $ $267,298
1,426 (2)
Cost of sales........... 136,992 (807)(1) 136,109 (1,512)(5) 133,979
380 (2) (618)(6)
(456)(3)
-------- ------- -------- -------- --------
Gross profit............ 130,673 516 131,189 2,130 133,319
Administrative and
selling expenses....... 74,506 (1,143)(1) 73,611 (618)(6) 75,063
248 (2) 2,400 (7)
(330)(7)
Research and development
expenses............... 9,519 9,519 9,519
TRW corporate general
and administrative
expenses............... 2,382 2,382 (2,382)(7) --
-------- ------- -------- -------- --------
Income from operations.. 44,266 1,411 45,677 3,060 48,737
Minority interest....... 769 (769)(3) -- --
Interest expense........ 246 246 40,613 (8) 40,859
Other (income) expense,
net.................... (52) (455)(3) (507) (507)
-------- ------- -------- -------- --------
Income (loss) before
income taxes........... 43,303 2,635 45,938 (37,553) 8,385
Provision for (benefit
from) income taxes..... 17,321 1,054 (4) 18,375 (15,021)(4) 3,354
-------- ------- -------- -------- --------
Net income (loss)....... $ 25,982 $ 1,581 $ 27,563 $(22,532) $ 5,031
======== ======= ======== ======== ========
OTHER DATA:
EBITDA (9)............................................................... $ 89,043
</TABLE>
30
<PAGE>
UNAUDITED PRO FORMA COMBINED STATEMENT OF INCOME
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30, 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................... $286,173 $(1,422)(1) $284,751 $ $284,751
Cost of sales........... 149,327 (577)(1) 148,325 (1,430)(5) 146,259
(425)(3) (636)(6)
-------- ------- -------- -------- --------
Gross profit............ 136,846 (420) 136,426 2,066 138,492
Administrative and
selling expenses....... 73,878 (275)(1) 73,603 (636)(6) 75,037
2,400 (7)
(330)(7)
Research and development
expenses............... 20,229 20,229 20,229
Restructuring (income)
expense................ (1,130) (1,130) (1,130)
TRW corporate general
and administrative
expenses............... 2,545 2,545 (2,545)(7) --
-------- ------- -------- -------- --------
Income from operations.. 41,324 (145) 41,179 3,177 44,356
Minority interest....... 2,276 (2,276)(3) -- --
Interest expense........ 574 574 40,316 (8) 40,890
Other (income) expense,
net.................... 400 (3,699)(1) (3,723) (3,723)
(424)(3)
-------- ------- -------- -------- --------
Income (loss) before
income taxes........... 38,074 6,254 44,328 (37,139) 7,189
Provision for (benefit
from) income taxes..... 15,230 2,502 (4) 17,732 (14,856)(4) 2,876
-------- ------- -------- -------- --------
Net income (loss)....... $ 22,844 $ 3,752 $ 26,596 $(22,283) $ 4,313
======== ======= ======== ======== ========
OTHER DATA:
EBITDA (9)............................................................... $ 89,238
</TABLE>
31
<PAGE>
NOTES TO UNAUDITED PRO FORMA COMBINED STATEMENTS OF INCOME
YEAR ENDED DECEMBER 31, 1995 AND SIX MONTHS ENDED JUNE 30, 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 three niche
businesses, two which were sold in the third quarter of 1995 and one which
was sold in the second quarter of 1996, and the gains of $1,257 and $3,699
recognized on these dispositions for the year ended December 31, 1995 and
the six months ended June 30, 1996, respectively. The combined unaudited
historical operating results for these three businesses were as follows:
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
YEAR ENDED JUNE 30,
DECEMBER 31, --------------
1995 1995 1996
------------ ------ ------
<S> <C> <C> <C>
Sales........................................... $4,140 $1,793 $1,422
Cost of sales................................... 2,461 807 577
------ ------ ------
Gross profit (loss)............................. 1,679 986 845
Administrative and selling expenses............. 2,311 1,143 275
------ ------ ------
Income (loss) from operations................... $ (632) $ (157) 570
====== ====== ======
</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 SIX MONTH PERIOD ENDED
JUNE 30, 1995
---------------------------------
PRE ABC COMBINED
--------- --------- -------------
<S> <C> <C> <C>
Sales...................................... $ 833 $ 593 $ 1,426
Cost of sales.............................. 98 282 380
--------- --------- -----------
Gross profit (loss)........................ 735 311 1,046
Administrative and selling expenses........ 221 27 248
--------- --------- -----------
Income (loss) from operations.............. $ 514 $ 284 $ 798
========= ========= ===========
</TABLE>
(3) Reflects the elimination of the minority interest adjustment totaling
$2,011, $769 and $2,276 for the year ended December 31, 1995 and the six
months ended June 30, 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, $911 and $849 for the
year ended December 31, 1995 and the six months ended June 30, 1995 and
1996, respectively (recorded 50% to cost of sales and 50% to other
(income) expense).
32
<PAGE>
NOTES TO UNAUDITED PRO FORMA COMBINED STATEMENTS OF INCOME
YEAR ENDED DECEMBER 31, 1995 AND SIX MONTHS ENDED JUNE 30, 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>
SIX MONTHS
ENDED
YEAR ENDED JUNE 30,
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 $ 700 $ 526
Replacement of a "corporate wide" TRW
telecommunication plan which resulted in TRW
allocations to the Company totalling $6,464,
$3,352 and $3,730 for the year ended December
31, 1995 and the six months ended June 30,
1995 and 1996, respectively, with the
estimated annual cost of this service to the
Company on a stand-alone basis of $4,899
($5,652 in 1996) based upon competitive bids.. 1,565 812 904
------ ------ ------
$2,965 $1,512 $1,430
====== ====== ======
</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, $3,236 and $3,332
for the year ended December 31, 1995 and the six months ended June 30,
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, $1,236 and $1,272 for the year ended
December 31, 1995 and the six months ended June 30, 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 SIX MONTHS ENDED JUNE 30, 1995 AND 1996
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
YEAR ENDED JUNE 30,
DECEMBER 31, ----------------
1995 1995 1996
------------ ------- -------
<S> <C> <C> <C>
ALLOCATED COSTS:
TRW corporate general and administrative
expenses................................. $(4,826) $(2,382) $(2,545)
Other, principally allocated international
corporate occupancy charges.............. (660) (330) (330)
------- ------- -------
Total allocated costs................... (5,486) (2,712) (2,875)
ESTIMATED STAND-ALONE COSTS:
Finance, administration and consulting
fees (a)................................. 3,925 1,962 1,962
Government relations...................... 300 150 150
Human resources, including benefits
administration........................... 160 80 80
Communications............................ 415 208 208
------- ------- -------
Total estimated stand alone costs....... 4,800 2,400 2,400
------- ------- -------
Net cost reductions..................... $ (686) $ (312) $ (475)
======= ======= =======
</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>
SIX MONTHS
YEAR ENDED ENDED JUNE 30,
DECEMBER 31, ----------------
1995 1995(A) 1996(A)
------------ ------- -------
<S> <C> <C> <C>
Elimination of historical interest expense.. $ (706) $ (246) $ (574)
------- ------- -------
Interest on the borrowings under the Credit
Facilities (assuming LIBOR at 5.5%):
Revolving Facility--LIBOR plus 2.5%....... 800 397 397
Tranche A Term Loan--LIBOR plus 2.5%...... 16,000 7,934 7,934
Tranche B Term Loan--LIBOR plus 3.0%...... 14,875 7,376 7,376
Tranche C Term Loan--LIBOR plus 3.5%...... 15,750 7,810 7,810
Notes--(assumed 11.0% on $250,000).......... 27,500 13,637 13,637
Other notes payable (8.38%)................. 154 34 65
Other fees.................................. 425 211 211
------- ------- -------
Cash interest expense....................... 75,504 37,399 37,430
Amortization of Transactions debt issuance
costs
($55.0 million over an average 7.88 year
amortization period)....................... 6,977 3,460 3,460
------- ------- -------
Interest from Transactions debt require-
ments...................................... 82,481 40,859 40,890
------- ------- -------
Net increase................................ $81,775 $40,613 $40,316
======= ======= =======
</TABLE>
34
<PAGE>
NOTES TO UNAUDITED PRO FORMA COMBINED STATEMENTS OF INCOME
YEAR ENDED DECEMBER 31, 1995 AND SIX MONTHS ENDED JUNE 30, 1995 AND 1996
(DOLLARS IN THOUSANDS)
If interest rates increase by 1/8%, interest expense on the debt
outstanding would increase by $1,013, $502 and $502 for the year ended
December 31, 1995 and the six months ended June 30, 1995 and 1996,
respectively.
--------
(a) Pro forma interest expense for the six months ended June 30, 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 six month periods ended June 30, 1995 and 1996 have been derived
from the Company's unaudited 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 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>
SIX MONTHS
ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
-------------------------------------- --------------
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 $267.7 $286.1
Cost of sales........... 233.8 248.3 259.3 261.1 274.0 137.0 149.3
------ ------ ------ ------ ------ ------ ------
Gross profit............ 193.4 208.2 227.1 251.2 266.2 130.7 136.8
Administrative and
selling expenses....... 145.7 141.1 140.7 147.3 151.1 74.5 73.9
Research and development
expenses............... 11.3 11.9 11.8 14.8 24.9 9.5 20.2
Restructuring (income)
expense (1)............ 46.9 (18.4) 3.6 12.7 (3.3) -- (1.1)
TRW corporate general
and administrative
expenses (2)........... 4.2 4.2 4.3 4.4 4.9 2.4 2.5
------ ------ ------ ------ ------ ------ ------
Income (loss) from
operations............. (14.7) 69.4 66.7 72.0 88.6 44.3 41.3
Interest expense........ 0.3 0.3 0.2 0.2 0.7 0.3 0.6
Minority interest....... (2.9) 2.5 4.3 (2.6) 2.0 0.8 2.3
Other (income) expense,
net (3)................ 1.1 0.6 10.6 (18.7) (0.4) (0.1) 0.4
------ ------ ------ ------ ------ ------ ------
Income (loss) before
income taxes........... (13.2) 66.0 51.6 93.1 86.3 43.3 38.0
Provision for (benefit
from) income taxes..... (1.0) 23.1 21.8 36.8 34.5 17.3 15.2
Cumulative effect of
changes in accounting
(4).................... -- 3.5 1.8 -- -- -- --
------ ------ ------ ------ ------ ------ ------
Net income (loss)....... $(12.2) $ 39.4 $ 28.0 $ 56.3 $ 51.8 $ 26.0 $ 22.8
====== ====== ====== ====== ====== ====== ======
OTHER FINANCIAL DATA:
EBITDA (5).............. 81.1 163.9 142.2 176.4 166.4 83.4 79.8
Adjusted EBITDA (5)..... 107.2 129.4 144.6 157.9 166.1 85.3 82.4
Depreciation and
amortization........... 94.0 97.6 90.4 83.1 79.4 39.8 41.2
Cash flow from operating
activities (6)......... NA 159.3 141.9 119.9 137.9 48.6 47.3
Capital expenditures.... 20.0 12.2 20.2 13.4 17.0 5.8 5.9
Expenditures for
intangibles (7)........ 82.5 55.9 48.2 61.5 64.5 28.0 33.2
Ratio of earnings to
fixed charges (8) (9).. -- 6.1x 4.9x 7.4x 6.0x 6.4x 4.9x
BALANCE SHEET DATA:
Working capital......... $ (9.5) $ (7.3) $(10.1) $(22.6) $(12.2) $ 4.5 $ 10.7
Total assets............ 592.7 557.0 545.9 533.7 555.4 543.0 549.3
Long-term debt.......... 0.6 0.2 -- 0.9 1.8 0.7 1.6
Net investment (10)..... 443.0 424.0 416.5 401.3 418.5 424.5 433.0
</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 and for the six months
ended June 30, 1996, the Company reduced restructuring reserves by $3.3
million and $1.1 million, respectively.
(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. During 1996, the Company recorded a $3.7
million gain on TRW REDI's sale of the Sanborn business and a loss of $4.8
million pertaining to the full reserve of the Comcred notes receivable.
(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 six months ended June 30, 1996
historical cost levels totaling approximately $16.6 million and $12.7 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 six months ended June 30, 1995 and 1996:
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
------------------------- ------------------
1993 1994 1995 1995 1996
------- ------- ------- -------- --------
<S> <C> <C> <C> <C> <C>
Sales:
Credit information........... 57.0% 55.8% 58.1% 58.2% 59.7%
Marketing information........ 16.2 21.9 24.9 24.7 24.3
Real estate information...... 21.7 19.1 17.0 17.1 16.0
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 51.2 52.2
------- ------- ------- -------- --------
Gross profit................... 46.7 49.0 49.3 48.8 47.8
Administrative and selling
expenses...................... 28.9 28.7 28.0 27.8 25.8
Research and development
expenses...................... 2.4 2.9 4.6 3.5 7.1
Restructuring (income)
expense....................... 0.7 2.5 (0.6) -- (0.4)
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 0.4 1.0
Other (income) expense......... 2.2 (3.7) (0.1) -- 0.1
------- ------- ------- -------- --------
Income before income taxes..... 10.6 18.2 16.0 16.2 13.3
Provision for income taxes..... 4.5 7.2 6.4 6.5 5.3
Cumulative effect of change in
accounting for post employment
benefits...................... 0.3 -- -- -- --
------- ------- ------- -------- --------
Net income..................... 5.8% 11.0% 9.6% 9.7% 8.0%
======= ======= ======= ======== ========
</TABLE>
39
<PAGE>
SIX MONTHS ENDED JUNE 30, 1996 COMPARED TO SIX MONTHS ENDED JUNE 30, 1995
Sales in the first six months of 1996 increased 6.9% to $286.1 million from
$267.7 in the same period of the prior year. Sales of credit products and
services rose 9.7% to $170.8 million due to continuing gains in unit volumes.
Sales of marketing products and services increased by 5.0% to $69.5 million,
principally as a result of increased sales volumes of account management
services.
Real estate information services sales increased by 0.3% in the first six
months of 1996 to $45.8 million. The increase in sales of electronically
imaged products and tax reporting services was offset by lower revenues from
traditional microfiche and hard copy property data products.
Cost of sales was $149.3 million in the first six months of 1996 which
represented an increase of 9.0% from the prior year, reflecting higher
variable costs associated with increased sales and call volumes and services
provided by the Company's National Consumer Assistance Center. Gross margin
for the first six months of 1996 was 47.8% as compared to 48.8% for the prior
year.
Administrative and selling expenses for the first six months of 1996
decreased to $73.9 million from $74.5 million in the same period of 1995 as a
result of continuing cost control in overhead and administrative areas. As a
percentage of sales, administrative and selling expenses decreased from 27.8%
as of June 30, 1995 to 25.8% as of June 30, 1996.
Research and development expenses increased to $20.2 million in the first
six months of 1996 from $9.5 million in the same period of 1995 due to higher
development costs associated with the introduction of File One. During the
second quarter of 1996, the Company implemented the File One database system.
The Company expects to experience a reduction of research and development
expenses during the remainder of 1996 and thereafter.
TRW IS&S 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 $0.8 million. TRW IS&S accounts for its investment in
Comcred using the equity method of accounting. In 1995, such investment
balance was reduced to zero as a result of the recognition of TRW IS&S' share
of losses incurred by Comcred. In addition, TRW IS&S has entered into three
note agreements which allow Comcred to draw down cash as necessary. 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. As of June 30, 1996, TRW
IS&S had principal and interest totaling $4,837 outstanding under the notes.
During the second quarter of 1996, Comcred did not obtain approval for a
significant contract with the Mexican government. As a result, TRW IS&S has
fully reserved for all amounts due from Comcred under these notes.
In addition, other income and expense in the first six months of 1996
includes a gain of $3.7 million resulting from the divestiture of Sanborn, a
provider of mapping services which was not considered to be strategic to the
Company's current interests.
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.
40
<PAGE>
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.
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. During 1995 and the second quarter of
1996, the Company reduced excess restructuring reserves by $3.3 million and
$1.1 million, respectively. The Company believes it maintains adequate
reserves for completion of the remaining actions.
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, $2.4 million and $2.5 million in 1993,
1994, 1995 and in the six months ended June 30, 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 was 40.0% for the six months ended June 30,
1996 and 1995 and for the year ended December 31, 1995 (39.5% in 1994 and
42.3% in 1993). The effective income tax rate for the six months ended June
30, 1996 represents management's forecast of the full year effective income
tax rate. 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 50% $142 50% -- -- -- --
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 six months ended June 30,
1996 totaled $47.3 million, a decrease of $1.3 million or 2.7% from the six
months ended June 30, 1995. The effect of improved collection of accounts
receivables was more than offset by a decline in net earnings and higher
levels of cash disbursements in satisfaction of current operating liabilities.
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, benefiting from a $38 million
decrease in net working capital.
42
<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>
SIX MONTHS
YEAR ENDED DECEMBER ENDED
31, JUNE 30,
---------------------- -----------
1993 1994 1995 1995 1996
------ ------ ------ ----- -----
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C>
EBITDA (1)............................... $142.2 $176.4 $166.4 $83.4 $79.8
------ ------ ------ ----- -----
Minority interest (2).................... 4.3 (2.6) 2.0 0.8 2.3
Restructuring expenses (income) (3)...... 3.6 12.7 (3.3) -- (1.1)
Operating results of divested operations
(4)..................................... (18.1) (12.8) 0.5 0.2 (0.6)
Trademark royalty payment (5)............ 2.1 1.9 1.8 0.9 0.9
Gain on sale of divested businesses (6).. -- (17.7) (1.3) -- (3.7)
Write-off of notes (6)................... 10.5 -- -- -- --
Fully reserved Comcred notes receivable
(6)..................................... -- -- -- -- 4.8
------ ------ ------ ----- -----
Adjusted EBITDA.......................... $144.6 $157.9 $166.1 $85.3 $82.4
====== ====== ====== ===== =====
</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 of 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 exclusion of historical operating (income) losses of divested
operations (Credentials sold in 1993 and 1994, Smart Charts/Search Access
sold in 1995 and Sanborn sold in the second quarter of 1996), 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,
Smart Charts/Search Access in 1995 and Sanborn in the second quarter of
1996) and the write-off of an intercompany note receivable from TRW RELS
in 1993 and the full reserve of the Comcred notes receivable during 1996.
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 $33.2 million and $28.0 million for the six months ended June 30, 1996
and 1995, 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 $5.9 million and $5.8
million for the six months ended June 30, 1996 and 1995, 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 $78 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."
43
<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 June 30, 1996, the Company would
have had long-term borrowings of approximately $811.6 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 June 30, 1996, the Company generated pro forma sales of $554.8
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 June 1996, the
Company implemented 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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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 implemented in June
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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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 2.1% of the Company's sales. The Company's
top 25 customers accounted for approximately 29% of 1995 sales.
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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.
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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 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 June 1996, the Company implemented File One, a systems upgrade which
converted 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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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 $35 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 June, 1996, the Company had approximately 3,534 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. The California
action was removed to federal court by the defendants, whereupon several
defendants moved to dismiss the California action for failure to state a
claim, and Bain and THL moved to dismiss, stay, or transfer the California
action in favor of the Massachusetts actions. 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.
58
<PAGE>
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............. 58 Vice President, Communications
Donald E. Lavoie................ 49 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............... 34 Director
Mark E. Nunnelly................ 37 Director
Scott M. Sperling............... 38 Director
Robert F. White................. 40 Director
</TABLE>
D. Van Skilling. Mr. 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. 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(4)............................................. 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(5).............................................. 33.6
c/o Bain Capital, Inc.
Two Copley Place, 7th Floor
Boston, MA 02116
Edwin P. Setzer(3)...............................................
Scott M. Sperling(4)............................................. 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(5)............................................... 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 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).
(5) 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.
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 $47.2 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 $27.8 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. Commencing in year five, dividends will also accrue on dividends
accrued in year four and thereafter. 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 plus accrued
and unpaid dividends.
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 Fleet National Bank, 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 $125.0 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
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<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 June 30, 1996, on a pro forma basis, after giving effect to the
Transactions, the Company would have had approximately $561.6 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).
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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 Qualified 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 transaction
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. 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 $2.5
million in 1993, 1994, 1995 and in the six months ended June 30, 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.
98
<PAGE>
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
Combined Balance Sheet--June 30, 1996.................................... F-20
Combined Statements of Earnings--Six Months ended June 30, 1995 and
1996.................................................................... F-21
Combined Statements of Cash Flows--Six Months ended June 30, 1995 and
1996.................................................................... F-22
Notes to 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
outstanding............................................................ $ 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
expenses........................................ 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
equivalents..................................... 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
COMBINED BALANCE SHEET
<TABLE>
<CAPTION>
JUNE 30,
1996
-----------
(THOUSANDS
OF DOLLARS)
(UNAUDITED)
<S> <C>
ASSETS
Current assets
Cash and cash equivalents......................................... $ 362
Accounts receivable............................................... 87,667
Prepaid expenses.................................................. 10,419
--------
Total current assets............................................ 98,448
Property and equipment--net......................................... 47,093
Capitalized data files.............................................. 211,173
Goodwill............................................................ 139,131
Other intangible assets............................................. 45,505
Other assets........................................................ 7,981
--------
Total assets.................................................... $549,331
========
LIABILITIES AND NET INVESTMENT
Current liabilities
Accounts payable.................................................. $ 16,940
Other accruals.................................................... 18,918
Accrued compensation.............................................. 24,147
Deferred revenue and advance billings............................. 27,720
--------
Total current liabilities....................................... 87,725
Long-term liabilities............................................... 1,561
Minority interest................................................... 27,006
Net investment...................................................... 433,039
--------
Total liabilities and net investment............................ $549,331
========
</TABLE>
See notes to combined financial statements.
F-20
<PAGE>
TRW INFORMATION SYSTEMS & SERVICES
COMBINED STATEMENTS OF EARNINGS
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
------------------------
1995 1996
----------- -----------
(THOUSANDS OF DOLLARS)
(UNAUDITED)
<S> <C> <C>
Sales................................................ $267,665 $286,173
Cost of sales........................................ 136,992 149,327
----------- -----------
Gross profit......................................... 130,673 136,846
Administrative and selling expenses.................. 74,506 73,878
Research and development expenses.................... 9,519 20,229
Restructuring (income) expense....................... -- (1,130)
TRW corporate general and administrative expenses.... 2,382 2,545
Minority interest.................................... 769 2,276
Interest expense..................................... 246 574
Other (income) expense, net ......................... (52) 400
----------- -----------
Earnings before income taxes......................... 43,303 38,074
Provision for income taxes........................... 17,321 15,230
----------- -----------
Net earnings......................................... $ 25,982 $ 22,844
=========== ===========
</TABLE>
See notes to combined financial statements.
F-21
<PAGE>
TRW INFORMATION SYSTEMS & SERVICES
COMBINED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30
------------------
1995 1996
-------- --------
(THOUSANDS OF
DOLLARS)
(UNAUDITED)
<S> <C> <C>
OPERATING ACTIVITIES
Net earnings.......................................... $ 25,982 $ 22,844
Adjustments to reconcile net earnings to net cash
provided by operating activities:
Depreciation and amortization....................... 39,799 41,159
Gain on sale of Sanborn............................. -- (3,699)
Full reserve of Comcred notes receivable............ -- 4,837
Deferred income taxes............................... 6,034 460
Restructuring....................................... (147) (127)
Other, net.......................................... 1,518 256
Changes in assets and liabilities, net of effects of
businesses acquired or sold:
Accounts receivable............................... (12,465) (1,395)
Prepaid expenses.................................. (1,104) (322)
Accounts payable and other accruals............... (9,090) (18,909)
Other, net........................................ (1,933) 2,221
-------- --------
Net cash provided by operating activities............. 48,594 47,325
INVESTING ACTIVITIES
Capital expenditures.................................. (5,764) (5,858)
Expenditures for intangible assets.................... (28,032) (33,217)
Proceeds from divestiture............................. -- 4,800
Proceeds from sale of property and equipment.......... 38 61
Other, net............................................ (640) (982)
-------- --------
Net cash used in investing activities................. (34,398) (35,196)
FINANCING ACTIVITIES
Net transfers and payments with TRW Inc. ............. (13,990) (12,207)
Change in debt........................................ (283) (425)
-------- --------
Net cash used in financing activities................. (14,273) (12,632)
-------- --------
Decrease in cash and cash equivalents................. (77) (503)
Cash and cash equivalents at beginning of period...... 81 865
-------- --------
CASH AND CASH EQUIVALENTS AT END OF PERIOD............ $ 4 $ 362
======== ========
</TABLE>
See notes to combined financial statements.
F-22
<PAGE>
TRW INFORMATION SYSTEMS & SERVICES
NOTES TO COMBINED FINANCIAL STATEMENTS
JUNE 30, 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 combined financial statements have been prepared by TRW
IS&S without audit; however, in the opinion of TRW IS&S, the accompanying
combined financial statements include all adjustments (including those which
are of a normal and recurring nature) necessary for a fair presentation of the
results for the interim periods. The combined results for any interim period
may not be indicative of the results for the entire year. These interim
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, following which IS&S is
expected to change its name to Experian Information Solutions, Inc.
C. INVESTMENT IN COMCRED
TRW IS&S 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 accounts for its investment in Comcred
using the equity method of accounting. In 1995, such investment balance was
reduced to zero as a result of the recognition of TRW IS&S' share of losses
incurred by Comcred. In addition, TRW IS&S has entered into three note
agreements which allow Comcred to draw down cash as necessary. 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. As of June 30, 1996, TRW
IS&S
F-23
<PAGE>
TRW INFORMATION SYSTEMS & SERVICES
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
had principal and interest totaling $4,837 outstanding under the notes. During
the second quarter of 1996, Comcred did not obtain approval for a significant
contract with the Mexican government. As a result, TRW IS&S has fully reserved
for all amounts due from Comcred under these notes.
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 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. As a result, TRW IS&S had
accrued $600 as of December 31, 1995 and June 30, 1996. Trial is scheduled for
September 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.
G. DIVESTITURE
In 1996, TRW REDI sold Sanborn Mapping and Geographic Information Services
("Sanborn") for $4,800 in cash and recorded a gain of $3,699 before minority
interest and taxes.
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 AMENDMENT NO. 2 TO THE 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 28TH DAY OF AUGUST, 1996.
Experian Information Solutions, Inc.
*
By: _________________________________
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, AS AMENDED, THIS
AMENDMENT NO. 2 TO THE REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING
PERSONS IN THE CAPACITIES INDICATED ON THIS 28TH DAY OF AUGUST, 1996.
SIGNATURE TITLE
Director (Principal
* Executive) Officer)
- -------------------------------------
MARK E. NUNNELLY
/s/ Anthony J. DiNovi Director (Principal
- ------------------------------------- Financial and
ANTHONY J. DINOVI Accounting Officer)
/s/ Jonathan S. Lavine
*By: ___________________________
JONATHAN S. LAVINE
ATTORNEY-IN-FACT
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>
EXHIBIT 12.1
TRW INFORMATION SYSTEMS & SERVICES
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
<TABLE>
<CAPTION>
PRO FORMA
SIX MONTHS
SIX MONTHS PRO FORMA ENDED
YEAR ENDED DECEMBER 31, ENDED JUNE 30, YEAR ENDED JUNE 30,
----------------------------------------------- ---------------- 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 $43,303 $38,074 $14,657 $8,385 $7,189
Minority interest... (2,908) 2,528 4,327 (2,576) 2,011 769 2,276 -- -- --
Fixed charges:
Interest expense.. 331 335 174 193 706 246 574 82,481 40,859 40,890
Rentals:
1/3 of all lease
rentals........... 10,963 13,248 14,000 14,000 17,000 7,897 9,793 17,000 7,897 9,793
-------- ------- ------- ------- ------- ------- ------- ------- ------ ------
Total fixed
charges......... 11,294 13,583 14,174 14,193 17,706 8,143 10,367 99,481 48,756 50,683
-------- ------- ------- ------- ------- ------- ------- ------- ------ ------
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 52,215 50,717 114,138 57,141 57,872
Ratio of earnings to
fixed charges....... -- 6.1x 4.9x 7.4x 6.0x 6.4x 4.9x 1.1x 1.2x 1.1x
<CAPTION>
PRO FORMA
TWELVE MONTHS
ENDED
JUNE 30,
1996
-------------
<S> <C>
Earnings before
income taxes and
cumulative effect of
accounting changes.. $13,461
Minority interest... --
Fixed charges:
Interest expense.. 82,512
Rentals:
1/3 of all lease
rentals........... 18,896
-------------
Total fixed
charges......... 101,408
-------------
Earnings before
income taxes and
cumulative effect of
accounting changes,
minority interest
and fixed charges... 114,869
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. 2 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
August 28, 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
August 28, 1996
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> YEAR 3-MOS
<FISCAL-YEAR-END> DEC-31-1995 DEC-31-1996
<PERIOD-START> JAN-01-1995 JAN-01-1996
<PERIOD-END> DEC-31-1995 JUN-30-1996
<CASH> 865 362
<SECURITIES> 0 0
<RECEIVABLES> 91,581 91,758
<ALLOWANCES> 4,704 4,090
<INVENTORY> 650 384
<CURRENT-ASSETS> 98,180 98,448
<PP&E> 144,790 147,004
<DEPRECIATION> 96,156 99,911
<TOTAL-ASSETS> 555,443 549,331
<CURRENT-LIABILITIES> 110,419 87,725
<BONDS> 0 0
0 0
0 0
<COMMON> 0 0
<OTHER-SE> 418,455 433,039
<TOTAL-LIABILITY-AND-EQUITY> 555,443 549,331
<SALES> 540,159 286,173
<TOTAL-REVENUES> 540,159 286,173
<CGS> 273,941 149,327
<TOTAL-COSTS> 273,941 149,327
<OTHER-EXPENSES> 177,587 96,652
<LOSS-PROVISION> 2,314 636
<INTEREST-EXPENSE> 706 574
<INCOME-PRETAX> 86,282 38,074
<INCOME-TAX> 34,530 15,230
<INCOME-CONTINUING> 51,752 22,844
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 51,752 22,844
<EPS-PRIMARY> 0 0
<EPS-DILUTED> 0 0
</TABLE>
