<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 30, 1996
REGISTRATION NO. 333-
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------
EXPERIAN CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 7320 75-2501317
(STATE OR OTHER (PRIMARY STANDARD (I.R.S. EMPLOYER
JURISDICTION OF INDUSTRIAL IDENTIFICATION NUMBER)
INCORPORATION OR CLASSIFICATION CODE
ORGANIZATION) NUMBER)
505 CITY PARKWAY WEST
ORANGE, CA 92668
(714) 385-7000
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
---------------
D. VAN SKILLING
EXPERIAN CORPORATION
505 CITY PARKWAY WEST
ORANGE, CA 92668
(714) 385-7000
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF AGENT FOR SERVICE)
---------------
COPIES TO:
PETER H. DODSON CHARLES W. ROBINS
ROPES & GRAY HUTCHINS, WHEELER & DITTMAR,
ONE INTERNATIONAL PLACE A PROFESSIONAL CORPORATION
BOSTON, MASSACHUSETTS 02110 101 FEDERAL STREET
(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. [_]
---------------
CALCULATION OF REGISTRATION FEE
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PROPOSED
NUMBER OF PROPOSED MAXIMUM
SHARES MAXIMUM AGGREGATE AMOUNT OF
TITLE OF SECURITIES TO TO BE OFFERING PRICE OFFERING REGISTRATION
BE REGISTERED REGISTERED(1) PER SHARE(2) PRICE(2) FEE
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock ($ par
value)................ $265,000,000 $80,304
</TABLE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
(1) Includes shares which the Underwriters have the option to purchase to
cover over-allotments. The shares of Common Stock are not being registered
for the purpose of sales outside the United States.
(2) Estimated pursuant to Rule 457(a), solely for the purpose of computing the
registration fee.
---------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(A) OF THE SECURITIES ACT OF 1933, OR UNTIL THE REGISTRATION
STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING
PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<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 OCTOBER 30, 1996
SHARES
EXPERIAN CORPORATION
COMMON STOCK
(PAR VALUE $ PER SHARE)
-----------
Of the shares of Common Stock of the Company offered, shares are
being offered hereby in the United States (the "U.S. Offering") and shares
are being offered in a concurrent international offering outside the United
States (the "International Offering"). The initial public offering price and
the aggregate underwriting discount per share are identical for both the U.S.
Offering and the International Offering (together, the "Offerings"). See
"Underwriting." All of the shares of Common Stock offered are being issued and
sold by Experian Corporation (the "Company").
Prior to this offering, there has been no public market for the Common Stock.
It currently is estimated that the initial public offering price will be
between $ and $ per share. For factors considered in determining the
initial public offering price, See "Underwriting." Application has been made to
list the Common Stock on the [NYSE/NASDAQ] under the symbol " ."
SEE "RISK FACTORS" COMMENCING ON PAGE 12 FOR CERTAIN CONSIDERATIONS RELEVANT
TO AN INVESTMENT IN THE COMMON STOCK.
-----------
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.
-----------
<TABLE>
<CAPTION>
INITIAL PUBLIC UNDERWRITING PROCEEDS TO
OFFERING PRICE DISCOUNT(1) COMPANY(2)
-------------- ------------ -----------
<S> <C> <C> <C>
Per Share........................... $ $ $
Total(3)............................ $ $ $
</TABLE>
- -----
(1) The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933.
(2) Before deducting estimated expenses of $ payable by the Company.
(3) The Company has granted the Underwriters an option, exercisable for 30 days
to purchase up to an additional shares of Common Stock at the initial
public offering price per share, less the underwriting discount, solely to
cover over-allotments. If such options are exercised in full, the total
initial public offering price, underwriting discount and proceeds to the
Company will be $ , $ and $ , respectively.
-----------
The shares of Common Stock are offered severally by the U.S. Underwriters, as
specified herein, subject to receipt and acceptance by them and subject to
their right to reject any order in whole or in part. It is expected that the
delivery of the certificates representing such shares will be made in New York,
New York on or about , 1996, against payment therefor in immediately
available funds.
THE DATE OF THIS PROSPECTUS IS , 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 Common Stock 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. For further information with
respect to the Company and the Common Stock offered hereby, reference is made
to such Registration Statement, exhibits and schedules.
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.
The Commission maintains a World Wide Web site (http://www.sec.gov.) that
contains reports, proxy and information statements and other information
regarding registrants that submit electronic filings to the Commission.
-------------------------
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK
OFFERED HEREBY 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 were business groups, divisions, majority-owned general
partnerships, or wholly owned subsidiaries of TRW Inc. ("TRW"), and for periods
after the Recapitalization refers to the combined operations of Experian
Corporation and its subsidiaries. See "The Recapitalization."
Unless otherwise indicated, all financial information and share and per share
data contained in this Prospectus (i) give effect to the conversion
("Conversion") that will occur concurrently with the closing of the sale of the
common stock, $ par value (the "Common Stock"), offered hereby, whereby all
shares of the existing Class A Common Stock, par value $.001, Class B Common
Stock, par value $.001, Class L-1 Common Stock, par value $.001, and Class L-2
Common Stock, par value $.001, of the Company will be exchanged on the basis of
a formula that will be derived from the actual initial public offering price
for the Common Stock at a ratio estimated (based on an assumed offering price
of $ per share and a valuation date of , 1996) to be ,
, and shares of Common Stock per share of Class A Common
Stock, Class B Common Stock, Class L-1 Common Stock and Class L-2 Common Stock,
respectively; and (ii) assume no exercise of the Underwriters' over-allotment
option. See "The Recapitalization," "Description of Capital Stock,"
"Underwriting" and the Notes to Consolidated Financial Statements.
Certain of the information contained in this summary and elsewhere in this
Prospectus, including under "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and information with respect to the
Company's plans and strategy for its business are forward-looking statements.
For a discussion of important factors that could cause actual results to differ
materially from the forward-looking statements, see "Risk Factors."
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,
servicing over 40,000 corporate and financial institutions 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 twelve-month period
ended June 30, 1996, the Company generated pro forma sales of $554.8 million
and pro forma net income of $23.9 million. Increased demand for the Company's
core products and expanded applications for reliable credit and marketing
information as well as positive market dynamics 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
3
<PAGE>
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.
To address the changing requirement of its customers, the Company recently
implemented File One, a $100 million investment in, and upgrade of, the
Company's consumer credit database from a traditional flat-file structure to a
state-of-the-art relational database. Management believes File One is on of the
largest relational databases used commercially in the United States and that
neither of the Company's major competitors currently has a similar database.
File One offers a competitive advantage by enabling faster new product
development cycles which improve time-to-market capabilities, providing
information to customers in an open and more usable form, and reducing
development costs for new and enhanced versions of existing products.
Furthermore, File One utilizes a unique data identification system which
results in more accurate cataloging of individual pieces of data and reduces
the risk of incorrect data or duplicate files.
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 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 generated approximately $1.63 billion of revenues in 1995.
Management believes that the portion of the market in which the Company
competes was approximately $875 million of revenues in 1995. Furthermore,
Marketdata Enterprises estimates the business credit reporting industry
generated approximately $1 billion of revenues in 1995. Management believes
that the portion of the market in which the Company competes was approximately
$600 million of 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, demographic, lifestyle and behavioral
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. These micro-marketing techniques enable marketers to refine
programs based on measurable results. 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.
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%,
4
<PAGE>
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.
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
REPRESENTATIVE Credit Profile Reports Prescreen Services Property Characteristics
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.
GROWTH STRATEGY
The Company seeks to leverage its expertise in data management, mining and
analysis to develop increasingly customized products and services. The
Company's customer focused operating strategy seeks to capitalize on its
strengths, the growing demand and expanding applications for its information
and the economies of scale in the information services industry.
Maintain, Expand and Enhance the Databases
The unique and comprehensive nature of the Databases have been key elements
in the Company's success to date. The Company plans to continue strengthening
and investing in its core business by acquiring and developing new data and
ways to screen information to enhance the breadth and quality of its data
content. The Company believes that the breadth of information in its Databases,
together with the flexibility afforded by File One, uniquely positions the
Company to independently develop product offerings utilizing data from various
databases. The Company does not believe any of its competitors have a similar
capability to link together such a wide range of information.
5
<PAGE>
Develop New Products and Enter Growing End Use Markets
The Company intends to continue utilizing the Databases to develop value-
added products and services for its customers. The Company intends to generate
additional growth through the introduction of products and services that
address a broader range of its customers credit decisions, leverage the
relational structure of File One and utilize new information sources.
Furthermore, the demand for credit and marketing information continues to
expand rapidly as an increasingly broad group of industries utilize the
Company's information. For example, as growth in the cellular phone industry
has yielded significant credit exposure for telecommunications companies, the
Company's sales to telecommunications providers have doubled.
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.
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 the need for higher quality
information, privacy protection and information technology infrastructure
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.
Improve Operating Efficiencies
As a result of the Recapitalization, the Company operates as a stand-alone
entity for the first time. Management has identified numerous reductions,
primarily resulting from operating as an independent corporate entity.
Furthermore, 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.
Management continues to implement programs to increase margins and
profitability.
--------------------------------------------------------
The Company's principal executive offices are located at 505 City Parkway
West, Orange, California 92668, telephone number: (714) 385-7000.
THE RECAPITALIZATION
On September 19, 1996 (the "Recapitalization Closing") the Company effected a
recapitalization (the "Recapitalization") in which 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
6
<PAGE>
investors are collectively referred to as the "Investors") invested $248.7
million (the "'Equity Investment") in, and became the largest shareholders of,
the Company. At the same time, Experian Information Solutions, Inc., a
subsidiary of the Company ("Experian"), entered into a loan agreement with The
Chase Manhattan Bank ("Chase") and Bankers Trust Company ("Bankers Trust")
providing for up to $625 million of Senior Indebtedness (the "Credit
Facilities"), $575 million of which was borrowed at the Recapitalization
Closing, and a bridge loan agreement with Chase, Bankers Trust and The Bear
Stearns Companies Inc., for $250 million of senior subordinated indebtedness
(the "Bridge Loan"). Proceeds from the Credit Facilities and Bridge Loan, along
with the Equity Investment, were used to pay all amounts owed to TRW by
Experian under a $761.3 million note (the "TRW Note"), to pay TRW $248.7
million in connection with the redemption of certain stock of TRW in the
Company and to pay fees and expenses relating to the Recapitalization Closing.
See "Description of Credit Facilities," "Capitalization" and "Unaudited Pro
Forma Financial Data." The Bridge Loan will be repaid with the net proceeds of
the Offering. See "Use of Proceeds."
The Company owns all of the outstanding capital stock of Experian. Bain owns
approximately 34.2% of the voting power of the Company, THL owns approximately
34.4% of the voting power of the Company, TRW owns securities entitled to
approximately 19.2% of the voting power of the Company and certain other
investors own approximately 12.2% of the voting power of the Company. See "Risk
Factors--Controlling Stockholders," "Principal Stockholders" and "Certain
Relationships and Related Transactions."
7
<PAGE>
THE OFFERING
The Offering together with the transactions described above under "The
Recapitalization" are referred to herein collectively as the "Transactions."
<TABLE>
<S> <C>
Common Stock offered(a):
U.S. Offering........................... shares
International Offering.................. shares
Total................................... shares
Common Stock to be outstanding after
this Offering(a)(b).................... shares
Uses of proceeds........................ To repay the Bridge Loan.
[NYSE/NASDAQ] symbol ...................
</TABLE>
- --------
(a)Assumes that the Underwriters' over-allotment option is not exercised. See
"Underwriting."
(b) Excludes shares of Common Stock reserved for issuance upon exercise of
employee stock options, of which shares were subject to options
outstanding as of ,1996.
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 Common
Stock. See "Risk Factors."
8
<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."
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
------------------------------------- --------------
1991 1992 1993 1994 1995 1995 1996
------ ------ ------ ------ ------ ------ ------
(DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)
<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 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
====== ====== ====== ====== ====== ====== ======
Pro forma net income per
common share (5)....... $ $
====== ======
Pro forma weighted aver-
age common shares out-
standing (5)...........
====== ======
SUPPLEMENTARY INCOME
STATEMENT DATA: (6)
Supplemental pro forma
net income............. $ $
====== ======
Supplemental pro forma
net income per common
share.................. $ $
====== ======
Supplemental pro forma
weighted average common
shares outstanding.....
====== ======
OTHER FINANCIAL DATA:
Depreciation and amorti-
zation................. 94.0 97.6 90.4 83.1 79.4 39.8 41.2
Capital expenditures.... 20.0 12.2 20.2 13.4 17.0 5.8 5.9
Expenditures for intan-
gibles (7)............. 82.5 55.9 48.2 61.5 64.5 28.0 33.2
</TABLE>
<TABLE>
<CAPTION>
JUNE 30, 1996
---------------------
DECEMBER 31, PRO FORMA
1995 ACTUAL AS ADJUSTED(8)
------------ ------ --------------
<S> <C> <C> <C>
BALANCE SHEET DATA:
Working capital.............................. $(12.2) $ 10.7 $ 24.3
Total assets................................. 555.4 549.3 723.0
Total indebtedness........................... 1.8 1.6 576.6
Preferred stock.............................. -- -- 75.0
Net investment/Stockholders' equity.......... 418.5 433.0 69.7
</TABLE>
9
<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 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.
(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) Reflects...
(6) Reflects...
(7) Expenditures for intangibles consists of capitalized data files and
software products.
(8) As adjusted to give effect to the Transactions as if they occurred on June
30, 1996.
10
<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.
<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>
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 selling ex-
penses........................... 152.0 75.1 75.0 151.9
Research and development ex-
penses........................... 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.................. 56.0 27.7 27.8 56.1
Minority interest................. -- -- -- --
Other (income) expense, net....... -- (0.5) (3.7) (3.2)
------ ------ ------ ------
Income before income taxes........ 41.1 21.5 20.3 39.9
Provision for income taxes........ 16.5 8.6 8.1 16.0
------ ------ ------ ------
Net income........................ $ 24.6 $ 12.9 $ 12.2 $ 23.9
====== ====== ====== ======
SUPPLEMENTARY INCOME STATEMENT DA-
TA: (4)
Supplemental pro forma net in-
come............................. $ $ $ $
====== ====== ====== ======
Supplemental pro forma net income
per common share................. $ $ $ $
====== ====== ====== ======
Supplemental pro forma weighted
average common shares outstand-
ing..............................
====== ====== ====== ======
OTHER FINANCIAL DATA:
Depreciation and amortization..... 79.4 39.8 41.2 80.8
Capital expenditures.............. 17.0 5.8 5.9 17.1
Expenditures for intangibles (5).. 64.5 28.0 33.2 69.7
</TABLE>
<TABLE>
<CAPTION>
PRO FORMA
JUNE 30,
1996
---------
<S> <C>
BALANCE SHEET DATA:
Working capital....................................................... $ 24.3
Total assets.......................................................... 723.0
Long-term debt........................................................ 576.6
Stockholders' equity.................................................. 69.7
</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) Reflects. . .
(5) Expenditures for intangibles consists principally of capitalized data
files and software products.
11
<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 Common Stock offered hereby.
SUBSTANTIAL LEVERAGE AND DEBT SERVICE OBLIGATIONS
The Company incurred substantial indebtedness in connection with the
Recapitalization and may incur additional indebtedness in the future. The
Company will repay $250.0 million of such indebtedness with the proceeds of
the Offering. 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 $576.6 million (excluding unused
commitments) and its stockholders' equity would have been approximately $69.7
million. See "Capitalization" and "Unaudited Pro Forma Financial Data." The
Company has additional borrowing capacity on a revolving credit basis under
the Credit Facilities. See "Description of Credit Facilities." If the Company
consummates any acquisitions in the future, it is likely to incur additional
indebtedness. The degree to which the Company is leveraged could have
important consequences, 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. 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.
RESTRICTIVE FINANCING COVENANTS
The Credit Facilities 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, amend
the terms of debt, pay 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 is 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 income before income
taxes, depreciation and amortization expense and investment expense ("EBITDA")
covenant. See "Description of Credit Facilities."
The Company's ability to comply with the covenants and restrictions
contained in the Credit Facilities 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 which would permit the lenders under the Credit
Facilities 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."
12
<PAGE>
CONTROLLING STOCKHOLDERS
After completion of this Offering, assuming a public offering price of $
per share, Bain will own approximately % of the Company's Common Stock, THL
will own approximately % the Company's Common Stock and TRW will own
approximately % of the Company's Common Stock and all of the Company's
outstanding Preferred Stock. Pursuant to a Stockholders Agreement (the
"Stockholders Agreement") to which Bain, THL, TRW and other stockholders are
parties, Bain is entitled to designate up to four persons to the Board of
Directors of the Company, THL is entitled to designate up to four persons to
the Board of Directors of the Company and TRW is entitled to designate one
person to the Board of Directors of 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 effectively control the board
of directors and business and operations of the Company. See "Principal
Stockholders" and "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. On September 30,
1996 the United States Congress enacted substantial amendments to the FCRA.
This legislation clarified certain portions of the FCRA, including
prescreening, and added certain additional compliance requirements. In
addition, numerous bills are pending in various state legislatures. The
Federal Trade Commission (the "FTC") also recently implemented rules governing
telemarketing. Management is currently reviewing the new amendments to the
FCRA, and while Management does not believe that such amendments or the
proposed state bills will 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."
EFFECTS OF THE RECAPITALIZATION
The Company had operated as a part of TRW for over 25 years and had
consistently identified itself during that time using the names TRW and TRW
Information Systems & Services. In connection with the Recapitalization, the
Company is permitted to (i) use the TRW name in connection with its products
and services for two years after the Recapitalization Closing and (ii)
identify itself for one year after the Recapitalization Closing as having
formerly been TRW Information Systems & Services.
13
<PAGE>
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, prior to the Recapitalization, has never operated as a stand-alone
entity, will succeed in doing so. See "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 Abacus Direct, 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 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.
14
<PAGE>
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."
NO PRIOR PUBLIC MARKET
Prior to the Offering, there has been no public market for the Common Stock.
There can be no assurance that an active public market will develop upon
completion of the Offering or, if developed, that such a market will be
sustained after the Offering. Factors such as fluctuations in the Company's
operating results and general changes in the market conditions in the credit
and marketing information industry could have a significant impact on the
market price of the Common Stock. The initial public offering price of the
Common Stock will be determined through negotiations between the Company and
the Underwriters and may not be indicative of the market price for the Common
Stock after completion of the Offering. See "Underwriting."
ANTI-TAKEOVER EFFECTS
The Company's Amended and Restated Certificate of Incorporation and Bylaws
will, after the completion of the Offering, contain certain provisions that
could make more difficult the acquisition of the Company by means of a tender
offer, a proxy contest or otherwise. These provisions establish staggered
terms for members of the Company's Board of Directors and include advance
notice procedures for stockholders to nominate candidates for election as
directors of the Company and for stockholders to submit proposals for
consideration at stockholders' meetings. In addition, the Company will be
subject to Section 203 of the Delaware General Corporation Law ("DGCL") which
limits transactions between a publicly held company and "interested
stockholders" (generally, those stockholders who, together with their
affiliates and associates, own 15% or more of a company's outstanding capital
stock). The restrictions of Section 203 would not apply to those who were
15
<PAGE>
"interested stockholders" prior to the consummation of the Offering. This
provision of the DGCL may have the effect of deterring certain potential
acquisitions of the Company. The Company's Amended and Restated Certificate of
Incorporation will provide for [10] million authorized but unissued shares of
Preferred Stock, the rights, preferences, qualifications, limitations and
restrictions of which may be fixed by the Board of Directors without any
further action by stockholders, and, as the sole stockholder of Experian, the
Company will be entitled to authorize preferred stock of Experian. An
occurrence of a Change of Control would also constitute an event of default
under the Credit Facilities requiring immediate payment of all indebtedness
outstanding under the Credit Facilities and discontinuance of the extension of
credit thereunder. See "Description of Capital Stock" and "Description of
Credit Facilities."
NO DIVIDENDS ON COMMON STOCK
Other than in connection with the Recapitalization, the Company has not
paid any dividends on its Common Stock and does not anticipate paying any
dividends on its Common Stock in the foreseeable future. The Credit Facilities
severely restrict the ability of Experian, the Company's operating subsidiary,
to pay dividends to the Company. See "Dividend Policy," "Management's
Discussion and Analysis of Financial Condition and Results of Operations--
Liquidity and Capital Resources" and "Description of Credit Facilities."
DILUTION
Based on an initial public offering price of $ per share (the midpoint of
the range set forth on the cover of this Prospectus), purchasers of the Common
Stock offered hereby will experience immediate and substantial dilution of
$ in the net tangible book value per share of Common Stock. See "Dilution."
SHARES ELIGIBLE FOR FUTURE SALE
All of the shares of Common Stock outstanding prior to the Offering are
"restricted securities" as that term is defined in Rule 144 under the
Securities Act of 1933, as amended (the "Securities Act"), and, under certain
circumstances, may be sold without registration pursuant to Rule 144 at
varying times. The Commission has proposed changes to Rule 144 that would
shorten the holding periods thereunder. In addition, existing stockholders and
option holders have registration rights with respect to substantially all of
the Common Stock held by them or issuable upon exercise of their options. In
connection with the Offering, all existing stockholders have agreed not to
dispose of any shares for a period of 180 days from the date of this
Prospectus, or to make any demand for or exercise any right with respect to
the registration of their shares, and the Company has agreed not to dispose of
any shares (other than shares sold in the Offering or issuances by the Company
of certain employee stock options and shares covered thereby) for a period of
180 days from the date of this Prospectus, without the prior written consent
of (" ") on behalf of the Underwriters. After 180 days after this
Offering, the Company intends to file a registration statement on Form S-8
under the Act to register shares of Common Stock reserved for issuance under
its 1996 Stock Option Plan, thus permitting the resale of shares issued under
the plans by non-affiliates in the public market without restriction under the
Act. Such registration statement will become effective immediately upon
filing. As of the closing of the Offering, options to purchase shares of
Common Stock will be outstanding under the Company's stock option plans and
shares of Common Stock will be available for future grants. See "Shares
Eligible for Future Sale" and "Stockholders Agreement--Registration Rights."
No prediction can be made as to the effect, if any, that market sales of
shares of Common Stock or the availability of shares of Common Stock for sale
will have on the market price of the Common Stock from time to time. The sale
of a substantial number of shares held by the existing stockholders, Whether
pursuant to a subsequent public offering or otherwise, or the perception that
such sales could occur, could adversely affect the market price of the Common
Stock and could materially impair the Company's future ability to raise
capital through an offering of equity securities.
16
<PAGE>
USE OF PROCEEDS
The net proceeds to the Company from the Offering, after deducting
underwriting discounts and commissions and expenses payable by the Company,
are estimated to be $[250] million, assuming an initial public offering price
of $ per share. The Company intends to use the proceeds from the Offering to
repay $250.0 million of borrowings under the Bridge Loan (which bears interest
at % per annum and is scheduled to mature on September 19, 2006). The net
proceeds of the Bridge Loan, together with proceeds of the Credit Facilities,
were used to pay all amounts outstanding under the TRW Note and fees and
expenses of the Recapitalization . See "The Recapitalization."
DIVIDEND POLICY
Other than in connection with the Recapitalization, the Company has not
paid any dividends on its Common Stock and does not anticipate paying any
dividends on its Common Stock in the foreseeable future. The Credit Facilities
severely restrict the ability of Experian, the Company's operating subsidiary,
to pay dividends to the Company.
17
<PAGE>
CAPITALIZATION
The following table sets forth the unaudited pro forma capitalization after
giving effect to the Recapitalization of the Company as of June 30, 1996 and
as adjusted to give effect to the Offering.
<TABLE>
<CAPTION>
AS OF
JUNE 30, 1996
-------------
(DOLLARS IN MILLIONS)
PRO FORMA AS ADJUSTED
--------- -----------
<S> <C> <C>
Long-term debt:
Revolving Facility (1)................................. $ 25.0 $ 25.0
Term Loans............................................. 550.0 550.0
Bridge Loan............................................ 250.0 --
Other notes payable...................................... 1.6 1.6
--------- ----------
Total long-term debt................................. 826.6 576.6
--------- ----------
Stockholders' equity (deficit):
Senior voting convertible preferred stock.............. 47.2 47.2
Senior non-voting convertible preferred stock.......... 27.8 27.8
Common Stock--Class A, B, L-1 and L-2 (2).............. 248.7 --
Common Stock--Class A and L-1 (2)...................... 15.0 --
Common stock, par value; shares authorized;
shares issued and outstanding (2).................. --
Additional paid-in capital (2)......................... 593.6 1,107.3
Retained earnings (deficit)............................ (1,100.0) (1,112.6)
--------- ----------
Total stockholders' equity (deficit)................. (167.7) 69.7
--------- ----------
Total capitalization..................................... $ 658.9 $ 646.3
========= ==========
</TABLE>
- --------
(1) Represents the drawn portion under the $75.0 million Revolving Facility.
(2) Represents the conversion of , , and shares of class A,
Class B, Class L-1 and Class L-2 Common Stock into shares of Common
Stock, $ par value, with the excess of the total Common Stock
consideration over the par value being reflected within additional paid-in
capital.
DILUTION
As of June 30, 1996 the Company had a pro forma net tangible book deficiency
of $ million or $ per share of Common Stock, after giving effect to the
Recapitalization and the Conversion. Pro forma net tangible book deficiency
per share represents the amount of total tangible assets less total
liabilities divided by the total number of shares of Common Stock outstanding
after giving effect to the Conversion. Without taking into account any other
changes in the net tangible book deficiency after June 30, 1996, other than to
give effect to the receipt and application by the Company of the net proceeds
from the sale of the shares of Common Stock offered hereby at an offering
price of $ per share as described in "Use of Proceeds," the pro forma net
tangible book value of the Company would have been $ or $ per share. This
represents an immediate increase in the pro forma net tangible book value of
$ per share to existing shareholders and an immediate dilution of $ per
share to new investors. The following table illustrates this per share
dilution:
<TABLE>
<S> <C> <C>
Initial public offering price per share............................. $
---
Pro forma net tangible book deficiency per share as of June 30,
1996 before the Offering......................................... $ (1)
Increase per share attributable to new investors..................
----
Pro forma net tangible book value per share as of June 30, 1996
after the Offering................................................. $
---
Dilution per share purchased in the Offering........................ $
===
</TABLE>
18
<PAGE>
The following table summarizes, on a pro forma basis as of June 30, 1996,
the differences between existing stockholders and new investors with respect
to the number of shares of Common Stock purchased from the Company, the total
consideration and the average price per share, before deductions of the
underwriting discount and estimated offering expenses:
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
------------------ ---------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
--------- -------- ---------- ---------- -------------
<S> <C> <C> <C> <C> <C>
Existing
Shareholders(1)........ % $ % $
New Investors...........
--------- ------ ---------- -------- -------
Total................. 100% $ 100% $
========= ====== ========== ======== =======
</TABLE>
Other than as noted above, the foregoing computations assume the exercise of
no stock options after June 30, 1996. As of that date, there were outstanding
options and warrants to purchase shares of Common Stock on a pro forma
basis, at a weighted average exercise price of $ per share, of which are
vested. To the extent these options are exercised, there will be further
dilution to new stockholders.
- --------
(1) Reflects the conversion of all issued and outstanding shares of Class A,
Class B, Class L-1 and Class L-2 Common Stock into shares, shares,
shares and shares, respectively, of Common Stock upon the closing of
the Offering.
19
<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" and "The Offering" 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. 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......................................... $57,702 $32,941
======= =======
</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.
In addition, as a result of the Recapitalization Closing, the successful
implementation of File One and continuing efforts to reduce operating costs,
management is currently considering proposals to outsource certain
manufacturing and fulfillment functions related to its property data products,
which may result in a significant downsizing or closure of a particular
facility. Management is also evaluating the estimates of useful life and
carrying values of capitalized consumer credit data files to determine whether
changes in these estimates are appropriate as a result of the new system
architecture, new product offerings or prospective changes in data retention
practices. These pending actions may result
20
<PAGE>
in significant adjustments to the carrying value of specified assets during
the third or fourth quarter of 1996. No such potential adjustments are
included within the Unaudited Pro Forma Financial Data.
In connection with the Recapitalization Closing and the Offering, the
Company would have incurred extraordinary debt extinguishment costs
aggregating $7,541 (net of related tax benefit of $5,027) relating to the
write-off of the unamortized balance of deferred financing fees on the Bridge
Loan paid down with the net proceeds of the Offering. Such charges are
reflected in the Unaudited Pro Forma Combined Balance Sheet but are not
reflected in the Unaudited Pro Forma Combined Statements of Income.
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.
21
<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) $ -- $ 3,200 (5) $ 3,200
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 3,200 101,013
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..... -- 47,932 (5) 47,932
-------- -------- -------- -------- -----------
Total assets.............. $549,331 $122,511 $671,842 $ 51,132 $ 722,974
======== ======== ======== ======== ===========
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...................... -- 761,300 (4) 761,300 (761,300)(5) --
Credit Facilities:
Revolving Facility.......... -- -- 25,000 (5) 25,000
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
250,000 (5)
Bridge Loan.................. (250,000)(5) --
-------- -------- -------- -------- -----------
Total liabilities......... 116,292 723,290 839,582 (186,300) 653,282
Net Investment/Stockholders'
Equity:
Senior voting convertible
preferred stock............ 47,200 (5) 47,200
Senior non-voting
convertible preferred
stock...................... 27,800 (5) 27,800
Common Stock--Class A, B,
L-1 and L-2................ 248,700 (5) --
(248,700)(6)
Common Stock--Class A and
L-1........................ 15,000 (5) --
(15,000)(6)
Common stock, par value;
shares authorized;
shares issued and
outstanding................ -- -- (6)
Net investment/additional
paid in capital............ 433,039(4) 6,905 (1) 593,560 265,000 (5)(6)
27,006 (3) 263,700 (6)
126,610 (2) (15,000)(5) 1,107,260
Retained earnings
(deficit), incluing
distribution to
shareholder in excess of
book value arising from
the (338,700)(5)
Reorganization............. (761,300)(4) (761,300) (12,568)(5) (1,112,568)
-------- -------- -------- -------- -----------
Total net
investment/stockholders'
equity (deficit)........ 433,039 (600,779) (167,740) 237,432 69,692
-------- -------- -------- -------- -----------
Total liabilities and net
investment/stockholders'
equity (deficit)........ $549,331 $122,511 $671,842 $ 51,132 $ 722,974
======== ======== ======== ======== ===========
</TABLE>
22
<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
professional 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 resulted 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%:
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....................................... 60,500
----------
Total........................................................... $1,160,500
==========
</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...................................... 60,500
Increase in intangible assets for income tax reporting purposes.. 978,859
----------
Total.......................................................... $1,160,500
==========
</TABLE>
--------
(a) Consists of the repayment of the TRW Note of $761,300 (Note 5), the
redemption of a portion of the Company's stock for aggregate
consideration of $248,700 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>
23
<PAGE>
NOTES TO UNAUDITED PRO FORMA COMBINED BALANCE SHEET
JUNE 30, 1996
(DOLLARS IN THOUSANDS)
The Company is in the process of completing an appraisal of its assets 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 was completed immediately prior to the Recapitalization
Closing. Since the Company is currently in the process of completing an
appraisal of its assets, 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 was funded by TRW, the
purchase price for pro forma purposes is accounted for as a contribution
to capital.
(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.
(5) Reflects the incurrence of debt relating to the Credit Facilities and the
Bridge Loan and use of the cash proceeds from such debt and the Offering
to repay the TRW Note, the Bridge Loan and the fees and expenses incurred
in connection with the aforementioned debt and Offering. Additionally, it
reflects the partial redemption of stock of the Company held by TRW for
aggregate cash consideration of $248,700 and the conversion of the
remaining stock of the Company held by TRW into new shares of Common Stock
and Senior Convertible Preferred Stock totaling $15,000 and $75,000,
respectively, pursuant to the Recapitalization.
SOURCES
<TABLE>
<S> <C>
Revolving Facility............................................. $ 25,000
Tranche A Term Loan............................................ 200,000
Tranche B Term Loan............................................ 175,000
Tranche C Term Loan............................................ 175,000
Bridge Loan.................................................... 250,000
Proceeds From The Offering..................................... 265,000
Investors' Equity Investment................................... 248,700
----------
Total Sources................................................ $1,338,700
==========
USES
Payment of deferred financing costs (a)........................ $ 47,932
Payment of Bridge Loan fees (b)................................ 12,568
Contribution to working capital................................ 3,200
Payment of TRW Note............................................ 761,300
Payment of the Bridge Loan..................................... 250,000
Redemption of the Company's Common Stock held by TRW........... 248,700
Payment of Offering fees and expenses.......................... 15,000
----------
Total Uses................................................... $1,338,700
==========
</TABLE>
--------
(a) Consists of bank fees from the Credit Facilities, financial advisory
fees and legal, accounting and other professional fees.
(b) Reflects Bridge Loan fees written-off as a result of the extinguishment
of this debt with the net proceeds of the Offering. See "Unaudited Pro
Forma Financial Data."
(6) Represents the conversion of , , and shares of Class A,
Class B, Class L-1 and Class L-2 Common Stock into shares of Common
Stock, $ par value, with the excess of the total Common Stock
consideration over the par value being reflected within additional paid in
capital.
24
<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
expenses............... 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 55,355 56,061
Other (income) expense,
net.................... (368) 1,257 (1) (33) (33)
(922)(3)
-------- ------- -------- -------- --------
Income (loss) before
income taxes........... 86,282 4,029 90,311 (49,234) 41,077
Provision for (benefit
from) income taxes..... 34,530 1,612 (4) 36,142 (19,694)(4) 16,448
-------- ------- -------- -------- --------
Net income (loss)....... $ 51,752 $ 2,417 $ 54,169 $(29,540) $ 24,629
======== ======= ======== ======== ========
Pro forma net income per
common share........... $
========
Pro forma weighted
average common shares
outstanding............
========
Supplemental pro forma
net income per common
share.................. $
========
Supplemental pro forma
weighted average
common shares
outstanding............
========
</TABLE>
25
<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 27,511 (8) 27,757
Other (income) expense,
net.................... (52) (455)(3) (507) (507)
-------- ------- -------- --------- --------
Income (loss) before
income taxes........... 43,303 2,635 45,938 (24,451) 21,487
Provision for (benefit
from) income taxes..... 17,321 1,054 (4) 18,375 (9,780)(4) 8,595
-------- ------- -------- --------- --------
Net income (loss)....... $ 25,982 $ 1,581 $ 27,563 $ (14,671) $ 12,892
======== ======= ======== ========= ========
OTHER DATA:
Pro forma net income per
common share........... $
========
Pro forma weighted
average common shares
outstanding............
========
Supplemental pro forma
net income per common
share.................. $
========
Supplemental pro form
weighted average common
shares outstanding.....
========
</TABLE>
26
<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 27,214 (8) 27,788
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 (24,037) 20,291
Provision for (benefit
from) income taxes..... 15,230 2,502 (4) 17,732 (9,615)(4) 8,117
-------- ------- -------- -------- --------
Net income (loss)....... $ 22,844 $ 3,752 $ 26,596 $(14,422) $ 12,174
======== ======= ======== ======== ========
Pro forma net income per
common share........... $
========
Pro forma weighted
average common shares
outstanding............
========
Supplemental pro forma
net income per common
share.................. $
========
Supplemental pro forma
weighted average
common shares
outstanding............
========
</TABLE>
27
<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).
28
<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
is no longer 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:
29
<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%....... 2,000 992 992
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
Other notes payable (8.38%)................. 154 34 65
Other fees.................................. 350 174 174
------- ------- -------
Cash interest expense....................... 49,129 24,320 24,351
Amortization of Transactions debt issuance
costs
($47.9 million over an average 6.91 year
amortization period)....................... 6,932 3,437 3,437
------- ------- -------
Interest from Transactions debt require-
ments...................................... 56,061 27,757 27,788
------- ------- -------
Net increase................................ $55,355 $27,511 $27,214
======= ======= =======
</TABLE>
30
<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 $719, $355 and $355 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 181 days. The Credit Facilities do not require
principal payments until eighteen months subsequent to the
Recapitalization Closing.
31
<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
====== ====== ====== ====== ====== ====== ======
Pro forma net income per
common share (5)....... $ $
====== ======
Pro forma weighted
average common shares
outstanding (5)........
====== ======
SUPPLEMENTARY INCOME
STATEMENT DATA (6):
Supplemental pro forma
net income............. $ $
====== ======
Supplemental pro forma
net income per common
share.................. $ $
====== ======
Supplemental pro forma
weighted average common
shares outstanding.....
====== ======
OTHER FINANCIAL DATA:
Depreciation and
amortization........... 94.0 97.6 90.4 83.1 79.4 39.8 41.2
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
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 (8)...... 443.0 424.0 416.5 401.3 418.5 424.5 433.0
</TABLE>
(footnotes on following page)
32
<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 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) Reflects.....
(6) Reflects.....
(7) Expenditures for intangibles consists principally of capitalized data
files and software products.
(8) "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.
33
<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,
servicing over 40,000 corporate and financial institutions 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 those years.
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 those years.
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 those
years. 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.
34
<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 previous 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>
35
<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.
In addition, as a result of the Recapitalization Closing, the successful
implementation of File One and continuing efforts to reduce operating costs,
management is currently considering proposals to outsource certain
manufacturing and fulfillment functions related to its property data products,
which may result in a significant downsizing or closure of a particular
facility. Management is also evaluating the estimates of useful life and
carrying values of capitalized consumer credit data files to determine whether
changes in these estimates are appropriate as a result of the new system
architecture, new product offerings or prospective changes in data retention
practices. These pending actions may result in significant adjustments to the
carrying value of specified assets during the third or fourth quarter of 1996.
The Company invested in Comcred S.A. de CV ("Comcred"), a start-up Mexican
credit data company. The Company purchased 2,400 shares of Comcred's Series B
stock (20% interest) for $0.8 million. The Company 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 the Company's
share of losses incurred by Comcred. In addition, the Company 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 the Company to
convert an amount of principal and interest that would result in issuance of
an additional 29% of Comcred's total voting securities. As of June 30, 1996,
the Company 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, the Company
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.
36
<PAGE>
1995 COMPARED TO 1994
Sales in 1995 increased 5.4% to $540.2 million, from $512.3 million in 1994.
Excluding $16 million of revenue from Credentials, sales from the Company's
continuing products increased 8.9% in 1995 from 1994.
Strong performances in both credit and marketing products and services drove
the increase in sales. Credit products and services sales in 1995 increased
10.1% from 1994 to $315 million, primarily as a result of a significant gain
in consumer credit unit volumes, which was partially offset by pricing
pressures. Sales of marketing products and services rose 19.7% to $134 million
in 1995, from $112 million in 1994. Approximately 42% of this increase came
from prescreening services used in conjunction with pre-approved credit
offerings. Consumer and business marketing list services comprised the balance
of this increase, reflecting the Company's increasing market penetration, as
well as investments in new products and increased selling efforts.
Sales of real estate information products and services in 1995 declined 7.1%
to $92 million, from $99 million in 1994, due largely to a continuing
recession in California real estate markets which adversely affected real
estate revenues.
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.
37
<PAGE>
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 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.
38
<PAGE>
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 base.
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.
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 incurred new
indebtedness, including the Bridge Loan, aggregating approximately $825.0
million. Substantially all of the proceeds of such indebtedness were used to
pay the TRW Note and fees and expenses related to the Recapitalization. See
"The Recapitalization" and "Description of Credit Facilities." The Company
will repay the Bridge Loan with proceeds of the Offering.
As a result of the Recapitalization, the Company has significantly increased
cash requirements for debt service relating to the Bridge Loan and the Credit
Facilities. While the Bridge Loan will be repaid with the proceeds of the
Offering, the Credit Facilities will remain outstanding. After the Offering,
the Company will rely on internally generated funds and, to the extent
necessary, on borrowings under the
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<PAGE>
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 $576.6 million and up to
approximately $50.0 million available under the Revolving Facility. The
Company's ability to borrow is limited under the Credit Facilities. The
Company's principal debt obligations, including the Credit Facilities, do not
require principal payments within eighteen months from the Recapitalization
Closing. See "Description of Credit Facilities."
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. As of the Recapitalization, the Company no longer
participates in TRW's centralized cash management system. 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
Recapitalization, the Company discontinued its participation in TRW's defined
benefit pension plan during 1996. In addition, in connection with the
Recapitalization, TRW retained all liabilities relating to pension and other
post-retirement plans earned through the Recapitalization Closing.
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.
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CHANGE IN INDEPENDENT AUDITORS
The combined financial statements and schedule of TRW IS&S at December 31,
1995 and 1994 and for each of the three years in the period ended December 31,
1995 have been audited by Ernst & Young LLP ("E&Y"). The reports of E&Y on TRW
IS&S's financial statements for the past two fiscal years did not contain an
adverse opinion or a disclaimer of opinion and were not qualified or modified
as to uncertainty, audit scope, or accounting principles. In connection with
the audits of TRW IS&S's financial statements for each of the two fiscal years
ended December 31, 1995, and in the subsequent interim period through
September 19, 1996 prior to the Recapitalization Closing, there were no
disagreements with E&Y on any matters of accounting principles or practices,
financial statement disclosure, or auditing scope and procedures which, if not
resolved to the satisfaction of E&Y, would have caused E&Y to make reference
to the matter in their report. Experian Corporation has not engaged E&Y as its
independent auditor.
Financial statements of Experian Corporation for the year ended December 31,
1996 are expected to be audited by Price Waterhouse LLP.
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<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,
servicing over 40,000 corporate and financial institutions 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 twelve-month period
ended June 30, 1996, the Company generated pro forma sales of $554.8 million
and pro forma net income of $23.9 million. Increased demand for the Company's
core products and expanded applications for reliable credit and marketing
information as well as positive market dynamics 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.
To address the changing requirements of its customers, the Company recently
implemented File One, a $100 million investment in, and upgrade of, the
Company's consumer credit database from a traditional flat-file structure to a
state-of-the-art relational database, File One. Management believes File One
is one of the largest relational databases used commercially in the United
States and that neither of the Company's major competitors currently has a
similar database. File One offers a competitive advantage by enabling faster
new product development cycles which improve time-to-marketing capabilities,
providing information to customers in an open and more usable form, and by
reducing development costs for new and enhanced versions of existing products.
Furthermore, File One utilizes a unique data identification system which
results in more accurate cataloging of individual pieces of data and reduces
the risk of incorrect data or duplicate files.
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 generated
approximately $1.63 billion of revenues in 1995. Management believes that the
portion of such market in which the Company competes was approximately $875
million of revenues in 1995. Furthermore, Marketdata Enterprises estimates the
business credit reporting industry generated approximately $1 billion of
revenues in 1995. Management believes that the portion of such market in which
the Company competes was approximately $600 million of revenues in 1995.
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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.
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. Target marketing provides measurable results which
marketers can analyze and use to refine marketing plans.
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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
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.
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 File One, 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.
GROWTH STRATEGY
The Company seeks to leverage its expertise in data management, mining and
analysis to develop increasingly customized products and services. The
Company's customer focused operating strategy seeks to capitalize on its
strengths, the growing demand and expanding applications for its information
and the economies of scale in the information services industry.
Maintain, Expand and Enhance the Databases
The unique and comprehensive nature of the Databases have been key elements
in the Company's success to date. The Company plans to continue strengthening
and investing in its core business by acquiring and developing new data and
ways to screen information to enhance the breadth and quality of its data
content. The Company believes that the breadth of information in its
Databases, together with the flexibility afforded by File One, uniquely
positions the Company to independently develop product offerings utilizing
data from various databases. The Company does not believe any of its
competitors have a similar capability to link together such a wide range of
information.
Develop New Products and Enter Growing End Use Markets
The Company intends to continue utilizing the Databases to develop value-
added products and services for its customers. The Company intends to generate
additional growth through the introduction of products and services that
address a broader range of its customers credit decisions, leverage the
relational structure of File One and utilize new information sources.
Furthermore, the demand for credit and marketing information continues to
expand rapidly as an increasingly broad group of industries utilize the
Company's information. For example, as growth in the cellular phone industry
has yielded significant credit exposure for telecommunications companies, the
Company's sales to telecommunications providers have doubled.
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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.
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 the need for
higher quality information, privacy protection and information technology
infrastructure 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.
Improve Operating Efficiencies
As a result of the Recapitalization, the Company operates as a stand-alone
entity for the first time. Management has identified numerous reductions,
primarily resulting from operating as an independent corporate entity.
Furthermore, 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.
Management continues to implement programs to increase margins and
profitability.
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.
50
<PAGE>
COMPETITION
The Company faces different competitive dynamics in each of its product
areas. The Company, Equifax, Inc. and Trans Union Corp. are the only national
service providers in the consumer credit reporting industry. There are also
numerous small local bureaus in the consumer credit field. The Company's
products compete in the marketplace on the basis of quality of information,
price and customer service. In the business credit marketplace, the Company's
primary, and only national, competitor is Dun & Bradstreet Corp. The Company
competes in the business credit area largely on the basis of quality of data,
integrity and objectivity of data sources and the Company's ability to link
information on small businesses and their proprietors from the business and
consumer credit Databases. The Company competes in the consumer marketing and
business marketing information industries with several large national
companies and smaller regional providers. The Company's national competitors
include Abacus Direct, 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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<PAGE>
REGULATORY
Regulation of Consumer Products
The Company's consumer credit report and consumer prescreen products are
regulated by the FTC under the provisions of the FCRA. The FCRA was intended
to regulate the activities of consumer reporting agencies and was enacted to
prevent both real and perceived abuses in the business of collecting and
disseminating information on consumers. Since the FCRA was passed in 1970, the
information technology supporting the industry has changed significantly.
The FCRA created a framework for the industry by defining both the scope of
the data subject to regulation and setting forth the permissible uses of such
data. The FCRA defines, among other things, a "consumer report" and a
"consumer reporting agency" and specifies the permissible purposes for
furnishing a consumer report. The FCRA also specifies how long information may
be reported on a consumer report. The FCRA requires consumer reporting
agencies to employ "reasonable" procedures to: (i) limit the furnishing of
consumer reports for impermissible purposes, (ii) avoid obsolescence in a
consumer report and (iii) assure the maximum possible accuracy of such
reports. The FCRA regulates disclosures to governmental agencies and
consumers, specifies procedures for disputing information, specifies charges
for certain disclosures, and sets requirements for the users of consumer
reports and liability for non-compliance. The FCRA provides for recovery by a
consumer in federal or state court of actual damages, costs of the action, and
reasonable attorney's fees for the willful or negligent failure, as well as
punitive damages for a willful failure, of a consumer credit reporting agency
to comply with any requirement of the FCRA. The FTC has the responsibility for
the administrative enforcement of the FCRA, including the authority to issue
cease and desist orders in connection with a method of competition, act or
practice determined by the FTC to be unfair or deceptive.
The consumer credit reporting industry is also regulated by many state
credit reporting statutes. The state statutes typically regulate the
activities of credit reporting agencies in much the same way as the FCRA, but
impose different specific requirements.
The Company is subject to two consent decrees, one with the FTC and one with
eighteen individual states, pursuant to which the Company has agreed to comply
with the FCRA and applicable state regulations and report certain information
to the FTC and such states in connection with the Company's compliance
activities. This reporting requirement expires at the end of 1996. Also, the
Company has agreed to use only identifying information--name, address,
telephone number, social security number, age and gender--from its consumer
credit database for marketing purposes other than prescreen marketing
services. The Company is also subject to two Assurances of Discontinuance with
the State of Vermont whereby the Company is required to compensate consumers
for losses relating to a particular incident as well as to maintain listings
in certain Vermont phone books. The Company has satisfied its compensation
requirements to consumers and is satisfying such phone book listing
requirements.
Self Regulation
In response to growing concerns about individual privacy and the collection,
distribution and use of information about individuals, the Direct Marketing
Association (the "DMA"), which is the leading trade association of direct
marketers, has established certain guidelines for fair information practices
which it recommends be followed by participants in the direct marketing
industry. In addition to its compliance with the DMA guidelines, the Company
has adopted and implemented fair information practices, principles and
procedures which supplement those of the DMA. One of the guidelines suggested
by the DMA is that direct marketers refrain from soliciting by mail or
telephone those individuals who have contacted the DMA and have asked that
they not be the subject of unrequested solicitations. To make compliance with
this guideline possible, the DMA maintains the Mail Preference Service and the
Telephone Preference Service, consisting of lists of those individuals who
have notified the DMA that they wish to "opt out" of receiving mail or
telephone solicitations. The DMA makes these lists available to participants
in the direct marketing industry who subscribe to these services. The Company
is a subscriber and receives updated lists from the DMA monthly and promptly
removes from its database all information concerning the individuals who
appear on the DMA lists.
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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
53
<PAGE>
each individual in the Company's consumer credit database with a unique
personal identification number. The linkages in this data structure are
designed to create more flexible methods of search and retrieval of
information by finding individuals in the consumer credit database faster and
more consistently. The Company initiated this upgrade in 1992 and as of
December 31, 1995 has spent approximately $61 million on the development and
implementation of File One over that time period (approximately $40 million of
which has been expensed and $21 million capitalized). The Company expects to
spend approximately $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 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
54
<PAGE>
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 June 30, 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 agreement (the "Recapitalization
Agreement") pursuant to which the Recapitalization was consummated, 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., the Company,
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. On July 10, 1996, Judge Edward
F. Harrington of the District of Massachusetts granted the requests of Bain
and THL to stay the Massachusetts actions pending the decision of the
California federal court as to whether to remand the California action to
state court. On August 29, 1996, the California action was remanded to the
Superior Court for the County of Los Angeles County. On October 11, 1996, Bain
and THL filed demurrers in the Superior Court for the County of Los Angeles
County to dismiss the action, as have the other defendants. The case is
pending in the Superior Court, discovery has begun and the Court has set a
tentative trial date of April 14, 1997. The Company does not expect that a
judgment in favor of McCall Springer in the California action will have a
material adverse effect on the Company.
55
<PAGE>
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The directors and executive officers of the Company are 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
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
Donald G. Kovar................. 59 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.
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<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.
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<PAGE>
Donald G. Kovar. Dr. Kovar is a Director of the Company. Dr. Kovar joined
TRW in 1968 and, in 1993 assumed the position of Vice President, Planning &
Development, TRW Inc., responsible for the oversight and analysis of strategic
plans and new business development initiatives and investments. His prior
positions at TRW included: director, then Vice President, Planning, Space &
Defense Sector, responsible for development of strategic plans and investment
analysis (1968-1993); director of special projects, Information Systems Group,
including responsibility for TRW's interest in an Asian joint venture (1980-
1986); director of engineering and technology, Communication Group,
responsible for oversight of product development and technology planning for
point of sale charge authorization systems and similar systems for financial
services markets (1968-1980).
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 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 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.
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The Stockholders' Agreement provides, among other things, that each of the
current stockholders of the Company will vote all of the Common Stock of the
Company owned by it so as to elect a Board of Directors 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. Bain and THL
have each designated only two directors. Messrs. Nunnelly and White are the
designees of Bain and Messrs. DiNovi and Sperling are the designees of THL;
Mr. Skilling serves as the director jointly designated by Bain and THL; and
Dr. Kovar is the designee of TRW. Bain and THL each have the option to
designate an additional member of the Board of Directors who may not be an
employee of the Company. They also have the option 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. See "Stockholders Agreement."
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
D. Van Skilling is 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 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 $2,080
Chief Executive Officer
Ned W. Manashil(6)...... 1995 165,312 74,252 80,000 1,500 8,214 3,456 494
Vice President
Alden V. Munson,
Jr.(6)................. 1995 171,542 83,397 128,000 4,000 8,911 3,456 316
Vice President
Edwin P. Setzer......... 1995 187,500 72,954 120,000 -- -- 5,858 --
Vice President
John N. Taussig......... 1995 191,196 106,312 128,000 4,000 9,888 3,456 758
Vice President
</TABLE>
- --------
(1) Amounts shown represent payouts under the Company's annual operational
incentive plan.
(2) Amounts shown represent payouts under the Company's long-term strategic
incentive plan.
(3) Options granted were issued under the TRW Stock Option Plan and are
exercisable for common stock of TRW.
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<PAGE>
(4) Amounts shown represent matching contributions to the 401k plan.
(5) For all Named Executive Officers except Mr. Setzer, amounts shown
represent the aggregate average cost of the Executive Health Care Plan in
excess of amounts contributed by participants. Amounts shown for Mr.
Setzer represent reimbursement for medical expenses.
(6) Messrs. Manashil and Munson resigned as employees of the Company upon the
Recapitalization Closing.
STOCK OPTIONS
The following table contains information concerning the grant under the TRW
Stock Option Plan to the Named Officers during the year ended December 31,
1995 of stock options exercisable for common stock of TRW.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
-------------------------------------------
POTENTIAL
REALIZABLE VALUE AT
ASSUMED ANNUAL
SECURITIES % OF TOTAL RATES OF STOCK PRICE
UNDERLYING OPTIONS APPRECIATION
OPTIONS GRANTED TO EXERCISE FOR OPTION TERM
GRANTED(1) EMPLOYEES IN PRICE EXPIRATION ---------------------
NAME (#) FISCAL YEAR ($/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 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. All options
references in the following table are to options exercisable for common stock
of TRW.
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>
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<PAGE>
PRINCIPAL STOCKHOLDERS
The following table and notes thereto set forth certain information with
respect to the beneficial ownership of the Company's outstanding shares of
Common Stock giving effect to the Conversion immediately prior to and
immediately following the Offering by (i) each person known to the Company to
beneficially own more than 5% of the outstanding shares of Common Stock of the
Company, (ii) each director and named executive officer of the Company
individually, and (iii) all directors and Named Officers of the Company as a
group. For a description of the Common Stock of the Company, see "Description
of Capital Stock."
<TABLE>
<CAPTION>
PERCENTAGE
PRIOR TO PERCENTAGE
THE AFTER THE
NAMES NUMBER(1)(2) OFFERING OFFERING(2)
----- ------------ ---------- -----------
<S> <C> <C> <C>
DIRECTORS AND EXECUTIVE OFFICERS
Anthony J. DiNovi+(3)....................
Donald J. Kovar+.........................
Mark E. Nunnelly+(4).....................
Scott M. Sperling+(3)....................
D. Van Skilling+.........................
Robert F. White+(4)......................
Ned W. Manashil(5).......................
Alden V. Munson, Jr.(5)..................
Edwin P. Setzer..........................
John N. Taussig..........................
All directors and executive officers as a
group ( persons).....................
OTHER 5% STOCKHOLDERS
Bain(4)..................................
c/o Bain Capital, Inc.
Two Copley Place, 7th Floor
Boston, Massachusetts 02116
Chase Equity Associates, L.P. ...........
380 Madison Avenue, 12th Floor
New York, New York 10017
THL(3)...................................
c/o Thomas H. Lee Company
75 State Street
Boston, MA 02109
TRW, Inc. ...............................
1900 Richmond Road
Lyndhurst, Ohio 44124
</TABLE>
- --------
* Less than one percent.
+ Director of the Company.
(1) Except as otherwise indicated, (i) the named owner has sole voting and
investment power with respect to the shares set forth and (ii) the
figures in this table are calculated in accordance with Rule 13d-3, as
amended, under the Securities Exchange Act of 1934. All current
shareholders of the Company are parties to a Stockholders Agreement
pursuant to which they have agreed to vote for four directors selected by
Bain, four directors selected by THL, and one director selected by TRW,
and upon the option of Bain and THL, to vote for an additional four
directors selected jointly by Bain and THL. See "Description of Capital
Stock--Stockholders Agreement." The shares reported in this table as
owned by a shareholder do not include the shares over which such
shareholder has the right to direct the vote pursuant to such
Stockholders Agreement.
(2) Assumes no exercise of the Underwriters' over-allotment option and does
not give effect to purchases, if any, by such persons in the Offering.
(3) All such Common Stock is owned by THL and attributed to Messrs. DiNovi
and Sperling, Managing Directors of THL, because they each share the
power to vote or dispose of such securities.
(4) All such Common Stock is owned by Bain and attributed to Messrs. Nunnelly
and White, Managing Directors of Bain, because they each share the power
to vote or dispose of such securities.
(5) Messrs. Manashil and Munson are no longer employees of the Company.
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<PAGE>
PREFERRED STOCK
In connection with the Recapitalization, the Company issued two classes of
Preferred Stock to TRW, 86,722 shares of the Series A Voting Preferred Stock
(the "Voting Preferred"), which has approximately $2.1 million of liquidation
value and is convertible at any time by the holder into 0.32% of the fully-
diluted Common Stock of the Company, and 2,916,649 shares of the Series B Non-
voting Preferred Stock (the "Non-voting Preferred"), which has $72.8 million
of liquidation value and is convertible at any time after December 19, 1996 by
the holder into 10.69% of the fully-diluted Common Stock of the Company. The
Voting Preferred represents 14.26% of the aggregate voting power of the
Company. Dividends 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 by an amount equal to accrued but unpaid dividends.
The Preferred Stock is redeemable (a) by the Company after two years at the
original issue price and (b) by the Company upon an initial public offering of
its 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
Recapitalization Closing and at 100% of the original issue price thereafter
and, in the case of each of (a) and (b), accrued and unpaid dividends. Bain
and THL may not transfer more than 50% of their initial equity ownership in
the Company to an unaffiliated third party unless such third party makes a
bona fide offer to purchase the Preferred Stock at the original issue price
thereof plus accrued and unpaid dividends.
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<PAGE>
DESCRIPTION OF CAPITAL STOCK
Upon the consummation of the Offering, the authorized capital stock of the
Company will consist of shares of Common Stock, $ par value per
share and 10,000,000 shares of preferred stock, $0.001 par value per share.
The discussion herein describes the Company's capital stock, its Amended and
Restated Certificate of Incorporation and its Bylaws, each as anticipated to
be in effect upon consummation of the Conversion and the Offering. The
following summary of certain provisions of the Company's capital stock
describes all material provisions of, but does not purport to be complete and
is subject to, and qualified in its entirety by, the form of Amended and
Restated Certificate of Incorporation and the Bylaws of the Company that are
included as exhibits to the Registration Statement of which this Prospectus
forms a part and by the provisions of applicable law.
Certain provisions described herein may have the effect of impeding
stockholder actions with respect to certain business combinations and the
election of new members to the Board. As such, the provisions could have the
effect of discouraging open market purchases of the Company's Common Stock
because they may be considered disadvantageous by a stockholder who desires to
participate in a business combination or elect a new director.
COMMON STOCK
Immediately prior to the Offering, after giving effect to the Conversion,
there were shares of Common Stock outstanding held of record by
stockholders. There will be shares of Common Stock outstanding after
giving effect to the sale of the shares of Common Stock offered hereby
assuming no exercise of the Underwriters' over-allotment option.
Holders of Common Stock are entitled to one vote per share on all matters to
be voted upon by the stockholders. Holders of Common Stock do not have
cumulative voting rights, and therefore holders of a majority of the shares
voting for the election of directors can elect all of the directors. In such
event, the remaining shares will not be able to elect any directors. The
Bylaws of the Company provide for a classified Board of Directors where one
class of directors is elected each year for a term extending to the third
succeeding annual meeting of stockholders after such election. The Amended and
Restated Certificate of Incorporation will require that any action required or
permitted to be taken by the Company's stockholders must be effected at a duly
called annual or special meeting of stockholders and may not be effected by
consent in writing. Additionally, the Amended and Restated Certificate of
Incorporation will require that special meetings of the stockholders of the
Company be called only by a majority of the Board or by certain officers. The
Amended and Restated Bylaws will provide that stockholders seeking to bring
business before or to nominate directors at any annual meeting of stockholders
must provide timely notice thereof in writing. To be timely, a stockholder's
notice must be delivered to, or mailed and received at, the principal
executive offices of the Company not less than 60 days nor more than 90 days
prior to such meeting or, if less than 70 days' notice was given for the
meeting, within ten days following the date on which such notice was given.
The Bylaws also will specify certain requirements for a stockholder's notice
to be in proper written form. These provisions will restrict the ability of
stockholders to bring matters before the stockholders or to make nominations
for directors at meetings of stockholders. The effect of these provisions may
make it more difficult to effect a change of control of the Board of Directors
or take action by the stockholders.
The holders of Common Stock are entitled to receive such lawful dividends as
may be declared by the Board of Directors subject to the prior rights of the
holders of any Preferred Stock and the restrictions contained in the Credit
Facilities. See "Dividend Policy." The shares of Common Stock will not be
redeemable or convertible, and the holders thereof will have no preemptive or
subscription rights to purchase any securities of the Company. In the event of
liquidation, dissolution or winding up
63
<PAGE>
of the Company, the holders of shares of Common Stock will be entitled to
receive pro rata all of the remaining assets of the Company available for
distribution to its stockholders. There are no sinking fund provisions
applicable to the Common Stock. All outstanding shares of Common Stock are
fully paid and nonassessable, and shares of Common Stock to be issued pursuant
to the Offering shall be fully paid and nonassessable.
PREFERRED STOCK
No shares of preferred stock are outstanding other than the Voting Preferred
and Non-voting Preferred held by TRW. See "Principal Stockholders--Preferred
Stock." The Board of Directors has the authority, without further action by
the stockholders, to issue the shares of preferred stock in one or more series
and to fix the rights, preferences and privileges thereof, including voting
rights, dividend rights, terms of redemption, redemption prices, liquidation
preferences, number of shares constituting any series or the designation of
such series, without further vote or action by the stockholders. Although it
presently has no intention to do so, the Board of Directors, without
stockholder approval, could issue preferred stock with voting and conversion
rights which could adversely affect the voting power of the holders of Common
Stock and reduce the amount of funds available for the potential payment of
dividends on shares of Common Stock. This provision may be deemed to have a
potential anti-takeover effect, and the issuance of preferred stock in
accordance with such provision may delay or prevent a change of control of the
Company.
DELAWARE LAW
Section 203. Following the consummation of the Offering, the Company will be
subject to the "business combination" provisions of the DGCL. In general, such
provisions prohibit a publicly-held Delaware corporation from engaging in
various "business combination" transactions with any "interested stockholder"
for a period of three years after the date of the transaction in which the
person became an "interested stockholder," unless (i) either the transaction
or the transaction pursuant to which the stockholder became an "interested
stockholder" is approved by the Board of Directors prior to the date the
"interested stockholder" obtained such status, (ii) upon consummation of the
transaction which resulted in the stockholder becoming an "interested
stockholder," the "interested stockholder" owned at least 85% of the voting
stock of the corporation outstanding at the time the transaction commenced,
excluding for purposes of determining the number of shares outstanding those
shares owned by (a) persons who are directors and also officers and (b)
employee stock plans in which employee participants do not have the right to
determine confidentially whether shares held subject to the plan will be
tendered in a tender or exchange offer, or (iii) on or subsequent to such date
the "business combination" is approved by the board of directors and
authorized at an annual or special meeting of stockholders by the affirmative
vote of at least 66 2/3% of the outstanding voting stock which is not owned by
the "interested stockholder." A "business combination" is defined to include
mergers, asset sales and other transactions resulting in financial benefit to
a stockholder. In general, an "interested stockholder" is a person who,
together with affiliates and associates, owns (or within three years, did own)
15% or more of a corporation's voting stock. Such restrictions would not apply
to those who were "interested stockholders" prior to the consummation of the
Offering. The statute could prohibit or delay mergers or other takeover or
change in control attempts with respect to the Company and, accordingly, may
discourage attempts to acquire the Company. In addition, the Amended and
Restated Certificate of Incorporation will provide that the affirmative vote
of at least 80% of the outstanding voting stock is required for a business
combination between the Company or any subsidiary and the beneficial owner of
more than five percent of the outstanding voting stock unless such transaction
(i) has been approved by a majority of the disinterested directors or (ii)
involves a person who, as of the effectiveness of the Offering, was the
beneficial owner of more than five percent of the outstanding voting stock of
the Company or any affiliate thereof.
Limitations on Liability and Indemnification of Officers and Directors. The
DGCL provides that a corporation may limit the liability of each director to
the corporation or its stockholders for monetary damages except for liability
(i) for any breach of the director's duty of loyalty to the corporation or its
64
<PAGE>
stockholders, (ii) for acts or omissions not in good faith or that involve
intentional misconduct or a knowing violation of law, (iii) in respect of
certain unlawful dividend payments or stock redemptions or repurchases and
(iv) for any transaction from which the director derives an improper personal
benefit. The Company's Amended and Restated Certificate of Incorporation will
provide that, to the fullest extent permitted by Delaware law, no director of
the Company shall be personally liable to the Company or its stockholders for
monetary damages for breach of fiduciary duties as a director. The effect of
these provisions is to eliminate the rights of the Company and its
stockholders (through stockholders' derivative suits on behalf of the Company)
to recover monetary damages against a director for breach of fiduciary duty as
a director (including breaches resulting from grossly negligent conduct). This
provision does not exonerate the directors from liability under federal
securities laws nor does it limit the availability of non-monetary relief in
any action or proceeding against a director. In addition, the Amended and
Restated Certificate of Incorporation will provide that the Company shall, to
the fullest extent not prohibited by Delaware Law, indemnify its officers and
directors against liabilities, cost and expenses as provided by Delaware Law.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers or others pursuant to the foregoing
provisions, the Company has been informed that in the opinion of the
Commission, such indemnification is against public policy as expressed in the
Securities Act and is therefore unenforceable.
STOCK TRANSFER AGENT AND REGISTRAR
The stock transfer agent and registrar for the Company's Common Stock is
.
STOCKHOLDERS AGREEMENT
The summary herein of the material provisions of the Stockholders Agreement
is subject to, and qualified in its entirety by reference to, all of the
provisions of the Stockholders Agreement, a copy of which is filed as an
exhibit to the Registration Statement of which this Prospectus forms a part.
GENERAL
The Company and all current holders of Common Stock and Preferred Stock (the
"Participants") have entered into the Stockholders Agreement.
REGISTRATION RIGHTS
Pursuant to the Stockholders Agreement, each of Bain and THL have the right
to demand registration under the Securities Act of the Company's Common Stock
held by them at any time.
The Stockholders Agreement also provides that each Participant has the
right, subject to reduction as set forth in next sentence, to require the
Company to cause such Participant's Shares to be included in any public
offering of the Company's Common Stock (other than certain registration
statements on Form S-4 and S-8). However, if the aggregate number of shares of
Common Stock which the Participants elect to include exceeds the number that
the underwriters believe compatible with the success of the offering, the
number of such shares sold in such an offering shall be allocated, first to
the Company and second pro rata to the holders of the Company's Common Stock
held by Participants (other than shares previously sold under Rule 144 or
under a registration statement).
VOTING RIGHTS
The Stockholders Agreement provides among other things, that each of the
Participants will vote all of the Common Stock of the Company owned by it so
as to elect a Board of Directors of the
65
<PAGE>
Company 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.
Bain and THL have each designated only two Directors. Messrs. Nunnelly and
White are the designees of Bain and Messrs. DiNovi and Sperling are the
designees of THL; Mr. Skilling serves as the director jointly designated by
Bain and THL; and Dr. Kovar is the designee of TRW. The Participants must also
vote all of the Common Stock of the Company owned by it to elect as directors
(a) an additional member of the Board of Directors designated by each of Bain
and THL who may not be an employee of the Company as well as (b) 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 in all cases jointly designated by Bain
and THL.
The Stockholders Agreement further provides that each of the Participants
agree to vote in favor of certain transactions approved by all of the
directors designated by Bain and THL so long as Bain, THL and certain other
Participants hold at least 30% of the Common Stock.
The voting provisions of the Stockholders Agreement expire on September
2006.
OTHER
The Stockholders Agreement provides for transfer restrictions on capital
stock of the Company and drag-along rights, tag-along rights and certain
preemptive rights for certain stockholders including Bain, THL and the other
Participants. The Stockholders Agreement contains customary provisions
regarding indemnification and contribution in the event of losses caused by
the misstatement of any information or the omission of any information
required to be provided in a registration statement filed under the Securities
Act. The Stockholders Agreement also requires the Company to pay certain of
the expenses associated with any registration and offering of the Company's
Common Stock.
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<PAGE>
DESCRIPTION OF CREDIT FACILITIES
Chemical Bank and Bankers Trust Company have entered into the Credit
Facilities in an aggregate principal amount of $625.0 million. At the closing
of the Recapitalization, (i) $550.0 million was borrowed under the Term Loan
Facility (as defined below) and (ii) $25.0 million was 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 Experian and its
subsidiaries.
Structure. The Credit Facilities 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 Experian and the issuance of letters of
credit for the account of Experian 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 is 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 absence of any material adverse change
with respect to Experian in particular or the financial, banking or capital
markets in general. The full amount of the Term Loan Facility was drawn in a
single drawing at the closing of the Recapitalization 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
September 19, 2003 and the Tranche C Term Loan will mature on September 19,
2004. Amortization of the Term Loan Facility will be in quarterly payments, in
amounts to be agreed upon, commencing 18 months from the Recapitalization
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 the
Company or any of its subsidiaries and (ii) certain asset sales or other
dispositions and (b) a percentage of up to 75% of Experian's excess operating
cash flow, such percentage to be determined in accordance with the terms of
the definitive documentation.
Security; Guaranty. The obligations of Experian under the Credit Facilities
will be unconditionally and irrevocably guaranteed by the Company and its
domestic subsidiaries. In addition, the Credit Facilities and the guarantees
thereunder are secured by security interests in and pledges of or liens on
substantially all the material tangible and intangible assets of the Company,
including pledges of all the capital stock of, or other equity interests in,
Experian and each direct or indirect domestic subsidiary of Experian and 65%,
subject to increase, of the capital stock of, or other equity interests in,
each foreign subsidiary of Experian.
Interest. At Experian'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 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 are
1.50% for ABR loans and 2.50% for LIBOR loans. These margins will be subject
to reduction after the first anniversary of the Recapitalization Closing if
certain financial performance thresholds are met. The interest rate borrowing
margins applicable to the
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<PAGE>
Tranche B Term Loan and the Tranche C Term Loan are 2.00% and 2.50%,
respectively, for ABR loans and 3.00% and 3.50%, respectively, for LIBOR loans
and are not 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. Experian 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 contain a number of covenants that, among
other things, will restrict the ability of the Company and Experian 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 Experian, make capital expenditures, or engage in certain
transactions with affiliates and otherwise restrict certain corporate
activities. In addition, under the Credit Facilities, Experian is required to
comply with specified financial ratios and minimum tests, including minimum
interest coverage ratios, maximum leverage ratios and minimum EBITDA
covenants.
Events of Default. The Credit Facilities 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 loan
agreements setting forth the principal terms and conditions of the Credit
Facilities which have been filed as exhibits to the Registration Statement of
which this Prospectus forms a part.
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<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
In addition to the shares of Common Stock offered hereby, there will be
shares of Common Stock outstanding as of the effective date of the
Prospectus, all of which existing shares are "restricted shares" (the
"Restricted Shares") under the Securities Act. Beginning 180 days after the
date of this Prospectus, substantially all the Restricted Shares will become
eligible for sale in the public market pursuant to the expiration of certain
lock-up agreements with the Company, subject to the volume, holding period and
other restrictions of Rule 144 promulgated under the Securities Act. In
connection with the Recapitalization, the Company entered into the
Stockholders Agreement with its stockholders, which, subject to the lock-up
agreements, requires the Company to register an offering of Common Stock held
by such persons or their transferees at their request, subject to certain
conditions and restrictions. The Stockholders Agreement allows the parties
thereto and their transferees to include their Common Stock in a registered
offering of Common Stock initiated by the Company or by another stockholder of
the Company. See "Stockholders Agreement."
In general, under Rule 144 as currently in effect, any person (or persons
whose shares are aggregated including affiliates) who has beneficially owned
Restricted Shares for at least two years (which the Commission has proposed to
amend to one year) is entitled to sell, within any three-month period, a
number of shares that does not exceed the greater of 1% of the then
outstanding shares of the Company's Common Stock (approximately shares
immediately after the Offering) or the average weekly trading volume during
the four calendar weeks preceding such a sale.
Under Rule 144(k), if a period of at least three years (which the Commission
has proposed to amend to two years) has elapsed since the later of the date
Restricted Shares were acquired from the Company or the date they were
acquired from an affiliate of the Company, as applicable, then a holder of
such Restricted Shares who is not an affiliate of the Company at the time of
the sale and who has not been an affiliate of the Company for at least three
months prior to the sale would be entitled to sell the shares immediately
without regard to the volume limitations and other conditions described above.
After 180 days after this Offering, the Company intends to file a
registration statement on Form S-8 under the Act to register shares of Common
Stock reserved for issuance under the Company's 1996 Stock Option Plan, thus
permitting the resale of shares issued under the plan by non-affiliates in the
public market without restriction under the Act. Such registration statement
will become effective immediately upon filing. As of the closing of the
Offering, options to purchase shares of Common Stock will be outstanding
under the Company's 1996 Stock Option Plan (with an average per share exercise
price of $ ). In addition, as of the closing of the Offering, shares of
Common Stock will be authorized for future grants under the 1996 Stock Option
Plan.
Prior to the Offering, there has been no public market for the Common Stock
of the Company. Future sales of substantial amounts of Common Stock in the
public market or the perception that such sales may occur could adversely
affect prevailing market prices and adversely affect the Company's ability to
raise additional capital in the capital markets at a time and price favorable
to the Company. See "Stockholders Agreement," "Risk Factor--Shares Eligible
for Future Sale" and "--No Prior Public Market."
69
<PAGE>
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 Recapitalization Closing and various
closing conditions, including the obtaining of financing and the continued
accuracy of representations and warranties.
The Recapitalization Agreement contains indemnification provisions binding
on each of the Company, Experian and TRW after the Closing Date. Specifically,
each of the Company and Experian 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 Recapitalization
Closing, (ii) the failure to satisfy liabilities assumed by the Company under
the Recapitalization Agreement, (iii) nonperformance by the Delaware
corporation which was merged into the Company as part of the Recapitalization,
or the Company or Experian, 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 Experian
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 the Company 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 Recapitalization Closing, (ii) the failure to
satisfy liabilities retained by TRW under the Recapitalization Agreement,
(iii) nonperformance by TRW or the Company, 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 Recapitalization Closing under the Recapitalization Agreement.
TRADEMARK AGREEMENT
In connection with the Recapitalization, TRW and the Company entered into a
letter agreement (the "Trademark Agreement") regarding the use of the TRW
trademark. Subject to certain restrictions, the Trademark Agreement permits
the Company to (i) use the TRW name in connection with its products and
services until September 19, 1998 and (ii) identify itself until September 19,
1997 as having formerly 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 has been entered into by and among the Company, Experian and
TRW which provides for certain matters relating to the orderly transition of
the Company to a stand alone operating entity.
70
<PAGE>
STRUCTURING FEE
The Company paid each of Bain and THL a structuring fee of approximately $11
million and reimbursed each of Bain and THL for out-of-pocket expenses in
consideration of their facilitating the Recapitalization.
MANAGEMENT AGREEMENTS
Pursuant to management agreements between the Company and each of Bain and
THL (the "Management Agreements"), Bain and THL provide management consulting
services to the Company for an annual fee of up to $1.5 million to each. In
connection with acquisition transactions by Experian, 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). The Management Agreements
provide for reimbursement to Bain and THL for out-of-pocket expenditures and
includes customary indemnification provisions in favor of Bain and THL.
PRIOR RELATIONSHIPS
The Company has had a number of relationships with TRW which have not
continued after the Recapitalization Closing. 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 are not available to the Company from TRW since the
Recapitalization Closing. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
NONCOMPETITION AGREEMENT
In connection with the Recapitalization, TRW entered into a noncompetition
agreement with the Company and Experian, under which TRW, subject to the terms
of such agreement, (i) has agreed not to compete with the Company in the
credit, marketing or real estate information businesses until September 19,
2001 and (ii) has agreed 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 until September 19, 2006.
71
<PAGE>
UNDERWRITING
Subject to the terms and conditions of the Underwriting Agreement, the
Company has agreed to sell to each of the underwriters of the U.S. Offering
named below (the "U.S. Underwriters"), and each of such U.S. Underwriters, for
whom , and are acting as representatives, has severally
agreed to purchase from the Company the number of shares of Common Stock
opposite its name below:
<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITER COMMON SHARES
----------- -------------
<S> <C>
-----
Total.....................................................
=====
</TABLE>
Under the terms and conditions of the Underwriting Agreement, the U.S.
Underwriters are committed to take and pay for all of the shares offered
hereby, if any are taken.
The U.S. Underwriters propose to offer the shares of Common Stock in part
directly to the public at the initial public offering price set forth on the
cover page of this Prospectus, and in part to certain securities dealers at
such price less a concession of $ per share. The U.S. Underwriters may
allow, and such dealers may reallow, a concession not in excess of $ per
share to certain brokers and dealers. After the shares of Common Stock are
released for sale to the public, the offering price and other selling terms
may from time to time be varied by the representatives.
The Company has entered into an underwriting agreement (the "International
Underwriting Agreement") with the underwriters of the International Offering
(the "International Underwriters" and, together with the U.S. Underwriters,
the "Underwriters") providing for the concurrent offer and sale of shares
of Common Stock in an international offering outside the United States. The
offering price and aggregate underwriting discounts and commissions per share
for the two offerings are identical. The closing of the U.S. Offering made
hereby is a condition to the closing of the International Offering, and vice
versa. The representatives of the International Underwriters are ,
and .
Pursuant to an Agreement between the U.S. and International Underwriting
Syndicates (the "Agreement Between") relating to the two offerings, each of
the U.S. Underwriters named herein has agreed that, as a part of the
distribution of the shares offered hereby and subject to certain exceptions,
it will offer, sell or deliver the shares of Common Stock, directly or
indirectly, only in the United States of America (including the States and the
District of Columbia), its territories, its possessions and other areas
subject to its jurisdiction (the "United States") and to U.S. persons, which
term shall mean, for purposes of this paragraph: (a) any individual who is a
resident of the United States or (b) any corporation, partnership or other
entity organized in or under the laws of the United States or any political
subdivision thereof and whose office most directly involved with the purchase
is located in the United States. Each of the International Underwriters has
agreed pursuant to the Agreement Between that, as part of the distribution of
the shares offered as a part of the International Offering, and subject to
certain exceptions, it will (i) not, directly or indirectly, offer, sell or
deliver shares of Common Stock (a) in the United States or to any U.S. persons
or (b) to any person who it believes intends to reoffer, resell or deliver the
shares in the United States or to any U.S. persons, and (ii) cause any dealer
to whom it may sell such shares at any concession to agree to observe a
similar restriction.
72
<PAGE>
Pursuant to the Agreement Between, sales may be made between the U.S.
Underwriters and the International Underwriters of such number of shares of
Common Stock as may be mutually agreed.
The price of any shares so sold shall be the initial public offering price,
less an amount not greater than the selling concession.
This prospectus may be used by Underwriters and dealers in connection with
offers and sales of the Company's Common Stock, including shares initially
sold in the International Offering, to persons located in the United States.
The Company has granted the U.S. Underwriters an option exercisable for 30
days after the date of this Prospectus to purchase up to an aggregate of
additional shares of Common Stock solely to cover over-allotments, if any. If
the U.S. Underwriters exercise their over-allotment option, the U.S.
Underwriters have severally agreed, subject to certain conditions to purchase
approximately the same percentage thereof that the number of shares to be
purchased by each of them, as shown in the foregoing table, bears to the
shares of Common Stock offered. The Company has granted the International
Underwriters a similar option exercisable for 30 calendar days after the date
of this Prospectus to purchase up to an aggregate of shares of additional
Common Stock.
The Company has agreed that during the period beginning from the date of
this Prospectus and continuing to and including the date 180 days after the
date of the Prospectus, not to offer, sell, contract to sell or otherwise
dispose of any securities of the Company (other than pursuant to employee
stock option plans existing, or on the conversion or exchange of convertible
or exchangeable securities outstanding, on the date of this Prospectus) which
are substantially similar to the Common Stock or which are convertible or
exchangeable into securities which are substantially similar to the Common
Stock, without the prior written consent of the representatives, except for
the Common Stock offered in connection with the U.S. Offering and
International Offering. The Company's officers, directors and certain
stockholders, have agreed not to sell, contract to sell, pledge or otherwise
dispose of or agree to dispose of any shares of Common Stock or securities
convertible into or exchangeable for shares of Common Stock or establish a
"put equivalent position" with respect to the Common Stock within the meaning
of Rule 16a-1(h) under the Securities Exchange Act of 1934 for a period of 180
days after the date of this Prospectus, without the prior written consent of
the representatives of the U.S. Underwriters.
The representatives of the Underwriters have informed the Company that they
do not expect sales to accounts over which the Underwriters exercise
discretionary authority to exceed five percent of the total number of shares
of Common Stock offered by them.
Prior to the Offering, there has been no public market for the Common Stock.
The initial public offering price will be negotiated among the Company and the
representatives of the U.S. Underwriters and the International Underwriters.
Among the factors considered in determining the initial public offering price
of the Common Stock, in addition to prevailing market conditions, are the
Company's historical performance, estimates of the business potential and
earnings prospects of the Company, an assessment of the Company's management
and the consideration of the above factors in relation to market valuation of
companies in related businesses.
The Company has agreed to indemnify the several Underwriters against certain
liabilities, including liabilities under the Securities Act.
73
<PAGE>
LEGAL MATTERS
The validity of the shares of Common Stock offered hereby 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 Offering will be passed upon for the Underwriters by .
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.
74
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
FINANCIAL STATEMENTS OF TRW INFORMATION SYSTEMS & SERVICES:
Report of Independent Auditors........................................... F-2
Combined Balance Sheets--December 31, 1994 and 1995...................... F-3
Combined Statements of Earnings--Years ended December 31, 1993, 1994 and
1995.................................................................... F-4
Combined Statements of Cash Flows--Years ended December 31, 1993, 1994
and 1995................................................................ F-5
Notes to Combined Financial Statements................................... F-6
Combined Balance Sheet--June 30, 1996.................................... F-17
Combined Statements of Earnings--Six Months ended June 30, 1995 and
1996.................................................................... F-18
Combined Statements of Cash Flows--Six Months ended June 30, 1995 and
1996.................................................................... F-19
Notes to Combined Financial Statements................................... F-20
</TABLE>
F-1
<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-2
<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-3
<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-4
<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-5
<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.
Historically, TRW IS&S operated 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-6
<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-7
<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-8
<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-9
<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-10
<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-11
<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-12
<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-13
<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-14
<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-15
<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]
On September 19, 1996 (the "Recapitalization Closing"), Experian Corporation
effected a recapitalization (the "Recapitalization") in which 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") invested
$248.7 million (the "Equity Investment") in, and became the largest
shareholders of, Experian Corporation. At the same time, Experian Information
Solutions, Inc., a subsidiary of the Company ("Experian"), entered into a loan
agreement with The Chase Manhattan Bank ("Chase") and Bankers Trust Company
("Bankers Trust") providing for up to $625.0 million of Senior Indebtedness
(the "Credit Facilities"), $575.0 million of which was borrowed at the
Recapitalization Closing, and a bridge loan agreement with Chase, Bankers
Trust and The Bear Stearns Companies Inc. for $250.0 million of senior
subordinated indebtedness (the "Bridge Loan"). Proceeds from the Credit
Facilities and Bridge Loan, along with the Equity Investment, were used to pay
all amounts owed to TRW under a $761.3 million note of Experian (the "TRW
Note"), to pay TRW $248.7 million in connection with the redemption of certain
stock of TRW in the Company and to pay fees and expenses relating to the
Recapitalization Closing.
Experian Corporation owns all of the outstanding capital stock of Experian.
Bain owns approximately 34.2% of the voting power of Experian Corporation, THL
owns approximately 34.4% of the voting power of Experian Corporation, TRW owns
securities entitled to approximately 19.2% of the voting power of Experian
Corporation and certain other investors own approximately 12.2% of the voting
power of the Company.
Immediately prior to the Recapitalization Closing, Experian Corporation
purchased the remaining 40% of TRW REDI for $45.0 million.
F-16
<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-17
<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-18
<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-19
<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" section of the
Registration Statement on Form S-1 of Experian Corporation, 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. At the Recapitalization Closing on September 19, 1996, Experian
Corporation merged into IS&S Holdings, Inc., following which IS&S Holdings,
Inc. changed its name to Experian Corporation. Immediately subsequent to the
Recapitalization Closing, TRW maintained 19.6% of the voting power of the
Company.
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-20
<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. 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-21
<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 THE COMPANY OR THE UNDERWRITERS. THIS PROSPECTUS DOES NOT CONSTI-
TUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY OF THE SECURI-
TIES 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 CIRCUMSTANCES 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 COMPANY
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 COMMON STOCK, WHETHER OR NOT PARTICIPATING IN THIS
DISTRIBUTION, 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.............................................................. 12
Use of Proceeds........................................................... 17
Unaudited Pro Forma Capitalization........................................ 18
Unaudited Pro Forma Financial Data........................................ 20
Selected Historical Combined Financial Data............................... 32
Management's Discussion and Analysis of Financial Condition and Results of
Operations.............................................................. 34
Business.................................................................. 42
Management................................................................ 56
Principal Stockholders.................................................... 61
Description of Capital Stock.............................................. 63
Description of Credit Facilities.......................................... 67
Certain Relationships and Related Transactions............................ 70
Underwriting.............................................................. 72
Legal Matters............................................................. 74
Experts................................................................... 74
Index to Financial Statements............................................. F-1
</TABLE>
PROSPECTUS
SHARES
EXPERIAN CORPORATION
COMMON STOCK
, 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....................................... $80,304
NASD Filing Fee...................................................
[NASDAQ/NYSE] Listing Fee......................................... *
Blue Sky Fee and Expenses......................................... *
Accounting Fees and Expenses...................................... *
Legal Fees and Expenses........................................... *
Printing.......................................................... *
Transfer Agent and Registrar Fees................................. *
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 the Company 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.
The Stockholders Agreement provides 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.
[TO BE UPDATED]
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 Bylaws of the Registrant.
4.1 Stockholders Agreement
5.1 Opinion of Ropes & Gray.*
10.1 Lease and Agreement between Allen Office Investment Limited
Partnership and TRW Inc.**
10.2 Credit Facilities*
11.1 Statement re: Computation of pro forma and supplemental pro forma
income per share.*
16.1 Letter re change in certifying accountant.
23.1 Consent of Ropes & Gray (contained in Exhibit 5.1).*
23.2 Consent of Ernst & Young LLP.
24.1 Powers of Attorney (contained on the signature page to this
Registration Statement).
27.1 Financial Data Schedule.**
</TABLE>
- --------
* To be filed by amendment
** Previously filed as the correspondingly numbered exhibit to the
Registration Statement on Form S-1 of Experian Information Solutions, Inc.,
as amended (Registration No. 333-6117)
II-2
<PAGE>
(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-4 Report of Independent Auditors.
II-5 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.
(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-3
<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-4
<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-5
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, AS AMENDED, THE
COMPANY HAS DULY CAUSED THIS REGISTRATION STATEMENT TO BE SIGNED ON ITS BEHALF
BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF BOSTON, THE
STATE OF MASSACHUSETTS, ON THIS 28TH DAY OF OCTOBER, 1996.
Experian Corporation
/s/ D. Van Skilling
By: _________________________________
Title: Chief Executive Officer
POWER OF ATTORNEY
WE, THE UNDERSIGNED OFFICERS AND DIRECTORS OF EXPERIAN CORPORATION, HEREBY
SEVERALLY CONSTITUTE ANTHONY J. DINOVI, JONATHAN S. LAVINE, D. VAN SKILLING
AND JAMES ANTAL AND EACH OF THEM SINGLY, AS OUR TRUE AND LAWFUL ATTORNEYS WITH
FULL POWER TO THEM, AND EACH OF THEM SINGLY, TO SIGN FOR US AND IN OUR NAMES
IN THE CAPACITIES INDICATED BELOW, THE REGISTRATION STATEMENT FILED HEREWITH
AND ANY AND ALL AMENDMENTS TO SAID REGISTRATION STATEMENT (INCLUDING POST-
EFFECTIVE AMENDMENTS), AND GENERALLY TO DO ALL SUCH THINGS IN OUR NAME AND
BEHALF IN OUR CAPACITIES AS OFFICERS AND DIRECTORS TO ENABLE EXPERIAN
CORPORATION TO COMPLY WITH THE PROVISIONS OF THE SECURITIES ACT OF 1933, AS
AMENDED, AND ALL REQUIREMENTS OF THE SECURITIES AND EXCHANGE COMMISSION,
HEREBY RATIFYING AND CONFIRMING OUR SIGNATURES AS THEY MAY BE SIGNED BY OUR
SAID ATTORNEYS, OR ANY OF THEM, TO SAID REGISTRATION STATEMENT AND ANY AND ALL
AMENDMENTS THERETO.
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, AS AMENDED, THIS
REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE
CAPACITIES INDICATED ON THIS 28TH DAY OF OCTOBER, 1996.
SIGNATURE TITLE
/s/ D. Van Skilling Chief Executive
- ------------------------------------- Officer, President
D. VAN SKILLING and Director
(principal executive
officer)
/s/ James Antal Vice President,
- ------------------------------------- Chief Financial
JAMES ANTAL Officer (principal
financial and
accounting officer)
/s/ Anthony J. DiNovi Director
- -------------------------------------
ANTHONY J. DINOVI
/s/ Donald G. Kovar Director
- -------------------------------------
DONALD G. KOVAR
/s/ Mark E. Nunnelly Director
- -------------------------------------
MARK E. NUNNELLY
/s/ Scott M. Sperling Director
- -------------------------------------
SCOTT M. SPERLING
/s/ Robert F. White Director
- -------------------------------------
ROBERT F. WHITE
II-6
<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 Bylaws of the Registrant.
4.1 Stockholders Agreement.
5.1 Opinion of Ropes & Gray.*
10.1 Lease and Agreement between Allen Office Investment Limited
Partnership and
TRW Inc.**
10.2 Credit Facilities*
11.1 Statement re: Computation of pro forma and supplemental pro
forma income per share.*
16.1 Letter re change in certifying accountants.
23.1 Consent of Ropes & Gray (contained in Exhibit 5.1).*
23.2 Consent of Ernst & Young LLP.
24.1 Powers of Attorney (contained on the signature page to this
Registration Statement).
27.1 Financial Data Schedule.**
</TABLE>
- --------
* To be filed by amendment
** Previously filed as the correspondingly numbered exhibit to the
Registration Statement on Form S-1 of Experian Information Solutions, Inc.,
as amended (Registration No. 333-6117)
<PAGE>
BY-LAWS
OF
EXPERIAN CORPORATION
(A Delaware Corporation)
<PAGE>
BY-LAWS
OF
EXPERIAN CORPORATION
(A Delaware Corporation)
Article 1. Certificate of Incorporation 1
Section 1.1 Contents 1
Section 1.2 Certificate in Effect 1
Article 2. Meetings of Stockholders 1
Section 2.1 Place 1
Section 2.2 Annual Meeting 2
Section 2.3 Special Meetings 2
Section 2.4 Notice of Meetings 2
Section 2.5 Affidavit of Notice 3
Section 2.6 Quorum 3
Section 2.7 Voting Requirements 3
Section 2.8 Proxies and Voting 4
Section 2.9 Action Without Meeting 4
Section 2.10 Stockholder List 5
Section 2.11 Record Date 5
Article 3. Directors 6
Section 3.1 Number; Election and Term of Office 6
Section 3.2 Duties 7
Section 3.3 Compensation 7
Section 3.4 Reliance on Books 7
Article 4. Meetings of the Board of Directors 8
Section 4.1 Place 8
Section 4.2 Annual Meeting 8
Section 4.3 Regular Meetings 8
Section 4.4 Special Meetings 8
Section 4.5 Quorum 8
<PAGE>
Section 4.6 Action Without Meeting 9
Section 4.7 Telephone Meetings 9
Article 5. Committees of Directors 9
Section 5.1 Designation 9
Section 5.2 Records of Meetings 10
Article 6. Notices 11
Section 6.1 Method of Giving Notice 11
Section 6.2 Waiver 11
Article 7. Officers 11
Section 7.1 In General 11
Section 7.2 Election of President,
Secretary and Treasurer 12
Section 7.3 Election of Other Officers 12
Section 7.4 Salaries 12
Section 7.5 Term of Office 12
Section 7.6 Duties of President and Chairman
of the Board 12
Section 7.7 Duties of Vice President 13
Section 7.8 Duties of Secretary 13
Section 7.9 Duties of Assistant Secretary 14
Section 7.10 Duties of Treasurer 14
Section 7.11 Duties of Assistant Treasurer 15
Article 8. Resignations, Removals and Vacancies 15
Section 8.1 Directors 15
Section 8.2 Officers 16
Article 9. Certificate of Stock 17
Section 9.1 Issuance of Stock 17
Section 9.2 Right to Certificate; Form 17
Section 9.3 Facsimile Signature 17
Section 9.4 Lost Certificates 18
Section 9.5 Transfer of Stock 18
Section 9.6 Registered Stockholders 18
<PAGE>
Article 10. Indemnification 19
Section 10.1 Definitions 19
Section 10.2 Right to Indemnification 20
Section 10.3 Indemnification not Available 20
Section 10.4 Compromise or Settlement 20
Section 10.5 Advances 21
Section 10.6 Not Exclusive 21
Section 10.7 Insurance 21
Article 11. Execution of Papers 22
Article 12. Fiscal Year 22
Article 13. Seal 22
Article 14. Offices 22
Article 15. Amendments 23
<PAGE>
EXPERIAN CORPORATION
--------------------
ARTICLE 1
---------
CERTIFICATE OF INCORPORATION
----------------------------
Section 1.1 Contents. The name, location of principal office and
----------- --------
purposes of the Corporation shall be as set forth in its Certificate of
Incorporation. These By-Laws, the powers of the Corporation and of its
Directors and stockholders, and all matters concerning the conduct and
regulation of the business of the Corporation shall be subject to such
provisions in regard thereto, if any, as are set forth in said Certificate of
Incorporation. The Certificate of Incorporation is hereby made a part of these
By-Laws.
Section 1.2 Certificate in Effect. All references in these By-Laws to
----------- ---------------------
the Certificate of Incorporation shall be construed to mean the Certificate of
Incorporation of the Corporation as from time to time amended, including (unless
the context shall otherwise require) all certificates and any agreement of
consolidation or merger filed pursuant to the Delaware General Corporation Law,
as amended.
ARTICLE 2
---------
MEETINGS OF STOCKHOLDERS
------------------------
Section 2.1 Place. All meetings of the stockholders may be held at such
----------- -----
place either within or without the State of Delaware as shall be designated from
time to time by the Board of Directors, the Chairman of the Board of Directors
or the President and stated in the notice of the meeting or in any duly executed
waiver of notice thereof.
<PAGE>
Section 2.2 Annual Meeting. Annual meetings of stockholders, shall be
----------- --------------
held on the third Tuesday of May in each year, if not a legal holiday, and, if a
legal holiday, then on the next secular day following, at 10:00 A.M., or at such
other date and time as shall be designated from time to time by the Board of
Directors, the Chairman of the Board of Directors or the President and stated in
the notice of the meeting. If such annual meeting has not been held on the day
herein provided therefor, a special meeting of the stockholders in lieu of the
annual meeting may be held, and any business transacted or elections held at
such special meeting shall have the same effect as if transacted or held at the
annual meeting, and in such case all references in these By-Laws, except in this
Section 2.2, to the annual meeting of the stockholders shall be deemed to refer
to such special meeting.
Section 2.3 Special Meetings. Special meetings of the stockholders, for
----------- ----------------
any purpose or purposes, unless otherwise prescribed by statute or by the
Certificate of Incorporation, may be called by the President, the Chairman of
the Board, or by the Board of Directors and shall be called by the President or
Secretary at the request in writing of a majority of the Directors then in
office, or at the request in writing of stockholders owning a majority in amount
of the entire stock of the Corporation issued and outstanding and entitled to
vote. Such request shall state the purpose or purposes of the proposed meeting,
which need not be the exclusive purposes for which the meeting is called.
Section 2.4
- -----------
Notice of Meetings. A written notice of all meetings of stockholders
------------------
stating the place, date and hour of the meeting and, in the case of a special
meeting, the purpose or purposes for which the special meeting is called, shall
be given to each stockholder entitled to vote at such meeting.
2
<PAGE>
Except as otherwise provided by law, such notice shall be given not less than
ten nor more than sixty days before the date of the meeting. Business transacted
at any special meeting of stockholders shall be limited to the purposes stated
in the notice.
Section 2.5 Affidavit of Notice. An affidavit of the Secretary or an
----------- -------------------
Assistant Secretary or the transfer agent of the Corporation that notice of a
stockholders meeting has been given shall, in the absence of fraud, be prima
facie evidence of the facts stated therein.
Section 2.6 Quorum. The holders of a majority of the stock issued and
----------- ------
outstanding and entitled to vote thereat, present in person or represented by
proxy, shall constitute a quorum at all meetings of the stockholders for the
transaction of business except as otherwise provided by statute or by the
Certificate of Incorporation. If, however, such quorum shall not be present or
represented by proxy at any meeting of the stockholders, the stockholders
entitled to vote thereat, present in person or represented by proxy, shall have
power to adjourn the meeting from time to time, without notice other than
announcement at the meeting, except as hereinafter provided, until a quorum
shall be present or represented. At such adjourned meeting at which a quorum
shall be present or represented any business may be transacted which might have
been transacted at the original meeting. If the adjournment is for more than
thirty days, or if after the adjournment a new record date is fixed for the
adjourned meeting, a notice of the adjourned meeting shall be given to each
stockholder of record entitled to vote at the meeting.
Section 2.7 Voting Requirements. When a quorum is present at any
----------- -------------------
meeting, the vote of the holders of a majority of the stock having voting power
present in person or represented by proxy shall decide any question brought
before such meeting, unless the question is one upon
3
<PAGE>
which by express provision of any applicable statute or of the Certificate of
Incorporation, a different vote is required in which case such express provision
shall govern and control the decision of such question.
Section 2.8 Proxies and Voting. Unless otherwise provided in the
----------- ------------------
Certificate of Incorporation, each stockholder shall at every meeting of the
stockholders be entitled to one vote in person or by proxy for each share of the
capital stock having voting power held by such stockholder, but no proxy shall
be voted on after three years from its date, unless the proxy provides for a
longer period. Persons holding stock in a fiduciary capacity shall be entitled
to vote the shares so held, and persons whose stock is pledged shall be entitled
to vote the pledged shares, unless in the transfer by the pledgor on the books
of the Corporation he shall have expressly empowered the pledgee to vote said
shares, in which case only the pledgee, or his proxy, may represent and vote
such shares. Shares of the capital stock of the Corporation owned by the
Corporation shall not be voted, directly or indirectly.
Section 2.9 Action Without Meeting. Unless otherwise provided in the
----------- ----------------------
Certificate of Incorporation, any action required to be taken at any annual or
special meeting of stockholders of the Corporation or any action which may be
taken at any annual or special meeting of such stockholders, may be taken
without a meeting, without prior notice and without a vote, if a consent in
writing, setting forth the action so taken, shall be signed by the holders of
outstanding stock having not less than the minimum number of votes that would be
necessary to authorize or take such action at a meeting at which all shares
entitled to vote thereon were present and voted.
4
<PAGE>
Prompt notice of the taking of the corporate action without a meeting by less
than unanimous written consent shall be given to those stockholders who have not
consented in writing.
Section 2.10 Stockholder List. The officer who has charge of the stock
------------ ----------------
ledger of the Corporation shall prepare and make, at least ten days before every
meeting of stockholders, a complete list of the stockholders entitled to vote at
the meeting, arranged in alphabetical order, and showing the address of each
stockholder and the number of shares registered in the name of each stockholder.
Such list shall be open to the examination of any stockholder, for any purpose
germane to the meeting, during ordinary business hours, for a period of at least
ten days prior to the meeting either at a place within the city where the
meeting is to be held, which place shall be specified in the notice of the
meeting, or, if not so specified, at the place where the meeting is to be held.
The list shall also be produced and kept at the time and place of the meeting
during the whole time thereof, and may be inspected by any stockholder who is
present. The original or duplicate stock ledger shall be the only evidence as
to who are the stockholders entitled to examine such list, the stock ledger or
the books of the Corporation, or to vote in person or by proxy at any meeting of
stockholders.
Section 2.11 Record Date. In order that the Corporation may determine the
------------ -----------
stockholders entitled to notice of or to vote at any meeting of stockholders or
any adjournment thereof, or to express consent to corporate action in writing
without a meeting, or entitled to receive payment of any dividend or other
distribution or allotment of any rights, or entitled to exercise any rights in
respect of any change, conversion or exchange of stock or for the purpose of any
other lawful action, the Board of Directors may fix, in advance, a record date,
which shall not be more than
5
<PAGE>
sixty nor less than ten days before the date of such meeting, nor more than
sixty days prior to any other action. A determination of stockholders of record
entitled to notice of or to vote at a meeting of stockholders shall apply to any
adjournment of the meeting; provided, however, that the Board of Directors may
fix a new record date for the adjourned meeting.
If no record date is fixed by the Board of Directors:
(a) The record date for determining stockholders entitled to notice of
or to vote at a meeting of stockholders shall be at the close of business on the
day next preceding the day on which notice is given, or, if notice is waived, at
the close of business on the day next preceding the day on which the meeting is
held.
(b) The record date for determining stockholders entitled to express
consent to corporate action in writing without a meeting, when no prior action
by the Board of Directors is necessary, shall be the day on which the first
written consent is expressed.
(c) The record date for determining stockholders for any other purpose
shall be at the close of business on the day on which the Board of Directors
adopts the resolution relating thereto.
ARTICLE 3
---------
DIRECTORS
---------
Section 3.1 Number; Election and Term of Office. There shall be a Board
----------- -----------------------------------
of Directors of the Corporation consisting of not less than one nor more than
thirteen members, the exact number of which shall initially be fixed at eight,
subject to adjustment by agreement of the stockholders. Subject to any
limitation which may be contained within the Certificate of
6
<PAGE>
Incorporation, the number of the Board of Directors may be increased at any time
by vote of a majority of the Directors then in office. The Directors shall be
elected at the annual meeting of the stockholders, except as provided in
paragraph (c) of Section 8.1, and each Director elected shall hold office until
his successor is elected and qualified or until his earlier resignation or
removal. Directors need not be stockholders.
Section 3.2 Duties. The business of the Corporation shall be managed by
----------- ------
or under the direction of its Board of Directors which may exercise all such
powers of the Corporation and do all such lawful acts and things as are not by
statute or by the Certificate of Incorporation or by these By-Laws directed or
required to be exercised or done by the stockholders.
Section 3.3 Compensation. Unless otherwise restricted by the Certificate
----------- ------------
of Incorporation or these By-Laws, the Board of Directors shall have the
authority to fix the compensation of Directors. The Directors may be paid their
expenses, if any, of attendance at each meeting of the Board of Directors and
may be paid a fixed sum for attendance at each meeting of the Board of Directors
or a stated salary as Directors. No such payment shall preclude any Director
from serving the Corporation in any other capacity and receiving compensation
therefor. Members of special or standing committees may be allowed like
compensation for attending committee meetings.
Section 3.4 Reliance on Books. A member of the Board of Directors or a
----------- -----------------
member of any committee designated by the Board of Directors shall, in the
performance of his duties, be fully protected in relying in good faith upon the
books of account or reports made to the Corporation by any of its officers, or
by an independent certified public accountant, or by an
7
<PAGE>
appraiser selected with reasonable care by the Board of Directors or by any
committee, or in relying in good faith upon other records of the Corporation.
ARTICLE 4
---------
MEETINGS OF THE BOARD OF DIRECTORS
----------------------------------
Section 4.1 Place. The Board of Directors of the Corporation may hold
----------- -----
meetings, both regular and special, either within or without the State of
Delaware.
Section 4.2 Annual Meeting. The first meeting of each newly elected
----------- --------------
Board of Directors shall be held immediately following the annual meeting of
stockholders or any special meeting held in lieu thereof, and no notice of such
meeting shall be necessary to the newly elected Directors in order legally to
constitute the meeting.
Section 4.3 Regular Meetings. Regular meetings of the Board of
----------- ----------------
Directors may be held without notice at such time and at such place as shall
from time to time be determined by the Board.
Section 4.4 Special Meetings. Special meetings of the Board may be
----------- ----------------
called by the President on two days' notice to each Director either personally
or by mail or by telegram; special meetings shall be called by the President or
Secretary in like manner and on like notice on the written request of two
Directors unless the Board consists of only one Director, in which case special
meetings shall be called by the President or Secretary in like manner and on
like notice on the written request of the sole Director.
Section 4.5 Quorum. At all meetings of the Board a majority of the
----------- ------
Directors then in office shall constitute a quorum for the transaction of
business and the act of a majority of the
8
<PAGE>
Directors present at any meeting at which there is a quorum shall be the act of
the Board of Directors, except as may be otherwise specifically provided by
statute or by the Certificate of Incorporation. If a quorum shall not be present
at any meeting of the Board of Directors, the Directors present thereat may
adjourn the meeting from time to time, without notice other than announcement at
the meeting, until a quorum shall be present.
Section 4.6 Action Without Meeting. Unless otherwise restricted by the
----------- ----------------------
Certificate of Incorporation or these By-Laws, any action required or permitted
to be taken at any meeting of the Board of Directors or of any committee thereof
may be taken without a meeting, if all members of the Board or committee, as the
case may be, consent thereto in writing, and the writing or writings are filed
with the minutes of proceedings of the Board or committee.
Section 4.7 Telephone Meetings. Unless otherwise restricted by the
----------- ------------------
Certificate of Incorporation or these By-Laws, members of the Board of
Directors, or any committee designated by the Board of Directors, may
participate in a meeting of the Board of Directors, or any committee, by means
of conference telephone or similar communications equipment by means of which
all persons participating in the meeting can hear each other, and such
participation in a meeting shall constitute presence in person at the meeting.
ARTICLE 5
---------
COMMITTEES OF DIRECTORS
-----------------------
Section 5.1 Designation.
----------- -----------
(a) The Board of Directors may, by resolution passed by a majority of
the whole Board, designate one or more committees, each committee to consist of
one or more of the Directors of the
9
<PAGE>
Corporation. The Board may designate one or more Directors as alternate members
of any committee, who may replace any absent or disqualified member at any
meeting of the committee.
(b) In the absence or disqualification of a member of a committee, the
member or members thereof present at any meeting and not disqualified from
voting, whether or not he or they constitute a quorum, may unanimously appoint
another member of the Board of Directors to act at the meeting in the place of
any such absent or disqualified member.
(c) Any such committee, to the extent provided in the resolution of the
Board of Directors designating the committee, shall have and may exercise all
the powers and authority of the Board of Directors in the management of the
business and affairs of the corporation, and may authorize the seal of the
Corporation to be affixed to all papers which may require it; but no such
committee shall have the power or authority in reference to amending the
Certificate of Incorporation, adopting an agreement of merger or consolidation,
recommending to the stockholders the sale, lease or exchange of all or
substantially all of the Corporation's property and assets, recommending to the
stockholders a dissolution of the Corporation or a revocation of a dissolution,
or amending the By-Laws of the Corporation; and, unless the resolution or the
Certificate of Incorporation expressly so provide, no such committee shall have
the power or authority to declare a dividend or to authorize the issuance of
stock. Such committee or committees shall have such name or names as may be
determined from time to time by resolution adopted by the Board of Directors.
10
<PAGE>
Section 5.2 Records of Meetings. Each committee shall keep regular
----------- -------------------
minutes of its meetings and report the same to the Board of Directors when
required.
ARTICLE 6
---------
NOTICES
-------
Section 6.1 Method of Giving Notice. Whenever, under any provision of
----------- -----------------------
the law or of the Certificate of Incorporation or of these By-Laws, notice is
required to be given to any Director or stockholder, such notice shall be given
in writing by the Secretary or the person or persons calling the meeting by
leaving such notice with such Director or stockholder at his residence or usual
place of business or by mailing it addressed to such Director or stockholder, at
his address as it appears on the records of the Corporation, with postage
thereon prepaid, and such notice shall be deemed to be given at the time when
the same shall be deposited in the United States mail. Notice to Directors may
also be given by telegram.
Section 6.2 Waiver. Whenever any notice is required to be given under
----------- ------
any provision of law or of the Certificate of Incorporation or of these By-Laws,
a waiver thereof in writing, signed by the person or persons entitled to said
notice, whether before or after the time stated therein, shall be deemed
equivalent thereto. Attendance of a person at a meeting shall constitute a
waiver of notice of such meeting, except when the person attends the meeting for
the express purpose of objecting at the beginning of the meeting to the
transaction of any business because the meeting is not lawfully called or
convened.
ARTICLE 7
--------
OFFICERS
--------
11
<PAGE>
Section 7.1 In General. The officers of the Corporation shall be chosen
----------- ----------
by the Board of Directors and shall include a President, a Secretary and a
Treasurer. The Board of Directors may also choose a Chairman of the Board, one
or more Vice-Presidents, Assistant Secretaries and Assistant Treasurers. Any
number of offices may be held by the same person, unless the Certificate of
Incorporation or these By-Laws otherwise provide.
Section 7.2 Election of President, Secretary and Treasurer. The Board of
----------- ----------------------------------------------
Directors at its first meeting after each annual meeting of stockholders shall
choose a President, a Secretary and a Treasurer.
Section 7.3 Election of Other Officers. The Board of Directors may
----------- --------------------------
appoint such other officers and agents as it shall deem appropriate who shall
hold their offices for such terms and shall exercise such powers and perform
such duties as shall be determined from time to time by the Board.
Section 7.4 Salaries. The salaries of all officers and agents of the
----------- --------
Corporation may be fixed by the Board of Directors.
Section 7.5 Term of Office. The officers of the Corporation shall hold
----------- --------------
office until their successors are chosen and qualify or until their earlier
resignation or removal. Any officer elected or appointed by the Board of
Directors may be removed at any time in the manner specified in Section 8.2.
Section 7.6 Duties of President and Chairman of the Board. The President
----------- ---------------------------------------------
shall be the chief executive officer of the Corporation, shall preside at all
meetings of the stockholders and, if he is a Director, at all meetings of the
Board of Directors if there shall be no Chairman of the
12
<PAGE>
Board or in the absence of the Chairman of the Board, shall have general and
active management of the business of the Corporation and shall see that all
orders and resolutions of the Board of Directors are carried into effect. The
President shall execute bonds, mortgages and other contracts requiring a seal,
under the seal of the Corporation, except where required or permitted by law to
be otherwise signed and executed and except where the signing and execution
thereof shall be expressly delegated by the Board of Directors to some other
officer or agent of the Corporation. The Chairman of the Board, if any, shall
make his counsel available to the other officers of the Corporation, shall be
authorized to sign stock certificates on behalf of the Corporation, shall
preside at all meetings of the Directors at which he is present, and, in the
absence of the President at all meetings of the stockholders, and shall have
such other duties and powers as may from time to time be conferred upon him by
the Directors.
Section 7.7 Duties of Vice President. In the absence of the President or
----------- ------------------------
in the event of his inability or refusal to act, the Vice-President (or in the
event there be more than one Vice-President, the Vice-Presidents in the order
designated by the Directors, or in the absence of any designation, then in the
order of their election) shall perform the duties of the President not otherwise
conferred upon the Chairman of the Board, if any, and when so acting, shall have
all the powers of and be subject to all the restrictions upon the President.
The Vice-Presidents shall perform such other duties and have such other powers
as the Board of Directors may from time to time prescribe.
Section 7.8 Duties of Secretary. The Secretary shall attend all meetings
----------- -------------------
of the Board of Directors and all meetings of the stockholders and record all
the proceedings of the meetings of
13
<PAGE>
the Corporation and of the Board of Directors in a book to be kept for that
purpose and shall perform like duties for the standing committees when required.
He shall give, or cause to be given, notice of all meetings of the stockholders
and special meetings of the Board of Directors, except as otherwise provided in
these By-Laws, and shall perform such other duties as may be prescribed by the
Board of Directors or President, under whose supervision he shall be. He shall
have charge of the stock ledger (which may, however, be kept by any transfer
agent or agents of the Corporation under his direction) and of the corporate
seal of the Corporation.
Section 7.9 Duties of Assistant Secretary. The Assistant Secretary, or
----------- -----------------------------
if there be more than one, the Assistant Secretaries in the order determined by
the Board of Directors (or if there be no such determination, then in the order
of their election) shall, in the absence of the Secretary or in the event of his
inability or refusal to act, perform the duties and exercise the powers of the
Secretary and shall perform such other duties and have such other powers as the
Board of Directors may from time to time prescribe.
Section 7.10 Duties of Treasurer. The Treasurer shall have the custody of
------------ -------------------
the corporate funds and securities and shall keep full and accurate accounts of
receipts and disbursements in books belonging to the Corporation and shall
deposit all moneys and other valuable effects in the name and to the credit of
the Corporation in such depositories as may be designated by the Board of
Directors. The Treasurer shall disburse the funds of the Corporation as may be
ordered by the Board of Directors, taking proper vouchers for such
disbursements, and shall render to the President and the Board of Directors, at
its regular meetings, or when the Board of Directors so requires, an account of
all of his transactions as Treasurer and of the financial condition of the
14
<PAGE>
Corporation. If required by the Board of Directors, he shall give the
Corporation a bond in such sum and with such surety or sureties as shall be
satisfactory to the Board of Directors for the faithful performance of the
duties of this office and for the restoration to the Corporation, in case of his
death, resignation, retirement or removal from office, of all books, papers,
vouchers, money and other property of whatever kind in his possession or under
his control belonging to the Corporation.
Section 7.11 Duties of Assistant Treasurer. The Assistant Treasurer, or
------------ -----------------------------
if there shall be more than one, the Assistant Treasurers in the order
determined by the Board of Directors (or if there be no such determination,
then in the order of their election), shall, in the absence of the Treasurer or
in the event of his inability or refusal to act, perform the duties and exercise
the powers of the Treasurer and shall perform such other duties and have such
other powers as the Board of Directors may from time to time prescribe.
ARTICLE 8
---------
RESIGNATIONS, REMOVALS AND VACANCIES
------------------------------------
Section 8.1 Directors.
----------- ---------
(a) Resignations. Any Director may resign at any time by giving
------------
written notice to the Board of Directors or the President or the Secretary.
Such resignation shall take effect at the time specified therein; and unless
otherwise specified therein, the acceptance of such resignation shall not be
necessary to make it effective.
(b) Removals. Subject to any provisions of the Certificate of
--------
Incorporation, the holders of stock entitled to vote for the election of
Directors may, at any meeting called for the
15
<PAGE>
purpose, by vote of a majority of the shares of such stock outstanding, remove
any Director or the entire Board of Directors with or without cause and fill any
vacancies thereby created. This Section 8.1(b) may not be altered, amended or
repealed except by the holders of a majority of the shares of stock issued and
outstanding and entitled to vote for the election of the Directors.
(c) Vacancies. Vacancies occurring in the office of Director and
---------
newly created Directorships resulting from any increase in the authorized number
of Directors shall be filled by a majority of the Directors then in office,
though less than a quorum, unless previously filled by the stockholders entitled
to vote for the election of Directors, and the Directors so chosen shall hold
office subject to the By-Laws until the next annual election and until their
successors are duly elected and qualify or until their earlier resignation or
removal. If there are no Directors in office, then an election of Directors may
be held in the manner provided by statute.
Section 8.2 Officers. Any officer may resign at any time by giving
----------- --------
written notice to the Board of Directors or the President or the Secretary.
Such resignation shall take effect at the time specified therein; and unless
otherwise specified therein, the acceptance of such resignation shall not be
necessary to make it effective. The Board of Directors may, at any meeting
called for the purpose, by vote of a majority of their entire number, remove
from office any officer of the Corporation or any member of a committee, with or
without cause. Any vacancy occurring in the office of President, Secretary or
Treasurer shall be filled by the Board of Directors and the officers so chosen
shall hold office subject to the By-Laws for the unexpired term in respect of
which the vacancy occurred and until their successors shall be elected and
qualify or until their earlier resignation or removal.
16
<PAGE>
17
<PAGE>
ARTICLE 9
---------
CERTIFICATE OF STOCK
--------------------
Section 9.1 Issuance of Stock. The Directors may, at any time and from
----------- -----------------
time to time, if all of the shares of capital stock which the Corporation is
authorized by its Certificate of Incorporation to issue have not been issued,
subscribed for, or otherwise committed to be issued, issue or take subscriptions
for additional shares of its capital stock up to the amount authorized in its
Certificate of Incorporation. Such stock shall be issued and the consideration
paid therefor in the manner prescribed by law.
Section 9.2 Right to Certificate; Form. Every holder of stock in the
----------- --------------------------
Corporation shall be entitled to have a certificate, signed by, or in the name
of the Corporation by, the Chairman of the Board, the President or a Vice-
President and the Treasurer or an Assistant Treasurer, or the Secretary or an
Assistant Secretary of the Corporation, certifying the number of shares owned by
him in the Corporation; provided that the Directors may provide by one or more
resolutions that some or all of any or all classes or series of the
Corporation's stock shall be uncertified shares. Certificates may be issued for
partly paid shares and in such case upon the face or back of the certificates
issued to represent any such partly paid shares, the total amount of the
consideration to be paid therefor, and the amount paid thereon shall be
specified.
Section 9.3 Facsimile Signature. Any of or all the signatures on the
----------- -------------------
certificate may be facsimile. In case any officer, transfer agent or registrar
who has signed or whose facsimile signature has been placed upon a certificate
shall have ceased to be such officer, transfer agent or
18
<PAGE>
registrar before such certificate is issued, it may be issued by the Corporation
with the same effect as if he were such officer, transfer agent or registrar at
the date of issue.
Section 9.4 Lost Certificates. The Board of Directors may direct a new
----------- -----------------
certificate or certificates to be issued in place of any certificate or
certificates theretofore issued by the Corporation alleged to have been lost,
stolen or destroyed, upon the making of an affidavit of that fact by the person
claiming the certificate of stock to be lost, stolen or destroyed. When
authorizing such issue of a new certificate or certificates, the Board of
Directors may, in its discretion and as a condition precedent to the issuance
thereof, require the owner of such lost, stolen or destroyed certificate or
certificates, or his legal representative, to advertise the same in such manner
as it shall require and/or to give the Corporation a bond in such sum as it may
direct as indemnity against any claim that may be made against the Corporation
with respect to the certificate alleged to have been lost, stolen or destroyed.
Section 9.5 Transfer of Stock. Upon surrender to the Corporation or the
----------- -----------------
transfer agent of the Corporation of a certificate for shares duly endorsed or
accompanied by proper evidence of succession, assignation or authority to
transfer, it shall be the duty of the Corporation to issue a new certificate to
the person entitled thereto, cancel the old certificate and record the
transaction upon its books.
Section 9.6 Registered Stockholders. The Corporation shall be entitled
----------- -----------------------
to recognize the exclusive right of a person registered on its books as the
owner of shares to receive dividends, and to vote as such owner, and to hold
liable for calls and assessments a person registered on its books as the owner
of shares, and shall not be bound to recognize any equitable or other claim to
19
<PAGE>
or interest in such share or shares on the part of any other person, whether or
not it shall have express or other notice thereof, except as otherwise provided
by the laws of Delaware.
ARTICLE 10
----------
Indemnification of Directors and Others
---------------------------------------
Section 10.1 Definitions. For purposes of this Article 10:
------------ -----------
(a) "Director/officer" means any person who is serving or has
served as a Director, officer or employee of the Corporation appointed or
elected by the Board of Directors or the stockholders of the Corporation, or any
Director, officer or employee of the Corporation who is serving or has served at
the request of the Corporation as a Director, officer, trustee, principal,
partner, member of a committee, employee or other agent of any other
organization, or in any capacity with respect to any employee benefit plan of
the Corporation or any of its subsidiaries.
(b) "Proceeding" means any action, suit or proceeding, whether
civil, criminal, administrative or investigative, brought or threatened in or
before any court, tribunal, administrative or legislative body or agency, and
any claim which could be the subject of a Proceeding.
(c) "Expense" means any fine or penalty, and any liability fixed
by a judgment, order, decree or award in a Proceeding, any amount reasonably
paid in settlement of a Proceeding and any professional fees and other
disbursements reasonably incurred in connection with a Proceeding. The term
"Expense" shall include any taxes or penalties imposed on a
20
<PAGE>
Director/officer with respect to any employee benefit plan of the Corporation or
any of its subsidiaries.
Section 10.2 Right to Indemnification. Except as limited by law or as
------------ ------------------------
provided in Sections 10.3 and 10.4 of this Article 10, each Director/officer
(and his heirs and personal representatives) shall be indemnified by the
Corporation against any Expense incurred by him in connection with each
Proceeding in which he is involved as a result of his serving or having served
as a Director/officer.
Section 10.3 Indemnification not Available. No indemnification shall be
------------ -----------------------------
provided to a Director/officer with respect to a Proceeding as to which it shall
have been adjudicated that he did not act in good faith in the reasonable belief
that his action was in the best interests of the Corporation, or, to the extent
that such Proceeding relates to service with respect to an employee benefit
plan, in the best interests of the participants or beneficiaries of such
employee benefit plan.
Section 10.4 Compromise or Settlement. In the event that a Proceeding is
------------ ------------------------
compromised or settled so as to impose any liability or obligation on a
Director/officer or upon the Corporation, no indemnification shall be provided
as to said Director/officer with respect to such Proceeding if it is determined
(i) by a majority of the disinterested Directors then in office or (ii) in the
absence of any disinterested Directors or at the request of a majority of the
disinterested Directors, by the holders of a majority of the outstanding stock
entitled to vote for Directors, voting as a single class, exclusive of any stock
owned by any interested Director/officer, that with respect to the matter
involved in such Proceeding said Director/officer did not act in good faith in
the reasonable belief that his action was in the best interests of the
Corporation or, to the extent that such
21
<PAGE>
Proceeding relates to service with respect to an employee benefit plan, in the
best interests of the participants or beneficiaries of such employee benefit
plan. In lieu of submitting the question to a vote of disinterested Directors or
stockholders, as provided above, the Corporation may deny indemnification to
said Director/officer with respect to such Proceeding, if there has been
obtained at the request of a majority of the Directors then in office, an
opinion in writing of independent legal counsel, other than counsel to the
Corporation, to the effect that said Director/officer did not act in good faith
in the reasonable belief that his action was in the best interests of the
Corporation or, to the extent that such Proceeding relates to service with
respect to an employee benefit plan, in the best interests of the participants
or beneficiaries of such employee benefit plan.
Section 10.5 Advances. The Corporation shall pay sums on account of
------------ --------
indemnification in advance of a final disposition of a Proceeding upon receipt
of an undertaking by the Director/officer to repay such sums if it is
subsequently established that he is not entitled to indemnification pursuant to
Sections 10.3 and 10.4 hereof, which undertaking may be accepted without
reference to the financial ability of such person to make repayment.
Section 10.6 Not Exclusive. Nothing in this Article 10 shall limit any
------------ -------------
lawful rights to indemnification existing independently of this Article 10.
Section 10.7 Insurance. The provisions of this Article 10 shall not limit
------------ ---------
the power of the Board of Directors to authorize the purchase and maintenance of
insurance on behalf of any Director/officer against any liability incurred by
him in any such capacity, or arising out of his
22
<PAGE>
status as such, whether or not the Corporation would have the power to indemnify
him against such liability under this Article 10.
ARTICLE 11
----------
EXECUTION OF PAPERS
-------------------
Except as otherwise provided in these By-Laws or as the Board of Directors
may generally or in particular cases otherwise determine, all deeds, leases,
transfers, contracts, bonds, notes, checks, drafts and other instruments
authorized to be executed on behalf of the Corporation shall be executed by the
President or the Treasurer.
ARTICLE 12
----------
FISCAL YEAR
-----------
The fiscal year of the Corporation shall be fixed by resolution of the Board
of Directors.
ARTICLE 13
----------
SEAL
----
The Corporate seal shall have inscribed thereon the name of the Corporation,
the year of its organization and the word "Delaware". The seal may be used by
causing it or a facsimile thereof to be impressed or affixed or reproduced or
otherwise.
ARTICLE 14
----------
OFFICES
-------
In addition to its principal office, the Corporation may have offices at
such other places both within and without the State of Delaware as the Board of
Directors may from time to time determine or the business of the Corporation may
require.
23
<PAGE>
24
<PAGE>
ARTICLE 15
----------
AMENDMENTS
----------
Except as otherwise provided herein, these By-Laws may be altered, amended
or repealed or new By-Laws may be adopted by the stockholders or by the Board of
Directors, when such power is conferred upon the Board of Directors by the
Certificate of Incorporation, at any regular meeting of the stockholders or of
the Board of Directors, or at any special meeting of the stockholders or of the
Board of Directors if notice of such alteration, amendment, repeal or adoption
of new By-Laws is contained in the notice of such special meeting, or by the
written consent of a majority in interest of the outstanding voting stock of the
Corporation or by the unanimous written consent of the Directors. If the power
to adopt, amend or repeal by-laws is conferred upon the Board of Directors by
the Certificate of Incorporation, it shall not divest or limit the power of the
stockholders to adopt, amend or repeal by-laws.
87956-1
25
<PAGE>
EXPERIAN CORPORATION
STOCKHOLDERS' AGREEMENT
<PAGE>
EXPERIAN CORPORATION
STOCKHOLDERS' AGREEMENT
-----------------------
TABLE OF CONTENTS
-----------------
Page
----
ARTICLE I Definitions......................................... 1
ARTICLE II Covenants and Conditions............................ 11
2.1 Restrictions on Transfers; Rights of First Refusal.. 11
2.2 Call by the Company................................. 15
2.3 Tag Along........................................... 16
2.4 Drag Along.......................................... 17
2.5 Preemptive Rights................................... 18
2.6 Corporate Governance................................ 22
2.7 Withholding of Taxes................................ 26
ARTICLE III Registration Rights................................. 26
3.1 Certain Definitions................................. 26
3.2 Demand Registrations................................ 27
3.3 Piggyback Registration.............................. 28
3.4 Obligations of the Company.......................... 29
3.5 Furnish Information................................. 31
3.6 Expenses of Registration............................ 31
3.7 Underwriting........................................ 31
3.8 Indemnification..................................... 32
3.9 Reports Under Securities Exchange Act of 1934....... 34
3.10 No Inconsistent Agreements.......................... 35
3.11 Stock Split......................................... 35
3.12 Lock Up Agreements.................................. 35
ARTICLE IV Miscellaneous....................................... 35
4.1 Remedies............................................ 35
4.2 Entire Agreement; Amendment......................... 36
4.3 Severability........................................ 36
4.4 Notices............................................. 36
4.5 Binding Effect; Assignment.......................... 38
4.6 Governing Law....................................... 38
4.7 Termination......................................... 38
-i-
<PAGE>
<TABLE>
<C> <S> <C>
4.8 Recapitalizations, Exchanges, Etc................... 38
4.9 Stockholder Representative.......................... 38
4.10. Action Necessary to Effectuate the Agreement........ 39
4.11. Purchase for Investment; Legend on Certificate...... 39
4.12. Effectiveness of Transfers.......................... 39
4.13. Additional Stockholders............................. 40
4.14. No Waiver........................................... 40
4.15. Counterparts........................................ 40
4.16. Headings............................................ 40
4.17 Consent to Jurisdiction............................. 40
4.18 Waiver of Right to Jury Trial....................... 41
</TABLE>
Exhibit A Schedule of Stockholders
Exhibit B Certificate of Designation, Preferences and Rights of the Series A
and Series B Preferred Stock
-ii-
<PAGE>
STOCKHOLDERS' AGREEMENT
-----------------------
This Stockholders' Agreement (the "Agreement") is entered into as of the
---------
19th day of September, 1996, by and among Experian Corporation, a Delaware
corporation (the "Company"), those persons listed as Management Investors on the
-------
signature pages hereof (the "Management Investors"), those persons listed as Lee
--------------------
Investors on the signature pages hereof (the "Lee Investors"), these persons
-------------
listed as Bain Investors on the signature pages hereof (the "Bain Investors"),
--------------
that person listed as the TRW Investor on the signature pages hereof (the "TRW
---
Investor"), and those persons listed as Additional Equity Investors on the
- --------
signature pages hereof (the "Additional Equity Investors"). The Management
---------------------------
Investors, the Lee Investors, the Bain Investors, the TRW Investor and the
Additional Equity Investors are sometimes collectively referred to herein as the
"Stockholders."
------------
WHEREAS, upon consummation of the transactions contemplated by the
Recapitalization Agreement and by those certain stock subscription or stock
purchase agreements of even date (the "Stock Subscription Agreements"), the
-----------------------------
Stockholders will own the number of shares of Common Stock and Senior Preferred
Stock set forth next to their respective names on the Schedule of Stockholders
attached hereto as Exhibit A (the "Schedule of Stockholders");
--------- ------------------------
WHEREAS, it is a condition precedent to the obligations of the
Stockholders to purchase shares of Common Stock under the Stock Subscription
Agreements that this Agreement be executed and delivered by the Company and each
of the other Stockholders; and
WHEREAS, all of the Stockholders desire to enter into this Agreement for
the purpose of regulating certain aspects of the relationships of the
Stockholders with regard to each other and to the Company;
In consideration of the mutual promises, representations, warranties,
covenants and conditions set forth in this Agreement, the parties to this
Agreement, intending to be legally bound, mutually agree as follows:
ARTICLE I
Definitions
-----------
For the purposes of this Agreement, the following terms shall be defined
as follows:
The "1933 Act" shall mean the Securities Act of 1933, as amended, or any
--------
successor statute.
The "1934 Act" shall mean the Securities Exchange Act of 1934, as amended,
--------
or any successor statute.
<PAGE>
"Additional Equity Investors" shall have the meaning given to such term in
---------------------------
the introductory paragraph of this Agreement.
"Additional Lead Investors Management Designees" shall have the meaning
----------------------------------------------
given to such term in Section 2.6(b).
An "Affiliate" of a specified person, corporation or other entity shall
---------
mean a person, corporation or other entity which, directly or indirectly,
through one or more intermediaries, controls, or is controlled by, or is under
common control with, the person, corporation or other entity specified and, when
used with respect to the Company or any Subsidiary of the Company, shall include
any holder of capital stock or any officer or director of the Company or any
Subsidiary of the Company.
"Agreement" shall mean this Stockholders' Agreement, as amended or
---------
supplemented from time to time.
An "Associate" shall mean, when used to indicate a relationship with any
---------
Person, (a) any corporation or organization of which such Person is an officer
or partner or is, directly or indirectly, the beneficial owner of ten percent
(10%) or more of any class of equity securities, (b) any trust or other estate
in which such Person has a substantial beneficial interest or as to which such
Person serves as a trustee or in a similar fiduciary capacity and (c) any
relative of such Person who has the same home as such Person, is a parent, aunt
or uncle, sibling, spouse, in-law, child, niece or nephew or grandchild of such
Person, or the spouse of any of them, or is a director or officer of the Company
or any Subsidiary of the Company. Neither the Company nor any of its
Subsidiaries shall be deemed an Associate of any Stockholder.
"Bain Designees" shall have the meaning given to such term in
--------------
Section 2.6(a).
"Bain Investors" shall have the meaning given to such term in the
--------------
introductory paragraph of this Agreement.
"Bain Fund V Designee" shall have the meaning given to such term in
--------------------
Section 2.6(a).
"Bain Fund V-B Designee" shall have the meaning given to such term in
----------------------
Section 2.6(a).
"Bain Outside Director Designee" shall have the meaning given to such term
------------------------------
in Section 2.6(b).
"BCIP" shall mean BCIP Associates, an investment partnership, the partners
----
of which are employees of Bain Capital, Inc. and their retirement plans.
"BCIP Designee" shall have the meaning given to such term in
-------------
Section 2.6(a).
-2-
<PAGE>
"Call Event" shall have the meaning given to such term in Section 2.2(a).
----------
"Call Group" shall have the meaning given to such term in Section 2.2(a).
----------
"Call Notice" shall have the meaning given to such term in Section 2.2(a).
-----------
"Call Option" shall have the meaning given to such term in Section 2.2(a).
-----------
"Call Price" shall have the meaning given to such term in Section 2.2(b).
----------
"Call Securities" shall have the meaning given to such term in
---------------
Section 2.2(a).
"Cause" shall have the meaning set forth below, except with respect to any
-----
Management Investor who is employed by the Company or one of its Subsidiaries
pursuant to an effective written employment agreement between the Company and/
or one of its Subsidiaries and such Management Investor, in which event the
definition of "Cause" set forth in such employment agreement shall be deemed to
be the definition of "Cause" herein solely for such Management Investor and only
for so long as such employment agreement remains effective.
In all other events, the term "Cause" shall mean that the Board of
Directors of the Company has determined, in its reasonable judgment, that any
one or more of the following has occurred;
(i) The Management Investor shall have been convicted of, or
shall have pleaded guilty or nolo contendere to, any felony or a crime
---- ----------
involving dishonesty or moral turpitude;
(ii) The Management Investor shall have committed any fraud,
embezzlement, misappropriation of funds, breach of fiduciary duty or other
act of dishonesty;
(iii) The Management Investor shall have failed to perform in any
material respect (other than by reason of disability) his duties and
responsibilities to the Company and its Affiliates;
(iv) The Management Investor shall have breached in any material
respect any of the provisions of this Agreement;
(v) The Management Investor shall have engaged in conduct
reasonably likely to make the Company or any of its Affiliates subject to
civil or criminal liabilities other than those arising from the Company's
normal business activities; or
(vi) A failure by the Management Investor to take or refrain from
taking any material action as specified in written directions of the Board
of Directors of the Company
-3-
<PAGE>
within a reasonable time following receipt by the Management Investor of
such written directions.
"Certificate of Designation" shall mean the Certificate of Designation,
--------------------------
Preferences and Rights of the Series A and Series B Preferred Stock attached
hereto as Exhibit B.
---------
"Change of Control" shall mean a transaction, or series of related
-----------------
transactions, which results in holders of ten percent (10%) or less of the
Company's Common Stock (including shares of Common Stock issuable upon exercise
of Vested Stock Options and upon conversion of all securities then convertible
into shares of Common Stock) immediately prior to such transaction or series of
related transactions, holding in excess of fifty percent (50%) of the Company's
Common Stock (including shares of Common Stock issuable upon exercise of Vested
Stock Options and upon conversion of all securities then convertible into shares
of Common Stock) immediately following such transaction, or series of related
transactions.
"Common Stock" shall mean the Company's Class A Common Stock, par value
------------
$.001, Class B Common Stock, par value $.001, Class L-1 Common Stock, par value
$.001, and Class L-2 Common Stock, par value $.001, that the Company may be
authorized to issue from time to time and any stock into which such Common Stock
may hereafter be changed or for which such Common Stock may be exchanged after
giving effect to the terms of such change or exchange (by way of reorganization,
recapitalization, merger, consolidation or otherwise) and shall also include any
common stock of the Company hereafter authorized and any capital stock of the
Company of any other class hereafter authorized which is not preferred as to
dividends or distribution of assets in liquidation over any other class of
capital stock of the Company or which has ordinary voting power for the election
of directors of the Company.
"Company" shall mean Experian Corporation, a Delaware corporation
-------
formerly known as IS&S Holdings, Inc. and as Target Marketing Services, Inc.),
and its successors and assigns.
"Company Breach" shall mean, with respect to any Management Investor who
--------------
is employed by the Company or one of its Subsidiaries pursuant to an effective
written employment agreement between the Company and/or one of its Subsidiaries
and such Management Investor, a material breach of such employment agreement by
the Company as a result of which such Management Investor may terminate such
employment agreement pursuant to its express terms and in accordance therewith
(including compliance with any provision providing for notice and the
opportunity to cure).
"Competitor of the Company" shall mean any person that is engaged in any
-------------------------
business in which the Company or any of its Subsidiaries is engaged, or has
formally developed plans to engage, as of the date of the proposed transfer of
Shares.
"Deemed Offer Date" shall have the meaning given to such term in
-----------------
Section 2.1(e).
-4-
<PAGE>
"Designated Employee" shall have the meaning given to such term in
-------------------
Section 2.2(d).
"Disability" shall mean permanent disability within the meaning of Section
----------
22(e)(3) of the Internal Revenue Code of 1986, as amended, unless otherwise
defined in a separate written employment agreement between the Company and/or
one of its Subsidiaries and the person whose disability is in question.
"Fair Market Value" shall mean, the fair value of the applicable Shares as
-----------------
of the applicable date on the basis of a sale of such Shares in an arms length
private sale between a willing buyer and a willing seller, neither acting under
compulsion (or, in the case of a Vested Stock Option, the fair value of the
Shares that may then be purchased by the holder of such Vested Stock Option upon
exercise thereof, determined as described below, minus the exercise price
applicable thereto). In determining such Fair Market Value, no discount shall
be taken for constituting a minority interest and no upward adjustment or
discount shall be taken relating to the fact that the Shares in question are
subject to the restrictions and entitled to the rights provided hereunder. Such
Fair Market Value shall be determined (i) in good faith by the Board of
Directors of the Company or (ii) in the event the holders of Shares subject to
such Fair Market Value determination disagree with such good faith determination
by the Board of Directors of the Company, then by an independent investment
banking firm, retained by the Company (the fees and expenses of which shall be
shared in one-half shares by the Company, on the one hand, and the holders of
the Shares subject to such Fair Market Value determination, on the other hand)
selected as follows: the Board of Directors of the Company shall select three
independent investment banking firms, none of whom shall be an Affiliate or an
Associate of any Stockholder, and the independent investment banking firm to
perform the calculation shall be selected from such list of three by the holders
of a majority of the Shares subject to such Fair Market Value determination.
The parties hereto agree that the Fair Market Value per share of Common Stock as
of the date of the consummation of the Recapitalization shall be deemed to equal
the purchase price per share of Common Stock paid by the Lead Investors in
connection with the Recapitalization (subject to appropriate adjustments for
stock splits, recapitalizations and the like).
"Initiating Stockholder" shall have the meaning given to such term in
----------------------
Section 2.3(a).
"Inside Lead Investors Designees" shall have the meaning given to such
-------------------------------
term in Section 2.6(a).
"Investment Price" shall mean with respect to the purchase of Shares held
----------------
by a Management Investor under Section 2.2, an amount per Share equal to the
price paid for such Share by a Management Investor at the time of the initial
purchase thereof (subject to appropriate adjustments for stock splits,
recapitalizations and the like).
"Investors" means the Lead Investors and the Additional Equity Investors.
---------
-5-
<PAGE>
"Involuntary Transfer" shall mean any involuntary sale, transfer,
--------------------
encumbrance or other disposition by or in which any Stockholder shall be
deprived or divested of any right, title or interest in or to any Shares,
including without limitation, any levy of execution, transfer in connection with
divorce or other marital dissolution proceedings, transfer in connection with
bankruptcy, reorganization, insolvency or similar proceedings, transfer in
connection with foreclosure upon a pledge, or any transfer to a public officer
or agency pursuant to any abandoned property or escheat law.
"Lead Investor New Securities" shall have the meaning given to such term
----------------------------
in Section 2.5(b).
"Lead Investors" shall mean the Bain Investors and the Lee Investors.
--------------
"Lead Investors Management Designee" shall have the meaning given to such
----------------------------------
term in Section 2.6(a).
"Lead Investors Outside Director Designee" shall have the meaning given to
----------------------------------------
such term in Section 2.6(b).
"Lee Designees" shall have the meaning given to such term in
-------------
Section 2.6(a).
"Lee Investors" shall have the meaning given to such term in the
-------------
introductory paragraph of this Agreement.
"Lee Outside Director Designee" shall have the meaning given to such term
-----------------------------
in Section 2.6(b).
"Management Investors" shall have the meaning given to such term in the
--------------------
introductory paragraph of this Agreement.
"New Securities" shall mean any equity security of the Company, whether
--------------
now authorized or not, and any rights, options or warrants to purchase any
equity security of the Company, which the Company proposes to issue or sell to
any person; provided, however, that the term "New Securities" does not include
-------- ------- --------------
(i) securities issued as a stock dividend to all holders of a particular class
of equity securities of the Company pro rata or upon any subdivision or
--- ----
combination thereof; (ii) up to 567,000 shares of the Company's Class A Common
Stock, par value $.001 per share, and up to 63,000 shares of the Company's Class
L-1 Common Stock, par value $.001 per share, issued to employees of, or
consultants to, the Company or any of its Subsidiaries, or any of their
respective designees who would constitute Permitted Transferees hereunder; (iii)
shares of Common Stock purchased after the date hereof by the Company from
Management Investors and reissued to new or existing Management Investors; (iv)
Vested Stock Options and shares of Common Stock issued upon the exercise of
Vested Stock Options or upon the conversion of shares of Common Stock or Senior
Preferred Stock pursuant to their terms; (v) securities of the
-6-
<PAGE>
Company issued in connection with a Public Offering or a merger; (vi) the
Warrants; or (vii) shares of Common Stock issued upon exercise of the Warrants.
In addition, "New Securities" shall mean, with respect to securities of the
--------------
Operating Company, any equity securities of the Operating Company, whether now
authorized or not, and any rights, options or warrants to purchase any equity
security of the Operating Company, which the Operating Company proposes to issue
or sell to any person other than the Company; provided, however, that the term
-------- -------
"New Securities" does not include (i) securities issued as a stock dividend to
--------------
all holders of a particular class of equity securities of the Operating Company
pro rata or upon any subdivision or combination thereof; or (ii) the issuance
- --- ----
of securities of the Operating Company pursuant to a Public Offering or merger.
"Non-voting Preferred Stock" shall mean the Company's Series B Preferred
--------------------------
Stock, par value $.001 per share, with the rights, preferences and other
provisions set forth on Exhibit B.
---------
"Offered Shares" shall have the meaning given to such term in
--------------
Section 2.1(a)(i).
"Offer Price" shall have the meaning given to such term in
-----------
Section 2.1(a)(i).
"Operating Company" shall mean Experian Information Solutions, Inc., an
-----------------
Ohio corporation (formerly known as Information Systems and Services, Inc. and
as TRW Environmental Management Company), and its successors and assigns.
"Original Issue Price" shall mean, with respect to the Voting Preferred
--------------------
Stock, the Series A Original Issue Price, as defined in the Certificate of
Designation, Preferences and Rights of the Series A and Series B Preferred Stock
attached hereto as Exhibit B, and shall mean, with respect to the Non-voting
---------
Preferred Stock, the Series B Original Issue Price, as defined in the
Certificate of Designation, Preferences and Rights of the Series A and Series B
Preferred Stock attached hereto as Exhibit B.
---------
"Participating Offeree" shall have the meaning given to such term in
---------------------
Section 2.3(a).
"Participation Notice" shall have the meaning given to such term in
--------------------
Section 2.3(a).
"Participation Securities" shall have the meaning given to such term in
------------------------
Section 2.3(a).
A "Permitted Transfer" shall mean:
------------------
(a) a Transfer of Shares between any Stockholder who is a natural person
and such Stockholder's spouse, children, parents or siblings or a trust for the
benefit of any of them, provided that with respect to any such Transfer, the
Stockholder retains, as trustee or by some other means, the sole authority to
vote such Shares;
-7-
<PAGE>
(b) a Transfer of Shares by a Lead Investor to the partners, stock-
holders, officers, employees or consultants of such Lead Investor (which
consultants spend at least 50% of their business hours consulting for such Lead
Investor and maintain an office at the offices of such Lead Investor) or to a
corporation or corporations or to a partnership or partnerships (or other entity
for collective investment, such as a fund) which is at the time of the Transfer
controlled by, controlling or under common control with such Lead Investor;
(c) a Transfer of Shares (i) between or among the Lead Investors and
(ii) between or among the Additional Equity Investors;
(d) a Transfer of Shares between any Stockholder who is a natural person
and such Stockholder's guardian or conservator;
(e) a bona fide pledge of Shares by a Stockholder to a bank or financial
---- ----
institution;
(f) a Transfer of Shares by an Investor to any Affiliate of such
Investor;
(g) a Transfer of Shares by the TRW Investor to any Affiliate of the TRW
Investor;
(h) a Transfer made pursuant to a Public Offering or a Rule 144
Transaction; and
(i) a Transfer of Shares by the TRW Investor to one or more of the Lee
Investors or to one or more of the Bain Investors if any such Transfer is
approved by a majority in interest of the Bain Investors (with respect to a
Transfer to a Lee Investor) or by a majority in interest of the Lee Investors
(with respect to a Transfer to a Bain Investor); provided, however, that the
-------- -------
consent of either the Bain Investors or the Lee Investors, as the case may be,
pursuant to the preceding clause of this paragraph (i) shall not be required for
any such Transfer if the Bain Investors or the Lee Investors, as the case may
be, no longer own any Shares.
A "Permitted Transferee" shall mean any person or entity who shall have
--------------------
acquired and who shall hold Shares pursuant to a Permitted Transfer and who has
executed a counterpart of this Agreement.
"Person" or "person" means an individual, corporation, partnership, trust,
------ ------
unincorporated association, or government (or any agency or political
subdivision thereof).
"Public Float Date" shall mean the date on which shares of Common Stock
-----------------
shall have been sold pursuant to one or more Public Offerings in which the
aggregate gross proceeds to the Company of such shares equal or exceed $50
million.
A "Public Offering" shall mean the completion of a sale of Common Stock
---------------
pursuant to a registration statement which has become effective under the 1933
Act, excluding registration statements on Form S-4, S-8 or similar limited
purpose forms.
-8-
<PAGE>
"Recapitalization" shall mean the transactions contemplated by the
----------------
Recapitalization Agreement.
"Recapitalization Agreement" shall mean the Recapitalization Agreement
--------------------------
dated February 9, 1996, among IS&S Acquisition Corp., TRW Inc., TRW IS&S
International, Inc., Operating Company, TRW Hotel Company, Inc., the Company and
TRW Microwave Inc., as amended.
"Retirement" shall mean, with respect to any Management Investor who is
----------
employed by the Company or one of its Subsidiaries, normal retirement at or
after reaching age 65.
"Rule 144 Transaction" means a Transfer of Shares (A) complying with Rule
--------------------
144 under the 1933 Act as such Rule 144 or a successor thereto is in effect on
the date of such Transfer, provided such Transfer is made pursuant to a "brokers
transaction" as defined in clauses (i) and (ii) of paragraph (g) of Rule 144 as
in effect on the date hereof, and (B) occurring at a time when shares of any
class of Common Stock are registered pursuant to Section 12 of the 1934 Act.
"Sale Request" shall have the meaning given such term in Section 2.4(a).
------------
"Schedule of Stockholders" shall have the meaning given such term in the
------------------------
recitals to this Agreement.
"Senior Preferred Stock" shall mean, collectively, the Voting Preferred
----------------------
Stock and the Non-voting Preferred Stock.
"Shares" shall mean all (i) shares of Common Stock held by Stockholders
------
from time to time, (ii) shares of Senior Preferred Stock held by the
Stockholders from time to time, (iii) shares of Common Stock or Senior Preferred
Stock subsequently held by Permitted Transferees who acquire them in one or more
Permitted Transfers, and (iv) securities of the Company or any of its
Subsidiaries issued in exchange for, upon reclassification of, or as a
distribution in respect of, any of the foregoing.
"Stockholder" shall mean any party hereto other than the Company,
-----------
including, without limitation, Permitted Transferees.
"Stock Subscription Agreement" shall have the meaning given such term in
----------------------------
the recitals to this Agreement.
"Subsidiary" with respect to any entity (the "parent") shall mean any
---------- ------
corporation, firm, association or trust of which such parent, at the time in
respect of which such term is used, (i) owns directly or indirectly more than
fifty percent (50%) of the equity or beneficial interest, on a consolidated
basis, and (ii) owns directly or indirectly through one or more Subsidiaries, or
controls with power to vote, shares of capital stock or beneficial interest
having the power to cast at least a majority of the votes entitled to be cast
for the election of directors, trustees, managers
-9-
<PAGE>
or other officials having powers analogous to those of directors of a
corporation. Unless otherwise specifically indicated, when used herein the term
Subsidiary shall refer to a direct or indirect Subsidiary of the Company.
"Take Along Group" shall have the meaning given such term in Section
----------------
2.4(a).
"Third Party" means any Person other than the Company or any of the
-----------
Stockholders.
"Third Party New Securities" shall have the meaning given such term in
--------------------------
Section 2.5(a)(i).
"THL Designees" shall have the meaning given such term in Section 2.6(a).
-------------
"THL Equity Fund" shall mean Thomas H. Lee Equity Fund III, L.P.
---------------
"THL Equity Fund Designee" shall have the meaning given such term in
------------------------
Section 2.6(a).
"Transfer" shall mean to transfer, sell, assign, pledge, hypothecate,
--------
give, create a security interest in or lien on, place in trust (voting or
otherwise), assign or in any other way encumber or dispose of, directly or
indirectly and whether or not by operation of law or for value, any Shares, but
shall exclude the conversion of shares of a class of Common Stock into shares of
any other class of Common Stock or the conversion of shares of a series of
Senior Preferred Stock into shares of any class of Common Stock pursuant to
their respective terms.
"Transfer Notice" shall have the meaning given such term in Section
---------------
2.1(a)(i).
"TRW Designee" shall have the meaning given such term in Section 2.6(a).
------------
"TRW Investor" shall have the meaning given such term in the introductory
------------
paragraph of this Agreement.
"Vested Stock Options" shall mean fully vested stock options which have
--------------------
been granted to Management Investors pursuant to a stock option plan approved by
the Company's directors and stockholders.
"Voluntary Termination" shall include any voluntary termination of
---------------------
employment with the Company by a Management Investor, except (i) for a
Retirement or (ii) as otherwise specified in an effective written agreement
between the Company and/or one of its Subsidiaries and such Management Investor.
"Voting Preferred Stock" shall mean the Company's Series A Preferred
----------------------
Stock, par value $.01 per share, with the rights, preferences and other
provisions set forth on Exhibit B.
---------
-10-
<PAGE>
"Warrants" shall mean the warrants that may be issued by the Company
--------
pursuant to that certain letter agreement dated September 19, 1996, among by the
Company, the Operating Company, The Chase Manhattan Bank, Chase Securities Inc.,
Bankers Trust Company, BT Securities Corporation, The Bear Stearns Companies
Inc. and Bear, Stearns & Co. Inc.
ARTICLE II
Covenants and Conditions
------------------------
2.1 Restrictions on Transfers; Rights of First Refusal.
--------------------------------------------------
Except as provided in Section 2.1(f), no Stockholder shall Transfer all or
any part of the Shares owned by him or it to any Person (other than pursuant to
a Permitted Transfer) unless such Stockholder first complies with the applicable
terms and conditions set forth below:
(a) Transfers by the TRW Investor.
-----------------------------
(i) Neither the TRW Investor, nor any of its Permitted
Transferees, shall Transfer any Shares to a Competitor of the Company. If the
TRW Investor or Permitted Tr ansferee thereof proposes to Transfer Shares to
anyone other than a Competitor of the Company or a Permitted Transferee, the TRW
Investor or Permitted Transferee thereof shall give notice of such proposed
Transfer to the Company. Such notice (the "Transfer Notice") shall state that it
---------------
is being delivered under this Section 2.1(a) and that such offer is a bona fide
---- ----
offer to purchase such shares by a Third Party which is not a Competitor of the
Company. The Transfer Notice also shall set forth the terms and conditions of
such offer, including the name of the prospective purchaser, the proposed
purchase price per share of such Shares (the "Offer Price"), the payment terms
-----------
(including a description of any proposed non-cash consideration), the type of
disposition and the number of such Shares to be transferred (the "Offered
-------
Shares"). The Transfer Notice shall state further (i) that the Company may
- ------
acquire, in accordance with the provisions of this Agreement, all of the Offered
Shares for the price and upon the other terms and conditions, including deferred
payment and any non-cash consideration (in each case if applicable), set forth
therein, and (ii) that, if all or part of the consideration to be paid by the
prospective purchaser consists of securities of another entity, the Company may
elect to acquire the portion of the Offered Shares to be sold for such
securities of another entity by the issuance of comparable securities or the
payment of cash with a comparable value (as determined in good faith by the
Board of Directors).
(ii) The Company may elect to purchase all of the Offered
Shares for the price and upon the other terms and conditions set forth in the
Transfer Notice by delivering a written notice to the proposed transferor of the
Company's intent to purchase such Offered Shares on or before the 60th day
following receipt of the Transfer Notice.
-11-
<PAGE>
(iii) The closing of the purchase of any Offered Shares
pursuant to Section 2.1(a)(ii) hereof shall take place at the principal office
of the Company on the 180th day following receipt of the Transfer Notice. At
such closing, the Company shall deliver the Offer Price, on the same terms as
set forth in the Transfer Notice (including any non-cash consideration described
therein), payable in respect of the Offered Shares being purchased to the TRW
Investor or Permitted Transferee thereof who delivered the Transfer Notice,
against delivery of original stock certificates, and stock powers duly endorsed
in favor of the Company, representing the Offered Shares being acquired by the
Company. All of the foregoing deliveries will be deemed to have been made
simultaneously and none shall be deemed completed until all have been completed.
(iv) If the Company does not elect to purchase all of the
Offered Shares, all but not less than all of the Offered Shares not purchased by
the Company may be Transferred, but only in accordance with Section 2.1(a)(v)
and the terms of the Transfer Notice, within 270 days after receipt of the
Transfer Notice by the Company, after which date, if the Offered Shares have not
been Transferred, all restrictions contained herein shall again be in full force
and effect.
(v) Any Shares transferred pursuant to this Section 2.1(a)
to any person other than the Company shall remain subject to the transfer
restrictions of this Agreement and each intended transferee pursuant to this
Section 2.1(a) shall execute and deliver to the Company a counterpart of this
Agreement, which shall evidence such transferee's agreement that the Shares
being transferred shall continue to be subject to this Agreement and that as to
such Shares the transferee shall be bound by the restrictions of this Agreement
(x) in the case of any transferee other than a Stockholder, as a TRW Investor
and (y) in the case of a Stockholder, as such Stockholder is bound hereunder.
Notwithstanding clause (x) of the immediately preceding sentence, in no event
shall a transferee of Shares from the TRW Investor or Permitted Transferee
thereof be entitled to the benefit of any rights or privileges set forth in
Section 2.3, Section 2.5 or Section 2.6 of this Agreement; provided, however,
-------- -------
that any such transferee shall be required to vote its Shares in accordance
with the provisions of Section 2.6 of this Agreement, other than any provisions
relating to the designation or election of a member of the Board of Directors by
the TRW Investor or Permitted Transferees thereof.
(b) Transfers by Management Investors. None of the Management
---------------------------------
Investors shall Transfer any Shares except for Permitted Transfers to a
Permitted Transferee, who shall be required to execute and deliver to the
Company a counterpart of this Agreement, which shall evidence such Permitted
Transferee's agreement that the Shares being transferred shall continue to be
subject to this Agreement and that as to such Shares the transferee shall be
bound by the restrictions of this Agreement (x) in the case of any Transferee
other than a Stockholder, as a Management Investor, and (y) in the case of a
Stockholder, as such Stockholder is bound hereunder.
(c) Transfers by Additional Equity Investors. None of the Addi-
----------------------------------------
tional Equity Investors shall Transfer any Shares except for Permitted Transfers
to a Permitted Transferee, who
-12-
<PAGE>
shall be required to execute and deliver to the Company a counterpart of this
Agreement, which shall evidence such Permitted Transferee's agreement that the
Shares being transferred shall continue to be subject to this Agreement and that
as to such Shares the Permitted Transferee shall be bound by the restrictions of
this Agreement (x) in the case of any Permitted Transferee other than a
Stockholder, as an Additional Equity Investor and (y) in the case of a
Stockholder, as such Stockholder is bound hereunder. Notwithstanding clause (x)
of the immediately preceding sentence, in no event shall a transferee of Shares
(other than a Permitted Transferee) from an Additional Equity Investor, or
Permitted Transferee thereof, be entitled to the benefit of any rights or
privileges set forth in Section 2.3 or Section 2.5 of this Agreement.
(d) Transfers by Lead Investors.
---------------------------
(i) Prior to the fifth anniversary of the closing under the
Recapitalization Agreement, none of the Bain Investors or the Lee Investors
shall Transfer any Shares, except for Permitted Transfers to Permitted
Transferees, without the prior written consent of (i) the Lee Investors, with
respect to a Transfer by any Bain Investor, or (ii) the Bain Investors, with
respect to a Transfer by any Lee Investor. Any transferee of Shares from a Lead
Investor pursuant to this Section 2.1(d) shall be required to execute and
deliver to the Company a counterpart of this Agreement, which shall evidence
such transferee's agreement that the Shares being transferred shall continue to
be subject to this Agreement and that as to such Shares the transferee shall be
bound by the restrictions of this Agreement (x) in the case of any transferee
other than a Stockholder, as either a Bain Investor, if the transferor is a Bain
Investor, or a Lee Investor, if the transferor is a Lee Investor, and (y) in the
case of a Stockholder, as such Stockholder is bound hereunder.
(ii) Until such time as the TRW Investor and its Permitted
Transferees no longer own any shares of Senior Preferred Stock, the Lead
Investors agree not to Transfer (other than in a Permitted Transfer) to a Third
Party, in one or a series of related transactions, greater than fifty percent
(50%) of the aggregate number of shares of Common Stock owned by the Lead
Investors immediately following consummation of the Recapitalization unless the
Lead Investors Transferring such shares of Common Stock cause such Third Party
to make a bona fide offer to acquire for the Original Issue Price, plus accrued
---- ----
and unpaid dividends, whether or not declared, all then outstanding shares of
Senior Preferred Stock, which offer shall remain open for a period of 30 days.
If the TRW Investor and its Permitted Transferees accept such offer, such
acquisition of Senior Preferred Stock shall be consummated concurrently with the
consummation of the transaction which results in the Lead Investors owning less
than fifty percent (50%) of the aggregate number of shares of Common Stock owned
by the Lead Investors immediately following consummation of the
Recapitalization. Notwithstanding anything to the contrary, the TRW Investor and
its Permitted Transferees shall have the right to exercise their conversion
rights as set forth in Exhibit B for a period of 60 days from the date that
notice of such offer by a Third Party is received by the TRW Investor from the
Lead Investors.
-13-
<PAGE>
(e) Involuntary Transfers.
---------------------
(i) Any Involuntary Transfer of the Shares owned by a
Stockholder shall be subject to the prior rights of the Company and Stockholders
hereunder and any such Involuntary Transfer shall be deemed to be an offer made
by the Stockholder who is the subject of such Involuntary Transfer to sell said
Shares at the Fair Market Value to the Company.
(ii) Any Stockholder whose Shares are the subject of an
Involuntary Transfer shall notify the Company in writing within ten (10) days of
such Involuntary Transfer, but the failure to give such notice shall not affect
the rights of the parties hereunder. Upon the Company's receipt of such notice
(or if no notice is received, upon the senior management of the Company becoming
aware that such Involuntary Transfer has occurred or is about to occur), the
Company forthwith will notify the Lead Investors of such receipt. The Company
shall act upon the deemed offer under this Section within the time periods and
following the applicable procedures set forth in this Section 2.1(e).
(iii) The Company may elect to purchase any or all of the
Shares subject to an Involuntary Transfer by delivering a written notice to the
Stockholder who is the subject of such Involuntary Transfer of the Company's
intent to purchase such Shares on or before the 90th day following the later to
occur of the date of the Company's receipt of written notice setting forth the
existence of such an Involuntary Transfer and the date of such Involuntary
Transfer (the later of such dates is referred to herein as the "Deemed Offer
------------
Date"). The closing of the purchase by the Company of any Shares pursuant to
- ----
this Section 2.1(e) shall take place at the principal office of the Company on
the 180th day following the Deemed Offer Date. At such closing, the Company
shall deliver to the Stockholder who is the subject of such Involuntary Transfer
the Fair Market Value of Shares being purchased, against delivery of original
stock certificates and stock powers duly endorsed in favor of the Company
representing the Shares being acquired by the Company. The Company, at is
option, may pay the Fair Market Value of such Shares in the form of company
check, wire transfer, or delivery of a promissory note bearing interest at the
applicable federal rate and having a maturity date not later than five years
from the date of issuance thereof. All of the foregoing deliveries will be
deemed to have been made simultaneously and none shall be deemed completed until
all have been completed. All Shares which the Company does not elect to
purchase pursuant to this Section 2.1(e) may be transferred pursuant to an
Involuntary Transfer.
(f) The restrictions on transfer set forth in this Section 2.1
shall not apply to a Transfer of Shares which is (i) a Permitted Transfer
(provided that the Permitted Transferee executes and delivers a counterpart of
this Agreement agreeing to be bound hereby as set forth in this Section 2.1),
(ii) pursuant to a Public Offering, (iii) made after a Public Offering, pursuant
to a Rule 144 Transaction, (iv) pursuant to Sections 2.2 or 2.4 hereof, (v)
pursuant to Section 2.3 following compliance with Section 2.1(a), 2.1(b), 2.1(c)
or 2.1(d), in each case to the extent applicable to the proposed transferor, or
(vi) made after the Public Float Date.
-14-
<PAGE>
(g) The Company, by action of its Board of Directors, may assign
its rights to purchase Shares pursuant to Section 2.1 (a) or Section 2.1 (e) to
one or more of the Stockholders.
2.2 Call by the Company.
-------------------
(a) If the employment of a Management Investor by the Company or
any of its Subsidiaries shall terminate (a "Call Event") for any reason prior to
----------
the earlier to occur of (i) the initial Public Offering or (ii) a Change of
Control, then the Company shall have the right to purchase (the "Call Option"),
-----------
by delivery of a written notice (the "Call Notice") to such terminated Manage-
-----------
ment Investor no later than ninety (90) days after the date of such Call Event,
and such Management Investor and such Management Investor's Permitted
Transferees (the "Call Group") shall be required to sell all (but not less than
----------
all) of the Shares and Vested Stock Options which are owned by the members of
the Call Group on the date of such Call Event (collectively, the "Call
----
Securities") at a price per share equal to the Call Price (as defined in Section
- ----------
2.2(b) below) of such Shares as of the date the Call Notice is delivered;
provided however that this Section 2.2 shall not apply to John N. Taussig.
(b) For purposes of this Section 2.2, the term "Call Price" shall
----------
mean (1) with respect to shares of Common Stock,
(i) in the event of a termination of a Management Investor
without Cause or by reason of death or Disability or by such Management Investor
upon Company Breach or Retirement, the Fair Market Value of such shares of
Common Stock; and
(ii) in the event of a termination of a Management Investor
for Cause, in the event of the Voluntary Termination by a Management Investor,
or in the event of a termination for any reason other than those expressly
provided in subparagraph (i) above, the lower of (x) the Investment Price of
such shares of Common Stock or (y) the Fair Market Value of such shares of
Common Stock; and
(iii) with respect to any Vested Stock Option, the difference
between (x) the Call Price, as determined above, payable in respect of shares of
Common Stock minus (y) the exercise price of such Vested Stock Option.
(c) The closing of any purchase of Call Securities by the Company
pursuant to paragraph 2.2(a) shall take place at the principal office of the
Company no later than the 180th day after the Call Event. At such closing, the
Company shall deliver to the Call Group consideration in an amount equal to the
aggregate Call Price payable in respect of such Call Securities, against
delivery of (i) original stock certificates and stock powers duly endorsed in
favor of the Company representing the Call Securities and (ii) the delivery of
an executed agreement, in form reasonably satisfactory to the Company,
evidencing the cancellation of any Vested Stock Options. The Company, at its
option, may pay the consideration for such Call
-15-
<PAGE>
Securities in the form of company check or wire transfer, provided, however,
-------- -------
that if at the time of such closing, the Company is then prohibited from
redeeming with immediately available funds all or a portion of the Call
Securities pursuant to the terms of any credit facility, indenture or similar
agreement or instrument then binding on the Company, then the Company may
deliver a promissory note bearing interest at the applicable federal rate and
with a maturity date not later than five years from the date of issuance thereof
with respect to the Call Price or the portion thereof not able to be paid in
immediately available funds, and such promissory note shall require the Company
to make prepayments on the principal amount thereof when and if permitted by the
Company's credit facilities from time to time. All of the foregoing deliveries
will be deemed to be made simultaneously and none shall be deemed completed
until all have been completed.
(d) Notwithstanding anything set forth in this Section 2.2 to the
contrary, prior to the exercise by the Company of its Call Option to purchase
Call Securities pursuant to this Section 2.2, one or more new or existing
employees of the Company or any Subsidiary may be designated by the Board of
Directors of the Company (individually a "Designated Employee" and collectively,
-------------------
"Designated Employees") who shall have the right, but not the obligation, to
--------------------
exercise the Call Option and to acquire, in lieu of the Company, some or all (as
determined by the Company) of the Call Securities that the Company is entitled
to purchase from the Call Group hereunder, on the same terms and conditions as
set forth in Section 2.2(c) which apply to the repurchase of Call Securities by
the Company, except that the Designated Employees shall not be entitled to
deliver a promissory note for all or any portion of the Call Price.
Concurrently with any such purchase of Call Securities by any such Designated
Employee, such Designated Employee shall execute a counterpart of this
Agreement, whereupon such Designated Employee shall be deemed a "Management
Investor" and shall have the same rights and be bound by the same obligations as
the other Management Investors hereunder.
(e) If neither the Company nor any Designated Employee elects to
exercise the Call Option and deliver a Call Notice within 90 days of a Call
Event, then the Call Option provided in this Section 2.2 shall terminate but the
Management Investor and his Permitted Transferees shall continue to hold such
Call Securities pursuant to all of the other provisions of this Agreement and
other applicable agreements (including without limitation, any restrictions on
the vesting of stock options).
2.3 Tag Along. Except as provided in Section 2.3(c), no Stockholder
---------
shall Transfer any shares of Common Stock to a Third Party without complying
with the following terms and conditions set forth in Sections 2.3(a) and 2.3(b)
below; provided, that this Section 2.3 shall not in any way limit or affect the
--------
restrictions of Section 2.1 and any Stockholder may be an Initiating Stockholder
(as defined below) under this Section 2.3 only if such Transfer is made in
accordance with the applicable provisions of Section 2.1(a), 2.1(b), 2.1(c) or
2.1(d):
(a) After complying with the provisions of Section 2.1(a), 2.1(b),
2.1(c) or 2.1(d), the Stockholder (the "Initiating Stockholder") desiring to
----------------------
Transfer any shares of Common Stock shall give not less than thirty (30) days
prior written notice of such intended Transfer to
-16-
<PAGE>
each other Stockholder ("Participating Offeree") and to the Company. Such notice
---------------------
(the "Participation Notice") shall set forth the terms and conditions of such
--------------------
proposed Transfer, including the name of the prospective transferee, the number
of shares of Common Stock proposed to be transferred (the "Participation
-------------
Securities") by the Initiating Stockholder, the purchase price per share
- ----------
proposed to be paid therefor and the payment terms and type of Transfer to be
effectuated. The Participation Notice shall state further that the Initiating
Stockholder complied with, or obtained waivers with respect to compliance with,
the applicable paragraph of Section 2.1 hereof with respect to such proposed
Transfer and, if applicable, that the Offered Shares were not purchased by the
Company, or its designee, pursuant to the right of first refusal described at
Section 2.1(a). Within 20 days following the delivery of the Participation
Notice by the Initiating Stockholder to each Participating Offeree and to the
Company, each Participating Offeree shall, by notice in writing to the
Initiating Stockholder and to the Company, have the opportunity and right to
sell to the purchasers in such proposed Transfer (upon the same terms and
conditions as the Initiating Stockholder) up to that number of shares of Common
Stock owned by such Participating Offeree as shall equal the product of (x) a
----------
fraction, the numerator of which is the number of shares of Common Stock owned
by such Participating Offeree as of the date of such Participation Notice and
the denominator of which is the sum of (A) the aggregate number of shares of
Common Stock owned as of the date of such Participation Notice by each
Initiating Stockholder and by all Participating Offerees plus (B) the aggregate
number of shares of Common Stock issuable pursuant to Vested Stock Options as of
the date of such Participation Notice by each Initiating Stockholder and by all
Participating Offerees, multiplied by (y) the number of Participation
-------------
Securities. The amount of Participation Securities to be sold by any Initiating
Stockholder shall be reduced to the extent necessary to provide for such sales
of shares of Common Stock by Participating Offerees.
(b) At the closing of any proposed Transfer in respect of which a
Participation Notice has been delivered, the Initiating Stockholder, together
with all Participating Offerees electing to sell shares of Common Stock, shall
deliver to the proposed transferee certificates evidencing the shares of Common
Stock to be sold with stock powers duly endorsed in favor of the proposed
transferee and shall receive in exchange therefor the consideration to be paid
or delivered by the proposed transferee in respect of such shares of Common
Stock as described in the Participation Notice.
(c) The provisions of this Section 2.3 shall not apply to (i) any
Permitted Transfer, (ii) any Transfer pursuant to a Public Offering or,
following a Public Offering, to the public pursuant to a Rule 144 Transaction,
(iii) Transfers pursuant to Sections 2.2 or 2.4 hereof or (iv) any Transfer
completed after the Public Float Date.
2.4 Drag Along.
----------
(a) Except as provided in Section 2.4(b), if a majority in
interest of the Lee Investors and a majority in interest of the Bain Investors
(referred to in this Section 2.4 collectively as the "Take Along Group") shall
----------------
determine jointly to sell or exchange (in a business
-17-
<PAGE>
combination or otherwise) any of their Shares in one or a series of bona fide
---- ----
arms-length transactions to a Third Party who is not an Affiliate or an
Associate of the Take Along Group, then, upon thirty (30) days written notice
from the Take Along Group, which notice shall include reasonable details of the
proposed sale or exchange including the proposed time and place of closing and
the consideration to be received by the Stockholders (such notice being referred
to as the "Sale Request"), each other Stockholder shall be obligated to, and
------------
shall (i) sell, transfer and deliver, or cause to be sold, transferred and
delivered, to such Third Party, in the same transaction at the closing thereof
the same percentage of such Stockholder's shares of Common Stock as is equal to
the percentage of the shares of Common Stock owned by the Take Along Group as of
the date of the Sale Request that are being sold by the Take Along Group in such
transaction or transactions, (ii) deliver certificates for all of his or its
shares of Common Stock at the closing, free and clear of all claims, liens and
encumbrances, (iii) upon request, consent to the cancellation of all Vested
Stock Options for an amount per underlying share of Common Stock equal to the
difference between the consideration per share of Common Stock referenced in the
preceding clause (i) and the exercise price of such Vested Stock Options, and
(iv) if stockholder approval of the transaction is required, vote his or its
Shares in favor thereof. Each Stockholder (including the members of the Take
Along Group) shall receive the same consideration per share of Common Stock upon
any sale pursuant to this Section 2.4.
(b) The provisions of this Section 2.4 shall not apply to (i) any
Transfer pursuant to a Public Offering or pursuant to a Rule 144 Transaction, or
(ii) any Transfer completed after the Public Float Date.
2.5 Preemptive Rights.
-----------------
(a) Preemptive Rights on Issuances to Third Parties.
------------------------------------------------
(i) Notice to Lead Investors. If the Company or the
------------------------
Operating Compancy proposes to issue New Securities to any Person other than a
Lead Investor ("Third Party New Securities"), the Company shall give each Lead
--------------------------
Investor who then owns any shares of Common Stock written notice of such
proposal (the "Lead Investor Notice"), describing the type of New Securities,
--------------------
the number of New Securities proposed to be issued and the price and the terms
upon which the Company or the Operating Company proposes to issue the same (the
total number of shares of New Securities so proposed to be issued is herein
called "Total Third Party Securities").
----------------------------
(ii) Designation of New Securities to be Purchased by the
----------------------------------------------------
Stockholders. The Company hereby grants to the Lead Investors, so long as they
- ------------
shall own any shares of Common Stock, the right to designate a portion of the
Total Third Party New Securities for purchase by all the Stockholders pursuant
to the provisions of clause (iv) below. Such portion shall be equal to the
number of the Total Third Party New Securities which the Lead Investors
designate pursuant to the following procedure: (A) each Lead Investor desiring
to designate for purchase by the Stockholders such Lead Investor's Pro Rata
--- ----
Portion of the Total Third Party
-18-
<PAGE>
New Securities shall deliver a written notice of such desire to the Company on
or before the 20th day following delivery of the Lead Investor Notice; and (B)
if any Lead Investor does not designate for purchase its Lead Investor's Pro
---
Rata Portion of the Total Third Party New Securities, then the other Lead
- ----
Investors shall have a right of over-allotment whereby the other Lead Investors
may designate for purchase by the Stockholders, on or before the 5th business
day following the date such non-designating Lead Investor fails to exercise its
designation right, their respective Lead Investor's Pro Rata Portion of Total
--- ----
Third Party New Securities which Lead Investors were entitled to designate for
purchase by the Stockholders but which were not designated for purchase by the
Stockholders. A "Lead Investor's Pro Rata Portion" shall mean (a) under clause
--------------------------------
(A) of the preceding sentence, the ratio of the number of outstanding shares of
Common Stock which such Lead Investor then owns of record to the total number of
outstanding shares of Common Stock then owned of record by all Lead Investors,
and (b) under clause (B) of the preceding sentence, the ratio of the total
number of shares of Common Stock owned by such Lead Investor to the total number
of shares of Common Stock owned by all Lead Investors who elect to designate for
purchase an over-allotment share pursuant to clause (B) of the preceding
sentence. The Company also shall cause the Operating Company to grant to the
Lead Investors, so long as the Operating Company is a Subsidiary of the Company
or, if sooner, until the Operating Company or the Company has made a Public
Offering, a corresponding right to designate for purchase by all Stockholders a
portion of Total Third Party New Securities which the Operating Company, from
time to time, proposes to sell or issue, calculated in the manner described
above with respect to issuances of Total Third Party New Securities by the
Company. At the conclusion of the procedure set forth in the preceding sentences
of this Section 2.5(a)(ii), the Lead Investors shall notify the Company of the
number of Total Third Party New Securities so designated as available for
purchase by the Stockholders under clause (iv) below (such number of New
Securities is herein called the "Lead Investor New Securities").
----------------------------
(iii) Notice to Stockholders of Lead Investor New Securities. The
------------------------------------------------------
Company shall give each Stockholder, as long as such Stockholder shall own any
shares of Common Stock, written notice of the determination of Lead Investor New
Securities, describing the type and number of Lead Investor New Securities
determined pursuant to Section 2.5(a)(ii) and the price and the terms upon which
the Company or the Operating Company proposes to issue the same (which shall be
the same type, price and terms as for the Third Party New Securities). For a
period of twenty (20) days following the delivery of such notice by the Company,
the Company or the Operating Company, as the case may be, shall be deemed
irrevocably to have offered to sell to each Stockholder his or its pro rata
--- ----
share of Lead Investor New Securities for the price and upon the terms specified
in the notice. Each Stockholder may exercise his or its preemptive rights
hereunder by giving written notice to the Company and stating therein the
quantity of Lead Investor New Securities to be purchased.
(iv) Preemptive Right. The Company hereby grants to each Stock-
----------------
holder so long as he or it shall own any shares of Common Stock or, if sooner,
until the Company has made a Public Offering, the right to purchase a pro rata
--- ----
portion of Lead Investor New Securities which the Company, from time to time,
proposes to sell or issue; provided,
--------
-19-
<PAGE>
however, that any Lead Investor that fails to designate for purchase its pro
- ------- ---
rata portion of the Total Third Party New Securities pursuant to Section
- ----
2.5(a)(ii) shall not be entitled to exercise any preemptive rights pursuant to
this Section 2.5(a)(iv) with respect to such issuance of the Third Party New
Securities. The Company also shall cause the Operating Company to grant to each
Stockholder, so long as the Operating Company is a Subsidiary of the Company or,
if sooner, until the Operating Company or the Company has made a Public
Offering, the right to purchase a pro rata portion of Lead Investor New
--- ----
Securities which the Operating Company, from time to time, proposes to sell or
proposes to sell or issue. A Stockholder's pro rata portion, for purposes of
--- ----
this Section 2.5(a)(iv), is the ratio of the number of outstanding shares of
Common Stock which such Stockholder then owns of record to the total number of
shares of Common Stock then outstanding. Each Stockholder who has a preemptive
right under this Section 2.5(a)(iv) shall have a right of over-allotment such
that if any Stockholder fails to exercise his or its right hereunder to purchase
his or its pro rata portion of Lead Investor New Securities, the other
--- ----
Stockholders may purchase the non-purchasing Stockholder's portion on a pro rata
--- ----
basis determined on the basis of the total number of shares of Common Stock
owned by such Stockholder as compared to all shares of Common Stock owned by all
Stockholders who elect to purchase an over-allotment share pursuant to this
sentence; such right of over-allotment shall expire if not exercised within five
(5) business days from the date such non-purchasing Stockholder fails to
exercise his or its right hereunder to purchase his or its pro rata share of
--- ----
Lead Investor New Securities. If a Stockholder converts any shares of Preferred
Stock into shares of Common Stock prior to the expiration of the twenty (20) day
period described in Section 2.5(a)(iii), the number of shares of Common Stock
owned of record by such Stockholder (for purposes of (i) determining such
Stockholder's pro rata portion pursuant to the two immediately preceding
--- ----
sentences of this Section 2.5(a)(iv), and (ii) determining the pro rata basis
--- ----
pursuant to the immediately preceding sentence of this Section 2.5(a)(iv)) shall
be deemed to include the number of shares of Common Stock issued with respect to
the shares of Preferred Stock being converted by such Stockholder.
(b) Preemptive Rights on Issuances to Lead Investors.
------------------------------------------------
(i) Notice. If the Company or the Operating Company
------
proposes to issue New Securities to any Lead Investor (other than Third Party
New Securities pursuant to the provisions of Section 2.5(a)(iv), the Company
shall give each Stockholder who then owns any shares of Common Stock written
notice of such proposal, describing the type of New Securities, the number of
New Securities proposed to be issued and the price and terms upon which the
Company or the Operating Company proposes to issue the same. For a period of
twenty (20) days following the delivery of such notice by the Company, the
Company or the Operating Company, as the case may be, shall be deemed
irrevocably to have offered to sell to each Stockholder his or its pro rata
--- -----
share of such New Securities for the price and upon the terms specified in the
notice. Each Stockholder may exercise his or its preemptive rights hereunder by
giving written notice to the Company and stating therein the quantity of such
New Securities to be purchased.
-20-
<PAGE>
(ii) Grant. The Company hereby grants to each Stockholder so long
-----
as he or it shall own any shares of Common Stock or, if sooner until the Company
has made a Public Offering, the right to purchase a pro rata portion of New
--- ----
Securities which the Company, from time to time, proposes to sell or issue to
any Lead Investor (other than Third Party New Securities pursuant to Section
2.5(a)(iv). The Company shall also cause the Operating Company to grant to each
Stockholder, so long as the Operating Company is a Subsidiary of the Company or,
if sooner, until the Operating Company or the Company has made a Public
Offering, the right to purchase a pro rata portion of New Securities which the
--- ----
Operating Company, from time to time, proposes to issue or sell to any Lead
Investor (other than Third Party New Securities pursuant to Section 2.5(a)(iv)).
A Stockholder's pro rata portion, for purposes of this Section 2.5(b), is the
--- ----
ratio of the number of outstanding shares of Common Stock which such Stock-
holder then owns of record to the total number of shares of Common Stock then
outstanding. Each Stockholder who has a preemptive right under this Section
2.5(b) shall have a right of over-allotment such that if any Stockholder fails
to exercise his or its right hereunder to purchase his or its pro rata portion
--- ----
of New Securities to be issued to any Lead Investor (other than Third Party New
Securities pursuant to Section 2.5(a)(iv)), the other Stockholders may purchase
the non-purchasing Stockholder's portion on a pro rata basis determined on the
--- ----
basis of the total number of shares of Common Stock owned by such Stockholder as
compared to all shares of Common Stock owned by all Stockholders who elect to
purchase an over-allotment share pursuant to this sentence; such right of over-
allotment shall expire if not exercised within five (5) business days from the
date such non-purchasing Stockholder fails to exercise his or its right
hereunder to purchase his or its pro rata share of New Securities to be issued
--- ----
to any Lead Investor (other than Third Party New Securities pursuant to Section
2.5(a)(iv). If a Stockholder converts any shares of Preferred Stock into shares
of Common Stock prior to the expiration of the twenty (20) day period described
in Section 2.5(b)(i), the number of shares of Common Stock owned of record by
such Stockholder (for purposes of (i) determining such Stockholder's pro rata
--- ----
portion pursuant to the two immediately preceding sentence of this Section
2.5(b)(ii), and (ii) determining the pro rata basis pursuant to the immediately
--- ----
preceding sentence of this Section 2.5(b)(ii)) shall be deemed to include the
number of shares of Common Stock issued with respect to the shares of Preferred
Stock being converted by such Stockholder.
(c) Non-Voting Securities. Any Stockholder that elects to pur-
---------------------
chase a portion of Lead Investor New Securities pursuant to Section 2.5(a)(iv)
or New Securities pursuant to Section 2.5(b)(ii) may elect that all or a portion
of the securities purchased by it be in the form of non-voting securities;
provided, however, that no such election shall be permitted if such election
- -------- -------
could result in adverse tax or accounting consequences to the Company or any of
its Subsidiaries, as determined by the Company's Board of Directors.
(d) Sale by the Company or the Operating Company. If any Stock-
--------------------------------------------
holder who has a preemptive right under this Section 2.5 fails to exercise in
full his or its preemptive right within the twenty (20) day period and after the
expiration of the five (5) day period for the exercise of the over-allotment
provision of this Section 2.5, the Company or the Operating Company shall have
six (6) months thereafter to sell (i) the Lead Investor New Securities with
-21-
<PAGE>
respect to which the preemptive right was not exercised pursuant to Section
2.5(a)(iv) or (ii) the New Securities to the Lead Investors pursuant to Section
2.5(b), in each case, at a price and upon terms no more favorable to the
purchasers thereof than specified in the Company's notice given pursuant to
Section 2.5(a)(iii) or Section 2.5(b)(i), as the case may be. The Company or the
Operating Company, as the case may be, shall have six (6) months following the
expiration of such five (5) day period to sell the New Securities (less the
number of Lead Investor New Securities sold to the Stockholders pursuant to
Section 2.5(a)(iv) or less the number of New Securities sold to the Stockholders
pursuant to Section 2.5(b)(ii)), at a price and upon terms no more favorable to
the purchasers thereof than specified in the Company's notice given pursuant to
Section 2.5(a)(iii) or Section 2.5(b)(i), as the case may be.
(e) Closing. The closing of any issuance pursuant to this
-------
Section 2.5 shall take place as proposed by the Company with respect to the New
Securities to be issued; provided, however, that the Lead Investors shall have
-------- -------
the right to cause the Company to delay such closing for up to thirty (30) days
following the expiration of the twenty (20) day notice period of Section
2.5(a)(iii) or Section 2.5(b)(i), as the case may be. At such closing, the
Company shall deliver certificates for the Lead Investor New Securities
(pursuant to a sale under Section 2.5(a)(iv) or New Securities (pursuant to a
sale under Section 2.5(b)(ii)) in the respective names of the purchasing
Stockholders against receipt of the consideration therefor.
(f) Termination. The right of any Lead Investor to designate for
-----------
purchase, and the right of any Stockholder to purchase, any securities pursuant
to this Section 2.5 shall terminate upon the closing of the Company's first
Public Offering.
2.6 Corporate Governance. Until the tenth anniversary of the date
---------------------
hereof:
(a) Election of Directors. The Company and the Stockholders shall
---------------------
take all action, including but not limited to (i) instructing their director
designees provided herein to take such actions and (ii) voting their Shares, so
that the Company's and the Operating Company's Boards of Directors shall be
identical in number and membership and designated as set forth below.
Notwithstanding anything to the contrary in the foregoing sentence, the TRW
Investor shall have none of the obligations described in the foregoing sentence
during any time that the TRW Investor no longer has the right to designate a
member of the Board of Directors as a result of the operation of Section
2.6(c)(iii). The number of members of the Board of Directors initially shall be
fixed at eight (8), subject to increase and decrease in the manner set forth
below, and designated as follows: two (2) members shall be designated by the Lee
Investors (the "THL Designees"); one (1) member shall be designated by THL
-------------
Equity Fund (the "THL Equity Fund Designee" and, together with the THL
------------------------
Designees, collectively the "Lee Designees"); one (1) member shall be designated
-------------
by Bain Fund V (the "Bain Fund V Designee"); one (1) member shall be designated
--------------------
by Bain Fund V-B (the "Bain Fund V-B Designee"); one (1) member shall be
----------------------
designated by BCIP (the "BCIP Designee" and, together with the Bain Fund V
-------------
Designee and the Bain Fund V-B Designee, the "Bain Designees"); one (1) member
--------------
shall be designated by the TRW Investor (the "TRW Designee"); and one (1) member
------------
shall be designated by the Lead Investors,
-22-
<PAGE>
which designee shall be a member of the Company's or the Operating Company's
management and who initially shall be D. Van Skilling (the "Lead Investors
--------------
Management Designee"). The Bain Fund V Designee, the Bain Fund V-B Designees,
- -------------------
the BCIP Designee, the THL Designees and the THL Equity Fund Designee shall be
referred to herein collectively as the "Inside Lead Investors Designees."
--------------------------------
(b) Increase in Director Designees. The Lee Investors shall have
------------------------------
the option, at any time, to designate one (1) additional member of the Board of
Directors, who shall not be an employee of the Company or the Operating Company
(the "Lee Outside Director Designee"). The Bain Investors shall have the option,
-----------------------------
at any time, to designate one (1) additional member of the Board of Directors,
who shall not be an employee of the Company or the Operating Company (the "Bain
----
Outside Director Designee"). The Lead Investors shall have the option, at any
- -------------------------
time, to designate one (1) additional member of the Board of Directors, who
shall not be an employee of the Company or the Operating Company (the "Lead
----
Investors Outside Director Designee") and up to two (2) additional members of
- -----------------------------------
the Board of Directors, who shall be members of the Company's or the Operating
Company's management (the "Additional Lead Investors Management Designees").
----------------------------------------------
The Bain Outside Director Designee shall be deemed a "Bain Designee" but shall
not be deemed an "Inside Lead Investors Designee." The Lee Outside Director
Designee shall be deemed a "Lee Designee" but shall not be deemed an "Inside
Lead Investor Designee."
(c) Reduction in Director Designees.
-------------------------------
(i) In the event the Lee Investors own, in the aggregate,
less than ten percent (10%) of the shares of Common Stock outstanding (including
shares of Common Stock issuable upon conversion or exercise of securities then
convertible or exercisable into shares of Common Stock), then the Lee Investors
no longer shall have the right to designate the Lee Outside Director Designee.
In the event the Lee Investors own, in the aggregate, less than five percent
(5%) of the shares of Common Stock outstanding (including shares of Common Stock
issuable upon conversion or exercise of securities then convertible or
exercisable into shares of Common Stock), then the number of THL Designees shall
be reduced from two (2) to one (1), with the result that the total number of Lee
Designees shall be reduced from three (3) to two (2). In the event the Lee
Investors no longer own any shares of Common Stock, the Lee Investors no longer
shall have any right to designate any members of the Board of Directors.
(ii) In the event that the Bain Investors own, in the
aggregate, less than ten percent (10%) of the shares of Common Stock outstanding
(including shares of Common Stock issuable upon conversion or exercise of
securities then convertible or exercisable into shares of Common Stock), then
the Bain Investors no longer shall have the right to designate the Bain Outside
Director Designee. In the event the Bain Investors own, in the aggregate, less
than five percent (5%) of the shares of Common Stock outstanding (including
shares of Common Stock issuable upon conversion or exercise of securities then
convertible or exercisable into shares of Common Stock), then BCIP no longer
shall have the right to designate the BCIP
-23-
<PAGE>
Designee, with the result that the total number of Bain Designees shall be
reduced from three (3) to two (2). In the event the Bain Investors no longer own
any shares of Common Stock, the Bain Investors no longer shall have any right to
designate any members of the Board of Directors.
(iii) In the event the TRW Investor or its Permitted
Transferees own less than the number of Shares owned by the TRW Investor
immediately following consummation of the Recapitalization, the TRW Investor
shall no longer have any right to designate any member of the Board of
Directors. Any reduction in the number of Shares owned by the TRW Investor or
its Permitted Transferees that results from (i) a reverse stock split, reverse
stock dividend or similar change in the capital structure of the Company
pursuant to actions taken by the Company without any act on the part of the TRW
Investor or its Permitted Transferees, or (ii) the sale of their Shares pursuant
to Section 2.4, shall not result in the loss of the TRW Investor's right to
designate a member of the Board of Directors; provided, however, that a
-------- -------
reduction in the number of Shares owned by the TRW Investor or its Permitted
Transferees that results from the sale of their Shares pursuant to Section 2.4
shall result in the loss of the TRW Investor's right to designate a member of
the Board of Directors if, following any such sale, the TRW Investor and its
Permitted Transferees own less than 50% of the number of Shares owned by the TRW
Investor immediately following consummation of the Recapitalization. Upon
conversion of any shares of Preferred Stock, the calculation of the number of
Shares owned by the TRW Investor and its Permitted Transferees for purposes of
this Section 2.6(c)(iii) shall include all shares of Class A Common Stock issued
pursuant to such conversion (except any shares of Class A Common Stock issued
pursuant to Section 5(b)(ii)(B) of the Certificate of Designation) and shall
exclude all shares of Class L-1 Common Stock issued pursuant to such conversion.
(iv) The Company and the Stockholders shall take all action,
including but not limited to (i) instructing their director designees provided
herein to take such actions and (ii) voting their Shares, so that the number of
members of the Board of Directors of the Company and the Operating Company are
reduced by one (1) member for each reduction in (A) THL Designees pursuant to
the second sentence of Section 2.6(c)(i), (B) the BCIP Designee pursuant to the
second sentence of Section 2.6(c)(ii), and (C) the TRW Designee pursuant to
Section 2.6(c)(iii).
(d) Designation of Director Designees. The THL Designees shall be
---------------------------------
designated by the vote or consent of a majority in interest of the Shares held
by the Lee Investors; the THL Equity Fund Designee shall be elected by the vote
or consent of a majority in interest of the Shares held by the THL Equity Fund;
the Bain Fund V Designee shall be elected by the vote or consent of a majority
in interest of the Shares held by Bain Capital Fund V, L.P.; the Bain Fund V-B
Designee shall be elected by the vote or consent of a majority in interest of
the Shares held by Bain Capital Fund V-B, L.P.; the BCIP Designee shall be
elected by the vote or consent of a majority in interest of the Shares held by
BCIP Associates; the TRW Designee shall be elected by the vote or consent of a
majority interest of the Shares held by the TRW Investor; and the Lead Investors
Management Designee, the Additional Lead Investors Management Designees and the
-24-
<PAGE>
Lead Investors Outside Designee each shall be elected by the unanimous vote or
consent of the Shares held by the Lead Investors. Any Stockholder (or group of
Stockholders) entitled to designate directors hereunder also shall be entitled
to request that the director designated by that Stockholder (or group of
Stockholders) pursuant to this Section 2.6 be removed or replaced and the other
Stockholders hereby agree to take any action, including the voting of their
Shares or instructing their director designees to take action, to effectuate
such request.
(e) Restrictions on Other Agreements. No Stockholder shall grant
--------------------------------
any proxy or enter into or agree to be bound by any voting trust with respect to
the Shares nor shall any Stockholder enter into any stockholders' agreement or
arrangement of any kind with any Person with respect to the Shares on terms that
are inconsistent with or which violate or conflict with the provisions of this
Agreement including, but not limited to, agreements or arrangements with respect
to the acquisition, disposition or voting of Shares; provided, however, that the
-------- -------
provisions of Section 4.9 with respect to action by stockholder representation
shall not be deemed inconsistent with this Section 2.6(e).
(f) Stockholder Action. Each Stockholder agrees that, in his or
------------------
its capacity as a stockholder of the Company, such Stockholder will vote, or
grant proxies relating to such Shares to vote, all of his or its Shares in favor
of any merger, consolidation, sale or transfer of Shares or any similar
transaction pursuant to Section 2.4 hereof if, and to the extent that, approval
of the Company's stockholders is required in order to effect such transaction,
subject to any fiduciary obligations he or it may have to the other
Stockholders.
(g) Related Transactions. Except for agreements of even date
--------------------
herewith entered into and delivered in connection with the Recapitalization, or
as otherwise approved by the Board of Directors, the Company shall not, and
shall use its best efforts not to permit any Subsidiary to, enter into any
transaction, on a basis less favorable than would at the time be obtainable for
a comparable transaction in arms-length dealing with a Third Party who is not an
Affiliate of the Company or any Stockholder, with any director, officer,
employee or holder of more than 2% of the outstanding shares of Common Stock of
the Company, member of the family of any such person, or any Person in which in
such person, or members of the family of any such person, is a director,
officer, trustee, partner or holder of more than 5% of the outstanding capital
stock thereof.
(h) Corporate Operations. Except as otherwise specifically
--------------------
provided in this Agreement and subject to all relevant common law and statutory
obligations of fairness, so long as the Lead Investors, together with Chase
Equity Associates, L.P., BT Investment Partners, Inc., and BancBoston Ventures
Inc. or their affiliates, in the aggregate, hold at least 30% of the Common
Stock, each of the Stockholders will, upon request of the Lead Investors, vote
all Shares owned by them in favor of any one or more of the following matters
approved by all of the Inside Lead Investor Designees:
-25-
<PAGE>
(i) any merger, consolidation, recapitalization, liquidation
or sale of all (or substantially all) of the assets of the Company or any
Subsidiary;
(ii) any payment by the Company or any Subsidiary of
dividends or redemption of capital stock (other than as required or permitted
pursuant to this Agreement or the Company's Certificate of Incorporation);
(iii) the issuance by the Company or any Subsidiary of any
debt or equity security through public or private financing; and
(iv) any acquisition by the Company or any Subsidiary.
(i) Board Action. All action by the Board of Directors of the
------------
Company or the Operating Company shall be taken only upon the vote or consent
of a majority of all members of the Board of Directors as of the time of the
taking of such action, which majority shall include all Inside Lead Investors
Designees.
2.7 Withholding of Taxes. The Company shall have the right to
--------------------
withhold (or cause one of the Company's subsidiaries to withhold) from any
amounts payable under this Agreement to any Management Investor or any amounts
otherwise payable by the Company to such Management Investor, or require such
Management Investor to remit to the Company, an amount sufficient to satisfy all
federal, state and local withholding tax requirements, whether arising on
account of the matters contemplated by this Agreement, any other agreement
between such Management Investor and the Company or otherwise.
ARTICLE III
Registration Rights
-------------------
3.1 Certain Definitions. As used in this Article III, the following
--------------------
terms shall have the following respective meanings:
"Holder" means the person who is then the record owner of Registrable
------
Securities which have not been sold to the public.
The terms "register", "registered" and "registration" shall refer to a
-------- ---------- ------------
registration effected by preparing and filing a registration statement in
compliance with the 1933 Act and applicable state securities laws for the
purpose of effecting a public sale of securities.
"Registration Expenses" shall mean all expenses (other than Selling
---------------------
Expenses) incurred by the Company in compliance with Sections 3.2 or 3.3 hereof,
including, without limitation, all registration and filing fees, printing
expenses, fees and disbursements of counsel for the Company, blue sky fees and
expenses, the expense of any special audits incident to or required by any such
-26-
<PAGE>
registration, the reasonable fees and disbursements of one counsel for all the
selling Holders and, if requested by either the Lee Investors or the Bain
Investors, the reasonable fees and disbursements of one counsel for each of the
Lee Investors as a group and the Bain Investors as a group.
"Registrable Securities" shall mean (i) all shares of Common Stock
----------------------
held by any party hereto as of the date hereof, (ii) all shares of Common Stock
hereinafter acquired by any Stockholder, and (iii) any other common equity
securities of the Company issued in exchange for, upon a reclassification of, or
in a distribution with respect to, such Common Stock. As to any particular
Registrable Securities, such securities shall cease to be Registrable Securities
when (a) a registration statement (other than a registration statement on Form
S-8) with respect to the sale of such securities shall have become effective
under the 1933 Act and such securities shall have been disposed of in accordance
with such registration statement, (b) a registration statement on Form S-8 with
respect to such securities shall have become effective under the 1933 Act, (c)
such securities shall have been sold under in a Rule 144 Transaction (or any
successor provision) under the 1933 Act, (d) such securities shall have been
otherwise transferred and new certificates for them not bearing a legend
restricting further transfer shall have been delivered by the Company or (e)
such securities shall have been issued and then ceased to be outstanding.
"SEC" means the Securities and Exchange Commission.
---
"Selling Expenses" shall mean all underwriting discounts, selling
----------------
commissions and transfer taxes applicable to the sale of Registrable Securities.
3.2 Demand Registrations.
---------------------
(a) Subject to paragraph (b) hereof,
(i) if the Company shall receive, prior to its initial
Public Offering, a written request (specifying that it is being made pursuant to
this Section 3.2) from both a majority in interest of the Lee Investors, or
transferees thereof who have become parties to this Agreement, and a majority in
interest of the Bain Investors, or transferees thereof who become parties to
this Agreement, that the Company file a registration statement under the 1933
Act, then the Company shall (i) promptly (at least thirty (30) days prior to the
filing date) give written notice to all other Holders of such request, (ii) with
reasonable promptness, and in any case not later than ninety (90) days after
receipt by the Company of such written request for a demand registration, file a
registration statement with the SEC relating to such Registrable Securities as
to which such request for a demand registration relates and (iii) use its
commercially reasonable efforts to cause to be registered under the 1933 Act all
Registrable Securities of the same class that Holders have requested be
registered.
-27-
<PAGE>
(ii) if the Company shall receive, following its initial
Public Offering, a written request (specifying that it is being made pursuant to
this Section 3.2) from a majority in interest of either the Lee Investors, or
transferees thereof who have become parties to this Agreement, or the Bain
Investors, or transferees thereof who have become parties to this Agreement (in
either case, the Holders delivering such request are referred to herein
collectively as the "Requesting Holders") that the Company file a registration
------------------
statement under the 1933 Act, covering the registration of Registrable
Securities with an anticipated gross proceeds of at least $50 million (including
anticipated gross proceeds, if any, to the Company and any other Holders), then
the Company shall (i) promptly (at least thirty (30) days prior to the filing
date) give written notice to all other Holders of such request, (ii) with
reasonable promptness, and in any case not later than ninety (90) days after
receipt by the Company of such written request for a demand registration, file a
registration statement with the SEC relating to such Registrable Securities as
to which such request for a demand registration relates and (iii) use its
commercially reasonable efforts to cause to be registered under the 1933 Act all
Registrable Securities of the same class that Holders have requested be
registered.
(b) If the total amount of Registrable Securities that all Holders
request to be included in an offering exceeds the amount of securities that the
underwriters reasonably believe compatible with the success of the offering,
then the Company will include in such registration only the number of securities
which, in the good faith opinion of such underwriters, can be sold, selected pro
---
rata based on the number of Registrable Securities which each of the Holders
- ----
requesting to be included owns, or has the right to acquire pursuant to the
exercise of Vested Stock Options.
(c) At any time following the Company's initial Public Offering,
Requesting Holders shall be entitled to request, and the Company shall be
obligated to effect, as many registrations of Registrable Securities pursuant to
this Section 3.2 as may be requested by the Requesting Holders until such time
as they shall no longer own any Registrable Securities.
3.3 Piggyback Registration. If, at any time, either the Company or
-----------------------
the Operating Company determines to register any of its equity securities
(including securities convertible into equity securities) for its own account or
for the account of others under the 1933 Act in connection with the public
offering of such securities (including registrations pursuant to Section 3.2),
the Company shall, at each such time, promptly give each Holder written notice
of such determination no later than thirty (30) days before filing a
registration statement with the SEC; provided, however, that registrations
-------- -------
relating solely to securities to be offered by the Company or the Operating
Company (or other person for whose account the registration is made) in
connection with any acquisition, merger, employee stock option or employee stock
purchase or savings plan on Form S-4 or S-8 (or successor forms) under the 1933
Act shall not be subject to this Section 3.3. Upon the written request of any
Holder received by the Company within thirty (30) days after the giving of any
such notice by the Company, the Company shall use its commercially reasonable
efforts to cause to be registered under the 1933 Act all of the Registrable
Securities of such Holder that each Holder has requested be registered. If the
total
-28-
<PAGE>
amount of Registrable Securities that are to be included by either the Company
or the Operating Company for its own account and at the request of Holders
thereof exceeds the amount of securities that the underwriters reasonably
believe compatible with the success of the offering, then the Company or the
Operating Company will include in such registration only the number of
securities which in the opinion of such underwriters can be sold, in the
following order:
(i) first, the equity securities of the Company or the
Operating Company, unless the registration is pursuant to Section 3.2, in which
event the provisions related to allocation of Registrable Shares set forth in
Section 3.2 shall be controlling; and
(ii) then, the Registrable Securities requested to be
included by the Holders pro rata based on the number of Registrable Securities
--- ----
which each of them owns, or has the right to acquire pursuant to the exercise of
Vested Stock Options.
3.4 Obligations of the Company.
---------------------------
(a) Whenever required under Section 3.2 hereof to use its
commercially reasonable efforts to effect the registration of any Registrable
Securities, the Company shall or, with respect to registrations undertaken by
the Operating Company, shall cause the Operating Company to:
(i) prepare and file with the SEC a registration statement
with respect to such Registrable Securities and use its commercially reasonable
efforts to cause such registration statement to become and remain effective,
including, without limitation, filing of pre-effective and post-effective
amendments and supplements to any registration statement or prospectus necessary
to keep the registration statement current;
(ii) as expeditiously as reasonably possible, prepare and
file with the SEC such amendments and supplements to such registration statement
and the prospectus used in connection with such registration statement as may be
necessary to comply with the provisions of the 1933 Act with respect to the
disposition of all securities covered by such registration statement and, if
necessary for the effective disposition of the Registrable Securities covered
thereby, to keep each registration statement effective (and in compliance with
the 1933 Act) by such actions as may be necessary or appropriate for a period of
120 days after the effective date of such registration statement;
(iii) as expeditiously as reasonably possible, furnish to the
Holders such numbers of copies of a prospectus, including any preliminary
prospectus, in conformity with the requirements of the 1933 Act, and such other
documents as they may reasonably request in order to facilitate the disposition
of Registrable Securities owned by them;
(iv) as expeditiously as reasonably possible, use its
commercially reasonable efforts to register and qualify the securities covered
by such registration statement
-29-
<PAGE>
under such securities or "blue sky" laws of such jurisdictions as may be
requested by the underwriters of said offering or, if none, by the Holders;
provided, however, that the Company shall not be required in connection
- -------- -------
therewith or as a condition thereto to qualify to do business or to file a
general consent to service of process in any such jurisdiction, and further
provided that (anything in this Agreement to the contrary notwithstanding with
respect to the bearing of expenses) if any jurisdiction in which the securities
shall be qualified shall require that expenses incurred in connection with the
qualification of the securities in that jurisdiction be borne by selling
stockholders, then such expenses shall be payable by selling stockholders pro
---
rata, to the extent required by such jurisdiction;
- ----
(v) use its commercially reasonable efforts to cause all
Registrable Securities covered by such registration statement to be registered
with or approved by such other governmental agencies or authorities as may be
necessary to enable the seller or sellers thereof to consummate the disposition
or such Registrable Securities;
(vi) notify each seller of Registrable Securities covered by
such registration statement, at any time when a prospectus relating thereto is
required to be delivered under the 1933 Act, upon discovery that, or upon the
happening of any event as a result of which, the prospectus included in such
registration statement, as then in effect, includes an untrue statement of a
material fact or omits to state any material fact required to be stated therein
or necessary to make the statements therein not misleading in the light of the
circumstances under which they were made, and at the request of any such seller
promptly prepare and furnish to such seller a reasonable number of copies of a
supplement to or an amendment of such prospectus as may be necessary so that, as
thereafter delivered to the purchasers of such securities, such prospectus shall
not include an untrue statement of a material fact or omit to state a material
fact required to be stated therein or necessary to make the statements therein
not misleading in the light of the circumstances under which they were made;
(vii) otherwise use its commercially reasonable efforts to
comply with all applicable rules and regulations of the SEC, and make available
to its security holders, as soon as reasonably practicable, an earnings
statement covering the period of at least twelve months, but not more than
eighteen months, beginning with the first full calendar month after the
effective date of such registration statement, which earnings statement shall
satisfy the provisions of Section 11(a) of the 1933 Act;
(viii) provide and cause to be maintained a transfer agent and
registrar for all Registrable Securities covered by such registration statement
from and after a date not later than the effective date of such registration
statement;
(ix) use its commercially reasonable efforts to list all
Registrable Securities covered by such registration statement on any securities
exchange or automated inter-dealer quotation system on which any class of
Registrable Securities is then listed, and if not then listed on any such
exchange or system, use its best efforts to list all Registrable Securities
covered
-30-
<PAGE>
by such registration statement on either the New York Stock Exchange or the
Nasdaq National Market;
(x) use its commercially reasonable efforts to obtain a
"cold comfort" letter from the Company's independent public accountants in
customary form, addressed to each Holder participating in the registration, and
covering such matters of the type customarily covered by "cold comfort" letters
as the Holders of a majority (by number of shares) of the Registrable Shares
being sold or the underwriters retained by such Holders reasonably request; and
(xi) use its commercially reasonable efforts to obtain an
opinion of counsel to the Company addressed to the underwriters of the sale of
Registrable Securities being registered covering such matters as are customarily
covered by such an opinion.
(b) In connection with the preparation and filing of each
registration statement registering Registrable Securities under this Agreement,
the Company will give the Holders of Registrable Securities on whose behalf such
Registrable Securities are to be so registered and their underwriters, if any,
and their respective counsel and accountants, the opportunity to participate in
the preparation of such registration statement, each prospectus included therein
or filed with the SEC, and each amendment thereof or supplement thereto, and
will give each of them such access to its books and records and such
opportunities to discuss the business of the Company with its officers, its
counsel and the independent public accountants who have certified its financial
statements, as shall be necessary, in the opinion of such Holders or such
underwriters or their respective counsel, in order to conduct a reasonable and
diligent investigation within the meaning of the 1933 Act. Without limiting the
foregoing, each registration statement, prospectus, amendment, supplement or any
other document filed with respect to a registration under this Agreement shall
be subject to review and reasonable approval by the Holders registering
Registrable Securities in such registration and by their counsel.
3.5 Furnish Information. It shall be a condition precedent to the
-------------------
obligations of the Company or the Operating Company to take any action pursuant
to Article III that the Holders shall furnish to the Company or the Operating
Company such information regarding them, the Registrable Securities held by
them, and the intended method of disposition of such securities as the Company
or the Operating Company shall reasonably request and as shall be required in
connection with the action to be taken by the Company or the Operating Company.
3.6 Expenses of Registration. All Selling Expenses shall be borne
------------------------
by the Holders of securities registered under this Article III pro rata on the
--- ----
basis of the number of their shares so registered. All Registration Expenses
incurred in connection with a registration pursuant to Sections 3.2 or 3.3
hereof shall be borne by the Company or the Operating Company.
3.7 Underwriting.
------------
(a) In connection with any registration of Registrable Securities
under this Agreement, the Company will, or, with respect to registrations
undertaken by the Operating Company, will cause the Operating Company to, if
requested by the underwriters for any
-31-
<PAGE>
Registrable Securities included in such registration, enter into an underwriting
agreement with such underwriters for such offering, such agreement to contain
such representations and warranties by the Company or the Operating Company, as
the case may be, and such other terms and provisions as are customarily
contained in underwriting agreements with respect to secondary distributions,
including, without limitation, provisions relating to indemnification and
contribution. The Holders on whose behalf Registrable Securities are to be
distributed by such underwriters shall be parties to any such underwriting
agreement, and the representations and warranties by, and the other agreements
on the part of, the Company or the Operating Company, as the case may be, to and
for the benefit of such underwriters shall be also made to and for the benefit
of such Holders of Registrable Securities. Such underwriting agreement shall
comply with Section 3.8.
(b) Such underwriters shall be selected as follows: (i) in the
case of a registration pursuant to Section 3.2, (A) by agreement of a majority
in interest of the Lee Investors and a majority in interest of the Bain
Investors if each of the Lee Investors and the Bain Investors are selling
Registrable Securities in such registration, or (B) by the Lee Investors if the
Bain Investors are not selling any Registrable Securities in such registration,
or by the Bain Investors if the Lee Investors are not selling any Registrable
Securities in such registration; or (ii) in all other cases, by the Company.
3.8 Indemnification. In the event any Registrable Securities are
---------------
included in a registration statement under Article III:
(a) To the fullest extent permitted by law, the Company will, or
will cause the Operating Company to, indemnify and hold harmless each Holder
requesting or joining in a registration, any underwriter (as defined in the 1933
Act) for it, and each person, if any, who controls such Holder or such
underwriter within the meaning of the 1933 Act, from and against any losses,
claims, damages, expenses (including reasonable attorneys' fees and expenses and
reasonable costs of investigation) or liabilities, joint or several, to which
they or any of them may become subject under the 1933 Act or otherwise, insofar
as such losses, claims, damages, expenses or liabilities (or actions or
proceedings, whether commenced or threatened, in respect thereof) arise out of
or are based on any untrue or alleged untrue statement of any material fact
contained in such registration statement including any preliminary prospectus or
final prospectus contained therein or any amendments or supplements thereto, or
arise out of or are based upon the omission or alleged omission to state therein
a material fact required to be stated therein, or necessary to make the
statements therein not misleading, or arise out of any violation by the Company
or the Operating Company of any rule or regulation promulgated under the 1933
Act applicable to the Company or the Operating Company and relating to action or
inaction required of the Company or the Operating Company in connection with any
such registration; and the Company will, or will cause the Operating Company to,
promptly reimburse each Holder, each
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person controlled by such Holder and any underwriter for any legal or other
expenses reasonably incurred by them in connection with investigating or
defending any such loss, claim, damage, liability or action; provided, however,
-------- -------
that the indemnity agreement contained in this Section 3.8(a) shall not apply to
amounts paid in settlement of any such loss, claim, damage, liability or action
if such settlement is effected without the consent of the Company or the
Operating Company (which consent shall not be unreasonably withheld), nor shall
the Company or the Operating Company be liable to anyone for any such loss,
claim, damage, liability or action to the extent that it arises out of or is
based upon an untrue statement or omission made in connection with such
registration statement, preliminary prospectus, final prospectus or amendments
or supplements thereto in reliance upon and in conformity with written
information furnished expressly for use in connection with such registration by
such Holder, underwriter or control person. Such indemnity shall remain in full
force and effect regardless of any investigation made by or on behalf of such
Holder, underwriter or control person and shall survive the transfer of such
securities by such Holder.
(b) To the fullest extent permitted by law, each Holder requesting
or joining in a registration will severally and not jointly indemnify and hold
harmless each of the Company and the Operating Company, as the case may be, each
of its directors, each of its officers who has signed the registration
statement, each person, if any, who controls the Company or the Operating
Company within the meaning of the 1933 Act, and each agent and any underwriter
for the Company or the Operating Company and any person who controls any such
agent or underwriter and each other Holder and any person who controls such
Holder (within the meaning of the 1933 Act) against any losses, claims, damages
or liabilities to which the Company or the Operating Company or any such
director, officer, control person, agent, underwriter, or other Holder may
become subject, under the 1933 Act or otherwise, insofar as such losses, claims,
damages or liabilities (or actions in respect thereto) arise out of or are based
upon an untrue statement of any material fact contained in such registration
statement, including any preliminary prospectus or final prospectus contained
therein or any amendments or supplements thereto, or arise out of or are based
upon the omission to state therein a material fact required to be stated therein
or necessary to make the statements therein not misleading, in each case to the
extent, but only to the extent, that such untrue statement or omission was made
in such registration statement, preliminary or final prospectus, or amendments
or supplements thereto, in reliance upon and in conformity with written
information furnished by such Holder with respect to such Holder expressly for
use in connection with such registration; and such Holder will reimburse any
legal or other expenses reasonably incurred by the Company or the Operating
Company or any such director, officer, control person, agent, underwriter, or
other Holder in connection with investigating or defending any such loss, claim,
damage, liability or action; provided however, the indemnity obligation of each
-------- -------
such Holder hereunder shall be limited to and shall not exceed the net proceeds
actually received by such Holder upon a sale of Registrable Securities pursuant
to a registration statement hereunder; and provided further that the indemnity
--------
agreement contained in this Section 3.8(b) shall not apply to amounts paid in
settlements effected without the consent of such Holder (which consent shall not
be unreasonably withheld). Such indemnity shall remain in full force and effect
regardless of any investigation made by or on behalf of the Company or the
Operating Company or any such director, officer, Holder, underwriter or control
person and shall survive the transfer of such securities by such Holder.
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(c) Any person seeking indemnification under this Section 3.8 will
(i) give prompt notice to the indemnifying party of any claim with respect to
which it seeks indemnification (but the failure to give such notice will not
affect the right to indemnification hereunder, unless the indemnifying party is
materially prejudiced by such failure) and (ii) unless in such indemnified
party's reasonable judgment a conflict of interest may exist between such
indemnified and indemnifying parties with respect to such claim, permit such
indemnifying party, and other indemnifying parties similarly situated, jointly
to assume the defense of such claim with counsel reasonably satisfactory to the
parties. In the event that the indemnifying parties cannot mutually agree as to
the selection of counsel, each indemnifying party may retain separate counsel to
act on its behalf and at its expense. The indemnified party shall in all events
be entitled to participate in such defense at its expense through its own
counsel. If such defense is not assumed by the indemnifying party, the
indemnifying party will not be subject to any liability for any settlement made
without its consent (but such consent will not be unreasonably withheld). No
indemnifying party will consent to entry of any judgment or enter into any
settlement which does not include as an unconditional term thereof the giving by
the claimant or plaintiff to such indemnified party of a release from all
liability in respect of such claim or litigation. An indemnifying party who is
not entitled to, or elects not to, assume the defense of a claim will not be
obligated to pay the fees and expenses of more than one counsel for all parties
indemnified by such indemnifying party with respect to such claim, unless in the
reasonable judgment of any indemnified party a conflict of interest may exist
between such indemnified party and any other of such indemnified parties with
respect to such claim, in which event the indemnifying party shall be obligated
to pay the reasonable fees and expenses of such additional counsel.
(d) If for any reason the foregoing indemnification is unavailable
to any party or insufficient to hold it harmless as and to the extent
contemplated by the preceding paragraphs of this Section 3.8, then each
indemnifying party shall contribute to the amount paid or payable by the
indemnified party as a result of such loss, claim, damage, expense or liability
in such proportion as is appropriate to reflect the relative benefits received
by the Company, on the one hand, and the applicable indemnified party, as the
case may be, on the other hand, and also the relative fault of the Company and
any applicable indemnified party, as the case may be, as well as any other
relevant equitable considerations.
3.9 Reports Under Securities Exchange Act of 1934. With a view to
---------------------------------------------
making available to the Holders and their Permitted Transferees the benefits of
Rule 144 and Rule 144A promulgated under the 1933 Act and any other rule or
regulation of the SEC that may at any time permit a Holder to sell securities of
the Company or the Operating Company to the public without registration, the
Company agrees to use and to cause the Operating Company to use its best efforts
to take all action that may be required as a condition to the availability of
Rule 144, Rule 144A or such other rules or regulations, including, without
limitation, to:
(a) make and keep public information available, as those terms are
understood and defined in Rule 144, at all times subsequent to ninety (90) days
after the effective date of the first registration statement covering an
underwritten public offering filed by the Company or the Operating Company;
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<PAGE>
(b) file with the SEC in a timely manner all reports and other
documents required of the Company or the Operating Company under the 1933 Act
and the 1934 Act (including, without limitation, under Section 13 or Section 15
of the 1934 Act); and
(c) furnish to any Holder forthwith upon request a written
statement by the Company or the Operating Company that it has complied with the
reporting requirements of Rule 144 (at any time after ninety (90) days after the
effective date of said first registration statement filed by the Company or the
Operating Company), and of the 1933 Act and the 1934 Act (at any time after it
has become subject to such reporting requirements), a copy of the most recent
annual or quarterly report of the Company or the Operating Company, and such
other reports and documents so filed by the Company or the Operating Company as
may be reasonably requested in availing any Holder of any rule or regulation of
the SEC permitting the selling of any such securities without registration.
3.10 No Inconsistent Agreements. The Company agrees that neither it
--------------------------
nor the Operating Company has entered into, and neither it nor the Operating
Company will hereafter enter into, any Agreement with respect to the
registration of its securities that is inconsistent with (or superior to) the
rights granted to the Holders of Registrable Securities in this Agreement.
3.11 Stock Split. If, on or after the receipt by the Company of a
-----------
request for registration of a public offering pursuant to Section 3.2 hereof,
the proposed managing underwriter or underwriters of such offering reasonably
believes that the number of shares to be registered is less than the minimum
number necessary for the success of such offering, the Company will promptly
prepare and submit to its Board of Directors, use its best efforts to cause to
be adopted by its Board of Directors and stockholders, and, if so adopted, file
and cause to become effective, an amendment to its certificate of incorporation
so as to cause each share of its outstanding Common Stock to be converted into
such number of shares of such Common Stock so that the number of shares of
Registrable Securities to be registered is equal to the minimum number which
such managing underwriter or underwriters reasonably believes is necessary for
the success of such offering. Each Stockholder, together with his or its
Permitted Transferees, hereby agrees to vote the Shares held by him or it in
favor of adopting such amendment.
3.12 Lock-up Agreements. Each of the parties to this Agreement agrees to
------------------
enter into customary lock-up agreements with respect to all of their Shares with
a duration of 180 days following the closing of an initial Public Offering and
with a duration of 90 days following the closing of any subsequent Public
Offering.
ARTICLE IV
Miscellaneous
-------------
4.1 Remedies.
--------
(a) Each of the parties to this Agreement hereby acknowledges
that, in the event of a breach by any of them of any material provision of this
Agreement, the aggrieved party will be without an adequate remedy at law. Each
of the parties therefore agrees that, in the event
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<PAGE>
of a breach of any material provision of this Agreement, the aggrieved party
will be entitled to institute and prosecute proceedings to enforce specific
performance of such provision or to enjoin the continuing breach of such
provision, as well as to obtain damages for breach of this Agreement. By seeking
or obtaining any such relief, the aggrieved party will not be precluded from
seeking or obtaining any other relief to which it may be entitled. In addition,
any transfers of Shares in violation of this Agreement are void.
(b) In any action or proceeding brought to enforce any provision
of this Agreement, or where any provision hereof is successfully asserted as a
defense, the prevailing party shall be entitled to recover reasonable attorneys'
fees in addition to any other available remedy.
4.2 Entire Agreement; Amendment. This Agreement, together with the
----------------------------
Exhibits hereto, sets forth the entire understanding of the parties, and
supersedes all prior agreements and all other arrangements and communications,
whether oral or written, with respect to the subject matter hereof. The
Schedule of Stockholders attached hereto as Exhibit A may be amended to reflect
---------
changes in the composition of the Stockholders and changes in stock ownership
that may occur from time to time as a result of Permitted Transfers, Transfers
permitted under Article II hereof, or issuances of capital stock permitted under
Article II hereof, including, without limitation, the issuance of securities
that do not constitute New Securities. Amendments to the Schedule of
Stockholders reflecting Permitted Transfers, Transfers permitted under Article
II hereof, or issuances of capital stock permitted under Article II hereof,
including, without limitation, the issuance of securities that do not constitute
New Securities, shall become effective when the amended Schedule of
Stockholders, and a copy of the Agreement as executed by any new transferee or
holder of capital stock, are filed with the Company. Amendments to the Schedule
of Stockholders reflecting Transfers pursuant to waivers under Article II hereof
shall become effective when the waivers and amended Schedule of Stockholders, as
executed by all required parties, and a copy of this Agreement as executed by
any new transferee, or holder of capital stock, are filed with the Company and
with each Lead Investor. Any other amendment, revision or termination of this
Agreement shall require the prior written consent of the Management
Representative, each of the Lee Investors, each of the Bain Investors, the TRW
Investor and each of the Additional Equity Investors.
4.3 Severability. The invalidity or unenforceability of any particular
-------------
provision of this Agreement shall not affect the other provisions hereof, and
this Agreement shall be construed in all respects as if the invalid or
unenforceable provision were omitted.
4.4 Notices. All notices and other communications necessary or
--------
contemplated under this Agreement shall be in writing and shall be delivered in
the manner specified herein or, in the absence of such specification, shall be
deemed to have been duly given three business days after mailing by certified
mail, when delivered by hand, or when delivered by telecopier upon confirmation
of receipt, or one day after sending by an overnight delivery service that
guarantees next-day delivery, to the respective addresses of the parties set
forth below:
(a) for notices and communications to the Company:
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<PAGE>
EXPERIAN CORPORATION
505 City Parkway West
Orange, California 92668-2967
FAX: (714) 938-2513
ATTN: Corporate Secretary
With a copy to each of:
THOMAS H. LEE COMPANY
75 State Street
Boston, Massachusetts 02109
Attention: Scott M. Sperling
Anthony J. DiNovi
and
BAIN CAPITAL, INC.
Two Copley Place, 7th Fl.
Boston, Massachusetts 02116
Attention: Mr. Mark E. Nunnelly
Mr. Robert F. White
and
HUTCHINS, WHEELER & DITTMAR
A Professional Corporation
101 Federal Street
Boston, Massachusetts 02110
Attention: Charles W. Robins, Esq.
and
ROPES & GRAY
One International Place
Boston, Massachusetts 02110-2625
Attention: R. Bradford Malt, Esq.
Peter H. Dodson, Esq.
(b) For notices and communications to the Stockholders, to the
respective addresses set forth in the Schedule of Stockholders.
By notice complying with the foregoing provisions of this Section 4.4, each
party may change the mailing address for future notices and communications to
such party.
4.5 Binding Effect; Assignment. This Agreement shall be binding
--------------------------
upon and inure to the benefit of the parties hereto and to their respective
transferees, successors, assigns, heirs and
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<PAGE>
administrators; provided, however, that the rights under this Agreement may
-------- -------
may not be assigned except as expressly provided herein. No such assignment
shall relieve an assignor of its obligations hereunder.
4.6 Governing Law. This Agreement shall be governed by the laws of
-------------
the State of Delaware (regardless of the laws that might otherwise govern under
applicable principles of conflicts of law) as to all matters, including but not
limited to matters of validity, construction, effect, performance and remedies.
4.7 Termination. Without affecting any other provision of this
-----------
Agreement requiring termination of any rights in favor of any Stockholder,
Permitted Transferee or any other transferee of Shares, the provisions of
Articles II and III of this Agreement shall terminate as to such Stockholder,
Permitted Transferee or other transferee, when, pursuant to and in accordance
with this Agreement, such Stockholder, Permitted Transferee or other transferee,
as the case may be, no longer owns any Shares; provided, that termination
--------
pursuant to this Section 4.7 shall only occur in respect of a Stockholder after
all Permitted Transferees in respect thereof also no longer own any Shares.
4.8 Recapitalizations, Exchanges, Etc. The provisions of this
----------------------------------
Agreement shall apply, to the full extent set forth herein with respect to
Shares, to any and all shares of capital stock of the Company or any successor
or assign of the Company (whether by merger, consolidation, sale of assets or
otherwise) which may be issued in respect of, in exchange for, or in
substitution of the Shares, by reason of a stock dividend, stock split, stock
issuance, reverse stock split, combination, recapitalization, reclassification,
merger, consolidation or otherwise. Upon the occurrence of any such events,
amounts hereunder shall be appropriately adjusted.
4.9 Stockholder Representative.
--------------------------
(a) Each Management Investor hereby designates and appoints (and
each Permitted Transferee of each such Management Investor is hereby deemed to
have so designated and appointed) D. Van Skilling, with full power of
substitution (the "Management Investor Representative"), as the representative
----------------------------------
of each such person to perform all such acts as are required, authorized or
contemplated by this Agreement to be performed by any such person and hereby
acknowledges that the Management Investor Representative shall be the only
person authorized to take any action so required, authorized or contemplated by
this Agreement by each such person. Each such person further acknowledges that
the foregoing appointment and designation shall be deemed to be coupled with an
interest and shall survive the death or incapacity of such person. Each such
person hereby authorizes (and each such Permitted Transferee will be deemed to
have authorized) the other parties hereto to disregard any notice or other
action taken by such person pursuant to this Agreement except for the Management
Investor Representative. The other parties hereto are and will be entitled to
rely on any action so taken or any notice given by the Management Investor
Representative and are and will be entitled and authorized to give notices only
to the Management Investor Representative for any notice contemplated by this
Agreement to be given to any such person. A successor to the Management Investor
Representative may be chosen by a majority in interest of the Shares held by the
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<PAGE>
Management Investors, provided that notice thereof is given by the new
Management Investor Representative to the Company and to the other Stockholders.
(b) The Stockholders agree that the Management Investor
Representative shall not have any liability arising out of or in connection with
the exercise of his powers or the discharge of his duties hereunder while acting
as a representative under this Agreement, except that such representative shall
be subject to liability for his gross negligence or willful misconduct. Such
representative shall not in any event be liable with respect to any action taken
or omitted to be taken by him in good faith or in accordance with and in
reliance upon the opinion of counsel or independent auditors or upon information
obtained by him from any governmental authority or other specialist.
4.10. Action Necessary to Effectuate the Agreement. The parties
--------------------------------------------
hereto agree to take or cause to be taken all such corporate and other action as
may be necessary to effect the intent and purposes of this Agreement.
4.11. Purchase for Investment; Legend on Certificate. Each of the
----------------------------------------------
parties acknowledges that all of the Shares held by such party as shown on the
Schedule of Stockholders attached as Exhibit A hereto are being (or have been)
---------
acquired for investment and not with a view to the distribution thereof and that
no transfer, hypothecation or assignment of Shares may be made except in
compliance with applicable federal and state securities laws. All of the
certificates representing Shares of the Company which are now or hereafter owned
by the Stockholders and which are subject to the terms of this Agreement shall
have endorsed in writing, stamped or printed, thereon the following legend:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO THE TERMS AND
CONDITIONS, INCLUDING RESTRICTIONS ON TRANSFER, OF A STOCKHOLDERS' AGREEMENT
DATED AS OF SEPTEMBER 19, 1996, AS AMENDED FROM TIME TO TIME, AND NONE OF SUCH
SECURITIES, OR ANY INTEREST THEREIN, SHALL BE TRANSFERRED, PLEDGED, ENCUMBERED
OR OTHERWISE DISPOSED OF EXCEPT AS PROVIDED IN THAT AGREEMENT. A COPY OF THE
STOCKHOLDERS' AGREEMENT IS ON FILE WITH THE SECRETARY OF THE COMPANY AND WILL BE
MAILED TO ANY PROPERLY INTERESTED PERSON WITHOUT CHARGE WITHIN FIVE (5) DAYS
AFTER RECEIPT OF A WRITTEN REQUEST."
4.12. Effectiveness of Transfers. All Shares Transferred by a
--------------------------
Stockholder (other than pursuant to an effective registration statement under
the 1933 Act or a Rule 144 Transaction) shall be held by the transferee thereof
pursuant to this Agreement. Such transferee shall, except as otherwise
expressly stated herein, have all the rights and be subject to all of the
obligations of a Stockholder under this Agreement automatically and without
requiring any further act by such transferee or by any parties to this
Agreement. Without affecting the preceding sentence, if such transferee is not
a Stockholder on the date of such Transfer, then such transferee, as a condition
to such Transfer, shall confirm such transferee's obligations hereunder in
accordance with Section 4.13 hereof. No Shares shall be Transferred on the
Company's books and records, and no Transfer of Shares shall be otherwise
effective, unless any such Transfer is made in accordance
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<PAGE>
with the terms and conditions of this Agreement, and the Company is hereby
authorized by all of the Stockholders to enter appropriate stop transfer
notations on its transfer records to give effect to this Agreement.
4.13. Additional Stockholders. Subject to the restrictions on
-----------------------
Transfers of Shares contained herein, any person or entity acquiring Shares
(except for transferees acquiring shares of Common Stock (i) in an offering
registered under the 1933 Act or (ii) in a Rule 144 Transaction) shall, on or
before the Transfer or issuance to him or it of Shares, sign a counterpart
signature page hereto in form reasonably satisfactory to the Company and shall
thereby become a party to this Agreement; provided, however, that a transferee
--------- --------
which is a Permitted Transferee under clause (e) of the definition of Permitted
Transfer shall not be obligated to so agree until foreclosure on its pledge,
which event shall be subject to the provisions of Section 2.1(e) of this
Agreement.
4.14. No Waiver. No course of dealing and no delay on the part of
---------
any party hereto in exercising any right, power or remedy conferred by this
Agreement shall operate as waiver thereof or otherwise prejudice such party's
rights, powers and remedies. No single or partial exercise of any rights,
powers or remedies conferred by this Agreement shall preclude any other or
further exercise thereof or the exercise of any other right, power or remedy.
4.15. Counterparts. This Agreement may be executed in multiple
------------
counterparts, each of which shall be deemed an original but all of which
together shall constitute one and the same instrument, and all signatures need
not appear on any one counterpart.
4.16. Headings. All headings and captions in this Agreement are for
--------
purposes of references only and shall not be construed to limit or affect the
substance of this Agreement.
4.17 Consent to Jurisdiction. The Company and each of the
-----------------------
Stockholders, by its or his execution hereof, (i) hereby irrevocably submit to
the exclusive jurisdiction of the state courts of the State of Delaware for the
purposes of any claim or action arising out of or based upon this Agreement or
relating to the subject matter hereof, (ii) hereby waive, to the extent not
prohibited by applicable law, and agree not to assert by way of motion, as a
defense or otherwise, in any such claim or action, any claim that it or he is
not subject personally to the jurisdiction of the above-named courts, that its
or his property is exempt or immune from attachment or execution, that any such
proceeding brought in the above-named court is improper, or that this Agreement
or the subject matter hereof may not be enforced in or by such court, and (iii)
hereby agree not to commence any claim or action arising out of or based upon
this Agreement or relating to the subject matter hereof other than before the
above-named courts nor to make any motion or take any other action seeking or
intending to cause the transfer or removal of any such claim or action to any
court other than the above-named courts whether on the grounds of inconvenient
forum or otherwise. The Company and each of the Stockholders hereby consent to
service of process in any such proceeding in any manner permitted by Delaware
law, and agree that service of process by registered or certified mail, return
receipt requested, at its address specified pursuant to Section 4.4 hereof is
reasonably calculated to give actual notice.
4.18 WAIVER OF RIGHT TO JURY TRIAL. THE COMPANY AND EACH OF THE
-----------------------------
STOCKHOLDERS, BY ITS OR HIS EXECUTION HEREOF, WAIVE THEIR
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RESPECTIVE RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR
ARISING OUT OF THIS AGREEMENT OR ANY DEALINGS BETWEEN THEM RELATING TO THE
SUBJECT MATTER OF THIS TRANSACTION AND THE RELATIONSHIP THAT IS BEING
ESTABLISHED. THE SCOPE OF THIS WAIVER IS INTENDED TO BE ALL ENCOMPASSING OF ANY
AND ALL DISPUTES THAT MAY BE FILED IN ANY COURT AND THAT RELATE TO THE SUBJECT
MATTER OF THIS AGREEMENT, INCLUDING WITHOUT LIMITATION, CONTRACT CLAIMS, TORT
CLAIMS, BREACH OF DUTY CLAIMS, AND ALL OTHER COMMON LAW AND STATUTORY CLAIMS.
THE COMPANY AND EACH OF THE STOCKHOLDERS ACKNOWLEDGE THAT THIS WAIVER IS A
MATERIAL INDUCEMENT TO ENTER INTO A BUSINESS RELATIONSHIP, THAT EACH HAS ALREADY
RELIED ON THE WAIVER IN ENTERING INTO THIS AGREEMENT AND THAT EACH WILL CONTINUE
TO RELY ON THE WAIVER IN THEIR RELATED FUTURE DEALINGS. THE COMPANY AND EACH OF
THE STOCKHOLDERS FURTHER WARRANT AND REPRESENT THAT EACH HAS REVIEWED THIS
WAIVER WITH ITS OR HIS, AS THE CASE MAY BE, LEGAL COUNSEL, AND THAT EACH
KNOWINGLY AND VOLUNTARILY WAIVES ITS OR HIS, AS THE CASE MAY BE, JURY TRIAL
RIGHTS FOLLOWING CONSULTATION WITH LEGAL COUNSEL. THIS WAIVER IS IRREVOCABLE,
MEANING THAT IT SHALL APPLY TO ANY SUBSEQUENT AMENDMENTS, RENEWALS, SUPPLEMENTS
OR MODIFICATIONS TO THIS AGREEMENT OR TO ANY OTHER DOCUMENTS OR AGREEMENTS
RELATING TO THE TRANSACTION CONTEMPLATED HEREBY. IN THE EVENT OF LITIGATION,
THIS AGREEMENT MAY BE FILED AS A WRITTEN CONSENT TO A TRIAL BY THE COURT.
[Remainder of Page Intentionally Left Blank]
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<PAGE>
EXPERIAN CORPORATION
STOCKHOLDERS' AGREEMENT
Counterpart Signature Page
--------------------------
IN WITNESS WHEREOF, the parties have executed this Agreement as an
instrument under SEAL as of the date first above written.
EXPERIAN CORPORATION
By:
-------------------------------------
Name: Scott M. Sperling
Title: Vice President
[Signatures continue on following pages]
S-1
<PAGE>
EXPERIAN CORPORATION
STOCKHOLDERS' AGREEMENT
Counterpart Signature Page
--------------------------
IN WITNESS WHEREOF, the parties have executed this Agreement as an
instrument under SEAL as of the date first above written.
THOMAS H. LEE EQUITY FUND III, L.P.
By: THL Equity Advisors III Limited Partnership,
its General Partner
By: THL Equity Trust III, its General Partner
By:
------------------------------------
Title:
------------------------------------
THOMAS H. LEE FOREIGN FUND III, L.P.
By: THL Equity Advisors III Limited Partnership,
its General Partner
By: THL Equity Trust III, its General Partner
By:
------------------------------------
Title:
------------------------------------
THL-CCI LIMITED PARTNERSHIP
By: THL Investment Management Corp.,
its General Partner
By:
---------------------------------
Title:
---------------------------------
[Signatures continue on following pages]
S-2
<PAGE>
EXPERIAN CORPORATION
STOCKHOLDERS' AGREEMENT
Counterpart Signature Page
--------------------------
IN WITNESS WHEREOF, the parties have executed this Agreement as an
instrument under SEAL as of the date first above written.
BAIN CAPITAL FUND V, L.P.
By: Bain Capital Partners V, L.P.,
its general partner
By: Bain Capital Investors V, Inc.,
its general partner
By: ____________________________________
Title: Managing Director
BAIN CAPITAL FUND V-B, L.P.
By: Bain Capital Partners V, L.P.,
its general partner
By: Bain Capital Investors V, Inc.
its general partner
By: ____________________________________
Title: Managing Director
BCIP ASSOCIATES
By: ____________________________________
Title: a general partner
RGIP, LLC
By: ____________________________________
Title: Managing Member
BCIP TRUST ASSOCIATES, L.P.
By: ____________________________________
Title: a general partner
[Signatures continue on following pages]
S-3
<PAGE>
EXPERIAN CORPORATION
STOCKHOLDERS' AGREEMENT
Counterpart Signature Page
--------------------------
IN WITNESS WHEREOF, the parties have executed this Agreement as an
instrument under SEAL as of the date first above written.
CHASE EQUITY ASSOCIATES, L.P.
By: CHASE CAPITAL PARTNERS
it's General Partner
By:
----------------------------------
Name: Jeffrey C. Walker
Title: Managing General Partner
[Signatures continue on following pages]
S-4
<PAGE>
EXPERIAN CORPORATION
STOCKHOLDERS' AGREEMENT
Counterpart Signature Page
--------------------------
IN WITNESS WHEREOF, the parties have executed this Agreement as an
instrument under SEAL as of the date first above written.
BANCBOSTON INVESTMENTS INC.
By:
-------------------------------------
Name:
Title:
[Signatures continue on following pages]
S-5
<PAGE>
EXPERIAN CORPORATION
STOCKHOLDERS' AGREEMENT
Counterpart Signature Page
--------------------------
IN WITNESS WHEREOF, the parties have executed this Agreement as an
instrument under SEAL as of the date first above written.
BT INVESTMENT PARTNERS, INC.
By:
-------------------------------------
Name:
Title:
[Signatures continue on following pages]
S-6
<PAGE>
EXPERIAN CORPORATION
STOCKHOLDERS' AGREEMENT
Counterpart Signature Page
--------------------------
IN WITNESS WHEREOF, the parties have executed this Agreement as an
instrument under SEAL as of the date first above written.
TRW MICROWAVE INC.
By:
----------------------------------
Name: Martin A. Coyle
Title: President
[Signatures continue on following pages]
S-7
<PAGE>
EXPERIAN CORPORATION
STOCKHOLDERS' AGREEMENT
Counterpart Signature Page
--------------------------
IN WITNESS WHEREOF, the parties have executed this Agreement as an
instrument under SEAL as of the date first above written.
MANAGEMENT INVESTOR:
Print full legal name of person or entity
purchasing Units:
-------------------------------------
Signature of person with authorization to sign
on behalf of person or entity purchasing Units:
-------------------------------------
S-8
<PAGE>
EXHIBIT 16.1
October 30, 1996
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549
We have read the statements under the caption "Change in Independent Auditors"
in the Form S-1 dated October 30, 1996 of Experian Corporation. We are in
agreement with the statements contained in the first paragraph of that
caption. We have no basis to agree or disagree with other statements of the
registrant contained therein.
/s/ Ernst & Young LLP
<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 the Registration Statement (Form S-1) and related Prospectus of
Experian Corporation for the registration of $265,000,000 of Common Stock.
/s/ Ernst & Young LLP
October 25, 1996
Cleveland, Ohio
