<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 6, 1997
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------------
FORM 10
GENERAL FORM FOR REGISTRATION OF SECURITIES
PURSUANT TO SECTION 12(B) OR 12(G) OF
THE SECURITIES EXCHANGE ACT OF 1934
CHOICEPOINT INC.
(Exact name of registrant as specified in its charter)
---------------------
<TABLE>
<S> <C>
GEORGIA 58-2309650
(State or Other (I.R.S. Employer
Jurisdiction of Incorporation) Identification No.)
1000 ALDERMAN DRIVE 30202
ALPHARETTA, GEORGIA
(Address of Principal Executive Offices) (Zip Code)
(Registrant's telephone number, including (770) 752-4050
area code)
</TABLE>
---------------------
Securities to be registered pursuant to Section 12(b) of the Act:
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<C> <C>
Title of Each Class Name of Each Exchange on Which
to be so Registered Each Class is to be Registered
COMMON STOCK, $.10 PAR VALUE PER SHARE NEW YORK STOCK EXCHANGE
</TABLE>
Securities to be registered pursuant to Section 12(g) of the Act: NONE
================================================================================
<PAGE> 2
ITEM 1. BUSINESS
The information required by this item is contained under the sections
"SUMMARY -- ChoicePoint Inc.," "SUMMARY -- Equifax Inc.," "THE SPINOFF,"
"MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS" and "BUSINESS" of the Information Statement dated , 1997 (the
"Information Statement") attached hereto as Annex A and such sections are
incorporated herein by reference.
ITEM 2. FINANCIAL INFORMATION
The information required by this item is contained under the sections
"SUMMARY -- Summary Consolidated Financial Data," "CAPITALIZATION," "PRO FORMA
CONSOLIDATED FINANCIAL DATA," "SELECTED FINANCIAL DATA" and "MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS" of the
Information Statement and such sections are incorporated herein by reference.
ITEM 3. PROPERTIES
The information required by this item is contained under the section
"BUSINESS -- Properties and Employees" of the Information Statement and such
section is incorporated herein by reference.
ITEM 4. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this item is contained under the section
"MANAGEMENT" and "BENEFICIAL OWNERSHIP OF CHOICEPOINT COMMON STOCK" of the
Information Statement and such section is incorporated herein by reference.
ITEM 5. DIRECTORS AND EXECUTIVE OFFICERS
The information required by this item is contained under the sections
"MANAGEMENT -- Executive Officers and Directors" of the Information Statement
and such sections are incorporated herein by reference.
ITEM 6. EXECUTIVE COMPENSATION
The information required by this item is contained under the section
"MANAGEMENT -- Summary of Executive Compensation" of the Information Statement
and such section is incorporated herein by reference.
ITEM 7. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this item is contained under the sections
"ARRANGEMENTS BETWEEN EQUIFAX AND CHOICEPOINT RELATING TO THE SPINOFF" and
"MANAGEMENT" of the Information Statement and such sections are incorporated
herein by reference.
ITEM 8. LEGAL PROCEEDINGS
The information required by this item is contained in the section
"BUSINESS -- Legal Proceedings" of the Information Statement and such sections
are incorporated herein by reference.
ITEM 9. MARKET PRICE AND DIVIDENDS ON THE REGISTRANT'S COMMON EQUITY AND
RELATED STOCKHOLDER MATTERS
The information required by this item is contained under the sections "THE
SPINOFF -- Manner of Effecting the Spinoff," "THE SPINOFF -- Listing and Trading
of ChoicePoint Common Stock," "CAPITALIZATION," "DIVIDEND POLICY," "MANAGEMENT"
and "DESCRIPTION OF CAPITAL STOCK" of the Information Statement and such
sections are incorporated herein by reference.
2
<PAGE> 3
ITEM 10. RECENT SALES OF UNREGISTERED SECURITIES
On May 28, 1997, as part of its original incorporation, the Company issued
100 shares of its common stock, for a total consideration of $100, to Equifax,
which is and will be the Company's sole shareholder until the Spinoff has been
completed as described in the section "THE SPINOFF" of the Information
Statement, which section is herein incorporated by reference. Subsequent to the
Spinoff, Equifax will hold no capital stock of the Company.
ITEM 11. DESCRIPTION OF REGISTRANT'S SECURITIES TO BE REGISTERED
The information required by this item is contained under the section
"DESCRIPTION OF CAPITAL STOCK" of the Information Statement and such section is
incorporated herein by reference.
ITEM 12. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The information required by this item is contained under the section
"DESCRIPTION OF CAPITAL STOCK -- Limited Liability and Indemnification
Provisions" of the Information Statement and such section is incorporated herein
by reference.
ITEM 13. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The information required by this item is contained (i) under the sections
"SUMMARY -- Summary Consolidated Financial Data," "CAPITALIZATION," "PRO FORMA
CONSOLIDATED FINANCIAL DATA," "SELECTED FINANCIAL DATA" and "MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS" of the
Information Statement and such sections are incorporated herein by reference and
(ii) in the Consolidated Financial Statements incorporated by reference in Item
15, to which reference is made and incorporated herein by reference.
ITEM 14. CHANGES IN DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
None.
ITEM 15. FINANCIAL STATEMENTS AND EXHIBITS
(a) Financial Statements
The following Consolidated Financial Statements and supplemental schedules
of the Company and CDB Infotek are included in the Information Statement and
incorporated herein by reference.
Historical Consolidated Financial Statements of the Company as of March 31,
1997, December 31, 1996 and 1995, and for the quarters ended March 31, 1997 and
1996, and for the three years ended December 31, 1996:
-- Report of independent auditors
-- Consolidated statements of income
-- Consolidated balance sheets
-- Consolidated statements of shareholder's equity
-- Consolidated statements of cash flows
-- Notes to consolidated financial statements
3
<PAGE> 4
Historical Consolidated Financial Statements of CDB Infotek as of June 30,
1996 and December 31, 1995, and for the six months ended June 30, 1996 and 1995
and for the year ended December 31, 1995:
-- Report of independent public accountants
-- Consolidated statements of income
-- Consolidated balance sheets
-- Consolidated statements of stockholders' equity
-- Consolidated statements of cash flows
-- Notes to consolidated financial statements
(b) Exhibits
<TABLE>
<C> <C> <S>
2.01 -- Information Statement dated as of June , 1997 (attached to
this Registration Statement as Annex A)
3.01 -- Articles of Incorporation of the Company
3.02 -- Bylaws of the Company
4.01* -- Form of Common Stock certificate
10.01* -- ChoicePoint Inc. 1997 Omnibus Stock Incentive Plan
10.02* -- Form of Distribution Agreement, dated , 1997, by
and between Equifax and the Company
10.03* -- Form of Employee Benefits Agreement, dated ,
1997, by and between Equifax and the Company
10.04* -- Form of Transition Support Agreement, dated ,
1997, by and between Equifax and the Company
10.05* -- Form of Intercompany Information Services Agreement, dated
, 1997, by and between Equifax and the
Company
10.06* -- Form of Tax Sharing and Indemnification Agreement, dated
, 1997, by and between Equifax and the
Company
10.07* -- Form of Intellectual Property Agreement, dated
, 1997, by and between Equifax and the
Company
10.08* -- Form of Business Transfer Agreement, dated ,
1997, by and between Equifax Europe (UK) Ltd. and
ChoicePoint Ltd.
10.09(a)* -- Form of Change in Control Agreement by and between the
Company and Derek V. Smith
10.09(b)* -- Form of Change in Control Agreement by and between the
Company and Dan H. Rocco
10.09(c)* -- Form of Change in Control Agreement by and between the
Company and Douglas C. Curling
10.09(d)* -- Form of Change in Control Agreement by and between the
Company and David T. Lee
10.09(e)* -- Form of Change in Control Agreement by and between the
Company and J. Michael de Janes
10.10(a)* -- Form of Employment Agreement by and between the Company and
Derek V. Smith
10.10(b)* -- Form of Employment Agreement by and between the Company and
Dan H. Rocco
10.10(c)* -- Form of Employment Agreement by and between the Company and
Douglas C. Curling
10.10(d)* -- Form of Employment Agreement by and between the Company and
David T. Lee
10.10(e)* -- Form of Employment Agreement by and between the Company and
J. Michael de Janes
10.11* -- Form of Agreement, dated July 24, 1996, by and between
Equifax Inc. and Dan Rocco, to be effective January 1, 1996
(relating to compensation of Mr. Rocco)
10.12* -- Form of $250,000,000 Revolving Credit Facility, dated
, 1997, by and among ChoicePoint Inc. and
SunTrust Bank, Atlanta and Wachovia Bank of Georgia, N.A.,
as co-arrangers
</TABLE>
4
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10.13* -- Form of Master Agreement among ChoicePoint Inc., as lessee,
SunTrust Bank, Inc., as lessor, and SunTrust Bank, Atlanta,
as agent (synthetic lease related to certain property and
building located at 1000 Alderman Drive, Alpharetta,
Georgia)
10.14* -- Form of Sublease Agreement, dated , 1997, by and
between Equifax Inc. and Equifax Services, Inc. (for certain
property and building located at 1600 Peachtree Street, NW,
Atlanta, Georgia)
10.15* -- Form of Sublease Agreement, dated , 1997, by and
between Equifax Inc. and Equifax Services, Inc. (for certain
property and building located at 1525 Windward Concourse,
Alpharetta, Georgia (J.V. White Technology Center))
21.01* -- Subsidiaries of the Company
23.01 -- Consent of Arthur Andersen LLP
27 -- Financial Data Schedule
- ---------------
* To be filed by amendment.
5
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SIGNATURES
Pursuant to the requirements of Section 12 of the Securities Exchange Act
of 1934, the undersigned registrant has duly caused this registration statement
to be signed on its behalf by the undersigned, thereunto duly authorized.
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<S> <C>
CHOICEPOINT INC.
Dated: June 6, 1997 By: /s/ DEREK V. SMITH
-----------------------------------------
Derek V. Smith, President and
Chief Executive Officer
</TABLE>
6
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ANNEX A
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 WILL NOT BE ISSUED
PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES EFFECTIVE. THIS
INFORMATION STATEMENT SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY THESE SECURITIES.
(LOGO)
SPINOFF OF
CHOICEPOINT INC.
FROM
EQUIFAX INC.
THROUGH A 100% COMMON STOCK DISTRIBUTION
Fellow Shareholders:
In December 1996, the Board of Directors of Equifax Inc. announced plans to
spin off the Insurance Services Group of Equifax to its shareholders. Equifax
will accomplish the Spinoff by transferring the Insurance Services Group to a
new corporation called ChoicePoint Inc. and then distributing the Common Stock
of ChoicePoint to Equifax shareholders. Following the Spinoff, ChoicePoint will
operate the Insurance Services Group as a new independent public company. We are
pleased to announce that the Spinoff will occur on or about , 1997.
If you own Equifax Common Stock on the Record Date of , 1997, you will
receive one share of ChoicePoint Common Stock for every ten shares of Equifax
Common Stock that you own. You will receive cash for any fractional share of
ChoicePoint Common Stock that you would have received. Equifax intends to
distribute shares of ChoicePoint Common Stock in 1997. The Spinoff will be
tax-free to Equifax shareholders, except for cash received for any fractional
shares.
You do not need to take any action for the Spinoff to occur. You do not
have to pay for the shares of ChoicePoint Common Stock that you will receive in
the Spinoff, nor do you have to surrender or exchange shares of Equifax Common
Stock in order to receive shares of ChoicePoint Common Stock. The number of
shares of Equifax Common Stock you own will not change as a result of the
Spinoff. ChoicePoint Common Stock will trade on the New York Stock Exchange
under the symbol CPS.
This Information Statement will give you information about ChoicePoint. We
are enthusiastic about the Spinoff and ChoicePoint's separate public status. We
encourage you to read this document carefully to learn more about ChoicePoint
and the Spinoff.
Sincerely,
<TABLE>
<S> <C>
C. B. Rogers, Jr. Derek V. Smith
Chairman President and Chief Executive Officer
Equifax Inc. and ChoicePoint Inc.
ChoicePoint Inc.
</TABLE>
, 1997
<PAGE> 8
TABLE OF CONTENTS
<TABLE>
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PAGE
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<S> <C>
SUMMARY..................................................... 1
Introduction.............................................. 1
Questions and Answers About the Spinoff and ChoicePoint... 1
What We Have Already Accomplished to Prepare for the
Spinoff................................................ 4
Key Terms and Definitions of the Spinoff Transaction...... 5
Who Can Assist In Answering Your Questions?............... 6
Summary Consolidated Financial Data....................... 7
ChoicePoint Inc........................................... 8
Equifax Inc............................................... 9
FORWARD-LOOKING INFORMATION................................. 10
RISK FACTORS................................................ 11
No Operating History as an Independent Company............ 11
Dependence on Data Sources................................ 11
Dependence on Key Personnel............................... 11
Inability to Identify or Complete Acquisitions............ 11
Absence of Equifax Funding................................ 12
Government Regulation..................................... 12
No Prior Market for ChoicePoint Common Stock; Fluctuations
in Price of ChoicePoint Common Stock................... 12
Fluctuations in Price of Equifax Common Stock............. 12
Current Dependence on Insurance Customers................. 13
Competition............................................... 13
Certain Anti-Takeover Provisions.......................... 13
Potential Taxation........................................ 14
THE SPINOFF................................................. 15
Background and Reasons for the Spinoff.................... 15
Manner of Effecting the Spinoff........................... 15
No Issuance of Fractional Shares.......................... 15
Results of the Spinoff.................................... 15
Federal Income Tax Consequences of the Spinoff............ 16
Listing and Trading of ChoicePoint Common Stock........... 17
Reasons for Furnishing this Document...................... 18
ARRANGEMENTS BETWEEN EQUIFAX AND CHOICEPOINT RELATING TO THE
SPINOFF................................................... 18
Distribution Agreement.................................... 18
Employee Benefits Agreement............................... 22
Transition Support Agreement.............................. 22
Intercompany Information Services Agreement............... 23
Real Estate Agreements.................................... 23
Tax Sharing and Indemnification Agreement................. 23
Intellectual Property Agreement........................... 24
CAPITALIZATION.............................................. 25
DIVIDEND POLICY............................................. 25
PRO FORMA CONSOLIDATED FINANCIAL DATA....................... 26
SELECTED FINANCIAL DATA..................................... 31
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS................................. 32
Introduction.............................................. 32
Results of Operations..................................... 32
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PAGE
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<S> <C>
Income Taxes.............................................. 34
Financial Condition and Liquidity......................... 34
New Accounting Pronouncement.............................. 36
BUSINESS.................................................... 37
General................................................... 37
Strategic Acquisitions.................................... 37
Growth Strategies......................................... 38
Products and Customers.................................... 39
International Operations.................................. 41
Competition............................................... 41
Sources of Supply......................................... 41
Properties and Employees.................................. 41
Proprietary Matters....................................... 42
Legal Proceedings......................................... 42
MANAGEMENT.................................................. 43
Executive Officers and Directors.......................... 43
Summary of Executive Compensation......................... 45
Option Grants............................................. 46
Option Exercises.......................................... 47
Long-Term Incentive Compensation Plan Awards.............. 47
Compensation and Benefit Plans............................ 48
Director Compensation..................................... 48
Change in Control and Compensation and Employment
Agreements............................................. 49
BENEFICIAL OWNERSHIP OF CHOICEPOINT COMMON STOCK............ 50
DESCRIPTION OF CAPITAL STOCK................................ 52
Introduction.............................................. 52
ChoicePoint Common Stock.................................. 52
Preferred Stock........................................... 52
Certain Anti-Takeover Provisions of Georgia Law and the
ChoicePoint Articles and Bylaws........................ 52
Limited Liability and Indemnification Provisions.......... 56
Registration Rights....................................... 56
Shareholder Rights Plan................................... 56
Other Matters............................................. 57
ADDITIONAL INFORMATION...................................... 57
</TABLE>
ii
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SUMMARY
This summary highlights selected information from this document but does
not contain all details concerning the Spinoff or ChoicePoint, including
information that may be important to you. To better understand the Spinoff and
ChoicePoint, you should carefully read this entire document. References in this
document to "we," "our," "ChoicePoint" or "the Company" mean ChoicePoint Inc.,
its subsidiaries and divisions after the Spinoff and the Insurance Services
Group of Equifax prior to the Spinoff. References in this document to "Equifax"
mean Equifax Inc. and its subsidiaries and divisions.
INTRODUCTION
The Spinoff is the result of a process in which the Equifax Board of
Directors and the executives and employees of Equifax and ChoicePoint undertook
to separate Equifax and ChoicePoint into two publicly traded companies. The
separation was prompted by recognition that the strategies of the two companies
have become increasingly different in response to new market trends and
opportunities. The separation of the two companies will create direct investment
opportunities in a leading provider of information to the financial services
industry and a leading provider of information to the insurance industry. The
Equifax Board of Directors believes that this action is in the best long-term
interest of Equifax shareholders and should further the growth of and increase
the business opportunities available to both Equifax and ChoicePoint.
To provide you with a better understanding of the Spinoff and ChoicePoint,
we have highlighted information in this Summary that explains the Spinoff
process and provides a general description of the business and management of
ChoicePoint. We also have included cross-references in the Summary to other
portions of the document to help you find more detailed information about the
Spinoff and ChoicePoint. We encourage you to read the entire document for a
better understanding of both the Spinoff and ChoicePoint.
QUESTIONS AND ANSWERS ABOUT THE SPINOFF AND CHOICEPOINT
HOW WILL I BENEFIT FROM THE
SPINOFF? DIRECT INVESTMENT IN TWO MARKET LEADERS. The
Spinoff will give you a direct investment in two
market leaders.
Based on market share, Equifax is a leading
provider of information services and products to
the financial services industry, including consumer
credit information and transaction processing.
Based on market share, ChoicePoint is a leading
provider of risk management and fraud prevention
information and related technology solutions to the
insurance industry, providing underwriting and
claims management information to property and
casualty and life and health insurance companies.
The Company also offers public record information
services, employee risk management services, and
specialized investigation services to businesses
and governments to help them manage risk. See
"BUSINESS."
FOCUSED PERFORMANCE. Equifax believes that the
Spinoff will enhance the ability of the financial
markets to evaluate the individual operations of
Equifax and ChoicePoint. This should enable the
markets to measure the performance of the business
of each company against companies in the same or
similar businesses. Management of each company will
be able to focus its efforts and financial
resources on its core business. Each company will
be able to pursue growth opportunities
independently. Moreover, separate incentive
compensation plans for key employees of Equifax and
ChoicePoint will provide incentives that are more
directly related to the performance of the
individual companies. See "THE
SPINOFF -- Background and Reasons for the Spinoff."
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DIRECT ACCESS TO CAPITAL. The Spinoff will give
each company direct access to capital markets and
the ability to issue stock to finance expansion and
growth opportunities.
WHY IS EQUIFAX SEPARATING
INTO TWO PUBLICLY TRADED
COMPANIES AT THIS TIME? DIVERGENT STRATEGIC DIRECTIONS. The Equifax Board
of Directors determined that the Spinoff is in the
best interest of Equifax shareholders because the
strategies of Equifax and ChoicePoint have become
increasingly different. Equifax is focusing on
providing decision support information to the
financial services industry, including the
provision of consumer and commercial credit
information, payment services and analytics and
consulting services. ChoicePoint is focusing on
expanding the scope of its risk management and
fraud prevention information and related technology
solutions to a broader range of industries and
markets worldwide. The Equifax Board of Directors
believes that the public perceives that credit
reporting services offered by Equifax and the more
privacy sensitive services offered by ChoicePoint
should not be available from a single provider.
Moreover, as independent organizations, each
company will be able to more effectively pursue
growth opportunities. See "THE SPINOFF --
Background and Reasons for the Spinoff."
WHAT DO I HAVE TO DO TO
PARTICIPATE IN THE
SPINOFF? NOTHING. No proxy or vote is necessary for the
Spinoff. If you own Equifax Common Stock at the
close of business on the Record Date of , 1997,
shares of ChoicePoint Common Stock will be credited
to your brokerage account or certificates
representing shares of ChoicePoint Common Stock
will be mailed to you in 1997. You do not need
to mail in Equifax Common Stock certificates to
receive ChoicePoint Common Stock certificates. You
will not receive new Equifax Common Stock
certificates as a result of the Spinoff, nor will
the Spinoff change the number of shares of Equifax
Common Stock that you own. See "THE
SPINOFF -- Manner of Effecting the Spinoff."
WHEN DOES CHOICEPOINT
BECOME INDEPENDENT FOR
ACCOUNTING
PURPOSES? , 1997. At the Effective Time, which will
be at 5:00 p.m. Atlanta time on , 1997, all of
the stock, assets and liabilities of the Insurance
Services Group of Equifax will be transferred by
Equifax to its wholly-owned subsidiary,
ChoicePoint. The Spinoff will actually be complete,
however, when Equifax distributes all of the shares
of ChoicePoint Common Stock to its Record Date
shareholders on the Mail Date on or about ,
1997. Regardless of when shares of ChoicePoint
Common Stock are distributed, ChoicePoint and its
new public shareholders will be the sole
beneficiaries of the operation of the Insurance
Services Group after the Effective Time.
WHAT IS THE DISTRIBUTION
RATIO? ONE-FOR-TEN. You will receive one share of
ChoicePoint Common Stock in the Spinoff for every
ten shares of Equifax Common Stock you own on the
Record Date. You will receive cash for any
fractional shares of ChoicePoint Common Stock. See
"THE SPINOFF -- Manner of Effecting the Spinoff"
and " -- No Issuance of Fractional Shares."
Example: If you own 105 shares of Equifax Common
Stock at the close of business on the Record Date,
you will receive a certificate for ten shares of
ChoicePoint Common Stock and a check for the value
of .5 shares of ChoicePoint Common Stock. You will
continue to own 105 shares of Equifax Common Stock.
2
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WILL MY DIVIDENDS CHANGE? EQUIFAX CURRENTLY EXPECTS TO CONTINUE PAYING ITS
REGULAR QUARTERLY DIVIDEND OF $.0875 PER SHARE OF
EQUIFAX COMMON STOCK FOR THE FORESEEABLE
FUTURE. ChoicePoint does not anticipate paying any
cash dividends on its Common Stock in the near
future. The dividend policies of Equifax and
ChoicePoint are, however, subject to change. The
Boards of Directors of the respective companies are
responsible for deciding if a dividend will be paid
and the amount of any dividend. See "DIVIDEND
POLICY."
WILL CHOICEPOINT'S SHARES YES. ChoicePoint Common Stock will be listed on
BE LISTED ON A STOCK the New York Stock Exchange under the symbol CPS,
EXCHANGE? and regular trading will begin on or about the Mail
Date. Equifax Common Stock will continue to be
listed on the New York Stock Exchange under the
symbol EFX. See "THE SPINOFF -- Listing and Trading
of ChoicePoint Common Stock."
WILL SHARES TRADE ANY MOST LIKELY, DURING PART OF 1997. A regular
DIFFERENTLY AS A RESULT public market for ChoicePoint Common Stock will not
OF THE SPINOFF? exist prior to the Mail Date. We expect, however,
that "when-issued" trading for ChoicePoint Common
Stock will develop on or about the Record Date and
continue through the Mail Date.
When-issued trading means that shares can be traded
prior to the time certificates are actually
available or issued and reflects the assumed value
of a security after it has been issued (e.g., the
assumed value of ChoicePoint Common Stock after the
Spinoff). When-issued trading would occur to
develop an orderly market and trading price for
ChoicePoint Common Stock after the Spinoff.
If when-issued trading develops, you may buy and
sell shares of ChoicePoint Common Stock before the
Mail Date. None of these trades, however, would
settle until after the Mail Date, after regular
trading in ChoicePoint has begun. If the Spinoff
does not occur, all when-issued trading would be
null and void. If when-issued trading in
ChoicePoint Common Stock occurs, the symbol on the
New York Stock Exchange will be CPSwi.
We expect that Equifax Common Stock will continue
to trade on a regular basis through the Mail Date,
but any shares of Equifax Common Stock sold between
the Record Date and the Mail Date will have a due
bill attached representing ChoicePoint Common Stock
to be distributed in the Spinoff. In addition,
Equifax Common Stock may also trade on a
when-issued basis, reflecting an assumed
post-Spinoff value for Equifax Common Stock. If
when-issued trading in Equifax Common Stock occurs,
the symbol on the New York Stock Exchange will be
EFXwi. See "THE SPINOFF -- Listing and Trading of
ChoicePoint Common Stock."
WILL THE SPINOFF AFFECT THE PROBABLY. After the Spinoff, the trading price of
TRADING PRICE OF MY Equifax Common Stock will likely be lower than the
EQUIFAX COMMON STOCK? trading price immediately prior to the Spinoff.
Moreover, until the market has evaluated the
operations of Equifax without ChoicePoint's
operations, the trading price of Equifax Common
Stock may fluctuate significantly. The combined
trading prices of Equifax Common Stock and
ChoicePoint Common Stock after the Spinoff may not
equal the trading price of Equifax Common Stock
prior to the Spinoff. See "THE SPINOFF -- Listing
and Trading of ChoicePoint Common Stock."
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<PAGE> 13
WHAT WILL HAPPEN TO SHARES
OWNED THROUGH THE EQUIFAX
DIRECT SHARE PURCHASE
PROGRAM? THEY WILL BE TREATED THE SAME AS ALL OTHER SHARES
OF EQUIFAX COMMON STOCK. You will continue to own
the Equifax Common Stock that you owned through the
Equifax Direct Share Purchase Program prior to the
Spinoff. In the Spinoff, you will receive one share
of ChoicePoint Common Stock in certificate form or
credited to your brokerage account for every ten
shares of Equifax Common Stock that you owned on
the Record Date through the Equifax Direct Share
Purchase Program. You will receive a check for the
cash equivalent of any fractional shares.
WHAT WILL HAPPEN TO
EXISTING OPTIONS TO
PURCHASE EQUIFAX
COMMON STOCK? GENERALLY, CHOICEPOINT EMPLOYEES WILL RETAIN THEIR
VESTED OPTIONS TO PURCHASE EQUIFAX COMMON STOCK.
Although they will forfeit unvested Equifax stock
options, they will receive options to purchase
ChoicePoint Common Stock, adjusted to preserve the
value of the forfeited Equifax stock options.
Certain senior officers of ChoicePoint may choose
either to retain vested Equifax stock options or
have their vested Equifax stock options replaced
with ChoicePoint stock options. See
"MANAGEMENT -- Compensation and Benefit Plans."
IS THE SPINOFF TAXABLE FOR
FEDERAL INCOME TAX
PURPOSES? GENERALLY, NO. The Internal Revenue Service is
expected to rule that the Spinoff will be tax-free
to Equifax shareholders, except for cash received
for fractional shares. You may have to pay tax on a
limited amount of capital gain arising from any
cash received in lieu of a fractional share of
ChoicePoint Common Stock. Soon after the Spinoff,
Equifax will send a letter to its Record Date
shareholders that will explain how they should
allocate tax basis between Equifax Common Stock and
ChoicePoint Common Stock. See "THE
SPINOFF -- Federal Income Tax Consequences of the
Spinoff."
WHAT ARE THE RISKS INVOLVED
IN OWNING CHOICEPOINT
COMMON STOCK? ChoicePoint will be subject to risks related to,
among other things, no operating history as an
independent company, dependence on data sources,
dependence on key personnel, inability to find
suitable acquisition targets or to complete
acquisitions, and absence of Equifax funding. See
"RISK FACTORS."
WILL EQUIFAX AND
CHOICEPOINT BE RELATED
IN ANY WAY AFTER THE
SPINOFF? EQUIFAX WILL NO LONGER OWN ANY CHOICEPOINT COMMON
STOCK AFTER THE SPINOFF. Equifax and ChoicePoint
will, however, have two common Board members,
including a common Chairman of the Board for a
transitional period. Equifax and ChoicePoint have
also entered into various agreements to define
their continuing business relationships. See
"ARRANGEMENTS BETWEEN EQUIFAX AND CHOICEPOINT
RELATING TO THE SPINOFF."
WHAT WE HAVE ALREADY ACCOMPLISHED TO PREPARE FOR THE SPINOFF
SELECTED BOARD MEMBERS Equifax, as the current sole shareholder of
ChoicePoint, has identified seven persons to serve
on the ChoicePoint Board of Directors and will
elect such persons at or prior to the Mail Date. C.
B. Rogers, Jr. will serve as the Chairman of the
Board of Directors of both Equifax and ChoicePoint
for a transitional period after the Spinoff.
Although five of the new ChoicePoint Board members,
including Mr. Rogers, are currently members of the
Equifax Board, three of those persons will resign
from the Equifax Board prior to the Spinoff.
ChoicePoint and Equifax will therefore have two
common Board members, including a common Chairman
of the Board, for a transitional period. See
"MANAGEMENT -- Directors and Executive Officers."
4
<PAGE> 14
APPOINTED SENIOR MANAGEMENT The Equifax Board of Directors has appointed Derek
V. Smith as President and Chief Executive Officer
of ChoicePoint. Mr. Smith has been employed by
Equifax for more than 16 years, most recently as
Executive Vice President and Group Executive for
the Insurance Services Group. Mr. Smith and his
management team are credited with the turnaround of
the Insurance Services Group of Equifax, which will
be ChoicePoint after the Spinoff. Mr. Smith's prior
Equifax positions include Senior Vice President and
Chief Financial Officer, as well as Corporate Vice
President and Treasurer. Mr. Smith is supported by
a senior management group with extensive executive
experience, including officers and senior
executives previously responsible for Equifax's
Insurance Services Group. See "MANAGEMENT."
ARRANGED $250 MILLION ChoicePoint has obtained a commitment for a $250
CREDIT FACILITY million five-year unsecured revolving Credit
Facility. Concurrently with the Spinoff,
ChoicePoint expects to use borrowings under the
Credit Facility to repay the net intercompany debt
owed to Equifax at the Effective Time and make a
$29 million cash distribution to Equifax.
Intercompany debt as of March 31, 1997 was
approximately $92.6 million. The amount of
intercompany debt owed at the Effective Time will
be reduced by a $13.0 million obligation assumed by
ChoicePoint with respect to certain ChoicePoint
employees. Based upon the relative financial
conditions of Equifax and ChoicePoint and
discussions with and the advice of its investment
advisors, Credit Suisse First Boston Corporation
and The Robinson-Humphrey Company, Inc., Equifax
determined that $29 million would be an appropriate
allocation to ChoicePoint of the existing Equifax
debt. The cash distribution will be used by Equifax
to repay Equifax debt. See "CAPITALIZATION."
REQUESTED INTERNAL REVENUE Equifax expects to receive a tax ruling from the
SERVICE TAX RULING Internal Revenue Service concerning the federal
income tax consequences of the Spinoff to Equifax
and its shareholders. See "THE SPINOFF -- Federal
Income Tax Consequences of the Spinoff."
KEY TERMS AND DEFINITIONS OF THE SPINOFF TRANSACTION
NO SHAREHOLDER ACTION No action is required by Equifax shareholders to
REQUIRED receive ChoicePoint Common Stock in the Spinoff.
You do not need to surrender Equifax Common Stock
to receive ChoicePoint Common Stock in the Spinoff.
The number of shares of Equifax Common Stock you
own will not change as a result of the Spinoff.
RECORD DATE You must own Equifax Common Stock as of the close
of business on the Record Date of ,
1997 to receive ChoicePoint Common Stock in the
Spinoff.
EFFECTIVE TIME The transfer by Equifax of the stock, assets and
liabilities of its Insurance Services Group to
ChoicePoint, its wholly-owned subsidiary, will be
effective as of 5:00 p.m. Atlanta Time on
, 1997.
MAIL DATE The Distribution Agent will credit the brokerage
accounts of Equifax shareholders or mail
ChoicePoint Common Stock certificates to Equifax
shareholders on or about 1997.
5
<PAGE> 15
DISTRIBUTION RATIO You will receive one share of ChoicePoint Common
Stock for every ten shares of Equifax Common Stock
you own as of the close of business on the Record
Date.
SHARES TO BE DISTRIBUTED All of the ChoicePoint Common Stock owned by
Equifax will be distributed in the Spinoff. As a
result of the Spinoff, there are expected to be
15,300,000 shares of ChoicePoint Common Stock
outstanding.
NO FRACTIONAL SHARES WILL
BE ISSUED Fractional shares of ChoicePoint Common Stock will
not be distributed. Instead, they will be
aggregated and sold in the public market by the
Distribution Agent, and the aggregate cash proceeds
will be distributed to shareholders otherwise
entitled to fractional shares. If you would
otherwise be entitled to a fractional share, you
will receive a check or a credit to your brokerage
account in an amount equal to the value of the
fractional share as soon as practicable after the
Spinoff. See "THE SPINOFF -- No Issuance of
Fractional Shares."
SPINOFF The Spinoff is the series of transactions whereby
Equifax will transfer the stock, assets and
liabilities of its Insurance Services Group to its
wholly-owned subsidiary ChoicePoint and distribute
all the shares of ChoicePoint Common Stock to its
Record Date shareholders.
WHO CAN ASSIST IN ANSWERING YOUR QUESTIONS?
Before the Spinoff, shareholders of Equifax with inquiries relating to the
Spinoff may contact:
Equifax Investor Relations Department
P.O. Box 4081
Atlanta, GA 30302
Telephone: (404)885-8304
After the Spinoff, shareholders of ChoicePoint with inquiries relating to
their investment in ChoicePoint Common Stock may contact:
ChoicePoint Investor Relations Department
1000 Alderman Drive
Alpharetta, GA 30202
Telephone: (770) 752-4050
The Distribution Agent responsible for the distribution of ChoicePoint
Common Stock in the Spinoff and acting as transfer agent and registrar for
ChoicePoint Common Stock after the Spinoff is:
SunTrust Bank, Atlanta
P.O. Box 4625
Atlanta, Georgia 30302
6
<PAGE> 16
SUMMARY CONSOLIDATED FINANCIAL DATA
The following summary consolidated financial data of ChoicePoint highlights
selected historical and pro forma financial data and should be read in
conjunction with the Consolidated Financial Statements and the unaudited pro
forma consolidated financial data included elsewhere in this document. The
historical financial information presents information for ChoicePoint for the
periods in which it operated as the Insurance Services Group of Equifax. The pro
forma data has been derived from the unaudited pro forma consolidated statement
of income for the quarter ended March 31, 1997 and the year ended December 31,
1996 and the unaudited pro forma consolidated balance sheet as of March 31,
1997, which present the consolidated results of operations and financial
position of ChoicePoint assuming that the transactions contemplated by both the
Spinoff and ChoicePoint's acquisition of a 70% interest in CDB Infotek had been
completed as of the beginning of 1996 and as of March 31, 1997, respectively.
Neither the historical financial information nor the pro forma financial data
presented below is necessarily indicative of the results of operations or
financial position that ChoicePoint would have reported if it had operated as an
independent company during the periods presented, nor is it indicative of
ChoicePoint's future performance as an independent company.
For management's explanation of the following results of operations and
financial condition, see "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS."
<TABLE>
<CAPTION>
QUARTER ENDED MARCH 31, YEAR ENDED DECEMBER 31,
------------------------------- ------------------------------------------
PRO FORMA PRO FORMA
1997 1997 1996 1996 1996 1995 1994
--------- -------- -------- --------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C>
Operating revenue(1)............... $102,852 $102,852 $ 84,140 $389,262 $366,481 $328,990 $284,566
Operating income................... 12,198 12,198 9,006 44,636 47,611 31,928 16,577
Income before income taxes......... 10,361 10,579 7,431 37,650 41,014 26,098 13,939
Net income......................... 5,410 5,541 4,218 21,295 23,280 14,865 6,612
Pro forma earnings per share....... $ .36 $ 1.42
Pro forma common and common
equivalent shares outstanding.... 14,913 15,029
Total assets....................... $318,914 $318,914 $208,268 $301,824 $301,824 $200,779 $193,820
Long-term debt, less current
maturities....................... 109,465 872 -- 101,044 1,051 -- 5
Total shareholder's equity......... 101,874 210,467 112,344 96,334 196,327 104,641 98,028
EBITDA(2).......................... $ 18,525 $ 18,525 $ 12,425 $ 69,389 $ 66,265 $ 45,249 $ 26,610
Cash flows provided by operating
activities....................... 1,375 1,893 36,779 20,240 8,225
Cash flows used by investing
activities....................... (7,185) (2,863) (91,786) (12,008) (18,076)
Cash flows provided (used) by
financial activities............. 8,585 3,568 56,066 (9,887) 12,386
</TABLE>
- ---------------
(1) Historically, motor vehicle records registry revenue, the fee charged by
states for motor vehicle records which is passed on by ChoicePoint to its
customers, has been reflected in Equifax's consolidated statements of income
as operating revenue and costs of services. ChoicePoint has elected to
exclude these customer reimbursed fees from revenue and reduce cost of
services by a corresponding amount. This change in accounting presentation
does not impact operating income.
(2) EBITDA represents income before income taxes, plus depreciation and
amortization and interest expense. EBITDA is presented not as a substitute
for income from operations, net income or cash flows from operating
activities. The Company has included EBITDA data (which is not a measure of
financial performance under generally accepted accounting principles)
because such data is used by certain investors to analyze and compare
companies on the basis of operating performance, leverage and liquidity, and
to determine a company's ability to service debt. See the Consolidated
Financial Statements and the unaudited pro forma consolidated financial
information and the notes thereto included elsewhere in this document.
7
<PAGE> 17
CHOICEPOINT INC.
STRATEGIC FOCUS
ChoicePoint believes that new and increasingly complex risks are
confronting organizations and individuals, and that timely and quality
information is a critical component of effective risk assessment and management.
ChoicePoint's mission is to assist its clients in using information to enhance
their risk management decision processes. The Company intends to be the leading
provider of risk management and fraud prevention information and related
technology solutions to a broad range of industries worldwide.
BUSINESS
Based on market share, ChoicePoint is a leading provider of risk management
and fraud prevention information and related technology solutions to the
insurance industry. The Company also offers risk management and fraud prevention
solutions to organizations in other industries. ChoicePoint currently has three
core capabilities: (i) data warehousing; (ii) data access and analytics; and
(iii) related professional services. These capabilities currently are delivered
by the Company through three service groups: Property and Casualty Insurance
Services; Life and Health Insurance Services; and Business and Government
Services.
ChoicePoint provides most major domestic insurance companies with automated
and traditional underwriting and claim information services to assist those
companies in assessing the insurability of individuals and property and the
validity of insurance claims. The Company provides background investigations,
performs paramedical exams, furnishes access to motor vehicle reports, maintains
a database of claims histories and provides claims verification and
investigative services to both the property and casualty and the life and health
insurance markets. ChoicePoint also offers pre-employment background
investigations, pre-employment and regulatory compliance drug testing services
and public record information to other corporate and government organizations,
as well as the aforementioned insurance markets. See "BUSINESS."
GROWTH STRATEGIES
Management of ChoicePoint intends to pursue the following growth
strategies: (i) diversify ChoicePoint's customer base across non-insurance
markets; (ii) acquire or establish strategic alliances with organizations that
provide new data, markets and technology; (iii) enhance technological
capabilities by improving current systems and developing new solutions; and (iv)
increase awareness of risk and fraud issues to expand new market and business
opportunities. In furtherance of its strategy of growth by acquisition, the
Company has entered into an agreement in principle to purchase all of the
capital stock of Kroll Holdings, Inc., a privately-held investigative services
firm. The acquisition is expected to be completed shortly after the date of the
Spinoff. See "BUSINESS -- Strategic Acquisitions."
FINANCIAL HIGHLIGHTS
For the quarter ended March 31, 1997, ChoicePoint generated operating
revenue, net of motor vehicle records registry revenue, of approximately $102.9
million, an increase of 22%, from approximately $84.1 million for the quarter
ended March 31, 1996. ChoicePoint generated operating income of approximately
$12.2 million in the quarter ended March 31, 1997, an increase of 36%, from
approximately $9.0 million for the quarter ended March 31, 1996. For the fiscal
year ended December 31, 1996, ChoicePoint generated operating revenue, net of
motor vehicle records registry revenue, of approximately $366.5 million, an
increase of 37% from approximately $268.1 million in 1993, when the Company's
current senior management was installed. ChoicePoint generated operating income
of approximately $47.6 million in 1996, fourteen times the Company's 1993
operating income of approximately $3.4 million. See "SELECTED FINANCIAL DATA."
8
<PAGE> 18
EQUIFAX INC.
Equifax currently conducts its operations primarily through the Insurance
Services Group and the Financial Services Group. After the Spinoff, ChoicePoint
will conduct the business of the Insurance Services Group and Equifax will
continue to operate the business of the Financial Services Group.
Through its Financial Services Group, based on market share, Equifax is a
worldwide leader in providing decision support information to retailers, banks
and financial institutions and customers in other industries. Equifax provides
services and systems that help its customers grant credit, authorize and process
credit card and check transactions, manage receivables, predict consumer
behavior and market their products. Equifax offers credit services, payment
services and analytics and consulting services worldwide, with operations in 17
countries in North America, Europe, Latin America and Asia.
The following table sets forth, for each of the last three years, the
operating revenue, operating income, total assets and number of employees for
ChoicePoint and the remainder of Equifax. This historical information is not
necessarily indicative of the results of operation or financial position that
either company would have reported if they had operated independently.
<TABLE>
<CAPTION>
1996 1995 1994
---------------- ---------------- ----------------
AMOUNT % AMOUNT % AMOUNT %
---------- --- ---------- --- ---------- ---
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Equifax operating revenue............... $1,219,959 67% $1,102,323 68% $ 965,537 68%
ChoicePoint operating revenue(1)........ 366,481 20 328,990 20 284,566 20
ChoicePoint registry revenue(2)......... 224,783 13 191,645 12 171,893 12
---------- --- ---------- --- ---------- ---
$1,811,223 100% $1,622,958 100% $1,421,996 100%
========== === ========== === ========== ===
Equifax operating income................ $ 256,807 84% $ 231,011 88% $ 197,530 92%
ChoicePoint operating income(1)......... 47,611 16 31,928 12 16,577 8
---------- --- ---------- --- ---------- ---
$ 304,418 100% $ 262,939 100% $ 214,107 100%
========== === ========== === ========== ===
Equifax total assets.................... $1,000,960 77% $ 852,916 81% $ 827,354 81%
ChoicePoint total assets(1)............. 301,824 23 200,779 19 193,820 19
---------- --- ---------- --- ---------- ---
$1,302,784 100% $1,053,695 100% $1,021,174 100%
========== === ========== === ========== ===
Equifax number of employees............. 9,500 67% 9,800 69% 9,600 68%
ChoicePoint number of employees......... 4,600 33 4,400 31 4,600 32
---------- --- ---------- --- ---------- ---
14,100 100% 14,200 100% 14,200 100%
========== === ========== === ========== ===
</TABLE>
- ---------------
(1) ChoicePoint's consolidated financial data included in this Information
Statement differs from Equifax's historically reported segment information
on the Insurance Services Group due to certain intercompany adjustments,
allocation of general corporate expenses, the transfer of Equifax Government
and Special Systems, Inc. to the Insurance Services Group, and the registry
revenue discussed below.
(2) Historically, motor vehicle records registry revenue, the fee charged by
states for motor vehicle records which is passed on by ChoicePoint to its
customers, has been reflected in Equifax's consolidated statements of income
as operating revenue and cost of services. ChoicePoint has elected to
exclude these customer reimbursed fees from revenue and reduce cost of
services by a corresponding amount. This change in accounting presentation
does not impact operating income.
9
<PAGE> 19
FORWARD-LOOKING INFORMATION
Please carefully consider and evaluate all of the information provided in
this Information Statement, including the risk factors listed below and
described in more detail under "RISK FACTORS." In addition to historical
information, this Information Statement includes forward-looking statements and
information that are based on our beliefs, plans, expectations and assumptions
and on information currently available to us. The words "may," "should,"
"expect," "anticipate," "intend," "plan," "continue," "believe," "seek,"
"estimate," and similar expressions used in this Information Statement that do
not relate to historical facts are intended to identify forward-looking
statements.
The forward-looking statements in this Information Statement are not
guarantees of future performance and involve certain risks, uncertainties and
assumptions, including but not limited to the risk factors described in the
following section. Other risks, uncertainties and assumptions include the
following: (i) the levels of demand for ChoicePoint's existing services; (ii)
the Company's ability to develop new services and to adapt existing services to
new uses; (iii) the Company's ability to maintain acceptable margins and its
ability to control its costs; and (iv) the uncertainty of economic conditions.
Many of such factors are beyond the Company's ability to control or predict. As
a result, ChoicePoint's future actions, financial condition, results of
operations and stock price could differ materially from those expressed in any
forward-looking statements made by the Company. You should not put undue
reliance on forward-looking statements. We do not intend to publicly update any
forward-looking statements, whether as a result of new information, future
events or otherwise. See "RISK FACTORS."
10
<PAGE> 20
RISK FACTORS
NO OPERATING HISTORY AS AN INDEPENDENT COMPANY
Although ChoicePoint will be comprised of the business operations that
comprised the Insurance Services Group of Equifax, ChoicePoint does not have an
operating history as an independent public company. The Company has historically
relied on Equifax for financial, administrative and managerial support relevant
to operating a public company. Except for certain services for which ChoicePoint
will pay Equifax to provide during the 18-month transition period following the
Effective Time, Equifax will have no obligation to support the Company after the
Effective Time. Following the Spinoff, ChoicePoint will maintain its own lines
of credit and banking relationships and perform its own administrative
functions. There can be no assurance that the Company will be able to develop
successfully the financial, administrative and managerial structure necessary to
operate as an independent public company, or that the development of such
structure will not require a significant amount of management's time and other
resources. See "-- Absence of Equifax Funding," "ARRANGEMENTS BETWEEN EQUIFAX
AND CHOICEPOINT RELATING TO THE SPINOFF -- Transition Support Agreement" and the
Consolidated Financial Statements and notes thereto.
DEPENDENCE ON DATA SOURCES
ChoicePoint relies on data from outside sources to create and maintain its
proprietary and non-proprietary databases, including data received from
customers and various government and public record services. There can be no
assurance that ChoicePoint's data sources, particularly data from customers,
will continue to be available in the future. In addition, ChoicePoint's data
sources generally are not subject to exclusive agreements with ChoicePoint, such
that data included in ChoicePoint's data products may also be included in data
products of ChoicePoint's competitors. Although ChoicePoint has no reason to
believe that access to current data sources will become restricted, loss of such
access or the availability of data in the future due to increased government
regulation or otherwise could have a material adverse effect on ChoicePoint's
business, financial condition and results of operations. See
"BUSINESS -- Sources of Supply."
DEPENDENCE ON KEY PERSONNEL
ChoicePoint's success depends to a significant extent on the continued
service of certain key management personnel, including Derek V. Smith,
ChoicePoint's President and Chief Executive Officer. The loss or interruption of
Mr. Smith's services would likely have a material adverse effect on ChoicePoint.
The loss or interruption of the services of other senior management personnel or
the inability to attract and retain other qualified management, sales, marketing
and technical employees could also have an adverse effect on the Company.
Although ChoicePoint does not currently have employment agreements with any of
its executive officers, the Company intends to enter into employment agreements
with all such executive officers prior to the Spinoff. Such employment
agreements will, where appropriate, include non-compete agreements. In addition,
ChoicePoint will use a variety of incentive plans to attract and retain key
management personnel, including a stock incentive plan, annual bonus plans, a
deferred compensation plan and a 401(k) Profit Sharing Plan. See
"MANAGEMENT -- Compensation and Benefit Plans" and "-- Change in Control and
Compensation and Employment Agreements."
INABILITY TO IDENTIFY OR COMPLETE ACQUISITIONS
ChoicePoint intends to pursue acquisitions and form strategic alliances
that will enable ChoicePoint to acquire complementary skills and capabilities,
offer new products, expand its customer base and obtain other competitive
advantages. There can be no assurance, however, that ChoicePoint will be able to
successfully identify suitable acquisition candidates or strategic partners,
obtain financing on satisfactory terms, complete acquisitions or strategic
alliances, integrate acquired operations into its existing operations or expand
into new markets. Once integrated, acquisitions may not achieve anticipated
levels of revenue, profitability or productivity or otherwise perform as
expected. Acquisitions also involve special risks, including risks associated
with unanticipated problems, liabilities and contingencies, diversion of
management resources and possible adverse effects on earnings resulting from
increased goodwill amortization, increased interest costs,
11
<PAGE> 21
the issuance of additional securities and difficulties related to the
integration of the acquired business. Except for the pending acquisition of
Kroll Holdings, Inc., ChoicePoint is unable to predict whether or when any
prospective acquisition candidate will become available or the likelihood that
any acquisition will be completed. The risks associated with acquisitions could
have a material adverse effect on the Company's business, financial condition
and results of operations. See "BUSINESS -- Strategic Acquisitions" and
"-- Growth Strategies."
ABSENCE OF EQUIFAX FUNDING
ChoicePoint has historically used cash flow from operations and capital
from Equifax to fund its operations and acquisitions. After the Spinoff, Equifax
will no longer provide capital to finance ChoicePoint's operations or for any
other purpose. In order to meet financing needs after the Spinoff, ChoicePoint
will enter into an agreement for a five-year, unsecured revolving Credit
Facility with a group of banks.
GOVERNMENT REGULATION
Certain data and services provided by ChoicePoint are subject to regulation
by the Federal Trade Commission under the Federal Fair Credit Reporting Act, and
to a lesser extent, by various other federal, state and local regulatory
authorities. Compliance with existing federal, state and local laws and
regulations has not had, and is not anticipated to have, a material adverse
effect on the results of operations or financial condition of ChoicePoint.
Nonetheless, federal, state and local regulations in the United States designed
to protect the public from the misutilization of personal information in the
marketplace may increasingly affect the operations of ChoicePoint, which could
result in substantial regulatory compliance and litigation expense, adverse
publicity and a loss of revenue.
Certain state and local licensing regulations provide that the licenses
held by Equifax may not be transferred. Accordingly, the Company likely will be
required to apply for relicensing in certain states. Although ChoicePoint
believes that such licenses will be issued to the Company, no assurance can be
given that this will actually occur.
NO PRIOR MARKET FOR CHOICEPOINT COMMON STOCK; FLUCTUATIONS IN PRICE OF
CHOICEPOINT COMMON STOCK
There is currently no public trading market for ChoicePoint Common Stock.
Although ChoicePoint Common Stock has been approved for listing, subject to
official notice of issuance, on the New York Stock Exchange, the Company cannot
predict, estimate or give assurances about the trading prices for ChoicePoint
Common Stock after the Spinoff. Until the ChoicePoint Common Stock is fully
distributed and an orderly trading market develops, the trading prices for
ChoicePoint Common Stock may fluctuate significantly. Prices for ChoicePoint
Common Stock will be determined in the public trading markets and may be
influenced by many factors, including the depth and liquidity of the market for
ChoicePoint Common Stock, investor perceptions of ChoicePoint and its business,
ChoicePoint's results of operations, and general economic and market conditions.
In addition, financial markets, including the New York Stock Exchange, have
experienced extreme price and volume fluctuations that have affected the market
price of many information technology industry stocks and that, at times, could
be viewed as unrelated or disproportionate to the operating performance of such
companies. Such fluctuations have also affected the stock prices of many new
public issues. Such volatility and other factors could materially affect the
market price of ChoicePoint Common Stock.
The ChoicePoint Common Stock distributed to Equifax shareholders in the
Spinoff will be freely transferable under the Securities Act of 1933, as amended
(the "Securities Act"), except for shares of ChoicePoint Common Stock received
by persons who may be deemed affiliates of ChoicePoint. The sale of a
substantial number of shares of ChoicePoint Common Stock after the Spinoff, or
the perception that such sales could occur, could adversely affect the market
price of ChoicePoint Common Stock. See "THE SPINOFF -- Listing and Trading of
ChoicePoint Common Stock."
12
<PAGE> 22
FLUCTUATIONS IN PRICE OF EQUIFAX COMMON STOCK
After the Spinoff, Equifax Common Stock will continue to be listed and
traded on the New York Stock Exchange. As a result of the Spinoff, the trading
price of Equifax Common Stock will likely be lower than the trading price of
Equifax Common Stock immediately prior to the Spinoff. The combined trading
prices of Equifax Common Stock and ChoicePoint Common Stock after the Spinoff
may be less than, equal to or greater than the trading prices of Equifax Common
Stock immediately prior to the Spinoff. Until the market has fully analyzed the
operations of Equifax without the operations of ChoicePoint, the prices at which
Equifax Common Stock trades may fluctuate significantly. See "THE
SPINOFF -- Listing and Trading of ChoicePoint Common Stock."
CURRENT DEPENDENCE ON INSURANCE CUSTOMERS
Approximately 86% of ChoicePoint's revenue in 1996 was derived from its
property and casualty and life and health insurance services to domestic
insurance companies and independent agents who sell insurance products.
ChoicePoint has no long-term agreements with those customers. Although
ChoicePoint's management believes that the quality of its products and services
and its leading position in those markets should permit it to maintain its
relationship with its customers or dominant market position, there can be no
assurance that ChoicePoint will be able to sustain its current revenue levels.
In addition, the insurance industry has experienced significant consolidation in
recent years, which could result in the loss of one or more significant
insurance company customers in the future if the surviving entity in any such
consolidation purchases similar products from a ChoicePoint competitor. One of
ChoicePoint's strategies is to offer a variety of new products to a diverse set
of industries in order to decrease its dependence on the domestic insurance
industry. See "BUSINESS -- Growth Strategies" and "-- Products and Customers."
COMPETITION
The Company operates in a number of geographic and product and service
markets, which are highly competitive. In the property and casualty insurance
services market, ChoicePoint's most significant competitors include Dateq
Information Network, Inc. a subsidiary of Trans Union Corporation, and Policy
Management Systems Corporation. In the life and health insurance services
market, ChoicePoint's most significant competitors include Hooper Holmes, Inc.
and Examination Management Services, Inc. with respect to manual information
collection services and LabOne, Inc. with respect to insurance laboratory
services. In the business and government services market, ChoicePoint's most
significant competitors include Information America, Inc. and Lexis-Nexis with
respect to public records information, various security companies and clinical
labs with respect to pre-employment screening services and various small
companies with respect to background checks or drug screening services. In each
of its markets, the Company competes on the basis of responsiveness to customer
needs and the quality and range of products and services offered. Although the
Company believes that it offers a broader range of products and services in more
geographic markets than its competitors, competition in particular geographic or
product or service markets may have a material adverse effect on the financial
condition or results of operations of the Company. In addition, certain of
ChoicePoint's competitors have greater financial resources than the Company. See
"BUSINESS -- Competition."
CERTAIN ANTI-TAKEOVER PROVISIONS
The ChoicePoint Articles of Incorporation and Bylaws contain provisions
that may make more difficult or expensive or that may discourage a tender offer,
change in control or takeover attempt that is opposed by the ChoicePoint Board
of Directors. Certain provisions of the Articles of Incorporation and Bylaws,
among other things: (i) classify the ChoicePoint Board of Directors into three
classes, each of which serve for staggered three-year terms; (ii) provide that a
director of ChoicePoint may only be removed for "cause" (as defined by the
Georgia Business Corporation Code); (iii) provide that only the Board of
Directors, the Chairman or Vice Chairman of the Board of Directors, certain
officers of ChoicePoint or the holders of all of the outstanding ChoicePoint
voting stock may call special meetings of shareholders; (iv) provide that
shareholders must comply with certain advance notice procedures to nominate
candidates for election to the
13
<PAGE> 23
ChoicePoint Board of Directors or to place shareholder proposals on the agenda
for consideration at annual or special meetings of shareholders; and (v) provide
that ChoicePoint shareholders may amend or repeal the provisions of the
ChoicePoint Articles of Incorporation and Bylaws relating to the staggered terms
of directors only by a vote of the holders of two-thirds of the ChoicePoint
voting stock. See "DESCRIPTION OF CAPITAL STOCK -- Certain Anti-Takeover
Provisions of Georgia Law and the ChoicePoint Articles and Bylaws."
Additionally, the Georgia Business Corporation Code generally imposes
certain restrictions on mergers and other business combinations between
ChoicePoint and any holder of 10% or more of the ChoicePoint Common Stock if the
holder's acquisition of such position was not approved in advance by the
ChoicePoint Board of Directors. In addition, the ChoicePoint 1997 Omnibus Stock
Incentive Plan contains provisions permitting the acceleration or modification
of benefits upon a Change in Control (as defined in the respective plans) of
ChoicePoint, and ChoicePoint intends to enter into Change in Control Agreements
with certain of its key employees, which may contain severance provisions that
would provide certain benefits to such employees in the event of a change in
control of ChoicePoint and the subsequent termination of such employees from the
Company. The ChoicePoint Board of Directors anticipates adopting a Shareholder
Rights Plan after the Spinoff. If adopted, the Shareholder Rights Plan would
cause substantial dilution to a person or group that attempts to acquire
ChoicePoint on terms not approved in advance by the ChoicePoint Board of
Directors. See "MANAGEMENT -- Change in Control and Compensation and Employment
Agreements" and "DESCRIPTION OF CAPITAL STOCK -- Shareholder Rights Plan."
Certain provisions of ChoicePoint's contractual arrangements with Equifax
may also have anti-takeover effects. ChoicePoint has agreed to indemnify Equifax
for any tax liability resulting from the sale of ChoicePoint to a third party
after it is spun off from Equifax. This provision may discourage or preclude an
acquisition of ChoicePoint because it would make the acquisition more expensive.
POTENTIAL TAXATION
Equifax and ChoicePoint intend for the Spinoff generally to be tax-free for
federal income tax purposes, and the Internal Revenue Service (the "IRS") is
expected to issue a ruling confirming such tax-free status. It is possible,
however, that the Spinoff could be rendered taxable as a result of subsequent
actions or events, or as a result of a determination that Equifax or ChoicePoint
failed to disclose properly to the IRS all material facts related to the
Spinoff. Also, proposed legislation currently pending in Congress would, if
enacted, cause ChoicePoint to incur substantial federal income tax liability if
Equifax were to be acquired by a third party within two years after it spins off
ChoicePoint and ChoicePoint failed to prove that the subsequent acquisition of
Equifax was not "related" to the Spinoff. Although ChoicePoint would be
indemnified by Equifax for such taxes under the Tax Sharing and Indemnification
Agreement, no assurance can be made that Equifax will be able to pay its
indemnification obligation. Similarly, if ChoicePoint is acquired by a third
party within two years after the Spinoff, Equifax may incur a substantial tax
liability for which ChoicePoint would be obligated to indemnify Equifax under
the Tax Sharing and Indemnification Agreement. This indemnification obligation
would have a material adverse effect on the results of operations and financial
position of ChoicePoint. See "THE SPINOFF -- Federal Income Tax Consequences of
the Spinoff."
Under the Tax Sharing and Indemnification Agreement between ChoicePoint and
Equifax, each of Equifax and ChoicePoint have represented to the other that (i)
it has not knowingly misstated or omitted a material fact in connection with
Equifax obtaining the IRS ruling, (ii) it is not currently engaged in any
negotiations involving a transaction that, if consummated, would constitute such
a "related" acquisition, and (iii) it will neither engage in negotiations nor
consummate a business combination that constitutes such a "related" acquisition.
The Company has agreed to indemnify Equifax against any tax or other liability
that Equifax may incur if the transfer of the capital stock of certain
subsidiaries and certain other assets of Equifax to ChoicePoint or the Spinoff
is not tax-free solely because of a breach by ChoicePoint of a representation
made in connection with the IRS ruling request or contained in the Tax Sharing
and Indemnification Agreement. The Company has also agreed to indemnify Equifax
for a portion of such liabilities if the transaction is not tax-free and
ChoicePoint is partially responsible or neither party is responsible for such
result. See "ARRANGEMENTS BETWEEN EQUIFAX AND CHOICEPOINT RELATING TO THE
SPINOFF -- Tax Sharing and Indemnification Agreement."
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THE SPINOFF
BACKGROUND AND REASONS FOR THE SPINOFF
The Equifax Board of Directors has determined that the Spinoff is in the
best interest of the shareholders of Equifax because the strategic directions of
the business operations of Equifax and ChoicePoint have diverged. Equifax and
ChoicePoint have different operating objectives and growth opportunities.
Equifax continues to focus primarily on consumer and commercial credit
information services and payment services related to card processing and check
warranty. ChoicePoint's operations have historically consisted of database
information and inspection and investigative services supplied primarily to the
insurance industry. ChoicePoint believes it can enhance future growth and
profitability by offering a broader range of risk assessment services, fraud
management information and technology solutions to clients outside of the
insurance industry. Although Equifax believes that significant growth
opportunities exist for ChoicePoint's products and services, it anticipates that
marketing and promotion of these services will be necessary. The public
perceives, however, that credit reporting services and the more privacy
sensitive services offered by ChoicePoint should not be available from a single
provider.
The Spinoff will also enable management of each company to focus its
efforts and financial resources on the core business of each company. The
Spinoff will enable each company to develop employee compensation and benefit
programs more appropriate to their individual operations, including stock-based
and other incentive programs that reward employees of each company based on the
success of the individual company's operations. The Spinoff will enable each
company to access capital markets independently without the capital resource
allocation issues present within the combined Equifax and provide a stock-based
acquisition currency particular to each of the companies. The Spinoff will also
enable investors to make investment decisions based on the operations of the
individual companies.
MANNER OF EFFECTING THE SPINOFF
The general terms and conditions relating to the Spinoff are set forth in a
Distribution Agreement between Equifax and ChoicePoint. See "ARRANGEMENTS
BETWEEN EQUIFAX AND CHOICEPOINT RELATING TO THE SPINOFF -- Distribution
Agreement."
Equifax will effect the Spinoff by delivering all of the outstanding shares
of ChoicePoint Common Stock to SunTrust Bank, Atlanta, which will serve as the
Distribution Agent for the Spinoff, for distribution to the holders of record of
Equifax Common Stock as of the close of business on the Record Date of ,
1997. The distribution of ChoicePoint Common Stock will be made on the basis of
a distribution ratio of one share of ChoicePoint Common Stock for every ten
shares of Equifax Common Stock held as of the close of business on the Record
Date. The actual total number of shares of ChoicePoint Common Stock to be
distributed will depend on the number of shares of Equifax Common Stock
outstanding as of the Record Date. The Distribution Agent will credit the
brokerage accounts of Equifax shareholders or will mail ChoicePoint Common Stock
certificates to Equifax shareholders on or about , 1997. See "DESCRIPTION
OF CAPITAL STOCK -- ChoicePoint Common Stock."
NO ISSUANCE OF FRACTIONAL SHARES
No certificates representing fractional interests in shares of ChoicePoint
Common Stock will be issued to Equifax shareholders as part of the Spinoff. The
Distribution Agent, acting as agent for Equifax shareholders otherwise entitled
to receive certificates representing fractional shares of ChoicePoint Common
Stock, will aggregate and sell all fractional shares in the open market at then
prevailing market prices and distribute the proceeds to shareholders who are
entitled to payment. The Distribution Agent will sell the fractional shares
after the Spinoff, when regular trading in ChoicePoint Common Stock has started.
RESULTS OF THE SPINOFF
The transfer and assignment by Equifax of the stock, assets and liabilities
of its Insurance Services Group to its wholly-owned subsidiary ChoicePoint will
be effective at the Effective Time, and as long as the Spinoff
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occurs, the business of the Insurance Services Group will be deemed to be
operated for the sole benefit of ChoicePoint and its new public shareholders
after the Effective Time. After the Spinoff, ChoicePoint will be a separate
public company. The number and identity of shareholders of ChoicePoint
immediately after the Spinoff generally will be the same as the number and
identity of shareholders of Equifax prior to the Spinoff. As a result of the
Spinoff, ChoicePoint expects to have approximately 8,800 holders of record of
ChoicePoint Common Stock and approximately 15,300,000 shares of ChoicePoint
Common Stock outstanding, based on the number of record shareholders and issued
and outstanding shares of Equifax Common Stock as of the close of business on
, 1997 and the distribution ratio. The actual number of shares of
ChoicePoint Common Stock to be distributed will be determined as of the Record
Date. The Spinoff will not affect the number of outstanding shares of Equifax
Common Stock or the rights of Equifax shareholders.
FEDERAL INCOME TAX CONSEQUENCES OF THE SPINOFF
The following is a general description of the material federal income tax
consequences associated with the Spinoff. It is not intended to address all tax
consequences of the Spinoff and does not purport to address the tax consequences
applicable to every Equifax shareholder. Accordingly, shareholders are strongly
encouraged to consult their individual tax advisors as to particular tax
consequences of the Spinoff, including but not limited to international, state,
local and other tax consequences that may be applicable to them.
Equifax expects to receive a ruling from the IRS to the effect, among other
things, that for federal income tax purposes:
(i) the Spinoff will qualify as a tax-free distribution under Section
355 of the Internal Revenue Code of 1986, as amended (the "IRC");
(ii) the contribution by Equifax to ChoicePoint of the capital stock of
certain Equifax subsidiaries and certain other assets in exchange for
ChoicePoint Common Stock will qualify as a tax-free reorganization pursuant
to Section 368(a) of the IRC;
(iii) except for any cash received in lieu of fractional shares, Equifax
shareholders will not recognize any gain or loss as a result of their
receipt of ChoicePoint Common Stock in the Spinoff; to the extent an
Equifax shareholder receives cash in lieu of a fractional share, such
shareholder will recognize gain or loss equal to the difference between the
shareholder's basis in the fractional share and the amount received for
such fractional share;
(iv) in connection with the Spinoff, a shareholder's tax basis in
Equifax Common Stock will be apportioned between Equifax Common Stock and
ChoicePoint Common Stock received in the Spinoff in accordance with
relative fair market values of such shares at the time of the Spinoff. For
example, if Equifax Common Stock trades at $94 per share at the time of the
Spinoff and ChoicePoint Common Stock trades at $60 per share at the time of
the Spinoff, a shareholder with 100 shares of Equifax Common Stock would
allocate his tax basis 94% to the Equifax Common Stock (100 shares
multiplied by $94 per share divided by $10,000 aggregate value of Equifax
and ChoicePoint Common Stock) and 6% to the ChoicePoint Common Stock that
he receives in the Spinoff (10 shares multiplied by $60 per share divided
by $10,000 aggregate value of Equifax and ChoicePoint Common Stock); and
(v) the holding period of the ChoicePoint Common Stock received in the
Spinoff will include the holding period of the Equifax Common Stock with
respect to which the ChoicePoint Common Stock will be distributed, provided
the Equifax Common Stock is held as a capital asset on the date of the
Spinoff.
The ruling from the IRS will be issued based upon the accuracy of factual
representations made by Equifax and ChoicePoint in connection with the Spinoff.
Soon after the Spinoff, Equifax will send a letter to Equifax shareholders
receiving ChoicePoint Common Stock in the Spinoff explaining how such
shareholders should allocate tax basis between Equifax Common Stock held
immediately before the Spinoff and the ChoicePoint Common Stock received in the
Spinoff.
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Under proposed legislation, if it is enacted in its current form,
ChoicePoint would incur substantial federal income tax liability if Equifax is
acquired by a third party within two years after it spins off ChoicePoint and
ChoicePoint failed to prove that the subsequent acquisition of Equifax was not
"related" to the Spinoff. Similarly, Equifax would incur a substantial federal
income tax liability if ChoicePoint is acquired by a third party within two
years after the Spinoff and Equifax failed to prove that the subsequent
acquisition of ChoicePoint was not "related" to the Spinoff.
LISTING AND TRADING OF CHOICEPOINT COMMON STOCK
A public market for ChoicePoint Common Stock does not currently exist. The
ChoicePoint Common Stock has, however, been approved for listing, subject to
official notice of issuance, on the New York Stock Exchange. A when-issued
trading market for ChoicePoint Common Stock is expected to develop on or about
the Record Date. The term "when-issued" means that shares can be traded prior to
the time certificates are actually available or issued. Prices at which the
ChoicePoint Common Stock may trade on a when-issued basis or after the time
certificates are actually available or issued cannot be predicted. Until the
ChoicePoint Common Stock is fully distributed, an orderly trading market
develops, and the market has fully analyzed the operations of ChoicePoint, the
prices at which trading in such stock occurs may fluctuate significantly. The
prices at which ChoicePoint Common Stock trades will be determined by the market
and may be influenced by many factors, including, among others, the depth and
liquidity of the market for ChoicePoint Common Stock, investor perception of
ChoicePoint and its business, ChoicePoint's financial results, ChoicePoint's
dividend policy, sales of substantial amounts of ChoicePoint Common Stock (or
the perception that such sales could occur) and general economic and market
conditions. During the period when ChoicePoint Common Stock is subject to
when-issued trading, its symbol on the New York Stock Exchange will be CPSwi.
Even though when-issued trading may develop, none of these trades would settle
prior to the Mail Date, and if the Spinoff does not occur, all when-issued
trading will be null and void.
Equifax Common Stock will continue to trade on a regular basis and may also
trade on a when-issued basis, reflecting an assumed post-Spinoff value for
Equifax Common Stock. When-issued trading in Equifax Common Stock, if available,
could last from on or about the Record Date through the Mail Date. If when-
issued trading in Equifax Common Stock is available, Equifax shareholders may
trade their existing Equifax Common Stock prior to the Mail Date in either the
when-issued market or in the regular market for Equifax Common Stock. If a
shareholder trades in the when-issued market, he will have no obligation to
transfer to a purchaser of Equifax Common Stock the ChoicePoint Common Stock
such shareholder receives in the Spinoff. If a shareholder trades in the regular
market, the shares of Equifax Common Stock traded will be accompanied by due
bills representing the ChoicePoint Common Stock to be distributed in the
Spinoff.
If a when-issued market for Equifax Common Stock develops, an additional
listing for Equifax Common Stock, identifiable by the trading symbol EFXwi, will
appear on the New York Stock Exchange. Differences may exist between the
combined value of when-issued ChoicePoint Common Stock plus when-issued Equifax
Common Stock and the price of Equifax Common Stock during this period. Until the
market has fully analyzed the operations of Equifax without the operations of
ChoicePoint, the prices at which Equifax Common Stock trades may fluctuate
significantly.
ChoicePoint and Equifax understand that if when-issued trading in Equifax
Common Stock is not available, the New York Stock Exchange will require that
shares of Equifax Common Stock that are sold or purchased during the period from
the Record Date through the Mail Date be accompanied by due bills representing
the ChoicePoint Common Stock distributable with respect to such shares, and that
during such period neither the Equifax Common Stock nor the due bills may be
purchased or sold separately.
ChoicePoint Common Stock distributed to Equifax shareholders in the Spinoff
will be freely transferable under the Securities Act, except for securities
received by persons who may be deemed to be affiliates of ChoicePoint under
Securities Act rules. Persons who may be deemed to be affiliates of ChoicePoint
after the Spinoff generally include individuals or entities that control, are
controlled by, or are under common control with ChoicePoint, such as directors
and executive officers of ChoicePoint. Persons who are affiliates of
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ChoicePoint generally will be permitted to sell their shares of ChoicePoint
Common Stock received in the Spinoff only pursuant to Rule 144 under the
Securities Act, except that the holding period requirement of Rule 144 will not
apply. As a result, ChoicePoint Common Stock received by ChoicePoint affiliates
pursuant to the Spinoff may be sold if certain provisions of Rule 144 under the
Securities Act are complied with (e.g., the amount sold within a three-month
period does not exceed the greater of one percent of the outstanding ChoicePoint
Common Stock or the average weekly trading volume for ChoicePoint Common Stock
during the preceding four week period, and the securities are sold in "broker's
transactions" and in compliance with certain notice provisions under Rule 144).
The Transfer Agent, Distribution Agent and Registrar for ChoicePoint Common
Stock will be SunTrust Bank, Atlanta.
REASONS FOR FURNISHING THIS DOCUMENT
This document is being furnished by Equifax solely to provide information
to Equifax shareholders who will receive ChoicePoint Common Stock in the
Spinoff. It is not, and is not to be construed as, an inducement or
encouragement to buy or sell any securities of either Equifax or ChoicePoint.
Equifax and ChoicePoint believe that the information contained in this document
is accurate as of the date on the cover. Changes may occur after such date, and
neither Equifax nor ChoicePoint will update the information except as is
required in the normal course of their respective public disclosure practices.
ARRANGEMENTS BETWEEN EQUIFAX AND CHOICEPOINT
RELATING TO THE SPINOFF
Equifax and ChoicePoint have entered into or expect to enter into the
agreements described in this section to facilitate an orderly transition in
connection with establishing ChoicePoint as an independent company. The
agreements summarized below have been filed as exhibits to a Registration
Statement on Form 10 (the "Registration Statement") filed under the Securities
Exchange Act of 1934, as amended (the "Exchange Act"). The following
descriptions include a summary of all material terms of such agreements but are
qualified in their entirety by reference to the filed agreements.
DISTRIBUTION AGREEMENT
The Distribution Agreement provides for, among other things, the principal
corporate transactions required to effect the Spinoff, the conditions that must
be satisfied prior to the Mail Date and the allocation between ChoicePoint and
Equifax of certain assets and liabilities. The Distribution Agreement also
contemplates the execution by the parties of the following Additional Agreements
that address particular matters related to the Spinoff: the Employee Benefits
Agreement, the Transition Support Agreement, the Intercompany Information
Services Agreement, the Real Estate Agreements, the Tax Sharing and
Indemnification Agreement, the Intellectual Property Agreement and the CUE UK
Agreements. In the event of a conflict between the terms of the Distribution
Agreement and the terms of an Additional Agreement, the terms of the Additional
Agreement will govern.
Reorganization. The Distribution Agreement sets forth the following
corporate transactions to be accomplished at or before the Effective Time:
(i) Equifax will contribute to ChoicePoint all of the issued and
outstanding capital stock of the wholly-owned Equifax subsidiaries that
comprise the Insurance Services Group operations, which include Osborn
Laboratories Inc. ("Osborn Labs"), Equifax Services Inc. ("Equifax
Services") and Equifax Government and Special Systems, Inc. ("Government
and Special Systems") in exchange for a number of shares of ChoicePoint
Common Stock that, when combined with the shares of ChoicePoint Common
Stock already owned by Equifax, will equal the number of shares of Equifax
Common Stock issued and outstanding on the Record Date divided by ten
(excluding those shares held by certain grantor trusts of Equifax, which
will not receive ChoicePoint Common Stock pursuant to the Spinoff);
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(ii) Equifax will transfer to ChoicePoint substantially all the assets
and substantially all the liabilities of CUE UK, the insurance services
division of Equifax's United Kingdom operations; and
(iii) Immediately following the transactions described in items (i) and
(ii) above, ChoicePoint will transfer all of the issued and outstanding
shares of capital stock of Osborn Labs and Government and Special Systems
to Equifax Services.
Distribution. On or before the Mail Date, Equifax will deliver to the
Distribution Agent a certificate or certificates representing all of the then
outstanding shares of ChoicePoint Common Stock held by Equifax, and will
instruct the Distribution Agent to distribute to each holder of record of
Equifax Common Stock on the Record Date (except for certain grantor trusts of
Equifax, which will not receive ChoicePoint Common Stock pursuant to the
Spinoff) a certificate or certificates representing one share of ChoicePoint
Common Stock for each ten shares of Equifax Common Stock so held.
Fractional Shares. The Distribution Agent will not distribute any
fractional shares of ChoicePoint Common Stock to any holder of Equifax Common
Stock. The Distribution Agent will aggregate all fractional shares and sell them
in an orderly manner in the open market after the Mail Date. After completion of
such sales, the Distribution Agent will distribute a pro rata portion of the
proceeds from such sales, based upon the average gross selling price of all such
ChoicePoint Common Stock, to each holder of Equifax Common Stock who would
otherwise have received a fractional share of ChoicePoint Common Stock.
Effective Time. The Distribution Agreement provides that the transfer by
Equifax of the stock, assets and liabilities of its Insurance Services Group to
ChoicePoint will be effective as of the Effective Time and that the insurance
services business will be operated for the sole benefit of ChoicePoint and its
public shareholders after the Effective Time.
Satisfaction of Conditions. Equifax's Board of Directors has the sole
discretion to establish the Record Date, the Mail Date and any appropriate
procedures in connection with the Spinoff. The Spinoff will not occur unless the
following conditions have been satisfied: (i) all necessary regulatory approvals
have been received; (ii) the Registration Statement has become effective under
the Exchange Act; (iii) a favorable response has been received from the
Securities and Exchange Commission (the "SEC") with respect to Equifax's
no-action request concerning, among other things, whether the Spinoff may be
effected without registration of the ChoicePoint Common Stock under the
Securities Act; (iv) ChoicePoint's Board of Directors has been elected by
Equifax, as sole shareholder of ChoicePoint, and the ChoicePoint Articles of
Incorporation and Bylaws are in effect; (v) ChoicePoint Common Stock has been
approved for listing on the New York Stock Exchange, subject to official notice
of issuance; (vi) Equifax has received a favorable ruling from the IRS that the
reorganization of ChoicePoint and the distribution of ChoicePoint Common Stock
will generally not be taxable to Equifax or its shareholders, except for cash
received for fractional shares; (vii) ChoicePoint has entered into the Credit
Facility; and (viii) no order, injunction or decree issued by any court of
competent jurisdiction or other legal restraint or prohibition preventing
consummation of the Spinoff shall be in effect.
Allocation of Assets and Liabilities. The Distribution Agreement provides
that the following will become exclusively the assets of ChoicePoint at or prior
to the Effective Time: (i) the capital stock of Osborn Labs, Government and
Special Systems and Equifax Services; and (ii) any assets that (a) are owned of
record or held in the name of ChoicePoint as of the Effective Time, (b) are
treated for internal financial reporting purposes of Equifax prior to the
Effective Time as owned by ChoicePoint, and (c) at the Effective Time are used
exclusively by ChoicePoint (collectively, the "ChoicePoint Assets"). Equifax has
agreed to transfer all of its right, title and interest in the ChoicePoint
Assets to ChoicePoint. All assets of Equifax other than the ChoicePoint Assets
will remain exclusively the assets of Equifax. ChoicePoint has agreed to
transfer to Equifax all right, title and interest to any assets that are not
ChoicePoint Assets.
The Distribution Agreement further provides generally that any liabilities
of the Insurance Services Group, including, without limitation, liabilities (i)
of ChoicePoint arising under the Distribution Agreement or any Additional
Agreement, (ii) incurred in connection with the conduct or operation of
ChoicePoint's business or the ownership or use by ChoicePoint of its assets,
whether arising before, at or after the Effective
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Time, (iii) arising under or in connection with the Registration Statement, (iv)
set forth on the balance sheet of the Insurance Services Group of Equifax as of
the Effective Time (the "ISG Balance Sheet"), and (v) of Equifax or ChoicePoint
relating to any business formerly owned or operated by ChoicePoint or arising
out of the sale thereof, (vi) assumed by ChoicePoint in connection with its
purchase of CUE UK and (vii) relating to the acquisition by the Insurance
Services Group of any business prior to the Effective Time, except to the extent
such liabilities arise out of the issuance of securities of Equifax in any such
acquisition (collectively, the "ChoicePoint Liabilities") will become
exclusively the liabilities of ChoicePoint as of the Effective Time. All
liabilities of Equifax, other than the ChoicePoint Liabilities, will remain
exclusively the liabilities of Equifax (collectively, the "Equifax
Liabilities").
Intercompany Accounts. All intercompany accounts between Equifax and
ChoicePoint existing at the Effective Time and determinable on the Mail Date,
including amounts due to Equifax and its affiliates set forth on the ISG Balance
Sheet, will be paid in full on the Mail Date. All intercompany accounts between
Equifax and ChoicePoint existing at the Effective Time but not determined on the
Mail Date will be paid within 30 days after the Mail Date.
Payments Received. From and after the Effective Time, both Equifax and
ChoicePoint will promptly transfer to the other, from time to time, any property
received that is an asset of the other. Funds received by one upon the payment
of accounts receivable that belong to the other will be transferred to the other
by wire transfer not more than five business days after receipt of such payment.
Amendments; Further Assurances. The Distribution Agreement may only be
amended or rights thereunder waived by an instrument signed by the party to be
charged with the amendment or waiver. Equifax and ChoicePoint will use their
reasonable efforts to (i) execute and deliver such further instruments and
documents and take such actions as the other party may reasonably request in
order to effectuate the purposes of the Distribution Agreement and the
Additional Agreements and their terms and (ii) take all actions and do all
things reasonably necessary under applicable laws and agreements or otherwise to
consummate and make effective the transactions contemplated by the Distribution
Agreement and the Additional Agreements.
No Representations or Warranties. Except as stated in the Distribution
Agreement or an Additional Agreement, no party to such agreements or any other
agreement or document contemplated by the Distribution Agreement or any
Additional Agreement has or shall be deemed to have made any representation or
warranty as to (i) the assets, businesses or liabilities retained, transferred
or assumed as contemplated thereby, (ii) any consents or approvals required in
connection with the transfer or assumption by such party of any asset or
liability contemplated by the Distribution Agreement, (iii) the value or freedom
from any lien, claim, equity or other encumbrance of, or any other matter
concerning, any assets of such party, or (iv) the absence of any defenses or
right of setoff or freedom from counterclaim with respect to any claim or other
asset of any party. Except as may expressly be set forth in the Distribution
Agreement or an Additional Agreement, all such assets were, or are being,
transferred, or are being retained, on an "as is," "where is" basis and the
respective transferees will bear the economic and legal risks that any
conveyance will prove to be insufficient to vest in the transferee a title that
is free and clear of any lien, claim, equity or other encumbrance.
Dispute Resolution. Except as specifically provided in an Additional
Agreement, any disputes arising from or in connection with the Distribution
Agreement or any Additional Agreement must be resolved in accordance with the
dispute resolution procedures set forth in the Distribution Agreement.
Insurance. ChoicePoint will use its best efforts to procure and maintain
directors' and officers' liability insurance coverage at least equal to the
amount of Equifax's current directors' and officers' insurance coverage with
respect to directors and officers of Equifax who will become directors and
officers of ChoicePoint as of the Mail Date for acts as directors and officers
of ChoicePoint for periods from and after the Mail Date. Equifax has agreed to
use its best efforts to maintain directors' and officers' liability insurance
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coverage at least equal to the amount of Equifax's current directors' and
officers' liability insurance coverage for a period of five years with respect
to the directors and officers of Equifax who will become directors and officers
of ChoicePoint as of the Mail Date for acts as directors and officers of Equifax
or one of its affiliates during periods prior to the Mail Date.
Employee Matters. Unless otherwise agreed to by Equifax and ChoicePoint,
no employees who previously provided services for both Equifax and ChoicePoint
will become employees of ChoicePoint after the Effective Time.
Guaranteed Liabilities. ChoicePoint will use all reasonable efforts
(excluding payment of money) to obtain as promptly as practicable after the Mail
Date the release of Equifax from its obligations with respect to the ChoicePoint
Liabilities on which Equifax is an obligor by reason of any guarantee or
contractual commitment (the "Guaranteed ChoicePoint Liabilities"). In no event
shall ChoicePoint extend the term of any Guaranteed ChoicePoint Liabilities
(such as by exercising an option to renew a lease) or modify any such Guaranteed
ChoicePoint Liability in any way that would increase the liability guaranteed
thereunder unless the guarantee of Equifax is released as to any extended or
released liability of obligations under such Guaranteed ChoicePoint Liabilities
or Equifax otherwise consents in writing. In the event that Equifax is required
to pay any Guaranteed ChoicePoint Liabilities, Equifax will be entitled to all
the rights of the payee in any property of ChoicePoint pledged as security for
such Guaranteed ChoicePoint Liabilities. Equifax will use all reasonable efforts
(excluding payment of money) to obtain as promptly as practicable after the Mail
Date the release of ChoicePoint from its obligations with respect to the Equifax
Liabilities on which ChoicePoint is an obligor by reason of any guarantee or
contractual commitment (the "Guaranteed Equifax Liabilities"). In no event shall
Equifax extend the term of any Guaranteed Equifax Liabilities (such as by
exercising an option to renew a lease) unless the guarantee of ChoicePoint is
released as to any future obligations under such Guaranteed Equifax Liabilities
or ChoicePoint otherwise agrees in writing. In the event that ChoicePoint is
required to pay any Guaranteed Equifax Liabilities, ChoicePoint will be entitled
to all the rights of the payee in any property of Equifax pledged as security
for such Guaranteed Equifax Liabilities.
Cross Indemnification. At and after the Effective Time, ChoicePoint will
indemnify, defend and hold harmless Equifax and its directors, officers,
employees and agents (the "Equifax Indemnitees") from and against any and all
damage, loss, liability and expense (including, without limitation, reasonable
expenses of investigation and reasonable attorneys' fees and expenses in
connection with any and all actions or threatened actions) (collectively, the
"Indemnifiable Losses") incurred or suffered by any of the Equifax Indemnitees
and arising out of, or due to (i) the failure of ChoicePoint to pay, perform or
otherwise discharge, any of the ChoicePoint Liabilities and (ii) any untrue
statement or alleged untrue statement of any material fact contained in the
Registration Statement, the preliminary or final Information Statement, or any
amendment or supplement thereto, or 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 (other than information provided by Equifax).
At and after the Effective Time, Equifax will indemnify, defend and hold
harmless ChoicePoint and its directors, officers, employees and agents (the
"ChoicePoint Indemnitees") from and against any and all Indemnifiable Losses
incurred or suffered by any of the ChoicePoint Indemnitees and arising out of,
or due to (i) the failure of Equifax to pay, perform or otherwise discharge, any
of the Equifax Liabilities and (ii) any untrue statement or alleged untrue
statement of any material fact contained in information provided by Equifax for
inclusion in the Registration Statement, the preliminary or final Information
Statement, or any amendment or supplement thereto, or 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. In circumstances in
which the indemnity is unavailable or insufficient, for any reason, to hold
harmless an indemnified party in respect of any Indemnifiable Losses, each
indemnifying party, in order to provide for just and equitable contribution,
will contribute to the amount paid or payable by such indemnified party as a
result of such Indemnifiable Losses, in such proportion as is appropriate to
reflect the relative fault of the indemnifying party or parties on the one hand
and the indemnified party on the other in connection with the statements or
omissions or alleged statements or omissions that resulted in such Indemnifiable
Losses, as well as any other relevant equitable considerations.
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Other Expenses of the Spinoff. The Distribution Agreement provides that
all costs and expenses incurred in connection with the consummation of the
Spinoff and the transactions contemplated thereby and in connection with the
preparation, execution, delivery and implementation of the Distribution
Agreement and the Additional Agreements will be paid by Equifax. Equifax will
pay the legal, filing, accounting, printing and other expenses incurred in
connection with the preparation, printing and filing of the Registration
Statement.
EMPLOYEE BENEFITS AGREEMENT
ChoicePoint and Equifax have entered into an agreement that provides for
the transition of employee plans or programs sponsored by Equifax for its
employees who will become employed by ChoicePoint (the "ChoicePoint Employees").
In the case of certain retiree medical and death benefits, the Employee Benefits
Agreement also applies to specified former employees of Equifax subsidiaries
that will become ChoicePoint subsidiaries. Under the Employee Benefits
Agreement, ChoicePoint is liable for providing specified welfare and retirement
benefits to salaried ChoicePoint Employees at and after July 1, 1997. These
benefits include medical and dental benefits, flexible spending accounts
covering health care and dependent care expenses, life and accident insurance
plans, a before-tax premium plan (which allows employees to pay for medical,
dental and certain other benefit premiums on a before-tax basis), a 401(k) plan,
and policies covering vacations, holidays, sick leave and short-term disability.
ChoicePoint will not adopt a defined benefit retirement plan but will adopt
a 401(k) Profit Sharing Plan. ChoicePoint will also provide a transition benefit
to employees of ChoicePoint who have been participants in the Equifax defined
benefit retirement plan. The benefit will consist of additional contributions
based on prior service with Equifax to reduce the impact of the loss of future
benefits from the Equifax defined benefit retirement plan. The present value of
the future contributions for these transition benefits is approximately $13.0
million. To facilitate funding of these additional contributions, Equifax will
make a capital contribution to ChoicePoint in the amount of $13.0 million and
ChoicePoint's intercompany liability to Equifax will be reduced accordingly.
ChoicePoint's 401(k) plan will receive a transfer of account balances from
Equifax's 401(k) plan for the ChoicePoint Employees. A ChoicePoint stock account
will be created under the 401(k) plans of both companies to hold the ChoicePoint
Common Stock distributed with respect to the Equifax Common Stock held in the
Equifax 401(k) plan prior to the Mail Date. ChoicePoint Employees who had
participated in the Equifax Inc. Supplemental Executive Retirement Plan will be
credited with an account under a ChoicePoint deferred compensation plan equal to
the actuarial equivalent of the benefit accrued under the Equifax Inc.
Supplemental Executive Retirement Plan, if they consent to the transfer of such
benefit from Equifax to ChoicePoint. ChoicePoint Employees who were participants
in other Equifax deferred compensation plans may consent to the transfer of such
accounts from Equifax to ChoicePoint. Except as set forth below, ChoicePoint
Employees will retain their vested options to purchase Equifax Common Stock
under various Equifax equity-based compensation plans. Although they will
forfeit their unvested Equifax stock options, they will receive options to
purchase ChoicePoint Common Stock, adjusted to preserve the value of the
forfeited Equifax stock options. Certain senior officers of ChoicePoint will be
permitted to choose either to retain vested Equifax stock options or have their
vested Equifax stock options replaced with ChoicePoint stock options in amounts
and at exercise prices intended to preserve the economic benefit inherent in the
Equifax stock options at such time. See "MANAGEMENT -- Summary of Executive
Compensation."
TRANSITION SUPPORT AGREEMENT
Pursuant to the Transition Support Agreement, for a period of up to 18
months following the Effective Time, Equifax has agreed to provide ChoicePoint
with tax services, centralized accounting services, purchasing services, travel
services, corporate information services, training services, mailroom services,
corporate financial systems and certain other services, and ChoicePoint has
agreed to provide Equifax with certain services as agreed upon by Equifax and
ChoicePoint prior to the Effective Time. Equifax and ChoicePoint will charge
each other for such services on a shared-cost basis consistent with current
methods of allocating internal costs. Equifax and ChoicePoint will submit
invoices to each other within ten days after the
22
<PAGE> 32
end of each month during the term of the Transition Support Agreement, and the
invoice will be payable within five days after the date thereof. Upon 90 days
prior written notice, either ChoicePoint or Equifax may direct the other to
discontinue any services provided under the Transition Support Agreement. The
Transition Support Agreement may be terminated by mutual consent of the parties,
by either party for a material uncured breach, the insolvency of either party,
or the acquisition of either party by a competitor of the non-acquired party.
The party receiving the services under the Transition Support Agreement will
indemnify the party furnishing the services, subject to certain limitations, for
losses resulting from the provider's furnishing or failure to furnish the
services unless the party receiving the services commits willful misconduct or
gross negligence. The party furnishing the services will indemnify the party
receiving the services, subject to certain limitations, for losses resulting
from its gross negligence in providing services.
INTERCOMPANY INFORMATION SERVICES AGREEMENT
The Intercompany Information Services Agreement will state that each of
Equifax and ChoicePoint will provide to the other certain data and products for
utilization in their respective operations and, in some instances, the
appointment by each of them of the other as a broker for certain of their
respective products. The agreement will have a one-year renewable term and is
subject to certain limitations as set forth in the Intellectual Property
Agreement and the Transition Support Agreement. During the initial one-year term
of the Intercompany Information Services Agreement, ChoicePoint and Equifax will
purchase from, and supply to, each other certain information, including but not
limited to, consumer credit information and drivers license and motor vehicle
information, subject to certain exceptions. ChoicePoint and Equifax intend to
enter into the Intercompany Information Services Agreement prior to the
Effective Time.
REAL ESTATE AGREEMENTS
As of the Effective Time, Equifax, ChoicePoint and Equifax Services will
enter into various agreements relating to the lease, sublease and sharing of
facilities (collectively, the "Real Estate Agreements"). Pursuant to the Real
Estate Agreements, Equifax will sublease to Equifax Services a portion of
Equifax's corporate headquarters and a portion of Equifax's principal data
center. The sublease arrangements will generally provide for the pro rata
allocation of rental and other occupancy costs based upon the square footage of
the premises subleased by Equifax Services. Equifax will also grant to
ChoicePoint an easement across property owned by Equifax that will permit
ChoicePoint to connect certain of its data processing facilities to data
processing equipment located at Equifax's principal data center. Following the
Effective Time, Equifax and Equifax Services will continue to share a number of
office facilities located throughout the United States. In those cases where the
lease of the office facility is in the name of an Equifax company, that company
will sublease a portion of the space in that facility to Equifax Services.
Equifax Services will sublease to an Equifax company a portion of the space in
those office facilities currently leased by an Equifax Services company. The
provisions contained in such subleases will mirror the provisions of the
underlying leases and be subject to the terms thereof. ChoicePoint intends to
lease its principal office facilities in Alpharetta, Georgia from a third party.
TAX SHARING AND INDEMNIFICATION AGREEMENT
ChoicePoint and Equifax have entered into a Tax Sharing and Indemnification
Agreement to allocate federal, state, local and foreign tax liabilities between
ChoicePoint and Equifax and their respective subsidiaries. Under the Tax Sharing
and Indemnification Agreement, Equifax has agreed to pay and indemnify
ChoicePoint for all taxes attributable to Equifax that are imposed for periods
before and after the Effective Time (except to the extent described below).
ChoicePoint has agreed to pay and indemnify Equifax for all taxes
attributable to ChoicePoint that are imposed for periods before and after the
Effective Time. ChoicePoint's post-Effective Time liability for certain
pre-Effective Time period taxes is, however, limited to an amount equal to $2.0
million plus the tax benefit allowable to ChoicePoint for the payment of such
taxes and Equifax will indemnify any liability in excess of that amount. Equifax
will also indemnify ChoicePoint for any taxes incurred by ChoicePoint (plus a
gross-up amount) caused solely by a breach by Equifax of any representation made
by Equifax in connection
23
<PAGE> 33
with the IRS ruling request or contained in the Tax Sharing and Indemnification
Agreement. In addition, ChoicePoint has agreed to pay and indemnify Equifax for
any taxes attributable to Equifax and any liability to Equifax's shareholders
(plus a gross-up amount and certain related expenses) resulting from a final
determination that the Spinoff failed to qualify as a tax-free transaction where
such failure is caused solely by the breach by ChoicePoint of a representation
made in connection with the IRS ruling request or contained in the Tax Sharing
and Indemnification Agreement. Where both Equifax and ChoicePoint are
responsible for the breach (or each is responsible for a separate breach), or
where such failure occurs notwithstanding the absence of a breach, ChoicePoint
has agreed to pay and indemnify Equifax for only a portion of such amounts.
In the Tax Sharing and Indemnification Agreement, each of Equifax and
ChoicePoint represents that it (i) has not knowingly misstated or omitted a
material fact in connection with Equifax obtaining the IRS ruling, (ii) is not
currently engaged in any negotiations involving a transaction that, if
consummated, would constitute a 50% acquisition, and (iii) will neither engage
in negotiations nor consummate a business combination that constitutes such an
acquisition. For this purpose a 50% acquisition includes an acquisition by a
person (and any related persons or persons acting in concert with such person)
of fifty percent or more of the stock of either Equifax or ChoicePoint where the
parties fail to prove that such acquisition is not part of the same overall plan
or series of related transactions that includes the Spinoff.
ChoicePoint will prepare all tax returns due after the Effective Time where
such returns relate exclusively to the property or operations of ChoicePoint.
Equifax will prepare all other tax returns for taxable periods beginning before
the Effective Time. ChoicePoint will have the opportunity to review certain of
the tax returns prepared by Equifax prior to the time such returns are filed.
Each party agrees to cooperate with the other in the preparation and filing of
all tax returns.
Equifax will be entitled to all refunds from any taxing authority with
respect to any tax returns filed by Equifax, except that ChoicePoint will be
entitled to all refunds to the extent the refund relates exclusively to property
or operations of ChoicePoint and does not represent taxes attributable to
ChoicePoint for which Equifax was required to indemnify ChoicePoint. ChoicePoint
will be entitled to all refunds with respect to any tax returns filed by
ChoicePoint.
In general, tax controversies will be handled by the party having filing
responsibility for the tax return to which the controversy relates. At a certain
stage in the proceedings, ChoicePoint may assume control of a tax controversy
that pertains solely to it.
INTELLECTUAL PROPERTY AGREEMENT
The Intellectual Property Agreement addresses the allocation between
Equifax and ChoicePoint of copyrights, trademarks, trade secrets and other
intellectual property (the "Intellectual Property"). The agreement will provide
that Equifax will transfer to ChoicePoint, without charge, title to any of the
Intellectual Property used solely or primarily in the business of ChoicePoint,
effective at the Effective Time. Equifax will retain title to any of the
Intellectual Property it uses solely or primarily in its business. As of the
Effective Time, each of ChoicePoint and Equifax will license to the other party
those items of Intellectual Property it owns and the other party uses on a
royalty free, non-exclusive basis, subject to certain limitations set forth in
the Intellectual Property Agreement, the Intercompany Information Services
Agreement and the Transition Support Agreement. Equifax and ChoicePoint will
agree to cooperate with each other after the Effective Time to effect the
purposes of the Intellectual Property Agreement and the related licenses granted
by Equifax and ChoicePoint to each other.
The Intellectual Property Agreement also states that Equifax will provide
ChoicePoint, at Equifax's expense, with all rights to certain third party
software and other intellectual property necessary for the continued operation
of ChoicePoint's business ("Third Party Rights"). After the Effective Time,
ChoicePoint will be responsible for on-going maintenance, support and upgrades
associated with the continued use of the Third Party Rights at ChoicePoint's
expense. Equifax and ChoicePoint will agree to cooperate after the Effective
Time with the other party in the identification, negotiation, assignment and
acquisition of Third Party Rights as may be reasonably necessary to effect the
purpose of the Intellectual Property Agreement.
24
<PAGE> 34
CAPITALIZATION
The following table sets forth the capitalization of ChoicePoint as of
March 31, 1997 (actual) and after giving pro forma effect to the Spinoff and
related transactions. ChoicePoint is expected to use borrowings under the Credit
Facility to repay in full the amount of net intercompany debt owed by
ChoicePoint to Equifax at the Effective Time and to make the $29.0 million cash
distribution to Equifax. Based upon the relative financial conditions of Equifax
and ChoicePoint and discussions with and the advice of its investment advisors,
Credit Suisse First Boston Corporation and The Robinson Humphrey Company, Inc.,
Equifax determined that $29.0 million would be an appropriate allocation to
ChoicePoint of the existing Equifax debt. Intercompany debt as of March 31, 1997
was approximately $92.6 million, and this amount may increase or decrease before
repayment based upon normal interim operating cash receipts and payments and
acquisition funding requirements. In addition, the intercompany debt will be
reduced by a $13.0 million obligation assumed by ChoicePoint with respect to
certain ChoicePoint employees. See Note 8 to the Consolidated Financial
Statements. The $29.0 million cash distribution will be used by Equifax to repay
Equifax debt.
<TABLE>
<CAPTION>
MARCH 31, 1997
-----------------------
ACTUAL PRO FORMA(1)
-------- ------------
(UNAUDITED)
(IN THOUSANDS,
EXCEPT SHARE DATA)
<S> <C> <C>
Long-term debt, excluding current portion(2)................ $ 872 $109,465
Shareholder's Equity:
Equifax equity investment(3).............................. 210,555 --
Preferred Stock (pro forma), $.01 par value, 100,000,000
shares authorized, no shares issued and outstanding.... -- --
Common Stock (pro forma), $.10 par value, 100,000,000
shares authorized, 15,168,000 shares issued and
14,518,000 shares outstanding(4)(5).................... -- 1,517
Paid-in capital........................................... -- 113,445
Foreign currency translation adjustments.................. (88) (88)
Stock held by employee benefit trusts(6).................. -- (13,000)
-------- --------
Total Shareholder's Equity........................ 210,467 101,874
-------- --------
Total Capitalization.............................. $211,339 $211,339
======== ========
</TABLE>
- ---------------
(1) See "PRO FORMA CONSOLIDATED FINANCIAL DATA" and notes thereto.
(2) See Note 2(b) to "PRO FORMA CONSOLIDATED FINANCIAL DATA."
(3) See Note 7 to the Consolidated Financial Statements.
(4) See Note 2(h) to "PRO FORMA CONSOLIDATED FINANCIAL DATA."
(5) The number of shares outstanding after giving effect to the Spinoff was
determined based upon the number of shares of Equifax Common Stock
outstanding at March 31, 1997 and reflects the assumed distribution of one
share of ChoicePoint Common Stock ($.10 par value) for every ten shares of
Equifax Common Stock ($1.25 par value) (which does not include two grantor
trusts established by Equifax). The number of shares issued also includes
650,000 shares that are anticipated to be issued to two new ChoicePoint
grantor trusts. See Note 7 to the Consolidated Financial Statements. The
actual number of shares of ChoicePoint Common Stock distributed will depend
on the number of shares of Equifax Common Stock outstanding on the Record
Date.
(6) Represents the 650,000 shares discussed in footnote (5) above with an
assumed market value of $20 per share.
DIVIDEND POLICY
ChoicePoint does not anticipate paying any cash dividends in the
foreseeable future. The Company currently intends to retain future earnings to
finance operations and the expansion of its business. Any future determination
to pay cash dividends will be at the discretion of the Company's Board of
Directors and will be dependent upon the Company's financial condition,
operating results, capital requirements and such other factors as the Company's
Board of Directors deems relevant.
25
<PAGE> 35
PRO FORMA CONSOLIDATED FINANCIAL DATA
The following unaudited pro forma consolidated statement of income for the
quarter ended March 31, 1997 and the year ended December 31, 1996 and the
unaudited pro forma consolidated balance sheet as of March 31, 1997 present the
consolidated results of operations and consolidated financial position of
ChoicePoint assuming that the transactions contemplated by both the Spinoff and
ChoicePoint's acquisition of the 70% interest in CDB Infotek had been completed
as of the beginning of 1996 and as of March 31, 1997, respectively. In the
opinion of management, they include all material adjustments necessary to
reflect, on a pro forma basis, the impact of material transactions contemplated
by the Spinoff on ChoicePoint's historical financial information. The
adjustments are described in Note 2 of the Notes to the Pro Forma Consolidated
Financial Data (Unaudited) and are set forth in the "Pro Forma Adjustments"
columns. No pro forma adjustments have been made to selling, general and
administrative expenses because expenses reflected in the historical statements
include an allocation of corporate administrative expenses which ChoicePoint
believes, based upon current circumstances, will not differ materially from
actual selling, general and administrative expenses to be incurred following the
Spinoff.
The unaudited Pro Forma Consolidated Financial Data of ChoicePoint should
be read in conjunction with the Consolidated Financial Statements included
elsewhere in this document. The information presented below is not necessarily
indicative of the financial condition or results of operations that ChoicePoint
would have reported if it had operated as an independent company.
CHOICEPOINT INC.
PRO FORMA CONSOLIDATED STATEMENT OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
QUARTER ENDED MARCH 31, 1997
----------------------------------------
PRO FORMA
HISTORICAL ADJUSTMENTS PRO FORMA
---------- ----------- ---------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNT)
<S> <C> <C> <C>
Operating revenue........................................ $102,852 $ -- $102,852
Costs and expenses:
Costs of services...................................... 68,359 -- 68,359
Selling, general and administrative.................... 22,295 -- 22,295
-------- ------- --------
Total costs and expenses....................... 90,654 -- 90,654
Operating income......................................... 12,198 -- 12,198
Interest expense......................................... 1,619 (1,547)(2a) 1,837
1,765(2b)
-------- ------- --------
Income before income taxes............................... 10,579 (218) 10,361
Provision (benefit) for income taxes..................... 5,038 (87)(2c) 4,951
-------- ------- --------
Net income..................................... $ 5,541 $ (131) $ 5,410
======== ======= ========
Pro forma net income per common and common equivalent
share.................................................. $ .36(3)
========
</TABLE>
See Notes to the Pro Forma Consolidated Financial Data.
26
<PAGE> 36
CHOICEPOINT INC.
PRO FORMA CONSOLIDATED STATEMENT OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1996
--------------------------------------------------------
PRO FORMA ADJUSTMENTS
---------------------------
HISTORICAL CDB INFOTEK(2D) SPINOFF PRO FORMA
---------- --------------- ------- ---------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNT)
<S> <C> <C> <C> <C>
Operating revenue......................... $366,481 $22,781 $ -- $389,262
Costs and expenses:
Costs of services....................... 252,118 12,466 -- 264,584
Selling, general and administrative..... 66,752 7,915 -- 74,667
Non-recurring expenses.................. -- 5,375(2e) -- 5,375
-------- ------- ------- --------
Total costs and expenses........ 318,870 25,756 -- 344,626
Operating income.......................... 47,611 (2,975) -- 44,636
Interest expense.......................... 6,597 1,041 (7,152)(2f) 6,986
6,500(2b)
-------- ------- ------- --------
Income before income taxes................ 41,014 (4,016) 652 37,650
Provision (benefit) for income taxes...... 17,734 (1,640) 261(2c) 16,355
-------- ------- ------- --------
Net income...................... $ 23,280 $(2,376) $ 391 $ 21,295
======== ======= ======= ========
Pro forma net income per common and common
equivalent share........................ $ 1.42(3)
========
</TABLE>
See Notes to the Pro Forma Consolidated Financial Data.
27
<PAGE> 37
CHOICEPOINT INC.
PRO FORMA CONSOLIDATED BALANCE SHEET
(UNAUDITED)
<TABLE>
<CAPTION>
MARCH 31, 1997
------------------------------------------
PRO FORMA
HISTORICAL ADJUSTMENTS PRO FORMA
---------- ----------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents........................... $ 4,471 $ -- $ 4,471
Accounts receivable, net............................ 88,635 -- 88,635
Deferred income tax assets.......................... 4,753 -- 4,753
Other current assets................................ 10,894 -- 10,894
-------- --------- --------
Total current assets........................ 108,753 -- 108,753
Property and Equipment, net........................... 38,635 -- 38,635
Goodwill, net......................................... 121,309 -- 121,309
Deferred Income Tax Assets............................ 16,157 -- 16,157
Other................................................. 34,060 -- 34,060
-------- --------- --------
Total Assets................................ $318,914 $ -- $318,914
======== ========= ========
LIABILITIES AND SHAREHOLDER'S EQUITY
Current Liabilities:
Current maturities of long-term debt................ $ 864 $ -- $ 864
Accounts payable.................................... 13,537 -- 13,537
Accrued salaries and bonuses........................ 9,791 -- 9,791
Other current liabilities........................... 24,074 -- 24,074
-------- --------- --------
Total current liabilities................... 48,266 -- 48,266
Long-Term Debt, Less Current Maturities............... 872 108,593(2b) 109,465
Postretirement Benefit Obligations.................... 55,650 -- 55,650
Other Long-Term Liabilities........................... 3,659 -- 3,659
-------- --------- --------
Total Liabilities........................... 108,447 108,593 217,040
Shareholder's Equity:
Equifax equity investment........................... 210,555 (108,593)(2b) --
(13,000)(2g)
(88,962)(2h)
Preferred stock..................................... -- -- --
Common stock........................................ -- 1,517(2h) 1,517
Paid-in capital..................................... -- 13,000(2g) 113,445
100,445(2h)
Foreign currency translation adjustments.............. (88) -- (88)
Stock held by employee benefit trusts................. -- (13,000)(2h) (13,000)
-------- --------- --------
Total Shareholder's Equity.................. 210,467 (108,593) 101,874
-------- --------- --------
Total Liabilities and Shareholder's
Equity.................................... $318,914 $ -- $318,914
======== ========= ========
</TABLE>
See Notes to the Pro Forma Consolidated Financial Data.
28
<PAGE> 38
CHOICEPOINT INC.
NOTES TO THE PRO FORMA CONSOLIDATED FINANCIAL DATA
(UNAUDITED)
NOTE 1. The accompanying unaudited Pro Forma Consolidated Financial Data
reflects all adjustments that, in the opinion of management, are necessary to
present fairly the pro forma financial position and pro forma results of
operations. This information should be read in conjunction with the Consolidated
Financial Statements and notes thereto included elsewhere in this document.
NOTE 2. Following are the pro forma adjustments to the accompanying pro forma
consolidated financial data:
(a) To eliminate the first quarter 1997 corporate interest expense
charged to ChoicePoint.
(b) To record the expected repayment of the net intercompany debt owed
to Equifax, payment of a $29.0 million cash distribution to Equifax and the
associated increase in debt and interest expense from the borrowings
incurred to fund the payments. An interest rate of 6.5% is assumed on the
borrowings. The intercompany debt owed to Equifax (which was approximately
$92.6 million as of March 31, 1997 and $84.0 million as of December 31,
1996) will be reduced by a $13.0 million obligation assumed by ChoicePoint
discussed in (g) below. Borrowings under the Credit Facility will have a
variable interest rate, and a 1% change in the annual interest rate would
impact pro forma interest expense by $271,000 for the quarter ended March
31, 1997 and $1.0 million for the year ended December 31, 1996. See
"CAPITALIZATION" and "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS -- Financial Condition and Liquidity."
(c) To record the estimated income tax provision (benefit) related to
the net pro forma interest expense adjustments.
(d) Represents the January 1, 1996 to August 30, 1996 operating results
for ChoicePoint's August 30, 1996 acquisition of 70% of the capital stock
of CDB Infotek. The acquisition was accounted for as a purchase. The pro
forma data also includes an additional $3.2 million in expense for
amortization of goodwill and other intangible assets from January 1, 1996
to August 30, 1996 resulting from this transaction. The amortization
expense is included in costs of services. See Note 3 to the Consolidated
Financial Statements.
(e) Represents a one-time charge for the vesting of all CDB Infotek
non-qualified stock options outstanding on August 30,1996 and other stock
option expense as a result of ChoicePoint's purchase of 70% of the capital
stock of CDB Infotek.
(f) To eliminate the 1996 corporate interest expense of $6.2 million
charged to ChoicePoint and to reverse $937,000 of CDB Infotek interest
expense related to third-party long-term debt that was repaid using funds
borrowed from Equifax.
(g) To record, in accordance with the Employee Benefits Agreement, an
assumed obligation of $13.0 million to contribute to a defined contribution
plan for certain ChoicePoint employees. The additional benefits are
intended to offset the adverse impact of transitioning out of a defined
benefit pension plan. The $13.0 million represents the present value of the
estimated future contributions. In exchange for this obligation, Equifax
will make a capital contribution to ChoicePoint in the amount of $13.0
million and ChoicePoint's intercompany liability to Equifax will be reduced
accordingly. See Note 8 to the Consolidated Financial Statements.
(h) To reflect the distribution of Equifax's 100% equity interest in
ChoicePoint to Equifax shareholders. See "CAPITALIZATION." This amount was
determined assuming a distribution ratio of one share of ChoicePoint Common
Stock ($.10 par value per share) for every ten shares of Equifax Common
Stock ($1.25 par value) (which does not include two grantor trusts
established by Equifax) reflected in Equifax's consolidated balance sheet
at March 31, 1997. This amount also includes 650,000 shares of ChoicePoint
Common Stock expected to be issued to two new ChoicePoint grantor trusts.
The amount also assumes a market value of $20 per share of ChoicePoint
Common Stock. The assumed $20
29
<PAGE> 39
CHOICEPOINT INC.
NOTES TO THE PRO FORMA CONSOLIDATED FINANCIAL DATA -- (CONTINUED)
per share market value is based on a range of earnings multiples of
comparable companies and ChoicePoint's pro forma earnings as analyzed by
Equifax's independent investment advisors, Credit Suisse First Boston
Corporation and The Robinson-Humphrey Company, Inc. See Note 7 to the
Consolidated Financial Statements.
NOTE 3. Net income per share information is based upon 14.9 million and 15.0
million common and common equivalent shares for the quarter ended March 31, 1997
and the fiscal year ended December 31, 1996, respectively. This amount was
determined assuming the distribution ratio of one share of ChoicePoint Common
Stock for every ten shares of Equifax Common Stock reflected in Equifax's March
31, 1997 and December 31, 1996 consolidated financial statements, and adding the
estimated dilutive effect of ChoicePoint stock options expected to be issued to
replace Equifax stock options held by ChoicePoint officers and employees. The
number of shares subject to stock options will depend upon the extent to which
existing stock options to purchase Equifax Common Stock are converted into
options to purchase ChoicePoint Common Stock. The number of ChoicePoint stock
options granted in respect of converted Equifax stock options and their exercise
prices will be set to maintain the excess of market value over the exercise
price of the Equifax stock options after taking into account such excess amount
on the Mail Date and the fair market value of ChoicePoint Common Stock the day
after the Mail Date. The number of common and common equivalent shares used to
compute earnings per share after the Spinoff will depend upon the number of
shares of ChoicePoint Common Stock and ChoicePoint stock options outstanding and
the market price of ChoicePoint Common Stock.
30
<PAGE> 40
SELECTED FINANCIAL DATA
The following table summarizes certain selected consolidated financial data
of ChoicePoint, which has been derived from the Consolidated Financial
Statements of ChoicePoint for the quarters ended March 31, 1997 and 1996 and for
each of the five years ended December 31, 1996. The historical information may
not be indicative of ChoicePoint's future performance as an independent company.
The information set forth below should be read in conjunction with "MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS" and
the Consolidated Financial Statements and notes thereto included elsewhere in
this document. Per share data has not been presented since the companies that
comprise ChoicePoint were majority-owned subsidiaries of Equifax or one of its
affiliates and will be recapitalized as part of the Spinoff.
<TABLE>
<CAPTION>
QUARTER ENDED
MARCH 31, YEAR ENDED DECEMBER 31,
------------------- ----------------------------------------------------
1997 1996 1996 1995 1994 1993 1992
-------- -------- -------- -------- -------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
Operating revenue(1)..... $102,852 $ 84,140 $366,481 $328,990 $284,566 $268,114 $275,449
Costs and expenses(1).... 90,654 75,134 318,870 297,062 267,989 264,738 273,929
-------- -------- -------- -------- -------- -------- --------
Operating income......... 12,198 9,006 47,611 31,928 16,577 3,376 1,520
Interest expense......... 1,619 1,575 6,597 5,830 2,638 2,181 998
-------- -------- -------- -------- -------- -------- --------
Income before income
taxes.................. 10,579 7,431 41,014 26,098 13,939 1,195 522
Provision (benefit) for
income taxes........... 5,038 3,213 17,734 11,233 7,327 (44) 389
-------- -------- -------- -------- -------- -------- --------
Net income............... $ 5,541 $ 4,218 $ 23,280 $ 14,865 $ 6,612 $ 1,239 $ 133
======== ======== ======== ======== ======== ======== ========
Total assets............. $318,914 $208,268 $301,824 $200,779 $193,820 $106,938 $108,685
Long-term debt, less
current maturities..... $ 872 $ -- $ 1,051 $ -- $ 5 $ -- $ --
Total shareholder's
equity................. $210,467 $112,344 $196,327 $104,641 $ 98,028 $ 13,961 $ 17,053
</TABLE>
- ---------------
(1) Historically, motor vehicle records registry revenue, the fee charged by
states for motor vehicle records which is passed on by ChoicePoint to its
customers, has been reflected in Equifax's consolidated statements of income
as operating revenue and cost of services. ChoicePoint has elected to
exclude these customer reimbursed fees from revenue and reduce cost of
services by a corresponding amount. This change in accounting presentation
does not affect operating income.
31
<PAGE> 41
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following discussion is based upon and should be read in conjunction
with "PRO FORMA CONSOLIDATED FINANCIAL INFORMATION," "SELECTED FINANCIAL DATA"
and the Consolidated Financial Statements and the notes thereto included
elsewhere in this document. See also "FORWARD-LOOKING INFORMATION."
INTRODUCTION
ChoicePoint is a leading provider of risk management and fraud prevention
information and related technology solutions to the insurance industry. The
Company also offers risk management and fraud prevention solutions to
organizations in other industries. ChoicePoint is organized into three service
groups: Property and Casualty Insurance Services, Life and Health Insurance
Services and Business and Government Services. The Company offers the following
products through these groups:
<TABLE>
<CAPTION>
SERVICE GROUP PRODUCTS
- ------------- --------
<S> <C>
Property and Casualty Insurance
Services............................... Automated underwriting and claims
information for home and auto insurers,
commercial inspections, workers
compensation audits of commercial
properties, and customized application
rating and issuance software development
Life and Health Insurance Services....... Underwriting and claims information for
life and health insurers, including
medical records collection, paramedical
services, laboratory services, and
investigative services
Business and Government Services......... Pre-employment background searches, drug
screenings, public record searches,
people locator services, and UCC searches
and filings
</TABLE>
RESULTS OF OPERATIONS
Revenue and operating income for the quarters ended March 31, 1997 and 1996
and the years ended December 31, 1996, 1995, and 1994 were as follows:
<TABLE>
<CAPTION>
QUARTER ENDED
MARCH 31, YEAR ENDED DECEMBER 31,
------------------ --------------------------------
1997 1996 1996 1995 1994
-------- ------- -------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Operating revenue(1).............. $102,852 $84,140 $366,481 $328,990 $284,566
Costs and expenses(1)............. 90,654 75,134 318,870 297,062(2) 267,989
-------- ------- -------- -------- --------
Operating income.................. $ 12,198 $ 9,006 $ 47,611 $ 31,928 $ 16,577
======== ======= ======== ======== ========
</TABLE>
- ---------------
(1) Historically, motor vehicle records registry revenue, the fee charged by
states for motor vehicle records which is passed on by ChoicePoint to its
customers, has been reflected in Equifax's consolidated statements of income
as operating revenue and costs of services. ChoicePoint has elected to
exclude these customer reimbursed fees from revenue and reduce cost of
services by a corresponding amount. This change in accounting presentation
does not impact operating income.
(2) Includes a $9,150,000 restructuring charge discussed below.
Historical earnings per share are not presented because the companies that
comprise ChoicePoint were majority-owned subsidiaries of Equifax or one of its
affiliates and will be recapitalized as part of the Spinoff.
32
<PAGE> 42
Quarter Ended March 31, 1997 Compared to Quarter Ended March 31, 1996
Consolidated revenue increased $18.8 million, or 22.4%, from $84.1 million
in the first quarter of 1996 to $102.9 million in the first quarter of 1997. The
increase was primarily attributable to sales volume growth in all three service
groups, as well as the second quarter 1996 acquisition of Professional Test
Administrators, Inc. ("PTA") and the third quarter 1996 acquisition of a 70%
interest in CDB Infotek. These acquisitions accounted for $8.9 million, or
47.3%, of the increase in consolidated revenue. Since these acquisitions were
accounted for as purchases, their results of operations were included in the
consolidated statements of income from the dates of acquisition. Revenue from
Property and Casualty Insurance Services grew $5.8 million, or 15.3%, from $37.8
million in the first quarter of 1996 to $43.6 million in the first quarter of
1997, primarily due to sales growth in automated underwriting product lines,
offset by declines in claims information and commercial inspection revenue. The
decline in claims information was due to competition while the decline in
commercial inspection revenue was primarily attributable to the reorganization
of the commercial inspection group in 1996. Revenue from Life and Health
Insurance Services increased $2.0 million, or 5.4%, from $37.0 million in the
first quarter of 1996 to $39.0 million in the first quarter of 1997. This
increase was primarily the result of growth in laboratory services revenue,
partially offset by a relative decline in investigative services, because of a
non-recurring customer project recorded in the first quarter of 1996. Revenue
from Business and Government Services increased $11.0 million, or 118.3%, from
$9.3 million in the first quarter of 1996 to $20.3 million in the first quarter
of 1997. Revenue from pre-employment reports increased $1.3 million, or 11.8% of
the increase in Business and Government Services revenue, with the remaining
increase coming primarily from the PTA and CDB Infotek acquisitions.
Operating income increased $3.2 million, or 35.6%, from $9.0 million in the
first quarter of 1996 to $12.2 million in the first quarter of 1997. Operating
margins increased from 10.7% in the first quarter of 1996 to 11.9% in the first
quarter of 1997, primarily as a result of the strong revenue performance in
automated underwriting and lab services and the improved operating efficiencies
in the paramedical services group, partially offset by the dilutive effect of
the CDB Infotek acquisition.
Year Ended December 31, 1996 Compared to Year Ended December 31, 1995
Consolidated revenue increased $37.5 million, or 11.4%, from $329.0 million
in 1995 to $366.5 million in 1996. The increase was primarily attributable to
sales volume growth in all three service groups, as well as the second quarter
1996 acquisition of PTA and the third quarter 1996 acquisition of a 70% interest
in CDB Infotek. These acquisitions accounted for $11.5 million or 30.7% of the
increase in consolidated revenue. Since these acquisitions were accounted for as
purchases, their results of operations were included in the consolidated
statements of income from the dates of acquisition. Revenue from Property and
Casualty Insurance Services grew $13.0 million, or 9.0%, from $143.7 million in
1995 to $156.7 million in 1996, primarily due to sales volume growth in
automated underwriting product lines, offset by a decline in commercial
inspection revenue due to a reorganization of the commercial inspection group in
1996. Revenue from Life and Health Insurance Services increased $8.3 million, or
5.6%, from $148.8 million in 1995 to $157.1 million in 1996. This increase was
primarily the result of growth in laboratory services revenue, partially offset
by a decline in claims revenue, primarily due to increased competition. Revenue
from Business and Government Services increased $16.2 million, or 44.4%, from
$36.5 million in 1995 to $52.7 million in 1996. Revenue from pre-employment
reports increased $4.1 million, or 25.3% of the increase in Business and
Government Services revenue, with the remaining increase coming from the PTA and
CDB Infotek acquisitions.
During the fourth quarter of 1995, ChoicePoint recorded a $9.2 million
restructuring charge to reduce staffing levels and fixed expenses. Excluding the
effects of the restructuring charge, operating income increased $6.5 million, or
15.8%, from $41.1 million in 1995 to $47.6 million in 1996. Operating margins
(excluding the effects of the restructuring charge) increased from 12.5% in 1995
to 13.0% in 1996, primarily as a result of the strong revenue performance in
automated underwriting and lab services, partially offset by a decline in
commercial inspection revenue and the slightly dilutive effect of the CDB
Infotek acquisition. Benefits from the 1995 restructuring and improved operating
efficiencies also contributed to the increase in operating income in 1996.
33
<PAGE> 43
Year Ended December 31, 1995 Compared to Year Ended December 31, 1994
Consolidated revenue increased $44.4 million, or 15.6%, from $284.6 million
in 1994 to $329.0 million in 1995. This increase was primarily attributable to
sales volume growth in the Property and Casualty Insurance Services and the
Business and Government Services Groups, as well as the full year impact of
acquisitions consummated in 1994. Programming Resources Company ("PRC") was
acquired in the second quarter of 1994 and Osborn Labs was acquired in the
fourth quarter of 1994. These acquisitions accounted for $26.0 million or 58.6%
of the increase in consolidated revenue. They were accounted for as purchases,
and their results of operations were included in the consolidated statements of
income from the dates of acquisition. Revenue from Property and Casualty
Insurance Services increased $15.4 million, or 12.0%, from $128.3 million in
1994 to $143.7 million in 1995. All product lines contributed to this growth,
with the largest contributor being the automated underwriting products sold in
the United States and the United Kingdom. The full year impact of the April 1994
PRC acquisition represented $2.9 million, or 18.8%, of the 1995 increase in
Property and Casualty Insurance Services revenue. Revenue from Life and Health
Insurance Services increased $21.5 million, or 16.9%, from $127.3 million in
1994 to $148.8 million in 1995. This increase resulted primarily from the
inclusion of Osborn Labs operating results for a full year in 1995, which
represented a $23.1 million increase over 1994. Revenue from Business and
Government Services increased $7.5 million, or 25.9%, from $29.0 million in 1994
to $36.5 million in 1995, primarily due to demand for pre-employment background
searches.
Excluding the effect of the fourth quarter 1995 restructuring charge of
$9.2 million, operating income increased $24.5 million, or 148%, from $16.6
million in 1994 to $41.1 million in 1995. Operating margins (excluding the
effects of the restructuring charge) increased from 5.8% in 1994 to 12.5% in
1995. This increase resulted from strong performance in the higher margin
automated underwriting product lines, cost controls in life and health insurance
services and commercial inspection lines, and the full year impact of
acquisitions consummated in 1994.
INCOME TAXES
Historically, the Company has been included in the consolidated federal
income tax return of Equifax. ChoicePoint's provision for income taxes in the
consolidated statements of income reflects federal and state income taxes
calculated on ChoicePoint's separate income, but recognizes the impact of
unitary tax regulations of certain states on ChoicePoint as a member of the
Equifax consolidated group. These unitary tax provisions, as reflected in the
Consolidated Financial Statements, resulted in overall effective tax rates of
47.6% in the first quarter of 1997, 43.2% in the first quarter of 1996, 43.2% in
1996, 43.0% in 1995, and 52.6% in 1994. If the provision for income taxes had
been calculated for ChoicePoint as a separate taxable entity for federal and
state income tax purposes, the Company estimates that its overall effective tax
rates would have been 43.8% in the first quarter of 1997, 40.8% in the first
quarter of 1996, 40.8% in 1996, 40.9% in 1995, and 45.8% in 1994.
The higher effective tax rate in 1994 is due primarily to foreign operating
losses that could not be offset against taxable income in 1994. These losses
were recovered in 1995 and 1996, resulting in reduced effective tax rates. The
increase in effective tax rates from 1996 to 1997 is primarily the result of
foreign income being subject to tax and increased goodwill amortization not
deductible for income tax purposes.
FINANCIAL CONDITION AND LIQUIDITY
Cash provided by operations decreased from $1.9 million in the first
quarter of 1996 to $1.4 million in the first quarter of 1997. This decrease was
primarily attributable to the increase in accounts receivable. During the first
quarter of 1997, ChoicePoint used $7.2 million for investing activities, which
included $6.1 million of property and equipment additions. Building and
leasehold improvements for the office facility in Alpharetta, Georgia and the
expansion of the existing Osborn Labs facility in Olathe, Kansas represented
approximately $1.7 million of the $6.1 million additions with the remainder due
primarily to system upgrades. Net cash provided by financing activities was $8.6
million in the first quarter of 1997, which is due to the increase in the
intercompany debt payable to Equifax.
34
<PAGE> 44
Cash provided by operations increased from $20.2 million in 1995 to $36.8
million in 1996. This increase was primarily attributable to strong operating
performance in 1996. During 1996, ChoicePoint used $91.8 million in cash for
investing activities, which included $69.7 million for acquisitions and $18.1
million for property and equipment. Property and equipment additions increased
from $5.4 million in 1995 to $18.1 million in 1996, primarily due to
approximately $8.4 million of building and leasehold improvements for the office
facility in Alpharetta, Georgia and the expansion of the existing Osborn Labs
facility in Olathe, Kansas. Net cash provided by financing activities was $56.1
million in 1996, which is reflected in an increase in the intercompany debt due
to Equifax in connection with acquisitions completed in 1996.
The Company's short-term and long-term liquidity depends primarily upon its
level of net income, accounts receivable, accounts payable and accrued expenses.
In order to meet its working capital needs after the Spinoff, ChoicePoint will
arrange a five-year $250 million revolving Credit Facility with a group of
banks, which will become effective on the date of the Spinoff. The Credit
Facility will bear interest at variable rates and will be expandable to $300
million, subject to approval of the lenders. All obligations of ChoicePoint will
be guaranteed by all current and future subsidiaries. The Credit Facility will
be used by ChoicePoint to repay the net intercompany debt due to Equifax, make
the $29.0 million cash distribution to Equifax, finance acquisitions and general
corporate cash requirements. For a more complete description of the terms of the
Credit Facility, see Note 5 to the Consolidated Financial Statements.
As of March 31, 1997, ChoicePoint had no significant third party debt.
Intercompany debt at March 31, 1997 was $92.6 million and is included in the
Equifax equity investment account on ChoicePoint's consolidated balance sheet.
This amount is subject to change based on ChoicePoint's operations between March
31, 1997 and the Effective Time and will be reduced by $13.0 million due to
ChoicePoint's obligation to contribute to a defined contribution plan for
certain ChoicePoint employees. Giving pro forma effect to the Spinoff and
related transactions, total long-term debt of ChoicePoint as of March 31, 1997
would have been $109.5 million.
ChoicePoint recently reached an agreement in principle to acquire all of
the capital stock of Kroll Holdings, Inc. The proposed acquisition is subject to
customary closing contingencies and is expected to be completed shortly after
the Spinoff. According to information provided by Kroll Holdings, Inc., it
generated approximately $70.0 million in revenue for the year ended December 31,
1996. The Company anticipates funding this acquisition with a combination of
ChoicePoint Common Stock and borrowings under its Credit Facility. See
"BUSINESS -- Strategic Acquisitions."
Interest expense in the consolidated statements of income includes interest
charged by Equifax based on the relationship of ChoicePoint net assets to
Equifax net assets, excluding corporate debt. The amounts charged were $1.5
million in the first quarter of 1997, $1.6 million in the first quarter of 1996,
$6.2 million in 1996, $5.4 million in 1995, and $2.5 million in 1994. Following
the Spinoff, ChoicePoint's results may be affected by an increase in interest
expense resulting from expected higher borrowing costs as an independent
company, repayment of the net intercompany debt, and the $29.0 million cash
distribution to Equifax. As a result, based upon anticipated average borrowings
under the Credit Facility during 1997 and interest rate protection arrangements
that the Company will enter into after the Spinoff, it is anticipated that the
Company will incur approximately $900,000 in additional annual interest expense.
See "PRO FORMA CONSOLIDATED FINANCIAL DATA."
The Company anticipates capital expenditures will be approximately $27.2
million in 1997, which includes $7.3 million for the office facility in
Alpharetta, Georgia and the expansion of the Osborn Labs facility in Olathe,
Kansas. The remainder of the 1997 capital expenditures will be used primarily
for system rewrites and upgrades. In addition, ChoicePoint expects to expense
approximately $4.4 million in 1997 and $5.2 million in 1998 to modify computer
software for compliance with Year 2000 as required by FASB's Emerging Issues
Task Force Issue No. 96-14. Year 2000 expenses were $793,000 in 1996. The amount
and timing of these expenses may vary as current estimates are refined.
In connection with the acquisition of CDB Infotek, additional consideration
of up to $20.0 million may be paid based on its future operating performance. In
addition, the Company entered into an option agreement with the remaining
shareholders of CDB Infotek. The agreement grants the Company an option to
purchase
35
<PAGE> 45
the remaining 30% interest in CDB Infotek (the "Call Option") and an option for
the remaining shareholders to sell their 30% interest to the Company (the "Put
Option"). The options may be exercised at any time after December 31, 1999. The
Put Option will expire on the later of June 30, 2000 or the date that is 90 days
after the final determination of the option price and the Call Option has no
expiration date. The exercise date may be accelerated upon the breach of certain
obligations. If certain 1999 operating results are met, then the option price is
determined by a formula not to exceed $53.0 million. If certain 1999 operating
results are not met, and both parties cannot mutually agree on an option price,
then the option price is determined by an independent appraisal, not to exceed
$25.5 million. ChoicePoint expects to fund any additional amounts paid in
connection with the acquisition of CDB Infotek with cash flow from operations or
borrowings under the Credit Facility.
The Company believes that cash flows from operations, availability of funds
under the Credit Facility and other short and long-term debt financing (if any),
including access to capital markets, will be sufficient to satisfy its working
capital, research and development, acquisitions, capital expenditures and other
financing requirements for the foreseeable future.
NEW ACCOUNTING PRONOUNCEMENT
In February 1997, the Financial Accounting Standards Board issued Statement
No. 128, "Earnings per Share," which revises the calculation of and disclosures
related to EPS. The impact of this statement on ChoicePoint cannot currently be
determined as the number of common and common equivalent shares used to compute
EPS will depend upon the number of shares of ChoicePoint Common Stock and
ChoicePoint stock options outstanding and the market price of Choice Point
Common Stock.
36
<PAGE> 46
BUSINESS
GENERAL
Based on market share, ChoicePoint is a leading provider of risk management
and fraud prevention information and related technology solutions to the
insurance industry. The Company also offers risk management and fraud prevention
solutions to organizations in other industries. ChoicePoint currently has three
core capabilities: (i) data warehousing; (ii) data access and analytics; and
(iii) related professional services. These capabilities currently are delivered
by the Company through three service groups: Property and Casualty Insurance
Services, Life and Health Insurance Services and Business and Government
Services.
ChoicePoint provides most major domestic insurance companies with automated
and traditional underwriting and claim information services to assist those
companies in assessing the insurability of individuals and property and the
validity of insurance claims. The Company provides background investigations,
performs paramedical exams, furnishes access to motor vehicle reports, maintains
a database of claims histories and provides claims verification and
investigative services to both the property and casualty and the life and health
insurance markets. ChoicePoint also offers pre-employment background
investigations, pre-employment and regulatory compliance drug testing services
and public record information to other corporate and government organizations,
as well as the aforementioned insurance markets.
In response to declining revenues and profits in the 1980s and early 1990s,
ChoicePoint's current senior management team was installed in 1993 and initiated
a turnaround of the Company's operations. The Company reorganized itself to
eliminate unnecessary layers of management and rightsized its workforce to
increase profitability and the responsiveness of the organization to its
customers. In response to a shift by insurance companies over the prior decade
from demanding subjective information of the type historically provided by
ChoicePoint to demanding objective information, ChoicePoint accelerated the
automation of its services. The Company also eliminated unprofitable services in
response to diminishing demand for certain labor intensive products and
increased its focus on non-insurance markets, including growth areas such as
pre-employment background screening and business information services.
For the fiscal year ended December 31, 1996, ChoicePoint generated
operating revenue of approximately $366.5 million, an increase of 37% from
approximately $268.1 million in 1993, when the Company's current senior
management team was installed. ChoicePoint generated operating income of
approximately $47.6 million in 1996, fourteen times the Company's 1993 operating
income of approximately $3.4 million. As ChoicePoint's profitability has
increased, the Company has invested significant capital to extend existing
service capabilities to new markets and has pursued strategic acquisitions to
fuel both internal growth and expansion of the Company beyond its historical
customer base.
STRATEGIC ACQUISITIONS
Commencing in 1993, the Company initiated a strategy of acquiring
organizations that add new data, markets and technology to ChoicePoint's
operations. In April 1994, ChoicePoint acquired PRC, headquartered in Hartford,
Connecticut, which develops custom rating and issuance software for commercial
property and casualty insurance companies. The PRC acquisition enhanced
ChoicePoint's technological capability by adding a systems development
competency and expanded the Company's presence in the commercial insurance
market. ChoicePoint also acquired Osborn Labs in 1994. Osborn Labs is a blood,
urine and saliva testing business that provides insurance companies with
applicant-specific information. Osborn Labs, which is the second largest
laboratory of its kind in the United States, uses state-of-the-art technologies
that incorporate voice, image and other data into its production and
communication processes. The combination of Osborn Labs' services and
ChoicePoint's paramedical exam services offers insurers an unbroken chain of
custody to preserve the integrity of specimens. Osborn Labs also has a highly
skilled research and development team, which researches alternative sampling and
testing techniques for delivery of more effective and lower cost testing
solutions to customers.
ChoicePoint acquired PTA, headquartered in Chicago, Illinois, in 1996 to
accelerate the Company's entry into the occupational health market. The PTA
acquisition gives ChoicePoint the ability to administer all
37
<PAGE> 47
components of substance abuse programs, including results analysis. Occupational
health screening adds another market to which ChoicePoint's existing paramedical
collection services may be delivered and enhances the value of ChoicePoint's
employment services by creating a total hiring management solution for
customers.
In August 1996, ChoicePoint acquired 70% of the outstanding capital stock
of CDB Infotek, an automated public records company with more than 1,600 on-line
public record databases. Headquartered in Santa Ana, California, CDB Infotek
provides corporations and the legal, insurance and investigative markets with
access to criminal, bankruptcy, judgment and lien databases, which ChoicePoint
can access through CDB Infotek's sophisticated search engines. The Company
believes that significant potential exists to blend CDB Infotek's data with
ChoicePoint's manual and database information gathering services to offer more
comprehensive and effective information solutions. ChoicePoint has the exclusive
option to purchase the remaining shares of CDB Infotek in 2000.
ChoicePoint recently entered into an agreement in principle to acquire all
of the capital stock of Kroll Holdings, Inc. ("Kroll"), the parent company of
Kroll Associates, Inc., which is headquartered in New York, New York. The
proposed acquisition is subject to customary closing contingencies and is
expected to be completed shortly after the Spinoff. Kroll provides
investigative, intelligence and risk management consulting services to a diverse
set of domestic and international clients, including corporations, law firms,
financial institutions and governments around the world. According to
information provided by Kroll, it currently operates 22 offices in 12 countries
and generated approximately $70.0 million in revenue for the year ended December
31, 1996, of which approximately 40.0% was generated from international
operations. The acquisition of Kroll immediately and significantly expands
ChoicePoint's available customer base beyond its current core insurance market
base and expands the Company's international presence. The Company believes that
Kroll's risk management consulting expertise will significantly enhance
ChoicePoint's risk management product and service offerings.
GROWTH STRATEGIES
ChoicePoint believes that organizations and individuals are encountering
more and increasingly complex risks. The Company believes that these enhanced
risks are generating a growing demand by organizations and individuals for
effective and efficient risk management and fraud prevention tools. ChoicePoint
believes that timely and quality information is the most powerful tool available
to decision makers to mitigate escalating risk.
ChoicePoint's strategic goal is to be the leading provider of risk
management and fraud prevention information and related technology solutions to
a broad range of industries worldwide. The Company is continuing to enhance its
database distribution, data gathering and technological capabilities, and
believes that it is positioned to offer a variety of new products to a diverse
set of industries. ChoicePoint believes that its range of information sources
and technology position ChoicePoint to be the leader in the risk management and
fraud prevention markets.
The Company intends to accomplish its goals by pursuing the following
strategies:
Expand presence in non-insurance markets. ChoicePoint believes that its
most significant opportunities for growth exist beyond its traditional
business of assisting insurance companies in assessing the insurability of
individuals and organizations. The Company believes that significant
opportunities exist to expand the application of its information resources
and technology to non-insurance business and government markets. For
example, ChoicePoint intends to: (i) pursue growth opportunities in pre-
employment services by leveraging its technology, background screening and
drug testing capabilities to offer a total hiring solution to customers;
(ii) pursue additional applications in the government and health care
markets, including assisting agencies in developing solutions to reduce
fraudulent healthcare claims; (iii) expand public record information
applications to both organization and individual risk assessment and
management; and (iv) pursue international expansion of the Company's risk
management services.
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<PAGE> 48
Aggressively pursue acquisitions and strategic alliances. ChoicePoint
intends to continue pursuing acquisitions of, or strategic alliances with,
domestic and international organizations that would allow the Company to
enter new markets or to increase its presence in existing markets, as well
as to expand technology expertise to advance the Company's customized
solutions-building capabilities, and add data resources and skills that
enhance ChoicePoint's ability to deliver risk management solutions. In
particular, the Company intends to identify and acquire organizations with
data warehousing and modeling capabilities that will enhance ChoicePoint's
ability to tailor data solutions to individual customer requirements.
ChoicePoint's numerous acquisitions since 1993 and its agreement in
principle to acquire Kroll are examples of the Company's commitment to
pursue acquisitions that complement and expand the Company's existing
customer base, products and services. See "-- Strategic Acquisitions."
Develop and enhance key technological capabilities. The Company is: (i)
enhancing its capability to automate, database and disseminate certain
public record information; (ii) developing new databases and key interfaces
to external data sources to expand information resources; and (iii)
developing proprietary front-end interfaces to the Company's systems to
facilitate customized order and delivery processes. ChoicePoint
continuously updates current systems critical to its infrastructure, and
develops, as appropriate, new technology solutions.
Increase public awareness of risk and fraud issues. ChoicePoint
believes that the success of its risk management strategy and expansion of
the Company's business opportunities may be enhanced by increasing the
awareness of organizations and individuals of changing risk profiles and
ChoicePoint's ability to assist them in identifying and managing such
risks. To enhance public awareness, the Company intends to publicize
examples of increased personal risks, proactively participate in
legislative discussions to define legitimate and proper use of databased
risk and fraud information, and communicate the value of increased use of
fraud-related public record data in managing business and personal risks.
PRODUCTS AND CUSTOMERS
ChoicePoint currently has three core capabilities: (i) data warehousing,
(ii) data access and analytics and (iii) related professional services. These
capabilities currently are delivered by the Company through three service
groups: Property and Casualty Insurance Services, Life and Health Insurance
Services and Business and Government Services. ChoicePoint's offices are
currently located throughout the United States and in the United Kingdom. The
Company's business is not seasonal. The following table reflects the revenue
generated by each of ChoicePoint's service groups from 1994 to 1996 and the
percentage contribution by each group to ChoicePoint revenue for each such year.
HISTORICAL REVENUE BY SERVICE GROUP
<TABLE>
<CAPTION>
1996 1995 1994
-------------- -------------- --------------
AMOUNT % AMOUNT % AMOUNT %
-------- --- -------- --- -------- ---
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Property and Casualty Insurance Services.... $156,698 43% $143,726 44% $128,305 45%
Life and Health Insurance Services.......... 157,071 43 148,765 45 127,216 45
Business and Government Services............ 52,712 14 36,499 11 29,045 10
-------- --- -------- --- -------- ---
Total............................. $366,481 100% $328,990 100% $284,566 100%
======== === ======== === ======== ===
</TABLE>
Property and Casualty Insurance Services. ChoicePoint provides
underwriting and claims information to property and casualty insurance companies
in the United States and the United Kingdom. Personal lines property and
casualty insurance services include automated underwriting and claims
information, such as motor vehicle reports and the Company's Comprehensive Loss
Underwriting Exchange ("C.L.U.E.") database services, subrogation services,
surveillance, accident scene documentation and investigation of potentially
fraudulent claims. C.L.U.E. is a proprietary database comprised of claims
information contributed by major insurance underwriters (and accessed by those
same underwriters), which enable them to assess underwriting risks and pending
claims in the auto and home insurance markets. ChoicePoint's proprietary
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<PAGE> 49
Auto and Home 2000 systems use customer-specific decision making criteria to
provide property and casualty insurance underwriters with decision management
tools that streamline and reduce the cost of the underwriting process.
The CUE UK database, a proprietary database containing home and motor
insurance claims information, was developed by the Company in response to
growing insurance fraud in the United Kingdom. The success of C.L.U.E. database
services in the United States served as a catalyst for the development of the
CUE UK database, which was specifically designed to serve the United Kingdom
market. The CUE UK database compiles claim information contributed by the United
Kingdom's larger insurers for use by the same insurers to detect fraudulent
claims. The CUE UK database is comprised of the CUE Home and CUE Motor
proprietary databases.
In addition to personal lines underwriting and claims information,
ChoicePoint provides services to the commercial property and casualty insurance
market. Those services include commercial inspections for underwriting purposes,
workers compensation audits of commercial properties, and development of
high-end customized application rating and issuance software for commercial
customers.
Life and Health Insurance Services. ChoicePoint also provides underwriting
and claims information to most major life and health insurance companies in the
United States. Life and health insurance services include medical records
collection, paramedical exams, health history interview services, blood and
urine specimen collection and laboratory testing services, verification of
continued disability, investigations of contestable and accidental death claims
and surveillance of claimants' activities in connection with potentially
fraudulent claims.
ChoicePoint's proprietary LifePlus database contains automated real-time
information used by life and health insurers to reduce underwriting time and
application processing costs. Life 2000, based upon the same concept as the Auto
and Home 2000 systems, uses customer-specific decision making criteria to
provide life and health insurance underwriters with a decision management tool
that streamlines and reduces the cost of the underwriting process.
Business and Government Services. In addition to serving the property and
casualty and life and health insurance markets, ChoicePoint provides risk
management and fraud prevention services and related technology solutions to
many non-insurance businesses and government agencies. For instance, the Company
provides information and services to customers in a variety of industries for
use in the hiring and employee regulatory compliance process, including: (i)
pre-employment background screenings, which include credit and driving record
checks, prior employment verification, education and licensing verification and
criminal record searches; (ii) pre-employment and/or continuous compliance drug
screening; and (iii) comprehensive drug screening program management and
administration. ChoicePoint believes it is the only company in the United States
that offers customers a full range of proprietary integrated services and
products to manage and mitigate risk in the hiring process.
The Company also provides risk management information services to
government agencies, such as (i) its parent locator services, which locate for
the public sector individuals who are in violation of court mandates and (ii)
screening of certain Medicare and Medicaid providers and provider applicants to
assist in identifying and reducing health care fraud. ChoicePoint also maintains
databases of medical device recipients, which assist device manufacturers in
locating and notifying device recipients of certain information when necessary.
In connection with its business and government services, the Company provides
searches and filings of public business records, including Uniform Commercial
Code searches and filings, bankruptcy, lien and judgment searches, searches of
partnership and corporation filing records, and criminal record searches to
assist organizations and lending institutions in managing potential risk
exposure.
Customers. ChoicePoint's customer base includes substantially all domestic
insurance companies, many Fortune 500 companies, and certain state and federal
government agencies. The Company has more than 5,000 customers, most of which
are insurance companies. The top 30 customers of the Company contributed
approximately one-third of the Company's total revenue in 1996. ChoicePoint has
two customers, each of which accounted for approximately 5% of the Company's
total revenue for 1996. Based upon ChoicePoint's
40
<PAGE> 50
relationship with these customers, and the customers' dependence upon the
Company's services in their operations, ChoicePoint believes that there is no
significant risk of loss of a material portion of this revenue.
Each of ChoicePoint's three service groups has the capability to receive
orders for and deliver products and services through electronic communications.
The Company supplies software to customers that wish to access ChoicePoint via
private networks.
INTERNATIONAL OPERATIONS
CUE UK, located in the United Kingdom, is currently ChoicePoint's primary
international operation. Annual revenues from this operation were less than 5%
of the Company's total revenue in each of 1994, 1995 and 1996. In connection
with the acquisition of Kroll, the Company expects that the amount of revenue
generated by the Company outside the United States will increase.
COMPETITION
The Company operates in a number of geographic and product and service
markets, which are highly competitive. In the property and casualty insurance
services market, ChoicePoint's most significant competitors include Dateq
Information Network, Inc., a subsidiary of Trans Union Corporation and Policy
Management Systems Corporation. In the life and health insurance services
market, ChoicePoint's most significant competitors include Hooper Holmes, Inc.
and Examination Management Services, Inc. with respect to manual information
collection services and LabOne, Inc. with respect to insurance laboratory
services. In the business and government services market, ChoicePoint's most
significant competitors include Information America, Inc. and Lexis-Nexis with
respect to public records information, various security companies and clinical
labs with respect to pre-employment screening services and various small
companies with respect to background checks or drug screening services. In each
of its markets, the Company competes on the basis of responsiveness to customer
needs and the quality and range of products and services offered.
SOURCES OF SUPPLY
ChoicePoint's operations depend upon information derived from a wide
variety of automated and manual sources. External sources of data include public
records information companies, governmental authorities, and on-line search
systems. ChoicePoint does not anticipate the termination of any significant
relationships with data suppliers. In the event that such a termination
occurred, the Company believes that it could acquire the data from other
sources, and such termination would not have a materially adverse effect on the
Company's financial condition or results of operations.
ChoicePoint currently maintains databases that contain information provided
and used by insurance underwriters. The information comprising these databases
is not owned by ChoicePoint, and the participating organizations could
discontinue contributing information to the databases. If this were to occur,
the Company's financial condition and results of operations would be materially
affected. ChoicePoint believes, however, that such an event is unlikely because
contributors to the databases depend upon the aggregated information in such
databases to conduct their business operations.
In connection with the inspection and investigative services that it
provides, ChoicePoint compiles data from manual and automated sources, including
insurance applicants, medical service providers and public records sources.
PROPERTIES AND EMPLOYEES
ChoicePoint's current principal executive offices are located in 200,000
square feet of leased office space in Alpharetta, Georgia, a suburb of Atlanta.
ChoicePoint maintains 170 other offices in the United States and one office in
the United Kingdom. These offices, all of which are leased, contain a total of
approximately 850,000 square feet of space. Through Osborn Labs, ChoicePoint
owns two laboratory facilities in Olathe, Kansas with approximately 31,000
square feet of space.
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<PAGE> 51
ChoicePoint currently employs approximately 4,600 persons, none of whom are
unionized. Substantially all of the Company's workforce currently is employed in
the United States. ChoicePoint employs approximately 330 individuals in Olathe,
Kansas in its Osborn Labs facilities, approximately 190 individuals in Hartford,
Connecticut in its PRC facilities, approximately 195 individuals in San Diego at
its CDB Infotek location, and approximately 26 individuals in the United Kingdom
in connection with CUE UK. Approximately 700 individuals are employed in the
Atlanta area in the Company's headquarters and three branch office locations.
The balance of ChoicePoint's employees are located in the Company's remaining
offices. ChoicePoint believes that its relations with its employees are good.
PROPRIETARY MATTERS
ChoicePoint owns a number of trademarks and tradenames that ChoicePoint
believes are important to its business. Except for the ChoicePoint trademark,
however, ChoicePoint is not dependent upon any single trademark or tradename or
group of trademarks or tradenames. The ChoicePoint trademark is currently
registered in the United States. The current duration for such registration
ranges from seven to 15 years, but each registration may be renewed an unlimited
number of times. Other trademarks and tradenames used in the ChoicePoint
business are registered and maintained in the U.S. and United Kingdom.
LEGAL PROCEEDINGS
ChoicePoint is involved in litigation from time to time in the ordinary
course of its business. The Company does not believe that the outcomes of such
litigation will have a material adverse effect on the financial position or
results of operations of ChoicePoint.
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<PAGE> 52
MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The following table sets forth certain information as of May 1, 1997
concerning the persons who are currently serving or will serve as the executive
officers and directors of ChoicePoint after the Spinoff.
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --- --------
<S> <C> <C>
Derek V. Smith............................. 42 President, Chief Executive Officer and
Director
Dan H. Rocco............................... 56 Executive Vice President
Douglas C. Curling......................... 42 Executive Vice President, Chief Financial
Officer and Treasurer
David T. Lee............................... 37 Senior Vice President
J. Michael de Janes........................ 39 General Counsel and Assistant Secretary
C. B. Rogers, Jr........................... 67 Chairman of the Board of Directors
Ron D. Barbaro............................. 65 Director
James M. Denny............................. 64 Director
Tinsley H. Irvin........................... 63 Director
Daniel W. McGlaughlin...................... 60 Director
Charles I. Story........................... 42 Director
</TABLE>
Derek V. Smith will serve as a director and as President and Chief
Executive Officer of ChoicePoint after the Spinoff. He has served as Executive
Vice President of Equifax and Group Executive of the Insurance Services Group
since 1993. Mr. Smith was appointed to the Board of Directors of Equifax in 1996
and was elected to serve a three year term beginning April 1997. From 1991 to
1993, he served as Senior Vice President and Chief Financial Officer of Equifax.
Mr. Smith was Corporate Vice President and Treasurer of Equifax from 1990 to
1991. He also served as Vice President of Equifax Credit Information Services
and in several other positions after joining Equifax in January 1981. Mr. Smith
also serves as a director of Integon Corporation. At or prior to the Spinoff,
Mr. Smith will resign from his positions as an officer and director of Equifax.
Dan H. Rocco will serve as Executive Vice President of ChoicePoint after
the Spinoff. He has served as Senior Vice President -- Operations of the
Insurance Services Group since 1993. Mr. Rocco served as President and General
Manger of the Automated Services Division of the Insurance Services Group from
1991 to 1993.
Douglas C. Curling will serve as Executive Vice President, Chief Financial
Officer and Treasurer of ChoicePoint after the Spinoff. He has served as Senior
Vice President -- Finance and Administration of the Insurance Services Group
since 1993. Mr. Curling served as Vice President and Assistant Corporate
Controller of Equifax from 1989 to 1993.
David T. Lee will serve as Senior Vice President of ChoicePoint after the
Spinoff. He served as Vice President -- Property and Casualty Marketing and
Sales of the Insurance Services Group from 1991 to the present. Since joining
Equifax in 1984, Mr. Lee has served in a variety of positions, including Vice
President for Systems and Services, Assistant Vice President -- Executive
Assistant to the Chief Executive Officer, Director of Corporate Financial
Systems and Financial Systems Analyst.
J. Michael de Janes will serve as General Counsel and Assistant Secretary
of ChoicePoint after the Spinoff. He has served as Vice President and Counsel of
the Insurance Services Group since 1993. Prior to joining the Insurance Services
Group, Mr. de Janes was an Assistant Vice President in Equifax Credit
Information Services legal department from 1991 to 1993.
C. B. Rogers, Jr. will serve as Chairman of the Board of ChoicePoint after
the Spinoff. Mr. Rogers is currently the Chairman of the Board of Directors of
Equifax and served as an executive officer of Equifax for more than five years
prior to his retirement on December 31, 1995 as Chief Executive Officer. He
currently serves as a director of Sears, Roebuck & Co., Dean Witter, Discover &
Co., Briggs and Stratton Corporation,
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<PAGE> 53
Oxford Industries, Inc. and Teleport Communications Group, Inc., and has served
as a director of Equifax since 1978. After the Spinoff, Mr. Rogers will serve as
Chairman of the Board of Directors of both Equifax and ChoicePoint for a
transitional period.
Ron D. Barbaro will serve as a director of ChoicePoint after the Spinoff.
Prior to Mr. Barbaro's retirement in December 1992 as President of The
Prudential Insurance Company of America, an international multi-line insurance
company, he served in various executive positions with that company or its
subsidiaries for more than five years. Mr. Barbaro currently serves as a
director of Prudential of America Life Insurance Company (Canada), The Thomson
Corporation, Canbra Foods Limited, Flow International, Inc., Clairvest Group,
Inc. and Natraceuticals Inc. He served as a director of Equifax Canada Inc. from
1990 through 1992, and has been a director of Equifax since 1992. At or prior to
the Spinoff, Mr. Barbaro will resign from his position as a director of Equifax.
James M. Denny will serve as a director of ChoicePoint after the Spinoff.
Mr. Denny has served as Managing Director of William Blair Capital Partners,
L.L.C., a company engaged in private equity investments, since September 1995.
Mr. Denny served as Vice Chairman of Sears, Roebuck and Co. from February 1992
until his retirement in August 1995. Previously, Mr. Denny was Senior Vice
President and Chief Financial Officer of Sears from 1988 to 1992. He also serves
as a director of Allstate Corporation, Astra AB, GATX Corporation and Gilead
Sciences, Inc.
Tinsley H. Irvin will serve as a director of ChoicePoint after the Spinoff.
Mr. Irvin retired as Chairman and Chief Executive Officer of Alexander &
Alexander Services Inc., an international insurance brokerage company, in 1994.
Prior to his retirement, Mr. Irvin served in various executive capacities with
Alexander & Alexander Services Inc. or its subsidiaries. He has served as a
director of Equifax since 1989, but will resign from such position at or prior
to the Spinoff.
Daniel W. McGlaughlin will serve as a director of ChoicePoint after the
Spinoff. He is currently the President and Chief Executive Officer of Equifax,
and has served as an executive officer of Equifax for more than five years. Mr.
McGlaughlin serves as a director of Wachovia Corporation of Georgia, Wachovia
Bank of Georgia, N.A., American Business Products, Inc. and FORE Systems, Inc.
He also has been a director of Equifax since 1990. After the Spinoff, he will
serve as a director of ChoicePoint, as well as Vice Chairman of the Board of
Directors and Chief Executive Officer of Equifax.
Charles I. Story will serve as a director of ChoicePoint after the Spinoff.
Mr. Story is the President and Chief Executive Officer of INROADS, Inc., a
national non-profit training and development organization that prepares talented
minorities for careers in business and engineering. He served as Executive Vice
President -- Operations of INROADS, Inc. from July 1991 to December 1992 and as
Vice President and Director of Community Development of First American National
Bank from 1989 to 1991. Mr. Story also serves as a director of INROADS, Inc. and
Briggs and Stratton Corporation and is an advisory director of First American
National Bank.
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<PAGE> 54
SUMMARY OF EXECUTIVE COMPENSATION
The following table shows, for fiscal 1996, all compensation awarded to,
earned by or paid to ChoicePoint's Chief Executive Officer and the four other
most highly compensated executive officers of ChoicePoint (collectively, the
"Named Officers"). All cash compensation was paid by Equifax and all stock
compensation was in the form of Equifax Common Stock or options to purchase
Equifax Common Stock.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION LONG-TERM COMPENSATION
------------------------------------- ------------------------------------
AWARDS
------------------------- PAYOUTS
OTHER RESTRICTED SECURITIES --------
NAME AND PRINCIPAL ANNUAL STOCK UNDERLYING LTIP ALL OTHER
POSITION SALARY BONUS(1) COMPENSATION(2) AWARDS(1)(3) OPTIONS(#) PAYOUTS COMPENSATION(4)
- ------------------ -------- -------- --------------- ------------ ---------- -------- ---------------
<S> <C> <C> <C> <C> <C> <C> <C>
Derek V. Smith....... $259,654 $259,654 $209,422 $120,246 125,000 $465,150 $4,950
President and Chief
Executive Officer
Dan H. Rocco......... $198,532 $158,825 $ -- $ -- 50,000 $139,545 $4,950
Executive Vice
President
Douglas C. Curling... $168,834 $148,219 $ -- $ -- 50,000 $ 94,718 $4,950
Executive Vice
President, Chief
Financial Officer
and Treasurer
David T. Lee......... $143,000 $ 83,697 $ -- $ -- 7,000 $ -- $4,719
Senior Vice
President
J. Michael de Janes.. $ 96,061 $ 52,833 $ -- $ -- 5,000 $ -- $3,161
General Counsel and
Assistant
Secretary
</TABLE>
- ---------------
(1) Represents an annual incentive award earned and paid in cash for performance
in 1996. Participants in the Equifax executive incentive plan may elect to
receive all or part of any cash bonus earned in the form of restricted
stock, and all amounts earned above a designated percentage of salary are
only awarded in the form of restricted stock.
(2) Includes for Mr. Smith a cash amount of $196,197, designated for satisfying
certain income tax obligations due as a consequence of the vesting of
restricted stock grants made to Mr. Smith in 1991. This tax assistance
provision, which was included as part of the original terms of the grant,
but discontinued in subsequent grants, enabled Mr. Smith to retain 100% of
the shares earned rather than being required to dispose of a portion of
these shares to satisfy income taxes due. Miscellaneous benefits such as
financial planning services are also included under this column.
(3) Dividend income is paid on restricted stock at the same rate as paid to all
Equifax shareholders. Value of restricted stock shown in table is as of the
date of grant. As of December 31, 1996, total restricted stock awards
outstanding and related fair market values were 35,548 shares and
$1,088,658, respectively. Such restricted stock awards will vest as to
24,000 shares on January 25, 1999, 7,472 shares on January 25, 2000 and
4,076 shares on January 29, 2002. Mr. Smith is entitled to all dividends
paid on the restricted stock, which dividends are currently $.0875 per share
per quarter.
(4) Includes Equifax 401(k) Retirement Savings Plan matching contribution.
45
<PAGE> 55
OPTION GRANTS
The following table shows all grants by Equifax of options to purchase
Equifax Common Stock to the Named Officers during 1996. For a discussion of the
treatment of Equifax stock options after the Spinoff, see "-- Compensation and
Benefit Plans."
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS POTENTIAL REALIZABLE
------------------------------------------------------ VALUE AT ASSUMED
NUMBER OF PERCENT OF RATES OF STOCK
SECURITIES TOTAL OPTIONS PRICE APPRECIATION
UNDERLYING GRANTED TO EXERCISE OR FOR OPTION TERM
OPTIONS EMPLOYEES IN BASE PRICE EXPIRATION ---------------------
NAME GRANTED(#) FISCAL YEAR ($/SH) DATE 5% 10%
- ---- ---------- ------------- ----------- ---------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Derek V. Smith................. 5,369(1) 0.25% $18.63 1/31/06 $ 62,888 $159,370
19,631(2) 0.90 18.63 1/31/06 229,941 582,719
25,000(3) 1.14 22.35 1/31/06 199,704 648,961
25,000(3) 1.14 24.21 1/31/06 153,129 602,386
25,000(4) 1.14 26.08 1/31/06 106,579 555,836
25,000(4) 1.14 27.94 1/31/06 60,004 509,261
Dan H. Rocco................... 10,000(3) 0.46% $18.63 1/31/06 $117,132 $296,835
5,341(5) 0.24 22.35 1/31/06 42,665 138,644
4,659(6) 0.21 22.35 1/31/06 37,217 120,940
369(1) 0.02 24.21 1/31/06 2,260 8,891
9,631(7) 0.44 24.21 1/31/06 58,991 232,063
2,466(4) 0.11 26.08 1/31/06 10,513 54,828
7,534(4) 0.34 26.08 1/31/06 32,119 167,507
10,000(4) 0.46 27.94 1/31/06 24,002 203,705
Douglas C. Curling............. 10,000(3) 0.46% $18.63 1/31/06 $117,132 $296,835
5,341(5) 0.24 22.35 1/31/06 42,665 138,664
4,659(6) 0.21 22.35 1/31/06 37,217 120,940
369(1) 0.02 24.21 1/31/06 2,260 8,891
9,631(7) 0.44 24.21 1/31/06 58,991 232,063
2,684(4) 0.12 26.08 1/31/06 11,442 59,675
7,316(4) 0.33 26.08 1/31/06 31,189 162,660
10,000(4) 0.46 27.94 1/31/06 24,002 203,705
David T. Lee................... 7,000(3) 0.32% $18.63 1/31/06 $ 81,992 $207,784
J. Michael de Janes............ 5,000(3) 0.23% $18.63 1/31/06 $ 58,566 $148,417
</TABLE>
- ---------------
(1) Vest 100% on fourth anniversary of date of grant.
(2) Vest in increments of 6,250 each on the first through the third anniversary
of date of grant and in an increment of 881 on the fourth anniversary of
date of grant.
(3) Vest 25% on the first through the fourth anniversary of date of grant.
(4) Vested 100% on date of grant.
(5) Vest in increments of 947 each on the first through the third anniversary of
date of grant and in an increment of 2,500 on the fourth anniversary of date
of grant.
(6) Vest 33 1/3% on the first through the third anniversary of date of grant.
(7) Vest in increments of 2,500 each on the first through the third anniversary
of date of grant and in an increment of 2,131 on the fourth anniversary of
date of grant.
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<PAGE> 56
OPTION EXERCISES
The following table shows all exercises of options to purchase Equifax
Common Stock by the Named Officers during 1996:
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION
VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING VALUE OF UNEXERCISED
UNEXERCISED OPTIONS IN-THE-MONEY OPTIONS AT
SHARES AT FISCAL YEAR-END(#) FISCAL YEAR-END(1)
ACQUIRED ON VALUE --------------------------- ---------------------------
NAME EXERCISE(#) REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---- ----------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Derek V. Smith............... -- $ -- 127,000 138,000 $1,714,738 $1,745,863
Dan H. Rocco................. -- -- 42,750 44,250 537,979 518,448
Douglas C. Curling........... 5,900 77,531 22,500 43,900 113,151 511,208
David T. Lee................. -- -- 18,400 14,600 383,075 219,038
J. Michael de Janes.......... -- -- 4,800 10,400 91,519 152,994
</TABLE>
- ---------------
(1) Value of unexercised options equals the fair market value per share of
Equifax Common Stock as of December 31, 1996, less the exercise price,
multiplied by the number of shares underlying the stock options. The fair
market value of a share of Equifax Common Stock as of December 31, 1996, was
$30 5/8.
LONG-TERM INCENTIVE COMPENSATION PLAN AWARDS
The following table provides information concerning awards to the Named
Officers under Equifax's 1988 Performance Share Plan for Officers (the
"Performance Share Plan"), each of which awards will, after the Spinoff, be
converted into the right to receive ChoicePoint restricted stock. Each unit
under the Performance Share Plan, when awarded in 1996, represented the right,
subject to certain conditions set forth in the Performance Share Plan, to
receive one share of Equifax Common Stock or its cash equivalent (up to 50% of
total units awarded), plus cash representing dividends. Payments of awards are
tied to achieving specified levels of return on equity, growth in earnings per
share and stock price appreciation, as well as achievement of other specified
financial performance targets. The target amount will be earned if 100% of
targeted goals are achieved. If targeted goals are not met or are exceeded, the
award will be reduced or increased proportionately.
As a result of the Spinoff, each outstanding performance share award held
by ChoicePoint employees under the Performance Share Plan and granted to them in
1996 or 1997 will be converted into shares of ChoicePoint restricted stock under
the ChoicePoint Inc. 1997 Omnibus Stock Incentive Plan. Payment will be made at
the end of the relevant performance measurement periods. The ChoicePoint
restricted stock will retain similar compensation opportunities, deliver
compensation on approximately the same schedule and contain performance criteria
similar to the Performance Share Plan for the relevant performance measurement
periods. The number of shares of ChoicePoint restricted stock awarded will be
based upon the price of Equifax Common Stock as of the Mail Date and ChoicePoint
Common Stock the day after the Mail Date.
LONG-TERM INCENTIVE PLANS -- AWARDS FOR LAST FISCAL YEAR
<TABLE>
<CAPTION>
PERFORMANCE ESTIMATED FUTURE PAYOUTS OF THE CHOICEPOINT
OR OTHER RESTRICTED STOCK GRANTS(1)
PERIOD UNTIL ---------------------------------------------
MATURATION THRESHOLD TARGET MAXIMUM
NAME OR PAYOUT (# OF SHARES) (# OF SHARES) (# OF SHARES)
- ---- ------------ ------------- ------------- -------------
<S> <C> <C> <C> <C>
Derek V. Smith............................... 12/31/98 29,385 36,813 51,667
Dan H. Rocco................................. 12/31/98 11,754 14,725 20,667
Douglas C. Curling........................... 12/31/98 11,754 14,725 20,667
</TABLE>
- ---------------
(1) The estimated number of shares of ChoicePoint restricted stock to be granted
is based on assumed per share prices of Equifax Common Stock of $30 and
ChoicePoint Common Stock of $20.
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<PAGE> 57
COMPENSATION AND BENEFIT PLANS
The Company has adopted the ChoicePoint 1997 Omnibus Stock Incentive Plan
(the "Omnibus Plan"), which is intended to attract and retain directors,
officers and key employees. The Omnibus Plan authorizes grants of stock options,
stock appreciation rights, restricted stock, deferred shares, performance shares
and performance units totaling four million shares of ChoicePoint Common Stock
(subject to adjustment for subsequent stock splits, stock dividends and in
certain other circumstances). Except as set forth below, ChoicePoint Employees
will retain their vested options to purchase Equifax Common Stock under various
Equifax equity-based compensation plans. Although they will forfeit the unvested
Equifax stock options, they will receive options to purchase ChoicePoint Common
Stock. Certain senior officers of ChoicePoint will be permitted to choose either
to retain vested Equifax stock options or have their vested Equifax stock
options replaced with ChoicePoint stock options in amounts and at exercise
prices intended to preserve the economic benefit inherent in the Equifax stock
options at such time.
ChoicePoint has also adopted annual bonus plans for eligible employees that
provide for the payment of annual cash bonuses following the close of each
fiscal year based upon the achievement of specified objective performance goals.
The Compensation Committee of the Board of Directors of ChoicePoint will approve
the bonus plans with respect to the executive officers of ChoicePoint.
Equifax has historically maintained deferred compensation plans for certain
of its employees. These plans are not qualified for federal tax purposes and are
not "funded" within the meaning of the Employee Retirement Income Security Act
of 1974. With the consent of the affected employees, ChoicePoint, rather than
Equifax, will provide the benefits related to past deferrals made by ChoicePoint
employees under certain of these plans. The Company has implemented a new
deferred compensation plan that will allow certain ChoicePoint employees to: (a)
defer all or a portion of their annual salary and bonus payouts; (b) make
contributions in excess of 401(k) contribution limitations for "highly
compensated" employees; and (c) receive additional employer contributions as a
supplement to the 401(k) Profit Sharing Plan. A participant's deferred
compensation will be invested in one or more hypothetical investment funds
selected by the participant and the plan.
ChoicePoint has adopted a 401(k) Profit Sharing Plan, under which eligible
Company employees may contribute up to 16% of their compensation. ChoicePoint
will make minimum matching contributions in the form of ChoicePoint Common Stock
equal to 25% of employee contributions up to the first 6% of an employee's
contributions. Employee contributions will be invested in one of the available
investment funds, including a ChoicePoint stock fund. Matching contributions
will be invested in the ChoicePoint stock fund. ChoicePoint may make additional
contributions based on achievement of targeted performance levels.
Assets of Equifax's 401(k) Retirement Savings Plan that are attributable to
the accounts of ChoicePoint employees will be transferred to ChoicePoint's
401(k) Profit Sharing Plan and will be held for the benefit of these employees.
ChoicePoint employees may direct that their investment in the Equifax stock fund
be retained or be liquidated and the proceeds invested in a ChoicePoint stock
fund or any other available investment funds.
ChoicePoint intends to establish two grantor trusts for the purpose of
holding approximately 650,000 shares of ChoicePoint Common Stock for
distribution under its various compensation and benefit plans. The transfer of
such shares to these trusts will occur as soon as reasonably practicable after
the Spinoff.
DIRECTOR COMPENSATION
Directors who are salaried employees of ChoicePoint will receive no
additional compensation for services as a director or as a member of a committee
of the Board of Directors. Each director who is not a ChoicePoint salaried
officer or employee shall be compensated as follows. The Chairman of the Board
of Directors will be paid an annual fee of $30,000 for services as a director
and an additional fee of $2,500 for attendance at each meeting of the Board of
Directors or a committee thereof. Each other director will be paid an annual fee
of $15,000 for services as a director and an additional fee of $1,000 for
attendance at each meeting of the Board of Directors and $1,000 ($2,500 if
Committee Chairman) for attendance at each
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<PAGE> 58
committee meeting. In addition, each non-employee director, upon initial
election to the Board of Directors, will receive a one-time grant of restricted
ChoicePoint Common Stock with a market value of $25,000, which will vest after
36 months or upon death or retirement from the Board of Directors, whichever
occurs first. Non-employee directors will also receive annual stock option
awards of 3,000 shares of ChoicePoint Common Stock, and the Chairman of the
Board of Directors will receive annual stock option awards of 5,000 shares. The
stock option awards will vest after 24 months or upon death or retirement from
the Board of Directors, whichever occurs first. Restricted stock and stock
option awards will be issued under the Omnibus Plan.
CHANGE IN CONTROL AND COMPENSATION AND EMPLOYMENT AGREEMENTS
The Company intends to enter into Change in Control Agreements with all of
its executive officers prior to the Effective Time. These Change in Control
Agreements will be for an initial five-year term and will be renewable for
additional one-year terms and effective only in the event any such executive
officer's employment with the Company is terminated within five years from the
date of a change in control of the Company. A "change in control" will be
defined by the Change in Control Agreements generally to mean the acquisition by
an entity, or a group of entities acting in concert, of more than fifty percent
of the shares of outstanding stock of any class of voting stock of the Company.
In such event, upon termination of the executive's employment within five years
after the date of a change in control, the executive will be entitled to
severance pay and certain other benefits, unless such termination: (i) occurs as
a result of the executive's death; (ii) is effected by the Company for "Cause"
or "Disability" (as defined in the Change in Control Agreements); or (iii) is
effected by the executive for reasons other than a "Good Reason" (as defined in
the Change in Control Agreements). The severance payment will be based upon
annual compensation, multiplied by a factor of three. All benefits payable under
the Change in Control Agreements will be subject to reduction for tax purposes.
Equifax currently has a Compensation Agreement with Mr. Rocco which
entitles Mr. Rocco to annual base compensation of not less than $200,000 and
total compensation of not less than $225,000. The Compensation Agreement
provides for deferred benefit payments to Mr. Rocco and his participation in all
employee benefit plans of Equifax. Pursuant to the agreement, subject to certain
limitations and employment conditions, if Mr. Rocco remains continuously
employed by the Company for three years after July 1996, Mr. Rocco would be
entitled to severance benefits in a lump sum of $150,000. The Company intends to
become a successor to such agreement upon the Spinoff.
The Company also expects to enter into employment agreements with all of
its executive officers prior to the Effective Time.
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<PAGE> 59
BENEFICIAL OWNERSHIP OF CHOICEPOINT COMMON STOCK
The following table sets forth certain information as of March 31, 1997
regarding the projected beneficial ownership of ChoicePoint Common Stock as a
result of the Spinoff by: (i) each director of ChoicePoint; (ii) each Named
Officer; and (iii) all of the directors and executive officers of ChoicePoint as
a group. The Company is not aware of any person who will beneficially own more
than five percent of the ChoicePoint Common Stock as of the Mail Date.
<TABLE>
<CAPTION>
PROJECTED PERCENTAGE OF
AMOUNT AND NATURE OF OUTSTANDING CHOICEPOINT
NAME OF BENEFICIAL OWNER BENEFICIAL OWNERSHIP(1) COMMON STOCK(2)
------------------------ ----------------------- -----------------------
<S> <C> <C>
Ron D. Barbaro........................................ 1,908(3) *
Douglas C. Curling.................................... 82,329(4) *
J. Michael de Janes................................... 13,020(5) *
James M. Denny........................................ 1,250(6) *
Tinsley H. Irvin...................................... 1,650(3) *
David T. Lee.......................................... 36,582(7) *
Daniel W. McGlaughlin................................. 28,598(8) *
Dan H. Rocco.......................................... 119,965(9) *
C. B. Rogers, Jr. .................................... 102,513(10) *
Derek V. Smith........................................ 409,033(11) 2.6%
Charles I. Story...................................... 1,250(6) *
All directors and executive officers as a group (12
persons)............................................ 798,098(12) 5.1%
</TABLE>
- ---------------
(1) According to SEC rules, a person is the "beneficial owner" of securities if
he or she has or shares the power to vote them or to direct their
investment or has the right to acquire beneficial ownership of such
securities within 60 days through the exercise of an option, warrant or
right, the conversion of a security or otherwise. To the knowledge of the
Company, the indicated owners will have sole voting and investment power
with respect to shares beneficially owned, except as otherwise noted. The
ownership information presented above: (i) assumes that all of the vested
Equifax stock options held by such beneficial owners are converted into
ChoicePoint stock options; (ii) assumes Equifax stock options are converted
into ChoicePoint stock options at a conversion factor of 1.5 based on a $30
per share price of Equifax Common Stock and a $20 per share price of
ChoicePoint Common Stock; (iii) assumes that no Equifax stock options are
exercised between March 31, 1997 and the Mail Date; (iv) reflects the
distribution ratio of one share of ChoicePoint Common Stock for every ten
shares of Equifax Common Stock; and (v) the transfer as soon as reasonably
practicable after the Spinoff of approximately 650,000 shares of
ChoicePoint Common Stock to two ChoicePoint grantor trusts.
(2) An asterisk indicates projected beneficial ownership of less than 1% of the
ChoicePoint Common Stock.
(3) Includes 1,250 restricted shares of ChoicePoint Common Stock awarded
pursuant to the Omnibus Plan.
(4) Includes 179 shares of ChoicePoint Common Stock owned through ChoicePoint's
401(k) Profit Sharing Plan and 48,750 shares of ChoicePoint Common Stock
subject to ChoicePoint stock options exercisable on or within 60 days after
the Mail Date and 33,000 shares of restricted ChoicePoint Common Stock
awarded pursuant to the Omnibus Plan.
(5) Includes 345 shares of ChoicePoint Common Stock owned through ChoicePoint's
401(k) Profit Sharing Plan, 12,675 shares of ChoicePoint Common Stock
subject to ChoicePoint stock options exercisable on or within 60 days after
the Mail Date.
(6) Represents restricted shares of ChoicePoint Common Stock awarded pursuant
to the Omnibus Plan.
(7) Includes 296 shares of ChoicePoint Common Stock owned through ChoicePoint's
401(k) Profit Sharing Plan and 36,000 shares of ChoicePoint Common Stock
subject to ChoicePoint stock options exercisable on or within 60 days after
the Mail Date.
(8) Includes 404 shares of ChoicePoint Common Stock owned through Equifax's
401(k) Retirement Savings Plan and 1,250 restricted shares of ChoicePoint
Common Stock awarded pursuant to the Omnibus Plan.
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<PAGE> 60
(9) Includes 415 shares of ChoicePoint Common Stock owned through ChoicePoint's
401(k) Profit Sharing Plan and 85,875 shares of ChoicePoint Common Stock
subject to ChoicePoint stock options exercisable on or within 60 days after
the Mail Date and 33,000 shares of restricted ChoicePoint Common Stock
awarded pursuant to the Omnibus Plan.
(10) Includes 1,492 shares of ChoicePoint Common Stock owned through Equifax's
401(k) Retirement Savings Plan and 1,250 restricted shares of ChoicePoint
Common Stock awarded pursuant to the ChoicePoint Restricted Stock Plan.
(11) Includes: (i) 569 shares of ChoicePoint Common Stock owned through
ChoicePoint's 401(k) Profit Sharing Plan; (ii) 259,125 shares of
ChoicePoint Common Stock subject to ChoicePoint stock options exercisable
on or within 60 days after the Mail Date; (iii) 53,322 restricted shares of
ChoicePoint Common Stock acquired upon an assumed conversion of 35,548
restricted shares of Equifax Common Stock on the Mail Date; and (iv) 89,000
shares of restricted ChoicePoint Common Stock awarded pursuant to the
Omnibus Plan.
(12) Includes: (i) 1,804 shares of ChoicePoint Common Stock owned through
ChoicePoint's 401(k) Profit Sharing Plan; (ii) 1,896 shares of ChoicePoint
Common Stock owned through Equifax's 401(k) Retirement Savings Plan; (iii)
442,425 shares of ChoicePoint Common Stock subject to ChoicePoint stock
options exercisable on or within 60 days after the Mail Date; and (iv)
215,822 restricted shares of ChoicePoint Common Stock.
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<PAGE> 61
DESCRIPTION OF CAPITAL STOCK
INTRODUCTION
ChoicePoint presently expects that it will have the following capital stock
authorization and terms and anti-takeover provisions in place at the Effective
Time.
The authorized capital stock of ChoicePoint consists of 100 million shares
of ChoicePoint Common Stock, par value $.10 per share, and 100 million shares of
Preferred Stock, par value $.01 per share. ChoicePoint expects to amend its
Articles of Incorporation (the "ChoicePoint Articles") prior to the Effective
Time to reduce the number of authorized shares of Preferred Stock to ten million
shares.
As a result of the Spinoff, there are expected to be approximately
15,300,000 shares of ChoicePoint Common Stock outstanding held by approximately
8,800 holders of record. No shares of Preferred Stock have been issued by
ChoicePoint and no shares of Preferred Stock will be issued in the Spinoff.
CHOICEPOINT COMMON STOCK
Subject to all of the rights of the Preferred Stock as expressly provided
for in the ChoicePoint Articles, by operation of law or by the Board of
Directors pursuant to the ChoicePoint Articles, holders of ChoicePoint Common
Stock are entitled to (i) one vote per share on all matters required to be voted
on by shareholders, including the election of directors; (ii) such dividends as
may be declared or set apart for payment from assets or funds legally available
therefor; and (iii) in the event of liquidation, dissolution or winding-up of
ChoicePoint, a pro rata distribution of the net assets of ChoicePoint available
for distribution in accordance with their respective rights and interests. The
ChoicePoint Articles do not provide for cumulative voting in the election of
directors. Additionally, the holders of ChoicePoint Common Stock have no
preemptive, conversion or other subscription rights and there are no redemption
or sinking fund provisions applicable to the ChoicePoint Common Stock.
PREFERRED STOCK
The ChoicePoint Articles provide that ChoicePoint may issue up to 100
million shares of Preferred Stock, par value $0.01 per share. ChoicePoint
expects, however, to amend the ChoicePoint Articles to reduce the number of
authorized shares of Preferred Stock to ten million. The ChoicePoint Articles
further provide that in accordance with the provisions of the Georgia Business
Corporation Code ("GBCC"), the Board of Directors of the Corporation may
determine the preferences, limitations, and relative rights of (i) any class of
shares before the issuance of any shares of that class or (ii) one or more
series within a class, and designate the number of shares within that series,
before the issuance of any shares of that series.
No shares of Preferred Stock are currently designated, and there is no
current plan to designate or issue any class or series of Preferred Stock.
However, because the terms of the Preferred Stock may be fixed by the
ChoicePoint Board of Directors without shareholder action, Preferred Stock could
be issued quickly with terms calculated to defeat a proposed takeover of
ChoicePoint or to make the removal of management of ChoicePoint more difficult.
In addition, the issuance of Preferred Stock could decrease the amount of
earnings and assets available for distribution to holders of ChoicePoint Common
Stock. In certain circumstances, the aforementioned factors could have the
effect of decreasing the market price of the ChoicePoint Common Stock. See "RISK
FACTORS -- Certain Anti-Takeover Provisions" and " -- Shareholder Rights Plan."
CERTAIN ANTI-TAKEOVER PROVISIONS OF GEORGIA LAW AND THE CHOICEPOINT ARTICLES AND
BYLAWS
The summary of certain provisions of the ChoicePoint Articles and Bylaws
set forth below is subject to and qualified in its entirety by reference to the
ChoicePoint Articles and Bylaws. Certain provisions of Georgia law and the
ChoicePoint Articles and Bylaws are described elsewhere in this Information
Statement.
Provisions of Georgia Law
Unless otherwise provided by the articles of incorporation or bylaws or by
resolution of the Board of Directors (by conditioning its submission of a
proposed merger or share exchange), the GBCC generally requires the affirmative
vote of a majority of all votes entitled to be cast, by all shares entitled to
vote, voting as a single class, to approve mergers and share exchanges.
Shareholders of the corporation surviving a merger
52
<PAGE> 62
need not approve a merger if (i) the articles of incorporation of the surviving
corporation will not differ from its articles before the merger, (ii) each share
of stock of the surviving corporation outstanding immediately before the
effective date of the merger is to be an identical outstanding or reacquired
share immediately after the merger, and (iii) the number and kind of shares
outstanding immediately after the merger, plus the number and kind of shares
issuable as a result of the merger and by the conversion of securities issued
pursuant to the merger or the exercise of rights and warrants issued pursuant to
the merger, will not exceed the total number and kind of shares of the surviving
corporation authorized by its articles of incorporation immediately before the
merger. The ChoicePoint Bylaws do not contain a provision which alters the GBCC
voting requirements with respect to mergers.
ChoicePoint has elected to be covered by two provisions of the GBCC that
restrict business combinations with interested shareholders: the Business
Combinations Provision (as defined herein) and the Fair Price Provision (as
defined herein). These provisions do not apply to a Georgia corporation unless
its bylaws specifically make the statute applicable, and once adopted, in
addition to any other vote required by the corporation's articles of
incorporation or bylaws to amend the bylaws, such a bylaw may be repealed only
by the affirmative vote of at least two-thirds of the continuing directors and a
majority of the votes entitled to be cast by the voting shares of such
corporation, other than shares beneficially owned by an interested shareholder
and, with the respect to the Fair Price Provision, his, her or its associates
and affiliates.
Interested Shareholders Transactions. The provisions of the GBCC
concerning "Business Combinations with Interested Shareholders" (the "Business
Combinations Provision") generally prohibits certain "resident domestic
[Georgia] corporations" from entering into certain business combination
transactions with any "interested shareholder" (generally defined as any person
other than the corporation or its subsidiaries beneficially owning at least 10%
of the outstanding voting stock of the corporation) for a period of five years
from the date that person became an interested shareholder, unless (i) prior to
becoming an interested shareholder, the board of directors of the corporation
approved either the business combination or the transaction by which the
shareholder became an interested shareholder; (ii) in the transaction in which
the shareholder became an interested shareholder, the interested shareholder
became the beneficial owner of at least 90% of the voting stock outstanding
(excluding, for purposes of determining the number of shares outstanding,
"Insider Shares," as defined below) at the time the transaction commenced; or
(iii) subsequent to becoming an interested shareholder, such shareholder
acquired additional shares resulting in the interested shareholder being the
beneficial owner of at least 90% of the outstanding voting shares (excluding,
for purposes of determining the number of shares outstanding, Insider Shares)
and the transaction was approved at an annual or special meeting of shareholders
by the holders of a majority of the voting stock entitled to vote thereon
(excluding from such vote, Insider Shares and voting stock beneficially owned by
the interested shareholder). For purposes of the Business Combinations
Provision, Insider Shares refers generally to shares owned by: (A) persons who
are directors or officers of the corporation, their affiliates, or associates;
(B) subsidiaries of the corporation; and (C) any employee stock plan under which
participants do not have the right (as determined exclusively by reference to
the terms of such plan and any trust which is part of such plan) to determine
confidentially the extent to which shares held under such plan will be tendered
in a tender or exchange offer. A Georgia corporation's bylaws must specify that
all requirements of the Business Combinations Provision apply to the corporation
in order for the Business Combinations Provision to apply. The ChoicePoint
Bylaws contain a provision stating that all requirements of the Business
Combinations Provision (and any successor provisions thereto) apply to
ChoicePoint. See "RISK FACTORS -- Certain Anti-Takeover Provisions."
Fair Price Requirements. The GBCC also contains a provision concerning
"Fair Price Requirements" (the "Fair Price Provision") which imposes certain
requirements on "business combinations" of a Georgia corporation with any person
who is an "interested shareholder" of that corporation. In addition to any vote
otherwise required by law or the corporation's articles of incorporation, under
the Fair Price Provision, business combinations with an interested shareholder
must meet one of the three following criteria designed to protect a
corporation's minority shareholders: (i) the transaction must be unanimously
approved by the "continuing directors" of the corporation (generally directors
who served prior to the time an interested shareholder acquired 10% ownership
and who are unaffiliated with such interested shareholder) provided that
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<PAGE> 63
the continuing directors constitute at least three members of the board of
directors at the time of such approval; (ii) the transaction must be recommended
by at least two-thirds of the continuing directors and approved by a majority of
the votes entitled to be cast by holders of voting shares, other than voting
shares beneficially owned by the interested shareholder who is, or whose
affiliate is, a party to the business combination; or (iii) the terms of the
transaction must meet specified fair pricing criteria and certain other tests. A
Georgia corporation's bylaws must specify that all requirements of the Fair
Price Provision apply to the corporation in order for the Fair Price Provision
to apply. The ChoicePoint Bylaws contain a provision stating that all
requirements of the Fair Price Provision (and any successor provisions thereto)
apply to ChoicePoint. See "RISK FACTORS -- Certain Anti-Takeover Provisions."
Removal of Directors. In addition to the Business Combinations Provision
and the Fair Price Provision, the GBCC contains a provision concerning "Removal
of Directors by Shareholders" (the "Removal Provision") which, among other
things, limits the ability of shareholders of a Georgia corporation to remove
the directors of such corporation if such corporation's directors serve
staggered terms. The Removal Provision generally provides that, (i) directors
having staggered terms may be removed only for "cause," unless the corporation's
articles of incorporation or a bylaw adopted by the corporation's shareholders
provides otherwise; (ii) directors may be removed only by a majority vote of the
shares entitled to vote for the removal of directors; and (iii) a director may
be removed by a corporation's shareholders only at a meeting called for the
purpose of removing him or her and the meeting notice must state that the
purpose, or one of the purposes, of the meeting is removal of the director.
Neither the ChoicePoint Articles nor Bylaws contain provisions permitting the
removal of members of the ChoicePoint Board of Directors other than for "cause."
Accordingly, the Removal Provision could have the effect of restricting the
ability of ChoicePoint shareholders to remove incumbent directors and fill the
vacancies created by such removal with their own nominees. See " -- Articles of
Incorporation and Bylaws -- Staggered Board of Directors."
Articles of Incorporation and Bylaws
Staggered Board of Directors. The ChoicePoint Articles and Bylaws provide
that the ChoicePoint Board of Directors will consist of not less than seven but
no more than fifteen shareholders. The ChoicePoint Board of Directors is divided
into three classes of directors serving staggered three-year terms, with each
class consisting, as nearly as possible, of one-third of the total number of
directors. If the number of directors is increased or decreased, such increase
or decrease will be apportioned among the classes so as to maintain, as nearly
as possible, an equal number of directors in each class, provided however, that
no decrease in the number of directors for a class shall shorten the term of an
incumbent director. Any additional director elected to fill a vacancy resulting
from an increase in the size of the ChoicePoint Board of Directors shall hold
office for a term that coincides with the remaining term of the class to which
such director is elected, unless otherwise required by law. Of the initial
directors of ChoicePoint, one-third will serve until the 1998 annual meeting of
shareholders, one-third will serve until the 1999 annual meeting of shareholders
and one-third will serve until the 2000 annual meeting of shareholders.
Beginning with the 1998 annual meeting of shareholders, one class of directors
will be elected each year to serve a three-year term. The GBCC provides that a
bylaw establishing staggered terms for directors may only be adopted, amended or
repealed by the shareholders.
The classification of directors has the effect of making it more difficult
for shareholders to change the composition of the ChoicePoint Board of
Directors. At least two annual meetings of shareholders, instead of one,
generally will be required to effect a change in the majority of the ChoicePoint
Board of Directors. The classification provisions could also have the effect of
discouraging a third party from initiating a proxy contest, making a tender
offer or otherwise attempting to obtain control of ChoicePoint, even though such
an attempt might be beneficial to ChoicePoint and its shareholders. See "RISK
FACTORS -- Certain Anti-Takeover Provisions."
Filling Vacancies. The ChoicePoint Articles and Bylaws provide that any
vacancy on the ChoicePoint Board of Directors that results from an increase in
the number of directors, or from prior death, resignation, retirement,
disqualification or removal from office of any director, shall be filled by a
majority of the remaining members of the ChoicePoint Board of Directors, though
less than a quorum, or by the sole
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<PAGE> 64
remaining director. Any director elected to fill a vacancy resulting from prior
death, resignation, retirement, disqualification or removal from office of a
director shall have the same remaining term as his or her predecessor.
Accordingly, the ChoicePoint Board of Directors could temporarily prevent any
shareholder from enlarging the ChoicePoint Board of Directors and filling the
new directorships with such shareholder's own nominees.
Shareholder Proposals at Annual Meeting; Director Nominations. The
ChoicePoint Bylaws provide that in order to bring certain matters before the
annual meeting of shareholders, including nominations of directors, shareholders
must give notice to ChoicePoint containing certain information within the time
period specified in SEC Rule 14a-8(a)(3)(i).
Special Meetings of Shareholders. The GBCC provides that a Georgia
corporation shall hold a special meeting of shareholders (i) on the call of the
corporation's board of directors or the person or persons authorized by the
corporation's articles of incorporation or bylaws, (ii) in the case of a
corporation having more than one hundred (100) shareholders of record, upon the
written demand of the holders of at least twenty five percent (25%), or such
greater or lesser percentage as may be provided in the corporation's articles of
incorporation or bylaws, of all the votes entitled to be cast on any issue
proposed to be considered at the proposed special meeting, or (iii) in the case
of a corporation having one hundred (100) or fewer shareholders of record, upon
the written demand of the holders of at least twenty five percent (25%), or such
lesser percentage as may be provided in the corporation's articles of
incorporation or bylaws, of all the votes entitled to be cast on any issue
considered at the proposed special meeting. The ChoicePoint Bylaws provide that
a special meeting of shareholders may be called by (i) the Chairman or Vice
Chairman of the ChoicePoint Board of Directors, (ii) the Chief Executive Officer
of ChoicePoint (iii) the President of ChoicePoint, (iv) the ChoicePoint Board of
Directors by vote at a meeting, (v) a majority of the ChoicePoint Board of
Directors in writing without a meeting, or (vi) the unanimous call of the
ChoicePoint shareholders. The ChoicePoint Bylaws provide that in order to bring
certain matters before a special meeting of shareholders, including the
nomination of directors, shareholders must give notice to ChoicePoint containing
certain information no later than the close of business on the earlier of (i)
the 30th day following the public announcement that a matter will be submitted
to a vote of the shareholders at a special meeting, or (ii) the 15th day
following the day on which notice of the special meeting was given.
Amendment of ChoicePoint Articles. Under the GBCC, in general and except
as otherwise provided by the ChoicePoint Articles, amendments to the ChoicePoint
Articles must be recommended to the shareholders by the ChoicePoint Board of
Directors and approved at a properly called shareholder meeting by a majority of
the votes entitled to be cast on the amendment by each voting group entitled to
vote on the amendment. The ChoicePoint Articles require the affirmative vote of
the holders of not less than two-thirds of the votes entitled to be cast by the
holders of all then outstanding shares of voting stock, voting together as a
single class, to make, alter, amend, change, add to or repeal any provision of
the ChoicePoint Articles or Bylaws where such creation, alteration, amendment,
change, addition or repeal would be inconsistent with the provisions of the
ChoicePoint Articles relating to (i) the number of members of the ChoicePoint
Board of Directors, (ii) the classification of the ChoicePoint Board of
Directors, or (iii) the filling of vacancies on the ChoicePoint Board of
Directors, provided however, that such two-thirds vote is not required for any
alteration, amendment, change, addition or repeal recommended by a majority of
the ChoicePoint Board of Directors. See " -- Articles of Incorporation and
Bylaws -- Amendment of ChoicePoint Bylaws."
Amendment of ChoicePoint Bylaws. Under the GBCC, in general and subject to
the requirements of the Business Combinations Provision, the Fair Price
Provision and the ChoicePoint Articles of Incorporation, ChoicePoint Bylaws may
be altered, amended or repealed by the ChoicePoint Board of Directors or by the
affirmative vote of the holders of a majority of the shares of ChoicePoint
Common Stock entitled to vote and actually voted on such matter. See
" -- Articles of Incorporation and Bylaws -- Amendment of ChoicePoint Articles,"
" -- Certain Anti-Takeover Provisions of Georgia Law and the ChoicePoint
Articles and Bylaws -- Provisions of Georgia Law" and "RISK FACTORS -- Certain
Anti-Takeover Provisions."
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<PAGE> 65
LIMITED LIABILITY AND INDEMNIFICATION PROVISIONS
The ChoicePoint Articles provide for indemnification of the officers and
directors of ChoicePoint to the fullest extent permitted by the GBCC. Such
indemnification is not exclusive of any additional indemnification that the
ChoicePoint Board of Directors may deem advisable or of any rights to which
those indemnified may otherwise be entitled. The ChoicePoint Articles provide
that the ChoicePoint Board of Directors may determine from time to time whether
and to what extent to maintain insurance providing indemnification for officers
and directors, and such insurance need not be limited to ChoicePoint's power of
indemnification under the GBCC. ChoicePoint intends to purchase and maintain
insurance on behalf of ChoicePoint's officers and directors against liability
asserted against or incurred by such person in such capacity, or arising out of
such person's status as such, whether or not ChoicePoint would have the power to
indemnify or advance expenses to such person against such liability under the
ChoicePoint Articles of Incorporation, the Bylaws or the GBCC.
The ChoicePoint Bylaws generally provide that ChoicePoint shall not
indemnify any officer or director who is adjudged liable to ChoicePoint or is
subjected to injunctive relief in favor of ChoicePoint: (i) for any
appropriation, in violation of his or her duties, of any business opportunity of
ChoicePoint; (ii) for acts or omissions which involve intentional misconduct or
a knowing violation of law; (iii) for the types of liability for unlawful
distributions set forth in Section 14-2-832 of the GBCC; or (iv) for any
transaction from which he or she received an improper personal benefit. The
ChoicePoint Bylaws obligate ChoicePoint, under certain circumstances, to advance
expenses to its officers and directors who are parties to an action, suit or
proceeding for which indemnification may be sought. The ChoicePoint Bylaws
permit, but do not require, ChoicePoint to indemnify and advance expenses to
employees or agents of ChoicePoint who are not officers or directors to the same
extent and subject to the same conditions that a corporation could, without
shareholder approval under Section 14-2-856 of the GBCC. ChoicePoint's Articles
also provide that no director shall have any liability to the Company or to its
shareholders for monetary damages for any action taken, or any failure to take
action, including, without limitation, for breach of duty of care or other duty
as a director, except that there shall be no elimination or limitation of
liability of a director for any conduct described in above clauses (i) through
(iv). As a result of this provision, shareholders may be unable to recover
monetary damages from directors for actions taken by them that constitute
negligence or gross negligence or that are in violation of their fiduciary
duties, although it may be possible to obtain injunctive or other equitable
relief with respect to such actions.
REGISTRATION RIGHTS
ChoicePoint expects to grant to the persons who receive ChoicePoint Common
Stock in the Kroll acquisition certain "demand" Registration Rights. The
Registration Rights become effective not sooner than one year after the date of
the Kroll acquisition. The registration rights, with certain limitations, grant
the holders thereof the right to have such shares registered under a
registration statement filed by ChoicePoint relating to the issuance of
ChoicePoint Common Stock. ChoicePoint will bear the expenses incident to the
registration requirements with respect to such registration rights, except that
such expenses shall not include any underwriting discount or commission,
Commission or state securities registration fees or transfer taxes relating to
such shares.
SHAREHOLDER RIGHTS PLAN
The ChoicePoint Board of Directors anticipates adopting a Shareholder
Rights Plan (the "Rights Plan") after the Spinoff. If adopted, the Rights Plan
will contain provisions to protect the Company's shareholders in the event of an
unsolicited offer to acquire the Company, including offers that do not treat all
shareholders equally, the acquisition in the open market of shares constituting
control without offering fair value to all shareholders, and other coercive,
unfair or inadequate takeover bids and practices that could impair the ability
of the ChoicePoint Board of Directors to represent shareholders' interests
fully. Pursuant to the Rights Plan, if adopted, the ChoicePoint Board of
Directors is expected to declare a dividend of one Share Purchase Right (a
"Right") for each outstanding share of the Company's Common Stock as of a record
date established by the Board of Directors. The Rights will be represented by,
and trade together with, the
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<PAGE> 66
Company's Common Stock. The Rights will not be currently exercisable and will
not become exercisable unless certain triggering events occur. Among the
triggering events will be the acquisition of 20% or more of the Company's Common
Stock by a person or group of affiliated or associated persons. Unless
previously redeemed by the ChoicePoint Board of Directors, upon the occurrence
of one of the specified triggering events, each Right that is not held by the
20% or more shareholder will entitle its holder to purchase one share of
ChoicePoint Common Stock or, under certain circumstances, additional shares of
Common Stock at a discounted price. The Rights will cause substantial dilution
to a person or group that attempts to acquire ChoicePoint on terms not approved
by the ChoicePoint Board of Directors. Thus, the Rights are intended to
encourage persons who may seek to acquire control of ChoicePoint to initiate
such an acquisition through negotiations with the Board of Directors.
OTHER MATTERS
The ChoicePoint Common Stock has been approved for listing on the New York
Stock Exchange, subject to official notice of issuance, under the symbol CPS.
The transfer agent and registrar for the ChoicePoint Common Stock is
SunTrust Bank, Atlanta.
ADDITIONAL INFORMATION
ChoicePoint has filed the Registration Statement with the SEC concerning
the shares of ChoicePoint Common Stock being received by Equifax shareholders in
the Spinoff. This Information Statement does not contain all of the information
set forth in the Registration Statement and the exhibits and schedules thereto.
With respect to each contract, agreement or other document filed as an exhibit
to the Registration Statement, reference is made to such exhibit for a more
complete description of the matter involved, and each statement made in this
document concerning the contents of any such contract, agreement or other
document shall be deemed qualified in its entirety by such reference.
The Registration Statement and the exhibits and schedules thereto filed by
ChoicePoint may be inspected and copied at the public reference facilities
maintained by the SEC at Room 1024, 450 Fifth Street, N.W., Washington, D.C.
20549, as well as at the Regional Offices of the SEC at Citicorp Center, 500
West Madison Street, Suite 1400, Chicago, Illinois 60661 and 7 World Trade
Center, Suite 1300, New York, New York 10048. Copies of such information can be
obtained by mail from the Public Reference Branch of the Commission at 450 Fifth
Street, N.W., Washington, D.C. 20549 at prescribed rates. Such materials can
also be inspected at the offices of the New York Stock Exchange, 20 Broad
Street, New York, New York 10005 or accessed electronically by means of the
SEC's home page on the Internet (http://www.sec.gov).
Following the Spinoff, ChoicePoint will be required to comply with the
reporting requirements of the Exchange Act and will file annual, quarterly and
other reports with the SEC. ChoicePoint will also be subject to the proxy
solicitation requirements of the Exchange Act and, accordingly, will furnish
audited financial statements to its shareholders in connection with its annual
meetings of shareholders.
No person is authorized by Equifax or ChoicePoint to give any information
or to make any representations other than those contained in this document, and
if given or made, such information or representations must not be relied upon as
having been authorized.
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INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
CHOICEPOINT INC.
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Auditors............................ F-2
Consolidated Statements of Income......................... F-3
Consolidated Balance Sheets............................... F-4
Consolidated Statements of Shareholder's Equity........... F-5
Consolidated Statements of Cash Flows..................... F-6
Notes to Consolidated Financial Statements................ F-7
CDB INFOTEK
Report of Independent Public Accountants.................. F-18
Consolidated Statements of Income......................... F-19
Consolidated Balance Sheets............................... F-20
Consolidated Statement of Stockholders' Equity............ F-21
Consolidated Statements of Cash Flows..................... F-22
Notes to Consolidated Financial Statements................ F-23
</TABLE>
F-1
<PAGE> 68
REPORT OF INDEPENDENT AUDITORS
To the Shareholder of ChoicePoint Inc.:
We have audited the accompanying consolidated balance sheets of the
business conducted through Equifax's Insurance Services Group (as defined in
Note 1), to be reorganized as ChoicePoint Inc. (a Georgia corporation) as of
December 31, 1996 and 1995, and the related consolidated statements of income,
shareholder's equity and cash flows for each of the three years in the period
ended December 31, 1996. These financial statements are the responsibility of
the Company'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 financial position of the business conducted
through Equifax's Insurance Services Group as of December 31, 1996 and 1995, and
the results of its operations and its cash flows for each of the three years in
the period ended December 31, 1996, in conformity with generally accepted
accounting principles.
Arthur Andersen LLP
Atlanta, Georgia
April 15, 1997
F-2
<PAGE> 69
CHOICEPOINT INC.
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
QUARTER ENDED
MARCH 31, YEAR ENDED DECEMBER 31,
--------------------- ------------------------------------
1997 1996 1996 1995 1994
-------- ------- -------- -------- --------
(UNAUDITED)
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Operating revenue................. $102,852 $84,140 $366,481 $328,990 $284,566
-------- ------- -------- -------- --------
Costs and expenses:
Costs of services............... 68,359 59,422 252,118 221,045 205,590
Selling, general, and
administrative............... 22,295 15,712 66,752 66,867 62,399
Restructuring provision......... -- -- -- 9,150 --
-------- ------- -------- -------- --------
Total costs and
expenses.............. 90,654 75,134 318,870 297,062 267,989
Operating income.................. 12,198 9,006 47,611 31,928 16,577
Interest expense.................. 1,619 1,575 6,597 5,830 2,638
-------- ------- -------- -------- --------
Income before income taxes........ 10,579 7,431 41,014 26,098 13,939
Provision for income taxes........ 5,038 3,213 17,734 11,233 7,327
-------- ------- -------- -------- --------
Net income.............. $ 5,541 $ 4,218 $ 23,280 $ 14,865 $ 6,612
======== ======= ======== ======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-3
<PAGE> 70
CHOICEPOINT INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
MARCH 31, -------------------
1997 1996 1995
----------- -------- --------
(UNAUDITED)
(IN THOUSANDS)
<S> <C> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents................................. $ 4,471 $ 1,726 $ 645
Accounts receivable, net of allowance for doubtful
accounts of $1,489 at March 31, 1997, $1,578 at
December 31, 1996 and $798 at
December 31, 1995...................................... 88,635 78,138 65,063
Deferred income tax assets................................ 4,753 3,984 8,428
Other current assets...................................... 10,894 8,083 4,023
-------- -------- --------
Total current assets.............................. 108,753 91,931 78,159
Property and Equipment, net................................. 38,635 35,407 19,796
Goodwill, net............................................... 121,309 123,997 67,513
Deferred Income Tax Assets.................................. 16,157 15,042 18,573
Other....................................................... 34,060 35,447 16,738
-------- -------- --------
Total Assets...................................... $318,914 $301,824 $200,779
======== ======== ========
LIABILITIES AND SHAREHOLDER'S EQUITY
Current Liabilities:
Current maturities of long-term debt...................... $ 864 $ 927 $ 4
Accounts payable.......................................... 13,537 12,828 9,680
Accrued salaries and bonuses.............................. 9,791 11,594 7,632
Other current liabilities................................. 24,074 19,616 23,104
-------- -------- --------
Total current liabilities......................... 48,266 44,965 40,420
Long-Term Debt, Less Current Maturities..................... 872 1,051 --
Postretirement Benefit Obligations.......................... 55,650 55,622 54,430
Other Long-Term Liabilities................................. 3,659 3,859 1,288
-------- -------- --------
Total Liabilities................................. 108,447 105,497 96,138
Commitments and Contingencies (Note 9)
Shareholder's Equity:
Equifax equity investment................................. 210,555 196,414 104,684
Foreign currency translation adjustments.................. (88) (87) (43)
-------- -------- --------
Total Shareholder's Equity........................ 210,467 196,327 104,641
-------- -------- --------
Total Liabilities and Shareholder's Equity........ $318,914 $301,824 $200,779
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated balance
sheets.
F-4
<PAGE> 71
CHOICEPOINT INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDER'S EQUITY
<TABLE>
<CAPTION>
FOREIGN
EQUIFAX CURRENCY
EQUITY TRANSLATION
INVESTMENT ADJUSTMENTS TOTAL
---------- ----------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Balance, December 31, 1993.................................. $ 13,961 $ -- $ 13,961
Net income................................................ 6,612 -- 6,612
Net transactions with Equifax............................. 15,892 -- 15,892
Translation adjustments................................... -- (76) (76)
Contribution from Equifax (Note 7)........................ 61,639 -- 61,639
-------- ---- --------
Balance, December 31, 1994.................................. 98,104 (76) 98,028
Net income................................................ 14,865 -- 14,865
Net transactions with Equifax............................. (8,285) -- (8,285)
Translation adjustments................................... -- 33 33
-------- ---- --------
Balance, December 31, 1995.................................. 104,684 (43) 104,641
Net income................................................ 23,280 -- 23,280
Net transactions with Equifax............................. 68,450 -- 68,450
Translation adjustments................................... -- (44) (44)
-------- ---- --------
Balance, December 31, 1996.................................. 196,414 (87) 196,327
Net income (Unaudited).................................... 5,541 -- 5,541
Net transactions with Equifax (Unaudited)................. 8,600 -- 8,600
Translation adjustments (Unaudited)....................... -- (1) (1)
-------- ---- --------
Balance, March 31, 1997 (Unaudited)......................... $210,555 $(88) $210,467
======== ==== ========
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-5
<PAGE> 72
CHOICEPOINT INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
QUARTER ENDED
MARCH 31, YEAR ENDED DECEMBER 31,
------------------- --------------------------------
1997 1996 1996 1995 1994
-------- ------- -------- -------- --------
(UNAUDITED)
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net income......................... $ 5,541 $ 4,218 $ 23,280 $ 14,865 $ 6,612
Adjustments to reconcile net income
to net cash provided by
operating activities:
Depreciation and amortization... 6,327 3,419 18,654 13,321 10,033
Restructuring provision, net of
cash payments................. -- -- -- 6,944 --
Changes in assets and
liabilities, excluding effects
of acquisitions:
Accounts receivable, net...... (10,555) (5,834) (7,362) (2,966) (9,247)
Current liabilities, excluding
debt....................... 3,389 (700) (60) (4,585) 2,818
Other current assets.......... (2,831) (156) (1,582) (486) (197)
Deferred income taxes......... (325) 449 2,052 (4,845) (2,391)
Other long-term liabilities,
excluding debt............. (171) 497 1,797 (2,008) 597
-------- ------- -------- -------- --------
Net cash provided by
operating activities..... 1,375 1,893 36,779 20,240 8,225
-------- ------- -------- -------- --------
Cash flows from investing activities:
Acquisitions, net of cash
acquired........................ -- -- (69,654) (1,421) (12,462)
Additions to property and
equipment....................... (6,120) (2,206) (18,098) (5,355) (2,574)
Additions to other assets, net..... (1,065) (657) (4,034) (5,232) (3,040)
-------- ------- -------- -------- --------
Net cash used by investing
activities...................... (7,185) (2,863) (91,786) (12,008) (18,076)
-------- ------- -------- -------- --------
Cash flows from financing activities:
Payment of debt assumed in
acquisition..................... -- -- (11,778) -- --
Payments on long-term debt......... (241) (2) (315) (12) (1,008)
Net transactions with Equifax...... 8,826 3,570 68,159 (9,875) 13,394
-------- ------- -------- -------- --------
Net cash provided (used) by
financing activities............ 8,585 3,568 56,066 (9,887) 12,386
-------- ------- -------- -------- --------
Effect of foreign currency exchange
rates on cash...................... (30) (9) 22 23 13
-------- ------- -------- -------- --------
Net increase (decrease) in cash...... 2,745 2,589 1,081 (1,632) 2,548
Cash and cash equivalents, beginning
of period.......................... 1,726 645 645 2,277 (271)
-------- ------- -------- -------- --------
Cash and cash equivalents, end of
period............................. $ 4,471 $ 3,234 $ 1,726 $ 645 $ 2,277
======== ======= ======== ======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-6
<PAGE> 73
CHOICEPOINT INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(AMOUNTS AND DISCLOSURES APPLICABLE TO MARCH 31, 1997 AND 1996 ARE UNAUDITED)
1. SPIN OFF AND BASIS OF PRESENTATION
In December 1996, the Board of Directors of Equifax Inc. ("Equifax")
announced that it planned to spin off the business conducted through Equifax's
Insurance Services Group to Equifax shareholders (the "Spinoff"). This Spinoff
is expected to occur on ("the Spinoff date") and will be accomplished
by forming ChoicePoint Inc. ("ChoicePoint" or the "Company"), transferring the
stock of the companies which comprise the Insurance Services Group to
ChoicePoint and then distributing all of the shares of Common Stock of
ChoicePoint to Equifax shareholders. Equifax shareholders will receive one share
of ChoicePoint Common Stock for every ten shares of Equifax Common Stock owned
as of the Record Date (which does not include two grantor trusts established by
Equifax). The actual total number of shares of ChoicePoint Common Stock to be
distributed will depend on the number of shares of Equifax Common Stock
outstanding on the Record Date. After the Spinoff, ChoicePoint and Equifax will
be two separate public companies.
The consolidated financial statements of ChoicePoint include substantially
all of the assets, liabilities, revenues, and expenses of the business conducted
through Equifax's Insurance Services Group. ChoicePoint operates in a single
industry segment and provides substantially all domestic insurance companies
with automated and traditional underwriting and claims information services to
assist companies in assessing the insurability of individuals and property and
the validity of insurance claims. ChoicePoint provides background
investigations, performs paramedical exams, furnishes access to motor vehicle
reports, maintains a database of claims histories and provides claims
verification and investigative services to both the property and casualty and
the life and health insurance markets. The Company also offers pre-employment
background investigations, pre-employment and regulatory compliance drug testing
services and public record information to other corporate and government
organizations. The Company's operations are predominantly located in the United
States.
All material transactions between entities included in the consolidated
financial statements have been eliminated. The consolidated financial statements
have been prepared on the historical cost basis, and present the Company's
financial position, results of operations and cash flows as derived from
Equifax's historical financial statements.
In conjunction with the separation of their businesses, ChoicePoint and
Equifax entered into various agreements that address the allocation of assets
and liabilities between them and that define their relationship after the
separation, including a Distribution Agreement, the Employee Benefits Agreement,
the Transition Support Agreement, the Intercompany Information Services
Agreement, the Intellectual Property Agreement, the Tax Sharing and
Indemnification Agreement, the Real Estate Agreements and the CUE UK Agreements.
2. SIGNIFICANT ACCOUNTING POLICIES
Use of Estimates. The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions. These estimates and assumptions affect the reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements as well as reported amounts
of revenues and expenses during the reporting period. Actual results could
differ from these estimates.
Revenue Presentation. Historically, motor vehicle records registry
revenue, the fee charged by states for motor vehicle records which is passed on
by ChoicePoint to its customers, has been reflected in Equifax's consolidated
statements of income as operating revenue and cost of services. ChoicePoint has
elected to exclude these customer reimbursed fees from revenue and reduce cost
of services by a corresponding amount. This change in accounting presentation
does not impact operating income. Registry revenue previously
F-7
<PAGE> 74
CHOICEPOINT INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
reflected in Equifax's consolidated statements of income was $63,922,000 in the
first quarter of 1997, $52,477,000 in the first quarter of 1996, $224,783,000 in
1996, $191,645,000 in 1995 and $171,893,000 in 1994.
Property and Equipment. Property and equipment at December 31, 1996 and
1995 consisted of the following:
<TABLE>
<CAPTION>
1996 1995
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Land, buildings, and improvements........................... $ 10,824 $ 5,087
Data processing equipment and furniture..................... 66,019 43,086
-------- --------
76,843 48,173
Less: Accumulated depreciation.............................. (41,436) (28,377)
-------- --------
$ 35,407 $ 19,796
======== ========
</TABLE>
The cost of property and equipment is depreciated primarily on the
straight-line basis over estimated asset lives of 30 to 40 years for buildings;
useful lives, not to exceed lease terms, for leasehold improvements; three to
five years for data processing equipment and eight to 20 years for furniture.
Goodwill and Other Assets. Goodwill is amortized on a straight-line basis
over 20 to 40 years. Amortization expense was $2,873,000 in 1996, $2,013,000 in
1995, and $894,000 in 1994. As of December 31, 1996 and 1995, accumulated
amortization was $9,032,000 and $5,134,000, respectively.
Other assets at December 31, 1996 and 1995 consisted of the following:
<TABLE>
<CAPTION>
1996 1995
------- -------
(IN THOUSANDS)
<S> <C> <C>
Purchased software, datafiles, and technology............... $26,629 $14,126
Other....................................................... 8,818 2,612
------- -------
$35,447 $16,738
======= =======
</TABLE>
Purchased software, datafiles, and technology are being amortized on a
straight-line basis over five to ten years. Amortization expense for other
assets was $6,479,000 in 1996, $3,810,000 in 1995, and $2,913,000 in 1994. As of
December 31, 1996 and 1995, accumulated amortization was $17,719,000 and
$11,240,000, respectively.
The Company regularly evaluates whether events and circumstances have
occurred that indicate the carrying amount of goodwill or other assets may
warrant revision or may not be recoverable. When factors indicate that goodwill
or other assets should be evaluated for possible impairment, the Company uses an
estimate of the future undiscounted net cash flows of the related business over
the remaining life of the goodwill or other assets in measuring whether the
goodwill or other assets are recoverable.
Foreign Currency Translation. The assets and liabilities of foreign
subsidiaries are translated at the year-end rate of exchange and income
statement items are translated at the average rates prevailing during the year.
The resulting translation adjustment is recorded as a component of shareholder's
equity. Foreign currency transaction gains and losses, which are not material,
are recorded in the consolidated statements of income.
Consolidated Statements of Cash Flows. The Company considers cash
equivalents to be short-term cash investments with original maturities of three
months or less.
F-8
<PAGE> 75
CHOICEPOINT INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Tax provisions are settled through the intercompany account and Equifax
makes income tax payments on behalf of the Company. Based on the income tax
returns filed, or to be filed, the amounts paid would have been approximately
$14,842,000 in 1996, $8,723,000 in 1995, and $5,962,000 in 1994.
Interest paid on long-term debt, excluding amounts charged by Equifax,
totaled $147,000 in 1996, $200,000 in 1995, and $131,000 in 1994.
In 1996, 1995 and 1994, the Company acquired various businesses that were
accounted for as purchases (Note 3). In conjunction with these transactions,
liabilities were assumed as follows:
<TABLE>
<CAPTION>
1996 1995 1994
------- ------ -------
(IN THOUSANDS)
<S> <C> <C> <C>
Fair value of assets acquired.............................. $97,204 $1,438 $82,970
Cash paid for acquisitions................................. 71,661 1,421 14,146
Contribution by Equifax (Note 7)........................... -- -- 60,000
------- ------ -------
Liabilities assumed........................................ $25,543 $ 17 $ 8,824
======= ====== =======
</TABLE>
Financial Instruments. The Company's financial instruments consist
primarily of cash and cash equivalents, accounts and notes receivable, accounts
payable and long-term debt. The carrying amounts of these items approximate
their fair market values. During 1996, the Company did not hold any derivative
financial instruments.
Earnings Per Share. Historical earnings per share are not presented since
the companies that comprise ChoicePoint were majority-owned subsidiaries of
Equifax or one of its affiliates and will be recapitalized as part of the
Spinoff.
3. ACQUISITIONS
During 1996, 1995 and 1994, the Company acquired or made equity investments
in the following businesses:
<TABLE>
<CAPTION>
DATE PERCENTAGE
BUSINESS ACQUIRED OWNERSHIP
- -------- ------------- ----------
<S> <C> <C>
CDB Infotek................................................. August 1996 70.0%
Professional Test Administrators, Inc....................... April 1996 100.0
Vallance and Associates, Inc................................ February 1995 100.0
Osborn Laboratories, Inc.................................... November 1994 100.0
Programming Resources Company............................... April 1994 100.0
</TABLE>
The 1996 acquisitions were accounted for as purchases and had an aggregate
purchase price of $71,661,000, with $59,457,000 allocated to goodwill, and
$20,932,000 to other intangible assets (primarily purchased datafiles and
software). Their results of operations have been included in the consolidated
statements of income from the dates of acquisition.
Additional consideration of up to $20.0 million may be paid for the 1996
acquisition of CDB Infotek based on its future operating performance. In
addition, the Company entered into an option agreement with the remaining
shareholders of CDB Infotek. The agreement grants the Company an option to
purchase the remaining 30% interest in CDB Infotek (the "Call Option") and an
option for the remaining shareholders to sell their 30% interest to the Company
(the "Put Option"). The options may be exercised at any time after December 31,
1999. The Put Option will expire on the later of June 30, 2000 or the date that
is 90 days after the final determination of the option price and the Call Option
has no expiration date. The exercise date may be accelerated upon the breach of
certain obligations. If certain 1999 operating results are met, then the option
price is determined by a formula not to exceed $53.0 million. If certain 1999
operating results are not met,
F-9
<PAGE> 76
CHOICEPOINT INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
and both parties cannot mutually agree on an option price, then the option price
is determined by an independent appraisal, not to exceed $25.5 million.
The following unaudited pro forma information has been prepared as if the
1996 acquisition of CDB Infotek had occurred on January 1, 1995. The information
is based on historical results of the separate companies and may not necessarily
be indicative of the results that could have been achieved or of results which
may occur in the future. The pro forma information includes the expense for
amortization of goodwill and other intangible assets resulting from this
transaction.
<TABLE>
<CAPTION>
1996 1995
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Revenue..................................................... $389,262 $361,010
Net Income.................................................. 20,904 12,765
</TABLE>
The 1995 acquisition was accounted for as a purchase and had an aggregate
purchase price of $1,421,000, with $1,222,000 allocated to goodwill and $216,000
to other intangible assets (noncompete agreement). The results of operations
have been included in the consolidated statements of income from the date of
acquisition and were not material.
The 1994 acquisitions were accounted for as purchases and had an aggregate
purchase price of $74,146,000, with $54,486,000 allocated to goodwill, and
$10,908,000 to other intangible assets (primarily purchased software and
technology). Their results of operations have been included in the consolidated
statements of income from the dates of acquisition. They were purchased using a
combination of cash totaling $14,146,000, and the contribution by Equifax of
$60,000,000 (Note 7).
4. TRANSACTIONS WITH EQUIFAX
There are no material intercompany purchase or sale transactions between
Equifax and ChoicePoint. Under Equifax's centralized cash management system,
short-term advances from Equifax and excess cash sent to Equifax are reflected
as intercompany debt and are included in Equifax equity investment in the
accompanying balance sheets (Note 7). ChoicePoint was charged corporate costs in
the amount of $2,551,000 in the first quarter of 1997, $2,815,000 in the first
quarter of 1996, $11,260,000 in 1996, $11,833,000 in 1995, and $11,065,000 in
1994. These allocations were based on an estimate of the proportion of corporate
expenses related to ChoicePoint, utilizing such factors as revenues, number of
employees, number of transactions processed and other applicable factors. In the
opinion of management, the corporate charges have been made on a reasonable
basis and approximate all the incremental costs ChoicePoint would have incurred
had it been operating on a stand-alone basis. These amounts have been included
in selling, general, and administrative expenses. ChoicePoint was also charged
corporate interest expense based on the relationship of its net assets to total
Equifax net assets, excluding corporate debt, in amounts of $1,547,000 in the
first quarter of 1997, $1,554,000 in the first quarter of 1996, $6,215,000 in
1996, $5,401,000 in 1995, and $2,489,000 in 1994. These amounts are included in
interest expense. Intercompany debt as of March 31, 1997 and December 31, 1996
was $92,593,000 and $83,993,000, respectively, and is included in Equifax equity
investment in the accompanying balance sheets.
F-10
<PAGE> 77
CHOICEPOINT INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
5. LONG-TERM DEBT, SHORT-TERM BORROWINGS, AND CREDIT FACILITY
Long-term debt at December 31, 1996 and 1995 is as follows:
<TABLE>
<CAPTION>
1996 1995
------ ----
(IN THOUSANDS)
<S> <C> <C>
Capital leases.............................................. $1,978 $ 4
Less current maturities..................................... (927) (4)
------ ----
$1,051 $ 0
====== ====
</TABLE>
Scheduled maturities of long-term debt during the five years subsequent to
December 31, 1996 are as follows: $927,000 in 1997, $596,000 in 1998, $372,000
in 1999, $83,000 in 2000, and $0 in 2001.
There were no short-term borrowings during 1996 and 1995.
ChoicePoint will arrange a $250 million unsecured revolving credit facility
(the "Credit Facility") with a group of banks. The Credit Facility will be a
revolving facility expandable to $300 million, subject to approval of the
lenders. All obligations of ChoicePoint are guaranteed by all future
subsidiaries. The Credit Facility will be used to repay the net intercompany
debt due to Equifax (Note 7), to make a cash distribution of $29.0 million to
Equifax, for general corporate purposes and for acquisitions. The commitment
termination date and final maturity of the Credit Facility will occur five years
after the closing of the Credit Facility.
Revolving loans under the Credit Facility will bear interest at the
following rates as applicable and selected by the Company from time to time: (1)
the lender's Base Rate, (2) LIBOR plus the applicable margin, (3) the lender's
Cost of Funds plus the applicable margin, and (4) the Competitive Bid Rate
offered by the syndicate lenders at their discretion. The applicable margin will
range from .16% to .45% per annum based on ChoicePoint's leverage ratio. Any
amount not paid when due shall bear interest at the applicable rate plus 2%. At
the end of the applicable interest period for LIBOR or Bid Rate Loans, interest
shall accrue at the Base Rate plus 2%. The Company will also pay customary
annual facility fees based upon its leverage ratio.
The Credit Facility will contain covenants customary for facilities of this
type. Such covenants include limitations, in certain circumstances, on the
ability of the Company and its subsidiaries to (i) effect a change of control of
the Company, (ii) incur certain types of liens, and (iii) transfer or sell
assets. The Credit Facility also requires compliance with financial covenants,
including (i) maximum leverage and (ii) minimum fixed charge coverage.
6. INCOME TAXES
Historically, the Company has been included in the consolidated federal
income tax return of Equifax. ChoicePoint's provision for income taxes in the
accompanying consolidated statements of income reflects federal and state income
taxes calculated on ChoicePoint's separate income, but recognizes the impact of
unitary tax regulations of certain states on ChoicePoint as a member of the
Equifax consolidated group.
The Company records deferred income taxes using enacted tax laws and rates
for the years in which the taxes are expected to be paid. Deferred income tax
assets and liabilities are recorded based on the differences between the
financial reporting and income tax bases of assets and liabilities.
F-11
<PAGE> 78
CHOICEPOINT INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The provision for income taxes consists of the following:
<TABLE>
<CAPTION>
1996 1995 1994
------- ------- ------
(IN THOUSANDS)
<S> <C> <C> <C>
Current:
Federal.................................................. $12,538 $10,890 $3,729
State.................................................... 4,048 2,431 2,041
Foreign.................................................. 444 186 8
------- ------- ------
17,030 13,507 5,778
------- ------- ------
Deferred:
Federal.................................................. 878 (2,863) 997
State.................................................... (169) 589 552
Foreign.................................................. (5) -- --
------- ------- ------
704 (2,274) 1,549
------- ------- ------
Total............................................ $17,734 $11,233 $7,327
======= ======= ======
</TABLE>
The provision for income taxes is based upon income before income taxes as
follows:
<TABLE>
<CAPTION>
1996 1995 1994
------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
United States............................................. $38,373 $25,394 $15,837
Foreign................................................... 2,641 704 (1,898)
------- ------- -------
$41,014 $26,098 $13,939
======= ======= =======
</TABLE>
The provision for income taxes is reconciled with the federal statutory
rate as follows:
<TABLE>
<CAPTION>
1996 1995 1994
------- ------- ------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Federal statutory rate..................................... 35.0% 35.0% 35.0%
Provision computed at federal statutory rate............... $14,355 $ 9,134 $4,879
State and local taxes, net of federal tax benefit.......... 2,521 1,963 1,685
Tax effect resulting from foreign activities............... (726) (105) 671
Goodwill amortization...................................... 867 567 201
Other...................................................... 717 (326) (109)
------- ------- ------
$17,734 $11,233 $7,327
======= ======= ======
Overall effective rate..................................... 43.2% 43.0% 52.6%
</TABLE>
F-12
<PAGE> 79
CHOICEPOINT INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Components of the Company's deferred income tax assets and liabilities at
December 31, 1996 and 1995 are as follows:
<TABLE>
<CAPTION>
1996 1995
------- -------
(IN THOUSANDS)
<S> <C> <C>
Deferred income tax assets:
Postretirement benefits................................... $22,804 $22,558
Reserves and accrued expenses............................. 3,870 8,411
Employee compensation programs............................ 2,374 407
Other..................................................... 1,318 1,440
------- -------
30,366 32,816
------- -------
Deferred income tax liabilities:
Purchased software, datafiles, technology, and other
assets................................................. (7,824) (1,518)
Depreciation.............................................. (1,653) (1,782)
Deferred expenses......................................... (1,667) (241)
Other..................................................... (196) (2,274)
------- -------
(11,340) (5,815)
------- -------
Net deferred income tax assets.................... $19,026 $27,001
======= =======
</TABLE>
Accumulated undistributed retained earnings of the Canadian subsidiary are
not considered material at December 31, 1996.
7. SHAREHOLDER'S EQUITY
Equifax Equity Investment. Equifax equity investment includes the original
investment in ChoicePoint, accumulated income of ChoicePoint, and the net
intercompany payable due to Equifax reflecting transactions described in Note 4.
As of March 31, 1997 and December 31, 1996 and 1995, the net intercompany
payable due to Equifax included in Equifax equity investment in the accompanying
balance sheets was $92,593,000, $83,993,000 and $15,543,000, respectively.
Contribution from Equifax. One of the Company's 1994 acquisitions was
acquired by Equifax using cash and the issuance of treasury shares totaling
$60,000,000 in 1994 and $1,639,000 in 1995. As part of the Spinoff, Equifax will
transfer all of the issued and outstanding shares of capital stock of this
acquisition to ChoicePoint. The accompanying financial statements reflect this
transfer as a capital contribution in 1994.
Stock Options. Equifax has certain Stock Option Plans (the "Plans") under
which incentive stock options and non-qualified stock options may be granted to
officers, key employees and directors of Equifax. In connection with the
separation of ChoicePoint from Equifax, stock options under the Plans that are
not exercised prior to the date of the Spinoff will be adjusted. Upon the
Spinoff and except as set forth below, ChoicePoint employees will retain their
vested options to purchase Equifax Common Stock under various Equifax
equity-based compensation plans. Although they will forfeit their unvested
Equifax Stock Options, they will receive options to purchase ChoicePoint Common
Stock. Certain senior officers of ChoicePoint will be permitted to choose either
to retain vested Equifax stock options or have their vested Equifax stock
options replaced with ChoicePoint stock options in amounts and at exercise
prices intended to preserve the economic benefit of the Equifax stock options at
such time. The fair market value of Equifax Common Stock immediately before the
Spinoff and the fair market value of ChoicePoint Common Stock, upon the
commencement of regular way trading, will also impact the number of options
issued to ChoicePoint employees. The number of shares of Equifax Common Stock
subject to options held by option holders expected to become ChoicePoint
employees at December 31, 1996 was 1,510,000. The exercise price of such options
range from $8.13 to $27.94. The ultimate number of Equifax stock options to be
held by ChoicePoint
F-13
<PAGE> 80
CHOICEPOINT INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
employees at December 31, 1996 and the number and exercise price of the
ChoicePoint stock options to be issued, subject to the above calculation, cannot
yet be determined.
1997 Omnibus Stock Incentive Plan. ChoicePoint intends to adopt a 1997
Omnibus Stock Incentive Plan (the "Omnibus Plan"). The Omnibus Plan will
authorize grants of stock options, stock appreciation rights, restricted stock,
deferred shares, performance shares and performance units for an aggregate of
four million shares of ChoicePoint Common Stock. With the exception of the
Equifax stock options that are being replaced with ChoicePoint stock options,
the Omnibus Plan will require options to be granted at no less than fair value.
Shareholder Rights Plan. The Company's Board of Directors anticipates
adopting a Shareholder Rights Plan (the "Rights Plan") after the Spinoff. If
adopted, the Rights Plan will contain provisions to protect the Company's
shareholders in the event of an unsolicited offer to acquire the Company,
including offers that do not treat all shareholders equally, the acquisition in
the open market of shares constituting control without offering fair value to
all shareholders, and other coercive, unfair or inadequate takeover bids and
practices that could impair the ability of the ChoicePoint Board of Directors to
represent shareholders' interests fully. Pursuant to the Rights Plan, if
adopted, the ChoicePoint Board of Directors is expected to declare a dividend of
one Share Purchase Right (a "Right") for each outstanding share of the Company's
Common Stock as of a record date established by the Board of Directors. The
Rights will be represented by, and trade together with, the Company's Common
Stock. The Rights will not be immediately exercisable and will not become
exercisable unless certain triggering events occur. Among the triggering events
is the acquisition of 20% or more of the Company's Common Stock by a person or
group of affiliated or associated persons. Unless previously redeemed by the
ChoicePoint Board of Directors, upon the occurrence of one of the specified
triggering events, each Right that is not held by the 20% or more shareholder
will entitle its holder to purchase one share of common stock or, under certain
circumstances, additional shares of common stock at a discounted price.
Grantor Trusts. ChoicePoint intends to establish two grantor trusts for
the purpose of holding approximately 650,000 shares of ChoicePoint Common Stock
for distribution under its various compensation and benefit plans. The transfer
of the ChoicePoint Common Stock to such trusts will occur as soon as reasonably
practicable after the Spinoff.
Common And Preferred Stock. ChoicePoint expects to have 100 million shares
of ChoicePoint Common Stock, par value $.10 per share, authorized and 10 million
shares of Preferred Stock, par value $.01 per share (the "Preferred Stock")
authorized as of the date of the Spinoff. No shares of Preferred Stock are
expected to be issued as of the Spinoff date.
8. EMPLOYEE BENEFITS
United States Retirement Income Plan. Historically, the Company has
participated in the Equifax United States Retirement Income Plan (the "Plan").
The Plan is a non-contributory defined benefit qualified retirement plan that
covers most salaried employees. Under the Plan, retirement benefits are
primarily a function of years of service and the level of compensation during
the final years of employment. Total pension expense allocated to ChoicePoint
and included in the Company's financial results, was $3,310,000 in 1996,
$3,356,000 in 1995 and $2,198,000 in 1994. The expenses for the Plan, other than
service costs (which are allocated directly), are allocated to the companies
comprising the Insurance Services Group based on the relative projected benefit
obligations for Insurance Services Group employees compared with the obligations
for all participants. In the opinion of management, the expenses have been
allocated on a reasonable basis and were actuarially allocated to approximate
the expense ChoicePoint would have incurred had it been operating on a
stand-alone basis.
ChoicePoint has not adopted a defined benefit plan for its employees;
however, it anticipates adopting a profit sharing plan, as described below,
after the Spinoff.
F-14
<PAGE> 81
CHOICEPOINT INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Retirement Savings Plan. Equifax's retirement savings plan provides for
annual contributions at the discretion of the Board of Directors for the benefit
of eligible employees, including ChoicePoint employees, in the form of cash or
shares of the Company's common stock. The Company's portion of expense for this
plan was $1,632,000 in 1996, $1,600,000 in 1995 and $1,349,000 in 1994 and is
included in the Company's financial results. The expense for the Retirement
Savings Plan is a direct function of the contributions made by the participants
employed by the Insurance Services Group. In the opinion of management, the
expenses have been allocated on a reasonable basis and approximate all the
expenses ChoicePoint would have incurred had it been operating on a stand-alone
basis.
ChoicePoint will adopt a 401(k) profit sharing plan, under which eligible
Company employees may contribute up to 16% of their compensation. ChoicePoint
intends to make minimum matching contributions in the form of ChoicePoint Common
Stock equal to 25% of employee contributions up to the first 6% of an employee's
contributions. Employee contributions will be invested in one of the available
investment funds, including a ChoicePoint stock fund. Matching contributions
will be invested in the ChoicePoint stock fund. ChoicePoint may make additional
contributions based on achievement of targeted performance levels. ChoicePoint
will also adopt a defined contribution plan for certain employees to offset the
adverse impact of transitioning out of Equifax's defined benefit pension plan.
Postretirement Benefits. The Company provides certain healthcare and life
insurance benefits for eligible retired employees. Healthcare benefits are
provided through a trust, while life insurance benefits are provided through an
insurance company. The Company accrues the cost of providing postretirement
benefits for medical and life insurance coverage over the active service period
of each employee.
The following table presents a reconciliation of the plan's funded status
at December 31, 1996 and 1995:
<TABLE>
<CAPTION>
1996 1995
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Accumulated postretirement benefit obligation:
Retirees.................................................. $ 47,599 $ 51,649
Fully eligible active plan participants................... 3,605 5,528
Other active participants................................. 4,826 5,875
-------- --------
56,030 63,052
Plan assets at fair value................................... -- --
-------- --------
Accumulated benefit obligation in excess of plan assets..... (56,030) (63,052)
Unrecognized prior service credit due to plan amendments.... (8,457) (6,950)
Unrecognized net losses..................................... 5,865 12,013
-------- --------
(58,622) (57,989)
Less: Current portion..................................... (3,000) (3,559)
-------- --------
Accrued postretirement benefit obligation................... $(55,622) $(54,430)
======== ========
</TABLE>
The current portion is included in other current liabilities in the accompanying
balance sheets.
Net periodic postretirement benefit expense includes the following
components:
<TABLE>
<CAPTION>
1996 1995 1994
------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Service cost.......................................... $ 823 $ 935 $ 1,028
Interest cost on accumulated benefit obligation....... 3,667 4,499 4,095
Amortization of prior service credit.................. (2,652) (2,318) (2,463)
Amortization of losses................................ 118 -- 455
------- ------- -------
Net periodic postretirement benefit expense........... $ 1,956 $ 3,116 $ 3,115
======= ======= =======
</TABLE>
F-15
<PAGE> 82
CHOICEPOINT INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Assumptions used in the computation of postretirement benefit expense and
the related obligation are as follows:
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Discount rate used to determine accumulated postretirement
benefit obligation at December 31......................... 7.5% 7.25% 8.75%
Initial healthcare cost trend rate.......................... 10.5% 11.0% 11.0%
Ultimate healthcare cost trend rate......................... 6.0% 6.0% 6.0%
Year ultimate healthcare cost trend rate reached............ 2005 2005 2005
</TABLE>
If the healthcare cost trend rate were increased 1% for all future years,
the accumulated postretirement benefit obligation as of December 31, 1996 would
have increased 12.2%. The effect of such a change on the aggregate of service
and interest cost for 1996 would have been an increase of 8.7%.
The Company continues to evaluate ways in which it can better manage these
benefits and control its costs. Any changes in the plan, revisions to
assumptions, or changes in the Medicare program that affect the amount of
expected future benefits may have a significant effect on the amount of the
reported obligation and future annual expense.
9. COMMITMENTS AND CONTINGENCIES
Leases. The Company's operating leases involve principally office space
and office equipment. Rental expense relating to these leases was $13,353,000 in
1996, $10,655,000 in 1995, and $11,511,000 in 1994.
Future minimum payment obligations for noncancelable operating leases
exceeding one year are as follows as of December 31, 1996:
<TABLE>
<CAPTION>
AMOUNT
--------------
(IN THOUSANDS)
<S> <C>
1997........................................................ $11,217
1998........................................................ 8,584
1999........................................................ 6,520
2000........................................................ 4,613
2001........................................................ 2,584
Thereafter.................................................. 7,417
-------
$40,935
=======
</TABLE>
Data Processing Services Agreement. In April 1993, the Company began
outsourcing a portion of its computer data processing operations and related
functions to Integrated Systems Solutions Corporation ("ISSC"), a subsidiary of
IBM. In 1995 a new five-year outsourcing agreement was reached with ISSC. Under
the terms of the agreement, the Company will pay ISSC an estimated $3.5 million
a year over the five-year term of the agreement, although this amount could be
more or less depending upon various factors such as the inflation rate, the
introduction of significant new technologies or changes in the Company's data
processing needs as a result of acquisitions or divestitures. Under certain
circumstances (e.g., a change in control of the Company), the Company may cancel
the ISSC agreement; however, the agreement provides that the Company must pay a
significant penalty in the event of such a cancellation.
Change in Control Agreements. The Company intends to enter into change in
control agreements with certain executive officers prior to the Spinoff which
provide certain severance pay and benefits in the event of a "change in control"
of ChoicePoint, which includes the acquisition of more than 50% of ChoicePoint's
outstanding common stock by an entity or a concerted group of entities. The
severance payment is a derivative
F-16
<PAGE> 83
CHOICEPOINT INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
of annual compensation multiplied by a factor of three. The Company also expects
to enter into employment agreements with all of its executive officers prior to
the Spinoff.
Litigation. A limited number of lawsuits seeking damages are brought
against the Company each year. The Company provides for estimated legal fees and
settlements relating to pending lawsuits. In the opinion of management, the
ultimate resolution of these matters will not have a materially adverse effect
on the Company's financial position, liquidity or results of operations. The
accrued liability for litigation at December 31, 1996 and 1995 was $3,749,000
and $2,730,000 respectively, and is included in other current liabilities in the
accompanying balance sheets.
10. RESTRUCTURING
In the fourth quarter of 1995, the Company initiated a restructuring
program designed to streamline operations by reducing staffing levels and
consolidating facilities. Staffing levels were reduced by approximately 750
employees. The total cost of this program was $9,150,000. Components of the
restructuring provision and utilization through December 31, 1996 are as
follows:
<TABLE>
<CAPTION>
SEVERANCE AND
TERMINATION LEASE
BENEFITS COSTS TOTAL
------------- ------ -------
(IN THOUSANDS)
<S> <C> <C> <C>
Original provision.................................. $ 7,470 $1,680 $ 9,150
Utilized in 1995.................................. (1,291) (915) (2,206)
------- ------ -------
Balance, December 31, 1995.......................... 6,179 765 6,944
Utilized in 1996.................................. (4,973) (765) (5,738)
------- ------ -------
Balance, December 31, 1996.......................... $ 1,206 $ -- $ 1,206
======= ====== =======
</TABLE>
The reserve balance is included in other current liabilities in the accompanying
balance sheets.
11. QUARTERLY FINANCIAL SUMMARY (UNAUDITED)
Following is a summary of the unaudited interim results of operations for
each quarter in the years ended December 31, 1996 and 1995:
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER TOTAL
------- ------- ------- ------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Year ended December 31, 1996
Revenue....................................... $84,140 $89,986 $94,354 $98,001 $366,481
Operating income.............................. 9,006 12,546 13,744 12,315 47,611
Net income.................................... 4,218 6,207 6,888 5,967 23,280
Year ended December 31, 1995
Revenue....................................... $82,042 $84,370 $82,190 $80,388 $328,990
Operating income.............................. 8,866 10,074 10,566 2,422 31,928
Net income.................................... 4,266 4,904 5,222 473 14,865
</TABLE>
Operating income decreased in the fourth quarter of 1996 due primarily to
the dilutive effect of the amortization of intangibles related to the CDB
Infotek acquisition in August 1996. The fourth quarter of 1995 includes a
$9,150,000 pre-tax ($5,582,000 after-tax) restructuring charge.
F-17
<PAGE> 84
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors of CDB Infotek:
We have audited the accompanying consolidated balance sheet of CDB INFOTEK
(a California corporation) and subsidiaries as of December 31, 1995, and the
related consolidated statements of income, stockholders' equity and cash flows
for the year then ended. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audit.
We conducted our audit 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 audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of CDB Infotek and subsidiaries
as of December 31, 1995, and the results of their operations and their cash
flows for the year then ended in conformity with generally accepted accounting
principles.
ARTHUR ANDERSEN LLP
Orange County, California
April 24, 1996
F-18
<PAGE> 85
CDB INFOTEK
CONSOLIDATED STATEMENTS OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 1995 AND THE SIX MONTHS ENDED JUNE 30, 1995 AND
1996
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30, JUNE 30,
1995 1995 1996
------------ -------- --------
(AUDITED) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C>
NET REVENUES......................................... $32,020 $16,643 $17,084
------- ------- -------
COSTS AND EXPENSES:
Direct costs....................................... 14,170 7,355 7,149
Depreciation and amortization...................... 3,884 2,130 2,132
Selling and marketing.............................. 5,135 2,518 2,189
General and administrative......................... 3,447 1,738 1,898
Non-recurring expenses and acquisition costs....... 1,363 1,136 --
------- ------- -------
27,999 14,877 13,368
------- ------- -------
Income from operations............................. 4,021 1,766 3,716
------- ------- -------
OTHER INCOME (EXPENSE):
Interest expense, net.............................. (1,688) (584) (578)
Other, net......................................... 4 (22) (63)
------- ------- -------
(1,684) (606) (641)
------- ------- -------
Income before provision for income taxes........... 2,337 1,160 3,075
------- ------- -------
PROVISION FOR INCOME TAXES........................... 1,209 605 1,354
------- ------- -------
NET INCOME........................................... $ 1,128 $ 555 $ 1,721
======= ======= =======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-19
<PAGE> 86
CDB INFOTEK
CONSOLIDATED BALANCE SHEETS
AS OF DECEMBER 31, 1995 AND JUNE 30, 1996
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
1995 1996
------------ -----------
(AUDITED) (UNAUDITED)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents................................. $ 660 $ 907
Accounts receivable, net of allowance for doubtful
accounts of $354 and $304 in 1995 and 1996,
respectively........................................... 4,455 5,195
Other receivables......................................... 650 108
Prepaid expenses.......................................... 586 513
Income taxes receivable................................... 159 --
Deferred income tax benefit............................... 460 515
------- -------
Total Current Assets.............................. 6,970 7,238
------- -------
PROPERTY AND EQUIPMENT, at cost............................. 17,821 19,616
Less -- Accumulated depreciation and amortization......... 6,470 8,280
------- -------
11,351 11,336
------- -------
INTANGIBLE AND OTHER ASSETS, net............................ 3,921 3,605
------- -------
Total Assets...................................... $22,242 $22,179
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current maturities of long term debt...................... $ 2,600 $ 2,600
Current maturities of capital leases...................... 870 890
Accounts payable.......................................... 1,810 1,060
Accrued expenses.......................................... 1,442 1,374
Accrued employee benefits................................. 387 690
Income taxes payable...................................... -- 456
Deferred rent............................................. 39 18
------- -------
Total Current Liabilities......................... 7,148 7,088
------- -------
LONG TERM DEBT, net of current maturities................... 10,400 9,100
CAPITAL LEASES, net of current maturities................... 2,055 1,557
DEFERRED RENT............................................... 192 174
DEFERRED INCOME TAXES....................................... 2,120 2,212
------- -------
Total Liabilities................................. 21,915 20,131
------- -------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Common stock, no par value, 20,000,000 shares authorized,
10,832,214 shares issued and outstanding, stated at.... 8,195 8,195
Retained deficit.......................................... (7,868) (6,147)
------- -------
Total stockholders' equity........................ 327 2,048
------- -------
Total Liabilities and Stockholders' Equity........ $22,242 $22,179
======= =======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-20
<PAGE> 87
CDB INFOTEK
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEAR ENDED DECEMBER 31, 1995, AND THE SIX MONTHS ENDED JUNE 30, 1996
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
RETAINED EARNINGS AND
ACCUMULATED DEFICIT
PREFERRED STOCK COMMON STOCK -------------------------------------
------------------- ------------------- PREMIUM PAID TOTAL TOTAL
NUMBER OF NUMBER OF RETAINED ON STOCK ACCUMULATED STOCKHOLDERS'
SHARES AMOUNT SHARES AMOUNT EARNINGS REPURCHASES DEFICIT EQUITY
---------- ------ ---------- ------ -------- ------------ ----------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE, December 31,
1994.................. 2,750,000 $2,700 6,801,527 $ 15 $2,417 $ (2,040) $ 377 $ 3,092
---------- ------ ---------- ------ ------ -------- ------- --------
Repurchase of preferred
stock, common stock
and warrants.......... (2,750,000) (2,700) (218,313) (664) -- (9,373) (9,373) (12,737)
Issuance of common stock
in connection with
acquisitions.......... -- -- 4,249,000 8,844 -- 8,844
Net Income.............. -- -- -- -- 1,128 -- 1,128 1,128
---------- ------ ---------- ------ ------ -------- ------- --------
BALANCE, December 31,
1995.................. -- -- 10,832,214 8,195 3,545 (11,413) (7,868) 327
---------- ------ ---------- ------ ------ -------- ------- --------
Net Income (unaudited).. -- -- -- -- 1,721 -- 1,721 1,721
---------- ------ ---------- ------ ------ -------- ------- --------
BALANCE, June 30, 1996
(unaudited)........... -- -- 10,832,214 $8,195 $5,266 $(11,413) $(6,147) $ 2,048
========== ====== ========== ====== ====== ======== ======= ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-21
<PAGE> 88
CDB INFOTEK
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 1995 AND THE SIX MONTHS ENDED JUNE 30, 1995 AND
1996
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30, JUNE 30,
1995 1995 1996
------------ ------------ ------------
(AUDITED) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C>
CASH PROVIDED BY OPERATING ACTIVITIES:
Net income.............................................. $ 1,128 $ 555 $ 1,721
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization................... 3,884 1,877 2,132
Change in assets and liabilities, net of effect of
acquisitions:
Increase in accounts receivable, net................. (578) (956) (740)
(Increase) decrease in other receivables............. (354) (11) 576
(Increase) decrease in prepaid expenses.............. (256) (326) 73
(Increase) decrease in income taxes receivable....... (159) -- 159
(Increase) decrease in deferred income tax benefit... 106 (206) (55)
Increase in intangible and other assets.............. (181) (270) (5)
Increase (decrease) in accounts payable.............. 403 347 (784)
Increase (decrease) in accrued expenses.............. 896 936 (69)
Increase (decrease) in accrued employee benefits..... (139) 94 303
Increase (decrease) in income taxes payable.......... (479) 170 456
Decrease in deferred rent............................ (156) (68) (38)
Increase (decrease) in deferred income taxes......... (473) (123) 92
-------- -------- -------
Net cash provided by operating activities............... 3,642 2,019 3,821
-------- -------- -------
CASH USED IN INVESTING ACTIVITIES:
Purchase of property and equipment, net................. (3,625) (1,848) (1,795)
-------- -------- -------
CASH USED IN FINANCING ACTIVITIES:
Borrowings (repayments) under long term debt, net....... 13,000 13,000 (1,300)
Principal payments under capital leases................. (850) (359) (479)
Repurchase of preferred stock, common stock and
warrants............................................. (12,737) (12,737) --
-------- -------- -------
Net cash used in financing activities........... (587) (96) (1,779)
-------- -------- -------
CASH AND CASH EQUIVALENTS:
NET INCREASE (DECREASE)................................... (570) 75 247
-------- -------- -------
AT BEGINNING OF PERIOD.................................... 1,230 1,230 660
-------- -------- -------
AT END OF PERIOD.......................................... $ 660 $ 1,305 $ 907
======== ======== =======
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for interest................ $ 1,623 $ 678 $ 578
======== ======== =======
Cash paid during the period for income taxes............ $ 2,214 $ 580 $ 738
======== ======== =======
Capital lease obligations incurred...................... $ 1,218 $ 900 $ --
======== ======== =======
Issuance of Common Stock in connection with acquisitions
(see Note 2 to Notes to Consolidated Financial
Statements).......................................... $ 8,844 $ 8,844 $ --
======== ======== =======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-22
<PAGE> 89
CDB INFOTEK
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995
(DOLLARS IN THOUSANDS)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Financial Statement Presentation. The accompanying consolidated financial
statements include the accounts of CDB Infotek and its subsidiaries (the
"Company"). All significant intercompany accounts and transactions have been
eliminated in consolidation.
Statement of Cash Flows. The Company considers investments with a maturity
of three months or less when purchased to be cash equivalents.
Acquisitions. All acquisitions have been accounted for as purchases;
operations of the companies and businesses acquired have been included in the
accompanying consolidated financial statements from their respective dates of
acquisition.
Revenue Recognition. The Company recognizes revenues at the time services
are provided.
Property and Equipment. Property and equipment are recorded at cost.
Depreciation and amortization is computed under the straight-line method over
the assets' estimated useful lives, which range from three to five years.
Leasehold improvements are amortized over the life of the respective lease or
the useful life of the improvement, whichever is shorter. Maintenance and
repairs of property and equipment are charged to expense as incurred. The costs
of additions and betterments that increase the useful lives of the assets are
capitalized. The cost and accumulated depreciation or amortization of property
and equipment retired or otherwise disposed of is removed from the accounts, and
any resulting gain or loss is included in the determination of net income.
The Company capitalizes certain direct costs, comprised primarily of data
and personnel costs that are incurred during the acquisition, design and
development of on-line public record information used in its business.
Amortization of such direct costs commences when the products are available for
general release to customers and is computed on a product-by-product basis using
the straight-line method over the lesser of the expected useful or legal life,
generally three to five years.
Income Taxes. The Company accounts for income taxes using the asset and
liability method pursuant to Statement of Financial Accounting Standards No. 109
(SFAS 109).
Under SFAS 109, deferred tax assets and liabilities are determined based on
differences between the financial statement carrying amounts and the tax bases
of existing assets and liabilities using enacted tax rates in effect for the
year in which the differences are expected to reverse, net of a valuation
allowance for deferred tax assets which are determined to be more likely than
not unrealizable. The effect on deferred taxes of a change in tax rates is
recognized in net income in the period that includes the enactment date.
Concentration of Credit Risk and Major Customer Data. Financial
instruments which potentially expose the Company to concentrations of credit
risk, as defined by Statement of Financial Accounting Standards No. 105, consist
primarily of trade accounts receivable. The Company's customer base is broad,
spans several industries and, although the Company is directly affected by the
general state of the economy, management does not believe any significant
concentration of credit risks exist at December 31, 1995.
During the year ending December 31, 1995, no single customer accounted for
more than 10% of the Company's consolidated net revenues.
Postemployment Benefits. The Financial Accounting Standards Board has
issued SFAS No. 106, "Employers' Accounting for Postretirement Benefits Other
Than Pensions," and SFAS No. 112, "Employers' Accounting for Postemployment
Benefits." The Company does not presently have postretirement or postemployment
benefits for its employees, thus, there is no liability recorded applicable to
these pronouncements.
F-23
<PAGE> 90
CDB INFOTEK
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Long-Lived Assets. In March 1995, the Financial Accounting Standards Board
issued SFAS No. 121 on accounting for the impairment of long-lived assets,
certain identifiable intangibles, and goodwill related to assets to be held and
used. SFAS No. 121 also establishes accounting standards for long-lived assets
and certain identifiable intangibles to be disposed of. The Company is required
to adopt SFAS No. 121 no later than January 1, 1996, although earlier
implementation is permitted. SFAS No. 121 is required to be applied
prospectively for assets to be held and used. The initial application of SFAS
No. 121 to assets held for disposal is required to be reported as the cumulative
effect of a change in accounting principle.
The Company plans to adopt SFAS No. 121 on January 1, 1996 and does not
expect such adoption to have a material impact on its consolidated financial
statements.
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 those estimates.
Basis of Presentation for Unaudited Financial Statements as of June 30,
1996 and for the Six Month Periods Ended June 30, 1996 and 1995
(unaudited). The accompanying interim financial statements have been prepared
by the Company in accordance with generally accepted accounting principles.
Certain disclosures and information normally included in financial statements
have been condensed or omitted. In the opinion of the management of the Company,
these financial statements contain all adjustments (consisting only of normal
recurring adjustments) necessary for a fair presentation of the interim periods.
These statements should be read in conjunction with the financial statements and
notes thereto for the year ended December 31, 1995.
2. COMPANY OPERATIONS
The Company was founded in March 1982 to provide on-line computer access to
public record information and research services for insurance companies, legal
and accounting firms, financial institutions, private investigators and other
businesses. The majority of the Company's revenues are derived from sales to
customers in California.
On January 1, 1995, the Company acquired all of the capital stock of three
corporations from Prentice-Hall, Inc. ("PH"), an indirect subsidiary of Viacom,
Inc., in exchange for 4,249,000 shares or approximately 35% of the Company's
common stock, calculated on a fully diluted basis and valued at $8,844. The
entities purchased represent the businesses through which PH operated its
Prentice-Hall On-line ("PHO") and Charles E. Simon & Co. ("CES") businesses (the
"Acquired Entities"). The transactions have been accounted for collectively as a
purchase. Accordingly, the purchase price was allocated to the acquired assets
and liabilities based upon their estimated fair market values. The cost in
excess of net assets acquired has been included in intangible assets in the
accompanying balance sheets and is being amortized using the straight-line
method over 5 years. See Note 4 of the Notes to Consolidated Financial
Statements for further discussion of intangible assets. In addition to the
capital stock of the Acquired Entities, PH delivered to the Company a covenant
not to compete with the Company in these businesses until December 31, 1998, and
a license to use certain trademarks proprietary to PH in the acquired businesses
until April 30, 1997.
Included in other receivables at December 31, 1995 is a $372 receivable
from PH which arose from the resolution of certain provisions in the acquisition
agreement. The amount was received by the Company in January 1996.
Concurrent with the acquisition, the Company entered into an agreement with
PH that grants to PH the right, at certain dates and/or in certain
circumstances, to purchase the remaining capital stock of the Company then
outstanding or to require the Company's majority shareholder to repurchase from
PH the
F-24
<PAGE> 91
CDB INFOTEK
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
shares of Company common stock owned by PH. (See Note 9 of the Notes to
Consolidated Financial Statements). A Shareholders' Agreement between the
Company and PH mandates that two designees of PH be at all times members of the
Company's five person Board of Directors. The Shareholders' Agreement also
stipulates that, in the case of certain types of proposed actions of the Board
of Directors, a majority including at least one of the PH designees must vote in
favor of a resolution in order for it to be adopted. The agreement would
terminate if PH ceased to own Company capital stock at any time. (See Note 12 of
the Notes to Consolidated Financial Statements for a discussion of subsequent
events.)
3. PROPERTY AND EQUIPMENT
The following summarizes the components of property and equipment as of
December 31:
<TABLE>
<CAPTION>
1995
-------
<S> <C>
Computer hardware and software.............................. $ 8,887
Capitalized data base acquisition and development costs..... 7,786
Furniture and fixtures...................................... 846
Leasehold improvements and other............................ 302
-------
$17,821
=======
</TABLE>
The Company capitalized $5,566 in data base acquisition and development
costs in the fiscal year ended December 31, 1995. Included in capitalized data
base acquisition and development costs at December 31, 1995 are acquired
databases from PH (see Note 2 of the Notes to Consolidated Financial Statements)
which had an estimated fair value of $5,000 on the date of acquisition.
Amortization expense related to capitalized data acquisition and development
costs was $1,767 for the fiscal year ended December 31, 1995.
Property and equipment include assets held under capital leases of $4,881,
net of accumulated amortization of $2,147, at December 31, 1995.
4. INTANGIBLE ASSETS
The Company amortizes intangible assets over the period during which it
expects to derive benefit from the related underlying assets. Accumulated
amortization of intangible assets as of December 31, 1995 was $645.
5. DEBT
Effective January 1, 1995, the Company entered into definitive agreements
with a bank pursuant to which the Company may borrow up to $16,000; $13,000 of
which is represented by a term credit facility ("Term Facility") and $3,000 of
which is represented by a revolving credit facility ("Revolving Facility"). At
December 31, 1995, $13,000 was outstanding on the Term Facility and there were
no borrowings on the Revolving Facility.
The Term Facility requires that the Company pay interest on amounts
outstanding at a rate of 2.75 percent above the bank's prime lending rate in the
first year of the six year Term Facility, and at specified rates thereafter
dependent upon the Company's degree of conformity with certain financial
covenants contained in the Term Facility agreement (11.25% as of December 31,
1995). Amounts due under the Term Facility may not be reborrowed by the Company
following repayment. The Company is required to make monthly interest payments
on the outstanding balance under the Term Facility for the first twelve months
of the agreement commencing February 1, 1995, with mandatory quarterly
repayments of principal of $650 and interest each required to be paid commencing
March 1, 1996. Additional repayments of principal may be made in increments of
at least $100 at any time. All amounts of principal and accrued interest must be
repaid by December 31, 2000.
F-25
<PAGE> 92
CDB INFOTEK
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The Revolving Facility permits the Company to borrow up to $3,000 from time
to time. The interest rate on the Revolving Facility at December 31, 1995 was
1.0 percent above the bank's prime lending rate of interest. Thereafter, the
interest rate will be, at the Company's option, the bank's prime lending rate of
interest or LIBOR, in each case, plus a margin dependent upon the Company's
degree of conformity with certain financial covenants contained in the Term
Facility agreement.
Both the Term Facility and the Revolving Facility are secured by a pledge
of the Company's common stock owned by its President and the Company's assets.
The Term and Revolving Facility contain certain covenants requiring that
the Company maintain certain ratios related to the Company's financial
performance. At December 31, 1995, the Company was in compliance with all such
covenants.
On January 3, 1995, the Company borrowed the $13,000 outstanding at
December 31, 1995 on the Term Facility and paid $12,737 of such sum to entities
controlled by its venture capital partner in exchange for all of the Company's
capital stock and warrants then owned by the venture capital partner. See Note 8
of the Notes to Consolidated Financial Statements.
Maturities of long term debt as of December 31, 1995, are as follows:
<TABLE>
<S> <C>
Fiscal year ending:
1996...................................................... $ 2,600
1997...................................................... 2,600
1998...................................................... 2,600
1999...................................................... 2,600
2000...................................................... 2,600
-------
$13,000
=======
</TABLE>
6. COMMITMENTS AND CONTINGENCIES
Operating and Capital Leases. The Company leases certain of its operating
facilities and equipment under non-cancelable operating leases with terms
ranging up to five years. In addition, the Company leases certain equipment and
furniture under capital leases.
F-26
<PAGE> 93
CDB INFOTEK
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following is a schedule by year of future minimum lease payments under
capital and noncancelable operating leases, together with the present value of
the net minimum lease payments under the capital leases as of December 31, 1995:
<TABLE>
<CAPTION>
CAPITAL OPERATING TOTAL FUTURE
LEASES LEASES PAYMENTS
------- --------- ------------
<S> <C> <C> <C>
Fiscal year ending:
1996................................................... $1,142 $1,017 $2,159
1997................................................... 1,074 993 2,067
1998................................................... 677 922 1,599
1999................................................... 396 818 1,214
2000................................................... 51 539 590
Thereafter............................................. -- 5 5
------ ------ ------
Future minimum lease payments............................ 3,340 $4,294 $7,634
------ ====== ======
Less -- Amount representing interest..................... 415
------
Present value of minimum lease payments.................. 2,925
Less -- Current portion of capital lease obligations..... 870
------
$2,055
======
</TABLE>
Rental expense under operating leases was approximately $1,053 for the
fiscal year ended December 31, 1995.
Royalty and License Agreements. The Company has entered into certain
royalty and license agreements to sell the public record information of certain
specialty information service providers. Such agreements provide for either
discounted pricing based on required minimum usage by the Company of the
associated database, unlimited usage of a database for a specified period of
time at a fixed price determined at the agreement's inception or a royalty paid
to the provider based upon actual usage of the database. The Company expects to
maintain or enhance its current royalty and site license agreements and to
continue to enter into additional similar agreements in the future.
The future minimum royalty and license payments required are as follows:
<TABLE>
<S> <C>
Fiscal year ending:
1996...................................................... $1,619
1997...................................................... 1,322
1998...................................................... 1,490
1999...................................................... 1,601
2000...................................................... 1,217
------
$7,249
======
</TABLE>
Employment Agreement. Effective January 1, 1995, the Company entered into
an employment agreement with its President which provides for continued
employment of the President by the Company through December 31, 1999.
Litigation. The Company is party to a number of pending or threatened
lawsuits arising out of, or incident to, its ordinary course of business. In the
opinion of management, outcome of these lawsuits will not have a material
adverse effect upon the financial position or the results of operations of the
Company.
F-27
<PAGE> 94
CDB INFOTEK
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
7. INCOME TAXES
The provision for income taxes for the year ending December 31, 1995 is
comprised of the following:
<TABLE>
<S> <C>
Current:
Federal................................................... $1,340
State..................................................... 236
------
1,576
------
Deferred:
Federal................................................... (312)
State..................................................... (55)
------
(367)
------
Total............................................. $1,209
======
</TABLE>
The difference between the statutory tax rates and the effective tax rates
is due to certain nondeductible expenses. Deferred income taxes have been
provided for at the prevailing and projected actual statutory and combined
average state income tax rates for temporary differences between the carrying
amounts of assets and liabilities for financial reporting purposes and the
amounts used for income tax purposes.
The components of the Company's net deferred income tax benefit (liability)
as of December 31, are as follows:
<TABLE>
<CAPTION>
1995
------
<S> <C>
Current Assets, net:
Accounts receivable....................................... $ 157
Accrued expenses.......................................... 155
Accrued vacation.......................................... 102
Deferred rent and accrued relocation expenses............. 15
Accrued employee benefits................................. 31
------
Total current deferred tax assets........................... $ 460
======
Noncurrent (Asset) Liability, net:
Capitalized data acquisition & dev. costs................. $1,669
Depreciation and amortization............................. 480
Capital lease treated as operating lease for tax
purposes............................................... 58
Deferred rent and accrued relocation expenses............. (87)
------
Noncurrent deferred tax liability, net...................... $2,120
======
</TABLE>
The deferred tax assets related to accounts receivable and accrued expenses
and the deferred tax liability related to capitalized data acquisition and
development costs as of December 31, 1995 include assets of $113 and $155 and a
liability of $1,600, respectively, arising from the differences between the tax
and book bases of assets and liabilities acquired from PH (see Notes 2 and 3 of
the Notes to Consolidated Financial Statements).
F-28
<PAGE> 95
CDB INFOTEK
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The effective tax rates differ from the federal statutory rate of 34% due
to the following items:
<TABLE>
<CAPTION>
DECEMBER 31,
1995
------------
<S> <C>
Expected tax provision at statutory rates................... $ 802
State taxes, net of federal tax benefit..................... 182
Expenses not deductible for tax purposes.................... 184
Other....................................................... 41
------
Provision for income taxes.................................. $1,209
======
Effective tax rate.......................................... 51.7%
======
</TABLE>
8. REDEMPTION OF CAPITAL STOCK AND RELATED SECURITIES
Effective January 3, 1995, the Company repurchased 2,750,000 shares of the
Company's Series A Preferred Stock, 218,313 shares of the Company's Common
Stock, and warrants to purchase an additional 340,712 shares of Company Common
Stock from its venture capital partner for an aggregate purchase price of
$12,737. The Preferred and Common Stock that the Company redeemed reverts to
authorized but unissued capital stock by operation of law. As part of the
transaction, the venture capital partner relinquished all right, title and
interest in the Company in exchange for the repurchase price paid to it by the
Company.
9. STOCK OPTION AGREEMENT
Concurrent with the acquisition of the Acquired Entities (see Note 2 to
Notes to Consolidated Financial Statements), the Company entered into an
agreement (the "Stock Option Agreement") with PH and certain officers and
directors of the Company ("Shareholders") pursuant to which PH was granted the
right to purchase from the Shareholders all of the capital stock of the Company
owned by such Shareholders upon the happening of certain events, for a purchase
price per share representing the fair market value at the date of purchase by
PH. A further provision of the Stock Option Agreement gives PH the right to
demand that the Company's President repurchase from PH the 4,249,000 shares of
Company common stock owned by it upon the happening of certain events for an
aggregate purchase price representing the then fair market value or $21,000 (the
"Repurchase Price"), whichever is greater. Effective October 23, 1995, the
parties amended the agreement to alter the period during which those rights of
PH may be exercised at the election of the Company's President. In January 1996,
the Company's President elected to fix such period at May 1, 1996 through May
31, 1996. Also in January 1996, the parties further amended the agreement to
remove PH's right to purchase the remainder of the Company's capital stock,
increased the minimum Repurchase Price to $22,600, and extended the period
during which PH may compel the repurchase of its shares of Company common stock
to an indefinite future period.
10. STOCK OPTION PLAN
In June 1992, the Company established a non-qualified stock option plan
(the Plan), whereby options to purchase the common stock of the Company may be
granted to certain executive officers and board members. The total number of
shares which may be granted under this plan, as amended, is 1,307,761. During
the year ended December 31, 1994, 209,920 options were granted pursuant to the
Plan at an exercise price of $.40 per share. During the year ended December 31,
1995, 150,000 options were granted pursuant to the Plan at an exercise price of
$.50 per share. As of December 31, 1995, 1,225,840 shares had been granted with
an exercise price range of $.204-$.50 per share. In 1994 and 1995, the options
granted were below the then determined fair value of the Company's common stock,
resulting in compensation expense. Such compensation expense is being amortized
through a charge to operations over the vesting period of four years and
amounted to $70 for 1995.
F-29
<PAGE> 96
CDB INFOTEK
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
11. PROFIT SHARING PLAN
The Company has established the CDB Infotek 401(k) Plan and Trust (the
"401(k) Plan") which provides benefits to all employees who are at least 21
years of age and have completed one year of service with the Company. Company
contributions to the 401(k) Plan vest at the rate of 20 percent per year. The
401(k) Plan provides for employer matching contributions equaling 50% of the
first 4% of compensation contributed by qualified participating employees,
subject to certain limitations provided for in Section 401 of the Internal
Revenue Code. In addition, the Company may make additional contributions at the
discretion of the board of directors. The Company recorded approximately $105
for its matching contribution to the 401(k) Plan for the year ending December
31, 1995.
12. SUBSEQUENT EVENT (UNAUDITED)
On August 30, 1996, certain stockholders, including stockholders who
exercised options issued under the Company's Non-qualified Stock Option Plan
(see Note 10 of the Notes to Consolidated Financial Statements), sold equity
interests representing 70% of the fully diluted outstanding capital stock of the
Company to Equifax Services Inc., a Georgia corporation ("Services"), a
subsidiary of Equifax, Inc. (the "Equifax Transaction"). Among the capital stock
purchased by Services were all of the shares of Common Stock of the company
formerly owned by PH. Concurrent with the Equifax Transaction, the owners of the
remaining 30% interest in the Company granted to Services, and received from
Services, the right to compel the purchase of their interest by Services after
December 31, 1999 for a price per share to be determined by preset formula
(based on the Company's revenue in 1997, 1998 and 1999 and earnings before
interest, taxes, depreciation and amortization subject to certain adjustments in
1999) at the time of sale.
F-30
<PAGE> 97
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NO.
- -------
<C> <C> <S>
2.01 -- Information Statement dated as of June , 1997 (attached to
this Registration Statement as Annex A)
3.01 -- Articles of Incorporation of the Company
3.02 -- Bylaws of the Company
4.01* -- Form of Common Stock certificate
10.01* -- ChoicePoint Inc. 1997 Omnibus Stock Incentive Plan
10.02* -- Form of Distribution Agreement, dated , 1997, by
and between Equifax and the Company
10.03* -- Form of Employee Benefits Agreement, dated ,
1997, by and between Equifax and the Company
10.04* -- Form of Transition Support Agreement, dated ,
1997, by and between Equifax and the Company
10.05* -- Form of Intercompany Information Services Agreement, dated
, 1997, by and between Equifax and the
Company
10.06* -- Form of Tax Sharing and Indemnification Agreement, dated
, 1997, by and between Equifax and the
Company
10.07* -- Form of Intellectual Property Agreement, dated
, 1997, by and between Equifax and the
Company
10.08* -- Form of Business Transfer Agreement, dated ,
1997, by and between Equifax Europe (UK) Ltd. and
ChoicePoint Ltd.
10.09(a)* -- Form of Change in Control Agreement by and between the
Company and Derek V. Smith
10.09(b)* -- Form of Change in Control Agreement by and between the
Company and Dan H. Rocco
10.09(c)* -- Form of Change in Control Agreement by and between the
Company and Douglas C. Curling
10.09(d)* -- Form of Change in Control Agreement by and between the
Company and David T. Lee
10.09(e)* -- Form of Change in Control Agreement by and between the
Company and J. Michael de Janes
10.10(a)* -- Form of Employment Agreement by and between the Company and
Derek V. Smith
10.10(b)* -- Form of Employment Agreement by and between the Company and
Dan H. Rocco
10.10(c)* -- Form of Employment Agreement by and between the Company and
Douglas C. Curling
10.10(d)* -- Form of Employment Agreement by and between the Company and
David T. Lee
10.10(e)* -- Form of Employment Agreement by and between the Company and
J. Michael de Janes
10.11* -- Form of Agreement, dated July 24, 1996, by and between
Equifax Inc. and Dan Rocco, to be effective January 1, 1996
(relating to compensation of Mr. Rocco)
10.12* -- Form of $250,000,000 Revolving Credit Facility, dated
, 1997, by and among ChoicePoint Inc. and
SunTrust Bank, Atlanta and Wachovia Bank of Georgia, N.A.,
as co-arrangers
10.13* -- Form of Master Agreement among ChoicePoint Inc., as lessee,
SunTrust Bank, Inc., as lessor, and SunTrust Bank, Atlanta,
as agent (synthetic lease related to certain property and
building located at 1000 Alderman Drive, Alpharetta,
Georgia)
10.14* -- Form of Sublease Agreement, dated , 1997, by and
between Equifax Inc. and Equifax Services, Inc. (for certain
property and building located at 1600 Peachtree Street, NW,
Atlanta, Georgia)
10.15* -- Form of Sublease Agreement, dated , 1997, by and
between Equifax Inc. and Equifax Services, Inc. (for certain
property and building located at 1525 Windward Concourse,
Alpharetta, Georgia (J.V. White Technology Center))
21.01* -- Subsidiaries of the Company
23.01 -- Consent of Arthur Andersen LLP
27 -- Financial Data Schedule
</TABLE>
- ---------------
* To be filed by amendment.
<PAGE> 1
ARTICLES OF INCORPORATION
OF
CHOICEPOINT INC.
I.
(a) The name of the Corporation is ChoicePoint Inc.
(b) The street address and county of the initial registered office of the
Corporation shall be 1000 Alderman Drive, Alpharetta, Georgia 30202, Fulton
County. The initial Registered Agent of the Corporation at such address shall
be J. Michael de Janes.
(c) The mailing address of the initial principal office of the Corporation
is 1000 Alderman Drive, Alpharetta, Georgia 30202.
(d) The name and address of the Incorporator is J. Michael de Janes, 1000
Alderman Drive, Alpharetta, Georgia 30202.
II.
The Corporation shall have authority to issue One Hundred Million
(100,000,000) shares of Common Stock, $0.10 par value per share. The
Corporation shall have the authority to issue One Hundred Million (100,000,000)
shares of Preferred Stock, $0.01 par value per share. Shares that are
reacquired by the Corporation shall be classified as treasury shares unless the
terms of such stock provide to the contrary. The designations and preferences,
conversion and other rights, voting powers, restrictions, limitations as to
dividends, qualifications, and terms and conditions of redemption of the shares
of Common Stock are as follows:
COMMON STOCK
Subject to all of the rights of the Preferred Stock as expressly provided
herein, by law or by the Board of Directors pursuant to this Article II, the
Common Stock of the Corporation shall possess all such rights and privileges as
are afforded to capital stock by applicable law in the absence of any express
grant of rights or privileges provided for herein, including, but not limited
to, the following rights and privileges:
(a) Dividends may be declared and paid or set apart for payment upon the
Common Stock out of any assets or funds of the Corporation legally available
for the payment of dividends;
(b) The holders of Common Stock shall have the right to vote for the
election of directors and on all other matters requiring shareholder action,
each share being entitled to one vote; and
<PAGE> 2
(c) Upon the voluntary or involuntary liquidation, dissolution or
winding-up of the Corporation, the net assets of the Corporation available for
distribution shall be distributed pro rata to the holders of the Common Stock
in accordance with their respective rights and interests.
PREFERRED STOCK
In accordance with the provisions of the Georgia Business Corporation
Code, the Board of Directors of the Corporation may determine the preferences,
limitations, and relative rights of (1) any class of shares before the issuance
of any shares of that class or (2) one or more series within a class, and
designate the number of shares within that series, before the issuance of any
shares of that series.
III.
Except as otherwise provided in these Articles of Incorporation or
pursuant to the terms of any authorized series of Preferred Stock or by action
of the Board of Directors pursuant to the Georgia Business Corporation Code,
the vote required for shareholder action on all matters shall be the minimum
vote required by the Georgia Business Corporation Code.
IV.
(a) The business and affairs of the Corporation shall be managed by, or
under the direction of, a Board of Directors comprised as follows:
1. The number of Directors shall be not less than seven (7), nor
more than fifteen (15) shareholders, and shall be fixed within such range
by the Board of Directors.
2. The Directors shall be divided into three classes, designated as
Class I, Class II, and Class III. Each class shall consist, as nearly as
may be possible, of one-third of the total number of directors
constituting the entire Board of Directors. At each Annual Meeting of
Shareholders, successors to the class of directors whose term expires at
that Annual Meeting of Shareholders shall be elected for a three-year
term. If the number of directors has changed, any increase or decrease
shall be apportioned among the classes so as to maintain the number of
directors in each class as nearly equal as possible, and any additional
director of any class elected to the Board of Directors to fill a vacancy
resulting from an increase in such a class shall hold office for a term
that shall coincide with the remaining term of that Class, unless
otherwise required by law, but in no case shall a decrease in the number
of directors for a class shorten the term of an incumbent director. A
director shall hold office until the Annual Meeting of Shareholders for
the year in which such director's term expires and until his or her
successor shall be elected and qualified, subject, however, to prior
death, resignation, retirement, disqualification or removal from office.
3. Any vacancy on the Board of Directors that results from an
increase in the number of directors or from prior death, resignation,
retirement, disqualification or removal from office of a director shall
be filled by a majority of the Board of Directors then in office, though
less than a quorum, or by the sole remaining director. Any director
elected to fill a vacancy resulting from prior death, resignation,
retirement, disqualification or removal from office of a director, shall
have the same remaining term as that of his or her predecessor.
(b) Except as may be prohibited by law or by these Articles of
Incorporation, the Board of Directors shall have the right to make, alter,
amend, change, add to, or repeal the bylaws of the
<PAGE> 3
Corporation, and have the right (which, to the extent exercised, shall be
exclusive) to establish the rights, powers, duties, rules and procedures that
from time-to-time shall govern the Board of Directors, each of its members,
including without limitation, the vote required for any action by the Board of
Directors, and that from time-to-time shall affect the directors' powers to
manage the business and affairs of the Corporation. No bylaw shall be adopted
by shareholders that shall impair or impede the implementation of the
foregoing.
(c) Notwithstanding any other provisions of these Articles of
Incorporation or the bylaws of the Corporation (and notwithstanding the fact
that a lesser percentage for separate class vote for certain actions may be
permitted by law, by these Articles of Incorporation or by the bylaws of the
Corporation), the affirmative vote of the holders of not less than two-thirds
(2/3) of the votes entitled to be cast by the holders of all the outstanding
shares of Voting Stock, voting together as a single class, shall be required to
make, alter, amend, change, add to or repeal any provision of these Articles of
Incorporation or the bylaws of the Corporation inconsistent with this Article
IV; provided, however, that this Article IV (c) shall not apply to, and such
two-thirds (2/3) vote shall not be required to alter, amend, change, add to or
repeal any provisions of the bylaws relating to this Article IV, or this
Article IV of these Articles of Incorporation, recommended by a majority of the
Board of Directors.
(d) The invalidity or unenforceability of this Article IV, or any portion
hereof, or of any action taken pursuant to this Article IV shall not affect the
validity or enforceability of any other provision of these Articles of
Incorporation, any action taken pursuant to such other provision, or any action
taken pursuant to this Article IV.
V.
No director shall have any liability to the Corporation or to its
shareholders for monetary damages for any action taken, or any failure to take
action, including without limitation for breach of duty of care or other duty
as a director, except for:
(a) Any appropriation of any business opportunity of the Corporation in
violation of the director's duties;
(b) Acts or omissions which involve intentional misconduct or a knowing
violation of law;
(c) The types of liabilities set forth in Section 14-2-832 of the Georgia
Business Corporation Code; or
(d) Any transaction from which the director received an improper personal
benefit.
VI.
The Corporation shall indemnify its officers and directors to the fullest
extent permitted under the Georgia Business Corporation Code. Such
indemnification shall not be deemed exclusive of any additional indemnification
that the Board of Directors may deem advisable or of any rights to which those
indemnified may otherwise be entitled. The Board of Directors of the
Corporation may determine from time-to-time whether and to what extent to
maintain insurance providing indemnification for officers and directors and
such insurance need not be limited to the Corporation's power of
indemnification under the Georgia Business Corporation Code.
<PAGE> 4
VII.
References herein to the Georgia Business Corporation Code shall be deemed
to include any amendments to such Code hereinafter enacted.
IN WITNESS WHEREOF, the undersigned executes these Articles of
Incorporation on the 28th day of April, 1997.
/s/ J. Michael de Janes
-------------------------------------
J. Michael de Janes, Incorporator
<PAGE> 1
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CHOICEPOINT INC.
BYLAWS
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<PAGE> 2
CHOICEPOINT INC.
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BYLAWS
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CONTENTS
<TABLE>
<S> <C> <C>
ARTICLE ONE MEETINGS OF THE SHAREHOLDERS................................................ 1
Section 1.1 Annual Meeting ................................................................ 1
Section 1.2 Special Meetings............................................................... 1
Section 1.3 Notice of Meetings............................................................. 1
Section 1.4 Voting Groups ................................................................ 1
Section 1.5 Quorum......................................................................... 2
Section 1.6 Vote Required for Action....................................................... 2
Section 1.7 Adjournments................................................................... 2
Section 1.8 Presiding Officer.............................................................. 2
Section 1.9 Voting of Shares............................................................... 2
Section 1.10 Proxies........................................................................ 3
Section 1.11 Record Date.................................................................... 3
Section 1.12 Shareholder Proposals and Nominations.......................................... 3
ARTICLE TWO BOARD OF DIRECTORS.......................................................... 5
Section 2.1 General........................................................................ 5
Section 2.2 Number of Directors and Term of Office......................................... 5
Section 2.3 Election of Directors.......................................................... 6
Section 2.4 Vacancies...................................................................... 6
Section 2.5 Term Limits.................................................................... 6
Section 2.6 Stock Ownership Requirement.................................................... 7
Section 2.7 Meetings....................................................................... 7
Section 2.8 Special Meetings............................................................... 7
Section 2.9 Notice of Meetings............................................................. 7
Section 2.10 Quorum; Adjournments........................................................... 7
Section 2.11 Vote Required for Action....................................................... 7
Section 2.12 Action by Directors Without a Meeting.......................................... 8
</TABLE>
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<TABLE>
<S> <C> <C> <C>
Section 2.13 Compensation of Directors...................................................... 8
ARTICLE THREE ELECTIONS OF OFFICERS AND COMMITTEES........................................ 8
Section 3.1 Election of Officers........................................................... 8
Section 3.2 Executive Committee............................................................ 8
Section 3.3 Other Committees............................................................... 9
ARTICLE FOUR OFFICERS.................................................................. 9
Section 4.1 Officers....................................................................... 9
Section 4.2 Compensation of Officers....................................................... 9
Section 4.3 Chairman of the Board.......................................................... 10
Section 4.4 Vice Chairman of the Board..................................................... 10
Section 4.5 Chief Executive Officer........................................................ 10
Section 4.6 President...................................................................... 10
Section 4.7 Executive Vice Presidents...................................................... 11
Section 4.8 Vice Presidents................................................................ 11
Section 4.9 Treasurer...................................................................... 11
Section 4.10 Secretary...................................................................... 11
Section 4.11 Voting of Stock................................................................ 12
ARTICLE FIVE INDEMNIFICATION.............................................................. 12
Section 5.1 Definitions.................................................................... 12
Section 5.2 Basic Indemnification Arrangement.............................................. 13
Section 5.3 Advances for Expenses.......................................................... 14
Section 5.4 Court-Ordered Indemnification and Advances for Expenses........................ 15
Section 5.5 Determination of Reasonableness of Expenses.................................... 15
Section 5.6 Indemnification of Employees and Agents........................................ 16
Section 5.7 Liability Insurance............................................................ 16
Section 5.8 Witness Fees................................................................... 16
Section 5.9 Report to Shareholders......................................................... 16
Section 5.10 No Duplication of Payments..................................................... 17
Section 5.11 Subrogation.................................................................... 17
Section 5.12 Contract Rights................................................................ 17
Section 5.13 Amendments..................................................................... 17
</TABLE>
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<TABLE>
<S> <C> <C>
ARTICLE SIX CAPITAL STOCK............................................................... 17
Section 6.1 Direct Registration of Shares.................................................. 17
Section 6.2 Certificates for Shares........................................................ 18
Section 6.3 Transfer of Shares............................................................. 18
Section 6.4 Duty of Company to Register Transfer........................................... 18
Section 6.5 Lost, Stolen or Destroyed Certificates......................................... 19
Section 6.6 Authorization to Issue Shares and Regulations Regarding
Transfer and Registration...................................................... 19
ARTICLE SEVEN DISTRIBUTIONS AND DIVIDENDS.............................................. 19
Section 7.1 Authorization or Declaration................................................... 19
Section 7.2 Record Date with Regard to Distributions and Share
Dividends...................................................................... 19
ARTICLE EIGHT MISCELLANEOUS............................................................ 20
Section 8.1 Corporate Seal................................................................. 20
Section 8.2 Inspection of Books and Records................................................ 20
Section 8.3 Conflict with Articles of Incorporation or Code................................ 20
Section 8.4 Severability................................................................... 20
ARTICLE NINE AMENDMENTS............................................................... 20
Section 9.1 Amendments..................................................................... 20
ARTICLE TEN FAIR PRICE REQUIREMENTS.................................................. 21
Section 10.1 Fair Price Requirements........................................................ 21
ARTICLE ELEVEN BUSINESS COMBINATIONS.................................................... 21
Section 11.1 Business Combinations.......................................................... 21
</TABLE>
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<PAGE> 5
BYLAWS OF CHOICEPOINT INC.
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ARTICLE ONE
MEETINGS OF THE SHAREHOLDERS
Section 1.1 Annual Meeting. The Annual Meeting of the Shareholders of the
Company shall be held during the first five months after the end of each fiscal
year of the Company at such time and place, within or without the State of
Georgia, as shall be fixed by the Board of Directors, for the purpose of
electing Directors and for the transaction of such other business as may be
properly brought before the meeting.
Section 1.2 Special Meetings Special meetings of the Shareholders may be held
at the principal office of the Company in the State of Georgia or at such other
place, within or without the State of Georgia, as may be named in the call
therefor. Such special meetings may be called by the Chairman of the Board of
Directors, the Vice Chairman, the Chief Executive Officer, the President, the
Board of Directors by vote at a meeting, a majority of the Directors in writing
without a meeting, or by unanimous call of the Shareholders.
Section 1.3 Notice of Meetings. Unless waived in accordance with the Georgia
Business Corporation Code as amended from time-to-time (the "Code"), a notice
of each meeting of Shareholders stating the date, time and place of the meeting
shall be given not less than 10 days nor more than 60 days before the date
thereof to each Shareholder entitled to vote at that meeting. In the case of an
Annual Meeting, the notice need not state the purpose or purposes of the
meeting unless the Articles of Incorporation or the Code requires the purpose
or purposes to be stated in the notice of the meeting. Any irregularity in such
notice shall not affect the validity of the Annual Meeting or any action taken
at such meeting. In the case of a special meeting of the Shareholders, the
notice of meeting shall state the purpose or purposes for which the meeting is
called, and only business within the purpose or purposes described in such
notice may be conducted at the meeting.
Section 1.4 Voting Groups. Voting group means all shares of one or more classes
or series that are entitled to vote and be counted together collectively on a
matter at a meeting of Shareholders. All shares entitled to vote generally on
the matter are for that purpose a single voting group.
<PAGE> 6
Section 1.5 Quorum. With respect to shares entitled to vote as a separate
voting group on a matter at a meeting of Shareholders, the presence, in person
or by proxy, of a majority of the votes entitled to be cast on the matter by
the voting group shall constitute a quorum of that voting group for action on
that matter unless the Articles of Incorporation or the Code provides
otherwise. Once a share is represented for any purpose at a meeting, other than
solely to object to holding the meeting or to transacting business at the
meeting, it is deemed present for quorum purposes for the remainder of the
meeting and for any adjournment of the meeting unless a new record date is or
must be set for the adjourned meeting pursuant to Section 1.11 of these Bylaws.
Section 1.6 Vote Required for Action. If a quorum exists, action on a matter
(other than the election of Directors) is approved if the votes cast favoring
the action exceed the votes cast opposing the action, unless the Articles of
Incorporation, provisions of these Bylaws validly adopted by the Shareholders,
or the Code requires a greater number of affirmative votes. If the Articles of
Incorporation or the Code provide for voting by two or more voting groups on a
matter, action on that matter is taken only when voted upon by each of those
voting groups counted separately.
Section 1.7 Adjournments. Whether or not a quorum is present to organize a
meeting, any meeting of Shareholders (including an adjourned meeting) may be
adjourned by the holders of a majority of the voting shares represented at the
meeting to reconvene at a specific time and place, but no later than 120 days
after the date fixed for the original meeting unless the requirements of the
Code concerning the selection of a new record date have been met.
Section 1.8 Presiding Officer. The Chairman of the Board shall call the meeting
of the Shareholders to order and shall act as Chairman of such meeting. In the
absence of the Chairman of the Board, the meeting shall be called to order by
any one of the following officers then present, in the following order: the
Vice Chairman of the Board, the Chief Executive Officer, the President, the
senior Executive Vice President, the next senior Executive Vice President, or
any one of the Vice Presidents, who shall act as chairman of the meeting. The
Secretary of the Company shall act as secretary of the meeting of the
Shareholders. In the absence of the Secretary, at any meeting of the
Shareholders, the presiding officer may appoint any person to act as Secretary
of the meeting.
Section 1.9 Voting of Shares. Unless the Articles of Incorporation or the Code
provides otherwise, each outstanding share having voting rights shall be
entitled to one vote on each matter submitted to a vote at a meeting of
Shareholders.
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Section 1.10 Proxies. A Shareholder entitled to vote pursuant to Section 1.9
may vote in person or by proxy pursuant to an appointment of proxy executed in
writing by the Shareholder. An appointment of proxy shall be valid for only one
meeting to be specified therein, and any adjournments of such meeting, but
shall not be valid for more than eleven months unless expressly provided
therein. Appointments of proxy shall be dated and filed with the records of the
meeting to which they relate. If the validity of any appointment of proxy is
questioned, it must be submitted for examination to the Secretary of the
Company or to a proxy officer or committee appointed by the Board of Directors.
The Secretary or, if appointed, the proxy officer or committee shall determine
the validity or invalidity of any appointment of proxy submitted, and reference
by the Secretary in the minutes of the meeting to the regularity of an
appointment of proxy shall be received as prima facie evidence of the facts
stated for the purpose of establishing the presence of a quorum at the meeting
and for all other purposes.
Section 1.11 Record Date. For the purpose of determining Shareholders entitled
to notice of a meeting of the Shareholders, to demand a special meeting, to
vote, or to take any other action, the Board of Directors may fix a future date
as the record date, which date shall be not more than 70 days prior to the date
on which the particular action, requiring a determination of the Shareholders,
is to be taken. A determination of the Shareholders entitled to notice of or to
vote at a meeting of the Shareholders is effective for any adjournment of the
meeting unless the Board of Directors fixes a new record date, which it must do
if the meeting is adjourned to a date more than 120 days after the date fixed
for the original meeting. If no record date is fixed by the Board of Directors,
the 70th day preceding the date on which the particular action, requiring a
determination of the Shareholders, is to be taken shall be the record date for
that purpose.
Section 1.12 Shareholder Proposals and Nominations.
(a) No proposal for a Shareholder vote (other than a proposal
that appears in the Company's proxy statement after
compliance with the procedures set forth in Securities and
Exchange Commission Rule 14a-8) shall be submitted by a
Shareholder (a "Shareholder Proposal") to the Company's
Shareholders unless the Shareholder submitting such proposal
(the "Proponent") shall have filed a written notice setting
forth with particularity (i) the names and business addresses
of the Proponent and all natural persons, corporations,
partnerships, trusts or any other type of legal entity or
recognized ownership vehicle (collectively, a "Person")
acting in concert with the Proponent; (ii) the name and
address of the Proponent and the Persons identified in clause
(i), as they appear on the Company's books (if they so
appear); (iii) the class and
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number of shares of the Company beneficially owned by the
Proponent and by each Person identified in clause (i); (iv) a
description of the Shareholder Proposal containing all
material information relating thereto; and (v) such other
information as the Board of Directors reasonably determines
is necessary or appropriate to enable the Board of Directors
and Shareholders of the Company to consider the Shareholder
Proposal. The presiding officer at any meeting of the
Shareholders may determine that any Shareholder Proposal was
not made in accordance with the procedures prescribed in
these Bylaws or is otherwise not in accordance with law, and
if it is so determined, such officer shall so declare at the
meeting and the Shareholder Proposal shall be disregarded.
(b) Only persons who are selected and recommended by the
Board of Directors or the committee of the Board of Directors designated to
make nominations, or who are nominated by Shareholders in accordance with the
procedures set forth in this Section 1.12, shall be eligible for election, or
qualified to serve, as Directors. Nominations of individuals for election to
the Board of Directors of the Company at any Annual Meeting or any special
meeting of Shareholders at which Directors are to be elected may be made by any
Shareholder of the Company entitled to vote for the election of Directors at
that meeting by compliance with the procedures set forth in this Section 1.12.
Nominations by Shareholders shall be made by written notice (a "Nomination
Notice"), which shall set forth (i) as to each individual nominated, (A) the
name, date of birth, business address and residence address of such individual;
(B) the business experience during the past five years of such nominee,
including his or her principal occupations and employment during such period,
the name and principal business of any corporation or other organization in
which such occupations and employment were carried on, and such other
information as to the nature of his or her responsibilities and level of
professional competence as may be sufficient to permit assessment of such prior
business experience; (C) whether the nominee is or has ever been at any time a
director, officer or owner of five percent or more of any class of capital
stock, partnership interests or other equity interest of any corporation,
partnership or other entity; (D) any directorships held by such nominee in any
company with a class of securities registered pursuant to Section 12 of the
Securities Exchange Act of 1934, as amended, or subject to the requirements of
Section 15(d) of such Act or any company registered as an investment company
under the Investment Company Act of 1940, as amended; and (E) whether such
nominee has ever been convicted in a criminal proceeding or has ever been
subject to a judgment, order, finding or decree of any federal, state or other
governmental entity, concerning any violation of federal, state or other law,
or any proceeding in bankruptcy, which conviction, order, finding, decree or
proceeding may be material to an evaluation of the ability or integrity of the
nominee; and (ii) as to the Person submitting the
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<PAGE> 9
Nomination Notice and any Person acting in concert with such Person, (X) the
name and business address of such Person, (Y) the name and address of such
Person as they appear on the Company's books (if they so appear), and (Z) the
class and number of shares of the Company that are beneficially owned by such
Person. A written consent to being named in a proxy statement as a nominee, and
to serve as a Director if elected, signed by the nominee, shall be filed with
any Nomination Notice. If the presiding officer at any meeting of the
Shareholders determines that a nomination was not made in accordance with the
procedures prescribed by these Bylaws, such officer shall so declare to the
meeting and the defective nomination shall be disregarded.
(c) If a Shareholder Proposal or Nomination Notice is to be submitted
at an Annual Meeting of the Shareholders, it shall be delivered to the
Secretary of the Company at the principal executive office of the Company
within the time period specified in Securities and Exchange Commission Rule
14a-8(a)(3)(i). Subject to Section 1.3 as to matters that may be acted upon at
a special meeting of the Shareholders, if a Shareholder Proposal or Nomination
Notice is to be submitted at a special meeting of the Shareholders, it shall be
delivered to the Secretary of the Company at the principal executive office of
the Company no later than the close of business on the earlier of (i) the 30th
day following the public announcement that a matter will be submitted to a vote
of the Shareholders at a special meeting, or (ii) the 15th day following the
day on which notice of the special meeting was given.
ARTICLE TWO
BOARD OF DIRECTORS
Section 2.1 General. Subject to the Articles of Incorporation, all corporate
powers shall be exercised by or under the authority of, and the business and
affairs of the Company shall be managed under the direction of, the Board of
Directors. In addition to the powers and authority expressly conferred upon it
by these Bylaws and the Articles of Incorporation, the Board of Directors may
exercise all such lawful acts and things as are not by law, by the Articles of
Incorporation or by these Bylaws directed or required to be exercised or done
by the Shareholders.
Section 2.2 Number of Directors and Term of Office. The number of Directors
shall be not less than seven, nor more than fifteen Shareholders, and shall be
fixed within such range by the Board of Directors. The Directors shall be
divided into three classes, designated as Class I, Class II and Class III. Each
class shall consist, as nearly as may be possible, of one-third of the total
number of Directors constituting the entire Board of Directors. At each Annual
Meeting of the Shareholders, successors to the class of Directors whose term
expires at that Annual Meeting of
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Shareholders shall be elected for a three-year term. If the number of Directors
has changed, any increase or decrease shall be apportioned among the classes so
as to maintain the number of Directors in each class as nearly equal as
possible, and any additional Director of any class elected to the Board of
Directors to fill a vacancy resulting from an increase in such a class shall
hold office for a term that shall coincide with the remaining term of that
class, unless otherwise required by law, but in no case shall a decrease in the
number of Directors for a class shorten the term of an incumbent Director. A
Director shall hold office until the Annual Meeting of Shareholders for the
year in which such Director's term expires and until his or her successor shall
be elected and qualified, subject, however, to prior death, resignation,
retirement, disqualification or removal from office.
Section 2.3 Election of Directors. A Director shall be elected by a plurality
of the votes cast by the shares entitled to vote in the election at a meeting
of Shareholders at which a quorum is present.
Section 2.4 Vacancies. Any vacancy on the Board of Directors that results from
an increase in the number of Directors or from prior death, resignation,
retirement, disqualification or removal from office of a Director shall be
filled by a majority of the Board of Directors then in office, though less than
a quorum, or by the sole remaining Director. Any Director elected to fill a
vacancy resulting from prior death, resignation, retirement, disqualification
or removal from office of a director, shall have the same remaining term as
that of his or her predecessor.
Section 2.5 Term Limits. The Chairman of the Board may serve as a Director
until reaching 70 years of age. Any other Director reaching 70 years of age (or
65 years of age for Directors, other than Chairman of the Board, who are also
employees of the Company) or who ceases to continue a regular business
relationship (as defined below) shall automatically retire from the Board,
except that a non-employee Director who ceases to continue a regular business
relationship may continue serving as a Director until the next Annual Meeting
of the Shareholders, or 70 years of age, whichever first occurs.
Notwithstanding the preceding, a non-employee Director may, at the request of
the Chairman and if ratified by the Board, continue to serve until age 70 if
the Director continues in a position or business activity that the Board
determines would be of substantial benefit to the Company. For purposes of this
Section 2.5, the expression "regular business relationship" means a
relationship as an employee, consultant or officer of a substantial business,
professional o r educational organization, which requires exercise of business
judgment on a regular basis, and which is not lower in seniority than the
position with such organization occupied by the Director at the time of the
Director's first election to the Board of Directors of the Company.
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Section 2.6 Stock Ownership Requirement. Every Director shall be a Shareholder
of the Company. Directors shall serve for the terms for which they are elected
and until their successors shall have been duly chosen, unless any such term is
sooner ended as herein permitted; provided, however, that if a Director ceases
to be a Shareholder, the disposition of the stock shall constitute a
resignation of the Director's office as a Director.
Section 2.7 Meetings. Regular meetings of the Board of Directors shall be held
on the last Wednesday in the months of January, April, July and October, if not
a legal holiday, or, if a legal holiday, then on the next succeeding day not a
legal holiday. When desirable to do so, the date of the meeting may be changed
on the approval of the Board of Directors or the Executive Committee.
Section 2.8 Special Meetings. Special meetings of the Board of Directors shall
be held whenever called by the direction of the Chairman of the Board, or in
his or her absence, by the Vice Chairman, or in his or her absence, by either
the Chief Executive Officer or the President. Special meetings of the Board may
also be called by one-third of the Directors then in office. Unless otherwise
indicated in the notice thereof, any and all business of the Company may be
transacted at any special meeting of the Board of Directors.
Section 2.9 Notice of Meetings. Unless waived in accordance with the Code,
notice of each regular or special meeting of the Board of Directors, stating
the date, time and place of the meeting, shall be given not less than two days
before the date thereof to each Director.
Section 2.10 Quorum; Adjournments. A majority of the Board of Directors shall
constitute a quorum for the transaction of business. Whether or not a quorum is
present to organize a meeting, any meeting of Directors (including a reconvened
meeting) may be adjourned by a majority of the Directors present, to reconvene
within 120 days at a specific time and place. At any adjourned meeting, any
business may be transacted that could have been transacted at the meeting prior
to adjournment. If notice of the original meeting was properly given, it shall
not be necessary to give any notice of the adjourned meeting or of the business
to be transacted if the date, time and place of the adjourned meeting are
announced at the meeting prior to adjournment.
Section 2.11 Vote Required for Action. If a quorum is present when a vote is
taken, the affirmative vote of a majority of Directors present is the act of
the Board of Directors unless the Code, the Articles of Incorporation, or these
Bylaws require the vote of a greater number of Directors.
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Section 2.12 Action by Directors Without a Meeting. Any action required or
permitted to be taken at any meeting of the Board of Directors or any action
that may be taken at a meeting of a committee of the Board of Directors may be
taken without a meeting if the action is taken by all the members of the Board
of Directors or of the committee, as the case may be. The action must be
evidenced by one or more written consents describing the action taken, signed
by each Director or each Director serving on the committee, as the case may be,
and delivered to the Company for inclusion in the minutes or filing with the
corporate records.
Section 2.13 Compensation of Directors. Directors who are salaried officers or
employees of the Company shall receive no additional compensation for service
as a Director or as a member of a committee of the Board of Directors. Each
Director who is not a salaried officer or employee of the Company shall be
compensated as established from time-to-time by the Board of Directors.
ARTICLE THREE
ELECTIONS OF OFFICERS AND COMMITTEES
Section 3.1 Election of Officers. At the April meeting of the Board of
Directors in each year, or, if not done at that time, then at any subsequent
meeting, the Board of Directors shall proceed to the election of executive
officers of the Company, and of the Executive Committee, as hereinafter
provided for.
Section 3.2 Executive Committee. The Board of Directors may elect from their
members an Executive Committee which shall include the Chairman of the Board,
the Chief Executive Officer, and the President. The Executive Committee shall
consist of not less than three nor more than five members, the precise number
to be fixed by resolution of the Board of Directors from time to time.
Each member shall serve for one year and until his or her successor
shall have been elected, unless that term is sooner terminated by the Board of
Directors. The Board of Directors shall fill the vacancies in the Executive
Committee by election. The Chairman of the Board shall serve as Chairman of the
Executive Committee, if so designated by the Board of Directors.
All action by the Executive Committee shall be reported to the Board
of Directors at its meeting next succeeding such action, and shall be subject
to revision or alteration by the Board of Directors, provided that no rights or
interests of third parties shall be affected by any such revision
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or alteration. The Executive Committee shall fix its own rules and proceedings,
and shall meet where and as provided by such rules or by resolution of the
Board of Directors. In every case, the affirmative vote of a majority of all
the members of the Committee shall be necessary to its adoption of any
resolution.
Except as prohibited by the Code, during the interval between the
meetings of the Board of Directors, the Executive Committee shall possess and
may exercise all the powers of the Board in the management of all the affairs
of the Company, including the making of contracts, the purchase and sale of
property, the execution of legal instruments, and all other matters in which
specific direction shall not have been given by the Board of Directors.
Section 3.3 Other Committees. The Board of Directors is authorized and
empowered to appoint from its own body or from the officers of the Company, or
both, such other committees as it may think best, and may delegate to or confer
upon such committees all or such part of its powers except as prohibited by the
Code, and may prescribe the exercise thereof as it may deem proper.
ARTICLE FOUR
OFFICERS
Section 4.1 Officers. The officers of the Company, unless otherwise provided by
the Board from time to time, shall consist of the following: a Chairman of the
Board, a Chief Executive Officer, a President, one or more Vice Presidents (one
or more of whom may be designated Executive Vice President, one or more of whom
may be designated Corporate Vice President and one or more of whom may be
designated Senior Vice President), a Treasurer, and a Secretary, who shall be
elected by the Board of Directors. The Board of Directors may from time to time
elect a Vice Chairman of the Board. The Board of Directors, or any officer to
whom the Board may delegate such authority, may also appoint such other
officers as it or they may see fit, and may prescribe their respective duties.
All officers, however elected or appointed, may be removed with or without
cause by the Board of Directors, and any officer appointed by another officer
may also be removed, with or without cause, by the appointing officer or any
officer senior to the appointing officer. Any two or more of the offices may be
filled by the same person.
Section 4.2 Compensation of Officers. The Executive Committee shall approve
salaries of all elected officers and such other employees as may be designated
by the Executive Committee, except that salaries of members of the Executive
Committee shall be fixed by the Management Compensation Committee of the Board
of Directors or by the Board of Directors.
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Section 4.3 Chairman of the Board. The Chairman of the Board of Directors shall
have such powers and duties as from time to time may be assigned by the Board
of Directors and serve as Chief Executive Officer of the Company if so
designated by the Board of Directors. The Chairman of the Board shall preside
at all meetings of the Shareholders and shall preside at all meetings of the
Board of Directors and the Executive Committee. Except where by law the
signature of the Chief Executive Officer or President is required, the Chairman
of the Board shall have the same power as the Chief Executive Officer or
President to sign all authorized certificates, contracts, bonds, deeds,
mortgages, and other instruments.
Section 4.4 Vice Chairman of the Board. If the Chairman of the Board is not
designated Chief Executive Officer by the Board of Directors, then, if so
designated by the Board of Directors, the Vice Chairman shall serve as Chief
Executive Officer. It shall be the duty of the Vice Chairman of the Board, in
the absence of the Chairman of the Board, to preside at meetings of the
Shareholders, at meetings of the Directors, and at meetings of the Executive
Committee. The Vice Chairman shall do and perform all acts incident to the
office of Vice Chairman and, if so designated, those of Chief Executive
Officer, subject to the approval and direction of the Board of Directors.
Section 4.5 Chief Executive Officer. The Chief Executive Officer shall direct
the business and policies of the Company and shall have such other powers and
duties as from time to time may be assigned by the Board of Directors. In the
event of a vacancy in the office of Chairman and Vice Chairman of the Board or
during the absence or disability of the Chairman and the Vice Chairman, the
Chief Executive Officer shall have all of the rights, powers and authority
given hereunder to the Chairman of the Board. The Chief Executive Officer may
sign all authorized certificates, contracts, bonds, deeds, mortgages and other
instruments, except in cases in which the signing thereof shall have been
expressly delegated to some other officer or agent of the Company. In general,
the Chief Executive Officer shall have the usual powers and duties incident to
the office of a Chief Executive Officer of a corporation and such other powers
and duties as from time to time may be assigned by the Board of Directors or
Chairman of the Board.
Section 4.6 President. The President shall be the Chief Operating Officer of
the Company and shall have general charge of the business of the Company
subject to the specific direction and approval of the Board of Directors or its
Chairman or Vice Chairman or the Executive Committee. The President shall also
serve as Chief Executive Officer of the Company if so designated by the Board
of Directors. In the event of a vacancy in the office of Chairman and Vice
Chairman of the
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Board or during the absence or disability of both the Chairman, the Vice
Chairman, and the Chief Executive Officer, the President shall serve as Chief
Executive Officer and shall have all of the rights, powers and authority given
hereunder to the Chairman of the Board. The President may sign all authorized
certificates, contracts, bonds, deeds, mortgages and other instruments, except
in cases in which the signing thereof shall have been expressly delegated to
some other officer or agent of the Company. In general, the President shall
have the usual powers and duties incident to the office of a president of a
corporation and such other powers and duties as from time to time may be
assigned by the Board or Chairman or Vice Chairman of the Board.
Section 4.7 Executive Vice Presidents. Each shall have authority, on behalf of
the Company, to execute, approve, or accept agreements for service, bids, or
other contracts, and shall sign such other instruments as each is authorized or
directed to sign by the Board of Directors or its Committee or by the Chief
Executive Officer or the President. Each shall do and perform all acts incident
to the office of the Executive Vice President of the Company or as may be
directed by its Board of Directors or its Committee or the Chief Executive
Officer or the President.
Section 4.8 Vice Presidents. There shall be one or more Vice Presidents of the
Company, as the Board of Directors may from time to time elect. Each Vice
President shall have such power and perform such duties as may be assigned by
or under the authority of the Board of Directors.
Section 4.9 Treasurer. The Treasurer shall be responsible for the custody of
all funds and securities belonging to the Company and for the receipt, deposit
or disbursement of funds and securities under the direction of the Board of
Directors. The Treasurer shall cause to be maintained full and true accounts of
all receipts and disbursements and shall make reports of the same to the Board
of Directors, the Chief Executive Officer, and the President upon request. The
Treasurer shall perform all duties as may be assigned from time to time by the
Board of Directors.
Section 4.10 Secretary. The Secretary shall be responsible for preparing
minutes of the acts and proceedings of all meetings of the Shareholders and of
the Board of Directors and any committees thereof. The Secretary shall have
authority to give all notices required by law or these Bylaws, and shall be
responsible for the custody of the corporate books, records, contracts and
other documents. The Secretary may affix the corporate seal to any lawfully
executed documents and shall sign any instruments as may require the
Secretary's signature. The Secretary shall authenticate records of the Company
and shall perform whatever additional duties and have whatever additional
powers the Board of Directors may from time to time assign. In the absence or
disability of the Secretary or at
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<PAGE> 16
the direction of the Chief Executive Officer, any Assistant Secretary may
perform the duties and exercise the powers of the Secretary.
Section 4.11 Voting of Stock. Unless otherwise ordered by the Board of
Directors or Executive Committee, the Chairman of the Board, the Vice Chairman,
the Chief Executive Officer, the President or any Executive Vice President of
the Company shall have full power and authority in behalf of the Company to
attend and to act and to vote at any meetings of shareholders of any
corporation in which the Company may hold stock, and at such meetings may
possess and shall exercise any and all rights and powers incident to the
ownership of such stock which such owner thereof (the Company) might have
possessed and exercised if present. The Board of Directors or Executive
Committee, by resolution from time to time, may confer like powers upon any
other person or persons.
ARTICLE FIVE
INDEMNIFICATION
Section 5.1 Definitions. As used in this Article, the term:
(a) "Company" includes any domestic or foreign predecessor entity
of the Company in a merger or other transaction in which the
predecessor's existence ceased upon consummation of the
transaction.
(b) "Director" or "Officer" means an individual who is or was a
member of the Board of Directors or an officer elected by the
Board of Directors, respectively, or who, while a Director or
Officer, is or was serving at the Company's request as a
director, officer, partner, trustee, employee, or agent of
another domestic or foreign corporation, partnership, joint
venture, trust, employee benefit plan, or other entity. A
Director or Officer is considered to be serving an employee
benefit plan at the Company's request if his or her duties to
the Company also impose duties on, or otherwise involve
services by, the Director or Officer to the plan or to
participants in or beneficiaries of the plan. "Director" or
"Officer" includes, unless the context otherwise requires,
the estate or personal representative of a Director or
Officer.
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<PAGE> 17
(c) "Disinterested Director" or "Disinterested Officer" means a
Director or Officer, respectively who at the time of an
evaluation referred to in subsection 5.5(b) is not:
(1) A Party to the Proceeding; or
(2) An individual having a familial, financial,
professional, or employment relationship with the
person whose advance for Expenses is the subject of
the decision being made with respect to the
Proceeding, which relationship would, in the
circumstances, reasonably be expected to exert an
influence on the Director's or Officer's judgment
when voting on the decision being made.
(d) "Expenses" includes counsel fees.
(e) "Liability" means the obligation to pay a judgment,
settlement, penalty, fine (including an excise tax assessed
with respect to an employee benefit plan), and reasonable
Expenses incurred with respect to a Proceeding.
(f) "Party" includes an individual who was, is, or is threatened
to be made a named defendant or respondent in a Proceeding.
(g) "Proceeding" means any threatened, pending, or completed
action, suit, or proceeding, whether civil, criminal,
administrative, arbitrative or investigative and whether
formal or informal.
(h) "Reviewing Party" shall mean the person or persons making the
determination as to reasonableness of Expenses pursuant to
Section 5.5 of this Article, and shall not include a court
making any determination under this Article or otherwise.
Section 5.2 Basic Indemnification Arrangement.
(a) The Company shall indemnify an individual who is a Party to a
Proceeding because he or she is or was a Director or Officer
against Liability incurred in the Proceeding; provided,
however, that the Company shall not indemnify a Director or
Officer under this Article for any Liability incurred in a
Proceeding in which the
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<PAGE> 18
Director or Officer is adjudged liable to the Company or is
subjected to injunctive relief in favor of the Company:
(1) For any appropriation, in violation of his or her
duties, of any business opportunity of the Company;
(2) For acts or omissions which involve intentional
misconduct or a knowing violation of law;
(3) For the types of liability set forth in Section
14-2-832 of the Code; or
(4) For any transaction from which he or she received an
improper personal benefit.
(b) If any person is entitled under any provision of this Article
to indemnification by the Company for some portion of
Liability incurred, but not the total amount thereof, the
Company shall indemnify such person for the portion of such
Liability to which such person is entitled.
Section 5.3 Advances for Expenses.
(a) The Company shall, before final disposition of a Proceeding,
advance funds to pay for or reimburse the reasonable Expenses
incurred by a Director or Officer who is a Party to a
Proceeding because he or she is a Director or Officer if he
or she delivers to the Company:
(1) A written affirmation of his or her good faith
belief that his or her conduct does not constitute
behavior of the kind described in subsection 5.2(a)
above; and
(2) His or her written undertaking (meeting the
qualifications set forth below in subsection 5.3(b))
to repay any funds advanced if it is ultimately
determined that he or she is not entitled to
indemnification under this Article or the Code.
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<PAGE> 19
(b) The undertaking required by subsection 5.3(a)(2) above must
be an unlimited general obligation of the proposed indemnitee
but need not be secured and shall be accepted without
reference to the financial ability of the proposed indemnitee
to make repayment. If a Director or Officer seeks to enforce
his or her rights to indemnification in a court pursuant to
Section 5.4 below, such undertaking to repay shall not be
applicable or enforceable unless and until there is a final
court determination that he or she is not entitled to
indemnification, as to which all rights of appeal have been
exhausted or have expired.
Section 5.4 Court-Ordered Indemnification and Advances for Expenses. A Director
or Officer who is a Party to a Proceeding shall have the rights to
court-ordered indemnification and advances for expenses as provided in the
Code.
Section 5.5 Determination of Reasonableness of Expenses.
(a) The Company acknowledges that indemnification of a Director
or Officer under Section 5.2 has been pre-authorized by the
Company as permitted by Section 14-2-859(a) of the Code, and
that pursuant to Section 14-2-856 of the Code, no
determination need be made for a specific Proceeding that
indemnification of the Director or Officer is permissible in
the circumstances because he or she has met a particular
standard of conduct. Nevertheless, except as set forth in
subsection 5.5(b) below, evaluation as to reasonableness of
Expenses of a Director or Officer for a specific Proceeding
shall be made as follows:
(1) If there are two or more Disinterested Directors, by
the Board of Directors of the Company by a majority
vote of all Disinterested Directors (a majority of
whom shall for such purpose constitute a quorum) or
by a majority of the members of a committee of two
or more Disinterested Directors appointed by such a
vote; or
(2) If there are fewer than two Disinterested Directors,
by the Board of Directors (in which determination
Directors who do not qualify as Disinterested
Directors may participate); or
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<PAGE> 20
(3) By the Shareholders, but shares owned by or voted
under the control of a Director or Officer who at
the time does not qualify as a Disinterested
Director or Disinterested Officer may not be voted
on the determination.
(b) Notwithstanding the requirement under subsection 5.5(a) that
the Reviewing Party evaluate the reasonableness of Expenses
claimed by the proposed indemnitee, any Expenses claimed by
the proposed indemnitee shall be deemed reasonable if the
Reviewing Party fails to make the evaluation required by
subsection 5.5(a) within sixty (60) days following the
proposed indemnitee's written request for indemnification or
advance for Expenses.
Section 5.6 Indemnification of Employees and Agents. The Company may indemnify
and advance Expenses under this Article to an employee or agent of the Company
who is not a Director or Officer to the same extent and subject to the same
conditions that a Georgia corporation could, without shareholder approval under
Section 14-2-856 of the Code, indemnify and advance Expenses to a Director, or
to any lesser extent (or greater extent if permitted by law) determined by the
Chief Executive Officer, in each case consistent with public policy.
Section 5.7 Liability Insurance. The Company may purchase and maintain
insurance on behalf of an individual who is a Director, Officer, employee or
agent of the Company or who, while a Director, Officer, employee or agent of
the Company, serves at the Company's request as a director, officer, partner,
trustee, employee or agent of another domestic or foreign corporation,
partnership, joint venture, trust, employee benefit plan, or other entity
against Liability asserted against or incurred by him or her in that capacity
or arising from his or her status as a Director, Officer, employee, or agent,
whether or not the corporation would have power to indemnify or advance
Expenses to him or her against the same Liability under this Article or the
Code.
Section 5.8 Witness Fees. Nothing in this Article shall limit the Company's
power to pay or reimburse Expenses incurred by a person in connection with his
or her appearance as a witness in a Proceeding at a time when he or she is not
a Party.
Section 5.9 Report to Shareholders. To the extent and in the manner required by
the Code from time to time, if the Company indemnifies or advances Expenses to
a Director or Officer in connection with a Proceeding by or in the right of the
Company, the Company shall report the indemnification or advance to the
Shareholders.
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<PAGE> 21
Section 5.10 No Duplication of Payments. The Company shall not be liable under
this Article to make any payment to a person hereunder to the extent such
person has otherwise actually received payment (under any insurance policy,
agreement or otherwise) of the amounts otherwise payable hereunder.
Section 5.11 Subrogation. In the event of payment under this Article, the
Company shall be subrogated to the extent of such payment to all of the rights
of recovery of the indemnitee, who shall execute all papers required and shall
do everything that may be necessary to secure such rights, including the
execution of such documents necessary to enable the Company effectively to
bring suit to enforce such rights.
Section 5.12 Contract Rights. The right to indemnification and advancement of
Expenses conferred hereunder to Directors and Officers shall be a contract
right and shall not be affected adversely to any Director or Officer by any
amendment of these Bylaws with respect to any action or inaction occurring
prior to such amendment; provided, however, that this provision shall not
confer upon any indemnitee or potential indemnitee (in his or her capacity as
such) the right to consent or object to any subsequent amendment of these
Bylaws.
Section 5.13 Amendments. It is the intent of the Company to indemnify and
advance Expenses to its Directors and Officers to the full extent permitted by
the Code, as amended from time to time. To the extent that the Code is
hereafter amended to permit a Georgia business corporation to provide to its
directors greater rights to indemnification or advancement of Expenses than
those specifically set forth hereinabove, this Article shall be deemed amended
to require such greater indemnification or more liberal advancement of Expenses
to the Company's Directors and Officers, in each case consistent with the Code
as so amended from time to time. No amendment, modification or rescission of
this Article, or any provision hereof, the effect of which would diminish the
rights to indemnification or advancement of Expenses as set forth herein shall
be effective as to any person with respect to any action taken or omitted by
such person prior to such amendment, modification or rescission.
ARTICLE SIX
CAPITAL STOCK
Section 6.1 Direct Registration of Shares. The Company may, with the Board of
Directors' approval, participate in a direct registration system approved by
the Securities and Exchange Commission and by the New York Stock Exchange or
any securities exchange on which the stock
-17-
<PAGE> 22
of the Company may from time to time be traded, whereby shares of capital stock
of the Company may be registered in the holder's name in uncertificated,
book-entry form on the books of the Company.
Section 6.2 Certificates for Shares. Except for shares represented in
book-entry form under a direct registration system contemplated in Section 6.1,
the interest of each Shareholder in the Company shall be evidenced by a
certificate or certificates representing shares of the Company which shall be
in such form as the Board of Directors from time to time may adopt. Share
certificates shall be numbered consecutively, shall be in registered form,
shall indicate the date of issuance, the name of the Company and that it is
organized under the laws of the State of Georgia, the name of the Shareholder,
and the number and class of shares and the designation of the series, if any,
represented by the certificate. Each certificate shall be signed by the
Chairman of the Board, the President or other Chief Executive Officer or a Vice
President and also by the Secretary or may be signed with the facsimile
signatures of the Chairman of the Board, the President or other Chief Executive
Officer or a Vice President and of the Secretary, and in all cases a stock
certificate must also be signed by the transfer agent for the stock. The
corporate seal need not be affixed.
Section 6.3 Transfer of Shares. The Board of Directors shall have authority to
appoint a transfer agent and/or a registrar for the shares of its capital
stock, and to empower them or either of them in such manner and to such extent
as it may deem best, and to remove such agent or agents from time to time, and
to appoint another agent or other agents. Transfers of shares shall be made
upon the transfer books of the Company, kept at the office of the transfer
agent designated to transfer the shares, only upon direction of the registered
owner, or by an attorney lawfully constituted in writing. With respect to
certificated shares, before a new certificate is issued, the old certificate
shall be surrendered for cancellation or, in the case of a certificate alleged
to have been lost, stolen, or destroyed, the requirements of Section 6.5 of
these Bylaws shall have been met. Transfer of shares shall be in accordance
with such reasonable rules and regulations as may be made from time to time by
the Board of Directors.
Section 6.4 Duty of Company to Register Transfer. Notwithstanding any of the
provisions of Section 6.3 of these Bylaws, the Company is under a duty to
register the transfer of its shares only if:
(a) the certificate or transfer instruction is endorsed by the
appropriate person or persons; and
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<PAGE> 23
(b) reasonable assurance is given that the endorsement or affidavit is
genuine and effective; and
(c) the Company either has no duty to inquire into adverse claims or has
discharged that duty; and
(d) the requirements of any applicable law relating to the collection of
taxes have been met; and
(e) the transfer in fact is rightful or is to a bona fide purchaser.
Section 6.5 Lost, Stolen or Destroyed Certificates. Any person claiming a
share certificate to be lost, stolen or destroyed shall make an affidavit or
affirmation of the fact in the manner required by the Company and, if the
Company requires, shall give the Company a bond of indemnity in form and
amount, and with one or more sureties satisfactory to the Company, as the
Company may require, whereupon an appropriate new certificate may be issued in
lieu of the one alleged to have been lost, stolen or destroyed.
Section 6.6 Authorization to Issue Shares and Regulations Regarding Transfer
and Registration. The Board of Directors and the Executive Committee shall
have power and authority to issue shares of capital stock of the Company and to
make all such rules and regulations as, respectively, they may deem expedient
concerning the transfer and registration of shares of the capital stock of the
Company.
ARTICLE SEVEN
DISTRIBUTIONS AND DIVIDENDS
Section 7.1 Authorization or Declaration. Unless the Articles of Incorporation
provide otherwise, the Board of Directors from time to time in its discretion
may authorize or declare distributions or share dividends in accordance with
the Code.
Section 7.2 Record Date with Regard to Distributions and Share Dividends. For
the purpose of determining Shareholders entitled to a distribution (other than
one involving a purchase, redemption, or other reacquisition of the Company's
shares) or a share dividend, the Board of Directors may fix a date as the
record date. If no record date is fixed by the Board of Directors, the record
date shall be determined in accordance with the provisions of the Code.
-19-
<PAGE> 24
ARTICLE EIGHT
MISCELLANEOUS
Section 8.1 Corporate Seal. If the Board of Directors determines that there
should be a corporate seal for the Company, it shall be in the form as the
Board of Directors may from time to time determine.
Section 8.2 Inspection of Books and Records. The Board of Directors shall have
power to determine which accounts, books and records of the Company shall be
opened to the inspection of Shareholders, except those as may by law
specifically be made open to inspection, and shall have power to fix reasonable
rules and regulations not in conflict with the applicable law for the
inspection of accounts, books and records which by law or by determination of
the Board of Directors shall be open to inspection. Without the prior approval
of the Board of Directors in its discretion, the right of inspection set forth
in Section 14-2-1602(c) of the Code shall not be available to any Shareholder
owning two percent or less of the shares outstanding.
Section 8.3 Conflict with Articles of Incorporation or Code. To the extent
that any provision of these Bylaws conflicts with any provision of the Articles
of Incorporation, such provision of the Articles of Incorporation shall govern.
To the extent that any provision of these Bylaws conflicts with any
non-discretionary provision of the Code, such provision of the Code shall
govern.
Section 8.4 Severability. In the event that any of the provisions of these
Bylaws (including any provision within a single section, subsection, division
or sentence) is held by a court of competent jurisdiction to be invalid, void
or otherwise unenforceable, the remaining provisions of these Bylaws shall
remain enforceable to the fullest extent permitted by law.
ARTICLE NINE
AMENDMENTS
Section 9.1 Amendments. Subject, in each case, to the Articles of
Incorporation:
(a) the Board of Directors shall have power to alter, amend or
repeal these Bylaws or adopt new Bylaws; and
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<PAGE> 25
(b) any Bylaws adopted by the Board of Directors may be altered,
amended or repealed, and new Bylaws may be adopted, by the Shareholders,
as provided by the Code; and
(c) Articles Ten and Eleven of these Bylaws shall be amended only
in the manner provided by relevant provisions of the Code.
ARTICLE TEN
FAIR PRICE REQUIREMENTS
Section 10.1 Fair Price Requirements. All of the requirements of Article 11,
Part 2, of the Code, included in Sections 14-2-1110 through 1113 (and any
successor provisions thereto), shall be applicable to the Company in connection
with any business combination, as defined therein, with any interested
shareholder, as defined therein.
ARTICLE ELEVEN
BUSINESS COMBINATIONS
Section 11.1 Business Combinations. All of the requirements of Article 11,
Part 3, of the Code, included in Sections 14-2-1131 through 1133 (and any
successor provisions thereto), shall be applicable to the Company in connection
with any business combination, as defined therein, with any interested
shareholder, as defined therein.
-21-
<PAGE> 1
EXHIBIT 23.01
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the inclusion in
this Form 10 of our report on the financial statements of ChoicePoint Inc. dated
April 15, 1997 and our report on the financial statements of CDB Infotek dated
April 24, 1996. It should be noted that we have not audited any financial
statements of the companies subsequent to December 31, 1996 or performed any
audit procedures subsequent to the date of our report.
/s/ ARTHUR ANDERSEN LLP
Atlanta, Georgia
June 5, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM CHOICEPOINT
INC. FINANCIAL STATEMENTS AS OF AND FOR THE YEAR ENDED DECEMBER 31, 1996 AND
IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FORM 10.
</LEGEND>
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<S> <C>
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<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<EXCHANGE-RATE> 1
<CASH> 1,726
<SECURITIES> 0
<RECEIVABLES> 79,716<F1>
<ALLOWANCES> 1,578
<INVENTORY> 0
<CURRENT-ASSETS> 91,931
<PP&E> 76,843<F2>
<DEPRECIATION> 41,436
<TOTAL-ASSETS> 301,824
<CURRENT-LIABILITIES> 44,965
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 196,327
<TOTAL-LIABILITY-AND-EQUITY> 301,824
<SALES> 366,481
<TOTAL-REVENUES> 366,481
<CGS> 252,118
<TOTAL-COSTS> 318,870
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 6,597
<INCOME-PRETAX> 41,014
<INCOME-TAX> 17,734
<INCOME-CONTINUING> 23,280
<DISCONTINUED> 0
<EXTRAORDINARY> 0
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<F1>(GROSS RECEIVABLES)
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