<PAGE> 1
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------
FORM 10-K
(Mark One)
[ X ] Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the fiscal year ended December 31, 1997
OR
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities Act
of 1934
For the transition period from to
------- -------
COMMISSION FILE NO. 1-13069
CHOICEPOINT INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C>
GEORGIA 58-2309650
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
1000 ALDERMAN DRIVE
ALPHARETTA, GEORGIA 30005
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
</TABLE>
(770) 752-6000
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
<TABLE>
<S> <C>
TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED
------------------- -----------------------------------------
COMMON STOCK, PAR NEW YORK STOCK EXCHANGE
VALUE $.10
PER SHARE
</TABLE>
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT: NONE
---------------------
INDICATE BY CHECK MARK WHETHER THE REGISTRANT (1) HAS FILED ALL
REPORTS REQUIRED TO BE FILED BY SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934 DURING THE PRECEDING 12 MONTHS (OR FOR SUCH SHORTER PERIOD THAT THE
REGISTRANT WAS REQUIRED TO FILE SUCH REPORTS), AND (2) HAS BEEN SUBJECT TO SUCH
FILING REQUIREMENTS FOR THE PAST 90 DAYS. YES [ X ] NO [ ]
AGGREGATE MARKET VALUE OF THE VOTING STOCK HELD BY NON-AFFILIATES OF
THE REGISTRANT:
$693,342,157 AS OF MARCH 18, 1998
INDICATE THE NUMBER OF SHARES OUTSTANDING OF EACH OF THE REGISTRANT'S
CLASSES OF COMMON STOCK, AS OF THE LATEST PRACTICABLE DATE.
14,633,091 SHARES OF COMMON STOCK, PAR VALUE $.10 PER SHARE,
OUTSTANDING AS OF MARCH 18, 1998.
DOCUMENTS INCORPORATED BY REFERENCE IN THIS ANNUAL REPORT ON FORM
10-K:
PORTIONS OF THE DEFINITIVE PROXY STATEMENT RELATING TO THE 1998 ANNUAL
MEETING OF SHAREHOLDERS IN PART III, ITEMS 10 (AS RELATED TO DIRECTORS), 11, 12
AND 13. PORTIONS OF THE ANNUAL REPORT TO SHAREHOLDERS FOR THE YEAR ENDED
DECEMBER 31, 1997 IN PARTS II AND IV.
INDICATE BY CHECK MARK IF DISCLOSURE OF DELINQUENT FILERS PURSUANT TO
ITEM 405 OF REGULATION S-K IS NOT CONTAINED HEREIN, AND WILL NOT BE CONTAINED,
TO THE BEST OF REGISTRANT'S KNOWLEDGE, IN DEFINITIVE PROXY OR INFORMATION
STATEMENTS INCORPORATED BY REFERENCE IN PART III OF THIS FORM 10-K OR ANY
AMENDMENT TO THIS FORM 10-K. [ ]
================================================================================
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
PART I
ITEM 1. BUSINESS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
ITEM 2. PROPERTIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
ITEM 3. LEGAL PROCEEDINGS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS . . . . . . . . . . . . . . . . . . . . . . . . 6
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND
RELATED STOCKHOLDER MATTERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
ITEM 6. SELECTED FINANCIAL DATA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT . . . . . . . . . . . . . . . . . . . . . . . . . 8
ITEM 11. EXECUTIVE COMPENSATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT . . . . . . . . . . . . . . . . . . . 8
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENTS, FINANCIAL STATEMENT SCHEDULES
AND REPORTS ON FORM 8-K . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
</TABLE>
<PAGE> 3
PART I
ITEM 1. BUSINESS
GENERAL
ChoicePoint Inc., a Georgia corporation ("ChoicePoint" or the
"Company"), was established through the combination of the businesses that
comprised the Insurance Services Group of Equifax Inc. ("Equifax") within a
separate company and the subsequent spinoff (the "Spinoff") of the Company's
outstanding stock by Equifax as a stock dividend to the shareholders of
Equifax. In the Spinoff, each shareholder of Equifax received one share of the
Company's common stock, par value $.10 per share (the "Common Stock"), for
every 10 shares of common stock of Equifax. The effective time of the Spinoff
was July 31, 1997, and the Common Stock began trading on the New York Stock
Exchange on August 8, 1997. References to 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.
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 and associated policy pricing of
individuals and property and the validity of insurance claims. The Company
provides background investigations, 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 to the aforementioned insurance markets.
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. The Company intends to accomplish its goals by expanding
its presence in non-insurance markets, aggressively pursuing acquisitions and
strategic alliances, developing and enhancing key technological capabilities
and increasing public awareness of risk and fraud issues.
STRATEGIC ACQUISITIONS AND ALLIANCES
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 Programming Resources Company
("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. In November 1994, ChoicePoint acquired Osborn
Laboratories, Inc. ("Osborn Labs"), 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. 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.
In 1996, ChoicePoint acquired Professional Test Administrators, Inc.
("PTA"), headquartered in Chicago, Illinois, to accelerate the Company's entry
into the occupational health market. The PTA acquisition gave
<PAGE> 4
ChoicePoint the ability to administer all components of substance abuse
programs, including results analysis. By serving the occupational health
market, ChoicePoint is able to enhance the value of its employment services by
creating a total hiring solution for customers. In furtherance of that
objective, in 1997 ChoicePoint acquired the assets of Advanced HR Solutions,
Inc., an automated payroll and employment verification service, and acquired
the assets of Drug Free, Inc., a drug testing information services company.
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, including criminal, bankruptcy, judgment and
lien databases. Headquartered in Santa Ana, California, CDB Infotek serves
corporations and the legal, insurance and investigative markets. 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 to these markets. At the
time of the original purchase, ChoicePoint also acquired the exclusive option
to purchase the remaining shares of CDB Infotek in 2000. The Company acquired
an additional 2.6% interest in CDB Infotek from a minority shareholder in the
third quarter of 1997. In February 1998, the Company accelerated its option to
purchase the remaining 27.4% interest in CDB Infotek, which is now a wholly
owned subsidiary of ChoicePoint.
In addition, in furtherance of the Company's focus on building its
strategic records capabilities to serve the government, healthcare and
insurance markets, in October 1997 ChoicePoint acquired the assets of Medical
Information Network, LLC ("MediNet"). MediNet is an online physician
verification service that provides background information on physicians,
including disciplinary data, education, board certifications, and criminal and
civil convictions from sources such as the American Medical Association, U.S.
Drug Enforcement Agency, U.S. Food and Drug Administration and state medical
boards, to assist in fraud mitigation.
In December 1997, the Company sold its paramedical examination
business division, Physical Measurements Information ("PMI"), to Pediatric
Services of America, Inc. ("PSA"). In connection with that transaction,
ChoicePoint entered into a strategic business alliance with PSA and its
subsidiary, Insurance Medical Reporter, Inc. ("IMR"), pursuant to which
ChoicePoint will provide automated order and delivery system, status tracking
and customer information system and laboratory testing services for IMR, and
IMR will provide paramedical collection and examination services for
ChoicePoint. The Company believes that this strategic business alliance will
enable ChoicePoint to focus on providing technology and information management
solutions for customers in the Life and Health Insurance Services group, while
allowing it to offer those customers paramedical examination services through
the alliance with IMR.
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 1995 through
1997 and the percentage contribution by each group to ChoicePoint's revenue for
each such year.
2
<PAGE> 5
HISTORICAL REVENUE BY SERVICE GROUP
<TABLE>
<CAPTION>
(Dollars in thousands)
1997 1996 1995
--------------------- ------------------- -----------------
Amount % Amount % Amount %
------ ------ ------ ---- ------ ----
<S> <C> <C> <C> <C> <C> <C>
Property and Casualty
Insurance Services . . . . . $177,175 42% $156,698 43% $143,726 44%
Life and Health
Insurance Services . . . . . 153,563 37 157,071 43 148,765 45
Business and Government
Services . . . . . . . . . . 86,583 21 52,712 14 36,499 11
-------- --- -------- --- -------- ---
Total . . . . . . . $417,321 100% $366,481 100% $328,990 100%
======== === ======== === ======== ===
</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 direct marketing,
underwriting and claims information, such as motor vehicle reports, the
Company's Comprehensive Loss Underwriting Exchange ("C.L.U.E.") database
services, vehicle registration services, credit reports, driver's license
information, and pre-screened marketing lists. In addition, through
ChoicePoint's field offices, this service group provides 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 enables them to assess underwriting risks and pending
claims in the auto and home insurance markets. ChoicePoint's proprietary Auto
2000 and Homeowners 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. This service group offers information delivery services to its
clients using mainframe, personal computer and Internet web-based
communications.
The Company's 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 and application collection, health history interview 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 Life Plus database contains automated
real-time information used by life and health insurers to screen applicants in
order to reduce underwriting time and application processing costs. Life 2000,
based upon the same concept as the Auto 2000 and Homeowners 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.
3
<PAGE> 6
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 that 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. ChoicePoint has two customers that each
accounted for approximately 5% of the Company's total revenue for 1997. Based
upon ChoicePoint's 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 using private networks.
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 competitors include Dateq Information Network,
Inc., Trans Union Corporation, American Insurance Services Group ("AISG") and
Insurance Information Exchange, L.L.C., a subsidiary of AMS Services, Inc. In
the life and health insurance services market, ChoicePoint's 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 competitors in the automated public records market
include DBT Online, Inc., Information America, Inc. and the Lexis-Nexis service
of Reed Elsevier PLC, and its competitors in the pre-employment screening and
drug testing services market include various security companies and clinical
laboratories, including Pinkertons Inc., Avert, Inc. and Laboratory Corporation
of America Holdings. 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
4
<PAGE> 7
other sources, and such termination would not have a material 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.
EMPLOYEES
As of December 31, 1997, ChoicePoint employed approximately 4,800
persons (or 3,700 full time equivalents), none of whom were unionized.
Substantially all of the Company's workforce is employed in the United States.
As of December 31, 1997, ChoicePoint employed approximately 350 individuals
in Olathe, Kansas in its Osborn Labs facilities, approximately 210 individuals
in Hartford, Connecticut in its PRC facilities, approximately 195 individuals
in San Diego at its CDB Infotek location, and approximately 25 individuals in
the United Kingdom in connection with CUE UK. Approximately 600 individuals
were 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, the Company 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 Company's business are registered and maintained in the U.S. and the United
Kingdom. C.L.U.E., Auto 2000, Life 2000 and Homeowners 2000 are registered
trademarks, and Life Plus is a service mark, of ChoicePoint.
FORWARD-LOOKING INFORMATION
In addition to historical information, this report includes
forward-looking statements and information that are based on management's
beliefs, plans, expectations and assumptions and on information currently
available to the Company. The words "may," "should," "expect," "anticipate,"
"intend," "plan," "continue," "believe," "seek," "estimate," and similar
expressions used in this report that do not relate to historical facts are
intended to identify forward-looking statements, as that term is defined in the
Private Securities Litigation Reform Act of 1995.
The forward-looking statements in this report are not guarantees of
future performance and involve certain risks, uncertainties and assumptions.
Such 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; (iv) the impact of federal, state and local regulatory
requirements on the Company's business; (v) the impact of consolidation or
other business developments in the insurance industry, which accounts for
approximately 80% of the Company's revenue; and (vi) the uncertainty of
economic conditions in general. 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 the market price of the Common
Stock could differ materially from those expressed in any
5
<PAGE> 8
forward-looking statements made by the Company. Do not put undue reliance on
forward-looking statements. The Company does not intend to publicly update any
forward-looking statements that may be made from time to time by, or on behalf
of, the Company, whether as a result of new information, future events or
otherwise.
ITEM 2. PROPERTIES
ChoicePoint's current principal executive offices are located in
140,000 square feet of leased office space in Alpharetta, Georgia, a suburb of
Atlanta. ChoicePoint maintains 104 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 595,000 square feet of space. Through Osborn Labs,
ChoicePoint owns two laboratory facilities in Olathe, Kansas with approximately
76,000 square feet of space. The Company ordinarily leases office space of the
general commercial type for conducting its business and is obligated under
approximately 105 leases and other rental arrangements for its headquarters and
field locations.
ITEM 3. 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 outcome
of any pending or threatened litigation will have a material adverse effect on
the financial condition or results of operations of ChoicePoint. However, as
is inherent in legal proceedings where issues may be decided by finders of
fact, there is a risk that unpredictable decisions adverse to the Company could
be reached.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders by the Company
during the quarter ended December 31, 1997.
EXECUTIVE OFFICERS OF REGISTRANT
Set forth below is certain biographical information with respect to
each executive officer of the Company, as of March 18, 1998:
<TABLE>
<CAPTION>
Name and Position Age Executive Officer Since
----------------- --- -----------------------
<S> <C> <C>
Derek V. Smith, President, Chief Executive Officer 43 1997
and a Director
Dan H. Rocco, Executive Vice President 58 1997
Douglas C. Curling, Executive Vice President, 43 1997
Chief Financial Officer and Treasurer
David T. Lee, Senior Vice President 38 1997
J. Michael de Janes, General Counsel and Assistant Secretary 40 1997
</TABLE>
Derek V. Smith has served as President, Chief Executive Officer and a
Director of the Company since May 1997. Mr. Smith served as Executive Vice
President of Equifax and Group Executive of the Insurance Services Group of
Equifax
6
<PAGE> 9
from 1993 until the Spinoff. From 1991 to 1993, he served as Senior Vice
President and Chief Financial Officer of Equifax. He served as a director of
Equifax from 1996 until the Spinoff and currently serves as a director of
Metris Companies Inc.
Dan H. Rocco has served as Executive Vice President of ChoicePoint
since the Spinoff. He served as Senior Vice President - Operations of the
Insurance Services Group of Equifax from 1993 until the Spinoff. Mr. Rocco
served as President and General Manager of the Automated Services Division of
the Insurance Services Group from 1991 to 1993.
Douglas C. Curling has served as Executive Vice President, Chief
Financial Officer and Treasurer of ChoicePoint since the Spinoff. He served as
Senior Vice President - Finance and Administration of the Insurance Services
Group of Equifax from 1993 until the Spinoff. Mr. Curling served as Vice
President and Assistant Corporate Controller of Equifax from 1989 to 1993.
David T. Lee has served as Senior Vice President of ChoicePoint since
the Spinoff. He served as Vice President - Property and Casualty Marketing and
Sales of the Insurance Services Group of Equifax from 1991 until the Spinoff.
J. Michael de Janes has served as General Counsel and Assistant
Secretary of ChoicePoint since the Spinoff. He served as Vice President and
Counsel of the Insurance Services Group of Equifax from 1993 until the Spinoff.
Prior to joining the Insurance Services Group, Mr. de Janes was an Assistant
Vice President in the Equifax Credit Information Services legal department from
1991 to 1993.
There are no family relationships among the officers of Company, nor
are there any arrangements or understandings between any of the officers and
any other persons pursuant to which they were selected as officers. The Board
of Directors may elect an officer or officers at any meeting of the Board. Each
elected officer is selected to serve until his successor has been elected and
duly qualified. Elections of officers generally occur each year at the Board
of Directors meeting held in conjunction with the Company's Annual Meeting of
Shareholders.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
The Company's Common Stock is listed and traded on the New York Stock
Exchange under the symbol "CPS." Information regarding the high and low sales
prices and the number of holders of the Common Stock is set forth under the
captions "Market Information" and "Stock Activity" on the inside back cover of
the 1997 Annual Report to Shareholders (the "Annual Report"), a copy of which
page is included in Exhibit 13 to this Form 10-K and is incorporated herein by
reference.
The Company does not anticipate paying any cash dividends in the
foreseeable future. The Company currently intends to retain future earnings to
finance its 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 Board of Directors deems relevant.
ITEM 6. SELECTED FINANCIAL DATA
The information included under the caption "Financial Highlights" on
page 3 of the Annual Report, a copy of which page is included in Exhibit 13 to
this Form 10-K, is incorporated herein by reference.
7
<PAGE> 10
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The information included under the caption "Management's Discussion
and Analysis of Financial Condition and Results of Operations" on pages 18
through 21 of the Annual Report, a copy of which pages are included in Exhibit
13 to this Form 10-K, is incorporated herein by reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The information included under the captions "Consolidated Statements
of Income," "Consolidated Balance Sheets," "Consolidated Statements of
Shareholders' Equity," "Consolidated Statements of Cash Flows" and "Notes to
Consolidated Financial Statements" on pages 22 through 39 of the Annual Report,
copies of which pages are included in Exhibit 13 to this Form 10-K, is
incorporated herein by reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
The Company has neither changed its independent auditors nor had any
disagreements on accounting and financial disclosures with such auditors.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The Company's Proxy Statement for the Annual Meeting of Shareholders
to be held on April 29, 1998, contains, on pages 2 through 4 thereof,
information relating to the Company's Directors and persons nominated to be
elected Directors. Such information is incorporated herein by reference and
made a part hereof. Information regarding the Company's executive officers is
set forth in Part I of this report.
ITEM 11. EXECUTIVE COMPENSATION
The Company's Proxy Statement for the Annual Meeting of Shareholders
to be held on April 29, 1998, contains, on pages 6 through 10 thereof,
information relating to executive compensation. Such information is
incorporated herein by reference and made a part hereof.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT
The Company's Proxy Statement for the Annual Meeting of Shareholders
to be held on April 29, 1998, contains, on pages 5 and 6 thereof, information
relating to security ownership of certain beneficial owners and management.
Such information is incorporated herein by reference and made a part hereof.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Company's Proxy Statement for the Annual Meeting of Shareholders
to be held on April 29, 1998, contains, on page 9 thereof, information relating
to certain relationships and related transactions. Such information is
incorporated herein by reference and made a part hereof.
8
<PAGE> 11
PART IV.
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS
ON FORM 8-K
(a) Index to exhibits, financial statements and schedules.
(1) Financial Statements
Consolidated Balance Sheets for the Years Ended 1997 and 1996
are incorporated by reference from the Annual Report, and are
included in Exhibit 13 hereto.
Consolidated Statements of Income for the Years Ended 1997,
1996 and 1995 are incorporated by reference from the Annual
Report, and are included in Exhibit 13 hereto.
Consolidated Statements of Shareholders' Equity for the Years
Ended December 31, 1997, 1996 and 1995 are incorporated by
reference from the Annual Report, and are included in Exhibit
13 hereto.
Consolidated Statements of Cash Flows for the Years Ended
1997, 1996 and 1995 are incorporated by reference from the
Annual Report, and are included in Exhibit 13 hereto.
Notes to Consolidated Financial Statements are incorporated by
reference from the Annual Report, and are included in Exhibit
13 hereto.
Report of Arthur Andersen LLP on the foregoing financial
statements is incorporated by reference from the Annual
Report, and is included in Exhibit 13 hereto.
(2) Financial Statement Schedules
All schedules have been omitted because they are not
applicable or the required information is included in the
consolidated financial statements or notes thereto.
(3) Exhibits required by Item 601 of Regulation S-K
The following exhibits are included in this Form 10-K:
<TABLE>
<CAPTION>
Exhibit No. Description
----------- -----------
<S> <C>
10* Form of Employment Agreement between the Company
and each of Derek V. Smith, Douglas C. Curling,
David T. Lee and J. Michael de Janes
13 Pages 3, 18-39 and the inside back cover page of the
Company's 1997 Annual Report to Shareholders
21 Subsidiaries of the Company
23 Consent of Arthur Andersen LLP, Independent
Public Accountants
27 Financial Data Schedule (for SEC use only)
</TABLE>
9
<PAGE> 12
The following exhibit is incorporated by reference to the
Company's Form 8-A, filed on November 5, 1997:
<TABLE>
<CAPTION>
Exhibit No. Description
----------- -----------
<S> <C>
4.02 Rights Agreement, dated as of October 29, 1997,
by and between ChoicePoint Inc. and SunTrust
Bank, Atlanta
</TABLE>
The following exhibits are incorporated by reference to the
Company's Quarterly Report on Form 10-Q for the quarter ended
June 30, 1997:
<TABLE>
<CAPTION>
Exhibit No. Description
----------- -----------
<S> <C>
10.01* ChoicePoint Inc. 1997 Omnibus Stock Incentive
Plan
10.03 Distribution Agreement, dated as of July 31,
1997, by and between Equifax Inc. and
ChoicePoint Inc.
10.04 Employee Benefits Agreement, dated as of July
31, 1997, between Equifax Inc. and ChoicePoint
Inc.
10.05 Transition Support Agreement, dated as of July
31, 1997, between Equifax Inc. and ChoicePoint
Inc.
10.06 Intercompany Information Services Agreement,
dated as of July 31, 1997, by Equifax Inc. and
ChoicePoint Inc.
10.07 Tax Sharing and Indemnification Agreement, dated
as of July 31, 1997, by and between Equifax Inc.
and ChoicePoint Inc.
10.08 Intellectual Property Agreement dated as of July
31, 1997, by and between Equifax Inc. and
ChoicePoint Inc.
10.10 Revolving Credit Agreement, dated as of August
5, 1997, among ChoicePoint Inc., the Lenders
Listed Therein and Wachovia Bank, N.A. as
Administrative Agent, and SunTrust Bank,
Atlanta, as Documentation Agent
10.11(a) Master Agreement, dated as of July 31, 1997,
among ChoicePoint Inc., SunTrust Banks, Inc. and
SunTrust Bank, Atlanta, as Agent
10.11(b) Lease agreement, dated as of July 31, 1997,
between ChoicePoint Inc. and SunTrust Banks,
Inc.
10.11(c) Georgia Lease Supplement, dated as of July 31,
1997, between ChoicePoint Inc. and SunTrust
Banks, Inc.
</TABLE>
10
<PAGE> 13
<TABLE>
<S> <C>
10.11(d) Operative Guaranty, dated as of July 31, 1997,
by ChoicePoint Inc. as Guarantor
10.11(e) Construction Agency Agreement, dated as of July
31, 1997, between SunTrust Banks, Inc. and
ChoicePoint Inc.
10.12 Sublease Agreement, dated as of July 31, 1997,
between Equifax Inc. and Equifax Services Inc.
(for certain property and building located at
1600 Peachtree Street, NW, Atlanta, Georgia)
10.13 Sublease Agreement, dated as of July 31, 1997,
between Equifax Inc. and Equifax Services Inc.
(for certain property and building located at
1525 Windward Concourse, Alpharetta, Georgia
[J.V. White Technology Center])
</TABLE>
The following exhibits are incorporated by reference to the
Company's Registration Statement on Form S-1, as amended (File
No. 333-30297):
<TABLE>
<CAPTION>
Exhibit No. Description
----------- -----------
<S> <C>
3.01 Articles of Incorporation of the Company, as
amended
3.02 Bylaws of the Company, as amended
4.01 Form of Common Stock certificate
10.02 ChoicePoint Inc. 401(k) Profit Sharing Plan
10.09* Agreement, dated July 24, 1996, by and between
Equifax Inc. and Dan Rocco, to be effective
January 1, 1996 (relating to the compensation of
Mr. Rocco)
27 Financial Data Schedule (for SEC use only).
</TABLE>
- -------------------------
* Represents a management contract or compensatory plan, contract or
arrangement.
Copies of the Company's Form 10-K that are furnished pursuant to the
written request of the Company's shareholders do not include the exhibits
listed above. Any shareholder desiring copies of one or more of such exhibits
should write to the Company's Director, Investor Relations, specifying the
exhibit or exhibits requested.
(b) Reports on Form 8-K
The Company did not file any Current Reports on Form 8-K during the
fiscal quarter ended December 31, 1997.
11
<PAGE> 14
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized, in the City of
Alpharetta, State of Georgia, on March 27, 1998.
CHOICEPOINT INC.
By:/s/ Derek V. Smith
----------------------------------------
Derek V. Smith
President and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- --------- ----- ----
<S> <C> <C>
/s/ Derek V. Smith President, Chief March 27, 1998
- ---------------------------------- Executive Officer and
Derek V. Smith Director
/s/ Douglas C. Curling Executive Vice President, March 27, 1998
- ---------------------------------- Chief Financial Officer
Douglas C. Curling and Treasurer (Principal
Financial and Accounting
Officer)
/s/ C. B. Rogers, Jr. Chairman and Director March 27, 1998
- ----------------------------------
C. B. Rogers, Jr.
/s/ Ron D. Barbaro Director March 27, 1998
- ----------------------------------
Ron D. Barbaro
/s/ James M. Denny Director March 27, 1998
- ----------------------------------
James M. Denny
/s/ Tinsley H. Irvin Director March 23, 1998
- ----------------------------------
Tinsley H. Irvin
/s/ Daniel W. McGlaughlin Director March 27, 1998
- ----------------------------------
Daniel W. McGlaughlin
/s/ Julia B. North Director March 23, 1998
- ----------------------------------
Julia B. North
/s/ Charles I. Story Director March 20, 1998
- ----------------------------------
Charles I. Story
</TABLE>
12
<PAGE> 1
EXHIBIT 10
FORM OF
EMPLOYMENT AND COMPENSATION AGREEMENT
THIS EMPLOYMENT AND COMPENSATION AGREEMENT (as the same may be
amended, modified or supplemented from time to time, this "Agreement") is made
as of __________________ (the "Effective Date"), between ChoicePoint Inc., a
Georgia corporation (together with all successors thereto, "Employer"), and
___________________, a resident of the State of ________ ("Executive").
STATEMENT OF TERMS
The parties hereby agree as follows:
1. Employment Term.
(a) Employer hereby employs Executive, and
Executive hereby accepts employment by
Employer, upon the terms and subject to the
conditions hereinafter set forth.
(b) The term of this Agreement shall commence as of
the Effective Date and shall continue for a
period of _______________ years until the close
of business on ________________ (the "Initial
Term"), unless renewed as specified herein or
terminated earlier under Section 4 or Section 5
hereof. If the Agreement has not been
terminated pursuant to Section 4, the term of
this Agreement shall be automatically extended
for ____________ years until the close of
business on ____________ (the "Renewal Term").
After the Initial Term, the Renewal Term,
including any additional term mutually agreed
to by the Employer and the Executive, Executive
understands that, unless the events triggering
Section 5 have not occurred, Executive: (i)
will be deemed to be an employee at will and
(ii) hereby agrees, to the extent his
employment is to continue after the expiration
of the Agreement, to enter into, prior to the
expiration of the Agreement, such reasonable
employee confidentiality, non-solicitation and
assignment agreements with respect to
Executive's employment, as Employer then
customarily requires of its executives and
other similarly situated employees.
2. Title and Duties.
(a) Executive is engaged initially with the title
and duties described on Exhibit A attached
hereto. Executive shall perform and discharge
well and
<PAGE> 2
faithfully such duties, and such other
duties which may be assigned by Employer to
Executive from time to time in connection with
the conduct of the business of Employer;
however, such latter duties shall be generally
consistent with those set out in Exhibit A
hereto.
(b) In addition to the duties specifically assigned
to Executive pursuant to Section 2(a) hereof,
Executive shall: (i) diligently follow and
implement all management policies and decisions
communicated to Executive by Employer; (ii)
timely prepare and forward all reports and
accountings as may be requested by Employer of
Executive; (iii) devote substantially all of
Executive's time, energy and skill during
regular business hours to the performance of
the duties of Executive's employment
(reasonable vacations and reasonable absences
due to illness excepted); and (iv) not devote
any time to any interest that conflicts with
the business of Employer or any of its
affiliates.
(c) Executive shall have the right to make
contracts binding on Employer or any of its
affiliates, but only to the extent consistent
with the duties described on Exhibit A attached
hereto or otherwise as approved by Employer's
Board of Directors.
(d) All funds and property received by Executive on
behalf of Employer or any of its affiliates
shall be received and held by Executive in
trust, and Executive shall account for and
remit all such funds to Employer.
3. Compensation and Benefits.
(a) Annual Review of Compensation and Benefits.
Employer agrees to (i) review and evaluate
annually the compensation package described in
this Section 3 and in Exhibit B for
competitiveness in the external market,
consistency with internal compensation
practices and other appropriate review
criteria, and (ii) increase the compensation
package as appropriate with approval, if
necessary, from the appropriate committee of
Employer's Board of Directors.
(b) Base Salary. As compensation for services
hereunder, during the Initial Term, Employer
shall pay to Executive a minimum of an annual
base salary of ____________ (the "Base
Salary"). Executive's performance shall be
reviewed annually, and based upon such review,
his Base Salary shall be subject to
modification from time-to-time in accordance
with the approvals of _____________. Base
Salary shall be paid in accordance with the
standard payroll payment practices of Employer
in effect from time to time.
(c) Incentive Pay. Executive shall be entitled to
participate in Employer's annual incentive
program, subject to the terms and provisions
of such
2
<PAGE> 3
program as established by Employer from
time-to-time. Such annual incentive
compensation program is set forth in Exhibit B.
(d) Omnibus Plan. Executive shall also be eligible
to receive periodic grants under the
ChoicePoint Inc. 1997 Omnibus Stock Incentive
Plan ("Omnibus Plan") and any successor
thereto. Such grants may provide for stock
option grants, restricted stock grants and
other grants as provided for by the Omnibus
Plan, for the number of grants, at a price and
on the terms and conditions, as may be
determined by the Management Compensation and
Benefits Committee (the "Compensation
Committee") from time to time in its sole
discretion. The initial value of the grants is
reflected on Exhibit B. Such Omnibus Plan may
provide for long-term incentive grants, such as
performance shares or units or stock
appreciation rights, as approved by the
Compensation Committee.
(e) Non-Qualified Plan. Executive shall be
entitled to participate in the ChoicePoint Inc.
Deferred Compensation Plan for Management
Employees ("Deferred Compensation Plan") which
may include one or more of the following: (i)
an amount transferred from one or more prior
non-qualified plans of Equifax Inc., (ii)
voluntary deferrals of salary or bonus, (iii)
Employer contributions otherwise limited under
the Employer's qualified retirement plans on
account of limits imposed by the Internal
Revenue Code ("Code"), [and (iv) a
supplemental retirement contribution, as set
forth in Exhibit B].
(f) Benefits. Executive shall be entitled to
benefits and perquisites, as set forth in
Exhibit B and consistent with the Employer's
benefit programs and Executive Fringe Benefit
Policy.
(g) Other Plans. Executive shall be entitled to
participate in other executive and employee
benefit plans and arrangements, as Employer may
have or establish from time to time for
similarly situated executives. Such reference
to Other Plans shall not be construed to
require Employer to establish any such plan,
program or arrangement or prevent the
modification or termination of any such plan,
program or arrangement once established.
(h) Vacation. Executive's annual vacation benefits
shall be a minimum number of weeks as provided
in Exhibit B hereto, but such benefits may be
increased if Executive is eligible for
additional benefits in accordance with
Employer's regular vacation plan applicable to
executives and other salaried employees
(including credit for service with Equifax Inc.
prior to the Effective Date).
(i) Expense Reimbursement. Executive shall be
entitled to be reimbursed in accordance with
the policies of Employer, as adopted and
amended from
3
<PAGE> 4
time to time, for all reasonable expenses
incurred by Executive in connection with the
performance of Executive's duties of employment
hereunder; provided, however, Executive shall,
as a condition of such reimbursement, submit
verification of the nature and amount of such
expenses in accordance with the reimbursement
policies from time to time adopted by Employer.
(j) Entire Compensation. The salary and benefits
set forth in this Section 3 and Exhibit B shall
be the only compensation payable to Executive
with respect to his employment hereunder
(except as provided in Sections 4(c), 4(e) and
5 hereof), and Executive shall not be entitled
to receive any compensation in addition to that
set forth herein for any services provided by
Executive in any capacity to Employer or any of
its affiliates. Employer or affiliate may
increase either the components of compensation
or the amount of compensation described in
Exhibit B at any time, in its total discretion,
without binding Employer to continue such
increase. Discontinuing such increase shall
not be a violation of this Agreement.
(k) Withholding. Employer may deduct from each
payment of salary and other benefits hereunder
all amounts required to be deducted and
withheld in accordance with applicable federal
and state income, FICA and other withholding
requirements.
4. Termination.
(a) Termination by Employer. Employer, at its sole
election and by written notice to Executive,
shall have the right to terminate the Agreement
and Executive's employment hereunder at any
time during or immediately after expiration of
the Initial Term or any additional term,
whether such termination is a Termination With
Cause or a Termination Without Cause.
(b) Termination by Executive. Executive, at his
sole election and by written notice to
Employer, shall have the right to terminate the
Agreement and Executive's employment hereunder
at any time during the Initial Term or any
additional term whether such termination is a
Constructive Termination or a Voluntary
Resignation. In the event Executive takes the
position that a Constructive Termination has
occurred, Executive shall so notify Employer of
such position in writing within thirty (30)
days of the occurrence of the event Executive
relies on for such Constructive Termination
determination. Executive shall specify the
event upon which Executive relies and specify
in reasonable detail the facts and
circumstances claimed to provide the basis for
the Constructive Termination.
(c) Automatic Termination. The Agreement and
Executive's employment hereunder shall
automatically terminate on the date of the
Executive's death or twenty-four (24) months
following the first day of Executive's
4
<PAGE> 5
continuous absence due to his condition that
triggers his Total Disability. Except as
provided in this subsection (c), Employer shall
have no further obligation to Executive or his
heirs or legal representatives with respect to
this Agreement.
(i) Death. In the event of the death of the
Executive, Employer shall pay to
Executive's designated beneficiary or
beneficiaries, or if there is no designated
beneficiary, to his estate (A) any Base
Salary, benefits, and other compensation
accrued and vested as of the date of death
and remaining unpaid at the Executive's
death, (B) an amount equal to 30 days of
Executive's Base Salary, (C) any death
benefits payable under Employer's qualified
and non-qualified benefit plans pursuant to
the terms and provisions of such plans, (D)
life insurance, at Employer's expense
consistent with Employer's Basic Life
Insurance Plan in addition to the amount
specified on Exhibit B and (E) any other
benefits and perquisites specified on
Exhibit B. Such amounts shall be paid as
soon as practicable following the
Executive's death in accordance with
applicable plans, policies or programs.
(ii) Total Disability. In the event of the
Executive's Total Disability, Employer
shall pay the Executive (A) any Base
Salary, benefits, and other compensation
accrued and vested as of the date of Total
Disability and remaining unpaid as of the
Executive's Total Disability, (B)
short-term disability benefits consistent
with Employer's disability policy;
provided, such payments in no event shall
be less than one hundred (100%) percent of
Base Salary until the earlier of the end of
Executive's period of Total Disability or
six (6) months and (C) any other benefits
and perquisites specified on Exhibit B. If
the Executive's Total Disability continues
after the end of the expiration of six (6)
months, Employer shall pay Executive
long-term disability benefits consistent
with Employer's disability policy; such
benefits in no event shall be less than
those set forth on Exhibit B.
(d) Termination Without Payments. If this
Agreement is terminated during the Initial Term
or any additional term by Executive's (1)
Voluntary Resignation or (2) Termination With
Cause, Employer shall have no further
obligation to Executive or his heirs or legal
representatives with respect to this Agreement,
except for Base Salary, benefits, and other
compensation accrued and vested up to the date
of such termination and remaining unpaid as of
the Date of Termination.
(e) Termination With Payments. If this Agreement
is terminated during the Initial Term or any
additional term by either (1) a Constructive
Termination or (2) a Termination Without Cause,
then Employer shall pay to Executive the
Severance Benefits calculated in this
Subsection (e); provided, however, that
5
<PAGE> 6
Executive shall not be entitled to receive any
such severance payments until and unless
Executive executes and delivers to Employer
within thirty (30) days after the Date of
Termination the Release set forth herein as
Exhibit C, and such Release becomes effective
and irrevocable. Unless Employer and Executive
mutually agree to an alternative method of
payments, such Severance Benefits shall be paid
by Employer to Executive in a lump sum, and
shall be paid as soon as practicable following
the Effective Date of the Release but in no
event later than 15 days after such Effective
Date.
Severance Benefits.
(i) Employer shall pay Executive all Base
Salary, benefits and other compensation
accrued as of Executive's Date of
Termination but which remains unpaid as of
his Date of Termination.
(ii) The Employer shall pay Executive an amount
equal to the total amount that would have
resulted from the continuance of
Executive's Total Direct Compensation for
the period commencing on the Date of
Termination and continuing for a period of
_________ years; provided, such severance
amount shall not be less than the benefits
Executive is entitled to under the
Employer's Severance Pay Plan, if any.
Additionally, Employer shall pay to
Executive the value of the Employer
contributions to all of Employer's
qualified and non-qualified retirement
plans for the year in which Executive's
termination occurs. The benefits provided
under the Employer's Severance Pay Plan are
not duplicative of benefits provided under
this Agreement.
(f) Definitions. The terms used in this Section 4,
shall have the meanings set forth in Section 10
hereof.
5. Change in Control.
(a) Assumption of Agreement. In the event of a
Change in Control, Employer will require any
successor of the Employer, by agreement in form
and substance, expressly to assume and agree to
perform this Agreement. Failure of Employer to
obtain such agreement prior to the effective
date of the Change of Control shall be a breach
of this Agreement and shall constitute a Good
Reason Resignation.
(b) Term. This Change in Control Provision shall
become effective on the Effective Date and
shall continue for a period of five (5) years
thereafter (the "Change in Control Term");
provided, however, that commencing on the first
anniversary of the Effective Date and each
anniversary thereafter, the Change in Control
Term shall automatically be extended for one
(1) additional year, unless at least sixty (60)
days prior to any such anniversary date,
Employer
6
<PAGE> 7
shall have given Executive written notice of
the intention not to extend the Change in
Control Provision. The Change in Control term
shall expire upon the Executive's date of
termination.
(c) Severance Benefits. In the event that (i)
Executive is employed by Employer as of the
effective date of a Change In Control and
Employer fails to obtain the assumption of
agreement to perform this Agreement by
Employer's successor prior to the Change in
Control or (ii) Executive is employed by
Employer at the time of a Change in Control and
the Executive's employment with the Employer
terminates during the Change in Control Term on
account of Good Reason Resignation, then
Executive shall be entitled to the Severance
Benefits specified in Subsection (f).
(d) Notice Requirement. In the event Executive
takes the position that a Good Reason
Resignation has occurred, Executive shall so
notify Employer of such position in writing
within sixty (60) days of the occurrence of the
event Executive relies on for such Good Reason
Resignation determination. Executive shall
specify the event upon which Executive relies
and specify in reasonable detail the facts and
circumstances claimed to provide the basis for
the Good Reason Resignation.
(e) Voluntary Resignation. In the event Executive
voluntarily terminates employment with Employer
on account of a Voluntary Resignation that does
not constitute a Good Reason Resignation,
Employer shall not be required to make any
payment referred to in this Section 5 to which
the Executive would otherwise be entitled in
the event of a Change in Control, except for
Base Salary, benefits, and any other
compensation arrangements which the Executive
has accrued and in which he is vested under the
Employer's plans and policies, but which
remains unpaid as of his Date of Termination.
These earned but unpaid amounts shall be paid
to Executive as soon as practicable following
Executive's Voluntary Termination.
(f) Severance Benefits.
(i) Employer shall pay Executive all Base
Salary, benefits and other compensation
accrued and vested as of Executive's Date
of Termination but which remain unpaid as
of the Date of Termination.
(ii) The Employer shall pay the Executive within
30 days following the Date of Termination a
lump sum amount equal to the sum of (A)
Executive's Total Direct Compensation
multiplied by _________ and (B) the
Executive's Total Indirect Compensation
multiplied by _________; provided if any
plan or program which comprises a component
of Total Direct Compensation or Total
Indirect Compensation would provide for a
different method of payment, the
distribution provisions of such plan or
program will control.
7
<PAGE> 8
(iii) The amounts determined under Subsections
(i) and (ii) hereof shall be paid from
the general assets of the Employer;
provided, however, the Employer reserves
the right to set aside assets to secure
the payment of benefits hereunder by
establishing a non-qualified grantor
trust upon such terms and conditions as
it deems appropriate.
(g) Tax Payments. In the event that any payments
made to the Executive under this Section 5 or
any other payments made to the Executive by the
Employer are deemed to be "excess parachute
payments" under Section 280G of the Internal
Revenue Code of 1986 (the "Code"), the Employer
agrees to provide a gross up payment to the
Executive in order to place him in the same
after-tax position that he would have been in
had no excise tax become due and payable under
Code Section 4999.
(h) Definitions. The terms used in this Section 5,
shall have the meanings set forth in Section
10.
6. Confidentiality; Employee Non-Solicitation.
(a) Trade Secrets and Confidential Information.
(i) All Proprietary Information (defined
below), and all materials containing
them, received or developed by Executive
during the term of his employment by
Employer (in this Section 6, the term
"Employer" refers collectively to
Employer and/or its affiliates) are
confidential to Employer, and will remain
Employer's property exclusively. Except
as necessary to perform Executive's
duties for Employer, Executive will hold
all Proprietary Information in strict
confidence, and will not use, reproduce,
disclose or otherwise distribute the
Proprietary Information, or any materials
containing them, and will take those
actions reasonably necessary to protect
any Proprietary Information. Executive's
obligations regarding Trade Secrets
(defined below) will continue
indefinitely, while Executive's
obligations regarding Confidential
Information (defined below) will cease
two (2) years from the Date of
Termination of Executive's employment
with Employer for any reason.
(ii) "Trade Secret" means information,
including, but not limited to, technical
and nontechnical data, formulas,
patterns, designs, compilations, computer
programs and software, devices,
inventions, methods, techniques,
drawings, processes, financial plans,
product plans, lists of actual or
potential customers and suppliers,
research, development, existing and
future products and services, and
employees of Employer which (A) derives
independent economic value, actual or
potential, from not being generally known
to, and not
8
<PAGE> 9
being easily ascertainable by proper
means by, other persons who can obtain
economic value from its disclosure or
use, and (B) is the subject of Employer's
efforts that are reasonable under the
circumstances to maintain secrecy; or as
otherwise defined by applicable state
law.
(iii) "Confidential Information" means any and
all knowledge, information, data, methods
or plans (other than Trade Secrets) which
are now or at any time in the future
during Executive's employment will be
developed, used or employed by Employer
which are treated as confidential by
Employer and not generally disclosed by
Employer to the public, and which relate
to the business or financial affairs of
Employer, including, but not limited to,
financial statements and information,
marketing strategies, business
development plans and product or process
enhancement plans.
(iv) "Proprietary Information" means
collectively the Confidential Information
and Trade Secrets. Proprietary
Information also includes information
that has been disclosed to Employer by a
third party that Employer is obligated to
treat as confidential or secret.
(v) Notwithstanding anything to the contrary
in this subsection 6(a), "Proprietary
Information" does not include any
information that (A) is already known to
Executive at the time it is disclosed to
Executive by Employer; or (B) before
being divulged by Executive (1) has
become generally known to the public
through no wrongful act of Executive; (2)
has been rightfully received by Executive
from a third party without restriction on
disclosure and without breach of an
obligation of confidentiality running
directly or indirectly to Employer; (3)
has been approved for release to the
general public by a written authorization
of Employer; (4) has been independently
developed by Executive without use,
directly or indirectly, of the
Proprietary Information received from
Employer; or (5) has been furnished to a
third party by Employer without
restrictions on the third party's right
to disclose the information.
(vi) In the event Executive is required by any
court or legislative or administrative
body (by oral questions, interrogatories,
requests for information or documents,
subpoena, civil investigation demand or
similar process) to disclose any
Proprietary Information of Employer,
Executive shall provide Employer with
prompt notice of such requirement in
order to afford Employer an opportunity
to seek an appropriate protective order.
However, if Employer is unable to obtain
or does not seek such protective order
and Executive is, in the opinion of his
counsel, compelled to disclose such
Proprietary
9
<PAGE> 10
Information under pain of liability for
contempt or other censure or penalty,
disclosure of such information may be
made without liability.
(vii) Executive acknowledges that Employer is
obligated under federal and state fair
credit reporting and similar laws and
regulations to hold in confidence and not
disclose certain information regarding
individuals, firms or corporations which
is obtained or held by Employer, and that
Employer is required to adopt reasonable
procedures for protecting the
confidentiality, accuracy, relevancy and
proper utilization of consumer report
information as such term is defined in
such acts. In that regard, except as
necessary to perform Executive's duties
for Employer, Executive will hold in
strict confidence, and will not use,
reproduce, disclose or otherwise
distribute any information which Employer
is required to hold confidential under
applicable federal and state laws and
regulations, including the federal Fair
Credit Reporting Act (15 U.S.C. Section
1681 et. seq.) and analogous state fair
credit reporting statutes.
(b) Employee Non-Solicitation. During the term of
Executive's employment by Employer and for two
(2) years after his termination, Executive will
not, either directly or indirectly, on his
behalf or on behalf of others, solicit for
employment or hire, or attempt to solicit for
employment or hire, any employee of Employer
with whom Executive had regular contact in the
course of his employment by Employer.
(c) Customer Non-Solicitation. During the term of
Executive's employment by Employer and for two
(2) years after his termination, Executive
shall not directly or indirectly, for himself
or for any person, firm or employer, divert,
interfere with, disturb, or take away, or
attempt to divert, interfere with, disturb, or
take away, the patronage of any customers of
Employer with which Executive had actual
contact during the term of Executive's
employment by Employer.
(d) Return of Property. At Employer's request or
on termination of Executive's employment with
Employer for any reason, Executive will deliver
promptly to Employer all property of Employer
in his possession or control, including,
without limitation, all Proprietary
Information, all materials containing them, and
all originals and copies of all documents
(whether in hard copy or stored in electronic
form) which relate to or were prepared in the
course of Executive's employment (including,
but not limited to, contracts, proposals or any
information concerning the identity of
customers, services provided by Executive and
the pricing of these services).
(e) Remedies. Executive agrees that the covenants
and agreements contained in this Section 5 are
of the essence of this Agreement; that each of
such covenants is reasonable and necessary to
protect and preserve the interests
10
<PAGE> 11
and properties of Employer and the business of
Employer; that immediate and irreparable
injury, loss and damage will be suffered by
Employer should Executive breach any such
covenants and agreements; and that, in addition
to other legal or equitable remedies available
to it (including but not limited to damages,
royalties and penalties pursuant to applicable
law), in recognition of the fact that Executive
has special, unique, unusual and extraordinary
qualities that provide peculiar value to
Employer's business, Employer shall be entitled
to the remedies of injunction and/or specific
performance, if available, to prevent a breach
or contemplated breach by Executive of any of
such covenants or agreements.
7. Inventions.
(a) Generally.
(i) Executive agrees that all Company
Inventions (defined below) conceived or
first reduced to practice by Executive
during Executive's employment by Employer
and all copyrights and other rights to
such Company Inventions shall become the
property of Employer. Executive hereby
irrevocably assigns to Employer all of
Executive's rights to all Company
Inventions.
(ii) Executive agrees that if Executive
conceives an Invention (defined below)
during Executive's employment with
Employer for which there is a reasonable
basis to believe that the conceived
Invention is a Company Invention,
Executive shall promptly provide a
written description of the conceived
Invention to Employer adequate to allow
evaluation thereof for a determination as
to whether the Invention is a Company
Invention.
(iii) If, upon commencement of Executive's
employment with Employer under this
Agreement, Executive has previously
conceived any Invention or acquired any
ownership interest in any Invention,
which: (A) is Executive's property, or
of which Executive is a joint owner with
another person or entity; (B) is not
described in any issued patent as of the
Effective Date; and (C) would be a
Company Invention if such Invention was
made while Executive is an employee of
Employer, then Executive shall, at his
election, either: (1) provide Employer
with a written description of the
Invention on Exhibit D attached hereto,
in which case the written description
(but no rights to the Invention) shall
become the property of Employer; or (2)
provide Employer with a license as
specified in subsection 7(a)(iv) of this
Agreement.
(iv) If Executive has previously conceived or
acquired any ownership interest in an
Invention described by the criteria set
forth in the
11
<PAGE> 12
immediately preceding subsection 7(a)
(iii) and Executive elects not to
disclose such Invention to Employer as
provided therein, then Executive hereby
grants to Employer a nonexclusive, paid
up, royalty-free license to use and
practice such Invention.
(v) Executive hereby represents to Employer
that he owns no patents, individually or
jointly with others.
(vi) Notwithstanding any other provision in
this Section 7, in no event shall
Executive's assignment of any Invention
to Employer apply to an Invention that
Executive develops entirely on his own
time during his employment with Employer
without using Employer's equipment,
supplies, facilities, Proprietary
Information, except for any Inventions
that either: (A) relate at the time of
conception or reduction to practice of
the Invention to the Employer's business,
or to actual or demonstrably anticipated
research or development of Employer; or
(B) result from any work performed by
Executive for Employer.
(b) Copyrights.
(i) Executive agrees that any Works (defined
below) created by Executive in the course
of performing Executive's duties as an
employee of Employer are subject to the
"Work for Hire" provisions contained in
Sections 101 and 201 of the United States
Copyright Law, Title 17 of the United
States Code. All right, title and
interest to copyrights in all Works which
have been or will be prepared by
Executive within the scope of Executive's
employment with Employer will be the
property of Employer. Executive further
acknowledges and agrees that, to the
extent the provisions of Title 17 of the
United States Code do not vest in
Employer the copyrights to any such
Works, Executive shall assign and hereby
does assign to Employer all right, title
and interest to copyrights which
Executive may have in such Works.
(ii) Executive agrees to promptly disclose to
Employer all Works referred to in the
immediately preceding subsection and
execute and deliver all applications for
registration, registrations, and other
documents relating to the copy rights to
such Works and provide such additional
assistance, as Employer may deem
necessary and desirable to secure
Employer's title to the copyrights in
such Works. Employer shall be responsible
for all expenses incurred in connection
with the registration of all such
copyrights.
(iii) Executive hereby represents to Employer
that he claims no ownership rights in any
Works, except those described on Exhibit
D attached hereto.
12
<PAGE> 13
(c) Section 7 Definitions. As used in this Section
7, the following terms shall have the meanings
ascribed to them below:
(i) "Company Invention" means any Invention
which is conceived by Executive alone or
in a joint effort with others during
Executive's employment by Employer which
(A) may be reasonably expected to be used
in a product or service of Employer, or a
product or service similar to a product
or service of Employer; (B) results from
work that Executive has been assigned as
part of his duties as an employee of
Employer; (C) is in an area of technology
which is the same or substantially
related to the areas of technology with
which Executive is involved in the
performance of Executive's duties as an
employee of Employer; or (D) is useful,
or which Executive reasonably expects may
be useful, in any manufacturing, product
or service design process of Employer.
(ii) "Invention" means any discovery, whether
or not patentable, including, but not
limited to, any useful idea, invention,
improvement, innovation, design, process,
method, formula, technique, machine,
manufacture, composition of matter,
algorithm or computer program, as well as
improvements thereto, which is new or
which Executive has a reasonable basis to
believe may be new.
(iii) "Work" means a copyrightable work of
authorship, including without limitation,
any technical descriptions for products,
services, user's guides, illustrations,
advertising materials, computer programs
(including the contents of read only
memories) and any contribution to such
materials.
(d) Statutory Notice. In accordance with Section
2872 of the California Labor Code, Executive is
hereby notified that the provisions of this
Section 6 requiring assignment of certain
Inventions to Employer do not, in any event,
apply to any invention which qualifies under
the provisions of Section 2870 of such Code.
Section 2870(a) of the California Labor Code
provides as follows:
Section 2870. Inventions on Own Time
Exemption from Agreement
(a) Any provision in an employment
agreement which provides that
an employee shall assign, or
offer to assign, any of his
or her rights in an invention
to his or her employer shall
not apply to an invention
that the employee developed
entirely on his or her own
time without using the
employer's equipment,
supplies, facilities, or
trade secret information
except for those inventions
that either:
13
<PAGE> 14
(1) Relate at the time of
conception or reduction to
practice of the invention to
the employer's business, or
actual or demonstrably
anticipated research or
development of the employer;
or
(2) Result from any work
performed by the employee for
the employer.
8. Notice. All notices, requests, demands and other
communications required hereunder shall be in writing and
shall be deemed to have been duly given if delivered or if
mailed, by United States certified or registered mail, prepaid
to the party to which the same is directed at the following
addresses (or at such addresses as shall be given in writing
by the parties to one another):
If to Employer, to:
ChoicePoint Inc.
1000 Alderman Drive
Alpharetta, Georgia 30005
Attention: General Counsel
If to Executive, to:
-------------------------------------
-------------------------------------
-------------------------------------
-------------------------------------
Notices delivered in person shall be effective on the date of
delivery. Notices delivered by mail as aforesaid shall be
effective upon the third calendar day subsequent to the
postmark date thereof.
9. Miscellaneous.
(a) Other Employee Benefits. The benefits under
this Agreement shall not be affected by or
reduced because of any other benefits to which
the Employee may be entitled by reason of his
continuing employment with the Employer or the
termination of his employment with the
Employer, and no other such benefit by reason
of such employment shall be so affected or
reduced because of the benefits bestowed by
this Agreement; provided, however, that the
foregoing will not be interpreted to require
duplicative severance, medical or other "health
insurance" benefits.
(b) Assignment. Except as provided in Section
5(a), this Agreement may not be assigned by
either Employer or Executive without the prior
written consent of the other party.
14
<PAGE> 15
(c) Waiver. The waiver by one party of any breach
of this Agreement by the other party shall not
be effective unless in writing, and no such
waiver shall constitute the waiver of the same
or another breach on a subsequent occasion.
(d) Amendment. This Agreement may not be modified,
amended, supplemented, or terminated except by
a written instrument executed by the parties
hereto.
(e) Severability. Each of the covenants and
agreements herein above contained shall be
deemed separate, severable and independent
covenants, and in the event that any covenant
shall be declared invalid by any court of
competent jurisdiction, such invalidity shall
not in any manner affect or impair the validity
or enforceability of any other part or
provision of such covenant or of any other
covenant contained herein. If a court of
competent jurisdiction shall determine that any
provision contained in this Agreement, or any
part thereof, is unenforceable for any reason,
the parties hereto authorize such court to
reduce the duration or scope of such provision,
or otherwise modify such provision, so that
such provision in its reduced or modified form
will be enforceable.
(f) Legal Fees. In the event (1) the Employer
breaches this Agreement, (2) the Executive is
terminated by the Employer other than for
Cause, or (3) the Executive terminates his
employment for Good Reason or on account of a
Constructive Termination, the Employer shall
reimburse the Executive for all legal fees and
expenses reasonably incurred by the Executive
as a result of such termination, including all
fees and expenses, if any, incurred in
contesting or disputing any such termination or
in seeking to obtain or enforce any right or
benefit provided by this Agreement.
(g) Captions and Section Headings. Captions and
section headings used herein are for
convenience only and are not a part of this
Agreement and shall not be used in construing
it.
(h) Entire Agreement. This Agreement constitutes
the entire understanding and agreement of the
parties with respect to its subject matter and
any and all prior agreements, understandings or
representations with respect to the subject
matter hereof are terminated and canceled in
their entirety and are of no further force or
effect.
(i) Governing Law. This Agreement and the rights
of the parties hereunder shall be governed by
and construed in accordance with the laws of
the State of Georgia, without regard to the
conflicts of laws provisions thereof.
(j) Exhibits. All exhibits to this Agreement are
incorporated herein by reference thereto.
15
<PAGE> 16
(k) Survival. The covenants of Executive in
Sections 6 and 7, and the obligations of
Employer in Sections 4 and 5 to the extent
provided therein, shall survive the termination
of this Agreement and Executive's employment
hereunder and shall not be extinguished
thereby.
(l) Counterparts. This Agreement may be executed
in two or more counterparts, each of which will
take effect as an original and all of which
shall evidence one and the same agreement.
10. Definitions.
(a) "Change in Control" means if, at any time, any
of the following events shall have occurred:
(i) The Employer is merged or consolidated or
reorganized into or with another
corporation or other legal person, and as
a result of such merger, consolidation or
reorganization, less than a majority of
the combined voting power of the
then-outstanding securities of such
corporation or person immediately after
such transaction is held in the aggregate
by the holders of Voting Shares
immediately prior to such transaction;
(ii) The Employer sells or otherwise transfers
all or substantially all of its assets to
any other corporation or other legal
person, and as a result of such sale or
transfer less than a majority of the
combined voting power of the
then-outstanding securities of such
corporation or person immediately after
such sale or transfer is held in the
aggregate by the holders of Voting Shares
immediately prior to such sale or
transfer;
(iii) There is a report filed on Schedule 13D
or Schedule 14D-1 (or any successor
schedule, form, or report), each as
promulgated pursuant to the Securities
Exchange Act of 1934 (the "Exchange
Act"), disclosing that any person (as the
term "person" is used in Section 13(d)(3)
or Section 14(d)(2) of the Exchange Act)
has become the beneficial owner (as the
term "beneficial owner" is defined under
Rule 13d-3 or any successor rule or
regulation promulgated under the Exchange
Act) of securities representing thirty
(30%) percent or more of the Voting
Shares;
(iv) Employer files a report or proxy
statement with the Securities and
Exchange Commission pursuant to the
Exchange Act disclosing in response to
Form 8-K or Schedule 14A (or any
successor schedule, form or report or
item therein) that a change in control of
the Employer has or may have occurred or
will or may occur in the future pursuant
to any then-existing contract or
transaction, provided, that
16
<PAGE> 17
a Change in Control will not be deemed to
have occurred if a potential change in
control disclosed in such filing does not
in fact occur; or
(v) If during any period of two (2)
consecutive years, individuals who at the
beginning of any such period constitute
the Directors of the Employer cease for
any reason to constitute at least a
majority thereof, unless the election, or
the nomination for election by the
Employer's shareholders, of each Director
of the Employer first elected during such
period was approved by a vote of at least
two-thirds of the Directors of the
Employer then still in office who were
Directors of the Employer at the
beginning of any such period.
(vi) Notwithstanding the foregoing provisions
of Subsections (iii) and (iv) above, a
"Change in Control" shall not be deemed
to have occurred for purposes of this
Agreement (A) solely because (1) the
Employer, (2) a subsidiary of the
Employer, (3) any Employer-sponsored
employee stock ownership plan or other
employee benefit plan of the Employer or
(4) Executive, either files or becomes
obligated to file a report or proxy
statement under or in response to
Schedule 13D, Schedule 14D-1, Form 8-K or
Schedule 14A (or any successor schedule,
form, or report or item therein) under
the Exchange Act, disclosing beneficial
ownership by such company, plan or the
Executive of shares of Voting Shares,
whether in excess of thirty (30%) percent
or otherwise, or because the Employer
reports that a change of control of the
Employer has or may have occurred or will
or may occur in the future by reason of
such beneficial ownership or (B) solely
because of a change in control of any
Subsidiary.
(vii) Notwithstanding the foregoing, if prior
to any event described in Subsections
(i), (ii), (iii) or (iv) of this
Subsection (a) instituted by any person
who is not an officer or director of the
Employer, or prior to any disclosed
proposal instituted by any person who is
not an officer or director of the
Employer which could lead to any such
event, management proposes any
restructuring of the Employer which
ultimately leads to an event described in
Subsections (i), (ii), (iii) or (iv) of
this Subsection (a) pursuant to such
management proposal, then a "Change in
Control" shall not be deemed to have
occurred for purposes of this Agreement.
(b) "Constructive Termination" means termination by
Executive of this Agreement and employment with
the Employer (except in connection with
Executive's death, Total Disability or in
anticipation by Executive of a Termination with
Cause) as a result of (i) assignment to
Executive by Employer of duties that are
materially inconsistent with Executive's
position, duties or responsibilities as
described on Exhibit A, (ii) any material
reduction in one or more components or elements
of Executive's most recent
17
<PAGE> 18
compensation and benefits package described in
Section 3 and in Exhibit B, Section 3.
Compensation and Benefits hereof, (iii) a
material failure by Employer to fulfill its
obligations under this Agreement which is not
cured within ten (10) business days after
receipt by Employer of such written notice from
Executive specifying the nature of the material
failure, [(iv) assignment to Executive by
Employer of a different reporting relationship
than described on Exhibit A, (v) a change in
Executive's location of employment outside of
the standard statistical metropolitan area of
Atlanta, Georgia, or (vi) a material
diminishment in, or a material alteration of,
Executive's duties as described in Exhibit A].
(c) "Date of Termination" means (i) the date on
which the written notice under Section 4 or
Section 5 is given by Executive or Employer;
provided, if within thirty (30)days after
receiving Executive's notice, Employer
notifies Executive that a dispute exists
concerning the termination, the Date of
Termination shall be the date on which the
dispute is finally resolved, either by mutual
written agreement of the parties, by a binding
and final arbitration award if agreed upon by
the Executive and the Employer or by a final
judgment, order or decree of a court of
competent jurisdiction, the time for appeal
therefrom having expired and no appeal having
been perfected; provided, during the period of
dispute, Employer agrees to continue
Executive's Total Compensation or (ii) in the
case of the failure of the Employer's successor
to assume this Agreement, the effective date of
the Change in Control.
(d) "Employer", for purposes of Sections 4 and 5,
means the Employer as herein before named and
any successor which executes the Agreement or
otherwise becomes bound by all the terms and
provisions of this Agreement by operation of
law.
(e) "Good Reason Resignation" means termination of
this Agreement by Executive during the Change
in Control Term as a result of (i) any
diminishment in, or an alteration of,
Executive's duties inconsistent with position
and status with the Company as in effect
immediately prior to the Change in Control,
(ii) assignment to Executive by Employer of
duties that are inconsistent with Executive's
position, duties and responsibilities in effect
immediately prior to the Change in Control,
(iii) any removal of Executive from or failure
to re-elect him or appoint him to any of such
positions, except in the case of a termination
of employment on account of the willful and
continued failure by the Executive to
substantially perform his duties as described
in Exhibit A for the Employer, or on account of
Total Disability, (iv) any reduction in one or
more components or elements of Executive's
compensation and benefits package described in
Section 3 and in Exhibit B hereof that is in
effect immediately prior to the Change in
Control, (v) failure by the Employer to obtain
the assumption of agreement to perform this
Agreement by any successor to the Employer
[(vi) a change in Executive's
18
<PAGE> 19
location of employment outside of the standard
statistical metropolitan area of Atlanta,
Georgia, (vii) assignment to Executive by
Employer of a different reporting relationship
than described in Exhibit A, or (viii) a
failure to renew this Agreement for the Renewal
Term specified in Section 1.].
(f) "Termination With Cause" means termination of
this Agreement by Employer as a result of (i)
the willful engaging by Executive in misconduct
which is materially injurious to the Company,
monetarily or otherwise, (ii) conduct by
Executive amounting to fraud, dishonesty, gross
negligence or willful misconduct in matters
affecting the fiscal affairs of Employer, (iii)
material inattention to, or breach of his
duties hereunder (other than as a result of
illness or injury), provided such event has not
been cured within ten (10) business days after
receipt by Executive of written notice from
Employer of its occurrence, (iv) excessive
unexcused absences (other than vacation as
provided on Exhibit B, illness or disability)
by Executive from work, (v) Executive's
material failure to comply with federal, state
or local laws in connection with his employment
(vi) Executive's conviction of (or plea of
guilty or nolo contendere to) a felony or to a
misdemeanor involving moral turpitude, or (vii)
Executive's excessive use or abuse of drugs,
alcohol or other toxic substances impairing his
ability to perform his duties hereunder.
(g) "Termination Without Cause" means a termination
of this Agreement by Employer which is not a
termination because of the death of Executive,
a Termination With Cause, a Voluntary
Resignation, a Good Reason Termination, a
Constructive Termination or Executive's Total
Disability.
(h) "Total Compensation" means Total Direct
Compensation plus Total Indirect Compensation.
(i) "Total Direct Compensation" means the larger of
(i) Executive's highest weekly Base Salary paid
during the 36 months preceding his Date of
Termination multiplied by 52 plus (ii) the
greater of (a) his highest annual incentive or
commission pay earned during any of the three
(3) 12-month periods preceding the Executive's
Date of Termination or (b) his weekly Base
Salary as of the Date of Termination annualized
for the year of termination multiplied by the
incentive or commission pay that would have
been payable had target incentive levels
established in Exhibit B been earned for the
year of termination. Such pay shall be
determined prior to any pre-tax deferrals under
the Employer's then existing deferral programs
including, but not limited to, the Employer's
Section 125 plan, Section 401(k) plan and
deferred compensation plan.
(j) "Total Disability" means the inability of
Executive to perform his material and
substantial duties hereunder by reason of
mental or physical illness, injury or disease
which is expected to result in death or be of
indefinite duration. The
19
<PAGE> 20
Board of Directors, or such committee as is
designated under Exhibit B, shall determine in
good faith whether the Executive has suffered
Total Disability.
(k) "Total Indirect Compensation" means the sum of
(i) the benefits described in (A) or (B)
herein, whichever is larger and (ii) the
Employer Contribution, reimbursement or payment
which would have been made for the calendar
year of termination to fund the Benefits
described on Exhibit B. Each qualified and
non-qualified plan and program taken into
account under (A) or (B) herein and enumerated
under Schedule B shall be determined
separately.
(A) is the sum of the highest benefits accrued,
contributions paid or an equivalent value
attributable thereof during the three (3)
12-month periods preceding the Date of
Termination, and (B) is an amount that, in the
event the plan or program specifies a
contribution amount, percentage, grant or
vesting schedule, equals such contribution or
percentage, determined as if Executive had
continued in employment for the period
specified in Section 4(e)(ii) or Section
5(f)(ii)(B), as applicable, and using Total
Direct Compensation as the base to which such
contribution or percentage shall be applied.
(l) "Voluntary Resignation" means a termination of
this Agreement by Executive on account of
retirement or other employee-initiated
termination which does not constitute a
Constructive Termination or Good Reason
Resignation.
(m) "Voting Shares" means at any time the
then-outstanding securities entitled to vote
generally in the election of directors of the
Employer.
IN WITNESS WHEREOF, Employer and Executive have each executed and
delivered this Agreement, as of the date first shown above.
EMPLOYER:
CHOICEPOINT INC.
By:
----------------------------------------
Name:
--------------------------------------
Title:
-------------------------------------
EXECUTIVE:
-------------------------------------------
20
<PAGE> 21
EXHIBIT A
DUTIES AND RESPONSIBILITIES OF THE EXECUTIVE
Title:
1
<PAGE> 22
EXHIBIT B
COMPENSATION, BENEFITS AND SEVERANCE
Executive:______________________________Title:________________________________
Effective Date of Exhibit B:__________________________________________________
SECTION 3. COMPENSATION AND BENEFITS.
In addition to the plans, programs or arrangements established from time to
time for other similarly situated employees, Executive shall also be entitled,
pursuant to Section 3 of the Agreement, to the compensation, benefits and
perquisites set forth herein.
Section 3(c): Annual Incentive Program.
Executive shall be entitled to participate in the ChoicePoint Inc.
Executive Incentive Plan, and pursuant to the terms of such plan, be
eligible for an annual cash bonus as a percentage of Base Salary
determined by the achievement of certain performance measurements
specified in the plan. This incentive level shall continue each year
until adjusted by the Compensation Committee of the Board.
<TABLE>
<CAPTION>
1997 AWARD
----------
Level of Achievement % of Base Salary
-------------------- ----------------
<S> <C>
Target %
Maximum %
</TABLE>
Section 3(d): Omnibus Plan.
Executive shall be entitled to participate in the ChoicePoint Inc. 1997
Omnibus Stock Incentive Plan and receive grants under such plan as may be
determined by the Compensation Committee from time to time in its sole
discretion and in accordance with the terms of the plan.
1997 Omnibus Plan Grants
As of the Effective Date of the Agreement, Executive's 1997 total
compensation is based on various option and restricted stock awards
made under the Omnibus Plan with a target value of $_________,
assuming performance measurements are achieved at target levels.
1
<PAGE> 23
Section 3(e): Non-Qualified Plan.
Executive shall be entitled to participate in the ChoicePoint Inc.
Deferred Compensation Plan for Management Employees ("Deferred
Compensation Plan") pursuant to the terms of such plan. Executive shall
be entitled to a SERP contribution equal to ____% of "Compensation" as
that term is defined under such plan.
Section 3(f): Benefits
Executive shall be entitled to participate in Employer's benefit programs
for similarly situated salaried employees pursuant to the terms of such
programs, including, without limitation, medical, dental, life insurance,
long-term disability insurance, flexible spending account arrangements and
the Employer's flexible credit plan. Pursuant to the terms of the
Company's Executive Fringe Benefit Policy, Executive shall be entitled to
the following fringe benefits and perquisites, provided at Employer's
expense:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------
BENEFIT AMOUNT DURATION(1)
- --------------------------------------------------------------------------------------------------
<S> <C> <C>
Executive Loan Up to $ Term of Agreement
Vacation Employer policy, subject to Annually
minimum of 3 weeks
Financial Planning/Tax Annually for Term of
Preparation Agreement, including year
following year of death
Executive Physical $ Every Two Years
Personal Umbrella $ Term of Agreement
Insurance Policy
Club Dues Term of Agreement
Life Insurance $ 5 years from Effective Date
Short-Term Disability 100% of Base Salary Earlier of 6 months or end of
Insurance Total Disability
Long-Term Disability 40% of Total Direct Earlier of age 65 or end of
Compensation Total Disability
- --------------------------------------------------------------------------------------------------
</TABLE>
(1) In each case where the benefit is intended to be provided for the Term
of the Agreement, "Term" shall include the Initial Term and any
Renewal Term.
2
<PAGE> 24
SECTION 10. DEFINITIONS.
Section 10(k): "Total Indirect Compensation"
Subparagraph (k) is determined by taking into account the following
benefits:
a) Matching and profit sharing contributions under the ChoicePoint Inc.
401(k) Profit Sharing Plan;
b) Profit sharing contributions under the Choice Point Inc.
Transition Benefit Plan;
c) Excess contributions (made as a result of any limitation(s) on
ChoicePoint's qualified plan benefits) and SERP contributions
under the ChoicePoint Inc. Deferred Compensation Plan.
3
<PAGE> 25
EXHIBIT C
GENERAL RELEASE
THIS GENERAL RELEASE ("Release") is entered into on the date(s) signed below by
and between ChoicePoint Inc. or a subsidiary of ChoicePoint Inc. ("Employer"), a
Georgia corporation, and <<Name>> ("Executive").
RECITALS
A. Employer and Executive have entered into an Employment and
Compensation Agreement ("the Agreement").
B. Section 4 (e) of the Agreement provides that Executive is eligible for
severance benefits only if, among other conditions, Executive executes
and delivers the Release to Employer within 30 days after termination
of employment, and the Release becomes effective and irrevocable.
C. Executive has terminated employment with Employer under one of the
circumstances set forth in Section 4 of the Agreement which otherwise
entitles Executive to receive benefits ("Severance Benefits") under
the Agreement.
D. Executive desires to qualify for benefits offered under the Agreement
by executing the Release.
E. In consideration of the mutual promises contained herein, Employer and
Executive agree as follows:
1. Consideration. In consideration for Executive's agreement to
release all claims described in paragraph 2 below, Executive will
receive the Severance Benefits specified in the Agreement.
Executive acknowledges that, but for execution of this Release,
Executive would not be entitled to receive Severance Benefits.
The amount, timing and form of payment of Severance Benefits
shall be determined pursuant to the terms of the Agreement. This
Release will continue in force and effect even if some portion of
the Severance Benefits provided under the Agreement is returned
to Employer as a result of Executive's reemployment in any
salaried capacity by Employer or any of its affiliates.
2. Release. As consideration for the Severance Benefits extended to
Executive under the terms of the Agreement and this Release,
benefits to which Executive acknowledges that Executive would not
otherwise be entitled, Executive agrees for Executive,
Executive's heirs, executors, administrators, successors and
assigns to forever release and discharge Employer and its
subsidiaries, related companies, successors and assigns,
officers, directors,
1
<PAGE> 26
agents, executives, and former executives from any and all
claims, debts, promises, agreements, demands, causes of actions,
losses and expenses of every nature whatsoever known or unknown,
suspected or unsuspected, filed or unfiled, arising prior to the
Acceptance Date of this Release, or arising out of or in
connection with Executive's employment by and of Employer and any
affiliate of Employer. This total release includes, but is not
limited to, breach of contract (express or implied) including
breach of the implied covenant of good faith and fair dealing;
intentional infliction of emotional harm; wrongful discharge;
violation of public policy; defamation; invasion of privacy,
impairment of economic opportunity; negligent infliction of
emotional distress; or any other tort; any claims for punitive,
compensatory, and retaliatory discharge damages, back or front
pay claims and fringe benefits; attorney's fees; the Civil Rights
Act of 1866, 42 U.S.C. section 1981, as amended; Title VII of the
Civil Rights Act of 1964, 42 U.S.C. section 2000(e) et seq., as
amended; the Age Discrimination in Employment Act of 1967, 29
U.S.C. section 621 et seq., as amended; the Rehabilitation Act of
1973, 29 U.S.C. section 701, et seq., as amended; the Older
Workers' Benefit Protection Act, 42 U.S.C. section 621 et seq.,
the Americans with Disabilities Act of 1990, 42 U.S.C. section
12101 et seq., as amended; the False Claims Act, 31 U.S.C.
section 3729, et seq., as amended; or any other federal, state,
or municipal statute or ordinance or common law claim relating to
discrimination in employment or otherwise regulating the
employment relationship, or regulating the health or safety of
the work place. This Release does not extend to unpaid accrued
vacation available, vested pension benefits (including, without
limitation, benefits under Employer's qualified retirement and
non-qualified deferred compensation plans) unemployment
compensation claims, or workers' compensation claims.
If Executive is subject to the laws of the state of Alaska,
Hawaii, Pennsylvania, West Virginia, or California this total
Release also includes any claims under the State of Alaska Human
Rights Acts, AS 18.18.200 et seq., AS 23.10.015 - 23.10.440, AS
23.40; Hawaii Revised Statutes Section 378 et seq.; Pennsylvania
Human Relations Act; and West Virginia Human Rights Act, W VA C.
77-6-1 et seq. The telephone number of the West Virginia State
Bar Association is 1-800-642-3617 and Executive is advised to
consult an attorney prior to executing this Agreement.
Executive subject to California law expressly waives any and all
rights or benefits conferred by the provisions of California
Civil Code section 1542, which provides:
"A general release does not extend to claims which the creditor
does not know or suspect to exist in his favor at the time of
executing the release, which if known by him must have materially
affected his settlement with the debtor."
2
<PAGE> 27
3. No Pending or Future Lawsuits. Executive represents that
Executive has no lawsuits, claims or actions pending in
Executive's name, or on behalf of any other person or entity,
against Employer or any other person or entity referred to
herein. Executive also represents that Executive does not intend
to bring any new or different claims on Executive's own behalf or
on behalf of any other person or entity against Employer and/or
its subsidiaries, related companies, successors and assigns,
officers, directors, agents, executives and former executives.
Moreover, Executive hereby promises, warrants, represents and
covenants that Executive will file no claim, lawsuit, or other
action on Executive's or any other person or entity's behalf
against Employer and/or any other person or entity referred to
herein based on any actions taken, circumstances, consequences,
or conduct occurring during Executive's employment by and leaving
of Employer and/or any affiliate of Employer. Executive
understands that the consideration set forth in this Release
constitutes the sole sums Executive can recover from Employer
and/or any other person or entity referred to herein for any
litigation arising from actions taken, circumstances,
consequences, and/or conduct that occurred during Executive's
employment by and/or leaving of Employer and/or any affiliate of
Employer. Executive agrees that Executive will not seek or apply
for reemployment, employment, or independent contractor status
with Employer, other than upon the request of Employer.
4. Covenant Not to Sue. Executive agrees that Executive will not
file any action, or suit contesting the legality of the ending of
Executive's employment or the validity of this Release or
attempting to negate, modify, or reform this Release. Executive
warrants and represents that Executive has not assigned or in any
way conveyed, transferred or encumbered all or any portion of the
claims or rights covered by this Release.
5. Enforcement of Agreement. The parties hereto agree that each
provision of this Release is a material provision and that
failure of any party to perform any one provision hereof shall be
the basis for voiding the entire Release at the option of the
other party, or for pursuing an action at law for such breach.
Any party may waive or excuse the failure of any other party to
perform any provision of this Release, provided, however, that
any such waiver shall not preclude the enforcement of this
Release upon any subsequent breach, whether or not similar in
character, to any waived breach. Upon any breach by Executive,
Employer may cease any future payments. The parties further agree
that in the event that suit is instituted to enforce any of the
rights of the parties to this Release, the prevailing party in
such litigation shall be entitled, as additional damages, to
reasonably incurred attorneys' fees and costs incurred in the
enforcement of this Release.
6. Effective Date of Release. Executive is entitled to review and
consider this Release for twenty-one (21) calendar days following
the date of receipt of the Release (the "Receipt Date") before
signing and returning this Release to
3
<PAGE> 28
Employer. If Executive does not accept the terms of this Release
in writing and deliver the executed Release to Employer within
twenty-one (21) days following the Receipt Date, no Severance
Benefits will be payable to the Executive under the Agreement.
For a period of seven (7) calendar days following the date of
Executive's execution of this Release (the "Acceptance Date"),
Executive may revoke this Release ("Revocation Period").
Executive may revoke this Release only by giving Employer formal,
written notice of Executive's revocation of this Release to the
name and address set forth in paragraph (c) of Section 12 of this
Release, to be received by Employer by the close of business on
the seventh (7th) day following Executive's execution of this
Release (or fifteen (15) days if Executive is subject to the laws
of the state of Minnesota). This Release shall not become
effective in any respect until the Revocation Period has expired
without notice of revocation. In the absence of Executive's
revocation of this Release, the eighth (8th) day after
Executive's execution of this Release shall be the "Effective
Date" of this Release, at which time the rights of all parties
under this Release become fully enforceable.
7. Performance of Release. Each of the parties signing this Release
warrants and represents that he/she/it shall execute and deliver
any and all instruments, agreements, documents or other writings,
and shall perform all other acts deemed to be necessary to effect
the terms and purposes of this Release.
8. Other Releases. This Release constitutes a single, integrated,
written contract expressing the entire understanding between the
parties with respect to the subject matter hereof. No covenants,
agreements, representations or warranties of any kind whatsoever,
whether oral, written or implied, have been made by any party
hereto, except as specifically set forth in this Release. All
prior discussions, agreements, understandings and negotiations
have been and are merged and integrated into, and are superseded
by, this Release with respect to the subject matter hereof.
However, the provision of any written agreements between Employer
and the Executive which by their terms continue beyond the ending
of employment, shall continue in full force and effect and shall
not be affected by the terms of this Release.
9. Modification. No cancellation, modification, amendment,
deletion, addition, or other changes in this Release or any
provision hereof or waiver of any right herein provided shall be
effective for any purpose unless specifically set forth in a
written agreement signed by both Executive and an authorized
representative of Employer.
10. Construction and Severability. In the event that any provision
of this Release shall be held to be void, voidable, or
unenforceable, the remaining portions hereof shall remain in full
force and effect. The parties agree and intend that no provision
of this Release should be considered in a legal or agency
4
<PAGE> 29
proceeding to be void, voidable or unenforceable if it can be
interpreted or modified to read in a way that is legal and
enforceable.
11. Acknowledgment: Executive warrants and represents to Employer as
follows:
(a) Executive has had ample time to review all of the
provisions of this Release and fully understands
it and the choices with respect to advisability of
making the Release provided herein.
(b) Executive has been encouraged by Employer to review
all of the provisions of this Release with independent
legal counsel and other advisors, and has had the
opportunity to pursue such a review.
(c) Executive acknowledges that Executive has entered into
this Release by Executive's free will and choice
without any compulsion, duress, or undue influence from
anyone.
(d) Executive does not have any actions pending against
Employer and/or its subsidiaries, related companies,
successors and assigns, officers, directors, agents,
Executives and former Executives, that address claims
that are released under the terms of this Release, and
that no such claims will be filed during the Revocation
Period of this Release without the formal notification
of Executive's revocation of this Release.
(e) Executive understands that if Executive is re-employed
by Employer, any unpaid Severance Benefits will
not be paid. If Severance Benefits are paid in a lump
sum and Executive is rehired, Executive must repay the
portion of the Severance Benefits attributable to the
period of time after his reemployment date. If Executive
is rehired at a lower base salary than in effect
immediately prior to commencement of the severance
period, the difference between the Severance Benefits
attributable to base salary and the lower base salary
will continue to be paid to Executive through the
severance period.
(f) Executive understands that if Executive has a loan
from Employer, is in possession of Employer
property, or is otherwise indebted to Employer, no
Severance Benefits will be paid until arrangements have
been made regarding these obligations. If satisfactory
arrangements are not made, such obligations to Employer
will be deducted from Executive's Severance Benefits.
12. Notice.
(a) This Release, and any revocation of this Release or
other required communication, shall be deemed to be
delivered to and received by Employer at the address set
forth in paragraph (b) below on the date postmarked if
it is sent by US first class, registered or certified
mail,
5
<PAGE> 30
return receipt requested, postage prepaid. Executive may
send this Release to the address set forth in
paragraph (b) below using any other means (including
personal delivery, overnight delivery service, expedited
courier, messenger, or facsimile), but the Release will
be deemed to have been received by Employer only when it
actually is received by Employer.
(b) The Release, revocation of this Release and any other
communication which is required or permitted to be
delivered to Employer hereunder shall be addressed as
follows:
ChoicePoint Inc.
1000 Alderman Drive
Alpharetta, Georgia 30005
Attention: Insurance and Benefits Department
Facsimile number (770) 752-6251
or to such other address as Employer may have specified
in a notice duly given to the Executive.
The undersigned further state they have carefully read this Release, know and
understand its contents, and that they execute it as their own free act and
deed.
CHOICEPOINT INC.
By:
----------------------------------------------------
(Signature)
Name:
--------------------------------------------------
(Print)
Date of ChoicePoint Signature:
-------------------------
Receipt Date:
------------------------------------------
(Date of actual delivery if by hand
or five days after mailing)
EXECUTIVE
By:
----------------------------------------------------
(Signature)
6
<PAGE> 31
Acceptance Date:
-------------------------------------
(Date of execution by Executive)
Name:
------------------------------------------------
(Print)
Address:
---------------------------------------------
Social Security Number:
------------------------------
NOTICE TO EXECUTIVE: YOU MUST RETURN THE ENTIRE GENERAL RELEASE TO THE ABOVE
ADDRESS -- IF YOU RETURN ONLY THIS PAGE, YOUR SEVERANCE BENEFITS CANNOT BE
PROCESSED.
7
<PAGE> 1
EXHIBIT 13
[SELECTED PAGES FROM THE COMPANY'S 1997 ANNUAL REPORT TO SHAREHOLDERS]
FINANCIAL HIGHLIGHTS
ChoicePoint
<TABLE>
<CAPTION>
(Thousands of Dollars) 1997 1996 1995 1994 1993
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Operating revenue $417,321 $366,481 $328,990 $284,566 $268,114
Operating income
before unusual
items and
restructuring
provision 52,286 47,611 41,078 16,577 3,376
Operating income 46,077 47,611 31,928 16,577 3,376
Net income 28,944 23,280 14,865 6,612 1,239
Total assets 359,971 301,824 200,779 193,820 106,938
Long-term debt, less
current maturities 95,457 1,051 -- 5 --
Total shareholders'
equity 127,745 196,327 104,641 98,028 13,961
EBITDA 87,753 66,265 45,249 26,610 10,503
Employees 3,700 4,600 4,400 4,600 4,700
</TABLE>
[GRAPH] [GRAPH]
3
<PAGE> 2
Management's Discussion and Analysis of Financial
Condition and Results of Operations
ChoicePoint
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:
PROPERTY AND CASUALTY INSURANCE SERVICES (P&C)
Automated underwriting and claims information for home and auto insurers,
commercial inspections, worker's compensation audits of commercial properties
and customized application rating and issuance software development.
LIFE AND HEALTH INSURANCE SERVICES (L&H)
Underwriting and claims information for life and health insurers, including
medical records collection, laboratory services and investigative services.
BUSINESS AND GOVERNMENT SERVICES (B&G)
Pre-employment background searches, drug screenings, public records searches,
people locator services and Uniform Commercial Code (UCC) searches and filings.
RESULTS OF OPERATIONS
Revenue and operating income for the years ended December 31, 1997, 1996 and
1995 were as follows:
<TABLE>
<CAPTION>
Year Ended December 31 1997 1996 1995
- -------------------------------------------------------------------
(In thousands)
<S> <C> <C> <C>
P&C revenue $177,175 $156,698 $143,726
L&H revenue 153,563 157,071 148,765
B&G revenue 86,583 52,712 36,499
- -------------------------------------------------------------------
Operating revenue 417,321 366,481 328,990
Costs and expenses 365,035(1) 318,870 287,912
- -------------------------------------------------------------------
Operating income
before unusual
items and
restructuring
provision 52,286 47,611 41,078
Unusual items 6,209 -- --
Restructuring
provision -- -- 9,150
- -------------------------------------------------------------------
Operating income $ 46,077 $ 47,611 $ 31,928
===================================================================
</TABLE>
(1) Includes $4,852,000 of other charges discussed below.
YEAR ENDED DECEMBER 31, 1997
-- COMPARED TO YEAR ENDED DECEMBER 31, 1996
Consolidated revenue increased $50.8 million, or 13.9%, from $366.5 million in
1996 to $417.3 million in 1997. Revenue improvements in two of the three
business groups were partially offset by revenue declines in Life and Health
Insurance Services. Revenue from Property and Casualty Insurance Services grew
$20.5 million, or 13.1%, from $156.7 million in 1996 to $177.2 million in 1997,
driven primarily by strong unit performance in automated underwriting product
lines. Revenue from Life and Health Insurance Services decreased $3.5 million,
or 2.2%, from $157.1 million in 1996 to $153.6 million in 1997, as growth in
laboratory services was offset by decreases in other lines, primarily due to the
sale of ChoicePoint's paramedical examination business in December 1997, which
represented $4.9 million of the decline. Revenue from Business and Government
Services increased $33.8 million, or 64.3%, from $52.7 million in 1996 to $86.5
million in 1997. Revenue increased in all business units within
18
<PAGE> 3
Business and Government Services with $23.7 million coming from CDB Infotek. In
August 1996, ChoicePoint acquired 70% of the outstanding capital stock of CDB
Infotek. That acquisition was accounted for as a purchase, and the results of
operations of CDB Infotek have been included in ChoicePoint's consolidated
statements of income from the date of acquisition. The other business units
within Business and Government Services posted revenue gains of 23.8%.
Operating income before unusual items increased $4.7 million, or 9.8%, from
$47.6 million in 1996 to $52.3 million in 1997. Operating margins (excluding the
effects of unusual items) decreased from 13.0% in 1996 to 12.5% in 1997.
Operating margins before unusual items were impacted by $4.9 million of other
charges in the fourth quarter of 1997. Included in the $4.9 million of other
charges were $1.9 million of expense related to new stock-based compensation
plans, $1.0 million for a contribution to the employees' profit sharing plan to
offset the adverse effect of transitioning from Equifax's defined benefit
pension plan, $1.0 million to establish a ChoicePoint charitable foundation,
$860,000 for adjusting receivables for a renegotiated customer contract and
$100,000 to fund an under-reserved compensation plan.
Included in the $6.2 million charge of unusual items were $1.8 million of
charges related to expenses of the Spinoff and $4.4 million for writedowns of
certain assets in the Company's labor-intensive field businesses and its
commercial P&C software company in accordance with Statement of Financial
Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to Be Disposed Of."
Operating income after unusual items and other charges decreased $1.5
million, or 3.2%, from $47.6 million in 1996 to $46.1 million in 1997.
ChoicePoint recognized a pretax gain of $14.0 million on the sale of its
paramedical examination business to Pediatric Services of America, Inc. during
the fourth quarter of 1997. The Company sold this business in December 1997 for
approximately $26.0 million in a combination of cash, stock and retained net
assets.
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 Professional Test Administrators, Inc. ("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, the results of
operations for the acquired companies have been 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 service 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
15.9%, 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
19
<PAGE> 4
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.
INCOME TAXES
Historically, the Company had been included in the consolidated federal income
tax return of Equifax. Prior to the Spinoff on August 7, 1997, ChoicePoint's
provision for income taxes reflected federal and state income taxes calculated
on ChoicePoint's separate income, but recognized the impact of unitary tax
regulations of certain states on ChoicePoint as a member of the Equifax
consolidated group.
ChoicePoint's overall effective tax rates were 45.9% in 1997, 43.2% in
1996, and 43.0% in 1995. 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 taxes. The increase is partially
offset by a reduction in the state income tax rate due to ChoicePoint no longer
being part of Equifax's consolidated group for unitary tax purposes. 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 rate would have been 44.5% in 1997, 40.8% in 1996
and 40.9% in 1995.
FINANCIAL CONDITION AND LIQUIDITY
Cash provided by operations increased from $36.8 million in 1996 to $55.4
million in 1997. This increase was primarily attributable to the increase in net
income, as adjusted for depreciation and amortization, and increased current
liabilities. During 1997, ChoicePoint used $25.4 million for investing
activities, including $20.0 million for additions to property and equipment and
$10.8 million for acquisitions. Building and leasehold improvements for the
expansion of the existing Osborn Laboratories, Inc. facility in Olathe, Kansas
represented approximately $4.6 million of the increase in property and equipment
with the remainder due primarily to system upgrades. In 1996, ChoicePoint used
$91.8 million for investing activities, including $69.7 million for
acquisitions. Net cash used by financing activities was $5.1 million in 1997, as
the proceeds from the Credit Facility were used to pay Spinoff-related costs,
discussed below.
The Company's short-term and long-term liquidity depends primarily upon its
level of net income, accounts receivable, accounts payable, accrued expenses and
long-term debt. In August 1997, ChoicePoint entered into a $250 million
unsecured revolving credit facility (the "Credit Facility") with a group of
banks. The Credit Facility is a revolving facility expandable to $300 million,
subject to approval of the lenders, and bears interest at variable rates. The
borrowings under the Credit Facility were used to repay the net intercompany
debt due to Equifax as of July 31, 1997, to repay $29.0 million of Equifax debt
assumed by ChoicePoint in connection with the Spinoff, and to fund $10.0 million
for two ChoicePoint grantor trusts formed to fund ChoicePoint benefit plans.
Initial borrowings under the Credit Facility were $112.0 million. During the
third and fourth quarters of 1997, the Company paid down $17.0 million of the
amount borrowed, reducing total debt under the revolver to $95.0 million at
December 31, 1997. In February 1998, the Company borrowed a net $15.0 million to
finance the acquisition of the remaining interest in CDB Infotek discussed
below. The commitment termination date and final maturity of the Credit Facility
will occur in August 2002. ChoicePoint may use additional borrowings under the
Credit Facility to finance acquisitions and for general corporate cash
requirements. For a more complete description of the terms of the Credit
Facility, see Note 6 to the consolidated financial statements.
EBITDA increased $21.5 million, or 32.4%, from $66.3 million in 1996 to
$87.8 million in 1997. Approximately $3.0 million, or 14.0%, of the increase
20
<PAGE> 5
was due to the gain on sale of the paramedical examination business less the
unusual items and other charges recorded in the fourth quarter of 1997. EBITDA
represents income before 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 are not a measure of financial performance under generally accepted
accounting principles) because such data are 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.
Interest expense was $6.7 million in 1997 and $6.6 million in 1996. Prior
to the Spinoff, ChoicePoint was charged corporate interest expense from Equifax
based on the relationship of its net assets to total Equifax net assets,
excluding corporate debt. After the Spinoff, interest expense also includes
interest on the revolving Credit Facility discussed above. In 1997 ChoicePoint
entered into four interest rate swap agreements to reduce the impact of changes
in interest rates on its floating rate long-term obligation. See Note 6 to the
consolidated financial statements.
The Company anticipates capital expenditures will be approximately $19.0
million in 1998, which will be used primarily for system upgrades.
The Company acquired an additional 2.6% interest in CDB Infotek from a
shareholder during the third quarter of 1997, bringing the Company's total
acquired interest in CDB Infotek to 72.6% at December 31, 1997. In February
1998, the Company accelerated its option to purchase the remaining 27.4% at a
mutually agreed-upon price of $24.1 million in cash.
YEAR 2000
ChoicePoint has assessed and continues to assess the impact of the Year 2000
issue on its reporting systems and operations. The Year 2000 issue exists
because many currently installed computer systems and software products are
coded to accept only two digit entries in the date code field. In order to
distinguish 21st century dates from 20th century dates, these date code fields
must be able to accept four digit entries. As a result, certain computer systems
and software programs used, and in some cases developed, by ChoicePoint may need
to be upgraded in order to address Year 2000 requirements.
To address this issue, ChoicePoint is either replacing systems with new
systems that are Year 2000 compliant, or modifying existing systems to be
compliant. During 1997, the Company incurred approximately $1.3 million to
modify existing computer systems and applications to address the Year 2000
issue, and estimates that approximately $2.1 million will be incurred in 1998
and $500,000 in 1999.
If the Company's remediation plan is not successful, there could be a
significant disruption of the Company's ability to transact business with its
major customers and suppliers.
FORWARD-LOOKING STATEMENTS
This report contains certain information that constitutes forward-looking
statements as that term is defined in the Private Securities Litigation Reform
Act of 1995. Those statements, to the extent they are not historical facts,
should be considered forward-looking and subject to various risks and
uncertainities. Such forward-looking statements are made based upon management's
assessments of various risks and uncertainities, as well as assumptions made in
accordance with the "safe harbor" provisions of the Private Securities
Litigation Reform Act of 1995. The Company's actual results could differ
materially from the results anticipated in these forward-looking statements as a
result of such risks and uncertainities, including those identified in the
Company's Annual Report on Form 10-K for the fiscal year ending December 31,
1997 and the other filings made by the Company from time to time with the
Securities and Exchange Commission.
21
<PAGE> 6
Consolidated Statements of Income
ChoicePoint
<TABLE>
<CAPTION>
(In thousands)
Year Ended December 31, 1997 1996 1995
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Operating revenue $417,321 $366,481 $328,990
- --------------------------------------------------------------------------------
Costs and expenses:
Cost of services 280,765 252,118 221,045
Selling, general and administrative 84,270 66,752 66,867
Unusual items 6,209 -- --
Restructuring provision -- -- 9,150
- --------------------------------------------------------------------------------
Total costs and expenses 371,244 318,870 297,062
- --------------------------------------------------------------------------------
Operating income 46,077 47,611 31,928
Gain on sale of business unit 14,038 -- --
Interest expense 6,649 6,597 5,830
- --------------------------------------------------------------------------------
Income before income taxes 53,466 41,014 26,098
Provision for income taxes 24,522 17,734 11,233
- --------------------------------------------------------------------------------
Net income $ 28,944 $ 23,280 $ 14,865
================================================================================
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
22
<PAGE> 7
Consolidated Balance Sheets
ChoicePoint
<TABLE>
<CAPTION>
(In thousands, except par values)
December 31, 1997 1996
- ----------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 26,858 $ 1,726
Marketable securities 9,000 --
Accounts receivable, net of allowance for doubtful
accounts of $1,847 in 1997 and $1,578 in 1996 90,266 78,138
Deferred income tax assets 10,503 3,984
Other current assets 9,492 8,083
- ----------------------------------------------------------------------------------------
Total current assets 146,119 91,931
Property and equipment, net 42,985 35,407
Goodwill, net 127,731 123,997
Deferred income tax assets 15,406 15,042
Other 27,730 35,447
- ----------------------------------------------------------------------------------------
Total Assets $ 359,971 $ 301,824
========================================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term debt $ 593 $ 927
Accounts payable 17,371 12,828
Accrued salaries and bonuses 15,664 11,594
Other current liabilities 43,610 19,616
- ----------------------------------------------------------------------------------------
Total current liabilities 77,238 44,965
Long-term debt, less current maturities 95,457 1,051
Postretirement benefit obligations 53,834 55,622
Other long-term liabilities 5,697 3,859
- ----------------------------------------------------------------------------------------
Total liabilities 232,226 105,497
Commitments and contingencies (Note 10)
Shareholders' equity:
Equifax equity investment -- 196,414
Preferred stock, $.01 par value; shares
authorized -- 10,000; no shares issued
or outstanding -- --
Common stock, $.10 par value; shares authorized --
100,000; issued and outstanding --
14,641 in 1997 and -0- in 1996 1,464 --
Paid-in capital 112,655 --
Retained earnings 13,744 --
Foreign currency translation adjustments (118) (87)
- ----------------------------------------------------------------------------------------
Total shareholders' equity 127,745 196,327
- ----------------------------------------------------------------------------------------
Total Liabilities and Shareholders' Equity $ 359,971 $ 301,824
========================================================================================
</TABLE>
The accompanying notes are an integral part of these consolidated balance
sheets.
23
<PAGE> 8
Consolidated Statements of Shareholders' Equity
ChoicePoint
<TABLE>
<CAPTION>
Foreign
Equifax Currency
Equity Common Paid-In Retained Translation
(In thousands) Investment Stock Capital Earnings Adjustments Total
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
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
(from January 1, 1997
through July 31, 1997) 15,200 -- -- -- -- 15,200
Intercompany transactions
with Equifax 1,609 -- -- -- -- 1,609
Repayment of Equifax
intercompany debt (72,602) -- -- -- -- (72,602)
Debt assumed from Equifax (29,000) -- -- -- -- (29,000)
Distribution of
common stock (111,621) 1,457 110,164 -- -- --
Restricted stock plans, net -- 6 1,642 -- -- 1,648
Stock options exercised -- 1 266 -- -- 267
Other -- -- 583 -- -- 583
Net income
(from August 1, 1997
to December 31, 1997) -- -- -- 13,744 -- 13,744
Translation adjustments -- -- -- -- (31) (31)
- -------------------------------------------------------------------------------------------------------------------
Balance December 31, 1997 $ -- $1,464 $112,655 $13,744 $(118) $ 127,745
===================================================================================================================
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
24
<PAGE> 9
Consolidated Statements of Cash Flows
ChoicePoint
<TABLE>
<CAPTION>
(In thousands)
Year Ended December 31, 1997 1996 1995
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 28,944 $ 23,280 $ 14,865
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 27,638 18,654 13,321
Provision for unusual items 6,209 -- --
Restructuring provision, net of cash payments -- -- 6,944
Gain on sale of business unit (14,038) -- --
Provision for restricted stock plans 1,648 -- --
Changes in assets and liabilities,
excluding effects of acquisitions
and divestiture:
Marketable securities and other
current assets (1,213) (1,582) (486)
Accounts receivable, net (11,483) (7,362) (2,966)
Deferred income taxes (6,883) 2,052 (4,845)
Current liabilities, excluding debt 25,094 (60) (4,585)
Other long-term liabilities, excluding debt (496) 1,797 (2,008)
- ----------------------------------------------------------------------------------------------
Net cash provided by operating activities 55,420 36,779 20,240
- ----------------------------------------------------------------------------------------------
Cash flows from investing activities:
Acquisitions, net of cash acquired (10,778) (69,654) (1,421)
Cash proceeds from sale of business unit 11,707 -- --
Additions to property and equipment (19,997) (18,098) (5,355)
Additions to other assets, net (6,351) (4,034) (5,232)
- ----------------------------------------------------------------------------------------------
Net cash used in investing activities (25,419) (91,786) (12,008)
- ----------------------------------------------------------------------------------------------
Cash flows from financing activities:
Proceeds from long-term debt 112,000 -- --
Payment of debt assumed in acquisition -- (11,778) --
Payments on long-term debt (17,928) (315) (12)
Payment of debt assumed from Equifax (29,000) -- --
Payment of Equifax intercompany debt (72,602) -- --
Net transactions with Equifax 1,609 68,159 (9,875)
Proceeds from exercise of stock options 267 -- --
Other 583 -- --
- ----------------------------------------------------------------------------------------------
Net cash (used in) provided by
financing activities (5,071) 56,066 (9,887)
- ----------------------------------------------------------------------------------------------
Effect of foreign currency exchange rates on cash 202 22 23
- ----------------------------------------------------------------------------------------------
Net increase (decrease) in cash 25,132 1,081 (1,632)
Cash and cash equivalents, beginning of year 1,726 645 2,277
- ----------------------------------------------------------------------------------------------
Cash and cash equivalents, end of year $ 26,858 $ 1,726 $ 645
==============================================================================================
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
25
<PAGE> 10
Notes to Consolidated Financial Statements
ChoicePoint
Note 1
Spinoff and Basis of Presentation
On August 7, 1997, Equifax Inc. ("Equifax") spun-off the business conducted
through its Insurance Services Group to Equifax shareholders (the "Spinoff").
This Spinoff was accomplished by forming ChoicePoint Inc. ("ChoicePoint" or the
"Company"), transferring the stock of the companies which comprised the
Insurance Services Group to ChoicePoint and then distributing all of the shares
of common stock of ChoicePoint to Equifax shareholders. Equifax shareholders of
record as of July 24, 1997 received one share of ChoicePoint common stock for
every 10 shares of Equifax common stock owned (except for certain grantor trusts
of Equifax, which did not receive ChoicePoint common stock pursuant to the
Spinoff). The effective date of the Spinoff was July 31, 1997.
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. 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 where
applicable.
In conjunction with the separation of their businesses, ChoicePoint and
Equifax entered into various agreements that addressed the allocation of assets
and liabilities between them and that defined their relationship after the
separation, including a distribution agreement, an employee benefits agreement,
a transition support agreement, an intercompany information services agreement,
an intellectual property agreement, a tax sharing and indemnification agreement,
and real estate lease agreements.
Note 2
Nature of Operations
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, 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.
Note 3
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.
26
<PAGE> 11
-- REVENUE AND COSTS OF SERVICES 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, had 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 or net income. Registry revenue was $257,989,000 in 1997, $224,783,000
in 1996 and $191,645,000 in 1995.
-- MARKETABLE SECURITIES
In connection with the sale of its paramedical examination business (Note
4), the Company received 495,000 shares of common stock in Pediatric Services of
America, Inc ("PSA"). The common stock is classified as available-for-sale under
the terms of Statement of Financial Accounting Standards ("SFAS") No. 115,
"Accounting for Certain Investments in Debt and Equity Securities," and
accordingly, any unrealized holding gains and losses, net of taxes, are excluded
from income and recognized as a separate component of shareholders' equity until
realized. At December 31, 1997, the carrying amount of the common stock
approximates its fair market value.
-- PROPERTY AND EQUIPMENT
Property and equipment at December 31, 1997 and 1996 consisted of the
following:
<TABLE>
<CAPTION>
(In thousands)
Year Ended December 31, 1997 1996
- -------------------------------------------------------
<S> <C> <C>
Land, buildings,
and improvements $ 11,945 $ 10,824
Data processing
equipment and furniture 80,711 66,019
- -------------------------------------------------------
92,656 76,843
Less: Accumulated
depreciation (49,671) (41,436)
- -------------------------------------------------------
$ 42,985 $ 35,407
=======================================================
</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 associated with Goodwill was $4,616,000 in 1997, $2,873,000
in 1996 and $2,013,000 in 1995. As of December 31, 1997 and 1996, accumulated
amortization was $13,648,000 and $9,032,000, respectively.
Other assets at December 31, 1997 and 1996 consisted of the following:
<TABLE>
<CAPTION>
(In thousands)
Year Ended December 31, 1997 1996
- --------------------------------------------------------
<S> <C> <C>
Purchased software, data files
and technology, net $14,311 $20,361
System development and
other deferred costs, net 13,419 15,086
- --------------------------------------------------------
$27,730 $35,447
========================================================
</TABLE>
Purchased software, data files, and technology are being amortized on a
straight-line basis over five to ten years. Amortization expense for other
assets was $10,619,000 in 1997, $6,479,000 in 1996 and $3,810,000 in 1995. As of
December 31, 1997 and 1996, accumulated amortization was $29,963,000 and
$17,719,000, 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.
27
<PAGE> 12
Notes to Consolidated Financial Statements
ChoicePoint
-- 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 shareholders' 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 investments with
original maturities of three months or less.
Prior to the Spinoff, tax provisions were settled through the intercompany
account and Equifax made income tax payments on behalf of the Company. The tax
payments made subsequent to the Spinoff by ChoicePoint and the tax payments made
prior to the Spinoff by Equifax on behalf of ChoicePoint (based on the income
tax returns filed or to be filed) were approximately $21,979,000 in 1997,
$14,842,000 in 1996 and $8,723,000 in 1995.
Interest paid on long-term debt, excluding amounts charged by Equifax,
totaled $2,314,000 in 1997, $147,000 in 1996 and $200,000 in 1995.
In 1997, 1996 and 1995, the Company acquired various businesses that were
accounted for as purchases (Note 4). In conjunction with these transactions,
liabilities were assumed as follows:
<TABLE>
<CAPTION>
(In thousands)
Year Ended December 31, 1997 1996 1995
- -------------------------------------------------------------
<S> <C> <C> <C>
Fair value of
assets acquired $10,986 $97,204 $1,438
Cash paid for
acquisitions 10,778 71,661 1,421
- -------------------------------------------------------------
Liabilities assumed $ 208 $25,543 $ 17
=============================================================
</TABLE>
In December 1997, the Company sold its paramedical examination business for
$26,000,000 (Note 4). The $26,000,000 in proceeds consisted of $11,707,000 in
cash, $10,000,000 in stock and $4,293,000 of retained net assets (primarily
accounts receivable, less accrued liabilities).
-- FINANCIAL INSTRUMENTS
The Company's financial instruments recorded on the balance sheet consist
of cash and cash equivalents, marketable securities, accounts receivable,
accounts payable and long-term debt. The carrying amounts of cash and cash
equivalents, accounts receivable, and accounts payable approximate their fair
values because of the short maturity of these instruments. The carrying amount
of marketable securities approximates fair value due to the minimum price
guarantee contained in the asset purchase agreement between the Company and PSA
(Note 4). The carrying amount of long-term debt approximates fair value because
the Company's long-term debt bears interest at current market rates.
Off-balance sheet derivative financial instruments at December 31, 1997
consist of interest rate swap agreements (Note 6) entered into to limit the
effect of changes in interest rates on the Company's floating rate long-term
obligation. Amounts currently due to or from interest rate swap counterparties
are recorded in interest expense in the period in which they accrue. The Company
does not enter into financial instruments for trading or speculative purposes.
The fair value of the interest rate swap agreements, estimated by each bank
based upon its internal valuation models, were $(2,045,000) at December 31,
1997.
-- EARNINGS PER SHARE
Historical earnings per share ("EPS") are not presented since the companies
that comprise ChoicePoint were majority-owned subsidiaries of Equifax or one of
its affiliates and were recapitalized as part of the Spinoff.
See Note 13 for pro forma earnings per share.
-- RECLASSIFICATIONS
Certain prior year amounts have been reclassified to conform with the
current year presentation.
28
<PAGE> 13
Note 4
Acquisitions and Divestiture
-- ACQUISITIONS
During 1997, 1996 and 1995, the Company acquired or made equity investments
in the following businesses:
<TABLE>
<CAPTION>
Date Percentage
Business Acquired Ownership
- ----------------------------------------------------------
<S> <C> <C>
Drug Free, Inc. November 1997 100.0%
Medical Information
Network, LLC October 1997 100.0
CDB Infotek
(additional purchase) September 1997 2.6
Advanced HR Solutions, Inc. June 1997 100.0
CDB Infotek August 1996 70.0
Professional Test
Administrators, Inc. April 1996 100.0
Vallance and Associates, Inc. February 1995 100.0
</TABLE>
The 1997 acquisitions were accounted for as purchases and had an aggregate
purchase price of $10,778,000, with $9,982,000 allocated to goodwill and $50,000
to other intangible assets (non-compete agreement). Their results of operations
have been included in the consolidated statements of income from the dates of
acquisition and were not material. The Company acquired an additional 2.6%
interest in CDB Infotek from a shareholder during the third quarter of 1997,
bringing the Company's total acquired interest in CDB Infotek to 72.6% at
December 31, 1997. In February 1998, the Company accelerated its option to
purchase the remaining 27.4% at a mutually agreed-upon price of $24,135,000
cash.
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 data files and
software). Their results of operations have been included in the consolidated
statements of income from the dates of acquisition.
The following unaudited pro forma information has been prepared as if the
1996 acquisition of CDB Infotek had occured 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>
(In thousands)
Year Ended December 31, 1996 1995
- ---------------------------------------------------
<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.
-- DIVESTITURE
In December 1997, the Company sold its paramedical examinations business to
PSA. The business unit was sold for $26,000,000 in a combination of cash -
$11,707,000, stock - $10,000,000, and net retained assets - $4,293,000. The
$10,000,000 represents the value of PSA common stock received using an average
stock price determined prior to closing. The asset purchase agreement protects
ChoicePoint from a decrease in PSA's stock price if the shares are sold in the
marketplace within one year for less than the average share price. In December
1997, the Company transferred approximately $1,000,000 of the PSA common stock
to ChoicePoint's newly established charitable foundation.
29
<PAGE> 14
Notes to Consolidated Financial Statements
ChoicePoint
Note 5
Transactions with Equifax
Prior to the Spinoff, under Equifax's centralized cash management system,
short-term advances from Equifax and excess cash sent to Equifax were reflected
as intercompany debt and were included in Equifax's equity investment account
through July 31, 1997 (Note 8). As a result of the Spinoff, the net intercompany
debt at July 31, 1997, totaling $72,602,000, was repaid in the third quarter of
1997. ChoicePoint was charged corporate costs through July 31, 1997. The amount
of corporate costs included in the accompanying consolidated statements of
income were $5,952,000 in 1997, $11,260,000 in 1996 and $11,833,000 in 1995.
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 through July 31, 1997 based on the relationship of
its net assets to total Equifax net assets, excluding corporate debt, in amounts
of $3,612,000 in 1997, $6,215,000 in 1996 and $5,401,000 in 1995. These amounts
are included in interest expense. In addition to the above, ChoicePoint paid
approximately $4,336,000 to Equifax in 1997 for credit reports and transitional
services. In 1996 and 1995, ChoicePoint paid approximately $2,475,000 and
$2,491,000, respectively, to Equifax for credit reports.
Note 6
Long-Term Debt
Long-term debt at December 31, 1997 and 1996 was as follows:
<TABLE>
<CAPTION>
(In thousands)
Year Ended December 31, 1997 1996
- ----------------------------------------------------
<S> <C> <C>
Credit facility $ 95,000 $ --
Capital leases 1,050 1,978
- ----------------------------------------------------
96,050 1,978
Less current maturities (593) (927)
- ----------------------------------------------------
$ 95,457 $ 1,051
- ----------------------------------------------------
</TABLE>
In August 1997, ChoicePoint entered into a $250 million unsecured revolving
credit facility (the "Credit Facility") with a group of banks. The Credit
Facility is a revolving facility expandable to $300 million, subject to approval
of the lenders. Borrowings under the Credit Facility are guaranteed by all
material subsidiaries of ChoicePoint Inc. as defined in the Credit Facility. The
Credit Facility was used to repay the net intercompany debt due to Equifax as of
July 31, 1997, to repay $29.0 million of Equifax debt assumed by ChoicePoint,
and to fund $10.0 million for two ChoicePoint grantor trusts (Note 8). Initial
borrowings under the Credit Facility were $112.0 million. During the third and
fourth quarters of 1997, the Company paid down $17.0 million of the amount
borrowed, reducing total debt under the revolver to $95.0 million. The
commitment termination date and final maturity of the Credit Facility will occur
in August 2002.
Revolving loans under the Credit Facility 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 margins 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
30
<PAGE> 15
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 also pays
customary annual facility fees based upon its leverage ratio. The average
interest rate at December 31, 1997 was 6.12%.
The Credit Facility contains covenants customary for facilities of this
type. Such covenants include among other things, 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.
ChoicePoint has entered into four interest rate swap agreements to reduce
the impact of changes in interest rates on its floating rate long-term
obligation. The agreements became effective in August 1997. One of the four
agreements has a notional principal amount of $25.0 million and matures in
August 2007. The agreement effectively changes the Company's interest rate
exposure to a fixed rate of 6.535% plus a credit spread. The other three
agreements have notional principal amounts totaling $60.0 million and mature in
August 2004; however, the other parties have one-time options to terminate the
swap agreements in April 2002. The three agreements effectively change the
Company's interest rate exposure to a weighted average fixed rate exposure of
6.240% plus a credit spread. The Company is exposed to credit loss in the event
of nonperformance by the other parties to the interest rate swap agreements.
However, the Company does not anticipate nonperformance by the counterparties.
Scheduled maturities of long-term debt during the five years subsequent to
December 31, 1997 are as follows: $593,000 in 1998, $372,000 in 1999, $85,000 in
2000, $0 in 2001 and $95,000,000 in 2002.
There were no short-term borrowings during 1997 and 1996.
Note 7
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 through July 31, 1997, the effective date of the
Spinoff.
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.
The provision for income taxes consists of the following:
<TABLE>
<CAPTION>
(In thousands)
Year Ended December 31, 1997 1996 1995
- --------------------------------------------------------------------
<S> <C> <C> <C>
Current:
Federal $ 18,997 $ 12,538 $ 10,890
State 5,463 4,048 2,431
Foreign 1,277 444 186
- --------------------------------------------------------------------
25,737 17,030 13,507
- --------------------------------------------------------------------
Deferred:
Federal (722) 878 (2,863)
State (419) (169) 589
Foreign (74) (5) --
- --------------------------------------------------------------------
(1,215) 704 (2,274)
- --------------------------------------------------------------------
Total $ 24,522 $ 17,734 $ 11,233
====================================================================
</TABLE>
31
<PAGE> 16
Notes to Consolidated Financial Statements
ChoicePoint
The provision for income taxes is based upon income before income taxes as
follows:
<TABLE>
<CAPTION>
(In thousands)
Year Ended December 31, 1997 1996 1995
- --------------------------------------------------------------
<S> <C> <C> <C>
United States $49,917 $38,373 $25,394
Foreign 3,549 2,641 704
- --------------------------------------------------------------
$53,466 $41,014 $26,098
==============================================================
</TABLE>
The provision for income taxes is reconciled with the federal statutory
rate as follows:
<TABLE>
<CAPTION>
(In thousands)
Year Ended December 31, 1997 1996 1995
- ------------------------------------------------------------------
<S> <C> <C> <C>
Federal statutory rate 35.0% 35.0% 35.0%
State and local
taxes, net of
federal tax benefit 6.1 6.2 7.5
Tax effect resulting
from foreign activities (.1) (1.8) (.4)
Goodwill amortization 2.7 2.1 2.2
Other 2.2 1.7 (1.3)
- ------------------------------------------------------------------
Overall effective rate 45.9% 43.2% 43.0%
==================================================================
</TABLE>
Components of the Company's deferred income tax assets and liabilities at
December 31, 1997 and 1996 are as follows:
<TABLE>
<CAPTION>
(In thousands)
Year Ended December 31, 1997 1996
- --------------------------------------------------------------
<S> <C> <C>
Deferred income tax assets:
Postretirement benefits $ 22,342 $ 22,804
Reserves and accrued expenses 10,255 3,870
Employee compensation programs 3,857 2,374
Other 2,133 1,318
- --------------------------------------------------------------
38,587 30,366
- --------------------------------------------------------------
Deferred income tax liabilities:
Purchased software, data
files, technology, and
other assets (5,069) (7,824)
Depreciation (1,652) (1,653)
Deferred expenses (4,896) (1,667)
Other (1,061) (196)
- --------------------------------------------------------------
(12,678) (11,340)
- --------------------------------------------------------------
Net deferred income
tax assets $ 25,909 $ 19,026
==============================================================
</TABLE>
Accumulated undistributed retained earnings of the Canadian subsidiary are
not considered material at December 31, 1997.
Note 8
Shareholders' Equity
-- EQUIFAX EQUITY INVESTMENT
Prior to July 31, 1997, Equifax's equity investment included the original
investment in ChoicePoint, accumulated income of ChoicePoint and the net
intercompany payable due to Equifax reflecting transactions described in Note 5.
The July 31, 1997 net intercompany debt balance that was repaid to Equifax in
the third quarter of 1997 was $72,602,000. The $72,602,000 included actual
intercompany debt of $85,602,000 reduced by $13,000,000 for an employee benefit
obligation assumed by ChoicePoint (Note 9). As of December 31, 1996, the net
intercompany payable due to Equifax included in Equifax equity investment in the
accompanying balance sheet was $83,993,000.
-- STOCK OPTIONS
Equifax had certain stock option plans (the "Plans") under which incentive
stock options and nonqualified stock options were granted to officers, key
employees and directors of Equifax. In connection with the separation of
ChoicePoint from Equifax, stock options under the Plans that were not exercised
prior to the date of the Spinoff were adjusted. Upon the Spinoff and except as
set forth below, ChoicePoint employees retained their vested options to purchase
Equifax common stock under the plans. Although they forfeited their unvested
Equifax stock options, they received replacement options to purchase ChoicePoint
common stock. Certain senior officers of ChoicePoint were permitted to choose
either to retain vested Equifax stock options or have their vested Equifax stock
options replaced with ChoicePoint stock options. All Equifax options that were
replaced with ChoicePoint options were at amounts and at exercise prices that
preserved the economic
32
<PAGE> 17
benefit of the Equifax stock options at the Spinoff date. As a result, options
for 713,152 shares of ChoicePoint common stock were issued to replace Equifax
options. The options have exercise prices ranging from $8.21 per share to $28.45
per share.
Prior to the Spinoff, the ChoicePoint Inc. 1997 Omnibus Stock Incentive
Plan (the "Omnibus Plan") was adopted by ChoicePoint. The Omnibus Plan
authorizes 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 were replaced with ChoicePoint stock options, the
Omnibus Plan requires options to be granted at no less than fair value. In the
fourth quarter of 1997, options for 761,902 shares were granted under the
Omnibus Plan with an option price of $38.75.
A summary of changes in all outstanding options and the related weighted
average exercise price per share is as follows (shares in thousands):
<TABLE>
<CAPTION>
(In thousands) Avg.
Year Ended December 31, 1997 Shares Price
- ---------------------------------------------------------
<S> <C> <C>
Balance, beginning of year -- --
Granted:
Replacement options 713,152 $17.10
New options
(at market price) 761,902 $38.75
Canceled (5,835) $13.80
Exercised (10,804) $14.16
- ---------------------------------------------------------
Balance, end of year 1,458,415 $28.45
=========================================================
Exercisable at end of year 326,384 $16.98
=========================================================
</TABLE>
The following table summarizes information about stock options outstanding
at December 31, 1997 (shares in thousands):
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
---------------------------------------------------- ---------------------------
Weighted Average
Remaining Contractual Weighted Average Weighted Average
Range of Exercise Prices Shares Life in Years Exercise Price Shares Exercise Price
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$ 8.21-$14.47 377,576 6.08 $12.67 196,586 $11.40
$18.83-$26.36 274,431 8.08 $21.58 85,292 $23.99
$28.25-$28.45 44,506 8.08 $28.25 44,506 $28.25
$38.75 761,902 9.76 $38.75 -- --
- --------------------------------------------------------------------------------------------------------------------
1,458,415 8.44 $28.45 326,384 $16.98
</TABLE>
The weighted-average grant-date fair value per share of options granted in
1997 is $13.49.
The fair value of each option granted in 1997 is estimated on the date of
grant using the Black-Scholes option-pricing model with the following
assumptions: dividend yield, 0%; expected volatility, 30%; risk-free interest
rate, 5.8%; and expected life in years, 4.5.
-- Restricted Stock
Equifax had performance share plans for certain key officers that provided
for distribution of common stock at the end of three-year measurement periods.
Equifax also had a deferred bonus plan in the form of restricted stock for
certain key officers. As of the Spinoff, the ChoicePoint officers that were
participants in the Equifax plans were granted ChoicePoint restricted stock that
preserved the economic benefit of the Equifax plans. Approximately 151,000
shares of ChoicePoint restricted stock were granted under the Omnibus Plan to
replace the awards previously granted under the Equifax Plans, of which 90,000
shares are performance-based. In addition, in the fourth quarter of 1997,
approximately 59,000 restricted shares were granted at market price under the
Omnibus Plan. Those shares vest in four years based on continuous employment.
The compensation cost that was charged against income for restricted stock was
$1,892,000 in 1997.
33
<PAGE> 18
Notes to Consolidated Financial Statements
ChoicePoint
-- PRO FORMA INFORMATION
During 1997 the Company adopted SFAS No. 123, "Accounting for Stock-Based
Compensation." In accordance with the provisions of SFAS No. 123, the Company
has elected to apply APB Opinion 25 and related interpretations in accounting
for its stock option plans. Accordingly, the Company does not recognize
compensation cost in connection with its stock option plans. If the Company had
elected to recognize compensation cost for these plans based on the fair value
at grant date as prescribed by SFAS No. 123, net income and net income per share
would have been reduced to the pro forma amounts indicated in the table below
(in thousands, except per share amounts):
<TABLE>
<CAPTION>
1997 1996 1995
----------------------------------------------------------------------------
SFAS 123 SFAS 123 SFAS 123
Reported Pro forma Reported Pro forma Reported Pro forma
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net income $28,944 $27,832 $23,280 $22,547 $14,865 $13,679
Pro forma net income (Note 13) 28,520 27,408 -- -- -- --
Pro forma net income per share - basic 1.95 1.88 -- -- -- --
Pro forma net income per share -- diluted 1.92 1.84 -- -- -- --
</TABLE>
Pro forma income for 1995 and 1996 noted above is based on the fair value
of Equifax options held by ChoicePoint employees.
-- Shareholder Rights Plan
On October 29, 1997, the Company's Board of Directors adopted a Shareholder
Rights Plan (the "Rights Plan"). The Rights Plan contains 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, the ChoicePoint Board of Directors declared a dividend of one Share
Purchase Right (a "Right") for each outstanding share of the Company's common
stock as of November 14, 1997. The Rights will be represented by, and traded
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 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 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 negotiation with the Board of Directors.
-- GRANTOR TRUSTS
ChoicePoint has established two grantor trusts totaling $10.0 million. The
funds in the grantor trusts may be used to purchase ChoicePoint common stock in
the open market as previously approved by the Board of Directors for
distribution under its various compensation and benefit plans. The $10.0 million
is included in cash and cash equivalents in the December 31, 1997 accompanying
balance sheet.
34
<PAGE> 19
Note 9
Employee Benefits
-- UNITED STATES RETIREMENT INCOME PLAN
Historically, the Company has participated in the Equifax United States
Retirement Income Plan (the "Plan"). The Plan was a non-contributory defined
benefit qualified retirement plan that covered most salaried employees. Under
the Plan, retirement benefits were primarily a function of years of service and
the level of compensation during the final three years of employment. Total
pension expense allocated to ChoicePoint through the effective date of the
Spinoff and included in the Company's financial results was $411,000 in 1997,
$3,310,000 in 1996 and $3,356,000 in 1995. The expenses for the Plan, other than
service costs (which are allocated directly), were 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 were 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 has adopted a 401(k) profit sharing plan, as described below, prior
to the Spinoff.
-- RETIREMENT SAVINGS PLAN
Equifax's retirement savings plan provided 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 through the
effective date of the Spinoff was $1,037,000 in 1997, $1,632,000 in 1996 and
$1,600,000 in 1995 and is included in the Company's financial results. The
expense for the retirement savings plan was a direct function of the
contributions made by the participants employed by the Insurance Services Group.
In the opinion of management, the expenses were allocated on a reasonable basis
and approximated all the expenses ChoicePoint would have incurred had it been
operating on a stand-alone basis.
-- 401(K) PROFIT SHARING PLAN
ChoicePoint has adopted 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. The expense
for the 401(k) profit sharing plan was $905,000 in 1997.
As a result of the Spinoff, ChoicePoint assumed an obligation 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 and represent the present value of the estimated
future contributions. In exchange for this obligation, Equifax made a capital
contribution to ChoicePoint in the amount of $13,000,000 and ChoicePoint's
intercompany liability to Equifax was reduced accordingly. ChoicePoint
anticipates incurring an expense estimated at $2,010,000 for 1998 to fund the
contributions for employees. In 1997, $1,000,000 was included in the Company's
financial results and will be contributed to the 401(k) profit sharing plan to
offset the adverse impact of transitioning out of the defined benefit 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
35
<PAGE> 20
Notes to Consolidated Financial Statements
ChoicePoint
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, 1997 and 1996:
<TABLE>
<CAPTION>
(In thousands)
Year Ended December 31, 1997 1996
- ---------------------------------------------------------
<S> <C> <C>
Accumulated postretirement
benefit obligation:
Retirees $ 48,042 $ 47,599
Fully eligible active
plan participants 4,288 3,605
Other active participants 3,861 4,826
- ---------------------------------------------------------
56,191 56,030
Plan assets at fair value -- --
- ---------------------------------------------------------
Accumulated benefit
obligation in excess
of plan assets (56,191) (56,030)
Unrecognized prior service
credit due to plan
amendments (6,150) (8,457)
Unrecognized net losses 4,907 5,865
- ---------------------------------------------------------
(57,434) (58,622)
Less: Current portion (3,600) (3,000)
- ---------------------------------------------------------
Accrued postretirement
benefit obligation $(53,834) $(55,622)
=========================================================
</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>
(In thousands)
Year Ended December 31, 1997 1996 1995
- -----------------------------------------------------------------
<S> <C> <C> <C>
Service cost $ 907 $ 823 $ 935
Interest cost on
accumulated benefit
obligation 4,008 3,667 4,499
Amortization of prior
service credit (2,308) (2,652) (2,318)
Amortization of losses 28 118 --
- -----------------------------------------------------------------
Net periodic
postretirement
benefit expense $ 2,635 $ 1,956 $ 3,116
=================================================================
</TABLE>
Assumptions used in the computation of postretirement benefit expense and
the related obligation are as follows:
<TABLE>
<CAPTION>
Year Ended December 31, 1997 1996 1995
- -------------------------------------------------------------------
<S> <C> <C> <C>
Discount rate used to
determine accumulated
postretirement
benefit obligation
at December 31 7.25% 7.50% 7.25%
Initial healthcare
cost trend rate 9.5% 10.50% 11.00%
Ultimate healthcare
cost trend rate 6.00% 6.00% 6.00%
Year ultimate healthcare
cost trend rate reached 2005 2005 2005
</TABLE>
If the healthcare cost trend rate was increased 1% for all future years,
the accumulated postretirement benefit obligation as of December 31, 1997 would
have increased 12.1%. The effect of such a change on the aggregate of service
and interest cost for 1997 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.
Note 10
Commitments and Contingencies
-- LEASES
The Company's operating leases involve principally office space and office
equipment. Rental expense relating to these leases was $14,769,000 in 1997,
$13,353,000 in 1996 and $10,655,000 in 1995.
36
<PAGE> 21
Future minimum payment obligations for noncancelable operating leases
exceeding one year are as follows as of December 31, 1997:
<TABLE>
<CAPTION>
(In thousands) Amount
- -------------------------------------------------------
<S> <C>
1998 $10,964
1999 8,443
2000 6,581
2001 4,031
2002 2,271
Thereafter 5,823
- -------------------------------------------------------
$38,113
=======================================================
</TABLE>
-- LEASE AGREEMENT
In August 1997, the Company entered into a $22.0 million operating lease
agreement for an office facility in Alpharetta, Georgia. Under the agreement,
the lessor purchased the property from a third party and leased the facility to
the Company. The initial term of the lease is ten years, at which time the
Company has the following three options: to renew for an additional five years,
to purchase at original cost or to remarket the property.
-- 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 PROVISIONS IN EMPLOYMENT AGREEMENTS
The Company has entered into employment agreements with certain executive
officers which will provide certain severance pay and benefits in the event of a
"change in control" of ChoicePoint, such change in control 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
of annual compensation multiplied by a factor not to exceed three plus payments
for other benefits. At December 31, 1997, the maximum contingent liability under
the employment agreements or plans was approximately $27.2 million. In addition,
the Company's restricted stock and stock option plans provide that all shares
designated for future distribution will become fully vested.
-- 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 pending 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, 1997 and 1996 was $4,002,000
and $3,749,000, respectively, and is included in other current liabilities in
the accompanying balance sheets.
Note 11
Unusual Items
Unusual items of $6,209,000 in 1997 include approximately $1,804,000 of
charges related to Spinoff expenses and approximately $4,405,000 for write-downs
of certain assets in the Company's labor-intensive field business and its
commercial P&C software company in accordance with SFAS No. 121, "Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed
Of."
37
<PAGE> 22
Notes to Consolidated Financial Statements
ChoicePoint
Note 12
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, 1997 are as
follows:
<TABLE>
<CAPTION>
Severance and
Termination Lease
(In thousands) Benefits Costs Total
- -------------------------------------------------------------
<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
Utilized in 1997 (758) -- (758)
- -------------------------------------------------------------
Balance,
December 31, 1997 $ 448 $ -- $ 448
=============================================================
</TABLE>
The reserve balance is included in other current liabilities in the
accompanying balance sheets.
Note 13
Pro Forma Consolidated Financial Data (Unaudited)
The following unaudited pro forma consolidated net income and pro forma
earnings per share present the consolidated results of operations of ChoicePoint
assuming that the Spinoff had been completed as of the beginning of 1997.
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 were recapitalized as part of the Spinoff.
The information presented below is not necessarily indicative of the
results of operations that ChoicePoint would have reported if it had operated as
an independent company.
<TABLE>
<CAPTION>
(In thousands, except per share amounts) 1997
- --------------------------------------------------------------
<S> <C>
Historical net income $ 28,944
Pro forma adjustments -- net of taxes:
Reversal of interest expense from Equifax(a) 2,165
Incremental interest expense(b) (2,589)
- --------------------------------------------------------------
Pro forma net income $ 28,520
==============================================================
Pro forma weighted average shares -- basic(c) 14,595
==============================================================
Pro forma earnings per share -- basic $ 1.95
==============================================================
Pro forma weighted average shares -- diluted(c) 14,891
==============================================================
Pro forma earnings per share -- diluted $ 1.92
==============================================================
</TABLE>
Following are the pro forma adjustments to the accompanying pro forma
consolidated net income:
(a) To eliminate the $3.6 million ($2.2 million net of tax) corporate
interest expense for the year ended December 31, 1997 charged to ChoicePoint.
Equifax charged interest expense through the effective date of the Spinoff --
July 31, 1997.
(b) To record $4.3 million ($2.6 million net of tax) for the year ended
December 31, 1997 of interest expense on borrowings to fund the repayment of net
intercompany debt owed to Equifax, the repayment of $29.0 million of Equifax
debt assumed by ChoicePoint, and interest on borrowings to fund $10.0 million
for two ChoicePoint grantor trusts. The interest expense also includes interest
for borrowings for the CDB Infotek acquisition. An interest rate of 6.5% is
assumed on the borrowings.
(c) Pro forma weighted average shares outstanding prior to the Spinoff is
based on the number of ChoicePoint shares issued and outstanding, including
restricted stock, on the date of the Spinoff (August 7, 1997). The pro forma
weighted average shares -- diluted also include the dilutive effect of stock
options.
38
<PAGE> 23
Note 14
Quarterly Financial Summary (Unaudited)
Following is a summary of the unaudited interim results of operations for
each quarter in the years ended December 31, 1997 and 1996:
<TABLE>
<CAPTION>
First Second Third Fourth
(In thousands) Quarter Quarter Quarter Quarter Total
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
YEAR ENDED DECEMBER 31, 1997
REVENUE $102,852 $108,623 $106,489 $99,357 $417,321
OPERATING INCOME 12,198 15,559 15,810 2,510 46,077
NET INCOME 5,541 7,300 7,778 8,325 28,944
Year ended December 31, 1996
Revenue $84,140 $89,986 $94,354 $98,001 $366,481
Operating income 9,006 12,545 13,744 12,316 47,611
Net income 4,218 6,207 6,888 5,967 23,280
</TABLE>
Operating income decreased in the fourth quarter of 1997 due to $6,209,000
of charges for unusual items (Note 11) and $4,852,000 of other charges. Included
in the $4,852,000 of other charges were $1,892,000 of expense related to new
restricted stock plans (Note 8), $1,000,000 for a contribution to the Company's
profit sharing plan to offset the adverse effect of transitioning from Equifax's
defined benefit pension plan (Note 9), $1,000,000 to establish a ChoicePoint
charitable foundation (Note 4), $860,000 for adjusting receivables for a
renegotiated customer contract and $100,000 to fund an under-reserved
compensation plan.
The gain on the sale of a business unit (Note 4), largely offset by the
unusual items and other charges discussed above, positively impacted net income
in the fourth quarter of 1997.
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.
Report of Independent Auditors
To the Shareholders of ChoicePoint Inc.:
We have audited the accompanying consolidated balance sheets of ChoicePoint Inc.
(a Georgia corporation) and subsidiaries (as defined in Note 1) as of December
31, 1997 and 1996, and the related consolidated statements of income,
shareholders' equity and cash flows for each of the three years in the period
ended December 31, 1997. 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 ChoicePoint Inc. and
subsidiaries as of December 31, 1997 and 1996, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1997, in conformity with generally accepted accounting principles.
/s/ Arthur Andersen LLP
Atlanta, Georgia
February 20, 1998
39
<PAGE> 24
Shareholder Information
ChoicePoint
TO FIND OUT MORE
For more information about ChoicePoint, our products and services, employment
opportunities, and current events at the Company, visit our web site at:
http://www.choicepointinc.com or call us at: 770-752-6000
INVESTOR INFORMATION
To obtain copies of the Company's Form 10-K, Form 10-Q or quarterly earnings
releases, please contact:
Kelly McLoughlin
Director, Investor Relations
ChoicePoint Inc.
1000 Alderman Drive
Alpharetta, Georgia 30005
or call 770-752-4050
Financial reports can also be accessed on our web site at
http://www.choicepointinc.com
MARKET INFORMATION
ChoicePoint shares began regular trading on the New York Stock Exchange on
August 8, 1997 under the symbol CPS. As of March 1, 1998, the approximate number
of shareholders of record was 6,163 for common stock. No cash dividends have
been paid. The Company does not anticipate paying any cash dividends on its
common stock in the near future.
STOCK ACTIVITY
ChoicePoint opened trading on August 8, 1997 at $35.75. High and low sale prices
for each quarter since trading began follow:
<TABLE>
<CAPTION>
1997 High Low
- ----------------------------------------------------------
<S> <C> <C>
Third quarter* 38.625 30.750
Fourth quarter 48.125 35.000
- ----------------------------------------------------------
</TABLE>
*Includes third quarter since the Spinoff.
ANNUAL MEETING
The Annual Meeting of Shareholders of ChoicePoint Inc. will be held April 29,
1998 at 3:30 p.m. at the Company's headquarters at 1000 Alderman Drive,
Alpharetta, Georgia
INDEPENDENT AUDITORS
Arthur Andersen LLP
Atlanta, Georgia
TRANSFER AGENT AND REGISTRAR
SunTrust Bank, Atlanta
P.O. Box 4625
Atlanta, Georgia 30302
TRADEMARKS AND SERVICE MARKS
C.L.U.E. and Life 2000 are registered trademarks of ChoicePoint Inc.
Life Plus and TeleChoice are service marks of ChoicePoint Inc.
ChoicePoint, the logo, the domain name and the tag line are trademarks of
ChoicePoint Inc.
[INSIDE BACK COVER PAGE]
<PAGE> 1
EXHIBIT 21
Subsidiaries of ChoicePoint Inc.
State or Country
Name of Incorporation
---- ----------------
1. ChoicePoint Services Inc. Georgia
2. PRC Corporation Georgia
3. Professional Test Administrators, Inc. Illinois
4. CDB Infotek California
5. Charles E. Simon & Company Delaware
6. Innovative Data Services, Inc. Delaware
7. ChoicePoint Business and Government Services Inc. Georgia
8. Osborn Laboratories, Inc. Delaware
9. Mid-American Technologies, Inc. Kansas
10. The Kit Factory, Inc. Kansas
11. Osborn Laboratories (Canada) Inc. Canada
12. ChoicePoint Limited United Kingdom
<PAGE> 1
EXHIBIT 23
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent accountants, we hereby consent to the incorporation of our
reports incorporated by reference in this Form 10-K, into the Company's
previously filed Registration Statement File No. 333-32453.
/s/ Arthur Andersen LLP
Atlanta, Georgia
March 26, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<EXCHANGE-RATE> 1
<CASH> 26,858
<SECURITIES> 9,000
<RECEIVABLES> 92,113
<ALLOWANCES> 1,847
<INVENTORY> 0
<CURRENT-ASSETS> 146,119
<PP&E> 92,656
<DEPRECIATION> 49,671
<TOTAL-ASSETS> 359,971
<CURRENT-LIABILITIES> 77,238
<BONDS> 0
0
0
<COMMON> 1,464
<OTHER-SE> 126,281
<TOTAL-LIABILITY-AND-EQUITY> 359,971
<SALES> 417,321
<TOTAL-REVENUES> 417,321
<CGS> 280,765
<TOTAL-COSTS> 280,765
<OTHER-EXPENSES> 76,441<F3>
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 6,649
<INCOME-PRETAX> 53,466
<INCOME-TAX> 24,522
<INCOME-CONTINUING> 28,944
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 28,944
<EPS-PRIMARY> 1.95<F1>
<EPS-DILUTED> 1.92<F2>
<FN>
<F1>PRO FORMA EARNINGS PER SHARE - BASIC
<F2>PRO FORMA EARNINGS PER SHARE - DILUTED
<F3>CONSISTS OF SG&A OF $84,270, CHARGE FOR UNUSUAL ITEMS OF $6,209, LESS GAIN
ON SALE OF BUSINESS UNIT OF $14,038.
</FN>
</TABLE>
