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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JANUARY 26, 1999
REGISTRATION NO. 333-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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PRIMARK CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
MICHIGAN 7370 38-2383282
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
1000 WINTER STREET
SUITE 4300N
WALTHAM, MASSACHUSETTS 02451
(781) 466-6611
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
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MICHAEL R. KARGULA, ESQ.
EXECUTIVE VICE PRESIDENT,
GENERAL COUNSEL AND SECRETARY
PRIMARK CORPORATION
1000 WINTER STREET
SUITE 4300N
WALTHAM, MASSACHUSETTS 02451
(781) 466-6611
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
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COPIES TO:
STEPHEN W. HAMILTON, ESQ.
SKADDEN, ARPS, SLATE, MEAGHER & FLOM LLP
1440 NEW YORK AVENUE, N.W.
WASHINGTON, D.C. 20005
(202) 371-7000
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this Registration Statement becomes effective.
If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. [ ]
If this form is filed to register securities for an offering pursuant to
Rule 462(b) under the Securities Act, check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
If this form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
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CALCULATION OF REGISTRATION FEE
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PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AMOUNT TO BE OFFERING PRICE AGGREGATE AMOUNT OF
SECURITIES TO BE REGISTERED REGISTERED PER SHARE(1) OFFERING PRICE(1) REGISTRATION FEE(1)
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9 1/4% Senior Subordinated
Exchange Notes Due 2008..... $150,000,000 100% $150,000,000 $41,700
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(1) Estimated solely for purposes of calculating the registration fee in
accordance with Rule 457(f) under the Securities Act.
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THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SECTION 8(a), MAY
DETERMINE.
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THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE MAY
NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER
TO SELL THESE SECURITIES AND IT IS NOT SOLICITING AN OFFER TO BUY THESE
SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
SUBJECT TO COMPLETION -- DATED JANUARY 26, 1999
PROSPECTUS
OFFER TO EXCHANGE ALL
9 1/4% SENIOR SUBORDINATED NOTES DUE 2008 FOR
9 1/4% SENIOR SUBORDINATED EXCHANGE NOTES DUE 2008
OF
PRIMARK CORPORATION
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M.
NEW YORK CITY TIME, ON , 1999, UNLESS EXTENDED.
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Terms of the Exchange Offer:
- The Company is offering a total of $150,000,000 New Notes, which are
registered with the Securities and Exchange Commission, to all holders of
its Old Notes.
- All outstanding Old Notes that are validly tendered and not validly
withdrawn prior to the expiration of the Exchange Offer will be
exchanged.
- You may withdraw tenders of Old Notes at any time prior to the expiration
of the Exchange Offer.
- The Company will not receive any proceeds from the Exchange Offer.
- The exchange of Notes will not be a taxable exchange for U.S. federal
income tax purposes.
- The terms of the New Notes and the Old Notes are substantially identical,
except for certain transfer restrictions and registration rights relating
to the Old Notes.
- There is no existing market for the New Notes, and the Company does not
intend to apply for their listing on any securities exchange.
INVESTING IN THE NEW NOTES INVOLVES CERTAIN RISKS. SEE "RISK FACTORS"
BEGINNING ON PAGE 13.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE NOTES OR DETERMINED IF THIS
PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
THE DATE OF THIS PROSPECTUS IS , 1999
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PRIMARK LOGO
Primark Financial Primark Financial Primark Decision
Information Division Analytics Division Information Division
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Datastream/ICV I/B/E/S WEFA
Disclosure/Worldscope Baseline Yankee Group
Primark Investment Vestek Primark Decision Economics
Management Services
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* Primark Corporation has a 20% equity interest in Primark Decision Economics,
an unconsolidated company.
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TABLE OF CONTENTS
PAGE
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Summary..................................................... 4
Risk Factors................................................ 13
Use of Proceeds............................................. 19
Capitalization.............................................. 20
Selected Consolidated Financial Data........................ 21
The Exchange Offer.......................................... 23
Management's Discussion and Analysis of Financial Condition
and Results of Operations................................. 29
Industry Overview........................................... 37
Business.................................................... 38
Management.................................................. 51
Security Ownership of Certain Beneficial Owners and
Management................................................ 58
Description of Certain Indebtedness......................... 60
Description of the Notes.................................... 61
Certain United States Federal Tax Considerations............ 89
Plan of Distribution........................................ 91
Legal Matters............................................... 91
Experts..................................................... 91
Available Information....................................... 92
Information Incorporated by Reference....................... 92
Index to Consolidated Financial Statements.................. F-1
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The Registrant's principal executive offices are located at 1000 Winter
Street, Suite 4300N, Waltham, Massachusetts 02451, its telephone number is (781)
466-6611, and its Internet address is www.Primark.com.
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THIS PROSPECTUS INCLUDES "FORWARD-LOOKING STATEMENTS". ALL STATEMENTS
REGARDING THE COMPANY'S EXPECTED FINANCIAL POSITION, BUSINESS AND FINANCING
PLANS ARE FORWARD-LOOKING STATEMENTS. ALTHOUGH THE COMPANY BELIEVES THAT THE
EXPECTATIONS REFLECTED IN SUCH FORWARD-LOOKING STATEMENTS ARE REASONABLE, IT CAN
GIVE NO ASSURANCE THAT SUCH EXPECTATIONS WILL PROVE TO BE CORRECT. IMPORTANT
FACTORS THAT COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM SUCH
EXPECTATIONS ("CAUTIONARY STATEMENTS") ARE DISCLOSED IN THIS PROSPECTUS. ALL
SUBSEQUENT WRITTEN AND ORAL FORWARD-LOOKING STATEMENTS ATTRIBUTABLE TO THE
COMPANY, ITS SUBSIDIARIES OR PERSONS ACTING ON THEIR BEHALF ARE EXPRESSLY
QUALIFIED IN THEIR ENTIRETY BY THE CAUTIONARY STATEMENTS.
YOU ARE CAUTIONED NOT TO PLACE UNDUE RELIANCE UPON THESE FORWARD-LOOKING
STATEMENTS, WHICH SPEAK ONLY AS OF THEIR DATES. THE COMPANY DOES NOT INTEND TO
UPDATE OR REVISE ANY FORWARD-LOOKING STATEMENTS, WHETHER AS A RESULT OF NEW
INFORMATION, FUTURE EVENTS OR OTHERWISE.
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SUMMARY
You should read the following summary together with the more detailed
information and financial statements included elsewhere in this Prospectus. You
should carefully consider the information set forth under the caption "Risk
Factors" and are urged to read this Prospectus in its entirety. Unless the
context otherwise requires, "Primark" or the "Company" refers to Primark
Corporation and its subsidiaries.
THE COMPANY
Primark is a leading global information service provider of comprehensive
financial, economic and market research information to investment, legal,
accounting, banking, corporate and government customers. The Company develops
and markets "value-added" database and information products that cover
established and emerging markets worldwide. The Company's proprietary analytical
software applications provide for the analysis and presentation of financial,
economic and market research information.
The Company, which serves customers in the U.S., Europe and the Pacific
Rim, compiles, analyzes, integrates, packages and distributes current and
historical data, news and commentary on financial securities, companies, and
markets worldwide. Primark owns and maintains large-scale databases, which are
accessed through its on-line distribution systems and the Internet, as well as
through third-party distributors. The Company's databases are authoritative
sources of data and analytics to more than 5,000 organizations worldwide,
including 75 of the top 100 banks, 82 of the top 100 investment managers, 28 of
the top 50 insurance companies and 450 of the top 1,000 U.S. companies. The
Company believes its customers value Primark's products because of their high
quality data as well as Primark's understanding of niche markets, its ability to
develop products to serve these markets and its superior customer service and
support.
The Company's business operations are integrated into three customer-
focused divisions, with each division concentrating on specialized product sets,
which address the needs of specific customer market groups. Primark's three
operating divisions are:
- Primark Financial Information Division ("PFID"). PFID develops
"enterprise-wide" products and services for major financial institutions
on a global basis. It also has responsibility for all transactional
products, both historical and real-time, as well as products supporting
large-scale investment accounting functions, the individual investor and
the referential needs of very large financial market customers. This
division also manages the corporate network, PrimarkNet, which serves as
the major delivery channel to Primark customers on a global basis and
across all three divisions. PFID's product offerings serve most of
Primark's customer types and it is a major service provider to the
"sell-side" portion of the financial markets.
- Primark Financial Analytics Division ("PFAD"). PFAD concentrates on
developing and marketing a wide variety of analytical products for money
managers, fund sponsors and other investors. These products combine the
Company's databases, advanced software, analytical techniques and
forecasts for all phases of the investment process. PFAD's product
offerings concentrate on customers in the "buy-side" portion of the
financial markets.
- Primark Decision Information Division ("PDID"). PDID acquires, develops
and operates information content businesses that are primarily focused in
areas other than the financial marketplace, and also provides products
and services for decision support to financial customers.
The Company has established the Primark Data Company ("PDC") to support the
data needs of the Company's operating divisions. PDC is an essential ingredient
in the overall Primark strategy because of the need for high quality information
provided on an efficient basis. PDC is responsible for the aggregation,
concordance and integration of Primark's equity pricing, indices, company
account, ownership and economic data sets Company-wide. With major operations in
the United States, the United Kingdom, Ireland and India, PDC provides global
data knowledge and support to the Company's three divisions.
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Key factors in Primark's success are recognizable quality and international
market acceptance of its branded products sold by the various business units
within the divisions. Primark's business units, and related brands, by division
include:
PRIMARK FINANCIAL INFORMATION DIVISION
- Datastream. Datastream International Limited and its affiliates
("Datastream"), acquired in 1992, is one of the world's leading providers
of global historical and fundamental real-time securities data and news
covering more than 45,000 stocks from 59 countries, 97,000 corporate and
government bonds from 32 countries and more than 1,800 major indices.
- ICV. ICV Limited ("ICV"), acquired in 1996, is a leading provider in the
U.K. of on-line equity trading products with an approximately 69% market
share in 1997 of on-line U.K. equities trading and was the number one
rated vendor to U.K. brokers by the 1996, 1997 and 1998 Kimsey Surveys.
- Primark Investment Management Services. Primark Investment Management
Services Limited ("PIMS") is a leading provider of computer-based
accounting and other investment fund services, including portfolio
valuation and performance measurement services, to money managers in the
U.K. and, to a lesser extent, in continental Europe.
- Disclosure/Worldscope. Disclosure Incorporated ("Disclosure"), acquired
in 1995, and its Worldscope affiliates ("Worldscope"), of which a 50%
equity interest was acquired in 1995 and an additional 30% interest was
acquired in 1996, are two of the leading providers of "as reported" and
abstracted financial information with databases including more than five
million Securities and Exchange Commission ("SEC") filings by more than
16,000 U.S. companies, dating back to 1968, as well as foreign company
filings from more than 13,000 companies in 45 countries.
PRIMARK FINANCIAL ANALYTICS DIVISION
- I/B/E/S. I/B/E/S International Inc. ("I/B/E/S"), acquired in 1995, is a
leading provider of global earnings expectations, historical data on
earnings surprises and research reports from more than 800 brokerage
firms and 7,000 research analysts on more than 17,000 companies
worldwide.
- Baseline. Baseline Financial Services, Inc. ("Baseline"), acquired in
1997, offers a leading stock and portfolio analysis and selection system
designed specifically for institutional portfolio managers.
- Vestek. Vestek Systems, Inc. ("Vestek"), acquired in 1994, is an
international provider of portfolio information, analytics and consulting
support to investment professionals.
PRIMARK DECISION INFORMATION DIVISION
- WEFA. WEFA, Inc. ("WEFA"), acquired in 1997, is an international
provider of economic research, analysis and forecasts.
- Primark Decision Economics. Primark Decision Economics ("PDE"), an
unconsolidated company started in 1996 in which Primark has an equity
interest of 20%, disseminates timely, value-added economic forecasts,
analyses and commentaries covering the world's major economies and
markets.
- The Yankee Group. Yankee Group Research, Inc. (the "Yankee Group"),
acquired in 1996, is an international market research and consulting firm
focusing on the communications and computing industries, which in 1997
was rated number one in credibility by Information Week magazine.
Primark had net operating revenues of $397.9 million and $321.8 million for
the twelve months ended December 31, 1997 and the nine months ended September
30, 1998, respectively. The Company's principal sources of revenue are from
customer subscriptions, royalty revenues from third party distributors and fees
for consulting services. The Company has a high customer retention rate, which
in 1997 averaged approximately 85%. More than 80% of the Company's revenues are
derived from subscription or royalty contracts, and a majority of these
contracts are paid in advance either quarterly or annually. For the nine months
ended September 30, 1998, approximately 82% of Primark's revenues were from
subscriptions, 4% from royalties and 14% from other sources. Primark had EBITDA
before restructuring charges of approximately $89.0 million for the year ended
December 31, 1997 and approximately $71.7 million for the nine months ended
September 30, 1998. For a description of EBITDA, see "-- Summary Consolidated
Financial Data." Over the
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past four years ended December 31, 1997, Primark's revenues and EBITDA before
restructuring charges have grown at compounded annual growth rates of 41.7% and
38.8%, respectively.
BUSINESS AND OPERATING STRATEGY
Primark's business and operating strategy is designed to generate strong
revenue growth and increased profitability by selling existing products, by
integrating key products and operations, by launching and acquiring new products
and by developing ancillary revenue streams through capitalizing on its
international brands and comprehensive, high quality data. The key elements of
this strategy include:
Expanding Customer Relationships and Cross-Selling. Primark believes that
its customers have an increasing need for financial and economic information
from a select group of integrated providers of such information. By
cross-selling its variety of well-known brands, Primark believes that it is well
positioned to serve this need. In addition to cross-selling, the Company
believes that it will be able to expand relationships with existing customers by
using its core products and services as platforms for launching new integrated
database and analytic products drawn from multiple sources within the Company.
Management also intends to further integrate its databases with its software
products to encourage service expansion. Due to the low incremental cost of
providing additional products and services to existing customers, the Company
expects these measures to result in increased revenues and improved profit
margins.
Introducing New Products, Databases and Service Enhancements. The Company
believes it can further leverage its existing customer base, databases and
technology to introduce new products and services. For example, Primark recently
introduced I/B/E/S Active Express, an on-line platform for delivery of I/B/E/S
information as well as other databases; Piranha, a product enabling customers to
manipulate and integrate data from multiple databases on the customer's desktop;
and World Market Monitor, a daily, weekly, monthly or bi-annual economic report
tailored to the needs of individual customers. The Company believes its ability
to add new products will continue to provide it with a competitive advantage.
Leveraging Introduction of the Euro. In 1997, more than 45% of Primark's
revenues were derived from European customers and the Company believes it is
well positioned to take advantage of the introduction of the euro on January 1,
1999. The introduction of the euro is expected to lead to new European
securities, increased cross-border investing and the liberalization of the
European pension and retirement savings industry. The Company anticipates that
all of these trends may also dramatically increase the demand for its products
and services from its existing customers as well as new customers. Primark
currently possesses a leading position in U.K. equities trading and provides one
of the most comprehensive databases of European company filings available
electronically. Management intends to capitalize on these trends by introducing
new databases capturing European trading and company data, as well as software
products and news services to serve the information needs of customers
worldwide.
Capitalizing On, and Improving Distribution Through, New Channels and New
Partnerships. Primark currently relies on a variety of distribution channels
including proprietary software, on-line and satellite feed delivery, as well as
third party distributors, paper-based services, CD-ROM and the Internet to
distribute its products. The Company believes it can further capitalize on these
distribution channels to introduce new products and services to both existing
and new customers. Primark currently has contracts with America Online, E-Trade,
Microsoft Investor, Quicken and Quote.Com, among others, to provide database
products to on-line customers and will seek to further expand these
relationships.
Leveraging Technology. Primark will continue to use advanced information
technology to increase the efficiency, speed and flexibility of its data
gathering, database construction and customer delivery efforts. For example,
Primark plans to integrate its database platforms in order to optimize its
product capabilities. The Company has begun to use new technology that it
believes will facilitate the integration of multiple databases maintained in
diverse computer systems for use by its analytics packages. This will allow the
Company to leverage existing brands and databases to provide new products to new
and existing customers. Through the use of advanced information technology,
Primark has transformed Disclosure from a primarily paper-based business to one
that now derives 42% of its revenues from electronic delivery. Also, the Company
expects to continue to use new technology to leverage its brand name products
and believes these efforts will increase revenues and improve margins.
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Providing Superior Customer Service. Providing superior customer support
and service is a key aspect of Primark's business philosophy and has contributed
to a high customer retention rate, which for 1997 averaged approximately 85%.
Primark's sales and marketing staff, as well as its technical experts and
consultants, work closely with clients, often on-site, to maximize the value of
Primark products and services and to develop custom applications tailored to
clients' information and software needs. Primark believes its superior customer
service and support will continue to provide it with increased opportunities for
additional product and service revenues.
Capitalizing on Integration of Operating Units. Primark has grown
primarily through acquisitions over the last six years. In order to capitalize
on the advantages expected to result from the integration of these acquired
businesses, on June 30, 1998 the Company reorganized its twelve operating units
into three divisions, which focus on common customer groups. The Company
believes that the restructuring will enable it to accelerate the realization of
synergies in its marketing, sales and administrative operations, eliminate
redundant production and delivery platforms, provide broader access to the
Company's customer base and deliver current and new product offerings faster and
more efficiently. The restructuring resulted in approximately $68.7 million of
restructuring charges for the period ended June 30, 1998, of which approximately
$60.7 million were non-cash charges.
RECENT EVENTS
On December 29, 1998, the Company announced the execution of a definitive
agreement (the "Agreement") to acquire 100% of the outstanding common stock of
A-T Financial Information, Inc. ("A-T") for a total purchase price of $35
million. Founded in 1987, A-T is a provider of Windows-compatible financial
market data and software to money managers, traders, banks and other
institutional investors. A-T has launched an Internet site for individual
investors, which is marketed as "A-T Attitude." The company is expected to
report $13 million in revenues for 1998, which is an increase of 29% over the
prior year. The Agreement, which was executed with both A-T and certain major
A-T shareholders, is subject to a number of conditions, including
Hart-Scott-Rodino review and approval of the A-T shareholders. A-T shareholders
holding a majority of its common stock have agreed to vote in favor of the
merger contemplated by the Agreement. The closing of the transaction is expected
by the end of February 1999.
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THE EXCHANGE OFFER
Primark issued and offered for sale (the "Offering") $150.0 million
aggregate principal amount of 9 1/4% Senior Subordinated Notes due 2008 (the
"Old Notes") under an indenture dated December 21, 1998 (the "Indenture") in a
transaction pursuant to Rule 144A and Regulation S under the Securities Act of
1933, as amended (the "Securities Act"). In connection with the Offering, the
Company entered into a registration rights agreement (the "Registration Rights
Agreement") with Morgan Stanley & Co. Incorporated, BT Alex Brown Incorporated,
NationsBanc Montgomery Securities LLC, A.G. Edwards & Sons, Inc. and Chase
Securities Inc. (the "Placement Agents"), providing for the issuance and
registration of senior subordinated notes (the "New Notes", and together with
the "Old Notes," the "Notes"), similarly governed by the Indenture, to be
offered in exchange for the Old Notes (the "Exchange Offer").
Securities Offered............ The Company is offering up to $150.0 million
aggregate principal amount of new 9 1/4% Senior
Subordinated Exchange Notes due 2008, which
have been registered under the Securities Act.
The terms of the New Notes are substantially
identical to those of the Old Notes, except
that certain transfer restrictions and
registration rights relating to the Old Notes
do not apply to the New Notes, and if the
Exchange Offer is not completed by June 21,
1999, the interest rate on the Old Notes will
increase by 0.5% until the Exchange Offer is
completed.
The Exchange Offer............ The Company is offering to issue the New Notes
in exchange for a like principal amount of the
Old Notes. The Old Notes were not registered
with the Securities and Exchange Commission
(the "Commission"). The Company is offering to
issue the New Notes to satisfy its obligations
contained in the Registration Rights Agreement.
You may tender your Old Notes by following the
procedures under the heading "The Exchange
Offer."
Tenders; Expiration Date;
Withdrawal.................... The Exchange Offer will expire at 5:00 p.m.,
New York City time, on , 1999,
unless the Company extends it. If you decide to
exchange your Old Notes for New Notes, you must
acknowledge that you are not engaging in, and
do not intend to engage in, a distribution of
the New Notes. The tender of Old Notes pursuant
to the Exchange Offer may be withdrawn at any
time prior to 1999. If the
Company decides for any reason not to accept
any Old Notes for exchange, the Old Notes will
be returned without expense to the tendering
holder promptly after the expiration or
termination of the Exchange Offer. See "The
Exchange Offer -- Terms of the Exchange Offer;
Period for Tendering Old Notes" and "The
Exchange Offer -- Withdrawal Rights."
Certain Conditions to the
Exchange Offer................ The Exchange Offer is subject to customary
conditions, which the Company may waive. Please
read the section "The Exchange Offer -- Certain
Conditions to the Exchange Offer" of this
Prospectus for more information regarding
conditions to the Exchange Offer.
Certain Federal Tax
Considerations................ The exchange of Old Notes for New Notes
pursuant to the Exchange Offer will not result
in any gain or loss to a Note holder for
federal income tax purposes. See "Certain U.S.
Federal Income Tax Considerations" of this
Prospectus.
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Use of Proceeds............... The Company will receive no proceeds from the
Exchange Offer.
Exchange Agent................ State Street Bank and Trust Company is the
Exchange Agent for the Exchange Offer. The
address and telephone number of the Exchange
Agent are set forth under the heading "The
Exchange Offer -- Exchange Agent" of this
Prospectus.
CONSEQUENCES OF NOT EXCHANGING OLD NOTES
If you do not exchange your Old Notes in the Exchange Offer, your Old Notes
will continue to be subject to the restrictions on transfer set forth in the
legend on the certificate for your Old Notes. In general, you may offer or sell
your Old Notes only if they are registered under, offered or sold pursuant to an
exemption from, or offered or sold in a transaction not subject to, the
Securities Act and applicable state securities laws. The Company does not
currently intend to register the Old Notes under the Securities Act. Under
certain circumstances, however, the Placement Agents may require the Company to
file and cause to become effective, a shelf registration statement which would
cover resales of Old Notes by the holders thereof. See "The Exchange
Offer -- Consequences of Exchanging or Failing to Exchange Old Notes" and
"Description of the Notes -- Registration Rights."
SUMMARY DESCRIPTION OF THE NEW NOTES
The terms of the New Notes and the Old Notes are identical in all material
respects, except that certain transfer restrictions and registration rights
relating to the Old Notes do not apply to the New Notes and that if the Exchange
Offer is not completed by June 21, 1999, the interest rate on the Old Notes will
increase by 0.5% until the Exchange Offer is completed.
Securities Offered.................. $150.0 million aggregate principal
amount of 9 1/4% Senior Subordinated
Exchange Notes due 2008, which have
been registered under the Securities
Act.
Maturity............................ December 15, 2008.
Interest............................ Interest will be payable semi-annually
in cash on June 15 and December 15 of
each year, beginning on June 15, 1999.
Optional Redemption................. The Company may redeem any of the Notes
beginning on December 15, 2003. The
initial redemption price is 104.625% of
their principal amount, plus accrued
interest. The redemption price will
decline each year after 2003 and will
be 100% of their principal amount, plus
accrued interest, on December 15, 2006.
In addition, before December 15, 2001,
the Company may redeem up to 35% of the
aggregate principal amount of Notes
using proceeds from certain sales of
its capital stock at 109.250% of their
principal amount, plus accrued
interest. The Company may make such
redemption only if after any such
redemption, at least 65% of the
aggregate principal amount of Notes
originally issued remains outstanding.
Change of Control................... Upon a change of control (as defined
under "Description of the Notes"), the
Company will be required to make an
offer to purchase the Notes. The
purchase price will equal 101% of their
principal amount, plus accrued interest
to the date of purchase. The Company
will not be required to commence such
an offer to purchase if the Notes have,
on the 30th day after such
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change of control, a rating of at least
BBB- by Standard & Poor's Ratings Group
and a rating of at least Baa3 by
Moody's Investors Service, Inc. There
can be no assurance that the Company
will have sufficient funds available at
the time of any change of control to
make any required debt repayment
(including repurchases of the Notes).
Ranking............................. The Old Notes do, and the New Notes
will, rank equally with the other
senior subordinated indebtedness of the
Company. The Old Notes are, and the New
Notes will be, junior to senior
indebtedness of the Company and all
liabilities of its subsidiaries.
At September 30, 1998, assuming that
the Offering had been completed at that
time, the Company would have had
approximately $159.7 million of
indebtedness outstanding of which
approximately $9.7 million would have
been senior to the Notes. See "Risk
Factors -- Reliance on Subsidiaries,"
"Risk Factors -- Subordination," "Risk
Factors -- Leverage," "Risk Factors --
Ability to Service Debt" and
"Description of the Notes -- Ranking."
Certain Covenants................... The Indenture contains certain
covenants that, among other things,
will limit the ability of the Company
and certain of its subsidiaries to:
- incur indebtedness,
- pay dividends,
- prepay subordinated indebtedness,
- repurchase capital stock,
- make investments,
- create liens,
- engage in transactions with
stockholders and affiliates,
- sell assets, and
- engage in mergers and consolidations.
However, these limitations are subject
to a number of important qualifications
and exceptions.
Use of Proceeds..................... The Company will not receive any
proceeds from the Exchange Offer. The
Company has used $122 million of the
net proceeds from the Offering to repay
outstanding borrowings under the Credit
Facility (as defined herein), with the
balance to be used to fund certain
corporate activities and for other
general corporate purposes.
RISK FACTORS
You should consider carefully all of the information set forth in this
Prospectus and, in particular, the specific factors set forth under "Risk
Factors," beginning on page 13, before deciding to tender your Old Notes in this
Exchange Offer.
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SUMMARY CONSOLIDATED FINANCIAL DATA
The summary historical consolidated financial data presented below for, and
as of, each of the years ended December 31, 1993 and 1994 have been restated for
the discontinuance of TASC, Inc. and The Analytic Sciences Corporation Limited
and their respective affiliates (collectively, "TASC") and Triad International
Maintenance Corporation ("TIMCO"). The summary historical consolidated financial
data presented below for, and as of, each of the years ended December 31, 1995,
1996 and 1997 were derived from the Company's audited consolidated financial
statements and include TASC and TIMCO as discontinued operations. The summary
historical consolidated financial data for, and as of, each of the nine months
ended September 30, 1997 and 1998 were derived from unaudited consolidated
financial statements of the Company which, in the opinion of management, have
been prepared on the same basis as the Company's audited consolidated financial
statements and include all adjustments (consisting only of normal recurring
items) necessary for a fair and consistent presentation of the Company's results
of operations and financial position for such periods and as of such dates. The
results for the nine months ended September 30, 1998 are not necessarily
indicative of results to be expected for the full fiscal year. The summary
historical consolidated data set forth below should be read together with "Use
of Proceeds," "Selected Consolidated Financial Data," "Management's Discussion
and Analysis of Financial Condition and Results of Operations" and the
consolidated financial statements of the Company contained elsewhere in this
Prospectus.
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
------------------------------------------------------- --------------------
1993 1994 1995 1996 1997 1997 1998
-------- -------- --------- --------- --------- -------- ---------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA AND RATIOS)
CONSOLIDATED STATEMENT OF INCOME DATA:
Operating Revenues........................... $ 98,810 $111,621 $ 184,779 $ 277,063 $ 397,875 $294,726 $ 321,819
Operating Expenses:
Cost of Services......................... 41,888 49,689 66,063 104,479 157,327 116,783 129,221
Selling, General and Administrative...... 32,935 37,205 71,921 111,463 151,559 115,957 120,933
Depreciation and Amortization............ 17,569 18,502 25,909 33,282 50,205 37,118 36,750
Restructuring Charge..................... -- -- -- -- 6,800 6,800 68,677
-------- -------- --------- --------- --------- -------- ---------
Total Operating Expenses............. 92,392 105,396 163,893 249,224 365,891 276,658 355,581
-------- -------- --------- --------- --------- -------- ---------
Operating Income (Loss)...................... 6,418 6,225 20,886 27,839 31,984 18,068 (33,762)
-------- -------- --------- --------- --------- -------- ---------
Interest Expense............................. (10,023) (3,184) (8,377) (12,468) (15,986) (11,805) (7,618)
Other Income (Expense) Net................... (683) (191) (2,498) 4,577 3,955 1,948 2,836
Income Tax Benefit (Expense)................. 854 (1,145) (4,630) (7,432) (12,963) (8,533) 100
-------- -------- --------- --------- --------- -------- ---------
Income (Loss) From Continuing Operations..... (3,434) 1,705 5,381 12,516 6,990 (322) (38,444)
-------- -------- --------- --------- --------- -------- ---------
Discontinued Operations...................... 10,446 12,045 13,469 24,592 14,680 13,074 195,361
Extraordinary Item -- Loss on Early Debt
Extinguishment............................. (1,499) -- (534) -- (1,955) (1,955) (5,121)
-------- -------- --------- --------- --------- -------- ---------
Net Income................................... 5,513 13,750 18,316 37,108 19,715 10,797 151,796
-------- -------- --------- --------- --------- -------- ---------
Preferred Stock Dividend..................... (1,426) (1,434) (1,434) (359) -- -- --
-------- -------- --------- --------- --------- -------- ---------
Net Income Applicable to Common
Stock(1)............................... $ 4,087 $ 12,316 $ 16,882 $ 36,749 $ 19,715 $ 10,797 $ 151,796
======== ======== ========= ========= ========= ======== =========
Earnings Per Common Share -- Basic:
Income (Loss) From Continuing
Operations............................. $ (0.27) $ 0.01 $ 0.21 $ 0.49 $ 0.26 $ (0.01) $ (1.52)
Net Income(1)............................ $ 0.22 $ 0.66 $ 0.88 $ 1.48 $ 0.75 $ 0.41 $ 5.99
Earnings Per Common Share -- Assuming
Dilution:
Income (Loss) From Continuing
Operations............................. $ (0.27) $ 0.01 $ 0.19 $ 0.46 $ 0.25 $ -- $ --
Net Income(1)............................ $ 0.22 $ 0.62 $ 0.82 $ 1.38 $ 0.71 $ -- $ --
Weighted Average Common and Common Equivalent
Shares Outstanding
Basic.................................... 18,326 18,510 19,150 24,813 26,348 26,415 25,343
Effect of Dilutive Securities............ -- 1,443 1,531 1,758 1,596 -- --
-------- -------- --------- --------- --------- -------- ---------
Diluted.................................. 18,326 19,953 20,681 26,571 27,944 26,415 25,343
======== ======== ========= ========= ========= ======== =========
OTHER DATA:
Net Cash Provided From Operating
Activities................................. $ 48,386 $ 40,268 $ 49,305 $ 65,707 $ 58,024 $ 38,412 $ 52,310
Net Cash (Used By) Provided From Financing
Activities................................. (41,663) (19,292) 220,355 4,749 74,746 77,415 (458,888)
Net Cash (Used By) Provided From Investing
Activities................................. (15,743) (10,280) (226,708) (105,989) (144,504) (124,611) 423,773
Effect of Currency on Cash................... (290) 477 57 927 (762) (344) 47
Capital Expenditures:
Equipment and Other...................... $ 7,648 $ 10,765 $ 9,803 $ 19,412 $ 23,965 $ 17,576 $ 14,486
Software................................. 4,021 4,372 5,704 16,916 19,971 14,121 12,591
-------- -------- --------- --------- --------- -------- ---------
Total Capital Expenditures........... $ 11,669 $ 15,137 $ 15,507 $ 36,328 $ 43,936 $ 31,697 $ 27,077
======== ======== ========= ========= ========= ======== =========
EBITDA Before Restructuring Charges (2)...... $ 23,987 $ 24,727 $ 46,795 $ 61,121 $ 88,989 $ 61,986 $ 71,665
Ratio of EBITDA Before Restructuring Charges
to Interest Expense(3)..................... 2.39x 7.77x 5.59x 4.90x 5.57x 5.25x 9.41x
Ratio of Debt to EBITDA Before Restructuring
Charges (4)................................ 5.44x 4.67x 5.12x 4.06x 4.16x 4.48x 1.05x
Ratio of Earnings to Fixed Charges(5)........ -- 1.49x 1.90x 2.19x 1.97x 1.53x --
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AS OF
SEPTEMBER 30, 1998
AS OF DECEMBER 31, ------------------------
------------------------------------------------------ AS AS
1993 1994 1995 1996 1997 REPORTED ADJUSTED(7)
-------- -------- -------- -------- ---------- ---------- -----------
(DOLLARS IN THOUSANDS)
BALANCE SHEET DATA:
Working Capital (deficit)(6)..... $(21,183) $ (7,572) $ 22,538 $(60,507) $ (64,325) $ (174,618) $ (29,018)
Total Assets..................... 419,816 427,950 718,184 920,801 1,043,809 811,328 867,763
Total Assets less Goodwill,
Net............................ 267,915 272,048 380,015 427,966 487,072 293,781 350,216
Total Debt....................... 130,386 115,573 239,476 248,340 370,163 103,224 159,659
Shareholders' Equity............. 208,134 224,689 354,062 475,830 470,971 436,821 436,821
NINE MONTHS ENDED
SEPTEMBER 30, 1998
------------------
SUPPLEMENTAL INFORMATION:
As Adjusted Interest Expense(8)............................. $11,876
Ratio of EBITDA Before Restructuring Charge to As Adjusted
Interest Expense(3)....................................... 6.03x
Ratio of As Adjusted Debt to EBITDA Before Restructuring
Charge(4)................................................. 1.62x
- ---------------
(1) Includes an after-tax gain on the sale of discontinued operations of $8.4
million in 1996 and $187.4 million in 1998 and an after-tax extraordinary
loss of $5.1 million, $2.0 million and $534,000 for 1998, 1997 and 1995,
respectively. Also includes dividends on the Company's outstanding preferred
stock through its conversion to common stock in 1996 and gains and losses
associated with discontinued operations of the Company.
(2) EBITDA before restructuring charges represents operating income plus
depreciation, amortization expense and non-recurring restructuring charges
and should not be considered in isolation from, or as a substitute for,
operating income, net income or cash flows from operating activities
computed in accordance with generally accepted accounting principles. While
not computed in accordance with generally accepted accounting principles,
EBITDA is a widely used measure of a company's performance in its industry
because it assists in comparing performance on a consistent basis without
regard to depreciation and amortization, which may vary significantly
depending on accounting methods (particularly where acquisitions are
involved). Certain of the Company's debt agreements include financial
covenants that are based upon EBITDA. Due to the variety of methods that may
be used by companies and analysts to calculate EBITDA before restructuring
charges, the EBITDA before restructuring charges measures presented herein
may not be comparable to that presented by other companies. The year ended
December 31, 1997 and the nine months ended September 30, 1998 included $6.8
million and $68.7 million of restructuring charges, respectively.
(3) The ratios of EBITDA before restructuring charges to interest expense and as
adjusted interest expense represent EBITDA before restructuring charges from
continuing operations divided by interest expense and as adjusted interest
expense from continuing operations. See footnote (8) below.
(4) The ratios of debt and as adjusted debt to EBITDA before restructuring
charges are calculated as the total outstanding debt and as adjusted debt of
the Company divided by EBITDA before restructuring charges. This ratio for
September 30, 1997 and September 30, 1998 was calculated based on the
preceding twelve months of EBITDA before restructuring charges. See footnote
(7) below.
(5) The ratio of earnings to fixed charges is calculated as the amount of
earnings before taxes from continuing operations plus fixed charges from
continuing operations divided by the amount of fixed charges from continuing
operations. Fixed charges include interest expense from continuing
operations plus the estimated interest component of operating leases. The
interest component of operating leases is estimated to be approximately 33%
of such amounts. For the year ended December 31, 1993 and the nine months
ended September 30, 1998, the Company's earnings before fixed charges were
insufficient to cover its fixed charges by $3.4 million and $49.6 million,
respectively. The nine months ended September 30, 1998 includes a
restructuring charge of $68.7 million. Excluding restructuring charges, the
ratio of earnings to fixed charges would have been 3.95x for the nine months
ended September 30, 1998.
(6) Working capital is calculated as current assets minus net assets of
discontinued operations minus current liabilities.
(7) As Adjusted gives effect to the Offering, as if it had occurred on September
30, 1998.
(8) As Adjusted Interest Expense gives effect to the Offering, as if it had
occurred on January 1, 1998.
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RISK FACTORS
In determining whether to tender your Old Notes in the Exchange Offer, you
should consider carefully all of the information set forth in this Prospectus
and, in particular, the following factors. This Prospectus contains
forward-looking statements that involve risks and uncertainties. The Company's
actual results may differ materially from the results discussed in such
forward-looking statements. Factors that may cause such differences include, but
are not limited to, those discussed below and in the section of this Prospectus
entitled "Management's Discussion and Analysis of Financial Condition and
Results of Operations." The risk factors set forth below (other than
"-- Consequences of Not Exchanging Old Notes") are generally applicable to the
Old Notes as well as the New Notes.
CONSEQUENCES OF NOT EXCHANGING NOTES
If you do not exchange your Old Notes for the New Notes pursuant to the
Exchange Offer, you will continue to be subject to the restrictions on transfer
of your Old Notes described in the legend on your Old Notes. The restrictions on
transfer of your Old Notes arise because the Company issued the Old Notes
pursuant to exemptions from, or in transactions not subject to, the registration
requirements of the Securities Act and applicable state securities laws. In
general, you may only offer or sell the Old Notes if they are registered under
the Securities Act and applicable state securities laws, or offered and sold
pursuant to an exemption from such requirements. The Company does not intend to
register the Old Notes under the Securities Act. In addition, if you exchange
your Old Notes in the Exchange Offer for the purpose of participating in a
distribution of the New Notes, you may be deemed to have received restricted
securities and, if so, will be required to comply with the registration and
prospectus delivery requirements of the Securities Act in connection with any
resale transaction. To the extent Old Notes are tendered and accepted in the
Exchange Offer, the trading market, if any, for the Old Notes would be adversely
affected. See "The Exchange Offer -- Consequences of Exchanging or Failing to
Exchange Old Notes."
RELIANCE ON SUBSIDIARIES
The Company is a holding company with no direct operations and no
significant assets other than the stock of its subsidiaries. The Company depends
on the cash flows of its subsidiaries to meet its obligations, including the
payment of interest and principal on the Notes. The Company's subsidiaries are
separate legal entities that have no obligation to make any funds available to
pay any amounts due on the Notes. The Company's subsidiaries will not guarantee
the payment of the principal or interest on the Notes. In the event of a
bankruptcy, liquidation or reorganization of any of the Company's subsidiaries,
holders of their indebtedness and their trade creditors will generally be
entitled to payment of their claims from the assets of those subsidiaries before
any assets are made available for distribution to the Company. If the Company
were a creditor of any such subsidiary, its claims to any of such subsidiaries'
assets would rank junior to security interests held by other creditors. As of
September 30, 1998, assuming that the Offering and the application of the net
proceeds therefrom had been completed at that time, subsidiaries of the Company
would have had approximately $243.4 million of liabilities.
SUBORDINATION
The Notes are unsecured and rank junior in right of payment to all senior
debt of the Company, including all indebtedness under the Company's credit
facility (the "Credit Facility"). Consequently, in the event of any payment or
distribution of assets of the Company upon the bankruptcy, liquidation or
reorganization of the Company, the holders of senior debt must be paid in full
before any payments may be made on the Notes. As of September 30, 1998, assuming
that the Offering and the application of the net proceeds therefrom had been
completed at that time, the Company would have had $225.0 million of
availability under the Credit Facility. In addition, the Company may incur
additional senior debt under the Indenture.
The Old Notes are not, and the New Notes will not be, secured by any of the
Company's assets. In the event of a bankruptcy, liquidation or reorganization of
the Company, or if payments under the Credit Facility are accelerated, the
Company's assets will be available to pay obligations on the Notes only after
all payments have been made on its secured and senior debt. There can be no
assurance that sufficient assets will remain to make full payment on the Notes.
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In the event of a default in payment with respect to any senior debt of the
Company, the Company will not make any payment on the Notes unless such default
has been cured or waived. In addition, payments on the Notes may be blocked for
up to 179 consecutive days in the event of certain non-payment defaults on the
Company's senior debt.
LEVERAGE
At September 30, 1998, assuming that the Offering and the application of
the net proceeds therefrom had been completed at that time the Company would
have had consolidated total indebtedness of approximately $159.7 million and
consolidated shareholders' equity of $436.8 million. In addition, at September
30, 1998, and under the same assumptions, the Company would have had $225.0
million of availability under its Credit Facility. The Company may utilize its
Credit Facility or incur additional indebtedness in the future in connection,
for example, with acquisitions, the repurchase of its common stock, general
corporate purposes and capital expenditures. In the event that the Company
incurs substantial indebtedness in the future, it could have important
consequences for the Noteholders including the following:
- the ability of the Company to obtain any necessary financing in the
future for working capital, capital expenditures, debt service
requirements or other purposes may be limited;
- the Company's level of indebtedness could limit its flexibility in
planning for, or reacting to, changes in its business;
- the Company could be more highly leveraged than some of its competitors,
which may place it at a competitive disadvantage;
- the Company's degree of indebtedness could make it more vulnerable to a
downturn in its business or the economy generally;
- the debt service requirements of any additional indebtedness could make
it more difficult for the Company to make payments on the Notes; and
- a substantial portion of the Company's cash flow from operations could be
dedicated to the repayment of its indebtedness and would not be available
for other purposes.
ABILITY TO SERVICE DEBT
The Company's ability to make payments on its indebtedness, including the
Notes, will depend on its ability to generate cash in the future. In the event
the Company does not generate sufficient cash flow to meet its debt service and
working capital requirements, the Company may need to seek additional financing.
There can be no assurance that any such financing could be obtained on terms
that are acceptable to the Company, or at all. In the absence of such financing,
the Company could be forced to dispose of assets to make up for any shortfall in
its payment obligations under circumstances that might not be favorable to
realizing the highest price for such assets. There can be no assurance that the
Company's assets could be sold quickly enough or for sufficient amounts to
enable the Company to meet its obligations, including its obligations with
respect to the Notes. A substantial portion of the Company's assets are, and may
continue to be, intangible assets. Therefore, it may be difficult for the
holders of the Notes to be paid in the event of an acceleration of the Notes.
TECHNOLOGICAL CHANGE
The Company operates principally in the information services industry,
which changes rapidly and is characterized by the continuous development of new
standards and technology. The Company's ability to apply new technology to, and
to develop new applications for, its information services businesses will be a
significant factor in the Company's ability to grow and remain competitive. In
addition, technological advances and/or the introduction of new products and
services in the information services industry could adversely affect the
Company. For example, Disclosure/Worldscope experienced significant new
competition since the release of the EDGAR database by the SEC in late 1995,
which reduced demand for Disclosure/Worldscope's paper based services, allowed
new competitors to enter the market at lower prices, and resulted in a 18.7%
decline in year over year annualized revenues for this business as of September
30, 1998.
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However, this decline was offset in part by the 23.6% period to period growth in
Disclosure/Worldscope's electronic business.
The Company's future success will depend significantly on its ability to
continue to develop and deliver technologically advanced products and services.
The cost of developing such products and services could adversely affect the
Company's future results of operations. In addition, there can be no assurance
that the Company will be able to respond in a timely manner to technological
changes or that the Company's services will not become noncompetitive because of
new service offerings by its competitors.
COMPETITION
The information services industry is highly competitive and is expected to
continue to be so in the future. In addition, the industry is characterized by
rapid technological change and entry into the field by large and
well-capitalized companies and smaller competitors. The Company competes, or may
compete, directly and indirectly with large, well-established information
providers as well as many of the database providers from whom the Company
obtains data for inclusion in its systems. Certain of the Company's competitors
offer databases and applications similar to those offered by the Company and
also have substantially larger customer bases, greater name recognition and
greater financial, technical and marketing resources than those of the Company.
The Company believes that its ability to compete will depend upon many
factors. These include:
- its ability to maintain and develop new products and access new markets
in a cost efficient manner;
- its ability to integrate its products and services;
- its ability to continue relationships with leading providers of
financial, economic and market research data;
- the timing and market acceptance of new services and enhancements to
performance, price, reliability, customer service and support; and
- sales and marketing efforts.
There can be no assurance that the Company will be able to compete
successfully against competitors or that competitive pressures will not have a
material adverse effect on the Company.
INTERNATIONAL OPERATIONS AND FOREIGN CURRENCY EXCHANGE RATE RISK
The Company is exposed to certain risks associated with an international
business, particularly with respect to foreign currency exchange rate movements.
A majority of the Company's revenues and expenses are incurred in currencies
other than the U.S. dollar. Consequently, the Company's operations have at times
been adversely affected and may again be adversely affected by fluctuations in
currency exchange rates. The Company engages in hedging activities to minimize
its ongoing exposure to foreign currency exchange rate risk. There can be no
assurance that the Company will be able to continue to engage in such hedging
activities on commercially satisfactory terms, if at all.
International business is also subject to the customary risks associated
with international transactions. These include political risks, local laws and
taxes, the potential imposition of trade or currency exchange restrictions,
tariff increases and difficulties or delays in collecting accounts receivable.
Weak foreign economies and/or a weakening of foreign currencies in certain
countries against the U.S. dollar would adversely affect the Company's overall
operating results and cash flows. In 1997, international revenues and operating
income represented approximately 56% of total consolidated revenues and
operating income, respectively.
RESTRICTIVE COVENANTS IMPOSED BY DEBT INSTRUMENTS
The Indenture and the Credit Facility contain restrictions on the Company
that affect the ability of the Company to incur additional indebtedness, create
liens, make investments, issue stock of subsidiaries, create restrictions on the
ability of certain subsidiaries to pay dividends or make certain payments to the
Company, or sell or otherwise dispose of all or substantially all of the assets
of the Company. In addition, the Credit Facility requires the Company to
maintain certain financial ratios. See "Description of the Notes -- Covenants"
and "Description of Certain Indebtedness." There can be no assurance that the
Company will be able to maintain
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such ratios or that such covenants will not adversely affect the Company's
ability to finance its future operations or capital needs or to engage in other
business activities that may be in the interest of the Company.
A breach of any of the covenants contained in the Indenture or the Credit
Facility or the inability of the Company to comply with the required financial
ratios could result in a default under the Credit Facility or the Indenture. In
the event of any such default, the Company could be prohibited from making any
payments on the Notes. In addition, the lenders under the Credit Facility could
elect to declare all amounts borrowed thereunder to be due and payable. If the
indebtedness under the Credit Facility were to be accelerated, there can be no
assurance that the assets of the Company would be sufficient to repay such
indebtedness and the Notes in full. See "-- Reliance on Subsidiaries,"
"-- Subordination" and "Description of the Notes."
RELIANCE ON FINANCIAL SERVICES INDUSTRY
The Company's business is dependent to a large extent upon the continued
need for the electronic distribution of high-quality databases, forecasts,
analytical tools and other financial information. The majority of the Company's
business serves institutions and professionals in the financial services
industry, although the Company also has corporate and government customers in
both the United States and other countries. As a result, a downturn in the
financial services industry could adversely affect the Company's overall
revenues and profits. For example, the Company believes that the adverse impact
on the financial services industry following the 1997 collapse in the Asian
financial markets, together with the more recent financial market volatility
caused by concerns over conditions in Russia and Latin America, has had a
negative impact on its revenue growth and profitability. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations." In
addition, financial institutions are continuing to consolidate. This increases
the leverage of the Company's customers to negotiate price and decreases the
overall potential market for certain of the Company's services. These factors,
as well as other changes occurring in the U.S. and international financial
services industry, could have a material adverse effect on the Company's
financial position and results of operations.
ACQUISITION RISKS
Historically, the Company has completed numerous acquisitions and may
continue to do so in the future. No assurance can be given that the Company will
identify, finance and complete additional suitable acquisitions on acceptable
terms or that future acquisitions will be successfully integrated into the
Company's existing businesses. Any acquisitions may require substantial
attention from the Company's senior management, which may limit the amount of
time devoted to the Company's day-to-day operations. There can also be no
assurance that future acquisitions will not have an adverse effect upon the
Company's operating results. The Company could be adversely affected if it were
unable to find additional attractive acquisition candidates or to effectively
manage the integration of any businesses acquired in the future. The Company is
actively pursuing a number of potential acquisitions, although no agreements
have been reached at this time.
RISK ASSOCIATED WITH YEAR 2000 COMPLIANCE
The Company has a Year 2000 ("Y2K") plan that it is actively pursuing to
address the Company's Y2K issues. The Company began working on the Y2K problem
in 1995, with the goal to provide continuous and reliable service to the
Company's customers and a seamless transition to the new millennium. The
Company's Y2K plan focuses on each of the Company's internal systems, products,
and third parties with which the Company has a significant business
relationship. In addition to the databases and software that the Company
provides to its customers, the Company is reviewing, fixing, and testing all
aspects of its internal operations -- from hardware systems, software, and
desktop PC programs to physical security systems. This effort involves key data
suppliers, hardware manufacturers, telecommunications companies, electric
utilities, and more. The Company is also prepared to assist its users with Y2K
issues relating to their internal systems that directly interface with the
Company's systems. All Primark companies are working together to achieve
compliance by sharing information, sharing resources and holding corporate-wide
reviews. The Company believes that all material systems will be compliant by
June of 1999.
All organizations dealing with the Y2K must address the effect this issue
will have on their significant business relationships including suppliers and
customers. The Company is undertaking steps to work with third
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parties to understand their ability to continue providing services and products
to support the Company's operations through the change to the Y2K. If any
significant Y2K problems are identified with third parties, contingency plans
will be developed. For example, Primark products incorporate data derived from
many different suppliers. A major component of the Y2K projects is reviewing
each of the suppliers to ensure compliance on their part. Where there is any
doubt that a supplier will not be taking reasonable actions to ensure
compliance, the Company will seek alternatives within a suitable time frame.
There are some older products that are not Y2K compliant that the Company
will no longer support after 1999. All affected customers have been notified.
All other Company products are Y2K compliant.
The Company incurred $1.5 million related to the Y2K procedures in 1997 and
expects to incur costs of $2.7 million and $2.6 million for the years ended
December 31, 1998 and 1999, respectively. The Company expects to resolve every
significant Y2K problem and have the solutions thoroughly tested by June 30,
1999.
While the Company expects its Y2K efforts will be successful, if the
modifications and replaced systems are not made compliant in a timely manner, it
could result in a material adverse effect on the Company. Additionally, the
Company's products and services, are dependent on technological components,
equipment and software that were developed by third parties and that may not be
Y2K compliant. Failure of such third party components, equipment or software to
operate properly with regard to the Y2K could interrupt ongoing operations or
require the Company to incur unanticipated expenses to remedy any problems,
which could have a material adverse effect on the Company's business and
operating results.
DEPENDENCE ON KEY PERSONNEL
The Company's success depends to a significant extent upon its senior
management and key employees and its ability to attract and retain key
management, marketing, finance and technical personnel. The market for
experienced management and highly skilled personnel is highly competitive. If
the Company loses the services of certain management personnel or is unable to
attract and retain skilled technical personnel, it could be materially adversely
affected.
FRAUDULENT CONVEYANCE CONSIDERATIONS
The Company's management believes that the indebtedness represented by the
Notes was incurred for proper purposes and in good faith, and that the Company
was, and after the consummation of the Offering continued to be, solvent, was
sufficient capital for carrying on its business and was able to pay its debts as
they mature. Notwithstanding management's belief, the indebtedness represented
by the Notes could be avoided, or claims in respect thereof could be
subordinated to all of the Company's other debt, if a court determined that,
after giving effect to the sale of the Notes and the application of the net
proceeds therefrom:
- the Company incurred such indebtedness with the intent of hindering,
delaying or defrauding creditors; or
- the Company received less than reasonably equivalent value or
consideration for incurring such indebtedness; and
(1) was or became insolvent or was rendered insolvent by reason of such
transactions;
(2) was engaged in a business or transaction for which the assets
remaining with the Company constituted unreasonably small capital;
or
(3) intended to incur, or believed that it would incur, debts beyond its
ability to pay such debts as they matured.
The measure of insolvency for purposes of these fraudulent transfer laws
varies depending upon the law of the jurisdiction which is being applied.
Generally, however, a company would be considered insolvent if the sum of all
its liabilities, including contingent liabilities, were greater than the value
of all its property at a fair valuation, or if the present fair saleable value
of the company's assets were less than the amount required to repay its
liabilities on its debts, including contingent liabilities, as they become
absolute and matured.
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LACK OF PUBLIC MARKET FOR THE NOTES
There is no public market for the New Notes. The Placement Agents have
informed the Company that they intend to make a market in the New Notes.
However, any such market making may be discontinued at any time. Accordingly, no
assurance can be given as to the development or liquidity of any trading market
for the New Notes.
If the New Notes are traded after their initial issuance, they may trade at
a discount from their initial offering price as a result of, among other things,
prevailing interest rates, the market for similar securities, the Company's
financial condition and prospects and general economic conditions.
RISKS REGARDING FORWARD LOOKING STATEMENTS
This Prospectus contains "forward-looking statements". These
forward-looking statements, such as the Company's plans and strategies, its
anticipation of revenues from designated markets, statements regarding the
development of the Company's businesses, the markets for the Company's services
and products, the Company's anticipated capital expenditures and other
statements contained herein regarding matters that are not historical facts, are
only predictions and estimates regarding future events and circumstances.
Actual events or results may differ materially from expected events or
results as a result of risks facing the Company. Such risks include, but are not
limited to: (1) risks associated with operating on a global basis, including
fluctuations in the value of foreign currencies relative to the U.S. dollar, and
the ability to successfully hedge such risks, (2) the extent to which Primark
seeks growth through acquisitions, and the ability to identify and consummate
acquisitions on satisfactory terms, (3) uncertainty regarding the development
and market acceptance of new products, (4) loss of market share through
competition, (5) deterioration in economic conditions, particularly in the
financial services industry, and (6) Primark's inability to complete the
implementation of its Y2K plans on a timely basis. You are cautioned not to
place undue reliance on these forward-looking statements, which speak only as of
their dates. The Company does not intend to publicly update or revise any
forward-looking statements.
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USE OF PROCEEDS
The Company will not receive any proceeds from the Exchange Offer. The net
proceeds to the Company from the sale of the Old Notes were approximately $145.6
million, after deducting underwriting discounts and commissions and other
expenses of the Offering payable by the Company. The Company has used $122
million of the net proceeds to repay outstanding borrowings under the Credit
Facility ($93.6 million outstanding as of September 30, 1998) with the balance
to be used to fund certain corporate activities including acquisitions,
repurchases of its common stock, capital expenditures and other general
corporate purposes. The debt being repaid was incurred under the Credit Facility
in 1998 to finance the repurchase of 4,540,000 shares of the Company's common
stock pursuant to a Dutch Auction self tender offer and 1,568,500 shares through
open market purchases, along with related fees and expenses. The Credit Facility
will mature on December 31, 2002, unless extended pursuant to the terms of the
Credit Agreement (as defined herein). Amounts drawn under the Credit Facility
bear interest at floating rates (6.66% weighted average at September 30, 1998)
and any amounts repaid under the Credit Facility may be reborrowed thereunder.
See "Description of Certain Indebtedness."
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CAPITALIZATION
The following table sets forth as of September 30, 1998 the historical
capitalization of the Company and as adjusted to give effect to the Offering, as
if it had occurred on September 30, 1998. The information set forth below should
be read in conjunction with "Selected Consolidated Financial Data,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the historical consolidated financial statements of the Company
contained elsewhere in this Prospectus.
SEPTEMBER 30, 1998
---------------------------
HISTORICAL AS ADJUSTED(1)
---------- --------------
(DOLLARS IN THOUSANDS)
Cash and cash equivalents................................... $ 30,022 $ 82,057
======== ========
Total debt:
Credit facility............................................. $ 93,565 $ --
Senior subordinated notes offered hereby.................... -- 150,000
Letter of credit and notes to sellers....................... 6,750 6,750
Capital lease obligations and other......................... 2,909 2,909
-------- --------
Total debt........................................... 103,224 159,659
Less-current maturities.............................. (94,382) (817)
-------- --------
Total long-term debt................................. 8,842 158,842
-------- --------
Shareholders' equity:
Common stock and additional paid-in capital................. 88,862 88,862
Retained earnings........................................... 350,454 350,454
Cumulative foreign currency translation..................... (2,495) (2,495)
-------- --------
Total common shareholders' equity.................... 436,821 436,821
-------- --------
Total capitalization.............................. $445,663 $595,663
======== ========
- ---------------
(1) Gives effect to the Offering as if it had occurred on September 30, 1998.
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SELECTED CONSOLIDATED FINANCIAL DATA
The selected historical consolidated financial data presented below for,
and as of, each of the years ended December 31, 1993 and 1994 have been restated
for the discontinuance of TASC and TIMCO. The selected historical consolidated
financial data presented below for, and as of, each of the years ended December
31, 1995, 1996 and 1997 were derived from the Company's audited consolidated
financial statements, which include TASC and TIMCO as discontinued operations,
and which have been audited by Deloitte & Touche LLP, independent public
accountants. The selected historical consolidated financial data for, and as of,
each of the nine months ended September 30, 1997 and 1998 were derived from
unaudited consolidated financial statements of the Company which, in the opinion
of management, have been prepared on the same basis as the Company's audited
consolidated financial statements and include all adjustments (consisting only
of normal recurring items) necessary for a fair and consistent presentation of
the Company's results of operations and financial position for such periods and
as of such dates. The results for the nine months ended September 30, 1998 are
not necessarily indicative of results to be expected for the full fiscal year.
The selected historical consolidated data set forth below should be read
together with "Use of Proceeds," "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and the consolidated financial
statements of the Company contained elsewhere in this Prospectus.
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
------------------------------------------------------- --------------------
1993 1994 1995 1996 1997 1997 1998
-------- -------- --------- --------- --------- -------- ---------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA AND RATIOS)
CONSOLIDATED STATEMENT OF INCOME DATA:
Operating Revenues........................... $ 98,810 $111,621 $ 184,779 $ 277,063 $ 397,875 $294,726 $ 321,819
Operating Expenses:
Cost of Services......................... 41,888 49,689 66,063 104,479 157,327 116,783 129,221
Selling, General and Administrative...... 32,935 37,205 71,921 111,463 151,559 115,957 120,933
Depreciation and Amortization............ 17,569 18,502 25,909 33,282 50,205 37,118 36,750
Restructuring Charge..................... -- -- -- -- 6,800 6,800 68,677
-------- -------- --------- --------- --------- -------- ---------
Total Operating Expenses............. 92,392 105,396 163,893 249,224 365,891 276,658 355,581
-------- -------- --------- --------- --------- -------- ---------
Operating Income (Loss)...................... 6,418 6,225 20,886 27,839 31,984 18,068 (33,762)
-------- -------- --------- --------- --------- -------- ---------
Interest Expense............................. (10,023) (3,184) (8,377) (12,468) (15,986) (11,805) (7,618)
Other Income (Expense) Net................... (683) (191) (2,498) 4,577 3,955 1,948 2,836
Income Tax Benefit (Expense)................. 854 (1,145) (4,630) (7,432) (12,963) (8,533) 100
-------- -------- --------- --------- --------- -------- ---------
Income (Loss) From Continuing Operations..... (3,434) 1,705 5,381 12,516 6,990 (322) (38,444)
-------- -------- --------- --------- --------- -------- ---------
Discontinued Operations...................... 10,446 12,045 13,469 24,592 14,680 13,074 195,361
Extraordinary Item -- Loss on Early Debt
Extinguishment............................. (1,499) -- (534) -- (1,955) (1,955) (5,121)
-------- -------- --------- --------- --------- -------- ---------
Net Income................................... 5,513 13,750 18,316 37,108 19,715 10,797 151,796
-------- -------- --------- --------- --------- -------- ---------
Preferred Stock Dividend..................... (1,426) (1,434) (1,434) (359) -- -- --
-------- -------- --------- --------- --------- -------- ---------
Net Income Applicable to Common
Stock(1)............................... $ 4,087 $ 12,316 $ 16,882 $ 36,749 $ 19,715 $ 10,797 $ 151,796
======== ======== ========= ========= ========= ======== =========
Earnings Per Common Share -- Basic:
Income (Loss) From Continuing
Operations............................. $ (0.27) $ 0.01 $ 0.21 $ 0.49 $ 0.26 $ (0.01) $ (1.52)
Net Income(1)............................ $ 0.22 $ 0.66 $ 0.88 $ 1.48 $ 0.75 $ 0.41 $ 5.99
Earnings Per Common Share -- Assuming
Dilution:
Income (Loss) From Continuing
Operations............................. $ (0.27) $ 0.01 $ 0.19 $ 0.46 $ 0.25 $ -- $ --
Net Income(1)............................ $ 0.22 $ 0.62 $ 0.82 $ 1.38 $ 0.71 $ -- $ --
Weighted Average Common and Common Equivalent
Shares Outstanding
Basic.................................... 18,326 18,510 19,150 24,813 26,348 26,415 25,343
Effect of Dilutive Securities............ -- 1,443 1,531 1,758 1,596 -- --
-------- -------- --------- --------- --------- -------- ---------
Diluted.................................. 18,326 19,953 20,681 26,571 27,944 26,415 25,343
======== ======== ========= ========= ========= ======== =========
OTHER DATA:
Net Cash Provided From Operating
Activities................................. $ 48,386 $ 40,268 $ 49,305 $ 65,707 $ 58,024 $ 38,412 $ 52,310
Net Cash (Used By) Provided From Financing
Activities................................. (41,663) (19,292) 220,355 4,749 74,746 77,415 (458,888)
Net Cash (Used By) Provided From Investing
Activities................................. (15,743) (10,280) (226,708) (105,989) (144,504) (124,611) 423,773
Effect of Currency on Cash................... (290) 477 57 927 (762) (344) 47
Capital Expenditures:
Equipment and Other...................... $ 7,648 $ 10,765 $ 9,803 $ 19,412 $ 23,965 $ 17,576 $ 14,486
Software................................. 4,021 4,372 5,704 16,916 19,971 14,121 12,591
-------- -------- --------- --------- --------- -------- ---------
Total Capital Expenditures........... $ 11,669 $ 15,137 $ 15,507 $ 36,328 $ 43,936 $ 31,697 $ 27,077
======== ======== ========= ========= ========= ======== =========
EBITDA Before Restructuring Charges (2)...... $ 23,987 $ 24,727 $ 46,795 $ 61,121 $ 88,989 $ 61,986 $ 71,665
Ratio of EBITDA Before Restructuring Charges
to Interest Expense(3)..................... 2.39x 7.77x 5.59x 4.90x 5.57x 5.25x 9.41x
Ratio of Debt to EBITDA Before Restructuring
Charges (4)................................ 5.44x 4.67x 5.12x 4.06x 4.16x 4.48x 1.05x
Ratio of Earnings to Fixed Charges(5)........ -- 1.49x 1.90x 2.19x 1.97x 1.53x --
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AS OF DECEMBER 31, AS OF
------------------------------------------------------ SEPTEMBER 30,
1993 1994 1995 1996 1997 1998
-------- -------- -------- -------- ---------- -------------
(DOLLARS IN THOUSANDS)
BALANCE SHEET DATA:
Working Capital (deficit)(6).................... $(21,183) $ (7,572) $ 22,538 $(60,507) $ (64,325) $ (174,618)
Total Assets.................................... 419,816 427,950 718,184 920,801 1,043,809 811,328
Total Assets less Goodwill, Net................. 267,915 272,048 380,015 427,966 487,072 293,781
Total Debt...................................... 130,386 115,573 239,476 248,340 370,163 103,224
Shareholders' Equity............................ 208,134 224,689 354,062 475,830 470,971 436,821
- ---------------
(1) Includes an after-tax gain on the sale of discontinued operations of $8.4
million in 1996 and $187.4 million in 1998 and an after-tax extraordinary
loss of $5.1 million, $2.0 million and $534,000 for 1998, 1997 and 1995,
respectively. Also includes dividends on the Company's outstanding preferred
stock through its conversion to common stock in 1996 and gains and losses
associated with discontinued operations of the Company.
(2) EBITDA before restructuring charges represents operating income plus
depreciation, amortization expense and non-recurring restructuring charges
and should not be considered in isolation from, or as a substitute for,
operating income, net income or cash flows from operating activities
computed in accordance with generally accepted accounting principles. While
not computed in accordance with generally accepted accounting principles,
EBITDA is a widely used measure of a company's performance in its industry
because it assists in comparing performance on a consistent basis without
regard to depreciation and amortization, which may vary significantly
depending on accounting methods (particularly where acquisitions are
involved). Certain of the Company's debt agreements include financial
covenants that are based upon EBITDA. Due to the variety of methods that may
be used by companies and analysts to calculate EBITDA before restructuring
charges, the EBITDA before restructuring charges measures presented herein
may not be comparable to that presented by other companies. The year ended
December 31, 1997 and the nine months ended September 30, 1998 included $6.8
million and $68.7 million of restructuring charges, respectively.
(3) The ratio of EBITDA before restructuring charges to interest expense
represents EBITDA before restructuring charges from continuing operations
divided by interest expense from continuing operations.
(4) The ratio of debt to EBITDA before restructuring charges is calculated as
the total outstanding debt of the Company divided by EBITDA before
restructuring charges. This ratio for September 30, 1997 and September 30,
1998 was calculated based on the preceding twelve months of EBITDA before
restructuring charges.
(5) The ratio of earnings to fixed charges is calculated as the amount of
earnings before taxes from continuing operations plus fixed charges from
continuing operations divided by the amount of fixed charges from continuing
operations. Fixed charges include interest expense from continuing
operations plus the estimated interest component of operating leases. The
interest component of operating leases is estimated to be approximately 33%
of such amounts. For the year ended December 31, 1993 and the nine months
ended September 30, 1998, the Company's earnings before fixed charges were
insufficient to cover its fixed charges by $3.4 million and $49.6 million,
respectively. The nine months ended September 30, 1998 includes a
restructuring charge of $68.7 million. Excluding restructuring charges, the
ratio of earnings to fixed charges would have been 3.95x for the nine months
ended September 30, 1998.
(6) Working capital is calculated as current assets minus net assets of
discontinued operations minus current liabilities.
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THE EXCHANGE OFFER
TERMS OF THE EXCHANGE OFFER; PERIOD FOR TENDERING OLD NOTES
Subject to the terms and conditions set forth in this Prospectus and in the
accompanying Letter of Transmittal, the Company will accept for exchange Old
Notes which are properly tendered on or prior to the Expiration Date and not
withdrawn as permitted below. As used in this Prospectus, the term "Expiration
Date" means 5:00 p.m., New York City time, on , 1999; provided,
however, that if the Company, in its sole discretion, has extended the period of
time during which the Exchange Offer is open, the term "Expiration Date" means
the latest time and date to which the Company extends the Exchange Offer.
As of the date of this Prospectus, $150.0 million aggregate principal
amount of the Old Notes are outstanding. This Prospectus and the Letter of
Transmittal are first being sent on or about , 199 , to all
holders of Old Notes known to the Company. The Company's obligation to accept
Old Notes for exchange pursuant to the Exchange Offer is subject to certain
conditions as set forth below under "-- Certain Conditions to the Exchange
Offer."
The Company expressly reserves the right, at any time or from time to time,
to extend the period of time during which the Exchange Offer is open, and
thereby delay acceptance for exchange of any Old Notes, by giving oral or
written notice of such extension to the holders of Old Notes as described below.
During any such extension, all Old Notes previously tendered will remain subject
to the Exchange Offer and may be accepted for exchange by the Company. The
Company will return at no expense to the holder, any Old Notes not accepted for
exchange as promptly as practicable after the expiration or termination of the
Exchange Offer.
Old Notes tendered in the Exchange Offer must be in denominations of
principal amount of $1,000 and any integral multiple thereof.
If any of the events specified in "-- Certain Conditions to the Exchange
Offer" should occur, the Company expressly reserves the right to amend or
terminate the Exchange Offer, and not to accept for exchange any Old Notes not
theretofore accepted for exchange. The Company will give oral or written notice
of any extension, amendment, non-acceptance or termination to holders of Old
Notes as promptly as practicable. In the case of an extension, the Company will
issue a press release or other public announcement no later than 9:00 a.m., New
York City time, on the next business day after the previously scheduled
Expiration Date.
Following consummation of the Exchange Offer, the Company may, in its sole
discretion, commence one or more additional exchange offers to those holders of
Old Notes who did not exchange their Old Notes for New Notes on terms which may
differ from those contained in the Registration Rights Agreement. The Company
may use this Prospectus, as amended or supplemented from time to time, in
connection with additional exchange offers. Such additional exchange offers will
take place from time to time until all outstanding Old Notes have been exchanged
for New Notes.
PROCEDURES FOR TENDERING OLD NOTES
When an Old Note holder tenders, and the Company accepts, the Old Notes,
this will constitute a binding agreement between the Company and such holder
subject to the terms and conditions set forth in this Prospectus and the
accompanying Letter of Transmittal. Except as set forth below, to tender in the
Exchange Offer, a holder must transmit to State Street Bank and Trust Company,
the Exchange Agent, at the address set forth under "-- Exchange Agent" on or
prior to the Expiration Date either:
- a properly completed and duly executed Letter of Transmittal, including
all other documents required by such Letter of Transmittal, or
- if the Old Notes are tendered pursuant to the book-entry procedures set
forth below, the tendering Old Note holder may transmit an Agent's
Message (as defined below) instead of the Letter of Transmittal.
In addition, on or prior to the Expiration Date, either:
- the Exchange Agent must receive the certificates for the Old Notes along
with the Letter of Transmittal; or
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25
- the Exchange Agent must receive a timely confirmation of a book-entry
transfer (a "Book-Entry Confirmation") of such Old Notes into the
Exchange Agent's account at The Depository Trust Company ("DTC")
according to the procedure for book-entry transfer described below, along
with a Letter of Transmittal or an Agent's Message in lieu of such Letter
of Transmittal; or
- the holder must comply with the guaranteed delivery procedures described
below.
The term "Agent's Message" means a message, transmitted by DTC and received
by the Exchange Agent and forming a part of the Book-Entry Confirmation, which
states that DTC has received an express acknowledgment from the tendering holder
that such holder has received and agrees to be bound by the Letter of
Transmittal and the Company may enforce the Letter of Transmittal against such
holder.
The method of delivery of Old Notes, Letters of Transmittal or Agent's
Messages and all other required documents is at the election and risk of the
holders. If such delivery is by mail, the Company recommends registered mail,
properly insured, with return receipt requested. In all cases, you should allow
sufficient time to assure timely delivery. Do not send Letters of Transmittal,
Agent's Messages or Old Notes to the Company.
Signatures on a Letter of Transmittal or a notice of withdrawal, as the
case may be, must be guaranteed unless the Old Notes surrendered for exchange
are tendered either by a registered holder of Old Notes who has not completed
the box entitled "Special Issuance Instructions" or "Special Delivery
Instructions" on the Letter of Transmittal or for the account of an Eligible
Institution. An "Eligible Institution" is a firm which is a member of a
registered national securities exchange or a member of the National Association
of Securities Dealers, Inc. or a commercial bank or trust company having an
office or correspondent in the United States. If signatures on a Letter of
Transmittal or a notice of withdrawal are required to be guaranteed, the
guarantor must be an Eligible Institution. If Old Notes are registered in the
name of a person other than a signer of the Letter of Transmittal, the Old Notes
surrendered for exchange must be endorsed by, or be accompanied by a written
instrument or instruments of transfer or exchange, in satisfactory form as
determined by the Company in its sole discretion, duly executed by, the
registered holder with the signature thereon guaranteed by an Eligible
Institution.
All questions as to the validity, form, eligibility (including time of
receipt) and acceptance of Old Notes tendered for exchange will be determined by
the Company in its sole discretion. The Company's determination will be final
and binding. The Company reserves the absolute right to reject any and all
tenders of Old Notes improperly tendered or to not accept any Old Notes which
acceptance might, in its judgment or that of its counsel, be unlawful. The
Company also reserves the absolute right to waive any defects or irregularities
or conditions of the Exchange Offer as to any Old Notes either before or after
the Expiration Date (including the right to waive the ineligibility of any
holder who seeks to tender Old Notes in the Exchange Offer). The Company's
interpretation of the terms and conditions of the Exchange Offer as to any
particular Old Notes either before or after the Expiration Date (including the
Letter of Transmittal and the instructions thereto) will be final and binding on
all parties. Unless waived, any defects or irregularities in connection with
tenders of Old Notes for exchange must be cured within such reasonable period of
time as the Company shall determine. Neither the Company, the Exchange Agent nor
any other person shall be under any duty to give notification of any defect or
irregularity with respect to any tender of Old Notes for exchange, nor shall any
of them incur any liability for failure to give such notification.
If a person or persons other than the registered holder or holders of Old
Notes signs the Letter of Transmittal, such Old Notes must be endorsed or
accompanied by appropriate powers of attorney, in either case signed exactly as
the name or names of the registered holder or holders that appear on the Old
Notes.
If trustees, executors, administrators, guardians, attorneys-in-fact,
officers of corporations or others acting in a fiduciary or representative
capacity sign the Letter of Transmittal or any Old Notes or powers of attorney,
such persons should so indicate when signing, and you must submit proper
evidence satisfactory to the Company of such persons' authority to so act unless
the Company waives this requirement.
By tendering, each holder represents to the Company that, among other
things, the New Notes acquired pursuant to the Exchange Offer are being obtained
in the ordinary course of business of the person receiving such New Notes,
whether or not such person is the holder, and that neither the holder nor such
other person has any arrangement or understanding with any person to participate
in the distribution of the New Notes. In
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26
the case of a holder that is not a broker-dealer, each such holder, by
tendering, also represents to the Company that such holder is not engaged in, or
intends to engage in, a distribution of the New Notes. If any holder or any such
other person is an "affiliate," as defined under Rule 405 of the Securities Act,
of the Company, or is engaged in or intends to engage in or has an arrangement
or understanding with any person to participate in a distribution of the New
Notes to be acquired pursuant to the Exchange Offer, such holder or any such
other person could not rely on the applicable interpretations of the staff of
the Commission and must comply with the registration and prospectus delivery
requirements of the Securities Act in connection with any resale transaction.
Each broker-dealer that receives New Notes for its own account in exchange for
Old Notes, where such Old Notes were acquired by such broker dealer as a result
of market-making activities or other trading activities, must acknowledge that
it will deliver a prospectus in connection with any resale of such New Notes.
See "Plan of Distribution." The Letter of Transmittal states that by so
acknowledging and by delivering a prospectus, a broker-dealer will not be deemed
to admit that it is an "underwriter" within the meaning of the Securities Act.
ACCEPTANCE OF OLD NOTES FOR EXCHANGE; DELIVERY OF NEW NOTES
Upon satisfaction or waiver of all of the conditions to the Exchange Offer,
the Company will accept, promptly after the Expiration Date, all Old Notes
properly tendered and will issue the New Notes promptly after acceptance of the
Old Notes. See " -- Certain Conditions to the Exchange Offer." For purposes of
the Exchange Offer, the Company shall be deemed to have accepted properly
tendered Old Notes for exchange when, as and if the Company has given oral or
written notice to the Exchange Agent, with written confirmation of any oral
notice to be given promptly thereafter.
For each Old Note accepted for exchange, the Old Note holder will receive a
New Note having a principal amount of maturity equal to that of the surrendered
Old Note. Interest on the New Notes will accrue from December 21, 1998, the
original issue date of the Old Notes. If the Exchange Offer is not consummated
by June 21, 1999, the interest rate on the Old Notes from and including such
date until but excluding the date of consummation of the Exchange Offer will
increase by 0.5%. Payments of such interest, if any, on Old Notes in exchange
for which New Notes were issued will be made to the persons who, at the close of
business on June 1 or December 1 immediately preceding the interest payment
date, are registered holders of such Old Notes if such record date occurs prior
to such exchange, or are registered holders of the New Notes if such record date
occurs on or after the date of such exchange, even if Notes are cancelled after
the record date and on or before the interest payment date.
In all cases, issuance of New Notes for Old Notes that are accepted for
exchange pursuant to the Exchange Offer will be made only after the Exchange
Agent timely receives either certificates for such Old Notes or a Book-Entry
Confirmation of such Old Notes into the Exchange Agent's account at DTC, a
properly completed and duly executed Letter of Transmittal and all other
required documents or, in the case of a Book-Entry Confirmation, an Agent's
Message. If for any reason set forth in the terms and conditions of the Exchange
Offer the Company does not accept any tendered Old Notes or if Old Notes are
submitted for a greater principal amount than the holder desired to exchange,
the Company will return such unaccepted or non-exchanged Old Notes without
expense to the tendering holder (or, in the case of Old Notes tendered by
book-entry transfer into the Exchange Agent's account at DTC pursuant to the
book-entry procedures described below, such unaccepted or non-exchanged Old
Notes will be credited to an account maintained with DTC) as promptly as
practicable after the expiration or termination of the Exchange Offer.
BOOK-ENTRY TRANSFER
The Exchange Agent will make a request to establish an account with respect
to the Old Notes at DTC for the Exchange Offer within two business days after
the date of this Prospectus, and any financial institution that is a participant
in DTC's systems may make book-entry delivery of Old Notes by causing DTC to
transfer such Old Notes into the Exchange Agent's account at DTC in accordance
with DTC's procedures for transfer. However, although delivery of Old Notes may
be effected through book-entry transfer at DTC, the Letter of Transmittal or
facsimile thereof, with any required signature guarantees, or an Agent's Message
in lieu of such Letter of Transmittal, and any other required documents, must,
in any case, be transmitted to and received by
25
27
the Exchange Agent at one of the addresses set forth below under " -- Exchange
Agent" on or prior to the Expiration Date or the guaranteed delivery procedures
described below must be complied with.
GUARANTEED DELIVERY PROCEDURES
If a registered holder of the Old Notes desires to tender such Old Notes
and the Old Notes are not immediately available, or time will not permit such
holder's Old Notes or other required documents to reach the Exchange Agent
before the Expiration Date, or the procedure for book-entry transfer cannot be
completed on a timely basis, a tender may be effected if:
- the tender is made through an Eligible Institution;
- prior to the Expiration Date, the Exchange Agent receives from such
Eligible Institution a properly completed and duly executed Letter of
Transmittal (or a facsimile thereof) and Notice of Guaranteed Delivery,
substantially in the form provided by the Company (by telegram, telex,
facsimile transmission, mail or hand delivery), setting forth the name
and address of the holder of Old Notes and the amount of Old Notes
tendered, stating that the tender is being made thereby and guaranteeing
that within three New York Stock Exchange, Inc. ("NYSE") trading days
after the date of execution of the Notice of Guaranteed Delivery, the
certificates for all physically tendered Old Notes, in proper form for
transfer, or a Book-Entry Confirmation, as the case may be, and any other
documents required by the Letter of Transmittal will be deposited by the
Eligible Institution with the Exchange Agent; and
- the Exchange Agent receives the certificates for all physically tendered
Old Notes, in proper form for transfer, or a Book-Entry Confirmation, as
the case may be, and all other documents required by the Letter of
Transmittal, within three NYSE trading days after the date of execution
of the Notice of Guaranteed Delivery.
WITHDRAWAL RIGHTS
You may withdraw tenders of Old Notes at any time prior to the Expiration
Date.
For a withdrawal to be effective, you must send a written notice of
withdrawal to the Exchange Agent at one of the addresses set forth below under
"-- Exchange Agent." Any such notice of withdrawal must specify the name of the
person having tendered the Old Notes to be withdrawn, identify the Old Notes to
be withdrawn (including the principal amount of such Old Notes), and (where
certificates for Old Notes have been transmitted) specify the name in which such
Old Notes are registered, if different from that of the withdrawing holder. If
certificates for Old Notes have been delivered or otherwise identified to the
Exchange Agent, then, prior to the release of such certificates the withdrawing
holder must also submit the serial numbers of the particular certificates to be
withdrawn and a signed notice of withdrawal with signatures guaranteed by an
Eligible Institution unless such holder is an Eligible Institution. If Old Notes
have been tendered pursuant to the procedure for book-entry transfer described
above, any notice of withdrawal must specify the name and number of the account
at DTC to be credited with the withdrawn Old Notes and otherwise comply with the
procedures of such facility. All questions as to the validity, form and
eligibility (including time of receipt) of such notices will be determined by
the Company. The Company's determination will be final and binding on all
parties. Any Old Notes so withdrawn will be deemed not to have been validly
tendered for exchange for purposes of the Exchange Offer. Any Old Notes which
have been tendered for exchange but which are not exchanged for any reason will
be returned to the holder thereof without cost to such holder (or, in the case
of Old Notes tendered by book-entry transfer into the Exchange Agent's account
at DTC pursuant to the book-entry transfer procedures described above, such Old
Notes will be credited to an account maintained with DTC for the Old Notes) as
soon as practicable after withdrawal, rejection of tender or termination of the
Exchange Offer. Properly withdrawn Old Notes may be retendered by following one
of the procedures described under "-- Procedures for Tendering Old Notes" above
at any time on or prior to the Expiration Date.
CERTAIN CONDITIONS TO THE EXCHANGE OFFER
Notwithstanding any other provision of the Exchange Offer, the Company
shall not be required to accept for exchange, or to issue New Notes in exchange
for, any Old Notes. The Company may terminate or amend
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the Exchange Offer, if at any time before the acceptance of such Old Notes for
exchange or the exchange of the New Notes for such Old Notes, the Exchange Offer
is determined by the Company, in its sole and absolute discretion, to violate
applicable law or any applicable interpretation of the staff of the SEC.
EXCHANGE AGENT
State Street Bank and Trust Company has been appointed as the Exchange
Agent for the Exchange Offer. All executed Letters of Transmittal should be
directed to the Exchange Agent at one of the addresses set forth below.
Questions and requests for assistance, requests for additional copies of this
Prospectus or of the Letter of Transmittal and requests for Notices of
Guaranteed Delivery should be directed to the Exchange Agent addressed as
follows:
Delivery to: State Street Bank and Trust Company, Exchange Agent
By Hand/Overnight Delivery: By Registered or Certified Mail:
State Street Bank and Trust State Street Bank and Trust
Company Company
Corporate Trust Department Corporate Trust Department
Two International Place, 4th Floor P.O. Box 778
Boston, Massachusetts 02110 Boston, Massachusetts 02102-0078
Attn: Kellie Mullen Attn: Kellie Mullen
By Facsimile: (617) 664-5290
Confirm by Telephone: (617) 664-5587
DELIVERY OF THE LETTER OF TRANSMITTAL TO AN ADDRESS OTHER THAN AS SET FORTH
ABOVE OR TRANSMISSION OF INSTRUCTIONS VIA FACSIMILE OTHER THAN AS SET FORTH
ABOVE IS NOT VALID DELIVERY OF SUCH LETTER OF TRANSMITTAL.
FEES AND EXPENSES
The Company will not make any payment to brokers, dealers, or others
soliciting acceptances of the Exchange Offer.
The Company will pay the estimated cash expenses to be incurred in
connection with the Exchange Offer, which are estimated in the aggregate to be
$ .
TRANSFER TAXES
Holders who tender their Old Notes for exchange will not be obligated to
pay any transfer taxes in connection therewith, except that holders who instruct
the Company to register New Notes in the name of, or request that Old Notes not
tendered or not accepted in the Exchange Offer be returned to, a person other
than the registered tendering holder will be responsible for the payment of any
applicable transfer tax thereon.
CONSEQUENCES OF EXCHANGING OR FAILING TO EXCHANGE OLD NOTES
Holders of Old Notes who do not exchange their Old Notes for New Notes
pursuant to the Exchange Offer will continue to be subject to the provisions in
the Indenture regarding transfer and exchange of the Old Notes and the
restrictions on transfer of such Old Notes as set forth in the legend thereon as
a consequence of the issuance of the Old Notes pursuant to exemptions from, or
in transactions not subject to, the registration requirements of the Securities
Act and applicable state securities laws. In general, the Old Notes may not be
offered or sold, unless registered under the Securities Act, except pursuant to
an exemption from, or in a transaction not subject to, the Securities Act and
applicable state securities laws. The Company does not currently anticipate that
it will register Old Notes under the Securities Act. See "Description of the
Notes -- Registration Rights." Based on interpretations by the staff of the
Commission, as set forth in no-action letters issued to third parties, the
Company believes that New Notes issued pursuant to the Exchange Offer in
exchange for Old Notes may be offered for resale, resold or otherwise
transferred by holders thereof (other than any such holder which is an
"affiliate" of the Company within the meaning of Rule 405 under the Securities
Act) without compliance with the registration and prospectus delivery provisions
of the Securities Act, provided that such New Notes are acquired in the ordinary
course of such holders' business and such holders have no arrangement or
understanding with any person to participate in the distribution of such New
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Notes. However, the Company does not intend to request the Commission to
consider, and the Commission has not considered, the Exchange Offer in the
context of a no-action letter and the Company cannot guarantee that the staff of
the Commission would make a similar determination with respect to the Exchange
Offer as in such other circumstances. Each holder, other than a broker-dealer,
must acknowledge that it is not engaged in, and does not intend to engage in, a
distribution of New Notes and has no arrangement or understanding to participate
in a distribution of New Notes. If any holder is an affiliate of the Company, is
engaged in or intends to engage in or has any arrangement or understanding with
respect to the distribution of the New Notes to be acquired pursuant to the
Exchange Offer, such holder (i) could not rely on the applicable interpretations
of the staff of the Commission and (ii) must comply with the registration and
prospectus delivery requirements of the Securities Act in connection with any
resale transaction. Each broker-dealer that receives New Notes for its own
account in exchange for Old Notes, where such Old Notes were acquired by such
broker-dealer as a result of market-making activities or other trading
activities, must acknowledge that it will deliver a prospectus in connection
with any resale of such New Notes. See "Plan of Distribution." In addition, to
comply with state securities laws, the New Notes may not be offered or sold in
any state unless they have been registered or qualified for sale in such state
or an exemption from registration or qualification is available and is complied
with. The offer and sale of the New Notes to "qualified institutional buyers"
(as such term is defined under Rule 144A of the Securities Act) is generally
exempt from registration or qualification under the state securities laws. The
Company currently does not intend to register or qualify the sale of the New
Notes in any state where an exemption from registration or qualification is
required and not available.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following analysis should be read in conjunction with the consolidated
financial statements of the Company and the notes thereto and the other
financial data appearing elsewhere in this Prospectus. The discussion and
analysis (i) for the quarter ended September 30, 1998 is extracted from the
Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 1998
and (ii) for the fiscal year ended December 31, 1997 is extracted from the
Company's Annual Report on Form 10-K for the year ended December 31, 1997 and in
each case does not give effect to subsequent events.
RESULTS OF OPERATIONS
THREE MONTHS ENDED AND YEAR TO DATE SEPTEMBER 30, 1998 COMPARED TO THREE
MONTHS ENDED AND YEAR TO DATE SEPTEMBER 30, 1997
Primark reported net income of $21.9 million ($0.96 per share assuming
dilution) and 151.8 million ($5.99 per share) for the three and nine months
ended September 30, 1998, respectively. Net income for the three and nine months
ended September 30, 1997 was $7.6 million ($0.28 per share assuming dilution)
and $10.8 million ($0.41 per share). In accordance with SFAS No. 128, per share
calculations for the nine months ended September 30, 1998 and 1997 exclude the
impact of dilutive securities due to the loss from continuing operations
resulting from restructuring charges.
The five significant events which have affected net income for the year
have been the sale of TIMCO, the commercial impact of global economic and
financial market uncertainty, the sale of TASC, the recapitalization of the
Company using the proceeds from the sale of TASC, and the restructuring of the
Company. The sale of TIMCO and the commercial impact of recent financial market
uncertainty were third quarter events. The TIMCO sale was finalized on September
22, 1998 for $70 million resulting in an after tax gain of $14.2 million which
has been recorded to discontinued operations.
The beginning of the third quarter was somewhat stronger than the end, due
to the sharp drop in the financial markets in late August and the subsequent
volatility and uncertainty. Many of the Company's customers had large trading
losses and/or had made loans that became uncollectable and had to be written
off. These unfavorable circumstances have caused customers to announce layoffs
and cost controls to compensate for their lower earnings. As a result, the
Company's sales of new products, new subscriptions and one-time items to the
financial industry have softened and we expect this to continue through
year-end. Unfortunately, this slowdown occurs at the very time the Company is
experiencing higher expenses for new product development, rollout and support,
particularly Global Access Piranha, the Primark Information Optimizer and the
Primark/Dow Jones Equities Service. The uncertainty in financial markets has
affected more market segments than just the financial industry itself.
Accounting firms, law firms and consultants are big users of Primark's products,
especially material supplied by Disclosure. With fewer IPOs, secondary offerings
and high-yield debt issues, their business with the financial industry is down,
resulting in Primark doing less business with these specialized segments.
The September 30, 1998 net income year to date results reflects TASC as
part of discontinued operations. TASC was sold in the second quarter for $432
million in cash plus an estimated equity adjustment of $11.5 million. The equity
adjustment is based upon changes in TASC's consolidated equity account, less
certain inter-company transactions, from September 30, 1997 through the date of
the closing. On July 27, 1998, Litton sent notification that it was contesting
specific components of the equity adjustment totaling $4.2 million. Both Litton
and the Company are in the process of establishing the protocol to resolve all
disputed amounts.
The proceeds from the sale of TASC were used by the Company to repay $220
million of commercial bank debt and $112 million of senior notes in the second
quarter. The related unamortized deferred bank cost together with the call
premium on the senior notes was written off as an extraordinary loss totaling
$5.1 million, net of tax. Net income for the nine months ended September 30,
1997 includes the effect of a $2.0 million (after tax) extraordinary loss ($0.07
per share) for the write off of debt issue costs associated with prior debt that
was successfully refinanced. The Company instituted a corporate restructuring
plan to reflect the sale of TASC and position the Primark product lines in a
more integrated fashion to address market needs
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and opportunities. The restructuring plan, including the extraordinary loss
mentioned previously, resulted in a $77.4 million charge to operating income in
the second quarter, and lowered net income $59.8 million.
The Company had income from continuing operations of $5.9 million ($0.26
per share on a dilutive basis) for the three months ended September 30, 1998
compared to $3.4 million ($0.12 per share on a dilutive basis) for the same
period last year. When restructuring items are not included, for the nine months
ended September 30, 1998 the Company had $16.3 million of income from continuing
operations ($0.62 per share on a pro forma dilutive basis) compared to $5.9
million earned last year ($0.21 per share on a pro forma dilutive basis).
Including restructuring charges, the loss from continuing operations was $38.4
million ($1.52 per share, basic and diluted) and $0.3 million ($0.01 per share,
basic and diluted) for the nine months ended September 30, 1998 and 1997,
respectively.
Continuing Operations
The most important decision made by management in 1998 was to sell
unrelated businesses and to create more value from its information service
business by reorganizing the Company into three operating divisions. These three
divisions are the Primark Financial Information Division, the Primark Financial
Analytics Division, and the Primark Decision Information Division, plus the
supporting Primark Data Company. Primark can serve its customers better while
improving margins through this new structure.
The Primark Financial Information Division consists of the businesses of
Datastream/ICV, including Primark Investment Management Services, Disclosure,
and Worldscope. This Division accounts for approximately 70% of Primark's
consolidated revenues and is focused on developing "enterprise wide" products
and services for major financial institutions on a global basis. It also has
responsibility for all real-time and transactional products, investment
accounting, and the reference and consumer markets. This division grew revenues
6.5% and 4.8% for the three and nine months ended September 30, 1998,
respectively. The Primark Financial Information Division has experienced
double-digit percentage revenue growth on a year to date basis across all
product groups with the exception of Disclosure's traditional paper document and
CD-ROM business. While currency had little impact on the three months ended
September 30, there were adverse currency effects on year to date operating
income, primarily for the Datastream/ICV product lines. Offsetting the negative
impact of currency movements was a gain on currency transactions of $1.0 million
for the nine months ended September 30, 1998. Datastream/ICV's real time and
transactional products, lead by Topic 3, are the leading providers of on-line
equity trading products in the UK with a market share of approximately 69%. The
Topic 3 product line has grown 24.5% and 29.4% for the quarter and year to date,
respectively, exclusive of the effect of currency. The Disclosure product lines
have exhibited growth in the electronic product revenues of 25.4% and 23.6% for
the three and nine month periods, respectively. This increase, however, was more
than offset by decreases in Disclosure's traditional paper document and CD-ROM
business where revenue of $11.6 million were down by 17.3% and 18.7% for the
three and nine months ended September 30, 1998, respectively. Management
believes that new products to be released in the latter part of 1998 through the
first half of 1999, together with Disclosure's legacy paper document and CD-ROM
business stabilizing, should result in improved growth and profitability
prospects for this Division.
The Primark Financial Analytics Division accounts for approximately 18% of
Primark's consolidated revenues and includes the businesses of I/B/E/S,
Baseline, and Vestek. This Division develops and markets a wide variety of
analytical products, which combine databases, advanced software, analytical
techniques, and forecasts for all phases of the investment process for money
managers, fund sponsors, and other investors. This division grew revenues 23.1%
and 27.0% for the three and nine months ended September 30, 1998, respectively.
Revenues from the sale of I/B/E/S data and analytical solutions increased 16.7%
and 24.1%, Baseline product increased revenues 41.5% and 36.6% and Vestek's
revenues increased 10.6% and 15.6% for the three and nine months ended September
30, 1998, respectively.
The Primark Decision Information Division accounts for approximately 12% of
Primark's consolidated revenues and acquires, develops and operates information
content businesses that are primarily focused in areas other than the financial
marketplace. However, it also provides products and services for decision
support to financial customers as well. This division contains the businesses of
WEFA and the Yankee Group.
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This division has grown revenues 9.4% and 13.6% for the three and nine-month
periods ended September 30, 1998.
Restructuring Charges
Effective June 1, 1998, the Company was reorganized to strategically focus
solely on its information services businesses. In connection with this
reorganization, the Company recorded a pre-tax charge of $77.4 million, of which
$8.7 million is recorded as an extraordinary loss on early extinguishment of
debt and the remaining $68.7 million is recorded within operating expenses for
direct and other reorganization related costs. The associated tax benefit of the
extraordinary item and the other restructuring charges is $3.6 million and $14.0
million, respectively.
The effect of the $68.7 million charge was to reduce 1998 year to date
earnings per share on a pro forma dilutive basis by $2.07. The restructuring
charge was the result of a decision to implement a new organizational structure
designed to better serve the Company's customers, more quickly capitalize on
evolving market opportunities and improve margins. The restructuring charge in
1998 includes: (i) $25.0 million of previously capitalized software related to
the planned integration of several product offerings on common software
platforms, (ii) $1.5 million of data that has been determined to be duplicative
and will not be used as a result of the software platform integration previously
discussed, (iii) write-off of $23.9 million of goodwill associated with software
and data written-off which was established as part of purchase accounting, (iv)
write-off of $7.2 million of goodwill related to DAFSA, and (v) write-off of
$3.1 million of a trademark no longer used in the restructured organization. An
additional $8.0 million of the restructuring charge relates primarily to the
integration of domestic and international sales offices and efficiencies gained
from technological advancements that will result in the phased reduction of
approximately 61 employees.
YEAR ENDED DECEMBER 31, 1997 COMPARED TO YEARS ENDED DECEMBER 31, 1996 AND
DECEMBER 31, 1995
Primark reported net income of $19.7 million ($0.71 per share) for the
twelve months ended December 31, 1997 compared to $36.8 million ($1.38 per
share) in 1996 and $16.9 million ($0.82 per share) in 1995. Net income for 1997
and 1995 includes an after tax extraordinary loss of $2.0 million ($0.07 per
share) and $0.5 million ($0.03 per share) for the write off of debt issue costs
associated with bank debt which was successfully refinanced.
Primark reported income from continuing operations of $7.0 million ($0.25
per share) for the year ended December 31, 1997, compared to $12.5 million
($0.46 per share) and $5.4 million ($0.19 per share) in 1996 and 1995,
respectively. The 1997 income from continuing operations includes restructuring
charges of $6.2 million ($0.22 per share), net of tax, taken at DAFSA and
Disclosure during the first half of 1997. Excluding the restructuring charges,
1997 income from continuing operations increased 5.4% to $13.2 million ($0.47
per share). The Company's decision to discontinue the operations of TASC and
TIMCO in 1997, as well as PSLC in 1996, affected income from continuing
operations for all periods.
During 1996 and 1997, management pursued a strategy of focusing the
Company's operations on its information services businesses. In connection with
that strategy, the Company discontinued three operating segments as discussed
below and acquired several businesses in the information industry. The Company
is in the preliminary stages of investigating further organizational changes to
address the best way to manage the remaining information services segment. This
investigation includes, among other things, the examination of all tangible and
intangible assets of the Company for possible adjustment.
On December 8, 1997, the Company entered into an agreement for the sale of
TASC for $432 million in cash. The Company estimates the sale will generate a
net gain of approximately $179.9 million. On March 30, 1998 the shareholders of
Primark approved the sale. Consequently, the operating results and net assets of
TASC have been reclassified from continuing operations and recorded as a
discontinued operation for all periods presented. As an essential part of the
transaction, TASC and Primark entered into an information technology services
agreement. Under this agreement, TASC will continue to provide Primark
information technology research and development, planning, and technical
assistance for a three year period. TASC will also continue to manage the
Primark Telecommunications Network and supply professional information
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technology services to the business units of Primark and their customers. TASC
generated net income of $15.0, $13.0 and $9.7 million, for the twelve months
ended December 31, 1997, 1996 and 1995, respectively.
In June of 1997, the Company adopted a formal plan to dispose of its
transportation business, TIMCO. Accordingly, the operating results and net
assets of TIMCO have been reclassified from continuing operations and recorded
as a discontinued operation for all periods presented. During the three years
ended 1997, 1996 and 1995, TIMCO generated net losses of $0.3 million, and net
income of $2.4 million and $2.7 million, respectively.
In September of 1996, the Company sold its financial services segment,
PSLC, which resulted in a $8.4 million gain, net of tax. Discontinued operations
for the twelve months ended December 31, 1996 and 1995 included net income of
$0.8 and $1.0 million.
Acquisitions during the first quarter of 1997 and last half of 1996,
together with the Company's stock repurchase program, resulted in the Company
increasing its level of funded debt. As a result, interest costs from continuing
operations increased $3.5 million and $4.1 million during 1997 and 1996. The
Company allocated interest costs to each of the discontinued operations based
upon their ratios of net assets proportional to total net assets. After the
allocation of interest cost to discontinued operations, the Company reported
interest expense of $16.0 million, $12.5 million and $8.4 million for the years
ended 1997, 1996 and 1995, respectively.
During 1997, the Company's effective tax rate increased due to the
non-deductibility of goodwill created by certain of its recent acquisitions and
because no tax benefits have been recorded for the $8.6 million of net losses
incurred at DAFSA for the year. In 1996, the Company's effective tax rate
received a favorable impact from settling seven years of open tax returns.
The Company has a formal plan and task force assigned to make all of its
financial systems, product offerings and related databases year 2000 compliant.
In 1997 the Company spent $1.5 million of resources on this endeavor and
anticipates that it will be required to spend an additional $2.7 million and
$2.6 million in 1998 and 1999, respectively, to be year 2000 compliant. The
majority of the remaining year 2000 work will be performed at Datastream/ICV.
Summary of Operating Results
For the year ended December 31, 1997, revenues increased 43.6% and 115.3%
over the same periods in 1996 and 1995. The increase is primarily due to the
effect of the acquisitions of Baseline and WEFA during the first quarter of
1997; ICV, the Yankee Group, DAFSA and a controlling interest in Worldscope
during 1996; and Disclosure and I/B/E/S in 1995. On a pro forma basis to include
the effect of acquisitions, the Company grew 1997 revenues and operating income
6.7% and 17.6%, respectively, over the same period in 1996. These pro forma
growth rates include adverse currency movements and restructuring charges, a
resized DAFSA and Disclosure's paper based product fall-off.
DAFSA had the single most significant negative impact on operating income
during 1997. During 1997, DAFSA generated revenue of $5.5 million but incurred
operating losses of $8.4 million, which included a $5.0 million restructuring
charge. The restructuring program was implemented in the second quarter of 1997
and, together with the introduction of technology and applications developed at
Disclosure and WEFA, DAFSA was able to achieve near break-even results during
the fourth quarter of 1997.
Datastream/ICV
During 1997, the Datastream/ICV operation grew revenues 8.8%. These
businesses experienced most of the negative impacts of currency fluctuations.
Excluding the effects of currency and exchange fees, the Datastream/ICV
operation grew revenues approximately 13.1% for the year. Exclusive of currency
effects, ICV's Topic3 product line grew 19.2% for the year but overall revenues
were offset by declining exchange fee revenues. ICV's overall margins increased
due to shifts in product mix, primarily the reduction of minimum margin exchange
fee revenues. Excluding the effects of currency, Datastream grew revenues 12.7%
for the year. Datastream's annual growth in revenues was led by increases in the
UK of 9.4%, the Americas of 10.4%, Continental Europe of 17.3% and Asia of
15.1%. Including the effects of currency, the Pacific Basin accounted for $21.1
million of Datastream's annual revenues. The Company reduced investment in the
Far East region in
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early 1997 and does not plan to risk any further capital until management
believes the current period of adjustment comes to an end.
Disclosure/Worldscope
Disclosure and Worldscope generated revenues of $88.5 million for the year,
a decrease of 3.0% compared to the same period in 1996. Overall growth in
revenues was impacted by the 14.1% decrease in paper demand business.
Disclosure's electronic products now represent approximately 40% of total
revenues and continue to do very well with 29.9% growth in revenues for 1997. At
the beginning of 1996, the electronic products represented less than 19.6% of
Disclosure's total revenue.
Financial Analytics
The financial analytics group, comprised of I/B/E/S, Baseline, WEFA and
Vestek, generated $90.6 million of revenues for the year. As a group, on a pro
forma basis, these operations grew revenues 24.7% over 1996. The strong
performance in the year was led by I/B/E/S, Baseline and Vestek, which had
record growth in revenues of 42.9%, 32.8% and 18.3%, respectively.
Yankee
The Yankee Group was originally acquired, in part, to be the market
research arm of the Company's applied technology segment, focusing on
identifying current trends and future directions in communications and computer
industries for commercial, industrial and consumer markets. With the disposition
of TASC, management has folded Yankee in with information services. Yankee
finished the year with pro forma revenue growth of 11.2%.
CAPITAL RESOURCES AND LIQUIDITY
THREE MONTHS ENDED AND YEAR TO DATE SEPTEMBER 30, 1998 COMPARED TO THREE
MONTHS ENDED AND YEAR TO DATE SEPTEMBER 30, 1997
The Company's cash and cash equivalent balances increased $17.2 million
during the nine months ended September 30, 1998 primarily as a result of
operating activities contributing $52.3 million, investing activities providing
$423.8 million and financing activities using $458.9 million. Most of the $52.3
million of operating cash flows is from net income from continuing operations
plus the non cash charges taken for restructuring, the early extinguishment of
debt and depreciation and amortization.
Financing activities for the year used $458.9 million and were affected by
the following three transactions: (a) use of the proceeds from the sale of TASC
to pay down debt, (b) amounts borrowed under the Company's line of credit for
shares repurchased under the "Dutch Auction" self tender offer and share
repurchase program, and (c) common stock issuance pursuant the Company's option
plans. The Company used the proceeds from the sale of TASC to (i) prepay all
amounts outstanding on the Company's $112 million senior callable bonds,
including a 4.375% premium aggregating $4.9 million together with the accrued
interest thereon, (ii) prepay $220 million of the Company's outstanding term
loan together with accrued interest thereon, and (iii) prepay $500,000 of the
Company's other indebtedness. In conjunction with the sale of TASC, the Company
replaced its outstanding $75 million credit facility with a $225 million
revolving credit facility which expires in 2002. Interest on the borrowings
under the new revolving credit facility is payable at rates ranging from 0.375%
to 1.00% above the prevailing LIBOR rate of interest.
On May 20, 1998, the Company announced a "Dutch Auction" self-tender offer,
which expired on June 17, 1998. The Company purchased 4,540,000 shares at $34
per share under this arrangement. Total cost of these shares was $154.6 million,
including legal and accounting fees. On July 3, 1998, the Company implemented an
open market purchase program to buy up to 2,000,000 shares of its common stock
from time to time, depending on market conditions. As of September 30, 1998,
1,518,500 shares had been repurchased at a total cost of $40.8 million. On
October 2, 1998, the Company purchased an additional 50,000 shares at a total
cost of $1,454,000. Year to date, the Company has purchased a total of 6,108,500
shares at a total cost of $196.6 million, representing approximately 22.5% of
its total outstanding common stock. On November 10, 1998 the Company announced
that the Board of Directors approved the expansion of the open market purchase
program by an additional 2,000,000 shares, bringing the total potential buyback
to 8,540,000 shares,
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or approximately 31% of the Company's total outstanding before the "Dutch
Auction." The Company is using proceeds from the sale of TASC and TIMCO as well
as its revolving credit facility to fund the common stock repurchases.
On September 22, 1998 the Company completed the sale of TIMCO for $70
million. On April 1, 1998 the Company completed the sale of TASC and its
affiliated weather information companies to Litton Industries for $432 million
in cash. The Company has paid $43.0 million in taxes to date of the amount owed
on both the TASC and TIMCO sales. Investing activities also included $14.5
million for capital expenditures and $12.6 million for software. Capital
expenditures consisted primarily of computer equipment purchases while
capitalized software relates primarily to software used to improve the delivery
of the Company's products and services.
Year 2000 Readiness Disclosure
The statements in the following section include "Year 2000 readiness
disclosure" within the meaning of the Year 2000 Information and Readiness
Disclosure Act. The Year 2000 (Y2K) issue relates to a complex set of potential
problems arising from the ways in which computer software and hardware handle
dates. Many older systems use a two-digit date format that may create
ambiguities in passing into the new century.
The Company has a Y2K plan that it is actively pursuing to address the
Company's Y2K issues. The Company began working on the Y2K problem in 1995, with
the goal to provide continuous and reliable service to the Company's customers
and a seamless transition to the new millennium. The Company's Y2K plan focuses
on each of the Company's internal systems, products, and third parties with
which the Company has a significant business relationship. In addition to the
databases and software that the Company provides to its customers, the Company
is reviewing, fixing, and testing all aspects of its internal operations -- from
hardware systems, software, and desktop PC programs to physical security
systems. This effort involves key data suppliers, hardware manufacturers,
telecommunications companies, electric utilities, and more. The Company is also
prepared to assist its users with Y2K issues relating to their internal systems
that directly interface with the Company's systems. All Primark companies are
working together to achieve compliance by sharing information, sharing resources
and holding corporate-wide reviews. The Company believes that all material
systems will be compliant by June of 1999.
All organizations dealing with the Year 2000 must address the effect this
issue will have on their significant business relationships including suppliers
and customers. The Company is undertaking steps to work with third parties to
understand their ability to continue providing services and products to support
the Company's operations through the change to the Year 2000. If any significant
Year 2000 problems are identified with third parties, contingency plans will be
developed. For example, Primark products incorporate data derived from many
different suppliers. A major component of the Y2K projects is reviewing each of
the suppliers to ensure compliance on their part. Where there is any doubt that
a supplier will not be taking reasonable actions to ensure compliance, the
Company will seek alternatives within a suitable time frame.
There are some older products that are not Y2K compliant that the Company
will no longer support after 1999. All affected customers have been notified.
All other Company products are Y2K compliant.
The Company incurred $1.5 million related to the Y2K procedures in 1997 and
expects to incur costs of $2.7 million and $2.6 million for the years ended
December 31, 1998 and 1999, respectively. The Company expects to resolve every
significant Y2K problem and have the solutions thoroughly tested by June 30,
1999.
While the Company expects its Year 2000 efforts will be successful, if the
modifications and replaced systems are not made compliant in a timely manner, it
could result in a material adverse effect on the Company. Additionally, the
Company's products and services, are dependent on technological components,
equipment and software that were developed by third parties and that may not be
Year 2000 compliant. Failure of such third party components, equipment or
software to operate properly with regard to the Year 2000 could interrupt
ongoing operations or require the Company to incur unanticipated expenses to
remedy any problems, which could have a material adverse effect on the Company's
business and operating results.
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The European Economic and Monetary Union
Beginning January 1, 1999, member states of the Economic and Monetary Union
(EMU) may begin trading in either their local currencies or the euro, the
official currency of the EMU. Parties are free to choose the unit they prefer in
contractual relationship during the transitional period, beginning January 1999
and ending June 2002.
The Company has focused on the opportunities presented by the euro in order
to become recognized by the market as a leader in euro preparedness.
Technologically, a major milestone was reached at the end of September when all
of the Company's "customer-facing" software was euro ready and available for
customers to carry out their internal testing. On the content front, the Company
continues to enhance its euro preparedness through the rapid expansion of euro
data and indices. For example, the Company recently added euro denominated index
futures contracts, the HSBC Euroblock smaller companies index and certain
indices from the European Commission. The Company is also producing its own data
such as calculated synthetic benchmark bond yields for the Eurozone, synthetic
exchange rates and short-term interest rate series.
The Company has shared its euro expertise with its customers in 19 "euro
forums" being held around the world. These have been extremely well attended.
Additionally, the Company is being asked by many major buy- and sell-side
organizations to provide consultancy on the correct treatment of historical data
beginning January 4th next year.
YEAR ENDED DECEMBER 31, 1997 COMPARED TO YEARS ENDED DECEMBER 31, 1996 AND
DECEMBER 31, 1995
Primark ended 1997 with $12.8 million in cash and cash equivalents compared
to $25.3 in 1996 and $59.9 in 1995. During 1997, $86.1 million was used to
purchase Baseline and WEFA, $56.2 million to repurchase and retire stock and
$43.9 million to fund capital expenditures. Partially offsetting these uses were
cash flows from operating activities which generated $58.0 million, the issuance
of long-term debt that provided $97.2 million, net of debt issue costs, and the
sale of the Weather Network which generated $3.5 million. During 1996, the
Company acquired four separate businesses for $71.1 million in net cash, $8.3
million in seller notes, 2.2 million shares of common stock and $7.6 million of
other consideration. Primark also increased capital expenditures $20.8 million
over 1995.
The 1996 cash expenditures were primarily funded from cash on the balance
sheet, the sale of PSLC for $14.3 million and increased operating cash flows.
During 1995, the Company issued $125.0 million of commercial bank debt and
$106.5 million of common stock that provided funds partially used for the
acquisition of Disclosure and I/B/E/S for $199.7 million in net cash.
Operating cash flows decreased $7.7 million during 1997. The decrease
reflects a decline in net income primarily attributable to the restructuring
charges, decreases in deferred income, and tax refunds due. The tax refunds
arose as the Company accepted stock from certain employees to pay taxes due on
their option exercises in accordance with the Company's benefit policies. The
Company received a compensation deduction associated with the option exercises,
which should result in approximately $25 million of tax refunds to be received
in 1998. The increase between 1995 and 1996 primarily represents additional cash
flows from acquired companies offset by increased working capital requirements.
All periods benefitted from improving growth in the base businesses.
Cash flows from financing activities provided $74.7 million for the year, a
$70.0 million increase over the same period in 1996. The increase is primarily
the result of the $300.0 million bank refinancing arrangement on February 7,
1997 which provided an additional $100.0 million in long term debt. The new
arrangement is comprised of a $75.0 million revolving credit facility and a
$225.0 million term loan expiring in June 2004. The new financing replaced an
outstanding $75.0 million revolving credit facility and a $125.0 million term
loan. The Company incurred costs of $2.8 million in conjunction with the
arrangement that will be amortized over the term of the debt. The additional
borrowings increased Primark's debt to total capital ratio from 34.3% at
December 31, 1996 to 44.0% at December 31, 1997. Partially offsetting this
increase was $56.2 million used to repurchase the Company's common stock
comprised of $26.6 million for a stock buy back program and $29.6 million
associated with the Company's acceptance of stock from certain employees to pay
withholding taxes on option exercises. These repurchased shares were retired
during the year. At year end, the Company had $27.6 million outstanding on its
revolving credit facility primarily as a result of withholding taxes due on
stock
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options exercised in December. During 1996, the Company entered into several non
cash financing transactions including the conversion of its $16.9 million
redeemable preferred stock to 1.2 million shares of common stock and issuance of
2.2 million shares of common stock in connection with the acquisition of ICV.
During 1995, the Company entered into a $200.0 million credit arrangement with
several banks to support the Disclosure and I/B/E/S acquisition. The credit
arrangement included a $75.0 million revolving credit facility and a $125.0
million term loan which were refinanced in 1997. In December of 1995, the
Company sold 4.1 million shares of common stock for $107.8 million and used the
net proceeds to repay loan balances and for other general corporate purposes.
Investing activities, primarily for acquisitions, used $144.5 million of
cash during 1997, compared to $106.0 million in 1996 and $226.7 million in 1995.
The majority of 1997 investing uses were for the purchases of Baseline and WEFA,
which used $41.2 million and $44.9 million, respectively. Capital expenditures
and capitalized software amounted to $43.9 million during the year, an increase
of $7.6 million over the same period in 1996. The majority of the expenditures
were for computer equipment, leasehold improvements for new facilities at
I/B/E/S and ICV, and capitalized software and data for upgrading and revising
Disclosure's product line and production operation. Partially offsetting these
uses were proceeds from the Company's sale of its investment in the Weather
Network that provided $3.5 million of cash. During 1996, the Company acquired
four separate operations with net cash consideration totaling $71.1 million. The
sale of PSLC partially offset these uses, providing $14.3 million. During 1995,
Primark purchased Disclosure and I/B/E/S for $199.7 million in net cash.
In June of 1997, the FASB issued SFAS No. 130 "Reporting Comprehensive
Income" and SFAS No. 131 "Disclosures about Segments of an Enterprise and
Related Information." The Company will adopt these statements during fiscal year
1998 and does not expect that the adoption of these statements will have a
material impact on the consolidated financial statements.
Changes in foreign exchange rates during 1997 negatively impacted the
Company's revenues and operating income by approximately $3.2 million and $4.9
million, respectively. Management anticipates that the international component
of its revenues and operating income will be approximately 50% and 55%,
respectively during 1998. The Company will continue to manage foreign currency
risk through its hedging program.
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INDUSTRY OVERVIEW
In 1997, in the U.S. alone the market size of the financial and economic
information services industry was estimated to be approximately $7.4 billion and
was projected to grow by 8.7% per annum through the year 2002. The broader
business information marketplace, which encompasses legal, credit and related
financial information, was estimated in 1997 to be approximately $35.0 billion
in the United States alone.
The Company believes the following factors are contributing to the growing
demand for financial and economic information:
- Investment and business decision-making has become increasingly more
complex.
- New types of financial securities are being introduced.
- Cross-border investing is growing rapidly, driving the demand for
information on markets around the world.
- Corporations are increasingly competing in the global marketplace.
- The availability of improved technology.
- The Internet is allowing individual consumers to access information that
was once confined to the institutional investor.
These developments put a greater premium on accurate, timely and
comprehensive information. To be effective, information needs to be organized,
integrated, analyzed and displayed in an easy to understand and user-friendly
manner.
Among the more prominent and growing users of financial and economic
information are:
- Investment and Commercial Banks -- requiring information across a number
of functional activities, including investment research, investment
banking and credit and risk management.
- Investment Firms -- requiring information in the context of asset
allocation and security selection, portfolio construction and tracking,
trading, valuation and reporting.
- Corporations -- requiring information to analyze competitors, marketing
and sales planning and risk exposure.
- Professional Services Firms -- requiring information to analyze markets,
industries and companies.
- Individual Consumers -- requiring information to help in managing their
personal investments and retirement funds.
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BUSINESS
Primark is a leading global information service provider of comprehensive
financial, economic and market research information to investment, legal,
accounting, banking, corporate and government customers. The Company develops
and markets "value-added" database and information products that cover
established and emerging markets worldwide. The Company's proprietary analytical
software applications provide for the analysis and presentation of financial,
economic and market research information.
The Company, which serves customers in the U.S., Europe and the Pacific
Rim, compiles, analyzes, integrates, packages and distributes current and
historical data, news and commentary on financial securities, companies, and
markets worldwide. Primark owns and maintains large-scale databases, which are
accessed through its on-line distribution systems and the Internet, as well as
through third-party distributors. The Company's databases are authoritative
sources of data and analytics to more than 5,000 organizations worldwide,
including 75 of the top 100 banks, 82 of the top 100 investment managers, 28 of
the top 50 insurance companies and 450 of the top 1,000 U.S. companies. The
Company believes its customers value Primark's products because of their high
quality data as well as Primark's understanding of niche markets, its ability to
develop products to serve these markets and its superior customer service and
support.
The Company's business operations are integrated into three
customer-focused divisions, with each division concentrating on specialized
product sets, which address the needs of specific customer market groups.
Primark's three operating divisions are:
- Primark Financial Information Division ("PFID"). PFID develops
"enterprise-wide" products and services for major financial institutions
on a global basis. It also has responsibility for all transactional
products, both historical and real-time, as well as products supporting
large-scale investment accounting functions, the individual investor and
the referential needs of very large financial market customers. This
division also manages the corporate network, PrimarkNet, which serves as
the major delivery channel to Primark customers on a global basis and
across all three divisions. PFID's product offerings serve most of
Primark's customer types and it is a major service provider to the
"sell-side" portion of the financial markets.
- Primark Financial Analytics Division ("PFAD"). PFAD concentrates on
developing and marketing a wide variety of analytical products for money
managers, fund sponsors and other investors. These products combine the
Company's databases, advanced software, analytical techniques and
forecasts for all phases of the investment process. PFAD's product
offerings concentrate on customers in the "buy-side" portion of the
financial markets.
- Primark Decision Information Division ("PDID"). PDID acquires, develops
and operates information content businesses that are primarily focused in
areas other than the financial marketplace, and also provides products
and services for decision support to financial customers.
The Company has established the Primark Data Company ("PDC") to support the
data needs of the Company's operating divisions. PDC is an essential ingredient
in the overall Primark strategy because of the need for high quality information
provided on an efficient basis. PDC is responsible for the aggregation,
concordance and integration of Primark's equity pricing, indices, company
account, ownership and economic data sets Company-wide. With major operations in
the United States, the United Kingdom, Ireland and India, PDC provides global
data knowledge and support to the Company's three divisions.
Key factors in Primark's success are recognizable quality and international
market acceptance of its branded products sold by the various business units
within the divisions. Primark's business units, and related brands, by division
include:
PRIMARK FINANCIAL INFORMATION DIVISION
- Datastream. Datastream, acquired in 1992, is one of the world's leading
providers of global historical and fundamental real-time securities data
and news covering more than 45,000 stocks from 59 countries, 97,000
corporate and government bonds from 32 countries and more than 1,800
major indices.
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- ICV. ICV, acquired in 1996, is a leading provider in the U.K. of on-line
equity trading products with an approximately 69% market share in 1997 of
on-line U.K. equities trading and was the number one rated vendor to U.K.
brokers by the 1996, 1997 and 1998 Kimsey Surveys.
- Primark Investment Management Services. PIMS is a leading provider of
computer-based accounting and other investment fund services, including
portfolio valuation and performance measurement services, to money
managers in the U.K. and, to a lesser extent, in continental Europe.
- Disclosure/Worldscope. Disclosure, acquired in 1995, and Worldscope, of
which a 50% equity interest was acquired in 1995 and an additional 30%
interest was acquired in 1996, are two of the leading providers of "as
reported" and abstracted financial information with databases including
more than five million SEC filings by more than 16,000 U.S. companies,
dating back to 1968, as well as foreign company filings from more than
13,000 companies in 45 countries.
PRIMARK FINANCIAL ANALYTICS DIVISION
- I/B/E/S. I/B/E/S, acquired in 1995, is a leading provider of global
earnings expectations, historical data on earnings surprises and research
reports from more than 800 brokerage firms and 7,000 research analysts on
more than 17,000 companies worldwide.
- Baseline. Baseline, acquired in 1997, offers a leading stock and
portfolio analysis and selection system designed specifically for
institutional portfolio managers.
- Vestek. Vestek, acquired in 1994, is an international provider of
portfolio information, analytics and consulting support to investment
professionals.
PRIMARK DECISION INFORMATION DIVISION
- WEFA. WEFA, acquired in 1997, is an international provider of economic
research, analysis and forecasts.
- Primark Decision Economics. PDE, an unconsolidated company started in
1996 in which Primark has an equity interest of 20%, disseminates timely,
value-added economic forecasts, analyses and commentaries covering the
world's major economies and markets.
- The Yankee Group. Yankee Group, acquired in 1996, is an international
market research and consulting firm focusing on the communications and
computing industries, which in 1997 was rated number one in credibility
by Information Week magazine.
Primark had net operating revenues of $397.9 million and $321.8 million for
the twelve months ended December 31, 1997 and the nine months ended September
30, 1998, respectively. The Company's principal sources of revenue are from
customer subscriptions, royalty revenues from third party distributors and fees
for consulting services. The Company has a high customer retention rate, which
for 1997 averaged approximately 85%. More than 80% of the Company's revenues are
derived from subscription or royalty contracts, and a majority of these
contracts are paid in advance either quarterly or annually. For the nine months
ended September 30, 1998, approximately 82% of Primark's revenues were from
subscriptions, 4% from royalties and 14% from other sources. Primark had EBITDA
before restructuring charges of approximately $89.0 million for the year ended
December 31, 1997 and approximately $71.7 million for the nine months ended
September 30, 1998. For a description of EBITDA, see "-- Summary Consolidated
Financial Data." Over the past four years ended December 31, 1997, Primark's
revenues and EBITDA before restructuring charges have grown at compounded annual
growth rates of 41.7% and 38.8%, respectively.
BUSINESS AND OPERATING STRATEGY
Primark's business and operating strategy is designed to generate strong
revenue growth and increased profitability by selling existing products, by
integrating key products and operations, by launching and acquiring new products
and by developing ancillary revenue streams through capitalizing on its
international brands and comprehensive, high quality data. The key elements of
this strategy include:
Expanding Customer Relationships and Cross-Selling. Primark believes that
its customers have an increasing need for financial and economic information
from a select group of integrated providers of such information. By cross-
selling its variety of well-known brands, Primark believes that it is well
positioned to
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serve this need. In addition to cross-selling, the Company believes that it will
be able to expand relationships with existing customers by using its core
products and services as platforms for launching new integrated database and
analytic products drawn from multiple sources within the Company. Management
also intends to further integrate its databases with its software products to
encourage service expansion. Due to the low incremental cost of providing
additional products and services to existing customers, the Company expects
these measures to result in increased revenues and improved profit margins.
Introducing New Products, Databases and Service Enhancements. The Company
believes it can further leverage its existing customer base, databases and
technology to introduce new products and services. For example, Primark recently
introduced I/B/E/S Active Express, an on-line platform for delivery of I/B/E/S
information as well as other databases; Piranha, a product enabling customers to
manipulate and integrate data from multiple databases on the customer's desktop;
and World Market Monitor, a daily, weekly, monthly or bi-annual economic report
tailored to the needs of individual customers. The Company believes its ability
to add new products will continue to provide it with a competitive advantage.
Leveraging Introduction of the Euro. In 1997, more than 45% of Primark's
revenues were derived from European customers and the Company believes it is
well positioned to take advantage of the introduction of the euro on January 1,
1999. The introduction of the euro is expected to lead to new European
securities, increased cross-border investing and the liberalization of the
European pension and retirement savings industry. The Company anticipates that
all of these trends may also dramatically increase the demand for its products
and services from its existing customers as well as new customers. Primark
currently possesses a leading position in U.K. equities trading and provides one
of the most comprehensive databases of European company filings available
electronically. Management intends to capitalize on these trends by introducing
new databases capturing European trading and company data, as well as software
products and news services to serve the information needs of customers
worldwide.
Capitalizing On, and Improving Distribution Through, New Channels and New
Partnerships. Primark currently relies on a variety of distribution channels
including proprietary software, on-line and satellite feed delivery, as well as
third party distributors, paper-based services, CD-ROM and the Internet to
distribute its products. The Company believes it can further capitalize on these
distribution channels to introduce new products and services to both existing
and new customers. Primark currently has contracts with America Online, E-Trade,
Microsoft Investor, Quicken and Quote.Com, among others, to provide database
products to on-line customers and will seek to further expand these
relationships.
Leveraging Technology. Primark will continue to use advanced information
technology to increase the efficiency, speed and flexibility of its data
gathering, database construction and customer delivery efforts. For example,
Primark plans to integrate its database platforms in order to optimize its
product capabilities. The Company has begun to use new technology that it
believes will facilitate the integration of multiple databases maintained in
diverse computer systems for use by its analytics packages. This will allow the
Company to leverage existing brands and databases to provide new products to new
and existing customers. Through the use of advanced information technology,
Primark has transformed Disclosure from a primarily paper-based business to one
that now derives 42% of its revenues from electronic delivery. Also, the Company
expects to continue to use new technology to leverage its brand name products
and believes these efforts will increase revenues and improve margins.
Providing Superior Customer Service. Providing superior customer support
and service is a key aspect of Primark's business philosophy and has contributed
to a high customer retention rate, which for 1997 averaged approximately 85%.
Primark's sales and marketing staff, as well as its technical experts and
consultants, work closely with clients, often on-site, to maximize the value of
Primark products and services and to develop custom applications tailored to
clients' information and software needs. Primark believes its superior customer
service and support will continue to provide it with increased opportunities for
additional product and service revenues.
Capitalizing on Integration of Operating Units. Primark has grown
primarily through acquisitions over the last six years. In order to capitalize
on the advantages expected to result from the integration of these acquired
businesses, on June 30, 1998 the Company reorganized its twelve operating units
into three divisions, which focus on common customer groups. The Company
believes that the restructuring will enable it to
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accelerate the realization of synergies in its marketing, sales and
administrative operations, eliminate redundant production and delivery
platforms, provide broader access to the Company's customer base and deliver
current and new product offerings faster and more efficiently. The restructuring
resulted in approximately $68.7 million of restructuring charges for the period
ended June 30, 1998, of which approximately $60.7 million were non-cash charges.
BUSINESS AND PRODUCTS
OVERVIEW
While Primark supplies information to investment and commercial banks,
investment firms, corporations, government organizations, professional service
firms and individual consumers, it is particularly focused on the needs of the
international investment community. The organizations in the financial community
generally can be divided into two groups, although there are hybrids and
exceptions. One group consists of "buy-side" firms, which invest individual
consumer assets or institutional pension funds. The second group is the
"sell-side" firms, which perform investment research, brokerage and trading
functions, often combined with corporate finance services.
Within the "buy-side," investment managers can be classified according to
their particular style of investing -- large cap, small cap, emerging markets,
value, growth, indices, etc. While the actual method by which they make
investment decisions may vary according to their investment style, the overall
investment process is essentially similar across all firms. It can be broken
down into five major categories.
Asset Security Portfolio Security Fund
Deployment & Research & Construction & Trading & Accounting
Criteria and and Tracking
Selection
& denotes arrow pointing right
Primark is involved in all aspects of the investment decision-making
process. PFAD focuses extensively on the "buy-side" sector; however, depending
on the functional activity, Primark may also have either of its other operating
divisions supply information and analytical services to that function. For
example:
ASSET DEPLOYMENT CRITERIA. The allocation of resources across
different asset categories -- equity versus fixed income, international
versus domestic, industry selection. The Company's operations that serve
these activities are through Vestek and I/B/E/S products (PFAD) and through
WEFA and PDE products (PDID).
SECURITY RESEARCH AND SELECTION. The evaluation of individual
investment securities. Depending on the investment approach
used -- technical, fundamental or quantitative -- the information needs
will be different, as will the analytical tools. The Company's operations
that serve these activities are through Datastream, Disclosure and ICV
products (PFID) and through Baseline, I/B/E/S and Vestek products (PFAD).
PORTFOLIO CONSTRUCTION AND TRACKING. The process of creating a
portfolio of individually selected securities that collectively possesses
the appropriate risk and return characteristics. The Company's subsidiaries
that serve these activities are through PFAD with the Vestek and Baseline
products.
SECURITY TRADING. The actual buying and selling of individual
securities. Timing, costs and other technical factors play important roles
in the efficient execution of a funding strategy. PFID's ICV products serve
these activities.
FUND ACCOUNTING. The accounting for the investment management process
on an intra-day, daily, weekly, monthly and annual basis. This includes
accounting for portfolio valuation, transactions, tax, regulatory and
client reports and performance measurement. The Company's operations that
serve these activities are the Datastream and PIMS products through PFID
and the Vestek product through PFAD.
The "sell-side" firms are involved in many aspects of the investment cycle,
and each of these aspects is generating stronger demand for more and better
financial and economic information. All of Primark's divisions offer products
essential to these firms, with PFID representing the largest share of those
offerings. Some of the functions performed by the sell-side include:
BROKERAGE. This involves the generation and fulfillment of buy and
sell orders for specific securities from money managers, trust departments,
insurance companies and individuals. Information from PFID
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through Datastream and Disclosure as well as I/B/E/S and WEFA information
through PFAD and PDID, respectively, are useful in this process, along with
corporate news and securities price quotes.
RESEARCH. Analysts study corporate securities and other investment
instruments to estimate the likely returns from these investments and
arrive at buy and sell recommendations. PFID's Datastream, Disclosure and
Worldscope together with I/B/E/S and WEFA (PFAD and PDID, respectively)
provide useful data and tools to the investment research analyst, as well
as distribution systems for the results of their work.
TRADING. The actual process of identifying buyers and sellers of
securities and executing orders, whether for customers or the firm's own
account, make up the bulk of activities in trading. Such orders are usually
accomplished through exchanges for most equities, options and futures,
while bonds and foreign exchange are more often traded directly or through
other brokers. PFID's ICV products directly supports the trading process in
London with quotes and news. However, traders have become interested in
value-added data as trading strategies become more sophisticated so
Datastream and Disclosure combined with PFAD's I/B/E/S, and PDID's WEFA and
PDE to provide information to this segment.
CORPORATE FINANCE. The traditional investment banking functions
involving the underwriting of securities, determining capital structure and
merger and acquisition activity are very information intensive. All three
divisions through the products of Datastream, Disclosure, Worldscope,
I/B/E/S and WEFA provide extensive support to investment bankers.
In addition to the financial community, the Company's customers include
corporations and governmental organizations.
CORPORATIONS. To aid in the increasing competition in the global
marketplace, corporations require greater financial and economic
information on countries, markets and competitors. The Company's operations
that serve those needs are PFID's Disclosure, PFAD's I/B/E/S and PDID's
WEFA, PDE and Yankee Group products.
GOVERNMENTAL ORGANIZATIONS. As issues related to commerce, trade and
international finance gain prominence in governmental decision making,
along with fiscal and monetary policy, governmental organizations require
greater amounts of financial and economic data. The Company's operations
that serve these needs are PFID's Disclosure, PFAD's I/B/E/S and PDID's
WEFA, PDE and Yankee Group products.
The decision to organize Primark under the current divisional structure was
made in June of 1998 and is an important step in fully integrating operational
functions within Primark to rationalize an efficient approach to customer needs
and allow for further market penetration with existing and new product
offerings.
PRIMARK FINANCIAL INFORMATION DIVISION
The Primark Financial Information Division recorded $292.8 million of
revenues for the 1997 fiscal year. This represented 74% of Primark's total
revenues. PFID generated $195.9 million of revenues outside of North America
with $112.7 million of those revenues coming from Datastream products, $47.8
million from ICV and $22.9 million from PIMS. The $96.9 million generated in
North America represented $71.2 million from Disclosure, $8.8 million from
Worldscope and $14.1 million from Datastream sales.
Datastream. Datastream provides global historical economic and financial
information to customers worldwide and, together with PIMS products, is a
leading provider of computer-based accounting and other investment fund services
in the United Kingdom.
The core of Datastream's products is its centralized data system which
maintains a series of linked databases of extensive international economic and
financial data collected from wire services, official publications of national
agencies, stock, options and futures exchanges, other information vendors,
brokers, dealers, banks and issuers. Customers have online access to
Datastream's databases through personal computers, networks or workstations.
Datastream's products and services enable customers to perform extensive
investment research and analysis, investment administration and portfolio
valuations on securities in all major markets, and to produce graphics,
statistics, time series analysis and perform other analytical
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functions. Datastream's products and services fall into two principal
categories -- investment research and fund management services.
Investment research services accounted for approximately 85% of
Datastream's total revenues for each of the fiscal years ended December 31,
1997, 1996 and November 30, 1995, respectively. These services consist of a set
of software programs to manipulate, analyze and present financial and economic
information obtained from Datastream's databases. The software is designed to
facilitate the customers' access to data from any of Datastream's databases and
to manipulate this data through a variety of pre-programmed and user-defined
ways to produce graphs, tables and reports and to perform analyses.
Fund management services accounted for approximately 15% of Datastream's
total revenues for each of the fiscal years ended December 31, 1997, 1996 and
November 30, 1995, respectively. Fund management services, available through
PIMS, provide investment accounting, portfolio valuation and performance
measurement activities.
A critical component of Datastream's business is the data itself.
Datastream's principal supply requirements are for raw financial data, which are
acquired from numerous data suppliers worldwide and developed internally. Once
acquired, the data sets are edited and stored in Datastream's databases for
access and manipulation through Datastream's applications and value-added
software programs. Data suppliers generally retain ownership of the raw data,
but allow Datastream and its customers the use of such data. Datastream places
great importance on the quality of its data and has developed a program to
continuously review its data sources to ensure quality, control and continuity.
Wherever possible, Datastream develops multiple sources of data to provide
backup and cross checking.
Data relating to equities include pricing information for earnings and
dividends on approximately 45,000 stocks from 59 countries, including all major
markets and many emerging markets. This data includes historical earnings and
dividend data, as well as forecast data supplied by market specialists. Data
relating to bonds include maturity and yield on approximately 97,000 corporate
and government bonds from 32 countries, all Eurobonds and related indices. Data
relating to futures and options includes current prices, previously traded
prices, trading volume and intra-day high and low values from the international
options and futures exchanges, including LIFFE (London), MONEP and MATIF
(Paris), SOFFEX (Switzerland), EOE (Amsterdam), DTB (Germany), Chicago and
Philadelphia.
Datastream has included databases from I/B/E/S, Disclosure, Worldscope and
WEFA as an integral part of its investment research services. Consequently, it
has helped these companies gain additional customers, as well as customers new
to Datastream. Datastream has also installed the full Disclosure index on its
online system and offers index searches and electronic ordering of hard copy
documents to Datastream users. Vestek is also developing investment management
software products that have been marketed and supported by Datastream's European
sales and service personnel. This responsibility for the European sales and
service of Vestek products has now been shifted to I/B/E/S's European operations
as part of the initiatives to integrate operations within PFAD.
ICV. ICV provides real-time on-line prices, news and research on the U.K.
equities market as well as systems for order entry and trade reporting. The
Company's software combines real-time prices with news and other data in a
unique format which the Company believes has become the standard presentation
for U.K. equity data. ICV has incorporated Datastream's historical information
as an add on to its major product, TOPIC, and is continuing to integrate both
Primark company fundamental data and third party data into its major products.
The core of ICV products is its central systems that take real-time data
from several exchanges and combine the prices with news. The information is then
broadcast to a customer base of nearly 9,000 terminals using the datacast
bandwidth on terrestrial television, leased telecommunication circuits or via
satellite. The data is broadcast to customers' systems, provided by ICV, where
the signal is decoded, stored on a local database and presented on user screens
utilizing software designed and maintained by ICV. Timeliness and reliability
are important aspects of ICV's service. ICV's central systems are designed to
provide state-of-the-art timeliness by handling incoming data within a few
milliseconds through a program code that resides in memory. Reliability is
provided through several back-up sites. The Company's investment in trading
systems
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has allowed for the set up of a U.K.-wide interactive network which can be used
to link customers' offices and provide a future conduit to any new data sources
ICV may acquire or develop in the future. ICV's two principal products are TOPIC
and MARKET-EYE.
TOPIC services accounted for 53%, 47% and 45% of ICV's total revenue for
the fiscal years ended December 31, 1997, 1996 and 1995, respectively. TOPIC
services provide real-time data on prices and comparative quotes from market
makers combined with historical data and broker research. During 1997, the
London Stock Exchange moved to an electronic order driven market. In connection
with this change, ICV was able to meet its customers' requirements for an
interactive trade execution and reporting system through its TOPIC product. The
TOPIC services are used by traders and fund managers, stockbrokers, U.K.
clearing banks and major publicly traded corporations.
MARKET-EYE services accounted for 12%, 11% and 11% of ICV's revenue for the
fiscal years ended December 31, 1997, 1996 and 1995, respectively. MARKET-EYE is
aimed predominantly at small brokers, financial planners and private investors
and is accessible via the Internet. The data include prices and news and may be
combined with analytical and charting packages supplied by third parties.
Stock exchange fees accounted for 29%, 35% and 36% of ICV's revenue for the
fiscal years ended December 31, 1997, 1996 and 1995, respectively. Exchange fees
are revenues collected by ICV and remitted to the stock exchanges to permit
customer use of exchange data feeds. Consequently, the exchange fee business is
a low margin business.
ICV has leveraged its existing technology through alliances with other
information companies, providing access to new markets. During 1996, ICV entered
a joint venture with Merrill Lynch to leverage its technology with Merrill
Lynch's expertise in live trading systems. Also during 1996, Primark and ICV
entered a joint venture with Dow Jones & Company, Inc. and its subsidiary Dow
Jones Markets to develop an international equity trading information product by
combining ICV's technology, Datastream and other Primark subsidiaries'
historical databases, the global news capability of Dow Jones and the real time
data capability of Dow Jones Markets. The product has been named the Primark/Dow
Jones Equities Service ("PDJES").
On May 29, 1998, Dow Jones & Company Inc. announced that it had closed the
sale of its wholly owned subsidiary Dow Jones Markets to Bridge Information
Systems, Inc. ("Bridge"). Although both Dow Jones & Company and Dow Jones
Markets are separately contractually obligated to provide news and financial
information for the PDJES product, the Company did not begin to sell the PDJES
product as originally planned for mid-1998 in the U.K. and Ireland, as well as
to global accounts. This suspension of sales occurred even though development
work on the PDJES was finished and client testing completed with positive
reactions. Since Bridge is both a competitor and also a supplier, the Company
wanted to ascertain whether the change in the ownership of Dow Jones Markets
would adversely affect the performance of the PDJES in any way before placing
the PDJES in operational use at client sites. On September 9, 1998, Dow Jones
Markets advised ICV that it would change the datafeed for the PDJES from the
original "Marketfeed" supplied by Dow Jones Markets to a datafeed provided by
Bridge. In the opinion of the Company, considerable cost and time would be
required to reprogram the PDJES to use this new Bridge feed and the resulting
product would have less functionality. The Company believes Dow Jones Markets is
contractually obligated to supply Marketfeed for the ten-year life of the
agreement with Dow Jones & Company, Inc. and Dow Jones Markets. However, the
Company is seeking to renegotiate its arrangements with both Dow Jones and Dow
Jones Markets to provide the Company with greater flexibility and control over
the PDJES product, while preserving all its legal rights under the current
contracts.
Disclosure. Disclosure is a leading provider of "as reported" and
abstracted financial information throughout the world, distributing information
on more than 16,000 U.S. companies and 13,000 foreign companies, derived from a
variety of government and third-party sources. Disclosure's proprietary content
is provided on a subscription and per use basis through electronic media such as
online services and compact laser discs, as well as through printed products.
Disclosure's customers include investment and commercial banks, money managers,
corporations, law, accounting and consulting firms, libraries and universities.
Disclosure's financial information products and services are based upon a
wide spectrum of SEC documents such as Forms 10-K and 10-Q, proxy statements,
registration statements and material event
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reports, and increasingly non-SEC documents such as foreign company financial
filings, news, economic data, pricing information and U.S. and foreign annual
reports. The information included in Disclosure's products is obtained through
contractual relationships with the SEC and major stock exchanges, from other
Primark companies and through commercial acquisition of the information. Once
acquired, Disclosure indexes, tags, abstracts and formats the information to
allow for ease in navigation, searches and analysis.
Primark considers Disclosure's electronic media business, comprised of
Global Access, Worldscope, compact discs and revenues from third party
distributors of its value-added database products, as representing Disclosure's
next generation of product offerings. These products now represent approximately
40% of Disclosure's overall revenues, up from less than 20% in the beginning of
1996.
Disclosure's image-based services are delivered through the Global Access
and Laser D products as well as through Research Centers located in major
cities. Global Access is a web-based front end that offers online and real-time
access to Disclosure's proprietary electronic index of public company documents;
online delivery of Disclosure's value-added EDGAR database; access to over ten
years of data on 29,000 companies in the Worldscope and SEC databases;
institutional and corporate ownership data; and links to third-party content
such as I/B/E/S, WEFA and industry news. Global Access provides real-time
broadcast alert functionality as well as desktop full text and field searching
and screening of company and industry information with direct downloading to
spreadsheets and wordprocessors. Laser D is a multi-disc CD-ROM document
database that provides a desktop library of information to high volume document
users who require immediate access to documents filed with the SEC, banking
agencies and U.S. and foreign stock exchanges. The Research Centers are staffed
by research specialists who assist customers in locating requested information
and produce alert services for customers who want early identification of
specified documents. Approximately 82%, 81% and 81% of Disclosure's total
revenues were derived from document services for the twelve months ended
December 31, 1997, 1996, and 1995, respectively.
Disclosure's database segment provides products that can be machine read
and manipulated by end users. Disclosure's Global Researcher and Compact D
products provide access to perform sophisticated searching of financial and text
information on more than 29,000 companies. These products also provide reporting
and graphing functionality. Proprietary Disclosure databases include EdgarPlus
(SEC filings with value-added navigational and style tags), the Securities
Exchange Act database (more than 11,000 U.S. company profiles and financial
statement abstracts dating back more than 10 years) and other databases on
institutional corporate insider transactions. These proprietary databases are
offered directly by Disclosure and also by third-party vendors which target both
the commercial and consumer markets, enhancing Disclosure's product through
their hardware, software and market focus. Such vendors include America Online
Inc, Bridge Information Systems, Inc., FactSet Research Corp., Lexis-Nexis,
Dialog, UMI Inc. and West Publishing Co. Approximately 18%, 19% and 19% of
Disclosure's total revenues were derived from database services for the years
ended December 31, 1997, 1996 and 1995, respectively.
Worldscope. Worldscope contains a collection of descriptive profiles and
standardized financial statements on more than 11,900 companies in 45 countries.
The Worldscope database is standardized to a common definition of generally
accepted accounting principles across all major countries, indexed and organized
for cross-border screening and searching. In addition to its global database,
Worldscope offers an emerging market database. Worldscope products are delivered
via third-party distributors, CD-ROM and online platforms. In October 1996,
Primark acquired an additional 30% ownership in Worldscope, giving Primark an
80% controlling interest.
PRIMARK FINANCIAL ANALYTICS DIVISION
The Primark Financial Analytics Division generated $60.1 million of
revenues for the 1997 fiscal year. This represented 15% of Primark's total
revenues. Within PFAD, I/B/E/S accounted for $32.7 million, Baseline $18.2
million and Vestek $9.3 million of revenues.
I/B/E/S. I/B/E/S is a leading source of global earnings expectational
information for investors, financial institutions and portfolio managers
worldwide. I/B/E/S collects and processes earnings per share estimates provided
by more than 7,000 individual securities analysts, representing approximately
800 firms, on more than 17,000 companies globally. The estimates and related
data are delivered through third-party
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distributors and I/B/E/S Express (a proprietary software delivery system). Many
I/B/E/S products permit the customer to perform analytical functions and are
enhanced by reports and graphics. Approximately 40%, 38% and 30% of I/B/E/S'
revenues were generated from the I/B/E/S Express product for the years ended
December 31, 1997, 1996 and 1995, respectively.
I/B/E/S has expanded its product line by launching I/B/E/S Trapeze, a
real-time, electronic brokerage research distribution system. This
state-of-the-art technology delivers brokerage reports to managers' desks in New
York, London and other financial centers within a few moments, complete with
color graphics, audio and video capabilities.
Baseline. Baseline provides portfolio managers at investment companies,
banks, investment consulting firms, and other institutional investors with
online valuation graphics that portray critical financial information on more
than 7,000 U.S. companies. The Baseline product consists of data and software
that manipulates, analyzes and graphically presents company financial
information to end users through personal computers, typically linked by
computer networks.
Baseline's principal supply requirements are for raw financial data which
is acquired from numerous data suppliers including other Primark companies. Once
acquired, the data is verified, manipulated and stored in Baseline's database
for manipulation through Baseline's applications and daily transmission to
customers. Baseline places great importance on the quality of its data and has
developed a program to continuously review its data sources to assure quality
control and continuity. Wherever possible, Baseline develops multiple sources of
data to provide backup and cross checking.
Vestek. Vestek develops, markets and supports investment information
services and application software used to manage, analyze and optimize
institutional portfolios of equity, fixed income and other financial
instruments. Vestek also provides consulting services for investment managers
and plan sponsors. Through its international sales force, Vestek currently
serves more than 250 clients in nine countries.
PRIMARK DECISION INFORMATION DIVISION
The Primark Decision Information Division generated $44.9 million of
revenues for the 1997 fiscal year. This represented 11% of Primark's total
revenues. Within PDID, WEFA accounted for $25.9 million, and the Yankee Group
$19.0 million. Revenues from PDE are not included in the PDID totals as Primark
Decision Economics is not a majority owned operation and is accounted for on the
equity method.
WEFA. Founded by Nobel Laureate Economist Lawrence R. Klein, who remains
active in the business, WEFA is a leading provider of international value-added
economic information, software and consulting services to companies,
governments, universities and financial institutions. WEFA provides analysis and
forecasts for 60 industries across 60 countries through its Global Industrial
Outlook Service, its electronic database and a semi-annual publication. WEFA
recently introduced the World Market Monitor, a desktop application for tracking
and analyzing global economic conditions. Targeted to financial institutions and
corporations, the product provides users with economic, demographic and
financial information on 175 countries.
Primark Decision Economics. In August 1996, Primark invested in a joint
venture with noted economist Dr. Allen Sinai. This joint venture is called
Primark Decision Economics, Inc. and Dr. Sinai has been its Chief Executive
Officer and Chief Global Economist from the outset. The purpose of this venture
is to disseminate timely value-added economic forecasts, analysis and
commentaries covering the world's major economies and markets, and to support
real-time and longer-term decision-making by financial institutions,
corporations and governments engaged in trading, investing and planning.
The Yankee Group. The Yankee Group consists of a global team of highly
skilled technology and market experts that focuses on identifying current trends
and future directions in the communications and computer industries for business
and consumer markets. The Yankee Group markets these insights by providing
strategic planning, technology forecasting, consulting and market research to
clients worldwide, including vendors and users of major computer and
communications systems and services. The Yankee Group's products and services
fall into three principal categories -- Planning Services, Custom Consulting
Engagements, and Seminars and Conferences.
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Planning Services accounted for 66% and 71% of the total revenues for the
years ended December 31, 1997 and 1996. An annually renewable Planning Service
subscription provides a customer with consultation time with a research analyst,
quarterly audio conferences, access to the Yankee Group's published research
reports and white papers in both electronic and paper formats and discounts on
seminars. The Yankee Group currently offers 24 Planning Service packages
covering a broad variety of topics in communications and computing.
Custom consulting engagements accounted for 20% of the total revenues for
both the years ended December 31, 1997 and 1996. Custom consulting engagements
often result as an extension of Planning Services when an inquiry or a study is
more extensive than that offered through a Planning Service subscription. Custom
consulting contracts are also entered into with external parties where the
company considers the study to be of strategic importance.
Seminars and conferences accounted for 14% and 9% of the total revenues for
the years ended December 31, 1997 and 1996, respectively. The Yankee Group holds
an average of 15 to 20 seminars and/or conferences a year, often in conjunction
with industry publication houses.
CUSTOMERS
No single customer of the information businesses accounts for more than 2%
of the Company's consolidated revenues.
Primark Financial Information Division
Datastream/ICV's customers include approximately 5,000 financial
organizations in 52 countries, including investment bankers, brokers, investors,
fund managers, insurance companies and market makers that use financial and
economic information. Other users include publishers of financial journals and
daily newspapers, business schools and universities. Datastream/ICV's customers
are based predominantly in the U.K. and typically subscribe through annual
contracts. These contracts are automatically renewed unless notice of
cancellation is given two to three months before the annual renewal date. In
1997, the renewal rate was 93%.
Disclosure's customer base includes the majority of U.S. investment banks,
money managers, corporations, law and accounting firms, together with other
institutions and individuals performing financial research. Disclosure also
distributes its information through over 50 third party vendors. Subscription
services accounted for 53%, 53% and 51% of Disclosure/Worldscope's revenues for
the fiscal years ended December 31, 1997, 1996 and 1995, respectively. In 1997,
Disclosure/Worldscope experienced a renewal rate for its subscription services
of 90%.
Primark Financial Analytics Division
I/B/E/S directly serves more than 2,250 customers worldwide and thousands
more through its distribution networks. I/B/E/S' customers are represented by
financial institutions and portfolio managers worldwide, with particular
interest by the quantitative analysts who access and download information
directly into analytic models. I/B/E/S products are also sold to end users, such
as management consultants and traditional investment analysts who utilize
I/B/E/S for general research. Approximately 97% of I/B/E/S' 1997 revenues were
derived through annual subscription contracts of which 12% were through soft
dollar arrangements. In 1997, I/B/E/S experienced a renewal rate for its
subscription services of 92%.
Baseline serves over 6,000 portfolio managers in nearly 600 organizations,
including investment companies, banks, investment consulting firms, and other
institutional investors located throughout the U.S. and Canada who typically
subscribe through bi-annual and annual contracts. These contracts are
automatically renewed unless notice of cancellation is given before the renewal
date. In 1997, Baseline experienced a renewal rate for its subscription services
in excess of 95%.
Vestek's clients include major banks, plan sponsors, consultants, insurers
and investment managers. The majority of Vestek's revenues are derived from
online subscription services. In 1997, Vestek experienced a renewal rate for its
subscription services of 92%.
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Primark Decision Information Division
WEFA has approximately 1,600 customers operating in corporations, financial
services, governments, utilities and other businesses. The company performs
consulting and planning services to best analyze the potential impact of various
economic alternatives faced by its customers. In 1997, WEFA experienced a
renewal rate for its subscription services of 88%.
The Yankee Group's customers consist primarily of both suppliers and users
of computer and communication technology. Yankee's customer base includes major
consulting firms, telecommunications companies, computer hardware manufacturers,
software companies, research analysts and the information technology departments
of major corporations.
MARKETING
The products and services of Primark's information companies are marketed
worldwide. Increasingly, the individual Primark companies are offering each
other's data through their own delivery platforms.
Primark Financial Information Division
Datastream is located in London, England and has sales and support offices
located in Germany, France, Italy, Spain, Switzerland, the Netherlands, Belgium,
Luxembourg, Sweden, Japan, Hong Kong, Singapore, Australia, South Korea,
Thailand, Canada and the U.S. ICV is located in London, England and has sales
and support offices throughout the U.K. Datastream/ICV sells Disclosure, I/B/E/S
and WEFA data through its platforms.
Disclosure and Worldscope market and distribute their products
predominately in the U.S. In addition to employing a domestic and international
sales force, Disclosure extends its sales and marketing reach with Research
Centers strategically located in the major financial centers including ten major
U.S. cities and several international locations including London, Frankfurt,
Madrid, Paris, Milan, Hong Kong, Mexico City and Tokyo. Disclosure also
incorporates I/B/E/S and WEFA data in its Global Access platform.
Since the creation of PFID on July 7, 1998, the sales and customer support
operations of all PFID units have been integrated, with separate managers for
this overall range of activities for North America and for the rest of the
world.
Primark Financial Analytics Division
I/B/E/S, headquartered in New York City with offices in London, Hong Kong
and Tokyo, delivers its products directly to customers via state-of-the-art
electronic delivery media. I/B/E/S Express is a PC-based proprietary software,
database management and communications package. The I/B/E/S Express platform
separately provides portions of the data from Disclosure, WEFA and Vestek.
I/B/E/S also offers its products through a network of more than 30 electronic
third-party distributors including Bloomberg L.P., Bridge Information Systems,
Inc., Datastream/ICV, FactSet Research Corp., FAME, Onesource, Reuters Group
PLC, S & P Compustat and Vestek. These third-party distributors offer I/B/E/S a
mechanism to reach new markets and link I/B/E/S data to other databases and
applications software.
Baseline's product is targeted primarily toward portfolio managers of
domestic equities and carries portions of both I/B/E/S's and Disclosure's data
as part of its product offering. Baseline delivers its product directly to
customers via an online advanced electronic delivery platform. Baseline markets
its product through its own domestic sales force.
Headquartered in San Francisco, Vestek's products are marketed through its
sales force located in New York, Los Angeles and Japan. Vestek's European sales
operations are integrated within I/B/E/S, covering all of Europe from I/B/E/S's
London office. Vestek includes data from I/B/E/S, Worldscope and Datastream in
portions of its product line.
Primark Decision Information Division
WEFA markets its product through its international sales force. With
headquarters in Philadelphia, WEFA has offices in several U.S. cities and in the
U.K., Germany, France, South Africa and Mexico. WEFA also employs analysts in
other countries. WEFA delivers its data online through I/B/E/S, Disclosure and
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Datastream/ICV as well as through its own electronic distribution platform. WEFA
believes its historical association with the Wharton School of Business and with
Nobel Laureate Lawrence R. Klein gives it a distinct advantage in the
marketplace.
The Yankee Group markets its services internationally primarily through its
own sales force. The Company considers its historic record of accurately
forecasting the general direction of communication and computing technology
together with its focus on customer support as its greatest competitive
advantages. The Yankee Group's industry analysts are the company's critical
resource. These individuals have significant expertise in their areas of
concentration, gained through industry experience, constant study of the
technology market and ongoing dialogue with vendors and consumers in the
industry. The Yankee Group headquarters are in Boston, with offices in London
and Tokyo.
COMPETITION
The global information industry is highly competitive. There are many large
and successful companies in the information services industry that supply
financial, economic and market research data which compete with products and
services provided by Primark's information businesses.
Principal competitive factors include the quality, reliability and
comprehensiveness of the analytical services and data provided, flexibility in
tailoring services to client needs, experience, innovation, the capability of
technical and client service personnel, data processing and decision support
software, reputation, price and geographic coverage. Primark distinguishes its
products through its broad international coverage, wide range of databases,
accuracy of data, proprietary software applications, reputation, experience and
quality of customer support provided.
Primark's ability to remain competitive in the information market will
depend largely upon its ability to maintain and develop new products and access
new markets in a cost efficient manner, as well as the integration of all its
information products and services. There can be no assurance that Primark will
continue to maintain its market share in the future. See "Risk
Factors -- Competition."
TECHNOLOGY DEVELOPMENT
An essential element in the Company's strategy has been to offer
proprietary value-added content through state-of-the art delivery systems that
incorporate the latest improvements in information technology ("IT"). Over the
past several years, through selected acquisitions and internal development, the
IT organizations of the Company's financial, economic and market research
businesses have been strengthened, operations and reliability have been
improved, software development and maintenance procedures have been upgraded and
major steps have been taken toward euro and Y2K compliance. The Company believes
that its IT resources provide it with enhanced capabilities. In addition, the
Company intends to take additional steps to further integrate these IT
functions. For example, the computer operations and communications departments
of Datastream and ICV have been assigned to a single IT manager, who has the
mandate to consolidate all aspects of these operations. The opportunities for
similar changes in other business units are being reviewed.
One of the most promising areas for immediate integration is in building
the Primark Telecommunications Network ("PTN"), a worldwide telecommunications
network for the Company that integrates all telecommunications requirements in a
common architecture, providing greater capacity and a higher level of service at
lower costs. The Company anticipates that the PTN will also facilitate the
delivery of new products to the Company's entire customer base. The PTN will
provide facilities such as high-speed image transmission, bulk data downloading
and voice/data transmission on the same lines. Elements of the PTN will also
allow for the internal data exchange needed to effectively share data for the
creation of new products.
The Company has developed a database and software capability called The
Primark Information Optimizer (the "PIO"). The PIO is essentially creating a
unified and integrated database for all of Primark, while each of its components
remain as independent databases compatible with existing legacy products. The
PIO will enable the rapid development of new products and allow each Primark
company to readily deliver all relevant Primark data to its customers. The
Company plans to use the capabilities of the PIO to create a data
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and software product that can be offered to financial clients for their internal
use in retrieving and standardizing information in multiple formats and stored
in multiple databases.
TRADEMARKS
Primark's information companies hold numerous trademarks worldwide that are
subject to continuous renewal. These trademarks are significant to the Company's
business, and are registered in all of the Company's major markets to ensure
recognition among its many global trading customers.
EMPLOYEES
At October 1, 1998, the Company and its subsidiaries employed 2,922
persons, excluding employees employed in discontinued operations. The Company
believes its relationship with its employees to be excellent.
PROPERTIES
The Company currently occupies its principal executive offices, comprised
of approximately 17,848 square feet, in Waltham, Massachusetts under lease
agreements that expire in July 2001 with provision for two five-year renewal
options. The Company's principal executive offices are located at 1000 Winter
Street, Suite 4300N, Waltham, MA 02451, (781) 466-6611.
Baseline occupies 23,000 square feet of space at its New York headquarters.
Baseline also has an office in Philadelphia.
Datastream's two principal office facilities are located in London,
England. Comprised of an aggregate total of 100,995 square feet, these
facilities are occupied under lease agreements that expire in 2005 and 2018.
Through its affiliates, Datastream also occupies under short-term leases an
aggregate total of approximately 55,000 square feet of office space, principally
located in Australia, Belgium, Canada, France, Germany, Hong Kong, Italy, Japan,
Luxemborg, the Netherlands, Singapore, South Korea, Spain, Sweden, Switzerland,
Thailand and the United States.
Disclosure's headquarters, comprised of approximately 99,640 square feet,
are located in Bethesda, Maryland. The property is occupied under lease
agreements that expire in 2006. Disclosure's regional offices occupy
approximately 63,900 square feet of office space under lease terms that expire
through 2004. These offices are located in California, Georgia, Illinois,
Massachusetts, New York, Texas and Washington, D.C.
I/B/E/S occupies 39,800 square feet of space at its New York City
headquarters under a lease agreement that expires in 2007. Additional office
space totaling 10,950 square feet is located in England, Hong Kong and Japan
with lease terms through 2007.
ICV's facilities occupy approximately 36,000 square feet of space located
primarily in England.
Vestek occupies approximately 13,555 square feet of space at its San
Francisco headquarters under a lease agreement that expires in 1999 with
provision for one five-year renewal option.
WEFA occupies 45,550 square feet of space at its Pennsylvania headquarters
under a lease agreement that expires in 2005. Additional office space of
approximately 29,700 square feet is leased in Canada, Europe and South Africa
expiring through 2005.
The Yankee Group occupies approximately 23,600 square feet of space at its
Boston headquarters under a lease agreement that expires in 2003 and has
international offices located in London and Tokyo.
LEGAL PROCEEDINGS
The Company's management believes that the outcome of all pending legal
proceedings will not, individually, or in the aggregate, have a material adverse
effect on the Company's business, results of operations or financial condition.
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MANAGEMENT
DIRECTOR AND EXECUTIVE OFFICERS
The table below sets forth, as of October 1, 1998, certain information
concerning individuals who were the directors and executive officers of the
Company on June 1, 1998.
NAME AGE POSITION
---- --- --------
Joseph E. Kasputys................. 62 Chairman, President and Chief Executive Officer
Stephen H. Curran.................. 51 Executive Vice President and Chief Financial Officer
Ira Herenstein..................... 61 Senior Vice President of Marketing of Primark Financial
Technologies, Inc.
Michael R. Kargula................. 51 Executive Vice President, General Counsel and Secretary
Patrick G. Richmond................ 48 Executive Vice President of Corporate Development
William J. Swift, III.............. 46 Senior Vice President and Tax Counsel
Kevin J. Bradley................... 70 Director
John C. Holt....................... 57 Director
Steven Lazarus..................... 67 Director
Patricia McGinnis.................. 51 Director
Jonathan Newcomb................... 52 Director
Constance K. Weaver................ 46 Director
Joseph E. Kasputys, has served as Chairman, President and Chief Executive
Officer of the Company since May 1988. From June 1987 until May 1988, he served
as President and Chief Operating Officer of the Company. Prior to joining the
Company in June 1987, he was Executive Vice President of McGraw-Hill, Inc., a
publishing and information services company. Prior to joining McGraw-Hill in
1985, he was President and Chief Executive Officer of Data Resources, Inc., an
economic forecasting and consulting firm. Mr. Kasputys has been a director of
the Company since 1987. He is a member of the Nominating Committee of the Board.
Mr. Kasputys is also a director of Lifeline Systems, Inc., a company that
develops and manufactures personal response products and provides related
monitoring and other services and New Era of Networks, Inc., a company that
develops, markets and supports application integration software and provides
application services.
Stephen H. Curran, has served as Senior Vice President and Chief Financial
Officer of the Company since 1988. In 1997 he was elected Executive Vice
President and Chief Financial Officer.
Ira Herenstein, has served as Vice President of Marketing of the Company
since December 1996. From June 1995 to November 1996, Mr. Herenstein was
Managing Director of Datastream International, Inc. From March of 1994 to June
of 1995, he was president of Datastream's North American operations. From 1992
until March of 1994, Mr. Herenstein was an independent consultant in the
information services industry. In addition, Mr. Herenstein was with the
McGraw-Hill Corporation for 28 years, during which time he held the positions of
President of Standard & Poor's Corporation and Executive Vice President of the
Computer and Communications Information Group.
Michael R. Kargula, has served as Senior Vice President, General Counsel
and Secretary of the Company since 1988. In 1997 he was elected Executive Vice
President, General Counsel and Secretary.
Patrick G. Richmond, has served as Vice President of Corporate Development
of the Company since May 1989. In 1997 he was elected Executive Vice President
of Corporate Development.
William J. Swift III, has served as Vice President and Tax Counsel of the
Company since 1988. In 1998 he was elected Senior Vice President and Tax
Counsel.
Kevin J. Bradley, served as the Chairman of Corporate Investment
Associates, Inc., an investment management firm from November 1990 to September
1995. From November 1985 until October 1990, he was a Limited Partner of Weiss
Asset Management Limited Partnership, an investment management firm. From 1977
through November 1985, he served as Chairman and Chief Executive Officer of the
Travelers Investment Management Company, a subsidiary of The Travelers
Corporation (a financial services company).
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Mr. Bradley has been a director of the Company since 1981. He is Chairman of the
Compensation Committee and a member of the Audit Committee of the Board.
John C. Holt, is an employee of the Company and has served as the President
and Chief Executive Officer of TASC, an applied information technology company
and formerly a wholly-owned subsidiary of the Company, and Executive Vice
President of the Company from April 1994 until April 1, 1998. From April 1, 1998
until December 31, 1998, Mr. Holt serves as a consultant to TASC. From 1982
until January 1994, Mr. Holt held the position of Executive Vice President of
the Dun & Bradstreet Corporation ("D&B"), an information services company, and
served as a director of that company from 1985 until 1994. In addition, Mr. Holt
was the former Chairman, President and Chief Executive Officer of the A.C.
Nielsen Company, a marketing information company and a former affiliate of D&B.
Mr. Holt has been a director of the Company since 1985. He is a member of the
Finance Committee of the Board.
Steven Lazarus, is Managing Director of the ARCH Venture Partners L.P., a
venture partnership investing in companies in the early stage of development,
and has held that position since July 1994. From 1986 to 1994, he was President
and Chief Executive Officer of Argonne National Laboratory/The University of
Chicago Development Corporation ("ARCH"), which transforms scientific
discoveries into viable high technology products and services. Prior to joining
ARCH in October 1986, he was a Group Vice President at Baxter Travenol
Laboratories, Inc., a manufacturer and distributor of hospital supplies and
related medical equipment. Mr. Lazarus has been a director of the Company since
1987. He is Chairman of the Nominating Committee and a member of the Audit and
Compensation Committees of the Board. Mr. Lazarus is a director of Amgen Inc., a
biotechnology company and Illinois Superconductor Corporation, an advanced
materials company serving the telecommunications industry. He is also a director
of New Era of Networks, Inc. (described above), Nanophase Technologies Corp., a
developer and marketer of nano-crystalline materials for use as ingredients and
components in a wide range of commercial applications, and First Consulting
Group, Inc., a provider of information technology and other consulting services
to healthcare organizations. Mr. Lazarus has been a director of the Company
since 1987.
Patricia McGinnis, is the president and Chief Executive Officer of the
Council for Excellence in Government, a national membership organization of
private sector leaders who have served as senior officials in government. She
has held this position since June 1994. From 1982 until May 1994, she was a
principal at the public affairs consulting firm of Winner/Wagner & Francis
(formerly the FMR Group). Previously, she served in various senior policy
positions in the federal government including the Office of the Vice President,
the Department of Health and Human Services, the Department of Commerce, the
Office of Management and Budget and the Senate Budget Committee. Ms. McGinnis
has been a director of the Company since 1995. She is a member of the
Compensation Committee of the Board.
Jonathan Newcomb, is President and Chief Executive Officer of Simon &
Schuster, an educational, computer and English-language book publisher and the
publishing operation of Viacom Inc. and has held this position since June 1994.
From January 1991 until May 1994, he served as President and Chief Operating
Officer of Simon & Schuster. From November 1989 until December 1990, Mr. Newcomb
was Executive Vice President, Operations of that company. He has been a director
of the Company since 1996. Mr. Newcomb is Chairman of the Finance Committee of
the Board and a member of the Nominating Committee. Mr. Newcomb is also a
director of Marine Midland Bank.
Constance K. Weaver, is Financial Vice President -- Investor Relations of
AT&T Corp., a communications service company, a position she has held since May
1996. From June 1995 to April 1996, she held the position of Senior
Director -- Investor Relations of Microsoft Corporation, a computer software
company. From June 1993 through May 1995, she held the position of Vice
President, Investor Relations of MCI Communications Corporation, a
telecommunications company. From June 1991 until July 1993 and from January 1990
until May 1991, she held the position of Director, Investor Relations and
Director, Corporate Communications, respectively, of that company. From 1988
until January 1990, she was the Executive Director, Business Week Executive
Programs and Services Department for McGraw-Hill, Inc. Ms. Weaver has been a
director of the Company since 1994. She is Chairwoman of the Audit Committee and
a member of the Finance Committee of the Board.
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MEETINGS AND COMMITTEES OF THE BOARD OF DIRECTORS
Members of the Board held an aggregate of seven regular meetings and three
special meetings during 1997 and also served on standing committees of the
Board. In addition to the Finance Committee, the Company has the following
standing committees of the Board:
Audit Committee -- The Audit Committee, which held two meetings during
1997, recommends to the Board the selection of independent auditors;
reviews the scope of the independent audit and auditors' fees; reviews the
annual financial statements and audit results, including auditors'
recommendations; reviews the Company's internal control system; reviews the
scope of the internal audit procedures and results of those procedures; and
reviews the Company's policies relating to business conduct.
Compensation Committee -- The Compensation Committee held two meetings
during 1997. The Compensation Committee establishes the salaries and other
direct compensation for all officers of the Company, annually reviews and
makes recommendations to the Board with respect to the compensation to be
paid to outside directors of the Company, and administers certain incentive
plans of the Company.
Nominating Committee -- The Nominating Committee, which held one
meeting during 1997, is authorized to make recommendations to the Board
concerning nominees for directors to be elected at the Company's Annual
Meeting of Shareholders, nominees to fill vacancies on the Board, and
policies relating to tenure and retirement of the Company's directors and
successors to the Company's two highest ranking offices. The Nominating
Committee accepts recommendations from shareholders of individuals to be
considered as nominees for directors.
EXECUTIVE COMPENSATION
The following table ("Summary Compensation Table") sets forth the
compensation paid or awarded for performance during the last three completed
fiscal years by the Company or a subsidiary to the Company's Named Executive
Officers of the Company.
SUMMARY COMPENSATION TABLE
LONG-TERM
ANNUAL COMPENSATION COMPENSATION
----------------------------- --------------------
AWARDS PAYOUTS
---------- -------
OTHER SECURITIES
ANNUAL UNDERLYING LTIP ALL OTHER
NAME AND SALARY BONUS COMPENSA- OPTIONS PAYOUTS COMPENSA-
PRINCIPAL POSITION YEAR ($) ($) TION($) (#) ($) TION($)
------------------ ---- ------ ----- --------- ---------- ------- ---------
Joseph E. Kasputys(1).................... 1997 609,583 146,601 -- (2) 1,000,000 -- 7,627(3)
Chairman, President and 1996 601,184 426,948 58,258(4) 40,000 -- 33,419
Chief Executive Officer of the Company 1995 584,376 391,804 56,561(4) 101,000(5) -- 115,377
John C. Holt(6).......................... 1997 427,515 355,050 -- (2) 20,000 -- 30,000(7)
President and Chief Executive Officer 1996 417,510 261,584 -- (2) 16,000 -- 33,515
of TASC, and Executive Vice President 1995 407,535 237,169 -- (2) 57,000(5) 516,316(6) 30,000
of the Company
Stephen H. Curran(8)..................... 1997 232,500 37,345 -- (2) 23,000 -- 6,674(3)
Executive Vice President and 1996 221,846 106,382 -- (2) 11,000 -- 32,466
Chief Financial Officer of the Company 1995 204,751 87,531 -- (2) 14,000 -- 114,424
Ira Herenstein(9)........................ 1997 325,000 76,820 -- (2) 25,000 -- 7,643(3)
Senior Vice President of 1996 325,250 123,312 -- (2) 8,000 274,120(10) 33,435
Marketing of the Company 1995 -- -- -- -- -- --
Michael R. Kargula(1)(8)................. 1997 244,750 43,980 -- (2) 25,000 -- 6,554(3)
Executive Vice President, General 1996 240,285 128,191 -- (2) 13,000 -- 32,346
Counsel and Secretary of the Company 1995 234,125 117,791 -- (2) 37,000(5) -- 114,304
- ---------------
(1) Messrs. Kasputys and Kargula previously held the positions of Chairman of
TASC and Vice President and General Counsel of TASC, respectively. In
connection with the Company's sale of TASC to Litton Industries, Inc., Mr.
Kasputys and Mr. Kargula resigned such positions effective as of the
closing date of the transaction.
(2) While the executive officers received other compensation in the form of
perquisites, such perquisites do not exceed the lesser of $50,000 or ten
percent of each executive officer's total annual salary and bonus for 1997
as reported for such executive officer herein.
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(3) Includes matching contributions of $4,750 made by the Company under the
Savings Plan for each of Messrs. Kasputys, Curran, Kargula and Herenstein.
Includes $2,877, $1,924, $1,804 and $2,893 for Messrs. Kasputys, Curran,
Kargula and Herenstein, respectively, representing the premium amounts paid
by the Company for executive life insurance on behalf of such executive
officers.
(4) The amount includes $29,260 and $35,395 for fiscal years ended December 31,
1996 and December 31, 1995 for imputed interest relating to a certain loan
by the Company to Mr. Kasputys for payment of income taxes in connection
with the grant of stock to Mr. Kasputys under the Primark Corporation 1988
Incentive Plan ("Incentive Plan"). Such loan is interest-free; evidenced by
promissory notes; secured by 40,605 shares of common stock of the Company;
and, subject to annual repayments, is fully payable on December 31, 1998.
The largest aggregate amount of indebtedness outstanding thereunder in 1997
was $509,121, of which $443,781 was outstanding on September 30, 1998.
(5) Includes 51,000, 32,000 and 18,000 shares subject to option for Messrs.
Kasputys, Holt and Kargula, respectively, which options vest in three
annual installments with the first installment having vested during 1996.
The options were granted in recognition of the executive officers'
agreements to accept a 50 percent reduction in the amount of their
respective merit increases in fiscal years 1995, 1996 and 1997.
(6) In connection with the sale of TASC, Mr. Holt resigned as an officer and
director of TASC and as an officer of the Company. He will continue to be a
member of the Board of Directors of the Company. In 1995, Mr. Holt was paid
$516,316 in connection with a certain long-term incentive arrangement under
the Employment Agreement dated February 28, 1994 among the Company, TASC
and Mr. Holt.
(7) Includes $19,508 and $10,492 allocated to Mr. Holt's account under the
PSSOP and the TASC Supplemental Employee Retirement Plan, respectively, for
the fiscal year ended December 31, 1997.
(8) In connection with the exercise of stock options, Messrs. Curran and
Kargula borrowed $216,647 and $393,772, respectively, from the Company.
Such loans are interest-free; evidenced by promissory notes; secured by
13,000 and 20,000 shares of common stock of the Company, respectively; and
are fully payable on December 16, 2004.
(9) Mr. Herenstein was not an officer of the Company during fiscal year 1995
and since June 30, 1998.
(10) Represents the amount paid to Mr. Herenstein pursuant to the terms of an
employment agreement between the Company and Mr. Herenstein dated December
3, 1996 under which Mr. Herenstein is deemed to have exercised as of
September 30, 1996 all value appreciation rights that were granted to him
under the Primark Information Services UK Limited And Affiliates Long-Term
Incentive Plan while he was an executive officer of a Primark subsidiary.
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OPTION GRANTS IN LAST FISCAL YEAR
Set forth below is information concerning the grant of stock options to
each of the persons named on the Summary Compensation Table during 1997.
GRANT DATE
INDIVIDUAL GRANTS VALUE
---------------------------------------------------------------- -----------
NUMBER OF % OF TOTAL
SECURITIES OPTIONS
UNDERLYING GRANTED TO EXERCISE OR GRANT DATE
OPTIONS EMPLOYEES BASE PRICE EXPIRATION PRESENT DATE OF
NAME GRANTED(#)(1) IN FISCAL YEAR ($/SH) DATE VALUE($)(2) EXERCISABILITY
---- ------------- -------------- ----------- ---------- ----------- -----------------
Joseph E. Kasputys......... 500,000(3) 32.84% $ 24.25 January 6, 2007 6,934,033 January 7, 1999
250,000(3) 16.42% $30.313 January 6, 2007 3,026,041 January 7, 2000
250,000(3) 16.42% $36.375 January 6, 2007 2,657,782 January 7, 2001
John C. Holt............... 20,000(4) 1.31% $ 25.00 February 24, 2007 285,972 February 25, 1998
Stephen H. Curran.......... 13,000 .85% $ 25.00 February 24, 2007 197,503 February 25, 1997
10,000 .66% $ 23.50 May 27, 2007 154,137 May 28, 1997
Ira Herenstein............. 25,000(4) 1.64% $ 24.25 January 6, 2007 346,798 January 7, 1998
Michael R. Kargula......... 15,000 .99% $ 25.00 February 24, 2007 227,888 February 25, 1997
10,000 .66% $ 23.50 May 27, 2007 154,137 May 28, 1997
- ---------------
(1) All stock options have a ten-year term.
(2) As suggested by the SEC's rules on executive compensation disclosure, the
Company used the Black-Scholes model of option valuation to determine grant
date present value. The following assumptions were made for purposes of
calculating the Grant Date Present Value: an option term of ten years,
volatility ranging from 35.46% to 42.02%, dividend yield at 0%, interest
rate ranging from 6.56% to 6.95% and a vesting discount which utilized a 3%
risk of forfeiture that produced a range from .8853 to .94116. The Company
does not advocate or necessarily agree that the Black-Scholes model can
properly determine the value of an option.
(3) The option becomes fully exercisable upon a change of control or, in the
sole discretion of the Compensation Committee, in the event the Board
designates a successor as chief executive officer of the Company.
(4) The stock options vest in three equal annual installments with the first
installment vesting on the Date of Exercisability as noted in the table
above.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION
VALUES
Set forth below is information concerning the value of unexercised
in-the-money stock options held on December 31, 1997 by each person named in the
Summary Compensation Table.
NUMBER OF
SECURITIES UNDERLYING VALUE OF UNEXERCISED
SHARES UNEXERCISED OPTIONS IN-THE-MONEY OPTIONS
ACQUIRED AT FY-END(#) AT FY-END($)(2)
ON VALUE --------------------------- ---------------------------
NAME EXERCISE(#) REALIZED($)(1) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- -------------- ----------- ------------- ----------- -------------
Joseph E. Kasputys..................... 1,018,220 37,407,366 414,170 1,016,830 10,661,912 12,339,651
John C. Holt........................... 0 0 343,470 249,530 9,180,396 6,263,292
Stephen H. Curran...................... 166,240 5,909,915 103,000 0 2,419,439 0
Ira Herenstein......................... 0 0 89,640 63,360 2,051,415 1,156,401
Michael R. Kargula..................... 211,580 7,521,775 139,060 5,940 3,357,666 158,524
- ---------------
(1) The "Value Realized" is equal to the difference between the option exercise
price and the fair market value of the Company's common stock on the New
York Stock Exchange (the "NYSE") on the date of exercise.
(2) The value is based upon the $40.6875 closing price of a share of the
Company's common stock on the NYSE at December 31, 1997, minus the exercise
price.
DIRECTORS' COMPENSATION
During 1997, each director who was not an employee of the Company or of any
of its subsidiaries received as compensation for the director's services an
annual retainer of $20,000. The fee for each Board meeting and committee meeting
attended by a non-employee director is $1,500 and $750, respectively;
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provided, however, that if a committee meeting is held on a date when no Board
meeting is held, each non-employee director who is a member of the committee is
entitled to receive $1,500 for each such meeting attended. In addition,
non-employee directors of the Company automatically receive on an annual basis a
non-qualified stock option to acquire 7,500 shares under the Stock Option Plan
for Non-Employee Directors. The directors who serve as officers of the Company
or of a subsidiary receive no compensation for their services as a director
other than their regular salaries and benefits.
The Company maintains the Primark Corporation Supplemental Death Benefit
and Retirement Income Plan, which covers certain key officers and non-employee
directors of the Company. Under the Primark Corporation Supplemental Death
Benefit and Retirement Income Plan, in the event of the death of a non-employee
director prior to his or her retirement from the Board, the director's surviving
spouse is entitled to a lump sum payment of $150,000 payable at the time of the
director's death. The Primark Corporation Supplemental Death Benefit and
Retirement Income Plan also provides that a non-employee director can elect to
receive either (i) a supplemental retirement benefit of $15,000 annually
(payable in monthly installments) for each of the ten years following such
director's retirement at age 65 or older, or (ii) a post-retirement death
benefit of $150,000 payable to such director's surviving spouse upon the death
of the director if such death occurs after the director's retirement on or after
attaining age 65. No benefits are to be payable under the plan unless the
director has been a member of the Company's Board of Directors for at least five
years. Additionally, a non-employee director leaving the Board after a change of
control would be entitled to receive a cash payment of $150,000. A non-employee
director receiving this payment would not be entitled to receive any other
payments under the Primark Corporation Supplemental Death Benefit and Retirement
Income Plan.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Compensation Committee of the Board of Directors is composed entirely
of non-employee directors. The three directors comprising the Compensation
Committee are Mr. Kevin J. Bradley, Chairman, Mr. Steven Lazarus and Ms.
Patricia McGinnis.
EMPLOYMENT AGREEMENTS AND OTHER ARRANGEMENTS
During 1997, Mr. Kasputys served as Chairman, President and Chief Executive
Officer of the Company pursuant to an employment agreement which was approved by
the shareholders at the 1997 Annual Meeting of Shareholders. Pursuant to the
terms of the employment agreement, Mr. Kasputys is employed as the Chairman,
President and Chief Executive Officer of the Company until December 31, 2001 at
a minimum annual salary of $602,000 and is eligible to receive a bonus. Mr.
Kasputys is entitled to participate in (i) retirement and other employee benefit
plans, (ii) insurance and fringe benefits provided by the Company, including the
use of an automobile for business purposes, (iii) up to $10,000 annually as
reimbursement for expenses incurred in obtaining tax and estate planning
assistance, and (iv) annual retirement compensation for life in an amount equal
to 55 percent of his salary (excluding his bonus but including all amounts paid
under the Company's defined benefit plan) during the final year prior to the
date he retires at age 62 or later. If Mr. Kasputys predeceases his spouse at
the time of his retirement or thereafter, his spouse is entitled to 60 percent
of Mr. Kasputys' annual retirement compensation as calculated in the preceding
sentence. If Mr. Kasputys dies prior to his retirement, his spouse is entitled
to 50 percent of his final salary until such time as Mr. Kasputys would have
become 65 and annual payments of 33 percent of such salary thereafter for life.
Although the retirement benefits are paid solely from corporate assets, it is
expected that such costs would be recovered over time through Company-owned life
insurance on Mr. Kasputys. In the event Mr. Kasputys is terminated prior to
retirement at age 62 for cause or voluntarily terminates his employment, the
retirement obligations described in this paragraph also terminate; and if Mr.
Kasputys is terminated without cause prior to age 62, he is entitled to reduced
retirement compensation calculated by reducing the full retirement compensation
amount by two percent for each full year not worked by Mr. Kasputys prior to age
62. Any termination by the Board of Mr. Kasputys' employment (other than
termination for "cause" (as defined) by a two-thirds vote of all of the members
of the Board) does not prejudice Mr. Kasputys' right to compensation or other
benefits under the employment agreement and all options granted to Mr. Kasputys
become exercisable. Termination other than termination for cause by a two-thirds
vote of all of the members of the Board would
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result in liability for liquidated damages in an amount equal to two times the
amount of Mr. Kasputys' annual salary and the bonus paid to him in the year
prior to termination (on a pro-rated basis) as well as health, life and
disability insurance for a period of two years in the same amounts provided
prior to termination. Mr. Kasputys is also subject to certain non-solicitation,
non-disclosure and noncompete provisions as set forth in the Employment
Agreement.
Messrs. Curran and Kargula receive certain non-contributory supplemental
death and retirement benefits. The pre-retirement death benefit payable to the
executive's surviving spouse will equal, per annum, 50 percent of the
executive's final salary until such time as the executive would have reached age
65; thereafter, payments will equal, per annum, 20 percent of such salary until
the executive would have reached age 75. At retirement the executive may elect
to receive (i) supplemental retirement income equal to 20 percent of such
executive's final salary for each of the first ten years following retirement;
or (ii) other available post-retirement benefits which are actuarially
equivalent to the foregoing ten-year payment option. Although the supplemental
death and retirement benefits are paid solely from general corporate assets, it
is expected that such costs would be recovered over time through Company-owned
life insurance on the participants.
Each of the Named Executive Officers has entered into a separate change of
control agreement. Each change of control agreement was amended on September 29,
1997. The amended change of control agreements provide that in the event of a
change of control of the Company or if a potential change of control exists
while the executive is an employee of the Company and the executive's employment
is terminated other than for certain specified events, the Company will pay to
the executive an amount generally equal to three times the average annual
compensation paid to such executive during the lesser of (i) five calendar years
preceding the date of termination if prior to a change of control, or the date
of the change of control of the Company if such has occurred by the time of
termination; or (ii) the portion of such five year period during which the
Company existed and the executive was an employee of the Company if the
executive's employment is terminated by the Company without cause within three
years after a change of control. The change of control agreements may be
unilaterally rescinded or amended by the Board of Directors of the Company
without the consent of the executive prior to a change of control or the
occurrence or threat of actions potentially leading to a change of control. Mr.
Holt's change of control agreement was terminated on the closing date of the
TASC sale pursuant to the terms of the Termination Agreement, Receipt and
Release by and among Mr. Holt, the Company and TASC dated April 1, 1998.
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SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT
PRINCIPAL SHAREHOLDERS
Based on information filed with the SEC on Schedule l3Gs, certain
information is set forth below with respect to beneficial owners of more than
five percent of the shares of the Company's common stock as of December 1, 1998.
See also "Management -- Security Ownership of Management."
NUMBER PERCENT OF CLASS
NAME AND ADDRESS OF SHARES AS OF DECEMBER L, 1998
---------------- --------- ----------------------
Capital Research and Management Company..................... 2,288,900(l) 10.77%
SMALLCAP World Fund, Inc.
333 South Hope Street
Los Angeles, California 90071
GeoCapital, LLC............................................. 1,588,033(2) 7.47%
767 Fifth Avenue
45th Floor
New York, New York 10153-4590
- ---------------
(l) Based on the Schedule 13G dated July 9, 1998 for the period ended December
31, 1997. Capital Research and Management Company serves as investment
advisor to various investment management companies and has the sole power to
dispose of the reported securities. SMALLCAP World Fund, Inc. is an
investment management company and has the sole power to vote 1,350,000 of
the listed shares.
(2) Based on the Schedule 13G dated February 18, 1998 for the period ended
December 31, 1997. Sole dispositive power was claimed with respect to
1,588,033 shares.
SECURITY OWNERSHIP OF MANAGEMENT
The following table sets forth the number of shares of common stock of the
Company beneficially owned as of December 1, 1998 by each director, the chief
executive officer and, as of December 31, 1997, the four other most highly
compensated executive officers (the "Named Executive Officers") and by all
directors and executive officers of the Company as a group:
NUMBER OF PERCENT
NAME SHARES OWNERSHIP
---- --------- ---------
Kevin J. Bradley(1)......................................... 57,768 .27%
Stephen H. Curran(2)(3)..................................... 243,979 1.14%
Ira Herenstein(2)(3)(4)..................................... 54,594 .26%
John C. Holt(2)(3)(4)....................................... 575,464 2.64%
Michael R. Kargula(2)(3).................................... 300,010 1.40%
Joseph E. Kasputys(2)(3).................................... 1,891,870 8.53%
Steven Lazarus(1)........................................... 104,340 .49%
Patricia McGinnis(1)........................................ 30,000 .14%
Jonathan Newcomb(1)......................................... 24,800 .12%
Constance K. Weaver(1)...................................... 37,500 .18%
All directors and executive officers as a group
(12 persons)(5)(6)........................................ 3,685,965 15.65%
- ---------------
(1) Includes for Messrs. Bradley, Lazarus and Newcomb 57,468, 82,404, and 22,500
shares, respectively, and for Mdmes. McGinnis and Weaver 30,000 and 37,500
shares, respectively, which such directors have the right to acquire
pursuant to the exercise of the options held by them under the Primark
Corporation Stock Option Plan for Non-Employee Directors ("Stock Option Plan
for Non-Employee Directors"). Directors who are employees of the Company, or
a subsidiary thereof, are not eligible to receive option grants under this
plan.
(2) Includes 28,262 shares for each of Messrs. Curran and Kasputys, 29,210
shares for Mr. Kargula and 12,484 shares for Mr. Herenstein allocated to the
participant's account under the Primark Corporation Savings and Stock
Ownership Plan (formerly the Primark Corporation Employee Stock Ownership
Plan)
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("Savings Plan"). Includes 144 shares held by Mr. Holt under the TASC, Inc.
Profit Sharing and Stock Ownership Plan ("PSSOP"). Also includes 2,473
shares held by Mr. Curran under the Primark Corporation 1992 Employee Stock
Purchase Plan ("ESPP").
(3) Includes 931,000, 574,320, 113,000, 155,000 and 42,110 shares subject to
stock options exercisable within 60 days of December 1, 1998 held by Messrs.
Kasputys, Holt, Curran, Kargula and Herenstein, respectively, which options
were granted under various plans of the Company.
(4) Effective April 1, 1998 and June 30, 1998, each of Mr. Holt and Mr.
Herenstein, respectively, ceased to be an executive officer of the Company.
Mr. Holt continues as a director and an employee of the Company and Mr.
Herenstein continues as a part-time employee of the Company.
(5) Includes 2,076,930 shares subject to stock options exercisable within 60
days of December 1, 1998 held by individuals who were executive officers of
the Company on December 31, 1997 under various plans of the Company.
(6) Includes 155,237 shares for all executive officers as a group which are held
under the Savings Plan. As to shares held in the Savings Plan, the executive
officers possess both voting and dispositive power with respect to all such
shares. Non-employee directors of the Company are not eligible to
participate in these plans. Also includes 3,131 shares held by executive
officers as a group which are held under the ESPP.
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DESCRIPTION OF CERTAIN INDEBTEDNESS
The Company has a Revolving Credit Agreement, dated as of February 7, 1997,
among the Company, the lenders parties thereto from time to time, the issuing
banks referred to therein, and Mellon Bank, N.A., as Agent, as amended (the
"Credit Agreement"), which provides for the Credit Facility. Under the Credit
Agreement, Primark may, subject to certain conditions, borrow up to $225
million. The Credit Facility will mature on December 31, 2002, unless extended
pursuant to the terms of the Credit Agreement. The following summary of the
material provisions of the Credit Agreement does not purport to be complete and
is subject to, and is qualified in its entirety by reference to, the Credit
Agreement, a copy of which is available from the Company upon request.
The Credit Facility is secured by a pledge of the outstanding common stock
of certain subsidiaries of the Company.
Amounts drawn under the Credit Facility will bear interest at rates ranging
from 0.375% to 1.50% above the current prevailing LIBOR rate of interest, with
the rate determined according to the results of the Company's operations and
financial position.
The Credit Agreement contains negative covenants limiting the ability of
the Company to incur debt, create liens, pay dividends, make distributions or
stock repurchases, make investments or capital expenditures, engage in
transactions with affiliates, sell assets, engage in mergers and acquisitions
and assume or make guaranties. In addition, the Credit Agreement contains
affirmative covenants, including covenants requiring compliance with laws,
maintenance of corporate existence, properties and insurance, payment of taxes
and performance of other material obligations and the delivery of financial and
other information.
The Credit Agreement also requires the Company to comply with certain
financial tests and to maintain certain financial ratios on a consolidated
basis. The Company must maintain (i) a Consolidated Net Worth (Adjusted) (as
defined in the Credit Agreement) of not less than $450 million from June 30,
1998 to December 30, 1998, and increasing such amount by $25 million for each
one year period of December 31 to December 30 thereafter; (ii) a Consolidated
Fixed Charge Coverage Ratio (as defined in the Credit Agreement) for the period
of three consecutive fiscal quarters ending on December 31, 1998 of not less
than 1.25, the period of four consecutive fiscal quarters ending on the last day
of such fiscal quarter within 1999 of not less than 1.50 and thereafter of not
less than 2.00; and (iii) a Consolidated Funded Senior Debt Ratio (Adjusted) for
the period of four consecutive fiscal quarters ending from September 30, 1998
through December 30, 1998 of not greater than 4.50, ending from December 31,
1998 through March 30, 2000 of not greater than 4.25 and thereafter of not
greater than 4.00. "Consolidated Funded Senior Debt Ratio (Adjusted)" means,
generally, (a) the amount, not less than zero, equal to (i) indebtedness of the
Company (and its subsidiaries) other than indebtedness that is subordinated to
the Credit Facility, minus (ii) the amount, not less than zero, equal to cash
and cash equivalents minus $10.0 million, divided by (b) consolidated EBITDA (as
defined in the Credit Agreement) less capital expenditures.
Failure to satisfy any of the financial covenants constitutes an event of
default under the Credit Agreement. The Credit Agreement also includes other
customary events of default, including, without limitation, a cross-default to
other indebtedness, material undischarged judgments, bankruptcy and a change of
control.
The Credit Agreement permits the Company to repurchase shares of its common
stock up to $250 million, of which $195 million had been utilized through
September 30, 1998.
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DESCRIPTION OF THE NOTES
The Old Notes were, and the New Notes will be, issued under the Indenture
between the Company, as issuer, and State Street Bank and Trust Company (the
"Trustee"). A copy of the Indenture is available upon request from the Company.
The following summary of certain provisions of the Indenture does not purport to
be complete and is subject to, and is qualified in its entirety by reference to,
all the provisions of the Indenture, including the definitions of certain terms
therein and those terms made a part thereof by the Trust Indenture Act of 1939,
as amended. Whenever particular defined terms of the Indenture not otherwise
defined herein are referred to, such defined terms are incorporated herein by
reference. For definitions of certain capitalized terms used in the following
summary, see "-- Certain Definitions." The Indenture is filed as an exhibit to
the registration statement which includes this Prospectus. The New Notes are
identical in all material respects to the terms of the Old Notes, except for
certain transfer restrictions and registration rights relating to the Old Notes
and except that, if the Exchange Offer is not consummated by June 21, 1999, the
interest rate on the Old Notes from and including such date until but excluding
the date of consummation of the Exchange Offer will increase by 0.5%. See
"-- Registration Rights."
GENERAL
The Old Notes are, and the New Notes will be, unsecured senior subordinated
obligations of the Company and will mature on December 15, 2008. The Trustee
authenticated and delivered Old Notes for original issue in an aggregate
principal amount of $150.0 million. The New Notes will be treated as a
continuation of the Old Notes, which initially bear interest at 9 1/4% per annum
from the December 21, 1998 or from the most recent Interest Payment Date to
which interest has been paid or provided for, payable semiannually (to Holders
of record at the close of business on the June 1 or December 1 immediately
preceding the Interest Payment Date) on June 15 and December 15 of each year,
commencing June 15, 1999.
If by June 21, 1999, the Company has not consummated a registered exchange
offer for the Old Notes or caused a shelf registration statement with respect to
resales of the Old Notes to be declared effective, the interest rate on the Old
Notes will increase by 0.5% per annum until the consummation of a registered
exchange offer or the effectiveness of a shelf registration statement. See
"-- Registration Rights."
Principal of, premium, if any, and interest on the Notes will be payable,
and the Notes may be exchanged or transferred, at the office or agency of the
Company in the Borough of Manhattan, the City of New York which initially will
be the corporate trust office of an affiliate of the Trustee at State Street
Bank and Trust Company, N.A., 61 Broadway, 15th Floor, New York, New York 10006
or in the City of Boston at the corporate trust office of the Trustee at Two
International Place, 4th Floor, Boston, Massachusetts 02110; provided that, at
the option of the Company, payment of interest may be made by check mailed to
the Holders at their addresses as they appear in the Security Register.
The Old Notes are, and the New Notes will be, issued only in fully
registered form, without coupons, in denominations of $1,000 of principal amount
and any integral multiple thereof. See "-- Book-Entry; Delivery and Form." No
service charge will be made for any registration of transfer or exchange of
Notes, but the Company may require payment of a sum sufficient to cover any
transfer tax or other similar governmental charge payable in connection
therewith.
Subject to the covenants described below under "Covenants" and applicable
law, the Company may issue additional Notes under the Indenture. The Notes
offered hereby and any additional Notes subsequently issued would be treated as
a single class for all purposes under the Indenture.
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OPTIONAL REDEMPTION
The Notes will be redeemable, at the Company's option, in whole or in part,
at any time or from time to time, on or after December 15, 2003 and prior to
maturity, upon not less than 30 nor more than 60 days' prior notice mailed by
first class mail to each Holder's last address as it appears in the Security
Register, at the following Redemption Prices (expressed in percentages of
principal amount), plus accrued and unpaid interest, if any, to the Redemption
Date (subject to the right of Holders of record on the relevant Regular Record
Date that is on or prior to the Redemption Date to receive interest due on an
Interest Payment Date), if redeemed during the 12-month period commencing
December 15, of the years set forth below:
REDEMPTION
YEAR PRICE
- ---- ----------
2003............................................. 104.625%
2004............................................. 103.083
2005............................................. 101.542
2006 and thereafter.............................. 100.000
In addition, at any time prior to December 15, 2001, the Company may redeem
up to 35% of the principal amount of the Notes with the Net Cash Proceeds of one
or more sales by the Company of its Capital Stock (other than Disqualified
Stock), at any time or from time to time in part, at a Redemption Price
(expressed as a percentage of principal amount) of 109.250%, plus accrued and
unpaid interest to the Redemption Date (subject to the rights of Holders of
record on the relevant Regular Record Date that is prior to the Redemption Date
to receive interest due on an Interest Payment Date); provided that at least 65%
of the aggregate principal amount of Notes originally issued remains outstanding
after each such redemption and notice of any such redemption is mailed within 60
days after the consummation of such sale or sales.
In the case of any partial redemption, selection of the Notes for
redemption will be made by the Trustee in compliance with the requirements of
the principal national securities exchange, if any, on which the Notes are
listed or, if the Notes are not listed on a national securities exchange, by lot
or by such other method as the Trustee in its sole discretion shall deem to be
fair and appropriate; provided that no Note of $1,000 in principal amount or
less shall be redeemed in part. If any Note is to be redeemed in part only, the
notice of redemption relating to such Note shall state the portion of the
principal amount thereof to be redeemed. A new Note in principal amount equal to
the unredeemed portion thereof will be issued in the name of the Holder thereof
upon cancellation of the original Note.
SINKING FUND
There will be no sinking fund payments for the Notes.
RANKING
The Old Notes are, and the New Notes will be, senior subordinated
Indebtedness of the Company and rank pari passu in right of payment with all
existing and future senior subordinated indebtedness of the Company and senior
in right of payment to all existing and future subordinated indebtedness of the
Company. The payment of the Senior Subordinated Obligations will, to the extent
set forth in the Indenture, be subordinated in right of payment to the prior
payment in full, in cash or cash equivalents, of all existing and future Senior
Indebtedness. After giving pro forma effect to the Offering, as of September 30,
1998, the Company and its subsidiaries would have had approximately $9.7 million
of indebtedness outstanding other than the Notes, all of which would have been
Senior Indebtedness. See "Capitalization." In addition, all existing and future
liabilities (including trade payables) of the Company's subsidiaries will be
effectively senior to the Notes. As of September 30, 1998, the Company's
subsidiaries would have had approximately $243.4 million of liabilities. See
"Risk Factors -- Reliance on Subsidiaries" and "Risk Factors -- Subordination."
Notwithstanding the foregoing, payment from the money or the proceeds of U.S.
Government Obligations held in any defeasance trust described under
"-- Defeasance" below, will not be contractually subordinated in right of
payment to any Senior Indebtedness or subject to the restrictions described
herein.
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Except with respect to the money, securities or proceeds held under any
defeasance trust established in accordance with the Indenture, upon any payment
or distribution of assets or securities of the Company of any kind or character,
whether in cash, property or securities, upon any dissolution or winding up or
total or partial liquidation or reorganization of the Company, whether voluntary
or involuntary, or in bankruptcy, insolvency, receivership or other proceedings,
all amounts due or to become due upon all Senior Indebtedness shall first be
paid in full, in cash or cash equivalents, before the Holders of the Notes or
the Trustee on behalf of the Holders of the Notes shall be entitled to receive
any payment (by or on behalf of) the Company on account of Senior Subordinated
Obligations or any payment to acquire any of the Notes for cash, property or
securities, or any distribution with respect to the Notes of any cash, property
or securities. Before any payment may be made by, or on behalf of, the Company
on any Senior Subordinated Obligations (other than with the money, securities or
proceeds held under any defeasance trust established in accordance with the
Indenture), upon any such dissolution, winding up, liquidation or
reorganization, any payment or distribution of assets or securities of the
Company of any kind or character, whether in cash, property or securities, to
which the Holders of the Notes or the Trustee on behalf of the Holders of the
Notes would be entitled, but for the subordination provisions of the Indenture,
shall be made by the Company or by any receiver, trustee in bankruptcy,
liquidating trustee, agent or other similar Person making such payment or
distribution or by the Holders of the Notes or the Trustee if received by them
or it, directly to the holders of the Senior Indebtedness (pro rata to such
holders on the basis of the respective amounts of Senior Indebtedness held by
such holders) or their representatives or to any trustee or trustees under any
indenture pursuant to which any such Senior Indebtedness may have been issued,
as their respective interests appear, to the extent necessary to pay all such
Senior Indebtedness in full, in cash or cash equivalents after giving effect to
any concurrent payment, distribution or provision therefor to or for the holders
of such Senior Indebtedness.
No direct or indirect payment by or on behalf of the Company of Senior
Subordinated Obligations (other than with the money, securities or proceeds held
under any defeasance trust established in accordance with the Indenture),
whether pursuant to the terms of the Notes or upon acceleration or otherwise
shall be made if, at the time of such payment, there exists a default in the
payment of all or any portion of the obligations on any Senior Indebtedness of
the Company and such default shall not have been cured or waived or the benefits
of this sentence waived by or on behalf of the holder of such Senior
Indebtedness. In addition, during the continuance of any other event of default
with respect to any Designated Senior Indebtedness pursuant to which the
maturity thereof may be accelerated, upon receipt by the Trustee of written
notice from the trustee or other representative for the holders of such
Designated Senior Indebtedness (or the holders of at least a majority in
principal amount of such Designated Senior Indebtedness then outstanding), no
payment of Senior Subordinated Obligations (other than with the money,
securities or proceeds held under any defeasance trust established in accordance
with the Indenture) may be made by or on behalf of the Company upon or in
respect of the Notes for a period (a "Payment Blockage Period") commencing on
the date of receipt of such notice and ending 179 days thereafter (unless, in
each case, such Payment Blockage Period shall be terminated by written notice to
the Trustee from such trustee of, or other representatives for, such holders or
by payment in full in cash or cash equivalents of such Designated Senior
Indebtedness or such event of default has been cured or waived). Not more than
one Payment Blockage Period may be commenced with respect to the Notes during
any period of 360 consecutive days. Notwithstanding anything in the Indenture to
the contrary, there must be 180 consecutive days in any 360-day period in which
no Payment Blockage Period is in effect. No event of default (other than an
event of default pursuant to the financial maintenance covenants under the
Credit Agreement) that existed or was continuing (it being acknowledged that any
subsequent action that would give rise to an event of default pursuant to any
provision under which an event of default previously existed or was continuing
shall constitute a new event of default for this purpose) on the date of the
commencement of the Payment Blockage Period shall be, or shall be made, the
basis for the commencement of a second Payment Blockage Period by the
representative for, or the holders of, such Designated Senior Indebtedness,
whether or not within a period of 360 consecutive days, unless such event of
default shall have been cured or waived for a period of not less than 90
consecutive days.
To the extent of any payment of Senior Indebtedness (whether by or on
behalf of the Company, as proceeds of security or enforcement of any right of
setoff or otherwise) is declared to be fraudulent or preferential, set aside or
required to be paid to any receiver, trustee in bankruptcy, liquidating trustee,
agent or
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other similar Person under any bankruptcy, insolvency, receivership, fraudulent
conveyance or similar law, then if such payment is recovered by, or paid over
to, such receiver, trustee in bankruptcy, liquidating trustee, agent or other
similar Person, the Senior Indebtedness or part thereof originally intended to
be satisfied shall be deemed to be reinstated and outstanding as if such payment
had not occurred. To the extent the obligation to repay any Senior Indebtedness
is declared to be fraudulent, invalid, or otherwise set aside under any
bankruptcy, insolvency, receivership, fraudulent conveyance or similar law, then
the obligation so declared fraudulent, invalid or otherwise set aside (and all
other amounts that would come due with respect thereto had such obligation not
been so affected) shall be deemed to be reinstated and outstanding as Senior
Indebtedness for all purposes hereof as if such declaration, invalidity or
setting aside had not occurred.
By reason of the subordination provisions described above, in the event of
liquidation or insolvency, creditors of the Company who are not holders of
Senior Indebtedness may recover less, ratably, than holders of Senior
Indebtedness and may recover more, ratably, than Holders of the Notes.
CERTAIN DEFINITIONS
Set forth below is a summary of certain of the defined terms used in the
covenants and other provisions of the Indenture. Reference is made to the
Indenture for the full definition of all terms as well as any other capitalized
term used herein for which no definition is provided.
"Acquired Indebtedness" means Indebtedness of a Person existing at the time
such Person becomes a Restricted Subsidiary or assumed in connection with an
Asset Acquisition by a Restricted Subsidiary; provided that Indebtedness of such
Person which is redeemed, defeased, retired or otherwise repaid at the time of
or immediately upon consummation of the transactions by which such Person
becomes a Restricted Subsidiary or such Asset Acquisition shall not be Acquired
Indebtedness.
"Adjusted Consolidated Net Income" means, for any period, the aggregate net
income (or loss) of the Company and its Restricted Subsidiaries for such period
determined in conformity with GAAP; provided that the following items shall be
excluded in computing Adjusted Consolidated Net Income (without duplication):
(i) the net income of any Person that is not a Restricted Subsidiary,
except to the extent of the amount of dividends or other distributions
actually paid to the Company or any of its Restricted Subsidiaries by such
Person during such period;
(ii) solely for the purposes of calculating the amount of Restricted
Payments that may be made pursuant to clause (C) of the first paragraph of
the "Limitation on Restricted Payments" covenant described below (and in
such case, except to the extent includable pursuant to clause (i) above),
the net income (or loss) of any Person accrued prior to the date it becomes
a Restricted Subsidiary or is merged into or consolidated with the Company
or any of its Restricted Subsidiaries or all or substantially all of the
property and assets of such Person are acquired by the Company or any of
its Restricted Subsidiaries;
(iii) the net income of any Restricted Subsidiary to the extent that
the declaration or payment of dividends or similar distributions by such
Restricted Subsidiary of such net income is not at the time permitted by
the operation of the terms of its charter or any agreement, instrument,
judgment, decree, order, statute, rule or governmental regulation
applicable to such Restricted Subsidiary;
(iv) any gains or losses (on an after-tax basis) attributable to Asset
Sales;
(v) solely for purposes of calculating the amount of Restricted
Payments that may be made pursuant to clause (C) of the first paragraph of
the "Limitation on Restricted Payments" covenant described below, any
amount paid or accrued as dividends on Preferred Stock of the Company or
any Restricted Subsidiary owned by Persons other than the Company and any
of its Restricted Subsidiaries;
(vi) the Restructuring Charge;
(vii) all extraordinary gains and extraordinary losses (on an
after-tax basis);
(viii) write-offs of intangible assets, including research and
development, relating to assets acquired by the Company and its Restricted
Subsidiaries if such write-offs are done at the time of, or within three
months after, such acquisition; and
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(ix) any non-cash compensation expense incurred in connection with the
exercise of or paid or payable solely with Capital Stock (other than
Disqualified Stock) of the Company or any options, warrants or other rights
to acquire Capital Stock (other than Disqualified Stock) of the Company.
"Affiliate" means, as applied to any Person, any other Person directly or
indirectly controlling, controlled by, or under direct or indirect common
control with, such Person. For purposes of this definition, "control"
(including, with correlative meanings, the terms "controlling," "controlled by"
and "under common control with"), as applied to any Person, means the
possession, directly or indirectly, of the power to direct or cause the
direction of the management and policies of such Person, whether through the
ownership of voting securities, by contract or otherwise.
"Asset Acquisition" means (i) an investment by the Company or any of its
Restricted Subsidiaries in any other Person pursuant to which such Person shall
become a Restricted Subsidiary or shall be merged into or consolidated with the
Company or any of its Restricted Subsidiaries; provided that such Person's
primary business is related, ancillary or complementary to the businesses of the
Company and its Restricted Subsidiaries on the date of such investment or (ii)
an acquisition by the Company or any of its Restricted Subsidiaries of the
property and assets of any Person other than the Company or any of its
Restricted Subsidiaries that constitute substantially all of a division or line
of business of such Person; provided that the property and assets acquired are
related, ancillary or complementary to the businesses of the Company and its
Restricted Subsidiaries on the date of such acquisition.
"Asset Disposition" means the sale or other disposition by the Company or
any of its Restricted Subsidiaries (other than to the Company or another
Restricted Subsidiary) of (i) all or substantially all of the Capital Stock of
any Restricted Subsidiary or (ii) all or substantially all of the assets that
constitute a division or line of business of the Company or any of its
Restricted Subsidiaries.
"Asset Sale" means any sale, transfer or other disposition (including by
way of merger, consolidation or sale-leaseback transaction) in one transaction
or a series of related transactions by the Company or any of its Restricted
Subsidiaries to any Person other than the Company or any of its Restricted
Subsidiaries of (i) all or any of the Capital Stock of any Restricted
Subsidiary, (ii) all or substantially all of the property and assets of an
operating unit or business of the Company or any of its Restricted Subsidiaries
or (iii) any other property and assets (other than the Capital Stock or other
Investment in an Unrestricted Subsidiary) of the Company or any of its
Restricted Subsidiaries outside the ordinary course of business of the Company
or such Restricted Subsidiary and, in each case, that is not governed by the
provisions of the Indenture applicable to mergers, consolidations and sales of
assets of the Company; provided that "Asset Sale" shall not include (a) sales or
other dispositions of inventory, receivables and other current assets, (b)
sales, transfers or other dispositions of assets constituting a Restricted
Payment permitted to be made under the "Limitation on Restricted Payments"
covenant, or (c) sales or other dispositions of assets for consideration at
least equal to the fair market value of the assets sold or disposed of, to the
extent that the consideration received would satisfy clause (B) of the
"Limitation on Asset Sales" covenant.
"Average Life" means, at any date of determination with respect to any debt
security, the quotient obtained by dividing (i) the sum of the products of (a)
the number of years from such date of determination to the dates of each
successive scheduled principal payment of such debt security and (b) the amount
of such principal payment by (ii) the sum of all such principal payments.
"Capital Stock" means, with respect to any Person, any and all shares,
interests, participations or other equivalents (however designated, whether
voting or non-voting) in equity of such Person, whether outstanding on December
21, 1998 or issued thereafter, including, without limitation, all Common Stock
and Preferred Stock.
"Capitalized Lease" means, as applied to any Person, any lease of any
property (whether real, personal or mixed) of which the discounted present value
of the rental obligations of such Person as lessee, in conformity with GAAP, is
required to be capitalized on the balance sheet of such Person.
"Capitalized Lease Obligations" means the discounted present value of the
rental obligations under a Capitalized Lease.
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"Change of Control" means such time as (i) a "person" or "group" (within
the meaning of Sections 13(d) and 14(d)(2) of the Exchange Act) becomes the
ultimate "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act) of
more than 35% of the total voting power of the Voting Stock of the Company on a
fully diluted basis; or (ii) individuals who on December 21, 1998 constitute the
Board of Directors (together with any new directors whose election by the Board
of Directors or whose nomination by the Board of Directors for election by the
Company's shareholders was approved by a vote of at least two-thirds of the
members of the Board of Directors then in office who either were members of the
Board of Directors on December 21, 1998 or whose election or nomination for
election was previously so approved) cease for any reason to constitute a
majority of the members of the Board of Directors then in office.
"Consolidated EBITDA" means, for any period, Adjusted Consolidated Net
Income for such period plus, to the extent such amount was deducted in
calculating such Adjusted Consolidated Net Income: (i) Consolidated Interest
Expense, (ii) income taxes (other than income taxes (either positive or
negative) attributable to extraordinary and non-recurring gains or losses or
sales of assets), (iii) depreciation expense, (iv) amortization expense and (v)
all other non-cash items reducing Adjusted Consolidated Net Income (other than
items that will require cash payments and for which an accrual or reserve is, or
is required by GAAP to be, made), less all non-cash items increasing Adjusted
Consolidated Net Income, all as determined on a consolidated basis for the
Company and its Restricted Subsidiaries in conformity with GAAP; provided that,
if any Restricted Subsidiary is not a Wholly Owned Restricted Subsidiary,
Consolidated EBITDA shall be reduced (to the extent not otherwise reduced in
accordance with GAAP) by an amount equal to (A) the amount of the Adjusted
Consolidated Net Income attributable to such Restricted Subsidiary multiplied by
(B) the percentage ownership interest in the income of such Restricted
Subsidiary not owned on the last day of such period by the Company or any of its
Restricted Subsidiaries.
"Consolidated Interest Expense" means, for any period, the aggregate amount
of interest in respect of Indebtedness (including, without limitation,
amortization of original issue discount on any Indebtedness and the interest
portion of any deferred payment obligation, calculated in accordance with the
effective interest method of accounting; all commissions, discounts and other
fees and charges owed with respect to letters of credit and bankers' acceptance
financing; the net costs associated with Interest Rate Agreements; and
Indebtedness that is Guaranteed or secured by the Company or any of its
Restricted Subsidiaries), Preferred Stock dividends in respect of Preferred
Stock of the Company or any Restricted Subsidiary held by Persons other than the
Company or a Wholly Owned Restricted Subsidiary and all but the principal
component of rentals in respect of Capitalized Lease Obligations paid, accrued
or scheduled to be paid or to be accrued by the Company and its Restricted
Subsidiaries during such period; excluding, however, (i) any amount of such
interest of any Restricted Subsidiary if the net income of such Restricted
Subsidiary is excluded in the calculation of Adjusted Consolidated Net Income
pursuant to clause (iii) of the definition thereof (but only in the same
proportion as the net income of such Restricted Subsidiary is excluded from the
calculation of Adjusted Consolidated Net Income pursuant to clause (iii) of the
definition thereof) and (ii) any premiums, fees and expenses (and any
amortization thereof) payable in connection with the offering of the Notes, all
as determined on a consolidated basis (without taking into account Unrestricted
Subsidiaries) in conformity with GAAP. For purposes of the preceding sentence,
Preferred Stock dividends shall be deemed to be an amount equal to the actual
dividends paid divided by one minus the combined federal, state, local and
foreign income tax rate applicable to the Company and its Subsidiaries
(expressed as a decimal).
"Consolidated Net Worth" means, at any date of determination, stockholders'
equity as set forth on the most recently available quarterly or annual
consolidated balance sheet of the Company and its Restricted Subsidiaries (which
shall be as of a date not more than 90 days prior to the date of such
computation, and which shall not take into account Unrestricted Subsidiaries),
less any amounts attributable to Disqualified Stock or any equity security
convertible into or exchangeable for Indebtedness, the cost of treasury stock
and the principal amount of any promissory notes receivable from the sale of the
Capital Stock of the Company or any of its Restricted Subsidiaries, each item to
be determined in conformity with GAAP (excluding the effects of foreign currency
exchange adjustments under Financial Accounting Standards Board Statement of
Financial Accounting Standards No. 52).
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"Credit Agreement" means (i) the Revolving Credit Agreement, dated as of
February 7, 1997, among the Company, the lenders party thereto from time to
time, the issuing banks referred to therein and Mellon Bank, N.A., as Agent,
together with any agreements, instruments and documents executed or delivered
pursuant to or in connection with such credit agreement (including without
limitation any Guarantees and security documents), in each case as such credit
agreement or such agreements, instruments or documents may be amended (including
any amendment and restatement thereof), supplemented, extended, renewed,
replaced or otherwise modified from time to time (including any agreement
extending the maturity of, refinancing or otherwise restructuring all or any
portion of the Indebtedness under such agreement or any successor agreement, as
such agreement may be amended, renewed, extended, substituted, replaced,
restated and otherwise modified from time to time) and any refinancing,
replacement or substitution thereof or therefor, or in respect of or for any
previous refinancing, replacement or substitution and (ii) the Note Backup
Agreement.
"Currency Agreement" means any foreign exchange contract, currency swap
agreement or other similar agreement or arrangement.
"Default" means any event that is, or after notice or passage of time or
both would be, an Event of Default.
"Designated Senior Indebtedness" means (i) any Indebtedness under the
Credit Agreement (except that any Indebtedness which represents a partial
refinancing of Indebtedness theretofore outstanding pursuant to the Credit
Agreement, rather than a complete refinancing thereof, shall only constitute
Designated Senior Indebtedness if such partial refinancing meets the
requirements of clause (ii) below) and (ii) any other Indebtedness constituting
Senior Indebtedness that, at the date of determination, has an aggregate
principal amount outstanding of at least $25 million and that is specifically
designated by the Company, in the instrument creating or evidencing such Senior
Indebtedness as "Designated Senior Indebtedness."
"Disqualified Stock" means any class or series of Capital Stock of any
Person that by its terms or otherwise is (i) required to be redeemed prior to
the Stated Maturity of the Notes, (ii) redeemable at the option of the holder of
such class or series of Capital Stock at any time prior to the Stated Maturity
of the Notes or (iii) convertible into or exchangeable for Capital Stock
referred to in clause (i) or (ii) above or Indebtedness having a scheduled
maturity prior to the Stated Maturity of the Notes; provided that any Capital
Stock that would not constitute Disqualified Stock but for provisions thereof
giving holders thereof the right to require such Person to repurchase or redeem
such Capital Stock upon the occurrence of an "asset sale" or "change of control"
occurring prior to the Stated Maturity of the Notes shall not constitute
Disqualified Stock if the "asset sale" or "change of control" provisions
applicable to such Capital Stock are no more favorable to the holders of such
Capital Stock than the provisions contained in "Limitation on Asset Sales" and
"Repurchase of Notes upon a Change of Control" covenants described below and
such Capital Stock specifically provides that such Person will not repurchase or
redeem any such stock pursuant to such provision prior to the Company's
repurchase of such Notes as are required to be repurchased pursuant to the
"Limitation on Asset Sales" and "Repurchase of Notes upon a Change of Control"
covenants described below.
"fair market value" means the price that would be paid in an arm's-length
transaction between an informed and willing seller under no compulsion to sell
and an informed and willing buyer under no compulsion to buy, as determined in
good faith by the Board of Directors, whose determination shall be conclusive if
evidenced by a Board Resolution.
"GAAP" means generally accepted accounting principles in the United States
of America as in effect as of December 21, 1998 , including, without limitation,
those set forth in the opinions and pronouncements of the Accounting Principles
Board of the American Institute of Certified Public Accountants and statements
and pronouncements of the Financial Accounting Standards Board or in such other
statements by such other entity as approved by a significant segment of the
accounting profession. All ratios and computations contained or referred to in
the Indenture shall be computed in conformity with GAAP applied on a consistent
basis, except that calculations made for purposes of determining compliance with
the terms of the covenants and with other provisions of the Indenture shall be
made without giving effect to (i) the amortization of any
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expenses incurred in connection with the offering of the Notes and (ii) except
as otherwise provided, the amortization of any amounts required or permitted by
Accounting Principles Board Opinion Nos. 16 and 17.
"Guarantee" means any obligation, contingent or otherwise, of any Person
directly or indirectly guaranteeing any Indebtedness of any other Person and,
without limiting the generality of the foregoing, any obligation, direct or
indirect, contingent or otherwise, of such Person (i) to purchase or pay (or
advance or supply funds for the purchase or payment of) such Indebtedness of
such other Person (whether arising by virtue of partnership arrangements, or by
agreements to keep-well, to purchase assets, goods, securities or services
(unless such purchase arrangements are on arm's-length terms and are entered
into in the ordinary course of business), to take-or-pay, or to maintain
financial statement conditions or otherwise) or (ii) entered into for purposes
of assuring in any other manner the obligee of such Indebtedness of the payment
thereof or to protect such obligee against loss in respect thereof (in whole or
in part); provided that the term "Guarantee" shall not include endorsements for
collection or deposit in the ordinary course of business. The term "Guarantee"
used as a verb has a corresponding meaning.
"Incur" means, with respect to any Indebtedness, to incur, create, issue,
assume, Guarantee or otherwise become liable for or with respect to, or become
responsible for, the payment of, contingently or otherwise, such Indebtedness,
including an "Incurrence" of Acquired Indebtedness; provided that neither the
accrual of interest nor the accretion of original issue discount shall be
considered an Incurrence of Indebtedness.
"Indebtedness" means, with respect to any Person at any date of
determination (without duplication):
(i) all indebtedness of such Person for borrowed money;
(ii) all obligations of such Person evidenced by bonds, debentures,
notes or other similar instruments;
(iii) all obligations of such Person in respect of letters of credit
or other similar instruments (including reimbursement obligations with
respect thereto, but excluding obligations with respect to letters of
credit (including trade letters of credit) securing obligations (other than
obligations described in (i) or (ii) above or (v), (vi) or (vii) below)
entered into in the ordinary course of business of such Person to the
extent such letters of credit are not drawn upon or, if drawn upon, to the
extent such drawing is reimbursed no later than the third Business Day
following receipt by such Person of a demand for reimbursement);
(iv) all obligations of such Person to pay the deferred and unpaid
purchase price of property or services, which purchase price is due more
than six months after the date of placing such property in service or
taking delivery and title thereto or the completion of such services,
except Trade Payables and other accrued current liabilities incurred in the
ordinary course of business;
(v) all Capitalized Lease Obligations;
(vi) all Indebtedness of other Persons secured by a Lien on any asset
of such Person, whether or not such Indebtedness is assumed by such Person;
provided that the amount of such Indebtedness shall be the lesser of (A)
the fair market value of such asset at such date of determination and (B)
the amount of such Indebtedness;
(vii) all Indebtedness of other Persons Guaranteed by such Person to
the extent such Indebtedness is Guaranteed by such Person;
(viii) all obligations to redeem or repurchase Preferred Stock issued
by such Person; and
(ix) to the extent not otherwise included in this definition,
obligations under Currency Agreements and Interest Rate Agreements.
The amount of Indebtedness of any Person at any date shall be the outstanding
balance at such date of all unconditional obligations as described above and,
with respect to contingent obligations, the maximum liability upon the
occurrence of the contingency giving rise to the obligation, provided (A) that
the amount outstanding at any time of any Indebtedness issued with original
issue discount is the face amount of such Indebtedness less the remaining
unamortized portion of the original issue discount of such Indebtedness at such
time as determined in conformity with GAAP, (B) that money borrowed and set
aside at the time of the
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Incurrence of any Indebtedness in order to prefund the payment of the interest
on such Indebtedness shall not be deemed to be "Indebtedness" so long as such
money is held to secure the payment of such interest, (C) that the amount of
Indebtedness at any time of any Disqualified Stock shall be the maximum fixed
redemption or repurchase price in respect thereof, and (D) that Indebtedness
shall not include (x) indemnities for or guarantees of any obligations of any
Restricted Subsidiary under agreements entered into by such Restricted
Subsidiary in the ordinary course of business, provided that such obligations do
not constitute Indebtedness; (y) contingent obligations arising in connection
with the acquisition of any business or Person, based on the future performance
of such business or Person, except to the extent such obligations are not paid
at the time such contingency is resolved under GAAP and are recorded as a
liability on the books of the Company, and its Subsidiaries, and (z) any
liability for federal, state, local or other taxes.
"Interest Coverage Ratio" means, on any Transaction Date, the ratio of (i)
the aggregate amount of Consolidated EBITDA for the then most recent four fiscal
quarters prior to such Transaction Date for which reports have been filed with
the Commission or provided to the Trustee (the "Four Quarter Period") to (ii)
the aggregate Consolidated Interest Expense during such Four Quarter Period. In
making the foregoing calculation, (A) pro forma effect shall be given to any
Indebtedness Incurred or repaid during the period (the "Reference Period")
commencing on the first day of the Four Quarter Period and ending on the
Transaction Date (other than Indebtedness Incurred or repaid under a revolving
credit or similar arrangement to the extent of the commitment thereunder (or
under any predecessor revolving credit or similar arrangement) in effect on the
last day of such Four Quarter Period unless any portion of such Indebtedness is
projected, in the reasonable judgment of the senior management of the Company,
to remain outstanding for a period in excess of 12 months from the date of the
Incurrence thereof), in each case as if such Indebtedness had been Incurred or
repaid on the first day of such Reference Period; (B) Consolidated Interest
Expense attributable to interest on any Indebtedness (whether existing or being
Incurred) computed on a pro forma basis and bearing a floating interest rate
shall be computed as if the rate in effect on the Transaction Date (taking into
account any Interest Rate Agreement applicable to such Indebtedness if such
Interest Rate Agreement has a remaining term in excess of 12 months or, if
shorter, at least equal to the remaining term of such Indebtedness) had been the
applicable rate for the entire period; (C) pro forma effect shall be given to
Asset Dispositions and Asset Acquisitions (including giving pro forma effect to
the application of proceeds of any Asset Disposition) that occur during such
Reference Period as if they had occurred and such proceeds had been applied on
the first day of such Reference Period; and (D) pro forma effect shall be given
to asset dispositions and asset acquisitions (including giving pro forma effect
to the application of proceeds of any asset disposition) that have been made by
any Person that has become a Restricted Subsidiary or has been merged with or
into the Company or any Restricted Subsidiary during such Reference Period and
that would have constituted Asset Dispositions or Asset Acquisitions had such
transactions occurred when such Person was a Restricted Subsidiary as if such
asset dispositions or asset acquisitions were Asset Dispositions or Asset
Acquisitions that occurred on the first day of such Reference Period; provided
that to the extent that clause (C) or (D) of this sentence requires that pro
forma effect be given to an Asset Acquisition or Asset Disposition, such pro
forma calculation shall be based upon the four full fiscal quarters immediately
preceding the Transaction Date of the Person, or division or line of business of
the Person, that is acquired or disposed for which financial information is
available.
"Interest Rate Agreement" means any interest rate protection agreement,
interest rate future agreement, interest rate option agreement, interest rate
swap agreement, interest rate cap agreement, interest rate collar agreement,
interest rate hedge agreement, option or future contract or other similar
agreement or arrangement.
"Investment" in any Person means any direct or indirect advance, loan or
other extension of credit (including, without limitation, by way of Guarantee or
similar arrangement; but excluding advances to customers or suppliers in the
ordinary course of business that are, in conformity with GAAP, recorded as
accounts receivable, prepaid expenses or deposits on the balance sheet of the
Company or its Restricted Subsidiaries) or capital contribution to (by means of
any transfer of cash or other property to others or any payment for property or
services for the account or use of others), or any purchase or acquisition of
Capital Stock, bonds, notes, debentures or other similar instruments issued by,
such Person and shall include (i) the designation of a Restricted Subsidiary as
an Unrestricted Subsidiary and (ii) the fair market value of the
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Capital Stock (or any other Investment), held by the Company or any of its
Restricted Subsidiaries, of (or in) any Person that has ceased to be a
Restricted Subsidiary, including without limitation, by reason of any
transaction permitted by clause (iii) of the "Limitation on the Issuance and
Sale of Capital Stock of Restricted Subsidiaries" covenant. For purposes of the
definition of "Unrestricted Subsidiary" and the "Limitation on Restricted
Payments" covenant described below, (i) "Investment" shall include the fair
market value of the assets (net of liabilities (other than liabilities to the
Company or any of its Restricted Subsidiaries)) of any Restricted Subsidiary at
the time that such Restricted Subsidiary is designated an Unrestricted
Subsidiary, (ii) the fair market value of the assets (net of liabilities (other
than liabilities to the Company or any of its Restricted Subsidiaries)) of any
Unrestricted Subsidiary at the time that such Unrestricted Subsidiary is
designated a Restricted Subsidiary shall be considered a reduction in
outstanding Investments and (iii) any property transferred to or from an
Unrestricted Subsidiary shall be valued at its fair market value at the time of
such transfer. Notwithstanding the foregoing, payments by the Company or any
Restricted Subsidiary for contingent obligations arising in connection with the
acquisition of any business or Person that becomes (or prior to December 21,
1998 became) a Restricted Subsidiary, the payment of which was based on the
future performance of such business or Person, will not constitute an
Investment; provided that any such payment is taken into account in the event
such Person ceases to be a Restricted Subsidiary prior to such payment.
"Lien" means any mortgage, pledge, security interest, encumbrance, lien or
charge of any kind (including, without limitation, any conditional sale or other
title retention agreement or lease in the nature thereof or any agreement to
give any security interest).
"Moody's" means Moody's Investors Service, Inc. and its successors.
"Net Cash Proceeds" means, (a) with respect to any Asset Sale, the proceeds
of such Asset Sale in the form of cash or cash equivalents, including payments
in respect of deferred payment obligations (to the extent corresponding to the
principal, but not interest, component thereof) when received in the form of
cash or cash equivalents (except to the extent such obligations are financed or
sold with recourse to the Company or any Restricted Subsidiary) and proceeds
from the conversion of other property received when converted to cash or cash
equivalents, net of (i) brokerage commissions and other fees and expenses
(including fees and expenses of counsel and investment bankers) related to such
Asset Sale, (ii) provisions for all taxes (whether or not such taxes will
actually be paid or are payable) as a result of such Asset Sale without regard
to the consolidated results of operations of the Company and its Restricted
Subsidiaries, taken as a whole, (iii) payments made to repay Indebtedness or any
other obligation outstanding at the time of such Asset Sale that either (A) is
secured by a Lien on the property or assets sold or (B) is required to be paid
as a result of such sale and (iv) appropriate amounts to be provided by the
Company or any Restricted Subsidiary as a reserve against any liabilities
associated with such Asset Sale, including, without limitation, pension and
other post-employment benefit liabilities, liabilities related to environmental
matters and liabilities under any indemnification obligations associated with
such Asset Sale, all as determined in conformity with GAAP and (b) with respect
to any issuance or sale of Capital Stock, the proceeds of such issuance or sale
in the form of cash or cash equivalents, including payments in respect of
deferred payment obligations (to the extent corresponding to the principal, but
not interest, component thereof) when received in the form of cash or cash
equivalents (except to the extent such obligations are financed or sold with
recourse to the Company or any Restricted Subsidiary) and proceeds from the
conversion of other property received when converted to cash or cash
equivalents, net of attorneys' fees, accountants' fees, underwriters' or
placement agents' fees, discounts or commissions and brokerage, consultant and
other fees incurred in connection with such issuance or sale and net of taxes
paid or payable as a result thereof.
"Note Backup Agreement" means the Note Backup Agreement, dated as of
February 7, 1997, among the Company and the lenders party thereto from time to
time, the issuing bank referred to therein and Mellon Bank, N.A., as Agent, as
amended together with any agreements, instruments and documents executed or
delivered pursuant to or in connection with such agreement (including without
limitation any Guarantees and security documents), in each case as such
agreement or such agreements, instruments or documents may be amended (including
any amendment and restatement thereof), supplemented, extended, renewed,
replaced or otherwise modified from time to time (including any agreement
extending the maturity of, refinancing or
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otherwise restructuring all or any portion of the Indebtedness under such
agreement or any successor agreement, as such agreement may be amended, renewed,
extended, substituted, replaced, restated and otherwise modified from time to
time) and any refinancing, replacement or substitution thereof or therefor, or
in respect of or for any previous refinancing, replacement or substitution.
"Offer to Purchase" means an offer to purchase Notes by the Company from
the Holders commenced by mailing a notice to the Trustee and each Holder
stating:
(i) the covenant pursuant to which the offer is being made and that
all Notes validly tendered will be accepted for payment on a pro rata
basis;
(ii) the purchase price and the date of purchase (which shall be a
Business Day no earlier than 30 days nor later than 60 days from the date
such notice is mailed) (the "Payment Date");
(iii) that any Note not tendered will continue to accrue interest
pursuant to its terms;
(iv) that, unless the Company defaults in the payment of the purchase
price, any Note accepted for payment pursuant to the Offer to Purchase
shall cease to accrue interest on and after the Payment Date;
(v) that Holders electing to have a Note purchased pursuant to the
Offer to Purchase will be required to surrender the Note, together with the
form entitled "Option of the Holder to Elect Purchase" on the reverse side
of the Note completed, to the Paying Agent at the address specified in the
notice prior to the close of business on the Business Day immediately
preceding the Payment Date;
(vi) that Holders will be entitled to withdraw their election if the
Paying Agent receives, not later than the close of business on the third
Business Day immediately preceding the Payment Date, a telegram, facsimile
transmission or letter setting forth the name of such Holder, the principal
amount of Notes delivered for purchase and a statement that such Holder is
withdrawing his election to have such Notes purchased; and
(vii) that Holders whose Notes are being purchased only in part will
be issued new Notes equal in principal amount to the unpurchased portion of
the Notes surrendered; provided that each Note purchased and each new Note
issued shall be in a principal amount of $1,000 or integral multiples
thereof.
On the Payment Date, the Company shall (i) accept for payment on a pro rata
basis Notes or portions thereof tendered pursuant to an Offer to Purchase; (ii)
deposit with the Paying Agent money sufficient to pay the purchase price of all
Notes or portions thereof so accepted; and (iii) deliver, or cause to be
delivered, to the Trustee all Notes or portions thereof so accepted together
with an Officers' Certificate specifying the Notes or portions thereof accepted
for payment by the Company. The Paying Agent shall promptly mail to the Holders
of Notes so accepted payment in an amount equal to the purchase price, and the
Trustee shall promptly authenticate and mail to such Holders a new Note equal in
principal amount to any unpurchased portion of the Note surrendered; provided
that each Note purchased and each new Note issued shall be in a principal amount
of $1,000 or integral multiples thereof. The Company will publicly announce the
results of an Offer to Purchase as soon as practicable after the Payment Date.
The Trustee shall act as the Paying Agent for an Offer to Purchase. The Company
will comply with Rule 14e-1 under the Exchange Act and any other securities laws
and regulations thereunder to the extent such laws and regulations are
applicable, in the event that the Company is required to repurchase Notes
pursuant to an Offer to Purchase.
"Permitted Investment" means an Investment by the Company or any Restricted
Subsidiary in:
(i) the Company or a Restricted Subsidiary or a Person which will,
upon the making of such Investment, become a Restricted Subsidiary or be
merged or consolidated with or into or transfer or convey all or
substantially all its assets to, the Company or a Restricted Subsidiary;
provided that such person's primary business is related, ancillary or
complementary to the businesses of the Company and its Restricted
Subsidiaries on the date of such Investment;
(ii) Temporary Cash Investments;
(iii) payroll, travel and similar advances to cover matters that are
expected at the time of such advances ultimately to be treated as expenses
in accordance with GAAP;
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(iv) stock, obligations or securities received in satisfaction of
judgments;
(v) an Unrestricted Subsidiary consisting solely of an Investment in
another Unrestricted Subsidiary;
(vi) Interest Rate Agreements and Currency Agreements designed solely
to protect the Company or its Restricted Subsidiaries against fluctuations
in interest rates or foreign currency exchange rates;
(vii) loans or advances to employees of the Company or its Restricted
Subsidiaries to purchase Capital Stock (other than Disqualified Stock) of
the Company in an aggregate amount outstanding not to exceed $10 million;
and
(viii) any Person the primary business of which is related, ancillary
or complementary to the businesses of the Company and its Restricted
Subsidiaries on the date of such Investment; provided that the aggregate
amount of such Investments does not exceed $50 million plus the net
reduction in Investments made pursuant to this clause (viii) resulting from
distributions on or repayments of such Investments or from the Net Cash
Proceeds from any sale of any such Investment (except in each case to the
extent any such payment or proceeds is included in the calculation of
Adjusted Consolidated Net Income) or from such Person becoming a
Restricted Subsidiary (valued in each case as provided in the definition of
"Investments"), provided that the net reduction in any Investment shall not
exceed the amount of such Investment.
"Put and Call Agreement" means the Put and Call Agreement dated October 15,
1996, as amended, among Disclosure, Disclosure International Incorporated, The
Winthrop Corporation and Wright Investors Services International Limited as in
effect on December 21, 1998.
"Repurchase Program" means repurchases of Capital Stock of the Company
after December 21, 1998 and prior to December 31, 2003 in an aggregate amount
not to exceed $75 million.
"Restricted Subsidiary" means any Subsidiary of the Company other than an
Unrestricted Subsidiary.
"Restructuring Charge" means the $77.4 million of pre-tax charges
(including an extraordinary item) recorded by the Company in the quarter ended
June 30, 1998 in connection with the restructuring and integration of the
Company's operations into three divisions.
"Senior Indebtedness" means the following obligations of the Company,
whether outstanding on December 21, 1998 or thereafter Incurred: (i) all
Indebtedness and all other monetary obligations (including, without limitation,
expenses, fees, principal, interest, reimbursement obligations under letters of
credit and indemnities payable in connection therewith) of the Company under (or
in respect of) the Credit Agreement or any Interest Rate Agreement or Currency
Agreement relating to the Indebtedness under the Credit Agreement and (ii) all
other Indebtedness and all other monetary obligations of the Company (other than
the Notes), including principal and interest on such Indebtedness, unless such
Indebtedness, by its terms or by the terms of any agreement or instrument
pursuant to which such Indebtedness is issued, is pari passu with, or
subordinated in right of payment to, the Notes; provided that the term "Senior
Indebtedness" shall not include (a) any Indebtedness of the Company that, when
Incurred, was without recourse to the Company, (b) any Indebtedness of the
Company to a Subsidiary of the Company, or to a joint venture in which the
Company has an interest, (c) any Indebtedness of the Company, to the extent not
permitted by the "Limitation on Indebtedness" covenant or the "Limitation on
Senior Subordinated Indebtedness" covenant described below, (d) any repurchase,
redemption or other obligation in respect of Disqualified Stock, (e) any
Indebtedness to any employee of the Company or any of its Subsidiaries, (f) any
liability for taxes owed or owing to the Company or (g) any Trade Payables.
"Senior Subordinated Obligations" means any principal of, premium, if any,
interest, or other amounts due, on the Notes payable pursuant to the terms of
the Notes or upon acceleration, including any amounts received upon the exercise
of the rights of rescission or other rights of action (including claims for
damages) or otherwise, to the extent relating to the purchase price of the Notes
or amounts corresponding to such principal, premium, if any, or interest on the
Notes.
"Significant Subsidiary" means, at any date of determination, any
Restricted Subsidiary that, together with its Subsidiaries, (i) for the most
recent fiscal year of the Company, accounted for more than 10% of the
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consolidated revenues of the Company and its Restricted Subsidiaries or (ii) as
of the end of such fiscal year, was the owner of more than 10% of the
consolidated assets of the Company and its Restricted Subsidiaries, all as set
forth on the most recently available consolidated financial statements of the
Company for such fiscal year.
"S&P" means Standard & Poor's Ratings Group, a division of The McGraw-Hill
Companies, and its successors.
"Stated Maturity" means, (i) with respect to any debt security, the date
specified in such debt security as the fixed date on which the final installment
of principal of such debt security is due and payable and (ii) with respect to
any scheduled installment of principal of or interest on any debt security, the
date specified in such debt security as the fixed date on which such installment
is due and payable.
"Subsidiary" means, with respect to any Person, any corporation,
association or other business entity of which more than 50% of the voting power
of the outstanding Voting Stock is owned, directly or indirectly, by such Person
and one or more other Subsidiaries of such Person.
"Temporary Cash Investment" means any of the following:
(i) direct obligations of the United States of America or any agency
thereof or obligations fully and unconditionally guaranteed by the United
States of America or any agency thereof;
(ii) time deposit accounts, certificates of deposit and money market
deposits maturing within 180 days of the date of acquisition thereof issued
by a bank or trust company which is organized under the laws of the United
States of America, any state thereof or any foreign country recognized by
the United States of America, and which bank or trust company has capital,
surplus and undivided profits aggregating in excess of $50 million (or the
foreign currency equivalent thereof) and has outstanding debt which is
rated "A" (or such similar equivalent rating) or higher by at least one
nationally recognized statistical rating organization (as defined in Rule
436 under the Securities Act) or any money-market fund sponsored by a
registered broker dealer or mutual fund distributor;
(iii) repurchase obligations with a term of not more than 30 days for
securities of the type described in clause (i) above entered into with an
institution meeting the qualifications described in clause (ii) above;
(iv) commercial paper, maturing not more than 270 days after the date
of acquisition, issued by a corporation (other than an Affiliate of the
Company) organized and in existence under the laws of the United States of
America, any state thereof or any foreign country recognized by the United
States of America with a rating at the time as of which any investment
therein is made of "P-1" (or higher) according to Moody's or "A-1" (or
higher) according to S&P;
(v) securities with maturities of six months or less from the date of
acquisition issued or fully and unconditionally guaranteed by any state,
commonwealth or territory of the United States of America, or by any
political subdivision or taxing authority thereof, and rated at least "A"
by S&P or Moody's; and
(vi) any mutual fund investing exclusively in investments of the type
described in clauses (i) through (v) above.
"Trade Payables" means, with respect to any Person, any accounts payable or
any other indebtedness or monetary obligation to trade creditors created,
assumed or Guaranteed by such Person or any of its Subsidiaries arising in the
ordinary course of business in connection with the acquisition of goods or
services.
"Transaction Date" means, with respect to the Incurrence of any
Indebtedness by the Company or any of its Restricted Subsidiaries, the date such
Indebtedness is to be Incurred and, with respect to any Restricted Payment, the
date such Restricted Payment is to be made.
"Unrestricted Subsidiary" means (i) any Subsidiary of the Company that at
the time of determination shall be designated an Unrestricted Subsidiary by the
Board of Directors in the manner provided below; and (ii) any Subsidiary of an
Unrestricted Subsidiary. The Board of Directors may designate any Restricted
Subsidiary (including any newly acquired or newly formed Subsidiary of the
Company) to be an Unrestricted Subsidiary unless such Subsidiary owns any
Capital Stock of, or owns or holds any Lien on any property of,
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the Company or any Restricted Subsidiary; provided that (A) any Guarantee by the
Company or any Restricted Subsidiary of any Indebtedness of the Subsidiary being
so designated shall be deemed an "Incurrence" of such Indebtedness and an
"Investment" by the Company or such Restricted Subsidiary (or both, if
applicable) at the time of such designation; (B) either (I) the Subsidiary to be
so designated has total assets of $1,000 or less or (II) if such Subsidiary has
assets greater than $1,000, such designation would be permitted under the
"Limitation on Restricted Payments" covenant described below and (C) if
applicable, the Incurrence of Indebtedness and the Investment referred to in
clause (A) of this proviso would be permitted under the "Limitation on
Indebtedness" and "Limitation on Restricted Payments" covenants described below.
The Board of Directors may designate any Unrestricted Subsidiary to be a
Restricted Subsidiary; provided that (i) no Default or Event of Default shall
have occurred and be continuing at the time of or after giving effect to such
designation and (ii) all Liens and Indebtedness of such Unrestricted Subsidiary
outstanding immediately after such designation would, if Incurred at such time,
have been permitted to be Incurred (and shall be deemed to have been Incurred)
for all purposes of the Indenture. Any such designation by the Board of
Directors shall be evidenced to the Trustee by promptly filing with the Trustee
a copy of the Board Resolution giving effect to such designation and an
Officers' Certificate certifying that such designation complied with the
foregoing provisions.
"U.S. Dollar Equivalent" means, with respect to any monetary amounts in a
currency other than the U.S. dollar, at any time of determination thereof, the
amount of U.S. dollars obtained by converting such foreign currency involved in
such computation into U.S. dollars at the spot rate for the purchase of U.S.
dollars with the applicable foreign currency as quoted by Reuters at
approximately 11:00 a.m. (New York time) on a date not more than two Business
Days prior to such determination.
"Voting Stock" means with respect to any Person, Capital Stock of any class
or kind ordinarily having the power to vote for the election of directors,
managers or other voting members of the governing body of such Person.
"Wholly Owned" means, with respect to any Subsidiary of any Person, the
ownership of all of the outstanding Capital Stock of such Subsidiary (other than
any director's qualifying shares or Investments by foreign nationals mandated by
applicable law) by such Person or one or more Wholly Owned Subsidiaries of such
Person.
COVENANTS
Limitation on Indebtedness
(a) The Company will not, and will not permit any of its Restricted
Subsidiaries to, Incur any Indebtedness (other than the Notes and Indebtedness
existing on December 21, 1998 ); provided that the Company or any Restricted
Subsidiary may Incur Indebtedness if, after giving effect to the Incurrence of
such Indebtedness and the receipt and application of the proceeds therefrom, the
Interest Coverage Ratio would be greater than 2.0:1.
Notwithstanding the foregoing, the Company and any Restricted Subsidiary
(except as specified below) may Incur each and all of the following:
(i) Indebtedness pursuant to the Credit Agreement (other than the Note
Backup Agreement) outstanding at any time in an aggregate principal amount
not to exceed $225 million, less any amount of such Indebtedness
permanently repaid as provided under the "Limitation on Asset Sales"
covenant described below;
(ii) Indebtedness owed (A) to the Company evidenced by an
unsubordinated promissory note or (B) to any Restricted Subsidiary;
provided that any event which results in any such Restricted Subsidiary
ceasing to be a Restricted Subsidiary or any subsequent transfer of such
Indebtedness (other than to the Company or another Restricted Subsidiary)
shall be deemed, in each case, to constitute an Incurrence of such
Indebtedness not permitted by this clause (ii);
(iii) Indebtedness issued in exchange for, or the net proceeds of
which are used to refinance or refund, then outstanding Indebtedness (other
than Indebtedness Incurred under clause (i), (ii), (iv), (vi), (vii),
(viii) or (ix) of this paragraph) and any refinancings thereof in an amount
not to exceed the
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amount so refinanced or refunded (plus premiums, accrued interest, fees and
expenses); provided that Indebtedness the proceeds of which are used to
refinance or refund the Notes or Indebtedness that is pari passu with, or
subordinated in right of payment to, the Notes shall only be permitted
under this clause (iii) if (A) in case the Notes are refinanced in part or
the Indebtedness to be refinanced is pari passu with the Notes, such new
Indebtedness, by its terms or by the terms of any agreement or instrument
pursuant to which such new Indebtedness is outstanding, is expressly made
pari passu with, or subordinate in right of payment to, the remaining
Notes, (B) in case the Indebtedness to be refinanced is subordinated in
right of payment to the Notes, such new Indebtedness, by its terms or by
the terms of any agreement or instrument pursuant to which such new
Indebtedness is issued or remains outstanding, is expressly made
subordinate in right of payment to the Notes at least to the extent that
the Indebtedness to be refinanced is subordinated to the Notes and (C) such
new Indebtedness, determined as of the date of Incurrence of such new
Indebtedness, does not mature prior to the Stated Maturity of the
Indebtedness to be refinanced or refunded, and the Average Life of such new
Indebtedness is at least equal to the remaining Average Life of the
Indebtedness to be refinanced or refunded; and provided further that in no
event may Indebtedness of the Company that is pari passu with or
subordinated in rights of payment to the Notes be refinanced by means of
any Indebtedness of any Restricted Subsidiary pursuant to this clause
(iii);
(iv) Indebtedness (A) in respect of performance, surety or appeal
bonds provided in the ordinary course of business, (B) under Currency
Agreements and Interest Rate Agreements; provided that such agreements (a)
are designed solely to protect the Company or its Restricted Subsidiaries
against fluctuations in foreign currency exchange rates or interest rates
and (b) do not increase the Indebtedness of the obligor outstanding at any
time other than as a result of fluctuations in foreign currency exchange
rates or interest rates or by reason of fees, indemnities and compensation
payable thereunder; and (C) arising from agreements providing for
indemnification, adjustment of purchase price or similar obligations, or
from Guarantees or letters of credit, surety bonds or performance bonds
securing any obligations of the Company or any of its Restricted
Subsidiaries pursuant to such agreements, in any case Incurred in
connection with the disposition of any business, assets or Restricted
Subsidiary (other than Guarantees of Indebtedness Incurred by any Person
acquiring all or any portion of such business, assets or Restricted
Subsidiary for the purpose of financing such acquisition), in a principal
amount not to exceed the gross proceeds actually received by the Company or
any Restricted Subsidiary in connection with such disposition;
(v) Indebtedness, to the extent the net proceeds thereof are promptly
(A) used to purchase Notes tendered in an Offer to Purchase made as a
result of a Change of Control or (B) deposited to defease the Notes as
described below under "Defeasance";
(vi) Guarantees of the Notes and Guarantees of Indebtedness of the
Company by any Restricted Subsidiary provided the Guarantee of such
Indebtedness is permitted by and made in accordance with the "Limitation on
Issuance of Guarantees by Restricted Subsidiaries" covenant described
below;
(vii) Indebtedness pursuant to the Note Backup Agreement outstanding
at any time in an aggregate principal amount outstanding at any time not to
exceed $8.3 million, less any amount of such Indebtedness permanently
repaid as provided under the "Limitation on Asset Sales" covenant described
below;
(viii) Indebtedness in respect of Capitalized Lease Obligations in an
aggregate principal amount outstanding at any time not to exceed $20
million, less any amount of such Indebtedness permanently repaid as
provided under the "Limitation on Asset Sales" covenant described below;
and
(ix) Indebtedness (in addition to Indebtedness permitted under clauses
(i) through (viii) above) in an aggregate principal amount outstanding at
any time not to exceed $25 million (or the U.S. Dollar Equivalent thereof),
less any amount of such Indebtedness permanently repaid as provided under
the "Limitation on Asset Sales" covenant described below.
(b) Notwithstanding any other provision of this "Limitation on
Indebtedness" covenant, the maximum amount of Indebtedness that the Company or a
Restricted Subsidiary may Incur pursuant to this "Limitation
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on Indebtedness" covenant shall not be deemed to be exceeded, with respect to
any outstanding Indebtedness due solely to the result of fluctuations in the
exchange rates of currencies.
(c) For purposes of determining any particular amount of Indebtedness under
this "Limitation on Indebtedness" covenant, (1) Indebtedness Incurred under the
Credit Agreement on or prior to December 21, 1998 shall be treated as Incurred
pursuant to clause (i) of the second paragraph of this "Limitation on
Indebtedness" covenant, (2) Guarantees, Liens or obligations with respect to
letters of credit supporting Indebtedness otherwise included in the
determination of such particular amount shall not be included and (3) any Liens
granted pursuant to the equal and ratable provisions referred to in the
"Limitation on Liens" covenant described below shall not be treated as
Indebtedness. For purposes of determining compliance with this "Limitation on
Indebtedness" covenant, in the event that an item of Indebtedness meets the
criteria of more than one of the types of Indebtedness described in the above
clauses (other than Indebtedness referred to in clause (1) of the preceding
sentence), the Company, in its sole discretion, shall classify, and from time to
time may reclassify, such item of Indebtedness and only be required to include
the amount and type of such Indebtedness in one of such clauses.
Limitation on Senior Subordinated Indebtedness
The Company shall not Incur any Indebtedness that is subordinate in right
of payment to any Senior Indebtedness unless such Indebtedness is pari passu
with, or subordinated in right of payment to, the Notes; provided that the
foregoing limitation shall not apply to distinctions between categories of
Senior Indebtedness of the Company that exist by reason of any Liens or
Guarantees arising or created in respect of some but not all such Senior
Indebtedness.
Limitation on Liens
The Company shall not Incur any Indebtedness secured by a Lien ("Secured
Indebtedness") which is not Senior Indebtedness unless contemporaneously
therewith effective provision is made to secure the Notes equally and ratably
with (or, if the Secured Indebtedness is subordinated in right of payment to the
Notes, prior to) such Secured Indebtedness for so long as such Secured
Indebtedness is secured by a Lien.
Limitation on Restricted Payments
The Company will not, and will not permit any Restricted Subsidiary to,
directly or indirectly, (i) declare or pay any dividend or make any distribution
on or with respect to its Capital Stock (other than (x) dividends or
distributions payable solely in shares of its Capital Stock (other than
Disqualified Stock) or in options, warrants or other rights to acquire shares of
such Capital Stock, (y) pro rata dividends or distributions on Common Stock of
Restricted Subsidiaries held by minority stockholders and (z) dividends on
Preferred Stock of the Company or any Restricted Subsidiary, provided such
Preferred Stock was permitted to be issued under the "Limitation on
Indebtedness" covenant) held by Persons other than the Company or any of its
Restricted Subsidiaries, (ii) purchase, redeem, retire or otherwise acquire for
value any shares of Capital Stock of (A) the Company or an Unrestricted
Subsidiary (including options, warrants or other rights to acquire such shares
of Capital Stock) held by any Person or (B) a Restricted Subsidiary (including
options, warrants or other rights to acquire such shares of Capital Stock) held
by any Affiliate of the Company (other than a Wholly Owned Restricted
Subsidiary) or any holder (or any Affiliate of such holder) of 5% or more of the
Capital Stock of the Company, (iii) make any voluntary or optional principal
payment, or voluntary or optional redemption, repurchase, defeasance, or other
acquisition or retirement for value, of Indebtedness of the Company that is
subordinated in right of payment to the Notes or (iv) make any Investment, other
than a Permitted Investment, in any Person (such payments or any other actions
described in clauses (i) through (iv) above being collectively "Restricted
Payments") if, at the time of, and after giving effect to, the proposed
Restricted Payment:
(A) a Default or Event of Default shall have occurred and be
continuing,
(B) the Company could not Incur at least $1.00 of Indebtedness under
the first paragraph of the "Limitation on Indebtedness" covenant or
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(C) the aggregate amount of all Restricted Payments (the amount, if
other than in cash, to be determined in good faith by the Board of
Directors, whose determination shall be conclusive and evidenced by a Board
Resolution) made after December 21, 1998 shall exceed the sum of
(1) 50% of the aggregate amount of the Adjusted Consolidated Net
Income (or, if the Adjusted Consolidated Net Income is a loss, minus
100% of the amount of such loss) (determined by excluding income
resulting from transfers of assets by the Company or a Restricted
Subsidiary to an Unrestricted Subsidiary) accrued on a cumulative basis
during the period (taken as one accounting period) beginning on October
1, 1998 and ending on the last day of the last fiscal quarter preceding
the Transaction Date for which reports have been filed with the
Commission or provided to the Trustee plus
(2) the aggregate Net Cash Proceeds received by the Company after
December 21, 1998 from the issuance and sale permitted by the Indenture
of its Capital Stock (other than Disqualified Stock) to a Person who is
not a Subsidiary of the Company, including an issuance or sale permitted
by the Indenture of Indebtedness of the Company for cash subsequent to
December 21, 1998 upon the conversion of such Indebtedness into Capital
Stock (other than Disqualified Stock) of the Company, or from the
issuance to a Person who is not a Subsidiary of the Company of any
options, warrants or other rights to acquire Capital Stock of the
Company (in each case, exclusive of any Disqualified Stock or any
options, warrants or other rights that are redeemable at the option of
the holder, or are required to be redeemed, prior to the Stated Maturity
of the Notes) plus
(3) an amount equal to the net reduction in Investments (other than
reductions in Permitted Investments) in any Person resulting from
payments of interest on Indebtedness, dividends, repayments of loans or
advances, or other transfers of assets, in each case to the Company or
any Restricted Subsidiary or from the Net Cash Proceeds from the sale of
any such Investment (except, in each case, to the extent any such
payment or proceeds are included in the calculation of Adjusted
Consolidated Net Income), or from redesignations of Unrestricted
Subsidiaries as Restricted Subsidiaries (valued in each case as provided
in the definition of "Investments"), not to exceed, in each case, the
amount of Investments previously made by the Company or any Restricted
Subsidiary in such Person or Unrestricted Subsidiary plus
(4) $25 million.
The foregoing provision shall not be violated by reason of:
(i) the payment of any dividend within 60 days after the date of
declaration thereof if, at said date of declaration, such payment would
comply with the foregoing paragraph;
(ii) the redemption, repurchase, defeasance or other acquisition or
retirement for value of Indebtedness that is subordinated in right of
payment to the Notes including premium, if any, and accrued and unpaid
interest, with the proceeds of, or in exchange for, Indebtedness Incurred
under clause (iii) of the second paragraph of part (a) of the "Limitation
on Indebtedness" covenant;
(iii) the repurchase, redemption or other acquisition of Capital Stock
of the Company or an Unrestricted Subsidiary (or options, warrants or other
rights to acquire such Capital Stock) in exchange for, or out of the
proceeds of a substantially concurrent offering of, shares of Capital Stock
(other than Disqualified Stock) of the Company (or options, warrants or
other rights to acquire such Capital Stock);
(iv) the making of any principal payment or the repurchase,
redemption, retirement, defeasance or other acquisition for value of
Indebtedness of the Company which is subordinated in right of payment to
the Notes in exchange for, or out of the proceeds of, a substantially
concurrent offering of, shares of the Capital Stock (other than
Disqualified Stock) of the Company (or options, warrants or other rights to
acquire such Capital Stock);
(v) payments or distributions, to dissenting stockholders pursuant to
applicable law, pursuant to or in connection with a consolidation, merger
or transfer of assets that complies with the provisions of the Indenture
applicable to mergers, consolidations and transfers of all or substantially
all of the property and assets of the Company;
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(vi) Investments acquired in exchange for Capital Stock (other than
Disqualified Stock) of the Company;
(vii) payments under the Repurchase Program; or
(viii) other Restricted Payments in an aggregate amount not to exceed
$10 million;
provided that, except in the case of clauses (i) and (iii), no Default or Event
of Default shall have occurred and be continuing or occur as a consequence of
the actions or payments set forth therein.
Except as set forth in the next sentence, each Restricted Payment and
issuance of Capital Stock described in the preceding paragraph shall be included
in calculating whether the conditions of clause (C) of the first paragraph of
this "Limitation on Restricted Payments" covenant have been met with respect to
any subsequent Restricted Payments. The following Restricted Payments described
in the preceding paragraph shall not be included in such calculation:
(x) a Restricted Payment described in clause (ii),
(y) an exchange of Capital Stock for Capital Stock or Indebtedness
described in clause (iii) or (iv), and
(z) an Investment described in clause (vi) or (viii).
In the event the proceeds of an issuance of Capital Stock of the Company
are used for the redemption, repurchase or other acquisition of the Notes, or
Indebtedness that is pari passu with the Notes, then the Net Cash Proceeds of
such issuance shall be included in clause (C) of the first paragraph of this
"Limitation on Restricted Payments" covenant only to the extent such proceeds
are not used for such redemption, repurchase or other acquisition of
Indebtedness. For purposes of determining compliance with this "Limitation on
Restricted Payments" covenant, in the event that a Restricted Payment meets the
criteria of more than one of the types of Restricted Payments described in the
above clauses, the Company, in its sole discretion, may order and classify, and
from time to time may reclassify, such Restricted Payment if it would have been
permitted at the time such Restricted Payment was made and at the time of such
reclassification.
Limitation on Dividend and Other Payment Restrictions Affecting Restricted
Subsidiaries
The Company will not, and will not permit any Restricted Subsidiary to,
create or otherwise cause or suffer to exist or become effective any consensual
encumbrance or restriction of any kind on the ability of any Restricted
Subsidiary to (i) pay dividends or make any other distributions permitted by
applicable law on any Capital Stock of such Restricted Subsidiary owned by the
Company or any other Restricted Subsidiary, (ii) pay any Indebtedness owed to
the Company or any other Restricted Subsidiary, (iii) make loans or advances to
the Company or any other Restricted Subsidiary or (iv) transfer any of its
property or assets to the Company or any other Restricted Subsidiary.
The foregoing provisions shall not restrict any encumbrances or
restrictions:
(i) existing on December 21, 1998 in the Credit Agreement, the
Indenture or any other agreements in effect on December 21, 1998, and any
extensions, refinancings, renewals or replacements of such agreements;
provided that the encumbrances and restrictions in any such extensions,
refinancings, renewals or replacements are no less favorable in any
material respect to the Holders than those encumbrances or restrictions
that are then in effect and that are being extended, refinanced, renewed or
replaced;
(ii) existing under or by reason of applicable law;
(iii) existing with respect to any Person or the property or assets of
such Person acquired by the Company or any Restricted Subsidiary, existing
at the time of such acquisition and not incurred in contemplation thereof,
which encumbrances or restrictions are not applicable to any Person or the
property or assets of any Person other than such Person or the property or
assets of such Person so acquired;
(iv) in the case of clause (iv) of the first paragraph of this
"Limitation on Dividend and Other Payment Restrictions Affecting Restricted
Subsidiaries" covenant, (A) that restrict in a customary
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manner the subletting, assignment or transfer of any property or asset that
is a lease, license, conveyance or contract or similar property or asset,
(B) existing by virtue of any transfer of, agreement to transfer, option or
right with respect to, or Lien on, any property or assets of the Company or
any Restricted Subsidiary not otherwise prohibited by the Indenture or (C)
arising or agreed to in the ordinary course of business, not relating to
any Indebtedness, and that do not, individually or in the aggregate,
detract from the value of property or assets of the Company or any
Restricted Subsidiary in any manner material to the Company or any
Restricted Subsidiary;
(v) with respect to a Restricted Subsidiary and imposed pursuant to an
agreement that has been entered into for the sale or disposition of all or
substantially all of the Capital Stock of, or property and assets of, such
Restricted Subsidiary; or
(vi) contained in the terms of any Indebtedness or any agreement
pursuant to which such Indebtedness was issued if (A) the encumbrance or
restriction applies only in the event of a payment default or a default
with respect to a financial covenant contained in such Indebtedness or
agreement, (B) the encumbrance or restriction is not materially more
disadvantageous to the Holders of the Notes than is customary in comparable
financings (as determined by the Company) and (C) the Company determines
that any such encumbrance or restriction will not materially affect the
Company's ability to make principal or interest payments on the Notes.
Nothing contained in this "Limitation on Dividend and Other Payment Restrictions
Affecting Restricted Subsidiaries" covenant shall prevent the Company or any
Restricted Subsidiary from (1) creating, incurring, assuming or suffering to
exist any Liens otherwise permitted in the "Limitation on Liens" covenant or (2)
restricting the sale or other disposition of property or assets of the Company
or any of its Restricted Subsidiaries that secure Indebtedness of the Company or
any of its Restricted Subsidiaries.
Limitation on the Issuance and Sale of Capital Stock of Restricted
Subsidiaries
The Company will not sell, and will not permit any Restricted Subsidiary,
directly or indirectly, to issue or sell, any shares of Capital Stock of a
Restricted Subsidiary (including options, warrants or other rights to purchase
shares of such Capital Stock) except:
(i) to the Company or a Wholly Owned Restricted Subsidiary;
(ii) issuances of director's qualifying shares or sales to foreign
nationals of shares of Capital Stock of foreign Restricted Subsidiaries, to
the extent required by applicable law;
(iii) if, immediately after giving effect to such issuance or sale,
such Restricted Subsidiary would no longer constitute a Restricted
Subsidiary and any Investment in such Person remaining after giving effect
to such issuance or sale would have been permitted to be made under the
"Limitation on Restricted Payments" covenant if made on the date of such
issuance or sale; or
(iv) (x) issuances or sales of Common Stock of a Restricted
Subsidiary, provided that the Company or such Restricted Subsidiary applies
the Net Cash Proceeds, if any, of any such sale in accordance with clause
(A) or (B) of the "Limitation on Asset Sales" covenant described below and
(y) issuances or sales of Preferred Stock of a Restricted Subsidiary if
such Restricted Subsidiary would be entitled to Incur such Indebtedness
pursuant to the "Limitation on Indebtedness" covenant and such Restricted
Subsidiary simultaneously executes and delivers a supplemental indenture to
the Indenture providing for a Guarantee (a "Subsidiary Guarantee") of
payment of the Notes.
Limitation on Issuances of Guarantees by Restricted Subsidiaries
The Company will not permit any Restricted Subsidiary, directly or
indirectly, to Guarantee any Indebtedness of the Company which is pari passu
with or subordinate in right of payment to the Notes ("Guaranteed
Indebtedness"), unless (i) such Restricted Subsidiary simultaneously executes
and delivers a Subsidiary Guarantee of payment of the Notes by such Restricted
Subsidiary and (ii) such Restricted Subsidiary waives and will not in any manner
whatsoever claim or take the benefit or advantage of, any rights of
reimbursement, indemnity or subrogation or any other rights against the Company
or any other Restricted Subsidiary as a result of any payment by such Restricted
Subsidiary under its Subsidiary Guarantee; provided
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that this paragraph shall not be applicable to any Guarantee of any Restricted
Subsidiary that existed at the time such Person became a Restricted Subsidiary
and was not Incurred in connection with, or in contemplation of, such Person
becoming a Restricted Subsidiary. If the Guaranteed Indebtedness is (A) pari
passu with the Notes, then the Guarantee of such Guaranteed Indebtedness shall
be pari passu with, or subordinated to, the Subsidiary Guarantee or (B)
subordinated to the Notes, then the Guarantee of such Guaranteed Indebtedness
shall be subordinated to the Subsidiary Guarantee at least to the extent that
the Guaranteed Indebtedness is subordinated to the Notes.
Notwithstanding the foregoing, any Subsidiary Guarantee by a Restricted
Subsidiary may provide by its terms that it shall be automatically and
unconditionally released and discharged upon (i) any sale, exchange or transfer,
to any Person not an Affiliate of the Company, of all of the Company's and each
Restricted Subsidiary's Capital Stock in, or all or substantially all the assets
of, such Restricted Subsidiary (which sale, exchange or transfer is not
prohibited by the Indenture) or (ii) the release or discharge of the Guarantee
which resulted in the creation of such Subsidiary Guarantee, except a discharge
or release by or as a result of payment under such Guarantee.
Limitation on Transactions with Shareholders and Affiliates
The Company will not, and will not permit any Restricted Subsidiary to,
directly or indirectly, enter into, renew or extend any transaction (including,
without limitation, the purchase, sale, lease or exchange of property or assets,
or the rendering of any service) with any holder (or any Affiliate of such
holder) of 5% or more of any class of Capital Stock of the Company or with any
Affiliate of the Company or any Restricted Subsidiary, except upon fair and
reasonable terms no less favorable to the Company or such Restricted Subsidiary
than could be obtained, at the time of such transaction or, if such transaction
is pursuant to a written agreement, at the time of the execution of the
agreement providing therefor, in a comparable arm's-length transaction with a
Person that is not such a holder or an Affiliate.
The foregoing limitation does not limit, and shall not apply to:
(i) transactions (A) approved by a majority of the disinterested
members of the Board of Directors or (B) for which the Company or a
Restricted Subsidiary delivers to the Trustee a written opinion of a
nationally recognized investment banking firm stating that the transaction
is fair to the Company or such Restricted Subsidiary from a financial point
of view;
(ii) any transaction solely between the Company and any of its Wholly
Owned Restricted Subsidiaries or solely between Wholly Owned Restricted
Subsidiaries;
(iii) management and administrative services provided by the Company
or any Restricted Subsidiary to any Restricted Subsidiary or any Person in
which the Company or any Restricted Subsidiary has an Investment;
(iv) the payment of reasonable and customary regular fees to directors
of the Company who are not employees of the Company;
(v) any payments or other transactions pursuant to any tax-sharing
agreement between the Company and any other Person with which the Company
files a consolidated tax return or with which the Company is part of a
consolidated group for tax purposes;
(vi) any payment made under the Put and Call Agreement; or
(vii) any Restricted Payments not prohibited by the "Limitation on
Restricted Payments" covenant.
Notwithstanding the foregoing, any transaction or series of related transactions
covered by the first paragraph of this "Limitation on Transactions with
Shareholders and Affiliates" covenant and not covered by clauses (ii) through
(vii) of this paragraph, (a) the aggregate amount of which exceeds $3 million in
value, must be approved or determined to be fair in the manner provided for in
clause (i)(A) or (B) above and (b) the aggregate amount of which exceeds $5
million in value, must be determined to be fair in the manner provided for in
clause (i)(B) above.
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Limitation on Asset Sales
The Company will not, and will not permit any Restricted Subsidiary to,
consummate any Asset Sale, unless (i) the consideration received by the Company
or such Restricted Subsidiary is at least equal to the fair market value of the
assets sold or disposed of and (ii) at least 75% of the consideration received
consists of cash or Temporary Cash Investments or the assumption of Indebtedness
of the Company or any Restricted Subsidiary (other than Indebtedness to the
Company or any Restricted Subsidiary), provided that the Company or such
Restricted Subsidiary is irrevocably and unconditionally released from all
liability under such Indebtedness.
In the event and to the extent that the Net Cash Proceeds received by the
Company or any of its Restricted Subsidiaries from one or more Asset Sales
occurring on or after December 21, 1998 in any period of 12 consecutive months
exceed $10 million, then the Company shall or shall cause the relevant
Restricted Subsidiary to:
(i) within twelve months after the date Net Cash Proceeds so received
exceed $10 million
(A) apply an amount equal to such excess Net Cash Proceeds to
permanently repay Senior Indebtedness of the Company, or any Restricted
Subsidiary providing a Subsidiary Guarantee or Indebtedness of any other
Restricted Subsidiary, in each case owing to a Person other than the
Company or any of its Restricted Subsidiaries or
(B) invest an equal amount, or the amount not so applied pursuant
to clause (A) (or enter into a definitive agreement committing to so
invest within 12 months after the date of such agreement), in property
or assets (other than current assets) of a nature or type or that are
used in a business (or in a company having property and assets of a
nature or type, or engaged in a business) similar or related to the
nature or type of the property and assets of, or the business of, the
Company and its Restricted Subsidiaries existing on the date of such
investment and
(ii) apply (no later than the end of the 12-month period referred to
in clause (i)) such excess Net Cash Proceeds (to the extent not applied
pursuant to clause (i)) as provided in the following paragraph of this
"Limitation on Asset Sales" covenant.
The amount of such excess Net Cash Proceeds required to be applied (or to be
committed to be applied) during such 12-month period as set forth in clause (i)
of the preceding sentence and not applied as so required by the end of such
period shall constitute "Excess Proceeds."
If, as of the first day of any calendar month, the aggregate amount of
Excess Proceeds not theretofore subject to an Offer to Purchase pursuant to this
"Limitation on Asset Sales" covenant totals at least $5 million, the Company
must commence, not later than the fifteenth Business Day of such month, and
consummate an Offer to Purchase from the Holders on a pro rata basis an
aggregate principal amount of Notes equal to the Excess Proceeds on such date,
at a purchase price equal to 100% of the principal amount of the Notes, plus, in
each case, accrued interest (if any) to the Payment Date.
REPURCHASE OF NOTES UPON A CHANGE OF CONTROL
The Company must commence, within 30 days of the occurrence of a Change of
Control, and consummate an Offer to Purchase for all Notes then outstanding, at
a purchase price equal to 101% of the principal amount thereof, plus accrued
interest (if any) to the Payment Date; provided, however, that the Company shall
not be required to commence such an Offer to Purchase if the Notes have, on the
30th day after such Change of Control, a rating of at least BBB- (or equivalent
or successor rating) by S&P and a rating of at least Baa3 (or equivalent or
successor rating) by Moody's.
There can be no assurance that the Company will have sufficient funds
available at the time of any Change of Control to make any debt payment
(including repurchases of Notes) required by the foregoing covenant (as well as
may be contained in other securities of the Company which might be outstanding
at the time). The above covenant requiring the Company to repurchase the Notes
will, unless consents are obtained, require the Company to repay all
indebtedness then outstanding which by its terms would prohibit such Note
repurchase, either prior to or concurrently with such Note repurchase.
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COMMISSION REPORTS AND REPORTS TO HOLDERS
Whether or not the Company is then required to file reports with the
Commission, the Company shall file with the Commission all such reports and
other information as it would be required to file with the Commission by
Sections 13(a) or 15(d) under the Securities Exchange Act of 1934 if it were
subject thereto. The Company shall supply the Trustee and each Holder or shall
supply to the Trustee for forwarding to each such Holder, without cost to such
Holder, copies of such reports and other information.
EVENTS OF DEFAULT
The following events are defined as "Events of Default" in the Indenture:
(a) default in the payment of principal of (or premium, if any, on)
any Note when the same becomes due and payable at maturity, upon
acceleration, redemption or otherwise, whether or not such payment is
prohibited by the provisions described under "-- Ranking";
(b) default in the payment of interest on any Note when the same
becomes due and payable, and such default continues for a period of 30
days, whether or not such payment is prohibited by the provisions described
under "-- Ranking";
(c) default in the performance or breach of the provisions of the
Indenture applicable to mergers, consolidations and transfers of all or
substantially all of the assets of the Company or the failure to make or
consummate an Offer to Purchase in accordance with the "Limitation on Asset
Sales" or "Repurchase of Notes upon a Change of Control" covenant;
(d) the Company defaults in the performance of or breaches any other
covenant or agreement of the Company in the Indenture or under the Notes
(other than a default specified in clause (a), (b) or (c) above) and such
default or breach continues for a period of 30 consecutive days after
written notice by the Trustee or the Holders of 25% or more in aggregate
principal amount of the Notes;
(e) there occurs with respect to any issue or issues of Indebtedness
of the Company or any Significant Subsidiary having an outstanding
principal amount of $10 million or more in the aggregate for all such
issues of all such Persons, whether such Indebtedness now exists or shall
hereafter be created, (I) an event of default that has caused the holder
thereof to declare such Indebtedness to be due and payable prior to its
Stated Maturity and such Indebtedness has not been discharged in full or
such acceleration has not been rescinded or annulled within 30 days of such
acceleration and/or (II) the failure to make a principal payment at the
final (but not any interim) fixed maturity and such defaulted payment shall
not have been made, waived or extended within 30 days of such payment
default;
(f) any final judgment or order (not covered by insurance) for the
payment of money in excess of $10 million in the aggregate for all such
final judgments or orders against all such Persons (treating any
deductibles, self-insurance or retention as not so covered) shall be
rendered against the Company or any Significant Subsidiary and shall not be
paid or discharged, and there shall be any period of 60 consecutive days
following entry of the final judgment or order that causes the aggregate
amount for all such final judgments or orders outstanding and not paid or
discharged against all such Persons to exceed $10 million during which a
stay of enforcement of such final judgment or order, by reason of a pending
appeal or otherwise, shall not be in effect;
(g) a court having jurisdiction in the premises enters a decree or
order for (A) relief in respect of the Company or any Significant
Subsidiary in an involuntary case under any applicable bankruptcy,
insolvency or other similar law now or hereafter in effect, (B) appointment
of a receiver, liquidator, assignee, custodian, trustee, sequestrator or
similar official of the Company or any Significant Subsidiary or for all or
substantially all of the property and assets of the Company or any
Significant Subsidiary or (C) the winding up or liquidation of the affairs
of the Company or any Significant Subsidiary and, in each case, such decree
or order shall remain unstayed and in effect for a period of 60 consecutive
days; or
(h) the Company or any Significant Subsidiary (A) commences a
voluntary case under any applicable bankruptcy, insolvency or other similar
law now or hereafter in effect, or consents to the entry of an order for
relief in an involuntary case under any such law, (B) consents to the
appointment of or taking possession by a receiver, liquidator, assignee,
custodian, trustee, sequestrator or similar official of
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the Company or any Significant Subsidiary or for all or substantially all
of the property and assets of the Company or any Significant Subsidiary or
(C) effects any general assignment for the benefit of creditors.
If an Event of Default (other than an Event of Default specified in clause
(g) or (h) above that occurs with respect to the Company) occurs and is
continuing under the Indenture, the Trustee or the Holders of at least 25% in
aggregate principal amount of the Notes, then outstanding, by written notice to
the Company (and to the Trustee if such notice is given by the Holders), may,
and the Trustee at the request of such Holders shall, declare the principal of,
premium, if any, and accrued interest on the Notes to be immediately due and
payable. Upon a declaration of acceleration, such principal of, premium, if any,
and accrued interest shall be immediately due and payable. In the event of a
declaration of acceleration because an Event of Default set forth in clause (e)
above has occurred and is continuing, such declaration of acceleration shall be
automatically rescinded and annulled if the event of default triggering such
Event of Default pursuant to clause (e) shall be remedied or cured by the
Company or the relevant Significant Subsidiary or waived by the holders of the
relevant Indebtedness within 60 days after the declaration of acceleration with
respect thereto. If an Event of Default specified in clause (g) or (h) above
occurs with respect to the Company, the principal of, premium, if any, and
accrued interest on the Notes then outstanding shall ipso facto become and be
immediately due and payable without any declaration or other act on the part of
the Trustee or any Holder. The Holders of at least a majority in principal
amount of the outstanding Notes by written notice to the Company and to the
Trustee, may waive all past defaults and rescind and annul a declaration of
acceleration and its consequences if (i) all existing Events of Default, other
than the nonpayment of the principal of, premium, if any, and interest on the
Notes that have become due solely by such declaration of acceleration, have been
cured or waived and (ii) the rescission would not conflict with any judgment or
decree of a court of competent jurisdiction. For information as to the waiver of
defaults, see "-- Modification and Waiver."
The Holders of at least a majority in aggregate principal amount of the
outstanding Notes may direct the time, method and place of conducting any
proceeding for any remedy available to the Trustee or exercising any trust or
power conferred on the Trustee. However, the Trustee may refuse to follow any
direction that conflicts with law or the Indenture, that may involve the Trustee
in personal liability, or that the Trustee determines in good faith may be
unduly prejudicial to the rights of Holders of Notes not joining in the giving
of such direction and may take any other action it deems proper that is not
inconsistent with any such direction received from Holders of Notes. A Holder
may not pursue any remedy with respect to the Indenture or the Notes unless: (i)
the Holder gives the Trustee written notice of a continuing Event of Default;
(ii) the Holders of at least 25% in aggregate principal amount of outstanding
Notes make a written request to the Trustee to pursue the remedy; (iii) such
Holder or Holders offer the Trustee indemnity satisfactory to the Trustee
against any costs, liability or expense; (iv) the Trustee does not comply with
the request within 60 days after receipt of the request and the offer of
indemnity; and (v) during such 60-day period, the Holders of a majority in
aggregate principal amount of the outstanding Notes do not give the Trustee a
direction that is inconsistent with the request. However, such limitations do
not apply to the right of any Holder of a Note to receive payment of the
principal of, premium, if any, or interest on, such Note or to bring suit for
the enforcement of any such payment, on or after the due date expressed in the
Notes, which right shall not be impaired or affected without the consent of the
Holder.
The Indenture requires certain officers of the Company to certify, on or
before a date not more than 90 days after the end of each fiscal year, that a
review has been conducted of the activities of the Company and its Restricted
Subsidiaries and the Company's and its Restricted Subsidiaries' performance
under the Indenture and that the Company has fulfilled all obligations
thereunder, or, if there has been a default in the fulfillment of any such
obligation, specifying each such default and the nature and status thereof. The
Company will also be obligated to notify the Trustee of any default or defaults
in the performance of any covenants or agreements under the Indenture.
CONSOLIDATION, MERGER AND SALE OF ASSETS
The Company will not consolidate with, merge with or into, or sell, convey,
transfer, lease or otherwise dispose of all or substantially all of its property
and assets (as an entirety or substantially an entirety in one
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transaction or a series of related transactions) to, any Person or permit any
Person to merge with or into the Company unless:
(i) the Company shall be the continuing Person, or the Person (if
other than the Company) formed by such consolidation or into which the
Company is merged or that acquired or leased such property and assets of
the Company shall be a corporation organized and validly existing under the
laws of the United States of America or any jurisdiction thereof and shall
expressly assume, by a supplemental indenture, executed and delivered to
the Trustee, all of the obligations of the Company on all of the Notes and
under the Indenture;
(ii) immediately after giving effect to such transaction, no Default
or Event of Default shall have occurred and be continuing;
(iii) immediately after giving effect to such transaction on a pro
forma basis, the Company or any Person becoming the successor obligor of
the Notes shall have a Consolidated Net Worth equal to or greater than the
Consolidated Net Worth of the Company immediately prior to such
transaction;
(iv) immediately after giving effect to such transaction on a pro
forma basis the Company, or any Person becoming the successor obligor of
the Notes, as the case may be, could Incur at least $1.00 of Indebtedness
under the first paragraph of the "Limitation on Indebtedness" covenant;
provided that this clause (iv) shall not apply to a consolidation, merger
or sale of all (but not less than all) of the assets of the Company if all
Liens and Indebtedness of the Company or any Person becoming the successor
obligor on the Notes, as the case may be, and its Restricted Subsidiaries
outstanding immediately after such transaction would have been permitted
(and all such Liens and Indebtedness, other than Liens and Indebtedness of
the Company and its Restricted Subsidiaries outstanding immediately prior
to the transaction, shall be deemed to have been Incurred) for all purposes
of the Indenture; and
(v) the Company delivers to the Trustee an Officers' Certificate
(attaching the arithmetic computations to demonstrate compliance with
clauses (iii) and (iv)) and Opinion of Counsel, in each case stating that
such consolidation, merger or transfer and such supplemental indenture
complies with this provision and that all conditions precedent provided for
herein relating to such transaction have been complied with;
provided, however, that clauses (iii) and (iv) above do not apply if, in the
good faith determination of the Board of Directors of the Company, whose
determination shall be evidenced by a Board Resolution, the principal purpose of
such transaction is to change the state of incorporation of the Company and any
such transaction shall not have as one of its purposes the evasion of the
foregoing limitations.
DEFEASANCE
Defeasance and Discharge. The Indenture provides that the Company will be
deemed to have paid and will be discharged from any and all obligations in
respect of the Notes on the 123rd day after the deposit referred to below, and
the provisions of the Indenture will no longer be in effect with respect to the
Notes (except for, among other matters, certain obligations to register the
transfer or exchange of the Notes, to replace stolen, lost or mutilated Notes,
to maintain paying agencies and to hold monies for payment in trust) if, among
other things:
(A) the Company has deposited with the Trustee, in trust, money and/or
U.S. Government Obligations that through the payment of interest and
principal in respect thereof in accordance with their terms will provide
money in an amount sufficient to pay the principal of, premium, if any, and
accrued interest on the Notes on the Stated Maturity of such payments in
accordance with the terms of the Indenture and the Notes,
(B) the Company has delivered to the Trustee (i) either (x) an Opinion
of Counsel to the effect that Holders will not recognize income, gain or
loss for federal income tax purposes as a result of the Company's exercise
of its option under this "Defeasance" provision and will be subject to
federal income tax on the same amount and in the same manner and at the
same times as would have been the case if such deposit, defeasance and
discharge had not occurred, which Opinion of Counsel must be based upon
(and accompanied by a copy of) a ruling of the Internal Revenue Service to
the same effect unless there
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has been a change in applicable federal income tax law after the Closing
Date such that a ruling is no longer required or (y) a ruling directed to
the Trustee received from the Internal Revenue Service to the same effect
as the aforementioned Opinion of Counsel and (ii) an Opinion of Counsel to
the effect that the creation of the defeasance trust does not violate the
Investment Company Act of 1940 and after the passage of 123 days following
the deposit, the trust fund will not be subject to the effect of Section
547 of the United States Bankruptcy Code or Section 15 of the New York
Debtor and Creditor Law,
(C) immediately after giving effect to such deposit on a pro forma
basis, no Event of Default, or event that after the giving of notice or
lapse of time or both would become an Event of Default, shall have occurred
and be continuing on the date of such deposit or during the period ending
on the 123rd day after the date of such deposit, and such deposit shall not
result in a breach or violation of, or constitute a default under, any
other agreement or instrument to which the Company or any of its
Subsidiaries is a party or by which the Company or any of its Subsidiaries
is bound,
(D) the Company is not prohibited from making payments in respect of
the Notes by the provisions described under "-- Ranking", and
(E) if at such time the Notes are listed on a national securities
exchange, the Company has delivered to the Trustee an Opinion of Counsel to
the effect that the Notes will not be delisted as a result of such deposit,
defeasance and discharge.
Defeasance of Certain Covenants and Certain Events of Default. The
Indenture further provides that the provisions of the Indenture will no longer
be in effect with respect to clauses (iii) and (iv) under "Consolidation, Merger
and Sale of Assets" and all the covenants described herein under "Covenants,"
clause (c) under "Events of Default" with respect to such clauses (iii) and (iv)
under "Consolidation, Merger and Sale of Assets," clause (d) under "Events of
Default" with respect to such other covenants and clauses (e) and (f) under
"Events of Default" shall be deemed not to be Events of Default upon, among
other things, the deposit with the Trustee, in trust, of money and/or U.S.
Government Obligations that through the payment of interest and principal in
respect thereof in accordance with their terms will provide money in an amount
sufficient to pay the principal of, premium, if any, and accrued interest on the
Notes on the Stated Maturity of such payments in accordance with the terms of
the Indenture and the Notes, the satisfaction of the provisions described in
clauses (B)(ii), (C), (D) and (E) of the preceding paragraph and the delivery by
the Company to the Trustee of an Opinion of Counsel to the effect that, among
other things, the Holders will not recognize income, gain or loss for federal
income tax purposes as a result of such deposit and defeasance of certain
covenants and Events of Default and will be subject to federal income tax on the
same amount and in the same manner and at the same times as would have been the
case if such deposit and defeasance had not occurred.
Defeasance and Certain Other Events of Default. In the event the Company
exercises its option to omit compliance with certain covenants and provisions of
the Indenture with respect to the Notes as described in the immediately
preceding paragraph and the Notes are declared due and payable because of the
occurrence of an Event of Default that remains applicable, the amount of money
and/or U.S. Government Obligations on deposit with the Trustee will be
sufficient to pay amounts due on the Notes at the time of their Stated Maturity
but may not be sufficient to pay amounts due on the Notes at the time of the
acceleration resulting from such Event of Default. However, the Company will
remain liable for such payments.
MODIFICATION AND WAIVER
The Indenture may be amended, without the consent of any Holder, to: (i)
cure any ambiguity, defect or inconsistency in the Indenture; provided that such
amendments do not adversely affect the interests of the Holders in any material
respect; (ii) comply with the provisions described under "Consolidation, Merger
and Sale of Assets"; (iii) comply with any requirements of the Commission in
connection with the qualification of the Indenture under the Trust Indenture
Act; (iv) evidence and provide for the acceptance of appointment by a successor
Trustee; or (v) make any change that, in the good faith opinion of the Board of
Directors, does not materially and adversely affect the rights of any Holder.
Modifications and amendments of the Indenture may be made by the Company and the
Trustee with the consent of the Holders of not less than a majority in aggregate
principal amount of the outstanding Notes; provided, however, that no such
modification or
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amendment may, without the consent of each Holder affected thereby, (i) change
the Stated Maturity of the principal of, or any installment of interest on, any
Note, (ii) reduce the principal amount of, or premium, if any, or interest on,
any Note, (iii) change the place or currency of payment of principal of, or
premium, if any, or interest on, any Note, (iv) impair the right to institute
suit for the enforcement of any payment on or after the Stated Maturity (or, in
the case of a redemption, on or after the Redemption Date) of any Note, (v)
waive a default in the payment of principal of, premium, if any, or interest on
the Notes, (vi) modify the subordination provisions in a manner adverse to the
Holders or (vii) reduce the percentage or aggregate principal amount of
outstanding Notes the consent of whose Holders is necessary for waiver of
compliance with certain provisions of the Indenture or for waiver of certain
defaults.
NO PERSONAL LIABILITY OF INCORPORATORS, STOCKHOLDERS, OFFICERS, DIRECTORS, OR
EMPLOYEES
The Indenture provides that no recourse for the payment of the principal
of, premium, if any, or interest on any of the Notes or for any claim based
thereon or otherwise in respect thereof, and no recourse under or upon any
obligation, covenant or agreement of the Company in the Indenture, or in any of
the Notes or because of the creation of any Indebtedness represented thereby,
shall be had against any incorporator, stockholder, officer, director, employee
or controlling person of the Company or of any successor Person thereof. Each
Holder, by accepting the Notes, waives and releases all such liability.
CONCERNING THE TRUSTEE
The Indenture provides that, except during the continuance of a Default,
the Trustee will not be liable except for the performance of such duties as are
specifically set forth in such Indenture. If an Event of Default has occurred
and is continuing, the Trustee will use the same degree of care and skill in its
exercise of the rights and powers vested in it under the Indenture as a prudent
person would exercise under the circumstances in the conduct of such person's
own affairs.
The Indenture and provisions of the Trust Indenture Act of 1939, as
amended, incorporated by reference therein contain limitations on the rights of
the Trustee, should it become a creditor of the Company, to obtain payment of
claims in certain cases or to realize on certain property received by it in
respect of any such claims, as security or otherwise. The Trustee is permitted
to engage in other transactions; provided, however, that if it acquires any
conflicting interest, it must eliminate such conflict or resign.
BOOK-ENTRY; DELIVERY AND FORM
Except as set forth below, the New Notes will initially be issued in the
form of one or more registered New Notes in global form without interest coupons
(each a "Global Note"). Each Global Note will be deposited with the Trustee as
custodian for, and registered in the name of a nominee of, DTC.
Ownership of beneficial interests in a Global Note will be limited to
persons who have accounts with DTC ("participants") or persons who hold
interests through participants. Ownership of beneficial interests in a Global
Note will be shown on, and the transfer of that ownership will be effected only
through, records maintained by DTC or its nominee (with respect to interests of
participants) and the records of participants (with respect to interests of
persons other than participants). Holders may hold their interests in a
Restricted Global Note directly through DTC if they are participants in such
system, or indirectly through organizations which are participants in such
system.
So long as DTC, or its nominee, is the registered owner or holder of a
Global Note, DTC or such nominee, as the case may be, will be considered the
sole owner or holder of the Notes represented by such Global Note for all
purposes under the Indenture and the Notes. No beneficial owner of an interest
in a Global Note will be able to transfer that interest except in accordance
with DTC's applicable procedures, in addition to those provided for under the
Indenture.
Payments of the principal of, and interest on, a Global Note will be made
to DTC or its nominee, as the case may be, as the registered owner thereof.
Neither the Company, the Trustee nor any Paying Agent will have any
responsibility or liability for any aspect of the records relating to or
payments made on account of beneficial ownership interests in a Global Note or
for maintaining, supervising or reviewing any records relating to such
beneficial ownership interests.
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The Company expects that DTC or its nominee, upon receipt of any payment of
principal or interest in respect of a Global Note, will credit participants'
accounts with payments in amounts proportionate to their respective beneficial
interests in the principal amount of such Global Note as shown on the records of
DTC or its nominee. The Company also expects that payments by participants to
owners of beneficial interests in such Global Note held through such
participants will be governed by standing instructions and customary practices,
as is now the case with securities held for the accounts of customers registered
in the names of nominees for such customers. Such payments will be the
responsibility of such participants.
Transfers between participants in DTC will be effected in the ordinary way
in accordance with DTC rules and will be settled in same-day funds.
The Company expects that DTC will take any action permitted to be taken by
a holder of Notes (including the presentation of Notes for exchange as described
below) only at the direction of one or more participants to whose account the
DTC interests in a Global Note is credited and only in respect of such portion
of the aggregate principal amount of Notes as to which such participant or
participants has or have given such direction. However, if there is an Event of
Default under the Notes, DTC will exchange the Global Note for notes in
registered form without interest coupons ("Certificated Notes "), which it will
distribute to its participants.
The Company understands that: DTC is a limited purpose trust company
organized under the laws of the State of New York, a "banking organization"
within the meaning of New York Banking Law, a member of the Federal Reserve
System, a "clearing corporation" within the meaning of the Uniform Commercial
Code and a "Clearing Agency" registered pursuant to the provisions of Section
17A of the Exchange Act. DTC was created to hold securities for its participants
and facilitate the clearance and settlement of securities transactions between
participants through electronic book-entry changes in accounts of its
participants, thereby eliminating the need for physical movement of
certificates. Indirect access to the DTC system is available to others such as
banks, brokers, dealers and trust companies and certain other organizations that
clear through or maintain a custodial relationship with a participant, either
directly or indirectly ("indirect participants").
Although DTC is expected to follow the foregoing procedures in order to
facilitate transfers of interests in a Global Note among participants of DTC, it
is under no obligation to perform or continue to perform such procedures, and
such procedures may be discontinued at any time. Neither the Company nor the
Trustee will have any responsibility for the performance by DTC or its
participants or indirect participants of their respective obligations under the
rules and procedures governing their operations.
If DTC is at any time unwilling or unable to continue as a depositary for
the Global Notes and a successor depositary is not appointed by the Company
within 90 days, the Company will issue Certificated Notes in exchange for the
Global Notes. Holders of an interest in a Global Note may receive Certificated
Notes in accordance with the DTC's rules and procedures in addition to those
provided for under the Indenture.
REGISTRATION RIGHTS
The Company entered into the Registration Rights Agreement with the
Placement Agents, for the benefit of the Holders of Old Notes, pursuant to which
the Company agreed to use its best efforts, at its cost, to file and cause to
become effective a registration statement with respect to a registered offer to
exchange the Old Notes for an issue of senior subordinated notes of the Company
(the "Registered Notes") with terms identical to the Old Notes (except that the
Registered Notes will not bear legends restricting the transfer thereof). The
Registration Statement, of which this Prospectus is part, constitutes the
registration statement for purposes of the Registration Rights Agreement. Upon
the Registration Statement being declared effective, the Company shall offer the
New Notes in return for surrender of the Old Notes. The Exchange Offer will
remain open for not less than 20 business days after the date notice of the
Exchange Offer is mailed to Holders of the Old Notes. For each Old Note
surrendered to the Company under the Exchange Offer, the Holder of such Old Note
will receive a New Note of equal principal amount. Interest on each New Note
shall accrue from the last Interest Payment Date on which interest was paid on
the Old Notes so surrendered or, if no interest has been paid on such Old Notes,
from December 21, 1998. In the event that applicable
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interpretations of the staff of the Commission do not permit the Company to
effect the Exchange Offer, or under certain other circumstances, the Company
shall, at its cost, use its best efforts to cause to become effective a shelf
registration statement (the "Shelf Registration Statement") with respect to
resales of the Old Notes and to keep such Shelf Registration Statement effective
until the expiration of the time period referred to in Rule 144(k) under the
Securities Act after the December 21, 1998, or such shorter period that will
terminate when all Old Notes covered by the Shelf Registration Statement have
been sold pursuant to the Shelf Registration Statement. The Company shall, in
the event of such a shelf registration, provide to each Holder copies of the
prospectus, notify each Holder of Old Notes when the Shelf Registration
Statement for the Old Notes has become effective and take certain other actions
as are required to permit resales of the Old Notes. A Holder that sells its Old
Notes pursuant to the Shelf Registration Statement generally will be required to
be named as a selling security holder in the related prospectus and to deliver a
prospectus to purchasers, will be subject to certain of the civil liability
provisions under the Securities Act in connection with such sales and will be
bound by the provisions of the Registration Rights Agreement that are applicable
to such a Holder (including certain indemnification obligations).
In the event that the Exchange Offer is not consummated and a Shelf
Registration Statement is not declared effective on or prior to June 21, 1999,
the annual interest rate borne by the Old Notes will be increased by .5% per
annum until the Exchange Offer is consummated or the Shelf Registration
Statement is declared effective.
If the Company effects the Exchange Offer, the Company will be entitled to
close the Exchange Offer 20 business days after the commencement thereof,
provided that it has accepted all Old Notes theretofore validly surrendered in
accordance with the terms of the Exchange Offer. Old Notes not tendered in the
Exchange Offer shall bear interest at 9 1/4% per annum and be subject to all of
the terms and conditions specified in the Indenture and to the transfer
restrictions set forth in the legend on the certificate for such Old Notes."
This summary of certain provisions of the Registration Rights Agreement
does not purport to be complete and is subject to, and is qualified in its
entirety by reference to, all the provisions of the Registration Rights
Agreement, a copy of which is filed as an exhibit to the Registration Statement
of which this Prospectus is a part.
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CERTAIN UNITED STATES FEDERAL TAX CONSIDERATIONS
The following summary describes certain material United States federal
income tax considerations associated with the exchange of the Old Notes for the
New Notes pursuant to the Exchange Offer and the ownership and disposition of
the Notes. The summary is based on the Internal Revenue Code of 1986, as amended
(the "Code"), and regulations, rulings and judicial decisions as of the date
hereof, all of which may be repealed, revoked or modified with possible
retroactive effect. This summary is limited to investors who will hold the Notes
as capital assets within the meaning of Section 1221 of the Code and does not
deal with holders that may be subject to special tax rules (including, but not
limited to, insurance companies, tax-exempt organizations, financial
institutions, dealers in securities or currencies, holders whose functional
currency is not the U.S. dollar, holders who will hold the Notes as a hedge
against currency risks or as part of a straddle, synthetic security, conversion
transaction or other integrated investment comprised of the Notes and one or
more other investments or, except to the extent discussed below, Non-United
States Holders (as defined below). The summary is applicable only to purchasers
of Notes in the Offering who acquire the Notes at the initial offering price and
does not address other purchasers.
This summary is for general information only and does not address all
aspects of federal income taxation that may be relevant to holders of the Notes
in light of their particular circumstances, and it does not address any tax
consequences arising under the laws of any state, local or foreign taxing
jurisdiction. Prospective investors should consult their own tax advisors as to
the particular tax consequences of the exchange of Old Notes for New Notes and
the ownership and disposition of the Notes, including the applicability and
effect of any United States Federal, state, local and foreign income and other
tax laws.
As used herein, the term "United States Holder" means a beneficial owner of
Notes that is (i) a citizen or resident of the United States for U.S. federal
income tax purposes, (ii) a corporation created or organized under the laws of
the United States, any State thereof or the District of Columbia, (iii) an
estate the income of which is subject to United States federal income tax
without regard to its source or (iv) a trust if a court within the United States
is able to exercise primary supervision over the administration of the trust and
one or more United States persons have the authority to control all substantial
decisions of the trust. A "Non-United States Holder" is any beneficial holder
that is not a United States Holder.
UNITED STATES HOLDERS AND NON-UNITED STATES HOLDERS
There will be no United States Federal income tax consequences to a United
States Holder or Non-United States Holder exchanging an Old Note for a New Note
pursuant to the Exchange Offer and such Holder will have the same adjusted basis
and holding period in the New Note as it had in the Old Note immediately before
the exchange.
UNITED STATES HOLDERS
Stated Interest on Notes
Stated interest on a Note generally will be taxable to a United States
Holder as ordinary income at the time it accrues or is received in accordance
with the United States Holder's method of accounting for U.S. federal income tax
purposes.
Sale, Exchange or Retirement of Notes
Upon the sale, exchange, redemption, retirement or other disposition of a
Note, a United States Holder generally will recognize gain or loss equal to the
difference between the amount realized upon the sale, exchange, redemption,
retirement or other disposition (not including amounts attributable to accrued
but unpaid interest, which will be taxable as such) and such holder's adjusted
tax basis in the Note. A United States Holder's adjusted tax basis in a Note
will, in general, be the United States Holder's cost therefor. Such gain or loss
will be capital gain or loss, and, under recently adopted amendments to the
Code, net capital gain (i.e., generally capital gain in excess of capital loss)
recognized by an individual United States Holder upon the disposition of a Note
that has been held for more than one year generally will be subject to tax at a
maximum rate of 20% or, in the case of a Note that has been held for one year or
less, at ordinary income tax rates. The deductibility of capital losses is
subject to limitations.
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Market Discount
United States Holders, other than original purchasers of the Old Notes in
the offering, should be aware that the sale of the New Notes may be affected by
the market discount provisions of the Code.
Market Discount Rules. The market discount rules generally provide that if
a United States Holder of a Note purchased the Note, subsequent to the original
offering, at a "market discount" (i.e., at an amount less than the adjusted
issue price of the Note as determined on the date of such purchase) in excess of
a statutorily-defined de minimis amount, and thereafter recognizes gain upon a
disposition (including a partial redemption) of the New Note received in
exchange for an Old Note, the lesser of such gain or the portion of the market
discount that accrued while the Old Note and New Note were held by such United
States Holder will be treated as ordinary interest income at the time of
disposition. The rules also provide that a United States Holder who acquires a
Note at a market discount may be required to defer a portion of any interest
expense that may otherwise be deductible on any indebtedness incurred or
maintained to purchase or carry such Note until the United States Holder
disposes of such Note in taxable transaction. If a Holder of such a Note elects
to include market discount in income currently, both of the foregoing rules
would not apply.
NON-UNITED STATES HOLDERS
Under present U.S. federal income tax law, subject to the discussion of
backup withholding and information reporting below:
(a) payments of principal and interest on the Notes to any Non-United
States Holder will not be subject to U.S. federal income or withholding tax
provided that (i) the Non-United States Holder does not actually or
constructively own 10% or more of the total combined voting power of all
classes of stock of the Company entitled to vote, (ii) the Non-United
States Holder is not a bank receiving interest pursuant to a loan agreement
entered into in the ordinary course of its trade or business, (iii) the
Non-United States Holder is not a controlled foreign corporation that is
related to the Company (directly or indirectly) through stock ownership,
(iv) such interest payments are not effectively connected with a United
States trade or business and (v) the certification set forth in Section
871(h) or Section 881(c) of the Code has been fulfilled with respect to the
beneficial owner. Such certification will be satisfied if the beneficial
owner of the Note certifies on IRS Form W-8 or a substantially similar
substitute form, under penalties of perjury, that it is not a United States
person and provides its name and address, and (i) such beneficial owner
files such form with the withholding agent or (ii) in the case of a Note
held by a securities clearing organization, bank or other financial
institution that holds customers' securities in the ordinary course of its
trade or business (a "financial institution") and holds the Note, such
financial institution certifies to the Company or its agent under penalties
of perjury that such statement has been received from the beneficial owner
by it or by a financial institution between it and the beneficial owner and
furnishes the withholding agent with a copy thereof; and
(b) a Non-United States Holder will not be subject to U.S. federal
income tax on gain realized on the sale, exchange, redemption retirement or
other disposition of a Note, unless (i) the gain is effectively connected
with a trade or business carried on by such holder within the United States
or, if a treaty applies, attributable to the United States permanent
establishment maintained by the holder, or (ii) the holder is an individual
who is present in the United States for 183 days or more in the taxable
year of disposition and certain other requirements are met.
BACKUP WITHHOLDING AND INFORMATION REPORTING
In general, payments of interest and the proceeds of the sale, exchange,
redemption, retirement or other disposition of the Notes payable by a U.S.
paying agent or other U.S. intermediary will be subject to information
reporting. In addition, backup withholding at a rate of 31 percent will apply to
these payments if the holder fails to provide an accurate taxpayer
identification number (in the case of a United States Holder) or the
certification described above (in the case of a Non-United States Holder) or
other evidence of exempt status or fails to report all interest and dividends
required to be shown on its U.S. federal income tax returns. Certain United
States Holders (including, among others, corporations) and Non-United States
Holders that comply with certain certification requirements are not subject to
backup withholding. Any amount paid as
90
92
backup withholding will be creditable against the holder's U.S. federal income
tax liability provided that the required information is timely furnished to the
IRS. Prospective investors should consult their tax advisors as to their
qualification for exemption from backup withholding and the procedure for
obtaining such an exemption.
PLAN OF DISTRIBUTION
Each broker-dealer that receives New Notes for its own account pursuant to
the Exchange Offer must acknowledge that it will deliver a prospectus in
connection with any resale of such New Notes. This Prospectus, as it may be
amended or supplemented from time to time, may be used by a broker-dealer in
connection with resales of New Notes received in exchange for Old Notes where
such Old Notes were acquired as a result of market-making activities or other
trading activities. The Company has agreed that for a period of 180 days after
the Expiration Date, it will make this Prospectus, as amended or supplemented,
available to any broker-dealer for use in connection with any such resale.
The Company will not receive any proceeds from any sale of New Notes by
broker-dealers. New Notes received by broker-dealers for their own account
pursuant to the Exchange Offer may be sold from time to time in one or more
transactions in the over-the-counter market, in negotiated transactions, through
the writing of options on the New Notes or a combination of such methods of
resale, at market prices prevailing at the time of resale, at prices related to
such prevailing market prices or negotiated prices. Any such resale may be made
directly to purchasers or to or through brokers or dealers who may receive
compensation in the form of commissions or concessions from any such
broker-dealer and/or the purchasers of any such New Notes. Any broker-dealer
that resells New Notes that were received by it for its own account pursuant to
the Exchange Offer and any broker or dealer that participates in a distribution
of such New Notes may be deemed to be an "underwriter" within the meaning of the
Securities Act and any profit on any such resale of New Notes and any
commissions or concessions received by any such persons may be deemed to be
underwriting compensation under the Securities Act. The Letter of Transmittal
states that by acknowledging that it will deliver and by delivering a
prospectus, a broker-dealer will not be deemed to admit that it is an
"underwriter" within the meaning of the Securities Act.
For a period of 180 days after the Expiration Date, the Company will
promptly send additional copies of the Prospectus and any amendment or
supplement to this Prospectus to any broker-dealer that requests such document
in the Letter of Transmittal. The Company has agreed to pay all expenses
incident to the Exchange Offer other than commissions or concessions of any
brokers or dealers and will indemnify the holders of the Notes (including any
broker-dealers) against certain liabilities, including liabilities under the
Securities Act.
Following consummation of the Exchange Offer, the company may, in its sole
discretion, commence one or more additional exchange offers to holders of Old
Notes who did not exchange their Old Notes for New Notes in the Exchange Offer
on terms which may differ from those contained in the Registration Rights
Agreement. This Prospectus, as it may be amended of supplemented from time to
time, may be used by the Company in connection with any such additional exchange
offers. Such additional exchange offers will take place from time to time until
all outstanding Old Notes have been exchanged for New Notes.
LEGAL MATTERS
The legality of the New Notes offered hereby is being passed upon for the
Company by Skadden, Arps, Slate, Meagher & Flom LLP and by Michael R. Kargula,
Executive Vice President, General Counsel and Secretary of the Company.
EXPERTS
The consolidated statements of financial position of Primark Corporation
and subsidiaries as of December 31, 1996 and 1997, and the related consolidated
statements of income, common shareholder's equity and cash flows for each of the
three years in the period ended December 31, 1997 included in this Prospectus
have been audited by Deloitte & Touche LLP, independent auditors, as stated in
their report appearing herein, and are included in reliance upon the reports of
such firm given upon their authority as experts in accounting and auditing.
91
93
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and, in accordance
therewith, files reports, proxy statements and other information with the SEC.
Such reports, proxy statements and other information can be inspected and copied
at the Public Reference Section of the SEC at Room 1024, 450 Fifth Street, N.W.,
Washington, D.C. 20549, and at the SEC's regional offices at Citicorp Center,
500 West Madison Street, Suite 1400, Chicago, Illinois 60661 and Seven World
Trade Center, Suite 1300, New York, New York 10048. Copies of such reports,
proxy statements and other information can also be obtained from the Public
Reference Section of the SEC at 450 Fifth Street, N.W., Washington, D.C. 20549,
upon payment of prescribed rates, or in certain cases by accessing the SEC's
World Wide Web site of http://www.sec.gov. The public may obtain information on
the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330.
The Company's common stock is quoted on the NYSE and the Pacific Exchange under
the symbol "PMK," and such reports, proxy statements and other information
concerning the Company also can be inspected at the offices of the NYSE, 20
Broad Street, New York, New York 10005, and the Pacific Exchange, 301 Pine
Street, San Francisco, California 94104.
INFORMATION INCORPORATED BY REFERENCE
The SEC allows the Company to incorporate by reference the information
filed by the Company with the SEC, which means that the Company can disclose
important information to you by referring you to those documents. The
information incorporated by reference is considered to be part of this
Prospectus, and information that the Company later files with the SEC will
automatically update and supersede this information. The Company incorporates by
reference into this Prospectus the following documents or information filed with
the SEC:
1. The Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 1997 (the "1997 10-K"), filed with the SEC on March 30, 1998,
as amended by the amendment to the 1997 10-K filed with the SEC on April 8,
1998;
2. The Company's Quarterly Reports on Form 10-Q filed with the SEC on
May 12, 1998, August 13, 1998 and November 13, 1998;
3. The Company's Current Reports on Form 8-K filed with the SEC on
March 3, 1998, March 6, 1998, March 20, 1998, April 8, 1998, July 7, 1998
and October 6, 1998; and
4. All documents filed by the Company pursuant to Section 13(a),
13(c), 14 or 15(d) of the Exchange Act subsequent to the date of the
Registration Statement of which this Prospectus is part and prior to the
effectiveness thereof or subsequent to the date of this Prospectus and
prior to the termination of the offering made hereby.
As noted above, any statement contained in this Prospectus, or in any
documents incorporated or deemed to be incorporated by reference in this
Prospectus shall be deemed to be modified or superseded for purposes of this
Prospectus to the extent that a subsequent statement contained in this
Prospectus or in any subsequently filed document which also is or is deemed to
be incorporated by reference in this Prospectus modifies or supersedes such
statement. Any such statement so modified or superseded shall not be deemed,
except as so modified or superseded, to constitute a part of this Prospectus.
This Prospectus incorporates documents by reference which are not presented
herein or delivered herewith. These documents are available without charge upon
written or oral request from the Stephen H. Curran, Executive Vice President and
Chief Financial Officer of the Company at the Company's principal executive
offices located at 1000 Winter Street, Suite 4300N, Waltham, Massachusetts
02451, telephone number (781) 466-6611.
------------------------
This Exchange Offer is not being made to, nor will the Company accept
surrenders for exchange from, holders of outstanding Old Notes in any
jurisdiction in which this Exchange Offer or the acceptance thereof would not be
in compliance with the securities or blue sky laws of such jurisdiction.
92
94
PRIMARK CORPORATION AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
PAGE
----
Consolidated Statements of Financial Position at September
30, 1998 and at December 31, 1997 Unaudited............... F-2
Consolidated Statements of Income for the Three and Nine
Months Ended September 30, 1998 and 1997 Unaudited........ F-3
Consolidated Statements of Retained Earnings for the Three
and Nine Months Ended September 30, 1998 and 1997
Unaudited................................................. F-4
Consolidated Statements of Cash Flows for the Nine Months
Ended September 30, 1998 and 1997 Unaudited............... F-5
Notes to the Consolidated Financial Statements at September
30, 1998 Unaudited........................................ F-6
Report of Independent Auditors.............................. F-11
Consolidated Statements of Income for the Years Ended 1997,
1996 and 1995............................................. F-12
Consolidated Statements of Cash Flows for the Years Ended
1997, 1996 and 1995....................................... F-13
Consolidated Statements of Financial Position for the Years
Ended 1997, 1996 and 1995................................. F-14
Consolidated Statements of Common Shareholders' Equity for
the Years Ended 1997, 1996 and 1995....................... F-15
Notes to the Consolidated Financial Statements at December
31, 1997.................................................. F-16
F-1
95
PRIMARK CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
(UNAUDITED)
SEPTEMBER 30, DECEMBER 31,
1998 1997
------------- ------------
(IN THOUSANDS)
ASSETS
CURRENT ASSETS
Cash and cash equivalents, at cost (which approximates
market value).......................................... $ 30,022 $ 12,780
Billed receivables less allowance for doubtful accounts
of $2,833 and $2,756, respectively..................... 89,731 70,084
Unbilled and other receivables.......................... 11,603 9,546
Federal and state income tax benefit.................... -- 21,304
Other current assets.................................... 27,690 24,036
Net assets of discontinued operations (Note 2).......... 13,198 197,330
-------- ----------
172,244 335,080
-------- ----------
DEFERRED CHARGES AND OTHER ASSETS
Goodwill, less accumulated amortization of $77,021 and
$41,834, respectively.................................. 517,547 556,737
Capitalized data and other intangible assets, less
accumulated amortization of $27,487 and $20,710,
respectively........................................... 39,360 47,512
Capitalized software, less accumulated amortization of
$16,168 and $20,162, respectively...................... 30,077 48,645
Other................................................... 4,454 8,980
-------- ----------
591,438 661,874
-------- ----------
PROPERTY, PLANT AND EQUIPMENT, AT COST
Computer equipment...................................... 59,374 63,169
Leasehold improvements.................................. 16,594 17,631
Other................................................... 26,530 9,806
-------- ----------
102,498 90,606
Less-accumulated depreciation........................... (54,852) (43,751)
-------- ----------
47,646 46,855
-------- ----------
$811,328 $1,043,809
======== ==========
LIABILITIES AND COMMON SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Notes Payable........................................... $ 93,565 $ 27,602
Accounts Payable........................................ 14,592 14,125
Accrued employee payroll and benefits................... 26,849 24,585
Taxes payable........................................... 61,222 10,717
Deferred income......................................... 78,366 69,931
Current portion of long-term debt, including capital
lease obligations...................................... 817 11,301
Other accrued expenses.................................. 58,253 43,814
-------- ----------
333,664 202,075
-------- ----------
LONG-TERM DEBT AND OTHER LIABILITIES
Long-term debt, including capital lease obligations..... 8,842 331,260
Deferred income taxes................................... 16,261 21,133
Other................................................... 15,740 18,370
-------- ----------
40,843 370,763
-------- ----------
Total liabilities.................................. 374,507 572,838
COMMITMENTS AND CONTINGENCIES (NOTE 8)
COMMON SHAREHOLDERS' EQUITY
Common stock and additional paid-in-capital............. 88,862 275,370
Retained earnings....................................... 350,454 198,658
Cumulative foreign translation adjustment............... (2,495) (3,057)
-------- ----------
Total common shareholders' equity.................. 436,821 470,971
-------- ----------
Total liabilities and shareholders' equity......... $811,328 $1,043,809
======== ==========
The accompanying notes to the consolidated financial statements are an integral
part of these statements.
F-2
96
PRIMARK CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
THREE MONTHS NINE MONTHS
ENDED ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------- -------------------
1998 1997 1998 1997
---- ---- ---- ----
(THOUSANDS EXCEPT PER SHARE AMOUNTS)
OPERATING REVENUES....................................... $108,534 $99,113 $321,819 $294,726
OPERATING EXPENSES
Cost of services..................................... 45,020 37,361 129,221 116,783
Selling, general and administrative.................. 40,284 37,418 120,933 115,957
Depreciation......................................... 4,328 4,306 12,831 13,187
Amortization of goodwill............................. 3,820 3,957 11,755 11,823
Amortization of other intangible assets.............. 2,991 4,233 12,164 12,108
Restructuring Charge................................. -- -- 68,677 6,800
-------- ------- -------- --------
Total operating expenses........................ 96,443 87,275 355,581 276,658
-------- ------- -------- --------
Operating income................................ 12,091 11,838 (33,762) 18,068
-------- ------- -------- --------
OTHER INCOME AND (DEDUCTIONS)
Interest expense..................................... (2,064) (4,090) (7,618) (11,805)
Foreign currency gain (loss)......................... 636 (12) 996 2,325
Investment and other income (deductions) -- net...... (70) 288 1,840 (377)
-------- ------- -------- --------
Total other income and (deductions)............. (1,498) (3,814) (4,782) (9,857)
-------- ------- -------- --------
INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAXES.... 10,593 8,024 (38,544) 8,211
INCOME TAX EXPENSE (BENEFIT)............................. 4,682 4,637 (100) 8,533
-------- ------- -------- --------
INCOME FROM CONTINUING OPERATIONS........................ 5,911 3,387 (38,444) (322)
-------- ------- -------- --------
DISCONTINUED OPERATIONS
Discontinued operations, net of income tax
(benefit)/expense of $103,000, $(560,000),
$(700,000) and $(892,000) respectively............ 1,835 4,216 7,947 13,074
Gain on disposal of discontinued operations, net of
income tax expense of $7,683,000, $0, $108,735,000
and $0, respectively.............................. 14,189 -- 187,414 --
-------- ------- -------- --------
Total Discontinued Operations................... 16,024 4,216 195,361 13,074
-------- ------- -------- --------
INCOME BEFORE EXTRAORDINARY LOSS......................... 21,935 7,603 156,917 12,752
EXTRAORDINARY ITEM-LOSS ON EARLY EXTINGUISHMENT OF DEBT,
net of income tax benefit of $3,614,000 and $1,379,000
respectively........................................... -- -- (5,121) (1,955)
-------- ------- -------- --------
NET INCOME APPLICABLE TO COMMON STOCK.................... $ 21,935 $ 7,603 $151,796 $ 10,797
======== ======= ======== ========
EARNINGS PER COMMON SHARE -- BASIC
Income from continuing operations.................... $ 0.27 $ 0.13 $ (1.52) $ (0.01)
Discontinued operations.............................. 0.73 0.16 7.71 0.49
Extraordinary item................................... -- -- (0.20) (0.07)
-------- ------- -------- --------
Total earnings per share........................ $ 0.99 $ 0.29 $ 5.99 $ 0.41
======== ======= ======== ========
EARNINGS PER COMMON SHARE -- ASSUMING DILUTION
Income from continuing operations.................... $ 0.26 $ 0.12 $ -- $ --
Discontinued operations.............................. 0.70 0.15 -- --
Extraordinary item................................... -- -- -- --
-------- ------- -------- --------
Total earnings per share........................ $ 0.96 $ 0.28 $ -- $ --
======== ======= ======== ========
WEIGHTED AVERAGE COMMON AND COMMON EQUIVALENT SHARES
OUTSTANDING
Basic................................................ 22,088 25,931 25,343 26,415
Effect of Dilutive Securities........................ 709 1,417 -- --
-------- ------- -------- --------
Diluted.............................................. 22,797 27,348 25,343 26,415
-------- ------- -------- --------
The accompanying notes to the consolidated financial statements are an integral
part of these statements.
F-3
97
PRIMARK CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF RETAINED EARNINGS
(UNAUDITED)
THREE MONTHS NINE MONTHS
ENDED ENDED
SEPTEMBER 30, SEPTEMBER 30,
-------------------- -------------------
1998 1997 1998 1997
---- ---- ---- ----
(THOUSANDS EXCEPT PER SHARE AMOUNTS)
Balance -- Beginning of period..................... $328,519 $182,137 $198,658 $178,943
Add -- Net Income.................................. 21,935 7,603 151,796 10,797
-------- -------- -------- --------
Balance -- End of period........................... $350,454 $189,740 $350,454 $189,740
======== ======== ======== ========
The accompanying notes to the consolidated financial statements are an integral
part of these statements.
F-4
98
PRIMARK CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
NINE MONTHS ENDED
SEPTEMBER 30,
------------------------
1998 1997
---- ----
(IN THOUSANDS)
CASH FLOWS FROM OPERATING ACTIVITIES
Net income............................................. $ 151,796 $ 10,797
Adjustments to reconcile net income to net cash flows
from operating activities:
Discontinued operations................................ (7,947) (13,074)
Gain on Sale of subsidiary............................. (187,414)
Loss on extinguishment of intangible assets............ 60,650 18,749
Extraordinary loss on early extinguishment of debt..... 5,121 1,955
Cash provided by (contributed to) discontinued
operations............................................ (9,270) (9,149)
Depreciation and amortization.......................... 36,750 40,656
Other charges and credits -- net....................... (5,455) (5,549)
Changes in operating working capital, excluding the
effect of acquisitions:
Increase in billed, unbilled and other
receivables-net................................. (21,121) (5,028)
(Increase) decrease in other current assets....... (3,392) 4,482
Decrease (increase) in accounts payable........... 1,581 (6,427)
Increase in accrued payroll and benefits.......... 1,587 87
(Decrease) increase in income and other taxes
payable -- net.................................. 8,164 (5,745)
Increase in deferred income....................... 8,032 2,062
Increase in other current liabilities............. 13,228 4,596
---------- ----------
Net cash provided from operating
activities................................ 52,310 38,412
---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES
Issuance of short-term notes payable................... 665,135 157,746
Repayment of short-term notes payable.................. (599,172) (154,795)
Issuance of long-term debt............................. -- 100,000
Repayment of long-term debt............................ (332,504) --
Common stock repurchased and retired................... (195,417) (26,633)
Common stock issuance.................................. 8,909 3,928
Debt issue costs and other............................. (939) (2,831)
Call Premium........................................... (4,900) --
---------- ----------
Net cash provided from financing
activities................................ (458,888) 77,415
---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures................................... (14,486) (17,576)
Capitalized software................................... (12,591) (14,121)
Purchase of subsidiaries -- net of acquired cash....... (4,826) (88,090)
Proceeds from sale of subsidiary....................... 502,000 --
Tax paid on sale of subsidiary......................... (43,000) --
Other -- net........................................... 171 1,087
Cash provided by (contributed to) discontinued
operations............................................ (3,495) (5,911)
---------- ----------
Net cash used for investing activities....... 423,773 (124,611)
---------- ----------
EFFECT OF EXCHANGE RATE CHANGES ON CASH..................... 47 (344)
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS........ 17,242 (9,128)
CASH AND CASH EQUIVALENTS, JANUARY 1,....................... 12,780 25,276
---------- ----------
CASH AND CASH EQUIVALENTS, SEPTEMBER 30,.................... $ 30,022 $ 16,148
========== ==========
The accompanying notes to the consolidated financial statements are an integral
part of these statements.
F-5
99
PRIMARK CORPORATION AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. BASIS OF PRESENTATION
In the opinion of management, the accompanying balance sheets and related
interim statements of income and cash flows include all adjustments (consisting
only of normal recurring items) necessary for their fair presentation in
conformity with generally accepted accounting principles. Preparing financial
statements requires management to make estimates and assumptions that affect the
reported amounts of assets, liabilities, revenues, and expenses. Examples
include provision for bad debts and the length of asset lives. Actual results
may differ from these estimates. Interim results are not necessarily indicative
of results for a full year. The information included in this Form 10-Q should be
read in conjunction with Management's Discussion and Analysis and financial
statements and notes thereto included in the Primark Corporation 1997 Annual
Report on Form 10-K.
2. DISCONTINUED OPERATIONS
The accompanying consolidated financial statements reflect the operating
results of TASC and TIMCO separately from the Company's continuing operations
for all periods presented. Interest expense has been allocated to discontinued
operations based upon the ratio of net assets to total consolidated net assets.
The net assets of discontinued operations represents the net book value of the
Company's investment in TASC and TIMCO and consists principally of working
capital, fixed assets, goodwill and other non-current assets and liabilities.
A) Sale of TASC
On April 1, 1998, the Company completed the sale of TASC and its affiliated
weather information companies to Litton Industries for $432 million in cash plus
an estimated equity adjustment of $11.5 million. The equity adjustment is based
upon changes in TASC's consolidated equity account, less certain inter-company
transactions, from September 30, 1997 through the date of the closing. On July
27, 1998, Litton sent notification that it was contesting specific components of
the equity adjustment totaling $4.2 million. Both Litton and the Company are in
the process of establishing the protocol to resolve all disputed amounts.
The Company recorded a gain on the sale of $173.2 million which includes
the $11.5 million equity adjustment, transaction costs of $5.4 million, taxes of
$101.1 million and the net book value of TASC's assets. The cash, net of all
transaction costs and taxes, to be received by the Company from the foregoing
sale will be approximately $337.0 million.
B) Sale of TIMCO
On September 22, 1998, the Company completed the sale of all of the
outstanding common stock of its heavy aircraft maintenance unit, the Triad
International Maintenance Corporation (TIMCO), to Aviation Sales Maintenance,
Repair & Overhaul Company (AVS), a division of Aviation Sales Company. The
transaction was executed in accordance with a Stock Purchase Agreement dated
August 10, 1998 for a cash purchase price of $70 million. Pursuant to the Stock
Purchase Agreement, a working capital adjustment of $1.3 million, based upon
TIMCO's closing balance sheet as of September 22, 1998, has been recorded as a
receivable at September 30, 1998. The $1.3 million was received by wire in
November, 1998.
The Company recorded a gain on the sale of $14.2 million which includes the
$1.3 million working capital adjustment, transaction costs of $850,000, taxes of
$8.7 million and the net book value of TIMCO's assets. The cash, net of all
closing adjustments and taxes to be received by the Company from the foregoing
sale will be approximately $52.0 million.
F-6
100
PRIMARK CORPORATION AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(UNAUDITED)
DISCONTINUED OPERATIONS
NINE MONTHS
QUARTER ENDED ENDED
SEPTEMBER 30, SEPTEMBER 30,
---------------- ----------------
1998 1997 1998 1997
---- ---- ---- ----
(IN THOUSANDS) (IN THOUSANDS)
Income/(Loss)
TASC...................................... $ -- $4,211 $3,755 $13,428
TIMCO..................................... 1,835 5 4,192 (354)
------ ------ ------ -------
Total................................ $1,835 $4,216 $7,947 $13,074
------ ------ ------ -------
SEPTEMBER 30, DECEMBER 31,
1998 1997
------------- ------------
Net Assets
TASC............................... $11,500 $155,376
TIMCO.............................. 1,698 41,954
------- --------
Total......................... $13,198 $197,330
======= ========
3. RESTRUCTURING AND INTEGRATION CHARGES
Effective June 1, 1998, the Company was reorganized in order to
strategically focus solely on its information services businesses. In connection
with this reorganization, the Company recorded a pre-tax charge of $77.4
million, of which $8.7 million is recorded as an Extraordinary Item (see
Refinancing Footnote) and the remaining $68.7 million is recorded within
operating expenses for direct and other reorganization related costs.
The charge included the write-off of intangible assets for (i) $25.0
million of previously capitalized software related to the planned integration of
several product offerings on common software platforms, (ii) $1.5 million of
data that has been determined to be duplicative and will not be used as a result
of the software platform integration previously discussed, (iii) write-off of
$23.9 million of goodwill associated with software and data written off which
was established as part of purchase accounting, (iv) write-off of $7.2 million
of goodwill related to DAFSA, and (v) write-off of $3.1 million of a trademark
no longer used in the restructured organization.
An additional $8.0 million of the restructuring charge relates primarily to
the integration of domestic and international sales offices and efficiencies
gained from technological advancements that will result in the phased reduction
of approximately 61 employees.
There was no utilization of the restructure accrual in the third quarter.
The remaining accrual is expected to be utilized within one year. Details of the
unutilized restructuring and integration costs as of September 30, 1998 are as
follows (000's):
SECOND QUARTER UTILIZED SEPTEMBER 30,
1998 PROVISION TO DATE 1998 PROVISION
-------------- -------- --------------
(IN THOUSANDS)
Abandonment of leased facilities, including
leasehold improvements.......................... $5,156 $ -- $5,156
Salaries and termination benefits................. 2,871 185 2,686
------ ---- ------
Total........................................ $8,027 $185 $7,842
====== ==== ======
Cash flow expenditures, net of tax recovery, will be funded by the
Company's cash flows from operating activities. The overall restructuring plan,
when fully implemented, will reduce amortization and other costs by
F-7
101
PRIMARK CORPORATION AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(UNAUDITED)
over $7.0 million, net of tax, for each of the next several years. The 1997
restructuring charges relating specifically to DAFSA and Disclosure have been
fully utilized in prior quarters.
4. REFINANCING
On April 1, 1998, the Company amended the terms of its revolving credit
facility and term loan agreement. Under the terms of the revised agreement,
which became effective April 1, 1998, the Company used the proceeds from the
sale of TASC to (i) prepay all amounts outstanding on the Company's $112 million
senior callable bonds, including a 4.375% premium aggregating $4.9 million, (ii)
prepay $220 million of the Company's outstanding term loan together with accrued
interest thereon, and (iii) prepay approximately $500,000 of the Company's other
indebtedness.
In conjunction with the above, the Company replaced its outstanding $75
million credit facility with a $225 million revolving credit facility which
expires in 2002. Interest on the borrowings under the new revolving credit
facility is payable at rates ranging from 0.375% to 1.00% above the current
prevailing LIBOR rate of interest. Pursuant to the credit facility negotiations,
the Company incurred fees of $125,000 upon the sale of TASC and $325,000 for
increasing the amounts allowed to be drawn on the line for the repurchase of
Company shares as part of the "Dutch Auction" self-tender offer.
As a result of the prepayment of debt and amended terms of the revolving
credit facility, the Company wrote off the associated deferred financing costs,
and paid a call premium of $4.9 million related to the prepayment of the $112
million of senior callable bonds. This resulted in an extraordinary loss of $8.7
million, or $5.1 million on an after tax basis for the quarter ended June 30,
1998. As of September 30, 1998, $93,565,000 is outstanding under the revolving
credit facility.
5. REPURCHASE OF COMMON STOCK
On May 20, 1998, the Company announced a "Dutch Auction" self-tender offer,
which expired on June 17, 1998. The Company purchased 4,540,000 shares at $34
per share under this arrangement. Total cost of these shares was $154.6 million,
including legal and accounting fees. On July 3, 1998, the Company implemented an
open market purchase program to buy up to 2,000,000 shares of its common stock
from time to time, depending on market conditions. As of September 30, 1998,
1,518,500 shares had been repurchased at a total cost of $40.8 million. On
October 2, 1998, the Company purchased additional 50,000 shares at a total cost
of $1,454,000. Year to date, the Company has purchased a total of 6,108,500
shares at a total cost of $196.6 million, representing approximately 22.5% of
its total outstanding common stock. On November 10, 1998, the Company announced
that the Board of Directors approved the expansion of the open market purchase
program by an additional 2,000,000 shares, bringing the total potential buyback
to 8,540,000 shares, or approximately 31% of the Company's total outstanding
before the "Dutch Auction." The Company is using proceeds from the sale of TASC
and TIMCO as well as its revolving credit facility to fund the common stock
repurchases.
6. EARNINGS PER SHARE
In March 1997, the Financial Accounting Standards Board (FASB) issued SFAS
No. 128, Earnings Per Share, which became effective for fiscal years ending
after December 15, 1997. The prior years' earnings per share have been
retroactively restated in accordance with this statement. Basic earnings per
share was determined by dividing net income by the weighted average shares of
common stock outstanding during the year. Diluted earnings per share reflects
the dilution due to stock options based on the treasury stock method.
SFAS No. 128, states that if there is a loss from continuing operations, a
company should not include options and other potential common shares in the
denominator of a dilutive per-share computation even if including these
potential common shares in other dilutive per-share computations may be dilutive
to their comparable basic per-share amounts. Therefore, the "Earnings Per Common
Share -- Basic and Dilutive"
F-8
102
PRIMARK CORPORATION AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(UNAUDITED)
included within the Company's Statements of Income exclude the dilutive effect
of options and other potential common shares for the nine months ended September
30, 1998 and 1997, respectively.
If options and other potential common shares were included, weighted
average common and common equivalent shares outstanding and the related dilutive
earnings per common share would have been as follows (in thousands except per
share amounts):
PRO-FORMA WEIGHTED AVERAGE COMMON AND COMMON EQUIVALENT SHARES OUTSTANDING
NINE MONTHS
ENDED
SEPTEMBER 30,
----------------
1998 1997
---- ----
Basic....................................................... 25,343 26,415
Effect of Dilutive Securities............................... 1,042 1,163
------ ------
Diluted..................................................... 26,385 27,578
------ ------
PRO-FORMA EARNINGS PER COMMON SHARE -- ASSUMING DILUTION BENEFIT
NINE MONTHS
ENDED
SEPTEMBER 30,
----------------
1998 1997
---- ----
Income from continuing operations........................... $(1.46) $(0.01)
Discontinued operations..................................... 7.40 0.47
Extraordinary item.......................................... (0.19) (0.07)
------ ------
Total earnings per share............................... $ 5.75 $ 0.39
------ ------
7. NEWLY ISSUED ACCOUNTING STANDARDS
Effective January 1, 1998, the Company adopted the provisions of the
American Institute of Certified Public Accountants (AICPA) Statements of
Positions (SOP) No. 97-2, "Software Revenue Recognition," and No. 98-1,
"Accounting for the Costs of Computer Software Developed or Obtained for
Internal Use." Adoption of these pronouncements did not have a material effect
on the reported results of operations or financial position.
The Company adopted Statement of Financial Accounting Standards (SFAS) No.
130, "Reporting Comprehensive Income," which was issued by the Financial
Accounting Standards Board (FASB) in June of 1997. This standard requires
companies to report and display comprehensive income and its components in a
full set of general-purpose financial statements beginning with this year's
Annual Report on Form 10-K. The following table provides a reconciliation of net
income to comprehensive income.
THREE MONTHS NINE MONTHS
ENDED ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------ ------------------
1998 1997 1998 1997
---- ---- ---- ----
(IN THOUSANDS) (IN THOUSANDS)
Net Income.................................... $21,935 $ 7,603 $151,796 $10,797
Cumulative Translation Adjustment............. 1,239 4,694 562 2,328
Tax Benefit of Option Exercise................ 83 406 2,568 778
------- ------- -------- -------
Comprehensive Income.......................... $23,257 $12,703 $154,926 $13,903
Also in June of 1997, the FASB issued SFAS No. 131, "Disclosure about
Segments of an Enterprise and Related Information," which will be applicable
beginning with this year's Annual Report on Form 10-K.
F-9
103
PRIMARK CORPORATION AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(UNAUDITED)
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities," effective for fiscal years beginning after
June 15, 1999. The new standard requires that all companies record derivatives
on the balance sheet as assets or liabilities, measured at fair value. Gains or
losses resulting from changes in the values of those derivatives would be
accounted for depending on the use of the derivative and whether it qualifies
for hedge accounting. Management is currently assessing the impact of SFAS No.
133 on the financial statements of the Company.
8. CONTINGENCIES
There have been no other significant developments with respect to the
Company's contingent liabilities which were disclosed in the Company's 1997
Annual Report on Form 10-K. Management cannot predict the final disposition of
such issues, but believes that adequate provision has been made in the financial
statements and that the ultimate resolution of any outstanding issues will not
have a material adverse effect on the Company's financial condition.
F-10
104
REPORT OF INDEPENDENT AUDITORS
TO THE BOARD OF DIRECTORS OF PRIMARK CORPORATION:
We have audited the accompanying consolidated statements of financial
position of Primark Corporation and its subsidiaries as of December 31, 1997 and
1996 and the related consolidated statements of income, cash flows and common
shareholders' equity 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
misstatements. 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, such consolidated financial statements present fairly, in
all material respects, the financial position of Primark Corporation and its
subsidiaries at 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/ Deloitte & Touche LLP
--------------------------------------
Deloitte & Touche LLP
Boston, Massachusetts
February 10, 1998
(March 30, 1998 as to Note 14 to the Consolidated Financial Statements)
F-11
105
PRIMARK CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
IN THOUSANDS EXCEPT PER SHARE AMOUNTS FOR YEARS ENDED DECEMBER 31 1997 1996 1995
- ----------------------------------------------------------------- -------- -------- --------
OPERATING REVENUES............................................ $397,875 $277,063 $184,779
-------- -------- --------
OPERATING EXPENSES
Cost of services.............................................. 157,327 104,479 66,063
Selling, general and administrative........................... 151,559 111,463 71,921
Depreciation.................................................. 17,371 12,318 8,176
Amortization of goodwill...................................... 15,805 10,616 6,803
Amortization of other intangible assets....................... 17,029 10,348 10,930
Restructuring charge (Note 4)................................. 6,800 -- --
-------- -------- --------
Total operating expenses............................ 365,891 249,224 163,893
-------- -------- --------
OPERATING INCOME.............................................. 31,984 27,839 20,886
-------- -------- --------
OTHER INCOME AND (DEDUCTIONS)
Investment income............................................. 1,085 2,675 967
Interest expense.............................................. (15,986) (12,468) (8,377)
Foreign currency gain (loss).................................. 1,831 1,836 (2,620)
Other......................................................... 1,039 66 (845)
-------- -------- --------
Total other income and (deductions)................. (12,031) (7,891) (10,875)
-------- -------- --------
Income From Continuing Operations Before Income Taxes......... 19,953 19,948 10,011
Income Tax Expense............................................ 12,963 7,432 4,630
-------- -------- --------
Income From Continuing Operations............................. 6,990 12,516 5,381
-------- -------- --------
DISCONTINUED OPERATIONS (NOTE 3)
Discontinued operations, net of income tax expense of $11,988,
$14,005 and $10,482, respectively........................... 14,680 16,192 13,469
Gain on disposal of discontinued operations, net of income tax
expense of $5,407........................................... -- 8,400 --
-------- -------- --------
Total Discontinued Operations....................... 14,680 24,592 13,469
-------- -------- --------
Income Before Extraordinary Loss.............................. 21,670 37,108 18,850
Extraordinary Loss On Early Extinguishment Of Debt (Note 6),
net of income tax benefit of $1,379 in 1997 and $288 in
1995........................................................ (1,955) -- (534)
-------- -------- --------
Net Income.................................................... 19,715 37,108 18,316
Dividends On Preferred Stock.................................. -- (359) (1,434)
-------- -------- --------
Net Income Applicable To Common Stock......................... $ 19,715 $ 36,749 $ 16,882
======== ======== ========
BASIC EARNINGS PER COMMON SHARE (NOTE 8)
Income from continuing operations............................. $ 0.26 $ 0.49 $ 0.21
Discontinued operations....................................... 0.56 0.99 0.70
Extraordinary loss............................................ (0.07) -- (0.03)
-------- -------- --------
Net income.................................................... $ 0.75 $ 1.48 $ 0.88
======== ======== ========
EARNINGS PER COMMON SHARE -- ASSUMING DILUTION (NOTE 8)
Income from continuing operations............................. $ 0.25 $ 0.46 $ 0.19
Discontinued operations....................................... 0.53 0.92 0.65
Extraordinary loss............................................ (0.07) -- (0.02)
-------- -------- --------
Net income.................................................... $ 0.71 $ 1.38 $ 0.82
======== ======== ========
The accompanying notes to the consolidated financial statements are an integral
part of these statements.
F-12
106
PRIMARK CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
IN THOUSANDS FOR YEARS ENDED DECEMBER 31 1997 1996 1995
- ---------------------------------------- --------- --------- ---------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income................................................. $ 19,715 $ 37,108 $ 18,316
Adjustments to reconcile net income to net cash flows from
operating activities:
Discontinued operations............................... (14,680) (24,592) (13,469)
Extraordinary loss on early extinguishment of debt.... 3,334 -- 822
Cash provided by discontinued operations.............. 21,244 13,915 10,735
Depreciation and amortization......................... 50,205 33,282 25,909
Deferred income taxes................................. (3,310) 1,174 (835)
Other charges and credits -- net...................... (9,161) 11,268 1,674
Changes in operating working capital, excluding the effect
of acquisitions:
(Increase) decrease in billed, unbilled and other
receivables -- net.................................. (5,366) (27,531) 8,155
Decrease in other current assets...................... 1,743 303 717
Decrease in accounts payable.......................... (2,896) (1,954) (4,210)
Increase in accrued payroll and benefits.............. 2,515 3,310 5,023
(Decrease) increase in income and other taxes
payable -- net...................................... (5,506) 5,056 (516)
(Decrease) increase in deferred income................ (1,787) 10,848 (6,459)
Increase in other current liabilities................. 1,974 3,520 3,443
--------- --------- ---------
Net change in operating working capital............... (9,323) (6,448) 6,153
--------- --------- ---------
Net cash provided from operating activities........... 58,024 65,707 49,305
--------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Issuance of short-term notes payable....................... 225,304 2,598 318,601
Repayment of short-term notes payable...................... (197,702) (2,598) (318,601)
Issuance of long-term debt................................. 100,000 -- 125,000
Repayment of long-term debt................................ (5,000) -- --
Common stock repurchased and retired....................... (56,238) -- --
Common stock issuance...................................... 12,235 8,264 106,528
Debt issue costs and other................................. (3,853) (711) (7,073)
Financing activities of discontinued operations............ -- (2,804) (4,100)
--------- --------- ---------
Net cash provided from financing activities................ 74,746 4,749 220,355
--------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures....................................... (23,965) (19,412) (9,803)
Capitalized software....................................... (19,971) (16,916) (5,704)
Purchase of subsidiaries -- net of acquired cash........... (88,089) (71,084) (199,734)
Proceeds from sale of subsidiary........................... 3,494 14,300 --
Other -- net............................................... (4,514) (8,503) (2,465)
Investing activities of discontinued operations............ (11,459) (4,374) (9,002)
--------- --------- ---------
Net cash used for investing activities..................... (144,504) (105,989) (226,708)
--------- --------- ---------
EFFECT OF EXCHANGE RATE CHANGES ON CASH.................... (762) 927 57
--------- --------- ---------
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS....... (12,496) (34,606) 43,009
CASH AND CASH EQUIVALENTS, JANUARY 1....................... 25,276 59,882 16,873
--------- --------- ---------
CASH AND CASH EQUIVALENTS, DECEMBER 31..................... $ 12,780 $ 25,276 $ 59,882
========= ========= =========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION --
CASH PAID FOR:
Income taxes, including amounts paid for discontinued
operations............................................... $ 12,834 $ 12,863 $ 10,616
Interest................................................... $ 25,512 $ 20,664 $ 20,351
========= ========= =========
The accompanying notes to the consolidated financial statements are an integral
part of these statements.
F-13
107
PRIMARK CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
IN THOUSANDS AT DECEMBER 31 1997 1996
- --------------------------- ---------- --------
ASSETS
CURRENT ASSETS
Cash and cash equivalents, at cost (which approximates
market value)............................................. $ 12,780 $ 25,276
Billed receivables less allowance for doubtful accounts of
$2,756 and $2,234, respectively........................... 70,084 54,466
Unbilled and other receivables.............................. 9,546 10,662
Federal and state income tax benefit........................ 21,304 2,308
Other current assets........................................ 24,036 12,466
Net assets of discontinued operations....................... 197,330 --
---------- --------
Total current assets........................................ 335,080 105,178
---------- --------
DEFERRED CHARGES AND OTHER ASSETS
Goodwill, less accumulated amortization of $41,834 and
$26,502, respectively..................................... 556,737 492,835
Capitalized data and other intangible assets, less
accumulated amortization of $20,710 and $13,393,
respectively.............................................. 47,512 41,283
Capitalized software, less accumulated amortization of
$20,162 and $10,787, respectively......................... 48,645 35,004
Net assets of discontinued operations....................... -- 192,435
Other....................................................... 8,980 9,907
---------- --------
Total deferred charges and other assets..................... 661,874 771,464
---------- --------
PROPERTY, PLANT AND EQUIPMENT, AT COST
Computer equipment.......................................... 63,169 49,924
Leasehold improvements...................................... 17,631 14,294
Other....................................................... 9,806 7,947
---------- --------
90,606 72,165
Less -- Accumulated depreciation............................ (43,751) (28,006)
---------- --------
Net property, plant and equipment........................... 46,855 44,159
---------- --------
Total assets....................................... $1,043,809 $920,801
========== ========
LIABILITIES AND COMMON SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Notes payable............................................... $ 27,602 $ --
Accounts payable............................................ 14,125 16,691
Accrued employee payroll and benefits....................... 24,585 19,806
Federal income taxes payable................................ -- 9,071
Foreign and other taxes payable............................. 10,717 12,262
Deferred income............................................. 69,931 62,576
Current portion of long-term debt, including capital lease
obligations............................................... 11,301 6,518
Other....................................................... 43,814 38,761
---------- --------
Total current liabilities.......................... 202,075 165,685
---------- --------
Long-Term Debt and Other Liabilities
Long-term debt, including capital lease obligations......... 331,260 241,822
Deferred income taxes....................................... 21,133 16,189
Other....................................................... 17,463 21,010
---------- --------
Total long-term debt and other liabilities.................. 369,856 279,021
---------- --------
Total liabilities.................................. 571,931 444,706
---------- --------
MINORITY INTEREST........................................... 907 265
---------- --------
COMMITMENTS AND CONTINGENCIES (NOTE 13)
COMMON SHAREHOLDERS' EQUITY
Common stock and additional paid-in-capital................. 275,370 296,546
Retained earnings........................................... 198,658 178,943
Cumulative foreign translation adjustment................... (3,057) 341
---------- --------
Total common shareholders' equity.................. 470,971 475,830
---------- --------
Total liabilities and common shareholders'
equity........................................... $1,043,809 $920,801
========== ========
The accompanying notes to the consolidated financial statements are an integral
part of these statements.
F-14
108
PRIMARK CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMMON SHAREHOLDERS' EQUITY
IN THOUSANDS FOR YEARS ENDED DECEMBER 31 1997 1996 1995
- ---------------------------------------- --------- -------- --------
Common Stock, without par value-authorized 100,000,000
shares, issued 26,800,399; 27,067,951 and 24,435,968
shares, respectively, at $0.02 stated value
Balance -- beginning of year................................ $ 541 $ 489 $ 398
Issued for employee stock purchase and option plans......... 36 2 --
Retirement of common stock.................................. (41) -- --
Purchase of subsidiary...................................... -- 44 --
Conversion of preferred stock to common..................... -- 6 --
Issued in public offering................................... -- -- 91
-------- -------- --------
Balance -- end of year...................................... 536 541 489
-------- -------- --------
Additional Paid-in Capital
Balance -- beginning of year................................ 296,005 226,005 113,696
Tax benefit relating to stock option plans.................. 22,827 3,218 4,177
Issued for employee stock purchase and option plans......... 12,198 1,557 3,076
Retirement of common stock.................................. (56,196) -- --
Purchase of subsidiary...................................... -- 59,906 --
Conversion of preferred stock to common -- net of costs..... -- 4,738 --
Gain on treasury shares..................................... -- 581 439
Issued in public offering................................... -- -- 104,617
-------- -------- --------
Balance -- end of year...................................... 274,834 296,005 226,005
-------- -------- --------
Retained Earnings
Balance -- beginning of year................................ 178,943 141,846 124,964
Net income.................................................. 19,715 37,108 18,316
Dividends on preferred stock................................ -- (359) (1,434)
Change in year-end of subsidiaries.......................... -- 348 --
-------- -------- --------
Balance -- end of year...................................... 198,658 178,943 141,846
-------- -------- --------
Treasury Stock, at average cost, 0; 0 and 1,119,287 shares,
respectively, held in treasury
Balance -- beginning of year................................ -- (14,814) (13,145)
Repurchased................................................. -- -- (6,944)
Conversion of preferred stock to common..................... -- 10,878 --
Reissued for stock purchase and option plans................ -- 3,936 5,275
-------- -------- --------
Balance -- end of year...................................... -- -- (14,814)
-------- -------- --------
Unearned Compensation
Balance -- beginning of year................................ -- (709) (1,674)
Amortization of unearned compensation....................... -- 709 965
-------- -------- --------
Balance -- end of year...................................... -- -- (709)
-------- -------- --------
Cumulative Foreign Currency Translation Adjustment
Balance -- beginning of year................................ 341 1,245 450
Translation adjustment...................................... (5,221) (1,378) 1,262
Income tax benefit (expense) on adjustment.................. 1,823 474 (467)
-------- -------- --------
Balance -- end of year...................................... (3,057) 341 1,245
-------- -------- --------
Total Common Shareholders' Equity................. $470,971 $475,830 $354,062
======== ======== ========
The accompanying notes to the consolidated financial statements are an integral
part of these statements.
F-15
109
PRIMARK CORPORATION AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
a. BUSINESS
The Company is a global information services company with businesses
strategically focused on supplying financial, economic and market research
information to financial and corporate markets.
b. PRINCIPLES OF CONSOLIDATION AND BASIS OF PRESENTATION
The consolidated financial statements include the accounts of Primark
Corporation and its majority-owned subsidiaries (the "Company"). All significant
intercompany transactions and balances have been eliminated. Investments in
companies of less than 50 percent are accounted for using the equity method.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Effective January 1996, Datastream International Limited and its affiliates
and Vestek Systems, Inc. changed their year-end reporting period from November
30 to December 31. The change was made to provide more timely information and
enhance comparability. The operating results for December 1995 were credited
directly to retained earnings.
Certain reclassifications have been made to prior years' statements to
conform to the 1997 presentation. Prior periods have been restated to separately
present continuing operations from discontinued operations (Note 3).
c. FOREIGN CURRENCY TRANSLATION
The functional currency for most of the Company's foreign operations is the
applicable local currency. Foreign currency accounts are translated into U.S.
dollars using current exchange rates in effect at the balance sheet date for
assets and liabilities, and weighted average monthly exchange rates during the
period for revenues and expenses. Adjustments resulting from translating foreign
functional currency financial statements into U.S. dollars are reported as a
separate component of shareholders' equity. Gains and losses resulting from
transactions and certain balance sheet accounts denominated in currencies other
than the applicable functional currency are included in income. The net effect
of changes in cash are separately identified in the consolidated statements of
cash flows.
d. DERIVATIVE FINANCIAL INSTRUMENTS
The Company enters into currency exchange and interest rate swap agreements
to minimize interest rate and foreign exchange risk. Gains and losses related to
qualifying accounting hedges of firm commitments are deferred and recognized in
income when the hedged transaction occurs. Gains and losses from financial
instruments that do not qualify for hedge accounting are marked to market and
recognized as a gain or loss in the current period. The Company does not hold or
issue derivative financial instruments for trading purposes.
e. REVENUE RECOGNITION
Revenue derived from subscription contracts is generally billed in advance
of services provided. Amounts billed in advance are recorded as deferred income
and recognized ratably over the periods in which services are performed.
F-16
110
PRIMARK CORPORATION AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
f. CASH AND CASH EQUIVALENTS
Cash and cash equivalents represent cash and short-term, highly liquid
investments with original maturities of three months or less.
g. GOODWILL
Goodwill represents the excess of the purchase price over the fair value of
net identifiable assets acquired and is amortized on a straight line basis over
estimated useful lives ranging from 20 to 40 years. The Company regularly
evaluates the net carrying value of all long-lived assets, including intangibles
and goodwill, for recoverability based upon the undiscounted future cash flows
associated with these assets. Management believes there have been no impairments
of these assets.
h. CAPITALIZED SOFTWARE
Costs related to the conceptual formulation and design of software
developed for internal use are expensed as incurred. Costs incurred subsequent
to establishment of technological feasibility are capitalized and amortized over
periods ranging from 3 to 5 years. Costs to support or service software are
expensed as incurred. The Company does not develop software for sale or lease.
i. CAPITALIZED DATA AND OTHER INTANGIBLES
Costs incurred to update and maintain the Company's database assets are
expensed as incurred. Costs associated with the purchase of historical data not
currently part of the Company's database assets, as well as the cost of
initiating a new database product, are capitalized. Other intangible assets and
liabilities consist of non-compete covenants, trademarks and unfavorable lease
commitments. Data and other intangibles are amortized on a straight line basis
over periods ranging from 3 to 20 years.
j. PROPERTY AND EQUIPMENT
Computer equipment and other property are recorded at cost and depreciated
on a straight line basis over their estimated useful lives, ranging from 3 to 10
years. Leasehold improvements are amortized over the shorter of the remaining
life of the lease or the estimated useful life of the improvement.
k. INCOME TAXES
Income tax expense is based on reported earnings before income taxes.
Deferred income taxes reflect the impact of temporary differences between assets
and liabilities recognized for financial reporting purposes and such amounts
recognized for tax purposes. Deferred tax balances are adjusted to reflect
changes in tax rates expected to be in effect during the periods in which the
temporary differences reverse. As temporary differences reverse, the related
deferrals are recorded to income.
l. EARNINGS PER SHARE
In February 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 128 "Earnings Per
Share." This standard requires dual presentation of basic and diluted earnings
per share ("EPS") on the face of the income statement and requires a
reconciliation of the numerators and denominators of basic and diluted EPS
calculations (Note 8). The EPS of prior periods have been restated to present
basic and diluted EPS.
F-17
111
PRIMARK CORPORATION AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
m. ACCOUNTING FOR STOCK-BASED COMPENSATION
The Company accounts for stock-based compensation using the intrinsic value
method prescribed in Accounting Principles Board Opinion No. 25, "Accounting for
Stock Issued to Employees," and related interpretations. The impact of recording
stock-based compensation under the fair value method is disclosed in Note 10.
n. NEW ACCOUNTING PRONOUNCEMENTS
In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive
Income" and SFAS No. 131 "Disclosures about Segments of an Enterprise and
Related Information." The Company will adopt these statements during fiscal year
1998 and does not expect that the adoption will have a material impact on the
consolidated financial statements.
2. ACQUISITIONS
During the three years ending December 31, 1997, the Company made the
acquisitions set forth below, each of which has been accounted for as a
purchase. Accordingly, the purchase price has been allocated to the identifiable
net assets acquired. The excess of the purchase price over the estimated fair
value of net assets acquired has been allocated to goodwill and is amortized on
a straight line basis over periods ranging from 25 to 40 years. Future
adjustments to the total purchase price allocation, if any, are not expected to
materially affect the Company's financial statements. The consolidated financial
statements include the operating results of each business from the date of
acquisition.
a. FISCAL 1997
SUMMARY OF ACQUISITION COSTS (000S) WEFA BASELINE
- ----------------------------------- ------- --------
Cash........................................................ $45,000 $40,963
Acquisition Fees............................................ 204 233
------- -------
Total Consideration......................................... $45,204 $41,196
Acquired Cash............................................... (308) (2)
------- -------
Consideration Paid.......................................... $44,896 $41,194
------- -------
Net Excess of Purchase Price over Fair Value................ $44,979 $39,431
======= =======
WEFA
On February 7, 1997, the Company acquired all of the outstanding stock of
WEFA Holdings, Inc. ("WEFA") for $45,000,000 in cash. Headquartered in
Pennsylvania, WEFA is an international provider of value added economic
information and consulting services to Fortune 500 companies, governments,
universities, and financial institutions.
BASELINE
On January 6, 1997, the Company purchased all of the outstanding stock of
Baseline Financial Services, Inc. ("Baseline") pursuant to the terms of a Stock
Purchase Agreement dated November 24, 1996, between the Company, Bowne & Co.,
and another owner for $40,963,000 in cash. Headquartered in New York City,
Baseline provides institutional investors with visual valuation graphics of
financial market information.
F-18
112
PRIMARK CORPORATION AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
2. ACQUISITIONS -- (CONTINUED)
b. FISCAL 1996
THE YANKEE
SUMMARY OF ACQUISITION COSTS (000S) ICV WORLDSCOPE GROUP DAFSA
- ----------------------------------- -------- ---------- ---------- ------
Cash.................................................. $ 40,316 $5,000 $33,000 $9,000
Stock Issued.......................................... 59,950 -- -- --
Notes Issued.......................................... 8,250 -- -- --
Receivables Forgiven.................................. -- 3,889 -- --
Guaranteed Payment.................................... -- -- 5,000 --
Acquisition Fees...................................... 3,765 237 119 199
-------- ------ ------- ------
Total Consideration................................... 112,281 9,126 38,119 9,199
Acquired Cash......................................... (16,309) (353) (1,600) --
Purchase Price Adjustment............................. -- -- -- (1,316)
-------- ------ ------- ------
Consideration Paid.................................... $ 95,972 $8,773 $36,519 $7,883
-------- ------ ------- ------
Excess of Purchase Price over Fair Value.............. $112,348 $3,926 $34,583 $6,793
======== ====== ======= ======
ICV
On October 24, 1996, the Company acquired all the outstanding stock of ICV
Limited. The purchase price, excluding fees, consisted of $24,007,000 in net
cash, 2,200,000 shares of Primark common stock at a $27.25 market value and
$8,250,000 in six year notes (the "ICV Purchase Notes"), issued by the Company
to the sellers (Note 6b). ICV supplies a variety of real-time data and news
products to equity traders and investors in London and throughout the United
Kingdom. In accordance with the terms of the purchase agreement, the Company
registered the 2,200,000 shares of its common stock in 1998.
WORLDSCOPE
On October 15, 1996, the Company acquired an additional 30% ownership
interest in Worldscope for $5,000,000 in cash, giving Primark a controlling
ownership interest of 80%. Prior to the transaction, Worldscope was a 50%
partnership accounted for under the equity method. In connection with the
transaction, Primark and the previous 50% owner each forgave working capital
advances equal to $3,889,000. The sellers of the 30% interest in Worldscope have
a non-expiring option to sell their remaining 20% ownership to Primark, in
increments of 5% or 15%. The price of a 5% increment would be at 5 times the
most recent 12 months of revenue multiplied by the 5% ownership. The price of a
15% increment would be at 4 times revenue multiplied by the 15% ownership. As of
October 15, 2006, Primark will have the right to purchase an additional 15% of
Worldscope.
THE YANKEE GROUP
On August 9, 1996, the Company acquired all the outstanding stock of Yankee
Group Research, Inc. (the "Yankee Group"), pursuant to the terms of a stock
purchase agreement by and between the Company and the shareholders of the Yankee
Group. The purchase price included cash payments of $31,000,000 on August 9,
1996; $2,000,000 in September of 1997, a guaranteed payment of $5,000,000 due in
August 1998 and future contingent payments to the former Yankee shareholders
based upon future operating results, ranging from $0 to a maximum of
$27,000,000. Future contingent payments, if any, are due in the year 2000 and
will be recorded as goodwill when incurred. The Yankee Group provides market
research on telecommunications and computer systems.
F-19
113
PRIMARK CORPORATION AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
2. ACQUISITIONS -- (CONTINUED)
DAFSA
On June 18, 1996, Datastream International (France) SA acquired all of the
outstanding stock of Groupe DAFSA ("DAFSA"), for $7,883,000 in cash, net of
purchase price adjustments. DAFSA supplies company account information on all
listed companies in France and ownership information on French companies through
print and CD-ROM.
c. FISCAL 1995
Disclosure
On June 29, 1995, the Company acquired all the outstanding stock of
Disclosure Incorporated and certain of its affiliates including I/B/E/S
International Inc. and a 50% ownership of Worldscope for a total purchase price
of $200,000,000 in cash. The Company obtained $215,000,000 of external
financing, of which $185,000,000 was used to finance the cash consideration paid
in the acquisition. The Company incurred fees of approximately $6,076,000
associated with the acquisition. The excess of the purchase price over the
estimated fair value of total net assets acquired of approximately $193,713,000
was recorded to goodwill. Disclosure is a provider of "as reported" and
abstracted financial information, primarily derived from Securities and Exchange
Commission filings and supplemented with information from companies, stock
exchanges and other sources, both in the United States and worldwide. I/B/E/S is
a source of earnings estimates for investors, financial institutions and
portfolio managers on a global basis.
d. PRO FORMA FINANCIAL INFORMATION
The following unaudited pro forma financial information reflects the
consolidated results of operations of the Company for the years ended December
31, 1997 and 1996 as though the acquisitions had occurred on January 1, 1997 and
1996. This information has been prepared for comparative purposes only and does
not necessarily represent actual operating results that may be achieved in the
future or that would have occurred had the acquisitions been consummated on
January 1, 1997 or 1996.
PRO FORMA INFORMATION (000S EXCEPT EPS) 1997 1996
- --------------------------------------- -------- --------
Operating revenues.......................................... $400,228 $375,147
Income from continuing operations........................... $ 6,946 $ 4,681
Net income applicable to common stock....................... $ 19,671 $ 28,914
EPS from continuing operations:
Basic.................................................. $ 0.26 $ 0.18
Diluted................................................ $ 0.25 $ 0.17
======== ========
3. DISCONTINUED OPERATIONS AND DISPOSITIONS
a. DISCONTINUED OPERATIONS
The accompanying consolidated financial statements reflect the operating
results of TASC, TIMCO and PSLC separately from the Company's continuing
operations for all periods presented. Consolidated interest expense has been
allocated to discontinued operations based upon their ratio of net assets to
total consolidated net assets. Net assets of discontinued operations represent
the net book value of the Company's investment in
F-20
114
PRIMARK CORPORATION AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
3. DISCONTINUED OPERATIONS AND DISPOSITIONS -- (CONTINUED)
TASC and TIMCO and consist principally of working capital, fixed assets and
other non-current assets and liabilities.
DISCONTINUED OPERATIONS (000S) 1997 1996 1995
- ------------------------------ -------- -------- -------
Income/(loss):
TASC................................................... $ 14,950 $ 13,028 $ 9,749
TIMCO.................................................. (270) 2,411 2,717
PSLC................................................... $ -- 753 1,003
-------- -------- -------
Total............................................. $ 14,680 $ 16,192 $13,469
======== ======== =======
Gain on disposal:
PSLC................................................... $ -- $ 8,400 $ --
-------- -------- -------
Total............................................. $ -- $ 8,400 $ --
======== ======== =======
Net Assets:
TASC................................................... $155,376 $152,505
TIMCO.................................................. 41,954 39,930
-------- --------
Total............................................. $197,330 $192,435
======== ========
TASC
On December 8, 1997, the Company entered into an agreement to sell its
subsidiary, TASC, Inc. subject to shareholder approval (Note 14), for $432
million in cash, subject to adjustment, including changes in the TASC
consolidated equity account through the date of closing. The sale of TASC
represents disposal of essentially all of the Company's applied technology
segment. On a consolidated basis, TASC had revenues of $437.9, $383.7, and
$346.2 million for the years ended December 31, 1997, 1996 and 1995,
respectively. The purchaser has agreed to indemnify the Company from and against
all expenses and liabilities Primark may incur related to an outstanding claim
against TASC.
TIMCO
In June 1997, the Company adopted a formal plan to sell its non-core
transportation services segment consisting of Triad International Maintenance
Corporation ("TIMCO"). TIMCO reported revenues of $113.3, $106.4 and $79.2
million for the years ended December 31, 1997, 1996 and 1995, respectively. The
Company anticipates that the sale of TIMCO will be completed by June 30, 1998.
PSLC
On September 30, 1996, the Company sold all of the outstanding stock of
Primark Storage Leasing Corporation ("PSLC"), for $14,300,000 in cash. The
disposal of PSLC resulted in an after-tax gain of approximately $8,400,000 and
eliminated $28,700,000 of non-recourse debt from the Company's balance sheet.
The purchaser has agreed to indemnify the Company from and against all expenses
and liabilities that Primark may incur with respect to any adverse environmental
condition relating to PSLC's natural gas storage fields.
F-21
115
PRIMARK CORPORATION AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
3. DISCONTINUED OPERATIONS AND DISPOSITIONS -- (CONTINUED)
b. DISPOSITIONS
On January 7, 1997, the Company completed the sale of its investment in the
Weather Network pursuant to the terms of a sale agreement dated December 5, 1996
for 2,100,000 pounds sterling ($3,500,000). The $2,500,000 pre-tax gain on the
sale has been included in other income.
4. RESTRUCTURING CHARGES
a. DISCLOSURE
During the first quarter of 1997, the Company recorded a $1,800,000 pre-tax
charge, or $0.04 per share, at Disclosure to take advantage of new information
technology, reorganization of Disclosure's document business and other actions
aimed at reducing costs and enhancing efficiency. The restructuring provision
included estimated costs for employee severance and other benefits of $981,200,
asset write-downs of $713,600 and idle facility related costs of $105,200. As
part of the restructuring, 114 employees were eliminated. The spending for these
accrued restructuring costs was completed in June 1997.
b. DAFSA
During the second quarter of 1997, the Company recorded a restructuring
charge of $5,000,000 related to the integration and downsizing of operations at
DAFSA. Due to DAFSA's unprofitable condition, tax benefits associated with
losses incurred during 1997, including the restructuring charge, were not
recognized. Consequently, the restructuring charge resulted in a $0.18 reduction
of earnings per share in 1997.
When the Company acquired DAFSA in June of 1996, approximately $1,500,000
of integration costs were recorded in determining the purchase accounting. The
subsequent restructuring charge is the result of a plan to further integrate
DAFSA's personnel, space and product with those of the Company's other
subsidiaries. The $6,500,000 total restructuring provision includes estimated
costs for exiting a line of business of $1,700,000, the future rent cost of
abandoned space of $1,000,000, employee severance and other benefits of
$1,400,000, asset write-downs of $1,200,000 and legal, professional and other
related costs of $1,200,000. The accrual for abandoned space will be utilized
over the remaining life of the lease. As of December 31, 1997, $4,800,000 of
restructuring costs had been incurred, of which $1,500,000 related to exiting a
line of business, $1,100,000 related to employee severance and other benefits,
$1,200,000 related to asset write-downs and abandoned lease space and $1,000,000
related to legal, professional and other related costs. As part of the
restructuring, 31 employees of DAFSA have been terminated and an additional 9
employees will be terminated in 1998. The restructuring plan, when fully
implemented, is expected to significantly improve DAFSA's operating margins.
F-22
116
PRIMARK CORPORATION AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
5. LEASES
The Company leases a variety of assets principally under non-cancelable
operating lease agreements, including office facilities, real property, and
computer and office equipment. These leases expire at various dates through
2008. Total rent expense for all operating leases was $15,105,000, $11,563,000,
and $7,649,000 for the years ended December 31, 1997, 1996 and 1995,
respectively.
FUTURE MINIMUM LEASE COMMITMENTS (000S) CAPITAL OPERATING
- --------------------------------------- ------- ---------
1998........................................................ $1,390 $13,899
1999........................................................ 534 12,321
2000........................................................ 370 11,259
2001........................................................ 136 10,523
2002........................................................ -- 10,109
Thereafter.................................................. -- 30,171
------ -------
Total minimum lease payments................................ 2,430 $88,282
=======
Amounts representing interest and other..................... (133)
------
Present value of net minimum payments....................... 2,297
Current portion............................................. (1,242)
------
Long-term obligations....................................... $1,055
======
6. SHORT-TERM AND LONG-TERM DEBT
On February 7, 1997, the Company entered into a $300,000,000 refinancing
arrangement to replace some of the funds expended for recent acquisitions and
enhance liquidity for future opportunities. The new arrangement, comprised of a
$75,000,000 revolving credit facility (the "Credit Facility") and a $225,000,000
term loan (the "Term Loan") replaced an outstanding $75,000,000 revolving credit
facility and a $125,000,000 term loan and provided $8,382,000 as a note backup
agreement. The Company incurred costs of $2,831,000 in conjunction with the
arrangement, which will be amortized over the term of the debt. The write-off of
unamortized debt issue costs related to the original financing generated an
extraordinary after-tax loss of $1,955,000 in the first quarter of 1997. The
Company recognized an extraordinary after-tax loss of $534,000 for the write-off
of unamortized debt issue costs associated with the June 1995 refinancing of its
$75,000,000 revolving credit facility. Deferred debt issue costs are amortized
over the terms of the related debt, ranging from 3 to 18 years.
a. SHORT-TERM DEBT
SHORT-TERM BANK BORROWINGS (000S) 1997 1996 1995
- --------------------------------- ------- ------- -------
Outstanding borrowings at December 31....................... $27,602 $ -- $ --
Available for future borrowings at December 31.............. $47,398 $74,650 $75,000
Weighted average effective interest rate on average bank
borrowings................................................ 7.7% 8.3% 8.0%
Aggregate borrowings:
Maximum outstanding.................................... $32,695 $ 1,871 $64,324
Average outstanding.................................... $ 5,115 $ 17 $22,661
======= ======= =======
The Credit Facility expires on October 15, 2000 and bears interest on
outstanding borrowings based upon performance pricing which results in rates
ranging from 0.50% to 1.00% above the current prevailing LIBOR rate. Commitment
fees are payable quarterly at rates ranging from 0.20% to 0.30% per annum on the
average daily unused portion of the facility. The Credit Facility contains
various restrictive covenants, which, among other things, require the Company to
maintain certain minimum levels of consolidated net worth and specific
F-23
117
PRIMARK CORPORATION AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
6. SHORT-TERM AND LONG-TERM DEBT -- (CONTINUED)
consolidated liquidity and long-term solvency ratios. The Credit Facility is
secured by a pledge of the outstanding common stock of certain of Primark's
subsidiaries.
b. LONG-TERM DEBT
The Company's outstanding long-term debt, including capital lease
obligations, are shown below.
LONG-TERM DEBT DECEMBER 31 (000S) 1997 1996
- --------------------------------- -------- --------
Primark 8.75% Senior Notes $112,000,000 due 2000............ $111,455 $111,291
Primark bank Term Loan due through 2004..................... 220,000 125,000
ICV Purchase Notes due 2002................................. 7,750 8,250
Capital lease obligations and other......................... 3,356 3,799
-------- --------
Total debt and capital lease obligations.................... 342,561 248,340
Less current maturities..................................... (11,301) (6,518)
-------- --------
Long-term debt and capital lease obligations................ $331,260 $241,822
======== ========
Required principal payments on long-term debt and notes payable over the
next five years, excluding the Senior Notes and capital lease and other
obligations, are $15,000,000 in 1998, $20,000,000 in 1999, $30,000,000 in 2000,
$35,000,000 in 2001, and $53,250,000 in 2002.
Primark's 8.75% Senior Notes due 2000 ("Senior Notes") are carried at their
principal amount due at maturity less the unamortized discount. Interest on the
Senior Notes is payable semi-annually on April 15 and October 15. The Senior
Notes are unsecured obligations of the Company, contain no mandatory sinking
fund or redemption requirements, and are redeemable in whole or in part at the
option of the Company at redemption prices ranging from 104.375% to 100.00% in
1999 and thereafter, plus accrued interest. The Indenture pursuant to which the
Senior Notes were issued contains various restrictive covenants. Under the most
restrictive covenants, the Company is restricted from paying cash dividends on
its common stock, repurchasing its common stock or making certain other payments
which in the aggregate exceed the sum of: (i) $10,000,000; (ii) 50% of the
Company's consolidated net income (cumulative from the date of issuance of the
Senior Notes); plus (iii) 100% of the net proceeds received from sales of the
Company's common stock for cash.
The Term Loan is due through June 30, 2004. Principal payments are due
semi-annually on June 30 and December 31. Interest on outstanding borrowings
under the Term Loan is payable at rates ranging from 0.50% to 1.25% above the
current prevailing LIBOR rate of interest. The Term Loan contains various
restrictive covenants which, among other things, require the Company to maintain
certain minimum levels of consolidated net worth and specific consolidated
liquidity and long-term solvency ratios. The Term Loan is secured by a pledge of
the outstanding common stock of certain of the Company's subsidiaries.
On October 24, 1996, the Company entered into five loan note agreements
totaling $8,250,000 in connection with the purchase of ICV (Note 2b). The ICV
Purchase Notes are due October 24, 2002. Interest on the ICV Purchase Notes is
payable quarterly at the current prevailing LIBOR rate. In November 1997, the
Company paid $500,000 of the ICV Purchase Notes. On February 7, 1997, the
Company entered into a $8,382,000 Note Backup Agreement (the "Note Agreement")
which expires on November 8, 2002. Under the terms of the Note Agreement,
standby letters of credit were issued to provide credit enhancement for the
payment of the Notes. Interest on outstanding borrowings under the Note
Agreement is based upon performance pricing and payable at rates ranging from
0.75% to 1.25% above the current prevailing LIBOR rate of interest. Letter of
credit fees are based upon performance pricing and are payable quarterly at a
rate of
F-24
118
PRIMARK CORPORATION AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
6. SHORT-TERM AND LONG-TERM DEBT -- (CONTINUED)
0.25% per annum on the average daily unused portion of the facility. As of
December 31, 1997, the Company had no outstanding borrowings under the Note
Agreement.
7. FINANCIAL INSTRUMENTS
a. FOREIGN EXCHANGE RISK MANAGEMENT
The Company enters into forward exchange and currency option contracts to
reduce the exposure of foreign currency fluctuations associated with certain
firm commitments and anticipated cash flows. The Company's principal strategy is
to protect the net cash flow from foreign customers' contracts. As these
contracts are typically under two years in length, most of the derivative
financial instruments are similarly two years or less in duration. The Company
principally enters into contracts to deliver foreign currencies for U.S. dollars
at agreed-upon exchange rates. Other contracts include the purchase of British
pounds and Irish Punts for U.S. dollars. Counterparties to these agreements are
major international financial institutions. The tables below illustrate the U.S.
dollar equivalent of foreign exchange contracts at December 31, 1997 and 1996
along with unrecorded gross unrealized gains and losses.
DECEMBER 31 (000S) 1997
- ------------------ ----------------------------------
GROSS GROSS
UNREALIZED UNREALIZED
NOTIONAL GAINS LOSSES
AMOUNT DEFERRED DEFERRED
-------- ---------- ----------
FORWARD EXCHANGE CONTRACTS:
Japanese Yen........................................... $ 2,684 $ 57 $(19)
U.S. Dollars/U.K. Pound Sterling....................... 5,087 -- --
U.S. Dollars/Irish Punt................................ 5,895 -- --
Deutsche Mark.......................................... 518 -- --
Swiss Franc............................................ 1,061 15 --
French Franc........................................... 172 3 --
Swedish Krona.......................................... 3,588 54 (21)
Other.................................................. 3,264 254 (9)
------- ---- ----
$22,269 $383 $(49)
======= ==== ====
OPTION CONTRACTS PURCHASED:
Japanese Yen........................................... $ 2,903 $193 $ --
U.S. Dollars/U.K. Pound Sterling....................... 10,665 56 (63)
Deutsche Mark.......................................... 5,562 22 (16)
Swiss Franc............................................ 1,563 14 --
Other.................................................. 2,048 105 (2)
------- ---- ----
$22,741 $390 $(81)
======= ==== ====
OPTION CONTRACTS SOLD:
Japanese Yen........................................... $ 1,495 $ 3 $ --
U.S. Dollars/U.K. Pound Sterling....................... 3,520 -- (28)
Deutsche Mark.......................................... 2,781 12 --
Swiss Franc............................................ 735 1 --
------- ---- ----
$ 8,531 $ 16 $(28)
======= ==== ====
F-25
119
PRIMARK CORPORATION AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
7. FINANCIAL INSTRUMENTS -- (CONTINUED)
DECEMBER 31 (000S) 1996
- ------------------ ----------------------------------
GROSS GROSS
UNREALIZED UNREALIZED
NOTIONAL GAINS LOSSES
AMOUNT DEFERRED DEFERRED
-------- ---------- ----------
FORWARD EXCHANGE CONTRACTS:
Japanese Yen........................................... $ 2,593 $120 $ (7)
U.S. Dollars/U.K. Pound Sterling....................... 3,956 -- (43)
Deutsche Mark.......................................... 3,804 17 --
Swiss Franc............................................ 2,451 90 --
French Franc........................................... 1,452 5 (1)
Swedish Krona.......................................... 4,432 53 (11)
Other.................................................. 5,460 26 (35)
------- ---- ----
$24,148 $311 $(97)
======= ==== ====
OPTION CONTRACTS PURCHASED:
Japanese Yen........................................... $ 4,302 $123 $ --
U.S. Dollars/U.K. Pound Sterling....................... 11,900 134 --
Deutsche Mark.......................................... 9,547 86 --
Swiss Franc............................................ 5,531 167 --
French Franc........................................... 4,465 37 --
Other.................................................. 3,248 15 (16)
------- ---- ----
$38,993 $562 $(16)
======= ==== ====
OPTION CONTRACTS SOLD:
Japanese Yen........................................... $ 645 $ 3 $ --
U.S. Dollars/U.K. Pound Sterling....................... 11,105 82 --
Deutsche Mark.......................................... 2,616 8 --
Swiss Franc............................................ 569 -- --
French Franc........................................... 1,064 3 --
Other.................................................. 431 1 --
------- ---- ----
$16,430 $ 97 $ --
======= ==== ====
b. INTEREST RATE SWAP AGREEMENT
On August 1, 1995, the Company entered into an interest rate swap agreement
with a major bank, having a notional principal amount of $18,333,000. The swap
agreement effectively changed the interest rate of a portion of Primark's
long-term debt from a floating rate to a 6.1% fixed rate. This swap agreement
expires in December of 1999. As of December 31, 1997, the notional principal
amount outstanding was $8,333,000. Though the Company is exposed to credit and
market risk in the event of future non-performance by the bank, management does
not anticipate that such an event will occur.
F-26
120
PRIMARK CORPORATION AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
7. FINANCIAL INSTRUMENTS -- (CONTINUED)
c. FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying and estimated fair values of certain of the Company's
financial instruments are shown below.
CARRYING VALUE ESTIMATED FAIR VALUE
------------------- ---------------------
DECEMBER 31 (000S) 1997 1996 1997 1996
- ------------------ -------- -------- --------- ---------
Forwards............................................ $ 753 $ 1,301 $ 1,087 $ 1,515
Options............................................. $ 195 $ 343 $ 492 $ 986
Interest rate swaps................................. $ -- $ -- $ (23) $ (45)
8.75% Senior Notes.................................. $111,455 $111,291 $115,220 $114,100
======== ======== ======== ========
Estimated fair values of these financial instruments were based upon quotes
obtained from investment and commercial bankers using comparable securities. The
fair values of currency forward contracts and currency options were estimated
based on quoted market prices of contracts with similar terms. Other financial
instruments have been excluded as their carrying value approximates their market
value.
8. EARNINGS PER SHARE
In February of 1997, the FASB released SFAS No. 128, "Earnings per Share",
effective for fiscal periods ending after December 15, 1997. The statement
simplifies the standards for computing EPS and makes them comparable to
international EPS standards. The statement replaces primary EPS with basic EPS.
Basic EPS is computed by dividing income available to common shareholders by the
weighted-average number of common shares outstanding for the period. Diluted EPS
reflects the potential dilution that could occur if securities or other
contracts to issue common stock were exercised or converted into common stock or
resulted in the issuance of common stock. Diluted EPS is computed similarly to
fully diluted EPS previously presented. In accordance with the standard, all
prior period EPS data has been restated.
Options to purchase 785,000; 227,000 and 19,000 shares of common stock were
outstanding for the years ended 1997, 1996 and 1995 respectively but were
excluded in the computation of diluted EPS because the options' exercise price
was greater than the average market price of common shares. The conversion of
preferred stock outstanding during 1995 and the first quarter of 1996 was
excluded from the computation of
F-27
121
PRIMARK CORPORATION AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
8. EARNINGS PER SHARE -- (CONTINUED)
diluted EPS as its effect was anti-dilutive. A reconciliation of the numerators
and denominators of the basic and diluted EPS computations for income from
continuing operations is shown below.
INCOME SHARES EARNINGS
(000S EXCEPT PER SHARE) (NUMERATOR) (DENOMINATOR) PER SHARE
- ----------------------- ----------- ------------- ---------
December 31, 1997
Basic EPS:
Income available to common shareholders............... $ 6,990 26,348 $0.26
Effect of Dilutive Securities Options................. -- 1,596
------- ------
Diluted EPS:
Income available to common shareholders and
assumed conversions................................. $ 6,990 27,944 $0.25
December 31, 1996
------- ------
Basic EPS:
Income from continuing operations..................... $12,516
Less: preferred stock dividends....................... (359)
-------
Income available to common shareholders............... $12,157 24,813 $0.49
Effect of Dilutive Securities Options................. -- 1,758
------- ------
Diluted EPS:
Income available to common shareholders and assumed
conversions......................................... $12,157 26,571 $0.46
December 31, 1995
Basic EPS:
Income from continuing operations..................... $ 5,381
Less: preferred stock dividends............................ (1,434)
-------
Income available to common shareholders............... $ 3,947 19,150 $0.21
Effect of Dilutive Securities Options................. -- 1,531
------- ------
Diluted EPS:
Income available to common shareholders and assumed
conversions......................................... $ 3,947 20,681 $0.19
======= ====== =====
F-28
122
PRIMARK CORPORATION AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
9. SHAREHOLDERS' EQUITY
a. COMMON STOCK
On May 28, 1997, the shareholders of the Company approved a resolution that
amended the Company's Articles of Incorporation to increase the number of
authorized shares of common stock from 65,000,000 to 100,000,000. Changes in the
number of shares of the Company's common stock are shown below.
DECEMBER 31 1997 1996 1995
- ----------- ---------- ---------- ----------
Common Stock Issued...................................... 26,800,399 27,067,951 24,435,968
Common Stock Held
In Treasury:
Balance -- beginning of period........................... -- (1,119,287) (1,392,789)
Treasury shares acquired................................. -- -- (279,154)
Treasury shares reissued:
Employee stock purchase plan............................. -- 79,683 203,647
Exercise of stock options................................ -- 217,715 349,009
Conversion of Preferred Stock............................ -- 821,889 --
---------- ---------- ----------
Balance -- end of period................................. -- -- (1,119,287)
---------- ---------- ----------
Common Stock Outstanding................................. 26,800,399 27,067,951 23,316,681
========== ========== ==========
In December of 1997, the Company received 722,000 shares of its common
stock to satisfy the exercise price of stock options and payment of withholding
taxes due on option exercises totaling $29,604,000. These shares were retired
upon receipt. The Company drew on its revolving credit facility to satisfy the
withholding tax payment. Primark will receive a compensation deduction related
to the option exercises and anticipates a tax refund of approximately
$25,000,000.
In April 1997, the Company's Board of Directors authorized the repurchase
of up to 2,200,000 shares of the Company's common stock from time to time
through open market and/or privately negotiated transactions. During the second
quarter of 1997, the Company repurchased 1,349,000 shares of its outstanding
common stock in the open market at a total cost of $26,633,000. On May 13, 1997
and June 5, 1997, the Company retired 1,145,300 and 203,700 shares,
respectively.
On October 24, 1996, the Company issued 2,200,000 shares of its common
stock as part of the purchase price for ICV Limited (Note 2b).
On May 2, 1996, the Company received notification to convert the total
outstanding shares of Primark Series A, 8.5% Cumulative Convertible Preferred
Stock into shares of Primark common stock. The 674,943 preferred shares plus
accrued and unpaid dividends were converted into 1,164,276 shares of Primark
common stock based upon the stated conversion rate of $14.49. The preferred
shares were held entirely by the Profit Sharing and Stock Ownership Plan of
TASC, a discontinued subsidiary (Note 3).
On December 5, 1995, the Company completed an equity offering in which it
sold 4,068,200 shares of its common stock and offered an additional 288,000
shares for certain selling shareholders. The sale of common stock together with
option proceeds related to the selling shareholders provided the Company
$107,784,000, net of commissions and expenses. A portion of the proceeds was
used to pay down the outstanding balance of $48,166,000 on the Company's
revolving credit agreement and to prepay $15,000,000 on a loan held by TASC, a
discontinued subsidiary (Note 3).
In December of 1995, 92,000 shares of the Company's common stock were
delivered to satisfy the exercise price of stock options and 168,000 shares were
withheld from the exercise of stock options to satisfy the related tax
withholding requirements.
F-29
123
PRIMARK CORPORATION AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
9. SHAREHOLDERS' EQUITY -- (CONTINUED)
b. RIGHTS AGREEMENT
In May of 1997, the Board of Directors of the Company executed a new Rights
Agreement (the "Rights Agreement") to extend the benefits of the rights
agreement adopted in 1988. The Company's Rights Agreement is designed to deter
coercive or unfair takeover tactics, and to prevent a buyer from gaining control
of the Company without offering a fair price to all of its shareholders. The
Rights Agreement generally becomes effective when an "Acquiring Person" (as
defined in the agreement) beneficially owns 15% or more of the outstanding
shares of Primark's common stock. In general, upon a "Triggering Event" (as
defined in the agreement), each Right represents the right to purchase one share
of Common Stock of the Company at a price per share of $138.00, subject to
adjustment. The Rights, which do not have voting privileges, are redeemable
under certain circumstances at $0.01 per Right and will expire on January 25,
2008, unless previously redeemed. At December 31, 1997, common stock reserved
for issuance under the Rights Agreement was 26,800,399 shares.
10. RETIREMENT AND BENEFIT PLANS
a. EMPLOYEE SAVINGS AND STOCK OWNERSHIP PLAN
The Primark Corporation Savings and Stock Ownership Plan was amended and
revised effective January 1, 1997 ("ESSOP") to provide for 401(K) contributions,
employer matching contributions and certain other changes. Prior to the
amendment, the plan, which covers all employees of Primark and certain
subsidiaries, was pre-funded in 1989 with 965,000 shares of the Company's common
stock which were allocated to participants, based upon a percentage of
compensation, through 1996. Under the current 401(K) provisions of the ESSOP,
the Company matches 50% of an employee's contribution up to a maximum of 3% of
each participant's compensation. Participating employees' future benefits are
based on their vested portion of contributions, plus their pro rata share of
fund investment gains or losses. Under the 401(K) provisions, the Company
contributed $1,629,000 during 1997. No contributions were made to the ESSOP
during 1996 and 1995.
b. FOREIGN PLANS
Substantially all employees in foreign countries who are not U.S. citizens
are covered by various retirement benefit arrangements, some of which are
considered to be defined benefit pension plans for accounting purposes. Benefits
are based primarily on years of service and employees' salaries near retirement.
In general, plans are funded based upon legal requirements, tax considerations,
local practices and investment opportunities. Plan assets are generally held in
restricted trusts or foundations that are segregated from the assets of the plan
sponsor, and consist primarily of common stock and fixed income securities. The
components of net periodic pension cost for foreign defined benefit pension
plans are shown below.
DECEMBER 31 (000S) 1997 1996 1995
- ------------------ ------ ------ ------
Service cost of benefits earned during the period........... $1,348 $1,181 $1,039
Interest cost of projected benefit obligation............... 1,367 1,186 887
Actual return on plan assets................................ (3,072) (883) (974)
Net amortization and deferral............................... 1,358 (523) (370)
------ ------ ------
Net pension expense......................................... $1,001 $ 961 $ 582
====== ====== ======
F-30
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PRIMARK CORPORATION AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
10. RETIREMENT AND BENEFIT PLANS -- (CONTINUED)
The following assumptions were used in accounting for foreign defined
benefit plans.
DECEMBER 31 1997 1996 1995
- ----------- ---- ----- -----
Discount rate............................................... 7.8% 8.5% 8.5%
Rate of increase in future compensation..................... 5.0% 5.0% 5.0%
Rate of return on plan assets............................... 9.3% 10.0% 10.0%
==== ===== =====
The funded status on the non-U.S. plans is shown below.
DECEMBER 31 (000S) 1997 1996
- ------------------ -------- --------
Actuarial present value of benefit obligations:
Vested benefit obligation................................... $(17,553) $(14,736)
-------- --------
Accumulated benefit obligation.............................. (17,553) (14,736)
-------- --------
Projected benefit obligation................................ (20,508) (16,578)
Plan assets at fair value................................... 19,661 15,639
-------- --------
Projected benefit obligation more than plan assets.......... (847) (939)
Unrecognized net loss....................................... 3,770 3,501
Unrecognized prior service cost............................. 127 156
Unrecognized net asset...................................... (1,735) (2,023)
-------- --------
Prepaid pension cost........................................ $ 1,315 $ 695
======== ========
c. EMPLOYEE STOCK PURCHASE AND STOCK OPTION PLANS
Established in 1992, the Primark Corporation Employee Stock Purchase Plan
is available for all employees of Primark and certain subsidiaries. Under this
plan employees may purchase, through periodic payroll deductions, up to a
maximum of 3,000,000 shares of the Company's common stock at 85% of the lower of
the average market price of such shares either at the beginning or end of each
six month offering period.
The Primark Corporation Stock Option Plan for Non-Employee Directors
provides for the granting of options to purchase shares of common stock to each
director who is not an employee. The Primark Corporation 1992 Stock Option Plan
provides for the granting of options to purchase common stock to officers and
certain key employees of Primark and its subsidiaries. This plan limits the
number of shares subject to option that may be granted to any participant in any
year to 100,000 shares. Stock options available for grant in any one year under
Primark Corporation's 1992 Stock Option Plan may not exceed 1.5% of the
Company's outstanding common stock as of January 1 each year, plus any excess of
available stock options not granted from previous years. At December 31, 1997,
options available for grant in 1998 included 449,513 stock options under Primark
Corporation's 1992 Stock Option Plan. Generally, options outstanding under the
Company's stock option plans: (i) are granted at prices equal to the fair market
value of the stock on the date of grant, (ii) vest within a three year period,
and (iii) expire ten years subsequent to award.
F-31
125
PRIMARK CORPORATION AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
10. RETIREMENT AND BENEFIT PLANS -- (CONTINUED)
Changes in the number of options granted under the Company's various stock
option plans are shown below.
1997 1996 1995
--------------------- -------------------- --------------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
EXERCISE EXERCISE EXERCISE
SHARES PRICE SHARES PRICE SHARES PRICE
---------- -------- --------- -------- --------- --------
Outstanding at January 1......... 4,375,865 $12.51 4,213,718 $10.07 4,351,285 $ 8.75
Granted at market value.......... 1,056,875 24.89 464,932 34.38 680,286 16.26
Granted above market value....... 500,000 33.34 -- -- 3,500 24.88
Exercised........................ (1,692,663) 5.68 (251,068) 10.00 (804,109) 8.18
Canceled......................... (123,671) 23.36 (51,717) 23.09 (17,244) 11.78
---------- ------ --------- ------ --------- ------
Outstanding at December 31,...... 4,116,406 $20.71 4,375,865 $12.51 4,213,718 $10.07
---------- ====== --------- ====== ---------
Available for grant at
December 31,..................... 657,361 687,560 675,331
========== ========= =========
The following table sets forth information regarding options outstanding at
December 31, 1997:
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
-------------------- ----------------------
NUMBER WEIGHTED WEIGHTED NUMBER WEIGHTED
OUTSTANDING AVERAGE AVERAGE EXERCISABLE AVERAGE
RANGE OF AT REMAINING EXERCISE AT EXERCISE
EXERCISE PRICES 12/31/97 LIFE PRICE 12/31/97 PRICE
- --------------- ----------- --------- -------- ----------- --------
$ 7.63-$12.88.............................. 956,503 4.37 $11.19 956,503 $11.19
$13.50-$14.00.............................. 964,813 6.30 $13.70 697,818 $13.73
$14.63-$24.25.............................. 827,300 8.65 $22.66 175,484 $19.06
$25.00-$30.31.............................. 872,825 9.00 $27.28 211,843 $25.59
$33.13-$39.75.............................. 494,965 8.61 $37.91 171,615 $39.53
--------- ---- ------ --------- ------
$ 7.63-$39.75.............................. 4,116,406 7.17 $20.71 2,213,263 $16.19
========= ==== ====== ========= ======
The fair value of options on their grant date, including the valuation of
the option feature implicit in the Company's stock purchase plan, was measured
using the Black-Scholes option-pricing model. The fair value of options on their
grant date and key assumptions used to apply this model are shown below:
DECEMBER 31 1997 1996 1995
- ----------- --------------- --------------- ---------------
Grant date fair value..................... $ 12.21 $ 13.49 $ 7.12
Range of risk-free interest rates......... 5.51% to 6.82% 5.03% to 6.79% 5.77% to 7.59%
Range of expected life of option grants... 3 to 9 years 4 to 9 years 4 to 9 years
Expected volatility of underlying stock... 37.5% 30.9% 30.9%
=============== =============== ===============
It should be noted that the option-pricing model used was designed to value
readily tradable stock options with relatively short lives. The options granted
to employees are not tradable and have contractual lives of up to ten years. In
addition, option valuation models require the input of highly subjective
assumptions including the expected stock price volatility. However, management
believes that the assumptions used and the model applied to value the awards
yields a reasonable estimate of the fair value of the grants made under the
circumstances.
F-32
126
PRIMARK CORPORATION AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
10. RETIREMENT AND BENEFIT PLANS -- (CONTINUED)
The Company uses the intrinsic value method to measure compensation expense
associated with grants of stock options to employees. Had compensation cost been
determined based upon the fair value at the grant date for awards under these
plans, reported net income and earnings per share would have been as follows:
DECEMBER 31 (000S EXCEPT PER SHARE DATA) 1997 1996 1995
- ---------------------------------------- ------- ------- -------
Net income.................................................. $12,351 $33,428 $16,360
Basic EPS................................................... $ 0.47 $ 1.35 $ 0.85
EPS Assuming Dilution....................................... $ 0.44 $ 1.26 $ 0.79
------- ------- -------
Net income applicable to common stock....................... $12,351 $33,069 $14,926
Basic EPS................................................... $ 0.47 $ 1.33 $ 0.78
EPS Assuming Dilution....................................... $ 0.44 $ 1.24 $ 0.72
======= ======= =======
The effects of applying SFAS 123 in this pro forma disclosure include only
the effects of grants made subsequent to January 1, 1995 and, accordingly, are
not indicative of future amounts.
11. INCOME TAXES
DECEMBER 31 (000S) 1997 1996 1995
- ------------------ ------- ------- -------
FEDERAL AND OTHER INCOME TAXES CONSISTED OF:
Current provision........................................... $ 7,250 $ 8,311 $ 3,607
Deferred provision (benefit) -- net......................... 5,713 (879) 1,023
------- ------- -------
Total Federal and other income tax expense.................. $12,963 $ 7,432 $ 4,630
------- ------- -------
RECONCILIATION BETWEEN STATUTORY AND ACTUAL INCOME TAXES:
Income from continuing operations........................... $ 6,990 $12,516 $ 5,381
Income tax expense.......................................... 12,963 7,432 4,630
------- ------- -------
Book pre-tax income......................................... $19,953 $19,948 $10,011
------- ------- -------
Statutory Federal income taxes at a rate of 35%............. $ 6,983 $ 6,982 $ 3,504
Adjustments to Federal income taxes:
Amortization of goodwill.................................... 4,737 3,390 2,163
Adjustment of Federal income taxes provided in prior
years..................................................... (1,375) (1,121) 10
Losses of foreign subsidiaries without current benefit...... 2,493 55 --
State income taxes -- net................................... 545 (176) (430)
Effect of foreign tax rates................................. (198) (335) (228)
Other -- net................................................ (222) (1,363) (389)
------- ------- -------
Total Federal and other income tax expense.................. $12,963 $ 7,432 $ 4,630
======= ======= =======
The 1997 adjustment of Federal income taxes provided in prior years is
primarily due to the recognition of net operating losses and the true up of
prior year tax expense. The 1996 adjustment is primarily the result of the
Company settling seven open tax years at lower than anticipated levels.
F-33
127
PRIMARK CORPORATION AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
11. INCOME TAXES -- (CONTINUED)
The tax effects of significant temporary differences that gave rise to
deferred income tax assets and liabilities are shown below.
DECEMBER 31 (000S) 1997 1996
- ------------------ -------- --------
Deferred tax assets:
State taxes................................................. $ 9,645 $ 3,991
Postretirement benefits..................................... 1,509 1,428
Fixed assets................................................ 1,212 763
Unfavorable lease reserve................................... 961 1,186
Net operating loss carry forwards........................... 7,545 7,063
Bad debts................................................... 486 703
Other....................................................... 7,839 2,928
-------- --------
Total deferred tax assets................................... 29,197 18,062
Valuation allowance......................................... (7,199) (6,411)
-------- --------
Net deferred tax assets..................................... 21,998 11,651
-------- --------
Deferred tax liabilities:
Intangibles................................................. (20,379) (9,695)
Fixed assets................................................ (866) (1,398)
Unearned revenue............................................ (2,014) (1,172)
Other....................................................... (9,854) (8,962)
-------- --------
Total deferred tax liabilities.............................. (33,113) (21,227)
-------- --------
Net deferred tax liabilities................................ $(11,115) $ (9,576)
-------- --------
Net current asset........................................... $ 10,018 $ 6,613
Net long-term liability..................................... $(21,133) $(16,189)
-------- --------
Net deferred tax liability.................................. $(11,115) $ (9,576)
======== ========
The Company's operating loss carry forwards in France of $7,199,000 at
December 31, 1997, expire in the years 1998 through 2002.
12. SEGMENT AND GEOGRAPHIC INFORMATION
During 1997 and 1996, the Company realigned its business segments to
reflect its strategic emphasis in the information services industry. The
realignment included several acquisitions throughout 1996 and 1997 (Note 2) as
well as the discontinuance of two of its previously reported segments, applied
technology and transportation services during 1997 (Note 3). Accordingly, the
Company's continuing operations primarily reflect that of one industry segment,
information services, which provides services and related products principally
in the United States and the United Kingdom. Most of Primark's international
sales are generated through its affiliates, which are located throughout Europe,
Asia and the United States.
F-34
128
PRIMARK CORPORATION AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
12. SEGMENT AND GEOGRAPHIC INFORMATION -- (CONTINUED)
The Company's operations by geographic region are presented in the
following table on a stand-alone basis. Information presented includes acquired
companies from their respective dates of acquisition (Note 2), and has been
restated to exclude discontinued operations (Note 3).
GEOGRAPHIC REGIONS
(000S) 1997 1996 1995
- ------------------ ---------- -------- --------
DOMESTIC
Operating Revenues.......................................... $ 173,150 $119,728 $ 63,679
Operating Income (Loss)(1) Non-affiliate.................... $ 19,857 $ 17,167 $ 9,045
Affiliate(2)................................................ $ (7,005) $ (6,374) $ (4,834)
Identifiable Assets......................................... $ 393,572 $297,193 $272,976
---------- -------- --------
UNITED KINGDOM
Operating Revenues Non-affiliate............................ $ 131,889 $ 76,979 $ 60,422
Affiliate(2)................................................ $ 39,894 $ 38,711 $ 33,621
Operating Income (Loss)(3) Non-affiliate.................... $ (18,933) $(17,568) $(16,137)
Affiliate (2)............................................... $ 39,894 $ 38,711 $ 33,621
Identifiable Assets......................................... $ 363,611 $353,098 $160,338
---------- -------- --------
OTHER INTERNATIONAL
Operating Revenues.......................................... $ 92,836 $ 80,356 $ 60,678
Operating Income (Loss)(1) Non-affiliate.................... $ 36,812 $ 34,970 $ 33,993
Affiliate(2)................................................ $ (32,889) $(32,337) $(28,787)
Identifiable Assets......................................... $ 58,063 $ 63,788 $ 47,027
---------- -------- --------
CORPORATE & OTHER (3)
Operating Revenues Affiliate(2)............................. $ (39,894) $(38,711) $(33,621)
Operating Income (Loss)(1).................................. $ (5,752) $ (6,730) $ (6,015)
Identifiable Assets......................................... $ 228,563 $206,722 $237,843
---------- -------- --------
CONSOLIDATED
Operating Revenues.......................................... $ 397,875 $277,063 $184,779
Operating Income (Loss)(1).................................. $ 31,984 $ 27,839 $ 20,886
Identifiable Assets......................................... $1,043,809 $920,801 $718,184
========== ======== ========
- ---------------
(1) Includes, for 1997, restructuring charges of $6.8 million (Note 4).
(2) Affiliate transfers represent service fees received by Datastream's United
Kingdom operation from its international affiliates.
(3) Corporate and other includes corporate accounts, eliminations and
reclassifications, as well as the net assets of discontinued operations.
13. COMMITMENTS AND CONTINGENCIES
The Company and its subsidiaries are involved in other administrative
proceedings and matters concerning issues arising in the ordinary course of
business. Management cannot predict the final disposition of such issues, but
believes that adequate provision has been made for the probable losses and the
ultimate resolution of these proceedings will not have a material adverse effect
on the Company's financial condition, results of operations or financial
liquidity.
F-35
129
================================================================================
$150,000,000
PRIMARK CORPORATION
EXCHANGE OFFER
9 1/4% SENIOR SUBORDINATED NOTES DUE 2008
----------
PROSPECTUS
----------
, 1999
================================================================================
UNTIL , ALL DEALERS THAT EFFECT TRANSACTIONS IN THESE
SECURITIES, WHETHER OR NOT PARTICIPATING IN THIS OFFERING, MAY BE REQUIRED TO
DELIVER A PROSPECTUS. THIS IS IN ADDITION TO THE DEALERS' OBLIGATION TO DELIVER
A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD
ALLOTMENTS OR SUBSCRIPTIONS.
130
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 561 through 571 of the Michigan Business Corporation Act (the
"MBCA") contain detailed provisions concerning the indemnification of directors,
officers, employees, and agents against judgments, penalties, fines and amounts
paid in settlement of litigation that they may incur in their capacity as such.
Section 561 through 571 of the MBCA, which are filed as Exhibit 99.1 to this
Registration Statement, are incorporated herein by reference.
Article VIII of the Articles of Incorporation of the Registrant provides
that the Registrant shall indemnify any person who is or was a director or
officer of the Registrant or is or was serving at the request of the Registrant
as director, officer, employee, or agent of another corporation, partnership,
joint venture, trust or other enterprise against expenses (including attorney's
fees), judgments, fines and amounts paid in settlement actually and reasonably
incurred by such person in connection with any threatened, pending or completed
action, suit, or proceeding to the full extent provided by the MBCA from time to
time in effect.
Section 6.1 of the By-laws of the Registrant provides that the Registrant
shall indemnify its officers, directors, employees, agents and other persons to
the fullest extent to which corporations are empowered to indemnify such persons
at law.
Article IX of the Articles of Incorporation of the Registrant provides that
a director of the Registrant shall not be personally liable to the Registrant or
its stockholders for monetary damages for breach of fiduciary duty as a
director, except for liability (i) for any breach of the director's duty of
loyalty to the Registrant or its stockholders, (ii) for acts or omissions not in
good faith or that involve intentional misconduct or a knowing violation of law,
(iii) for a violation of Section 551(1) of the MBCA or (iv) for any transaction
from which the director derived any improper personal benefit.
The Company maintains a director's and officer's liability insurance policy
that covers its directors and officers for certain claims and actions incurred
in the course of their duties, including, under certain circumstances, alleged
violations of the Securities Act of 1933, as amended.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
a. Exhibits
EXHIBIT
NO. DOCUMENTS
- ------- ---------
1.1 Placement Agreement, dated December 16, 1998, among the
Registrant, Morgan Stanley & Co. Incorporated, A. G. Edwards
& Sons, Inc., BT Alex. Brown Incorporated, Chase Securities
Inc. and NationsBanc Montgomery Securities LLC.
1.2 Underwriting Agreement, dated as of March 4, 1998, among the
Registrant, BT Alex. Brown Incorporated and certain selling
shareholders appearing on Schedule I thereto (incorporated
by reference to the Registrant's March 6, 1998 Form 8-K).
2.1 Amended and Restated Partnership Agreement for
Worldscope/Disclosure International Partners; Irish
Partnership Interest Purchase and Sale Agreement; and
Partnership Interest Purchase and Sale Agreement; dated as
of October 15, 1996 (Exhibit 2.5 to the Registrant's 1996
Form 10-K).
2.2 Stock Purchase Agreement by and among the Registrant,
Primark Information Services UK Limited and Litton
Industries, Inc. and Litton U.K. Limited dated as of
December 8, 1997 (Exhibit 2.1 to the Registrant's Form 8-K
filed December 10, 1997).
II-1
131
EXHIBIT
NO. DOCUMENTS
- ------- ---------
2.3 Information Technology Services Agreement by and among the
Registrant, TASC, Inc. and Litton Industries, Inc. (Exhibit
2.2 to the Registrant's Form 8-K filed December 10, 1997).
3.1 Restated Articles of Incorporation of the Registrant.
3.2 By-laws of the Registrant, as amended (incorporated by
reference to the Registrant's September 30, 1990 Form 10-Q).
4.1 Registration Rights Agreement, dated as of December 16,
1998, among the Registrant, Morgan Stanley & Co.
Incorporated, A. G. Edwards & Sons, Inc., BT Alex. Brown
Incorporated, Chase Securities Inc. and NationsBanc
Montgomery Securities LLC.
4.2 Indenture, dated as of December 21, 1998, among the
Registrant and State Street Bank and Trust Company, as
Trustee for the 9 1/4% Senior Subordinated Notes Due 2008.
4.3 Rights Agreement dated May 29, 1997 between the Registrant
and Bank Boston, N.A., as Rights Agent, which includes, as
Exhibit A, the Rights Certificate and as Exhibit B, the
Summary of Rights to Purchase Common Stock (Exhibit 4.1 to
the Registrant's Form 8-A dated June 19, 1997).
4.4 Registration Rights Agreement dated January 7, 1997, between
the Registrant and Joseph E. Kasputys (Exhibit 4.1 to the
Registrant's 1996 Form 10-K).
*5.1 Opinion of Michael R. Kargula, Executive Vice President,
General Counsel and Secretary of the Registrant.
*5.2 Opinion of Skadden, Arps, Slate, Meagher & Flom LLP.
10.1 Primark Corporation 1992 Stock Option Plan dated March 2,
1992 (Exhibit 10.26 to the Registrant's 1991 Form 10-K);
Amendment dated September 28, 1995 (Exhibit 10.22 to the
Registrant's 1995 Form 10-K).
10.2 Primark Corporation Stock Option Plan for Non-Employee
Directors, as amended, dated January 12, 1988 (Exhibit 10.57
to the Registrant's 1987 Form 10-K); Amendment dated
February 21, 1992 (Exhibit 10.24 to the Registrant's 1991
Form 10-K); Amendment dated September 28, 1992 (Exhibit 28.3
to the Registrant's September 30, 1992 Form 10-Q); Amendment
dated September 22, 1995 (Exhibit 10.2 to the Registrant's
1996 Form 10-K).
10.3 Primark Corporation Executive Share Option Scheme (Exhibit
10.26 to the Registrant's 1992 Form 10-K); Amendment dated
September 28, 1995 (Exhibit 10.24 to the Registrant's 1995
Form 10-K).
10.4 Primark Corporation Savings and Stock Ownership Plan, as
amended and restated, effective January 1, 1997; (Exhibit
4.4 to the Registrant's Registration Statement on Form S-8
dated December 10, 1996).
10.5 Primark Corporation 1992 Employee Stock Purchase Plan dated
March 2, 1992 (Exhibit 10.27 to the Registrant's 1991 Form
10-K); Amended and Restated Stock Purchase Plan and related
Prospectus as filed under the Securities Act of 1933
(Exhibit 10.27 to the Registrant's 1993 Form 10-K);
Amendment dated October 4, 1995 (Exhibit 10.26 to the
Registrant's 1995 Form 10-K).
10.6 Management Incentive Plan adopted by Board of Directors on
January 12, 1988 (Exhibit 10.64 to the Registrant's 1987
Form 10-K); Amendment dated February 21, 1992 (Exhibit 10.33
to the Registrant's 1991 Form 10-K).
10.7 Promissory notes dated September 30, 1988, issued to the
Registrant by executive officers (Exhibit 10.1 to the
Registrant's September 30, 1988 Form 10-Q).
II-2
132
EXHIBIT
NO. DOCUMENTS
- ------- ---------
10.8 Restricted Stock Award Agreements and Stock Option
Agreements (Exhibit 4(b) to the Registrant's Registration
Statement No. 2-3876).
10.9 Employment and Option agreements between the Registrant and
Joseph E. Kasputys dated January 7, 1997 (Exhibit 10.11 to
the Registrant's 1996 Form 10-K).
10.10 Supplemental Death Benefit and Retirement Income Plan
Agreement, as amended and restated, dated March 25, 1986
(Exhibit 19.1 to the Registrant's March 31, 1985 Form 10-Q);
Certified Copy of Resolution amending the Supplemental Death
Benefit and Retirement Income Plan Agreement (Exhibit 10.17
to the Registrant's 1991 Form 10-K); Amendment dated
September 28, 1992 (Exhibit 29.4 to the Registrant's
September 30, 1992 Form 10-Q).
10.11 Supplemental Medical Reimbursement Insurance Plan (Exhibit
10.15 to the Registrant's 1996 Form 10-K).
10.12 Form of Change of Control Compensation Agreement entered
into between the Registrant and selected executive officers
(Exhibit 10.60 to the Registrant's 1996 Form 10-K); Form of
Amendments dated September 29, 1997 (filed as Exhibit 10.3
to the Registrant's September 30, 1997 Form 10-Q).
10.13 Refinancing Agreements (Revolving Credit Agreement, Term
Loan Agreement, Pledge Agreement, Collateral Agency
Agreement, and Note Backup Agreement) dated as of February
7, 1997, by and among Primark Corporation, Lenders Parties,
Mellon Bank, N.A. and other related documents (Exhibit 10.17
to the Registrant's 1996 Form 10-K); Amendment dated May 1,
1997 (Exhibit 10.1 to the Registrant's June 30, 1997 Form
10-Q); Amendment dated June 30, 1997 (Exhibit 10.2 to the
Registrant's June 30, 1997 Form 10-Q); Amendment dated
December 1, 1997 (Exhibit 10.16.1 to the Registrant's 1997
Form 10-K); Amendment dated March 6, 1998 (Exhibit 10.16.2
to the Registrant's 1997 Form 10-K); Amendment dated May 8,
1998; Amendment dated June 15, 1998 (incorporated by
reference to the Registrant's Schedule 13E-4 dated June 26,
1998); Amendment dated September 10, 1998; Amendment dated
December 10, 1998.
10.14 Form of variable rate unsecured loan notes dated October 24,
1996 between the Registrant and the former shareholders of
ICV, Ltd. (Exhibit 10.18 to the Registrant's 1996 Form
10-K).
10.15 Credit Agreement dated October 23, 1996, by and among the
Registrant, Lenders Parties and Mellon Bank, N.A.; (Exhibit
10.1 to the Registrant's Form 8-K dated November 13, 1996);
Amendment dated October 23, 1996 (Exhibit 10.20 to the
Registrant's 1996 Form 10-K); Amendment dated December 18,
1996 (Exhibit 10.21 to the Registrant's 1996 Form 10-K);
Amendment dated January 9, 1997 (Exhibit 10.19 to the
Registrant's 1996 Form 10-K); as amended by the Note Backup
Agreement dated February 7, 1997 (Exhibit 10.17 to the
Registrant's 1996 Form 10-K).
10.16 Revolving Credit Agreement dated as of June 29, 1995,
between the Registrant, Lenders Parties, Mellon Bank, N.A.
and The First National Bank of Boston and other related
documents (Exhibit 10.1 to the Registrant's Form 8-K dated
July 3, 1995); Amendment dated October 23, 1996 (Exhibit
10.20 to the Registrant's 1996 Form 10-K); Amendment dated
December 18, 1996 (Exhibit 10.21 to the Registrant's 1996
Form 10-K); Amendment dated January 9, 1997 (Exhibit 10.19
to the Registrant's 1996 Form 10-K).
10.17 Term Loan Agreement dated as of June 29, 1995, between the
Registrant, Lenders Parties, Mellon Bank, N.A. and The First
National Bank of Boston and other related documents (Exhibit
10.2 to the Registrant's Form 8-K dated July 3, 1995);
Amendment dated October 23, 1996 (Exhibit 10.20 to the
Registrant's 1996 Form 10-K); Amendment dated December 18,
1996 (Exhibit 10.21 to the Registrant's 1996 Form 10-K).
12.1 Statement regarding the computation of ratio of earnings to
fixed charges for the Registrant.
21.1 Subsidiaries of the Registrant.
II-3
133
EXHIBIT
NO. DOCUMENTS
- ------- ---------
23.1 Consent of Deloitte & Touche LLP.
*23.2 Consent of Michael R. Kargula, Executive Vice President,
General Counsel and Secretary of the Registrant (included in
Exhibit 5.1).
*23.3 Consent of Skadden, Arps, Slate, Meagher & Flom LLP
(included in Exhibit 5.2).
24.1 Powers of Attorney (included in signature page to
Registration Statement).
25.1 Statement of Eligibility and Qualification on Form T-1 of
State Street Bank and Trust Company, as Trustee under the
Indenture relating to the Registrant's 9 1/4% Senior
Subordinated Notes due 2008.
99.1 Sections 561-571 of the Michigan Business Corporation Act.
*99.2 Form of Letter of Transmittal.
*99.3 Form of Notice of Guaranteed Delivery.
*99.4 Form of Letter to Brokers.
*99.5 Form of Letter to Clients.
*99.6 Guidelines for certification of taxpayer identification
number on substitute Form W-9.
- ---------------
* To be filed by amendment.
ITEM 22. UNDERTAKINGS
(a) The undersigned registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the prospectus pursuant to
Item 4, 10(b), 11, or 13 or this form, within one business day of receipt of
such request, and to send the incorporated documents by first class mail or
other equally prompt means. This includes information contained in documents
filed subsequent to the effective date of the registration statement through the
date of responding to the request.
(b) The undersigned registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.
(c) The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
registrant's annual report pursuant to Section 13(a) or Section 15(d) of the
Securities Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to Section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference in the
registration statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
(d) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the registrant pursuant to the foregoing provisions, or otherwise, the
registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the registrant of expenses
incurred or paid by a director, officer or controlling person of the registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
(e) The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
II-4
134
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in the registration statement. Notwithstanding the foregoing, any
increase or decrease in volume of securities offered (if the total
dollar value of securities offered would not exceed that which was
registered) and any deviation from the low or high end of the estimated
maximum offering range may be reflected in the form of prospectus filed
with the Commission pursuant to Rule 424(b) if, in the aggregate, the
changes in volume and price represent no more than 20 percent change in
the maximum aggregate offering price set forth in the "Calculation of
Registration Fee" table in the effective registration statement.
(iii) To include any material information with respect to the plan
of distribution not previously disclosed in the registration statement
or any material change to such information in the registration
statement;
(2) That, for the purposes of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at the time shall be deemed to
be initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
II-5
135
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Waltham,
Commonwealth of Massachusetts, on January 26, 1999.
PRIMARK CORPORATION
By: /s/ STEPHEN H. CURRAN
------------------------------------
Stephen H. Curran
Executive Vice President and
Chief Financial Officer
POWER OF ATTORNEY
Each person whose signature appears below on this Registration Statement
hereby constitutes and appoints Joseph E. Kasputys, Stephen H. Curran and
Michael R. Kargula, and each of them, with full power to act without the other,
his or her true and lawful attorney-in-fact and agent, with full power of
substitution and resubstitution, for him or her and in his or her name, place
and stead, in any and all capacities (unless revoked in writing) to sign any and
all amendments (including post-effective amendments thereto) to this
Registration Statement to which this power of attorney is attached, and to file
the same, with all exhibits thereto, and other documents in connection
therewith, with the Securities and Exchange Commission, granting to such
attorneys-in-fact and agents, and each of them, full power and authority to do
and perform each and every act and thing requisite and necessary to be done in
connection therewith, as fully as to all intents and purposes as he or she might
or could do in person, hereby ratifying and confirming all that such
attorneys-in-fact and agents or any of them, or their or his substitute or
substitutes, may lawfully do or cause to be done by virtue thereof.
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
SIGNATURE TITLE DATE
- --------- ----- ----
/s/ JOSEPH E. KASPUTYS Chairman, President, Chief January 26, 1999
- ------------------------------------ Executive Officer and
Joseph E. Kasputys Director (Principal
Executive Officer)
/s/ STEPHEN H. CURRAN Executive Vice President and January 26, 1999
- ------------------------------------ Chief Financial Officer
Stephen H. Curran (Principal Accounting and
Financial Officer)
/s/ KEVIN J. BRADLEY Director January 26, 1999
- ------------------------------------
Kevin J. Bradley
/s/ JOHN C. HOLT Director January 26, 1999
- ------------------------------------
John C. Holt
/s/ STEVEN LAZARUS Director January 26, 1999
- ------------------------------------
Steven Lazarus
II-6
136
SIGNATURE TITLE DATE
- --------- ----- ----
/s/ PATRICIA MCGINNIS Director January 26, 1999
- ----------------------------------------
Patricia McGinnis
/s/ JONATHAN NEWCOMB Director January 26, 1999
- ----------------------------------------
Jonathan Newcomb
/s/ CONSTANCE K. WEAVER Director January 26, 1999
- ----------------------------------------
Constance K. Weaver
II-7
137
EXHIBIT INDEX
EXHIBIT
- -------
1.1 Placement Agreement, dated December 16, 1998, among the
Registrant, Morgan Stanley & Co. Incorporated, A. G. Edwards
& Sons, Inc., BT Alex. Brown Incorporated, Chase Securities
Inc. and NationsBanc Montgomery Securities LLC.
1.2 Underwriting Agreement, dated as of March 4, 1998, among the
Registrant, BT Alex. Brown Incorporated and certain selling
shareholders appearing on Schedule I thereto (incorporated
by reference to the Registrant's March 6, 1998 Form 8-K).
2.1 Amended and Restated Partnership Agreement for
Worldscope/Disclosure International Partners; Irish
Partnership Interest Purchase and Sale Agreement; and
Partnership Interest Purchase and Sale Agreement; dated as
of October 15, 1996 (Exhibit 2.5 to the Registrant's 1996
Form 10-K).
2.2 Stock Purchase Agreement by and among the Registrant,
Primark Information Services UK Limited and Litton
Industries, Inc. and Litton U.K. Limited dated as of
December 8, 1997 (Exhibit 2.1 to the Registrant's Form 8-K
filed December 10, 1997).
2.3 Information Technology Services Agreement by and among the
Registrant, TASC, Inc. and Litton Industries, Inc. (Exhibit
2.2 to the Registrant's Form 8-K filed December 10, 1997).
3.1 Restated Articles of Incorporation of the Registrant.
3.2 By-laws of the Registrant, as amended (incorporated by
reference to the Registrant's September 30, 1990 Form 10-Q).
4.1 Registration Rights Agreement, dated as of December 16,
1998, among the Registrant, Morgan Stanley & Co.
Incorporated, A. G. Edwards & Sons, Inc., BT Alex. Brown
Incorporated, Chase Securities Inc. and NationsBanc
Montgomery Securities LLC.
4.2 Indenture, dated as of December 21, 1998, among the
Registrant and State Street Bank and Trust Company, as
Trustee for the 9 1/4% Senior Subordinated Notes Due 2008.
4.3 Rights Agreement dated May 29, 1997 between the Registrant
and Bank Boston, N.A., as Rights Agent, which includes, as
Exhibit A, the Rights Certificate and as Exhibit B, the
Summary of Rights to Purchase Common Stock (Exhibit 4.1 to
the Registrant's Form 8-A dated June 19, 1997).
4.4 Registration Rights Agreement dated January 7, 1997, between
the Registrant and Joseph E. Kasputys (Exhibit 4.1 to the
Registrant's 1996 Form 10-K).
*5.1 Opinion of Michael R. Kargula, Executive Vice President,
General Counsel and Secretary of the Registrant.
*5.2 Opinion of Skadden, Arps, Slate, Meagher & Flom LLP.
10.1 Primark Corporation 1992 Stock Option Plan dated March 2,
1992 (Exhibit 10.26 to the Registrant's 1991 Form 10-K);
Amendment dated September 28, 1995 (Exhibit 10.22 to the
Registrant's 1995 Form 10-K).
10.2 Primark Corporation Stock Option Plan for Non-Employee
Directors, as amended, dated January 12, 1988 (Exhibit 10.57
to the Registrant's 1987 Form 10-K); Amendment dated
February 21, 1992 (Exhibit 10.24 to the Registrant's 1991
Form 10-K); Amendment dated September 28, 1992 (Exhibit 28.3
to the Registrant's September 30, 1992 Form 10-Q); Amendment
dated September 22, 1995 (Exhibit 10.2 to the Registrant's
1996 Form 10-K).
10.3 Primark Corporation Executive Share Option Scheme (Exhibit
10.26 to the Registrant's 1992 Form 10-K); Amendment dated
September 28, 1995 (Exhibit 10.24 to the Registrant's 1995
Form 10-K).
10.4 Primark Corporation Savings and Stock Ownership Plan, as
amended and restated, effective January 1, 1997; (Exhibit
4.4 to the Registrant's Registration Statement on Form S-8
dated December 10, 1996).
138
EXHIBIT
- -------
10.5 Primark Corporation 1992 Employee Stock Purchase Plan dated
March 2, 1992 (Exhibit 10.27 to the Registrant's 1991 Form
10-K); Amended and Restated Stock Purchase Plan and related
Prospectus as filed under the Securities Act of 1933
(Exhibit 10.27 to the Registrant's 1993 Form 10-K);
Amendment dated October 4, 1995 (Exhibit 10.26 to the
Registrant's 1995 Form 10-K).
10.6 Management Incentive Plan adopted by Board of Directors on
January 12, 1988 (Exhibit 10.64 to the Registrant's 1987
Form 10-K); Amendment dated February 21, 1992 (Exhibit 10.33
to the Registrant's 1991 Form 10-K).
10.7 Promissory notes dated September 30, 1988, issued to the
Registrant by executive officers (Exhibit 10.1 to the
Registrant's September 30, 1988 Form 10-Q).
10.8 Restricted Stock Award Agreements and Stock Option
Agreements (Exhibit 4(b) to the Registrant's Registration
Statement No. 2-3876).
10.9 Employment and Option agreements between the Registrant and
Joseph E. Kasputys dated January 7, 1997 (Exhibit 10.11 to
the Registrant's 1996 Form 10-K).
10.10 Supplemental Death Benefit and Retirement Income Plan
Agreement, as amended and restated, dated March 25, 1986
(Exhibit 19.1 to the Registrant's March 31, 1985 Form 10-Q);
Certified Copy of Resolution amending the Supplemental Death
Benefit and Retirement Income Plan Agreement (Exhibit 10.17
to the Registrant's 1991 Form 10-K); Amendment dated
September 28, 1992 (Exhibit 29.4 to the Registrant's
September 30, 1992 Form 10-Q).
10.11 Supplemental Medical Reimbursement Insurance Plan (Exhibit
10.15 to the Registrant's 1996 Form 10-K).
10.12 Form of Change of Control Compensation Agreement entered
into between the Registrant and selected executive officers
(Exhibit 10.60 to the Registrant's 1996 Form 10-K); Form of
Amendments dated September 29, 1997 (filed as Exhibit 10.3
to the Registrant's September 30, 1997 Form 10-Q).
10.13 Refinancing Agreements (Revolving Credit Agreement, Term
Loan Agreement, Pledge Agreement, Collateral Agency
Agreement, and Note Backup Agreement) dated as of February
7, 1997, by and among Primark Corporation, Lenders Parties,
Mellon Bank, N.A. and other related documents (Exhibit 10.17
to the Registrant's 1996 Form 10-K); Amendment dated May 1,
1997 (Exhibit 10.1 to the Registrant's June 30, 1997 Form
10-Q); Amendment dated June 30, 1997 (Exhibit 10.2 to the
Registrant's June 30, 1997 Form 10-Q); Amendment dated
December 1, 1997 (Exhibit 10.16.1 to the Registrant's 1997
Form 10-K); Amendment dated March 6, 1998 (Exhibit 10.16.2
to the Registrant's 1997 Form 10-K); Amendment dated May 8,
1998; Amendment dated June 15, 1998 (incorporated by
reference to the Registrant's Schedule 13E-4 dated June 26,
1998); Amendment dated September 10, 1998; Amendment dated
December 10, 1998.
10.14 Form of variable rate unsecured loan notes dated October 24,
1996 between the Registrant and the former shareholders of
ICV, Ltd. (Exhibit 10.18 to the Registrant's 1996 Form
10-K).
10.15 Credit Agreement dated October 23, 1996, by and among the
Registrant, Lenders Parties and Mellon Bank, N.A.; (Exhibit
10.1 to the Registrant's Form 8-K dated November 13, 1996);
Amendment dated October 23, 1996 (Exhibit 10.20 to the
Registrant's 1996 Form 10-K); Amendment dated December 18,
1996 (Exhibit 10.21 to the Registrant's 1996 Form 10-K);
Amendment dated January 9, 1997 (Exhibit 10.19 to the
Registrant's 1996 Form 10-K); as amended by the Note Backup
Agreement dated February 7, 1997 (Exhibit 10.17 to the
Registrant's 1996 Form 10-K).
139
EXHIBIT
- -------
10.16 Revolving Credit Agreement dated as of June 29, 1995,
between the Registrant, Lenders Parties, Mellon Bank, N.A.
and The First National Bank of Boston and other related
documents (Exhibit 10.1 to the Registrant's Form 8-K dated
July 3, 1995); Amendment dated October 23, 1996 (Exhibit
10.20 to the Registrant's 1996 Form 10-K); Amendment dated
December 18, 1996 (Exhibit 10.21 to the Registrant's 1996
Form 10-K); Amendment dated January 9, 1997 (Exhibit 10.19
to the Registrant's 1996 Form 10-K).
10.17 Term Loan Agreement dated as of June 29, 1995, between the
Registrant, Lenders Parties, Mellon Bank, N.A. and The First
National Bank of Boston and other related documents (Exhibit
10.2 to the Registrant's Form 8-K dated July 3, 1995);
Amendment dated October 23, 1996 (Exhibit 10.20 to the
Registrant's 1996 Form 10-K); Amendment dated December 18,
1996 (Exhibit 10.21 to the Registrant's 1996 Form 10-K).
12.1 Statement regarding the computation of ratio of earnings to
fixed charges for the Registrant.
21.1 Subsidiaries of the Registrant.
23.1 Consent of Deloitte & Touche LLP.
*23.2 Consent of Michael R. Kargula, Executive Vice President,
General Counsel and Secretary of the Registrant (included in
Exhibit 5.1).
*23.3 Consent of Skadden, Arps, Slate, Meagher & Flom LLP
(included in Exhibit 5.2).
24.1 Powers of Attorney (included in signature page to
Registration Statement).
25.1 Statement of Eligibility and Qualification on Form T-1 of
State Street Bank and Trust Company, as Trustee under the
Indenture relating to the Registrant's 9 1/4% Senior
Subordinated Notes due 2008.
99.1 Sections 561-571 of the Michigan Business Corporation Act.
*99.2 Form of Letter of Transmittal.
*99.3 Form of Notice of Guaranteed Delivery.
*99.4 Form of Letter to Brokers.
*99.5 Form of Letter to Clients.
*99.6 Guidelines for certification of taxpayer identification
number on substitute Form W-9.
- ---------------
* To be filed by amendment.