-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, VdUljOLMjO2CLFsoFVe5Z7QyKfuKoih7N+QEV4cVnlhO43kv9/6zEgp9+JzeV7tx lbhtZfv3CAFsi2ZAyW3npA== 0000950137-99-000649.txt : 19990330 0000950137-99-000649.hdr.sgml : 19990330 ACCESSION NUMBER: 0000950137-99-000649 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 10 CONFORMED PERIOD OF REPORT: 19981231 FILED AS OF DATE: 19990329 FILER: COMPANY DATA: COMPANY CONFORMED NAME: INFORMATION RESOURCES INC CENTRAL INDEX KEY: 0000714278 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-ENGINEERING, ACCOUNTING, RESEARCH, MANAGEMENT [8700] IRS NUMBER: 362947987 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K405 SEC ACT: SEC FILE NUMBER: 000-11428 FILM NUMBER: 99576725 BUSINESS ADDRESS: STREET 1: 150 N CLINTON ST CITY: CHICAGO STATE: IL ZIP: 60661-1416 BUSINESS PHONE: 3127261221 MAIL ADDRESS: STREET 1: 150 N CLINTON ST CITY: CHICAGO STATE: IL ZIP: 60661-1416 10-K405 1 FORM 10-K 1 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 --------------------- FORM 10-K (Mark One) [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED) FOR THE FISCAL YEAR ENDED DECEMBER 31, 1998 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
FOR THE TRANSITION PERIOD FROM TO COMMISSION FILE NO. 0-11428 --------------------- INFORMATION RESOURCES, INC. (Exact name of registrant as specified in its charter) DELAWARE 36-2947987 (State or Other Jurisdiction of (I.R.S. Employer Incorporation or Organization) Identification No.) 150 NORTH CLINTON STREET, CHICAGO, ILLINOIS 60661 (Address of Principal Executive Offices) (Zip Code)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE (312) 726-1221 SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT: TITLE OF EACH CLASS COMMON STOCK, $.01 PAR VALUE PER SHARE PREFERRED STOCK PURCHASE RIGHTS --------------------- Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [X] The aggregate market value of the voting stock held by nonaffiliates of the registrant as of February 26, 1999 (based on the closing price as quoted by NASDAQ as of such date) was $224,887,627. The number of shares of the registrant's common stock, $.01 par value per outstanding share, as of February 26, 1999 was 27,867,884. DOCUMENTS INCORPORATED BY REFERENCE Portions of the registrant's definitive proxy statement for the annual meeting of stockholders to be held May 20, 1999 to be filed pursuant to Regulation 14A are incorporated by reference into Part III of this Form 10-K. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 2 PART I ITEM 1. BUSINESS INTRODUCTION Information Resources, Inc. ("IRI") and its subsidiaries (collectively the "Company") is a leading provider of universal product code ("UPC"), scanner-based business solutions services to the consumer packaged goods ("CPG") industry, offering services in the U.S., Europe and other international markets. The Company supplies CPG manufacturers, retailers and brokers with information and analysis critical to their sales, marketing and supply chain operations. IRI provides services designed to deliver value through an enhanced understanding of the consumer to a majority of the Fortune 500 companies in the CPG industry. The Company currently generates approximately 78% of its revenues from sales and services provided in the U.S. These services center in large part around the Company's flagship InfoScan(R) service, which tracks consumer purchasing of products sold in grocery stores, drug stores, mass merchandisers, convenience stores and other retail outlets across the United States. The Company also offers a number of other services to CPG manufacturers, including household-level information collected via consumer panels. One such service is BehaviorScan(R) which is used for the testing and evaluation of alternative marketing strategies and tactics for both new and established products. Closely related to its information services, the Company also markets its suite of software applications to the CPG industry. In addition, the Company maintains a family of software application products based on EXPRESS(TM) technology owned by Oracle Corporation ("Oracle"). In July 1995, the Company sold its EXPRESS technology to Oracle, while retaining certain rights to market and distribute Oracle EXPRESS software. The Company provides business information services in Europe and other international markets primarily using scanner based data. Revenues from the Company's U.S. and International Services were as follows for the years ended December 31 (in thousands):
1998 1997 1996 -------- -------- -------- U.S. Services...................................... $396,992 $366,678 $344,612 International Services............................. 114,331 89,649 60,991 -------- -------- -------- Total.................................... $511,323 $456,327 $405,603 ======== ======== ========
U.S. AND INTERNATIONAL SERVICES The Company's U.S. and International Services include InfoScan product tracking services, related software product sales, consumer panel services, analytical and consulting services, BehaviorScan product testing services and a variety of applications of the Company's census (i.e., all stores within participating retail chains) scanner databases. InfoScan. The Company's principal information service marketed in the United States and internationally is InfoScan. InfoScan is a service used by the CPG industry to monitor and evaluate the market performance of products sold in retail stores. The InfoScan service provides subscribers with a variety of information including how much product they and their competitors are selling, where the products are being purchased, at what price the products are being sold and under what promotional conditions sales are occurring. This information helps subscribers make fundamental strategic and tactical decisions for their businesses in the areas of sales, marketing, pricing, promotion and logistics. InfoScan utilizes data collected from UPC bar codes on CPG product packaging. Scanners at retail checkouts read the UPC code and record product sales electronically. On an on-going basis, the Company procures such electronic sales data along with related promotional data from a sample of national and local market retail stores. The Company also collects consumer purchase information directly from individual households across the United States using consumer identification cards in a store and/or proprietary in-home scanning devices. The consumer purchase information can be used in a complementary fashion with InfoScan data. The Company processes the information at its computer facilities and stores it in the Company's 3 proprietary databases. InfoScan subscribers access the information in the Company's databases through a variety of means, including the use of analytical software provided by the Company. Subscriptions to InfoScan by CPG manufacturers are a principal source of revenue for the Company. Manufacturers subscribe to InfoScan by contracting with the Company to obtain access to the InfoScan databases for specified product categories. InfoScan contracts generally have multi-year terms, usually of three years or more in the U.S. InfoScan Census. InfoScan Census applications are derived from a product tracking service based on scanner data collected from all stores within participating retail chains, as opposed to collection from a sample of such stores. InfoScan Census offers the CPG industry more complete and accurate data than sample services, since it has no sampling or projection errors, and its applications can go beyond traditional market tracking uses. InfoScan Census revenues come primarily from manufacturers purchasing key account data, which are sales data for a product category based on all the stores of a specific retailer. This service enables manufacturers' sales representatives to negotiate with retail buyers based on a mutually consistent and accurate measure of retail product movement. In addition, an evaluation of differences in brand and product category purchasing across individual stores within a chain can often pin-point opportunities to effectively build sales to the benefit of both manufacturers and retailers. Beyond key account information, census applications include improved management of trade promotions, validation of "pay-for-performance" promotions, more effective sales force and broker compensation programs and improved inventory and distribution management. There are presently approximately 14,800 grocery stores, approximately 11,200 drug stores and approximately 3,100 mass merchandisers in the Company's InfoScan Census U.S. database. The Company is also beginning to develop InfoScan Census services in certain European markets. InfoScan Data Collection. For the Company's InfoScan sample service, the Company continuously collects weekly product sales and price information from representative retail outlets. Included in the Company's national and local market samples in the U.S. are approximately 4,500 stores in the aggregate, including grocery stores, drug stores, mass merchandisers and convenience stores. Contracting retailers typically deliver their scanner data electronically to the Company's computer facilities in Wood Dale, Illinois. While most retail stores in the United States have installed scanner equipment to record product sales information, certain convenience stores and other retail outlets have not. When scanner data are not available, the Company's field personnel visit stores and obtain sales information via a manual audit of the stores' product purchases and inventory. Collection practices for weekly product sales information in the Company's operation in foreign countries are largely scanner-based, though they vary somewhat on a country-by-country basis, as does scanner data availability. The InfoScan U.S. and international databases typically contain both product movement and price information and "causal" data. Causal data consist of information which may explain changes in product sales, such as price promotions, retailers' newspaper ads and in-store displays, as well as other promotion and merchandising data related to the sale of CPG products. The Company employs a field force of full-time and part-time workers to collect causal data. These employees conduct weekly on-site visits to retail stores participating in the InfoScan service to collect causal information such as in-store promotions and displays. Field force personnel perform other services as well, including those related to the Company's test marketing services and InfoForce services. The Company often pays cash for scanner data covering a sample or census of retailers' stores. However, the Company also exchanges software, product movement information and other services to obtain access to data for all stores within certain grocery stores and drug chains. The Company provides its QScan(R) system to U.S. retailers in exchange for their participation in the provision of their all-store data for InfoScan Census. QScan is an information system designed to provide retailers with easy access to their scanner data. The system addresses retailers' problems of organizing and analyzing their own databases of information for products sold in their stores. With a RISC workstation at a retailer's buying office or the Company's data 2 4 center along with software provided by the Company, the QScan system allows for the processing and analysis of scanner data from all of the retailer's stores on a weekly basis. Typical data procurement contracts run from year-to-year and generally are cancelable by either party on 90 days notice. Consumer Panel. The Company also collects consumer purchase information from approximately 115,000 individual households in the United States. Shoppers from approximately 60,000 of these households present an identification card when shopping at participating grocery stores, thereby allowing scanners to record specific details of their product purchases. The Company also provides about 55,000 households with hand-held scanners to record their product purchases. Thus the Company is able to ascertain product movement information from stores which either do not have scanners or do not otherwise participate in the Company's household data collection system. Household panel information is available in European markets usually from alliance partners of the Company. Data Processing. With respect to its operations in the U.S., Great Britain, France, Italy, the Netherlands and Spain, the Company receives and processes data at its production center and computer facilities located in Wood Dale, Illinois. The Company's production center operates with numerous mainframe and RISC-based computers as well as proprietary production software and related technology developed exclusively by the Company to process and store very large amounts of data. Through direct telecommunication connections with InfoScan clients in the U.S., the Company also provides electronic on-line access to InfoScan data services. The Company typically leases its mainframe computers from third party financial institutions. Data Delivery. Subscriptions to the InfoScan service entitle the Company's clients to access the Company's databases and receive information for specific product categories. Because large amounts of data are involved, clients usually either take electronic delivery of the data or obtain electronic access to the Company's databases through the Company's on-line service. Clients taking electronic delivery generally license software from the Company. The Company's on-line service permits clients to build and store their own databases which remain resident on the Company's computers. Clients then access the databases through remote electronic connection. Clients may also purchase software services from the Company. (See "Software and Related Products" below for more information on Company revenues derived from software licensing.) Other Client Services. The Company places a major emphasis on the provision of experienced and knowledgeable client service personnel to assist InfoScan subscribers in the use and interpretation of InfoScan data as well as the use of the Company's analytical software. The Company also provides numerous analytical and consulting services to both CPG manufacturers and retailers. These revenues mostly follow from subscriptions to the Company's InfoScan service and principally relate to analytical use of InfoScan data. These services are generally billed on a time and materials basis. Analytical and consulting services are directed at helping clients identify new marketing opportunities, more effectively manage their marketing mix, identify appropriate opportunities for product line optimization and increase productivity of marketing expenditures through more effective couponing, advertising and in-store merchandising programs. The Company's Neo, Inc. subsidiary provides management consulting services focused on sales force effectiveness, retailer marketing, information utilization and training and support for selling organizations. Software and Related Products. In close association with its retail tracking services around the world, the Company markets analytical software to the CPG industry principally for use in accessing, managing and analyzing the Company's databases. The Company also markets the Apollo line of space management software for use in managing retail shelf space, software for the improved management of a manufacturer's promotion expenditures and software applications to facilitate enhanced uses of InfoScan data. The Company markets a line of software application products based on Oracle EXPRESS technology primarily to the CPG industry. Oracle EXPRESS is a software technology designed for working with large and complex databases. In July 1995, the Company sold its EXPRESS technology and certain software products to Oracle, while retaining ownership of certain EXPRESS-based sales and marketing software application products for use in the CPG industry. Through licensing agreements with Oracle, the Company continues to market and distribute many Oracle EXPRESS software products. 3 5 Many of the Company's U.S. and International clients use the Oracle EXPRESS-based software application, Oracle Sales Analyzer(R), in order to access, manage and analyze the Company's databases. Oracle Sales Analyzer is a decision support software application built in Oracle EXPRESS and now owned by Oracle. The product provides users with a range of analytical and reporting tools. The Company typically licenses its own applications as well as Oracle Sales Analyzer in conjunction with a client's InfoScan data subscription. A principal source of software revenues is the provision of on-line access services to InfoScan subscribers who access InfoScan databases residing in the Company's data warehouses. Other software revenues derive from the sale of Oracle software product licenses to InfoScan subscribers who load InfoScan data on their own computer systems and do not use the Company's on-line services. Licenses typically require a one-time paid-up license fee upon acceptance of the software and annual maintenance payments for update and support services thereafter. Oracle is generally entitled to receive royalties on relevant licenses granted by the Company and its distributors within the CPG industry until July 2001; however, the Company is not required to pay royalties to Oracle on licenses granted by the Company and its data affiliates to CPG end-users for use with data provided by the Company or its data affiliates. The Company anticipates that it and Oracle will negotiate new royalty rates payable to Oracle after July 2001. Prior to the 1995 sale to Oracle, the Company operated a decision support software business engaged in general application development using the EXPRESS product line. Following the sale to Oracle, the Company obtained rights to market, distribute and provide first line customer support for many of the Oracle EXPRESS products. Software development work by the Company is now directed exclusively toward the development of applications for specific use in the CPG industry using the best available technology. The Company markets its proprietary APOLLO(R) Space Management System software to CPG retailers, wholesalers, manufacturers and brokers in the United States and internationally. APOLLO software is designed to assist in the management of retail shelf space, providing a range of tools for space management including production of picture schematics of shelf layouts, software for evaluating space utilization and a national database of product dimensions and product images. Variety Planner(R) is a product assortment application offered by the Company which can be used independently or in conjunction with the APOLLO product. The Company develops and markets a number of other software products for use in the CPG industry. These include a variety of tools which help clients receive, analyze and interpret InfoScan data. Testing Services. The Company also provides a number of testing services primarily for CPG manufacturers. These include controlled retail testing, matched market analyses and related special analyses using the Company's InfoScan databases. Controlled testing involves testing the placement of new products or changes in advertising, shelf location, price or promotional conditions in different retail outlets or different markets and involves custom manipulation and analysis of the Company's InfoScan databases. The Company's BehaviorScan service is a test marketing system available in the United States which enables CPG manufacturers to measure the impact of different marketing variables on consumer purchase behavior on new and existing products. Typical marketing variables tested in BehaviorScan are television advertisements, newspaper ads, manufacturers' coupons, free samples, in-store displays, shelf price and packaging changes. BehaviorScan tests compare the purchases of a group of consumers exposed to test variable(s) with the purchases of a control group of consumers not exposed to the test variable(s). A unique feature of the BehaviorScan system is its ability to deliver alternative television advertising to different groups of panel households using the Company's patented targetable television technology. BehaviorScan is currently available in seven markets and is the only such electronic test marketing system in the United States. Major costs associated with the BehaviorScan system include payments to retailers, compensation to participating panel households, field personnel costs, cable television studio operation, computer resources and client service personnel costs. INTERNATIONAL BUSINESS DEVELOPMENT Through subsidiaries and joint ventures with other leading marketing information firms, the Company in 1992 began offering information services in a number of countries outside of the United States. Specific 4 6 services offered depend upon local country competitive conditions and the general retailer environment. The Company's major European subsidiaries and joint venture companies rely on the Company's data production facilities in the United States as well as the Company's know-how and trade secrets to provide InfoScan retail tracking services. The Company's only significant competitor offering product tracking services internationally is the ACNielsen Company ("ACNielsen"). (See "Competition" below.) The Company competes with ACNielsen in virtually every foreign market where the Company has established information services. ACNielsen maintains a dominant market position throughout most of Europe where the Company's expenditures to establish product tracking services over the last five years have been most significant. United Kingdom. The Company's subsidiary in the United Kingdom offers a retail tracking service under the InfoScan name to the British market. Organized in 1992 as a joint venture, the Company's initial partners were Taylor Nelson AGB plc of the United Kingdom and GfK AG of Germany ("GfK"). The Company now owns substantially all of the joint venture. In 1993, the venture expanded its sample of scanning stores, initiated the collection of causal data and began offering a fully operational scanning service covering major chains under the InfoScan name. It also expanded the service to cover stores selling health and beauty aids. Pursuant to contractual arrangements, the Company provides data production services to the subsidiary from the Company's computer facilities in Wood Dale, Illinois. France. The Company's subsidiary in France offers scanner-based tracking services under the InfoScan name. In 1993, the Company organized a joint venture, IRI-SECODIP S.C.S. with GfK and SECODIP S.A. to acquire the operations of SECODIP's retail audit business and the business of a former development-stage scanner-based operation of GfK. Since 1994, the Company has funded substantially all of the joint venture's capital requirements and the Company now owns substantially all of the joint venture interests. Pursuant to contractual arrangements, the Company provides data production services to the subsidiary from the Company's computer facilities in Wood Dale, Illinois. Italy. In 1994, the Company began development of an information service in Italy through the formation of a wholly-owned subsidiary, IRI InfoScan Italy. In early 1995, the subsidiary produced its initial reports to clients. Its basic service consists of retail sales and promotion tracking using a sample of retail grocery outlets. Supermarket sales are tracked by means of scanning data, while sales in smaller, traditional shops are measured by manual audit techniques. Pursuant to contractual arrangements, the Company provides production services to IRI InfoScan Italy from the Company's computer facilities in Wood Dale, Illinois. Germany. The Company operates a retail tracking service joint venture in Germany through a subsidiary whose minority shares are held by GfK. From 1993 through 1996, the Company owned a 15% interest in GfK Panel Services GmbH ("GfK Panel"), then a subsidiary of GfK. During that time, GfK Panel offered both retail and consumer panel tracking services based on consumer household panel data, retail audit data, scanner data and provided related consulting studies. In February 1997, the retail tracking service and related software businesses were put into a new joint venture company, IRI/GfK Retail Services GmbH ("IRI/GfK Retail") in which the Company took a 51% ownership interest and GfK the remainder. Scanner data are not available from all major retailers in Germany. Such scanner data, when available, are primarily used for diagnostic and promotion analysis rather than for provision of a product tracking service as in other major European countries. GfK provides production services to IRI/GfK Retail through GfK's facilities in Nuremberg, Germany. In 1997, the Company sold its 15% ownership interest in GfK Panel to GfK. GfK Panel continues to provide consumer panel and ad hoc research services to the German market, and GfK Panel and IRI/GfK Retail cooperate in selling and delivering services to common clients. Benelux. The Company and GfK operate a joint venture which offers a scanner-based retail tracking service to the Netherlands market. This scanner-based retail tracking service became fully-operational in 1994. Until early 1998, this joint venture was owned 80.1% by GfK and 19.9% by the Company. In February 1998, the Company increased its ownership to 51% and took over management responsibilities. It 5 7 operates under the InfoScan name, and pursuant to contractual arrangements, the Company provides production services to the joint venture through the Company's computer facilities in Wood Dale, Illinois. In 1998, the Company also sold a 9.9% interest in GfK Panel Services Benelux B.V. and GfK Belgium S.A. reducing its ownership to 10%. Those companies operate household panel services in the Netherlands and Belgium and continue to cooperate with the Netherlands joint venture scanner operation in the sale and delivery of services to common customers. Spain. IRI began a start-up venture in Spain during April 1998. In November 1998, the Company executed a joint venture agreement with Media Planning, S.A. to create a new retail tracking business to serve the Spanish market under the name Information Resources Espana, S.L. ("IRI-Spain"). In January 1999, IRI-Spain and Dympanel, S.A. signed a cooperation agreement which added Dympanel, S.A. as a third investor in IRI-Spain. The aforementioned agreements resulted in the Company, Media Planning, S.A., and Dympanel, S.A. owning 60%, 30% and 10%, respectively, of the capital shares of IRI-Spain. IRI-Spain will begin providing InfoScan service to the Spanish market in early 1999, using the Company's production facilities in Wood Dale, Illinois. Turkey. Until December 1998, the Company owned and operated a retail audit business in Turkey which it acquired in 1993. This business conducted its service in a national sample of supermarkets, large and small grocery stores, pharmacies, cosmetic shops and other stores, provided related special consulting services and distributed IRI software products in Turkey. Effective January 1999 the Company contributed all of the operating assets and liabilities of its Turkish subsidiary ("IRI-Turkey") to a joint venture, Panel-IRI Pazar Arastirma ve Danismanlik A.S. ("Panel"), a Turkish company. IRI-Turkey owns 35% of Panel. Greece. The Company operates a retail audit business in Greece which it acquired in 1994. The operation includes collecting, reporting, analyzing and interpreting national and regional sales data from retail audits. Sweden. The Company owns an 8% interest in a joint venture formed in 1995 with GfK for the provision of scanner-based product tracking services in Sweden. The business is managed by GfK. Eastern Europe, Middle East and North Africa. In 1995, the Company entered into a strategic alliance with Middle East Market Research Bureau ("MEMRB"), a market research company based in Cyprus. MEMRB provides market research throughout more than 20 countries in the Middle East, Eastern Europe, the Mediterranean, the Commonwealth of Independent States and North Africa. Under the terms of the agreement, MEMRB has agreed to cooperate in the adoption of multi-country technical standards developed by the Company and co-market certain information and software products with the Company. In October 1998, IRI exercised its option to acquire a 19.9% ownership interest in MEMRB. The Company holds an option to increase its ownership interest of MEMRB to 49%. Asia and Australia. The Company has a wholly-owned software distribution subsidiary and a joint venture in Japan with Tokyo-based Mitsui & Co., Ltd., to provide software and information services, respectively, in Japan. The Company's ownership in the joint venture, which was formed in 1995, was 60%. Effective May 21, 1998, Mitsui & Co., Ltd., increased its ownership to 60% and the Company's ownership was reduced to 40%. The Company also has a wholly-owned software distribution subsidiary in Australia and New Zealand. Latin America. The Company has operations in certain Latin American markets through joint ventures and subsidiaries in Venezuela, Puerto Rico and Guatemala. The Company owns 49% of the Venezuelan joint venture, Datos Information Resources, which provides audit-based product tracking as well as ad hoc and software services to the Venezuelan market. The Company's subsidiary in Puerto Rico offers both audit-based product tracking and ad hoc marketing research services. The Company owns 19.9% of a Guatemalan based company that provides research services in Central America. The Company has strategic alliance agreements with companies in Peru and Argentina. TRADEMARKS, PATENTS, LICENSES AND SOFTWARE PROTECTION The Company is the owner of various trademarks, including InfoScan(R), InfoScan Census(TM), InfoForce(TM), QScan(TM), IRI Software(TM), IRI Logistics(TM), BehaviorScan(R), APOLLO(TM), The Partners(TM), Targeter(TM), 6 8 TradeWins(TM), Shoppers' Hotline(R), EZPrompt(R), CouponScan(TM), InSite Reporting(TM), XLerate(TM), PromoProphet(TM), ReviewNet(TM) and PromotionScan(TM). The Company also holds certain patents relating to the targetable television technology utilized in its BehaviorScan service. The patents expire at various dates between 1999 and 2005. Loss or infringement of these patents would likely not have a material adverse effect upon the Company's revenues. As a result of the sale of the EXPRESS technology and line of software products to Oracle in July 1995, the Company no longer owns a large portion of the software that is used in the delivery of InfoScan data. The Company secured a license back from Oracle assuring the continued use of certain of the EXPRESS software products in the Company's business, including rights to sublicense software to clients of the Company. The initial term of the license is six years. After July 2001, the royalty rates owed to Oracle will be subject to renegotiation between the Company and Oracle. The Company also has rights to use various trademarks owned by Oracle, including Oracle EXPRESS(R). The Company regards its databases as proprietary and, in addition to copyright protection, relies upon trade secret laws, limitations on access to its computer source codes, confidentiality agreements with clients and internal nondisclosure safeguards to protect its rights to proprietary interests. The Company's own computer software is also proprietary and bears appropriate copyright notices. Because of the rapid pace of technological change in the computer industry, trademark, patent or copyright protection is of less significance than the knowledge and experience of the Company's personnel and their ability to develop and market new systems or software products. WORKING CAPITAL PRACTICES The Company invoices its information service clients in accordance with agreed contract terms. Typical billing cycles are quarterly or monthly for long-term contracts and payment is typically due within 30 days of receipt of invoice. Software licenses generally require payment in full upon acceptance of software. The Company pays certain retailers cash in accordance with negotiated terms for providing scanner data for use in the InfoScan sample service. Payments to other vendors are normally made in accordance with vendor terms. CUSTOMERS The Company had approximately 2,400, 2,300 and 1,700 clients using its information services in 1998, 1997 and 1996, respectively. Most of the Company's clients are CPG manufacturers in the United States or in foreign countries where the Company offers its services. No client of the Company accounted for revenues in excess of 10% of the Company's total revenues. The Company's top ten clients accounted for approximately 33% of the Company's 1998 revenues. BACKLOG ORDERS At December 31, 1998, 1997 and 1996, the Company had committed contract revenues for information services of approximately $392 million, $335 million and $265 million, respectively. Revenues on contracts generally have terms of not less than one year. Such contracts are generally categorized into one of two classes: 1) cancelable at the end of each year by the giving of six months written notice by either party, or 2) multi-year contracts either non-cancelable or cancelable only with significant penalties, generally by the giving of six months written notice after the initial multi-year term. Committed contract revenues include only the noncancelable portion of a contract. The portion of these committed contract revenues expected to be earned subsequent to 1999 is approximately 49%. COMPETITION Numerous firms supply marketing and advertising research products and services to CPG manufacturers and retailers. However, the Company and ACNielsen are the only two firms which provide national scanner-based product tracking services in the United States to such manufacturers and retailers. While the Company 7 9 generates more revenues than ACNielsen in the United States market, ACNielsen is far larger than the Company in terms of worldwide revenues, giving it access to greater financial resources than the Company. In the product tracking services markets across Europe, ACNielsen currently maintains a dominant market position in most European countries and is the Company's only competitor. Principal competitive factors include: quality, reliability, timeliness and comprehensiveness of analytical services and data provided; flexibility and innovation in tailoring services to client needs; experience; the capability of technical and client service personnel; data processing and decision support software; reputation; price; and geographical coverage. RESEARCH AND DEVELOPMENT The Company is continuously developing new business products and services. In this regard, the Company is actively engaged in research and development of new software services and new database analyses and applications. Expenditures for research and development for the years ended December 31, 1998, 1997 and 1996 approximated $33.0 million, $25.0 million and $24.9 million, respectively. Included in these expenditures were $7.1 million, $3.7 million and $5.8 million of software development costs that were capitalized. Expenditures not capitalized were expensed as incurred. PERSONNEL At December 31, 1998, the Company had approximately 4,600 full-time and 2,900 part-time employees worldwide. The Company depends to a significant extent on its skilled technical personnel. Its future success will depend to a large degree upon its ability to continue to hire, train and retain its professional staff. ITEM 2. PROPERTIES The Company markets and provides its information services and software support services to U.S. clients from full-service sales offices in San Francisco and Los Angeles, California; Norwalk, Connecticut; Atlanta, Georgia; Cincinnati, Ohio; Minneapolis, Minnesota; Fairfield, New Jersey; Winston-Salem, North Carolina; Fort Washington, Pennsylvania as well as from its corporate headquarters in Chicago, Illinois and software development headquarters in Waltham, Massachusetts. The Company markets to international clients through subsidiaries, joint ventures and/or offices in Australia, Belgium, Canada, France, Germany, Guatemala, Greece, Italy, Japan, Mexico, the Netherlands, New Zealand, Puerto Rico, Spain, Sweden, United Kingdom, Venezuela and through its various distributors. Principal leased facilities of the Company are as follows:
APPROXIMATE FLOOR AREA LOCATION PRINCIPAL OPERATION (SQ. FT.) - -------- ------------------- ----------- Chicago, IL........................ Corporate headquarters and offices for professional staff 427,000 Waltham, MA........................ Professional staff and computer facilities 72,000 Wood Dale, IL...................... Computer facilities 45,000 Regional sales and client service offices.......................... Sales, client service and analysis 254,000 International offices.............. Sales, client service, computer facilities and professional staff 231,000 Data collection facilities......... Data collection and client test market control, cable TV studio facilities, warehouse 160,000
8 10 ITEM 3. LEGAL PROCEEDINGS On July 29, 1996, IRI filed an action against The Dun & Bradstreet Corp., The A.C. Nielsen Company (now a subsidiary of ACNielsen) and IMS International, Inc. (collectively, "the Defendants") in the United States District Court for the Southern District of New York entitled Information Resources, Inc. v. The Dun & Bradstreet Corp., et. al. No. 96 CIV. 5716 (the "Action"). IRI alleged that, among other things, the Defendants violated Sections 1 and 2 of the Sherman Act, 15 U.S.C. Sections 1 and 2, by engaging in a series of anti-competitive practices aimed at excluding the Company from various export markets for retail tracking services and regaining monopoly power in the United States market for such services. These practices included: i) entering into exclusionary contracts with retailers in several countries, in order to restrict the Company's access to sales data necessary to provide retail tracking services; ii) illegally tying/bundling services in markets over which Defendants' had monopoly power with services in markets in which ACNielsen competed with the Company; iii) predatory pricing; iv) acquiring foreign market competitors with the intent of impeding the Company's efforts at export market expansion; v) tortiously interfering with Company contracts and relationships with clients, joint venture partners and other market research companies; and vi) disparaging the Company to financial analysts and clients. By the Action, the Company seeks to enjoin the Defendants' anti-competitive practices and to recover damages in excess of $350 million, prior to trebling. The Action followed legal proceedings by the Canadian Competition Tribunal in 1995 and the European Commission in 1996 against ACNielsen for anti-competitive practices. In 1995, the Canadian Competition Tribunal concluded that ACNielsen had engaged in "anti-competitive acts" with the express intent "to exclude potential competitors generally and IRI specifically" from the Canadian retail tracking and services market. In December 1996, ACNielsen signed an Undertaking to the European Commission agreeing to halt numerous contractual practices which the Company contended was part of ACNielsen's intentional and unlawful strategy aimed at preventing the Company from establishing a competitive position in Europe and eliminating the Company as a competitor. On January 15, 1999, IRI filed an action against Manugistics, Inc. ("Manugistics") in the Circuit Court of Cook County, Illinois, Case No. 99 L 00599. In its two count action, IRI has alleged that Manugistics has breached a Data Marketing and Revenue Agreement between IRI and Manugistics ("Agreement") by failing to pay certain amounts due to IRI thereunder. The Agreement was entered into by IRI and Manugistics in connection with the sale by IRI to Manugistics of certain assets relating to the manufacture, sale and servicing of certain logistics software. IRI has also alleged that Manugistics committed an anticipatory breach of the Agreement with respect to certain other amounts not yet due thereunder. IRI seeks damages in excess of $11.9 million in connection with these claims. IRI has also alleged that Manugistics breached a related non- competition and solicitation agreement between IRI and Manugistics. IRI seeks unspecified damages to be determined at trial under this count. On March 2, 1999, Manugistics filed a Motion to Stay Proceedings and Compel Arbitration which is currently pending before the Court. In the ordinary course of business, IRI and its subsidiaries become involved as plaintiffs or defendants in various other legal proceedings. The claims and counterclaims in such litigation, including those for punitive damages, individually in certain cases and in the aggregate, involve amounts which may be material. However, it is the opinion of the Company's management, based upon the advice of counsel, that the ultimate disposition of pending litigation against the Company will not be material. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None. 9 11 ITEM 4(A). EXECUTIVE OFFICERS OF THE REGISTRANT
POSITION WITH COMPANY NAME AGE AND BUSINESS EXPERIENCE - ---- --- ----------------------- Thomas W. Wilson, Jr....................... 67 Chairman of the Board of Directors of the Company since April 1995. Chief Executive Officer since November 1998. Director of the Company since 1991. Senior Partner of McKinsey & Company, management consultants, from 1973 until 1990 (retired). Director of Aerial Communications Inc. since October 1996. Randall S. Smith........................... 47 President of International Services Group since January 1995 and President of Information Technology Group from February 1996 until March 1998; President -- International Operations Division from prior to March 1994 until January 1995. James R. Chambers.......................... 41 President of U.S. Commercial Businesses Group since October 1997; President -- Refrigerated Foods Division of Nabisco Foods from January 1996 to October 1997; Senior Vice President -- Sales and Customer Service of Nabisco Foods from prior to March 1994 to December 1996. Gary M. Hill............................... 51 Executive Vice President and Chief Financial Officer of the Company since May 1995. Financial consultant from August 1994 to December 1994. Senior Vice President -- Finance of Itel Corporation from prior to March 1994 to July 1994. Monica M. Weed............................. 38 Executive Vice President and General Counsel of the Company since November 1998; Assistant Secretary since May 1993; Senior Vice President and Assistant General Counsel of the Company from December 1994 to November 1998; Vice President of the Company from prior to March 1994 to December 1994. John P. McNicholas, Jr..................... 45 Senior Vice President and Controller of the Company since June 1995; Vice President -- Controller of Itel Corporation from prior to March 1994 to March 1995.
All of the foregoing executive officers hold office until the next annual meeting of the Board of Directors and until their successors are elected and qualified. 10 12 PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER'S MATTERS The Company's Common Stock has been traded on the NASDAQ Stock Market under the symbol "IRIC" since 1983. The stock currently trades on the National Market System. Share data has been adjusted for all stock splits and stock dividends to date. The high and low closing sales prices for the Company's Common Stock were as follows:
QUARTERS HIGH LOW - -------- ------- ------- 1997 1st quarter............................................... $16.000 $13.500 2nd quarter............................................... 15.125 11.875 3rd quarter............................................... 18.563 14.000 4th quarter............................................... 19.625 13.375 1998 1st quarter............................................... $16.250 $12.750 2nd quarter............................................... 19.188 15.750 3rd quarter............................................... 19.250 9.750 4th quarter............................................... 13.000 6.938
The last sale price on February 26, 1999 was $8.375 per share. As of February 26, 1999 there were 1,706 record holders of the Company's Common Stock. The Company has never paid cash dividends. It is the present policy of the Company's Board of Directors to retain earnings for use in the Company's business. Accordingly, the Board of Directors does not anticipate that cash dividends will be paid in the foreseeable future. There are restrictions in IRI's bank revolving credit facility and certain lease agreements which limit the payment of dividends and the purchases or redemption of Common Stock. (See Note 9 of the Notes to the Consolidated Financial Statements.) 11 13 ITEM 6. SELECTED FINANCIAL DATA
YEARS ENDED DECEMBER 31 ------------------------------------------ 1998 1997 1996 1995 1994 ------ ------ ------ ------ ------ (IN MILLIONS, EXCEPT PER SHARE DATA) HISTORICAL RESULTS OF OPERATIONS(1)(2)(3) Revenue........................................... $511.3 $456.3 $405.6 $399.9 $376.6 ====== ====== ====== ====== ====== Nonrecurring expenses(5).......................... -- -- (4.8) (22.8) -- ====== ====== ====== ====== ====== Operating profit (loss)........................... 7.0 14.8 (5.1) (54.9) 5.3 ====== ====== ====== ====== ====== Net gain (loss) on sale of assets(6).............. -- -- (4.6) 41.1 -- ====== ====== ====== ====== ====== Net earnings (loss) before cumulative effect of change in accounting principle(7)............... $ 3.8 $ 7.7 $ (7.6) $(11.7) $ (8.9) Cumulative effect on prior years of change in accounting principle(4)......................... -- -- -- -- (6.6) ------ ------ ------ ------ ------ Net earnings (loss)............................... $ 3.8 $ 7.7 $ (7.6) $(11.7) $(15.5) ====== ====== ====== ====== ====== Net earnings (loss) per common share -- basic: Before cumulative effect of accounting changes...................................... $ .13 $ .27 $ (.27) $ (.43) $ (.34) Cumulative effect of accounting changes......... -- -- -- -- (.26) ------ ------ ------ ------ ------ Net earnings (loss)............................. $ .13 $ .27 $ (.27) $ (.43) $ (.60) ====== ====== ====== ====== ====== Weighted average common shares -- basic........... 28.6 28.5 27.8 27.0 26.1 ====== ====== ====== ====== ====== Net earnings (loss) per common and common equivalent share -- diluted: Before cumulative effect of accounting changes...................................... $ .13 $ .26 $ (.27) $ (.43) $ (.34) Cumulative effect of accounting changes(4):..... -- -- -- -- (.26) ------ ------ ------ ------ ------ Net earnings (loss) -- diluted.................. $ .13 $ .26 $ (.27) $ (.43) $ (.60) ====== ====== ====== ====== ====== Weighted average common and common equivalent shares -- diluted............................... 29.0 29.1 27.8 27.0 26.1 ====== ====== ====== ====== ====== BALANCE SHEET DATA(1)(2)(3) Total assets...................................... $369.3 $366.6 $334.5 $338.5 $346.8 ====== ====== ====== ====== ====== Working capital................................... 5.2 24.9 34.6 44.4 66.9 ====== ====== ====== ====== ====== Long-term debt.................................... 4.6 .6 7.9 3.8 31.5 ====== ====== ====== ====== ====== Stockholders' equity.............................. $238.5 $241.5 $226.3 $229.8 $227.2 ====== ====== ====== ====== ====== Book value per common and common equivalent share........................................... $ 8.56 $ 8.41 $ 8.12 $ 8.33 $ 8.58 ====== ====== ====== ====== ====== Dividends paid per common share................... -- -- -- -- -- ====== ====== ====== ====== ====== ADDITIONAL FINANCIAL INFORMATION(1) Deferred data procurement costs................... $120.5 $111.8 $ 98.0 $ 96.8 $ 79.2 ====== ====== ====== ====== ====== Capital expenditures.............................. 33.7 34.4 18.8 24.5 24.0 ====== ====== ====== ====== ======
- --------------- (1) In February 1998, the Company increased its ownership to 51% in a joint venture which offers a retail tracking service to the Netherlands market. In addition, effective May 21, 1998, the Company reduced its ownership of Information Resources Japan, Ltd. from 60% to 40%. The consolidation of the Netherlands joint venture operations, the exercise of its MEMRB option, and the deconsolidation of Information Resources Japan, Ltd., did not have a material impact on the consolidated financial results or position of the Company. 12 14 (2) In February 1997, the Company and GfK formed a new company, IRI/GfK Retail, of which the Company has a 51% ownership interest. IRI/GfK Retail purchased the German retail tracking business of GfK Panel. The consolidation of IRI/GfK Retail did not have a material impact on the consolidated financial results or position of the Company. (3) In 1995, the Company purchased 39% of its French joint venture, IRI-SECODIP, from its joint venture partner increasing IRI's ownership from 50% to 89%. As a result of capital contributions made since 1994, the Company now owns substantially all of the joint venture interests. IRI-SECODIP has been consolidated effective January 1, 1995. (4) Effective January 1, 1994, the Company changed its method of recognizing revenue on its information service products whereby revenue is recognized over the term of the contract on a straight-line basis. Previously, the Company recognized a portion of the initial contract revenue in the period between client commitment and either the start of forward data or the test commencement, with the remaining revenue recognized ratably over the initial contract term. (5) The $4.8 million nonrecurring charge in 1996 principally related to the disposal of certain cable TV advertising cut-in equipment originally developed for use in the Company's market testing operation. Nonrecurring expenses in 1995 included a $12.4 million write-down of assets, principally related to European deferred data procurement costs, to net realizable value and a $10.4 million charge principally related to a U.S. facility closing. (6) In December 1996, the Company recorded a $4.6 million charge primarily for the final settlement of the escrow account related to the sale of a portion of the Company's software business to Oracle in 1995. In July 1995, the Company sold to Oracle certain assets, liabilities and related software application products of its software products business, resulting in a $41.1 million gain. (See Note 4 of the Notes to Consolidated Financial Statements.) (7) The 1994 results reflected a pre-tax provision of $8.3 million related to shareholder litigation. 13 15 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS Overview: Over the periods presented, the Company has generated increased revenues in its U.S. business in spite of a period of intensely competitive pricing that began in 1993, through the offering of new products and services. While this intense price competition began moderating somewhat in 1996, pricing changes have a somewhat delayed effect on reported revenues in the Company's consolidated financial statements. This lagging effect is due to the long-term nature of many contracts and the fact that only a portion of such contracts come up for renewal and therefore are subject to competitive bidding in any particular year. In addition, because of the relatively high fixed cost component of the Company's database operations, small variations in revenue can have a significant impact on profitability. In 1992, the Company began introducing its InfoScan tracking service into Europe. Due to the inherent fixed cost nature of the business and the alleged anticompetitive business practices and tactics of its major competitor, ACNielsen, losses from the International services business have been significant. In December 1996, ACNielsen signed an Undertaking to the European Commission agreeing to halt numerous contractual practices which the Company believes had hampered the Company's participation in European markets. As a result of the Undertaking, the Company believes that ACNielsen clients can begin to benefit from the Company's services without risk of financial penalties being imposed by ACNielsen, and that a significant artificial barrier to the Company's efforts to provide services to the European markets has been removed. While the Company's International losses are now declining, cash investment in Europe will be significant until revenues increase further. Special Items: In 1996 the Company recorded a $4.8 million nonrecurring charge principally due to the disposal of certain cable TV advertising cut-in equipment originally developed for use in the Company's market testing operation and a $4.6 million net loss on sale of assets attributable to the final settlement of the sale of assets to Oracle Corporation. Operations: Consolidated revenues in 1998 increased 12.1% over 1997 while 1997 revenues were 12.5% higher than 1996. Net earnings were $3.8 million in 1998, compared to net earnings of $7.7 million in 1997, and a net loss of ($7.6) million in 1996. The Company considers the aggregation of operating profit (loss), equity earnings (losses) and minority interests, ("Operating Results"), on a geographic basis to be a meaningful measure of the Company's operating performance. A comparative analysis of consolidated revenues and Operating Results for the years ended December 31, 1998, 1997 and 1996 follows (in thousands):
1998 1997 1996 -------- -------- -------- Revenues: U.S. Services...................................... $396,992 $366,678 $344,612 International Services............................. 114,331 89,649 60,991 -------- -------- -------- Total...................................... $511,323 $456,327 $405,603 ======== ======== ======== Operating Results: U.S. Services...................................... $ 31,515 $ 38,613 $ 31,106 International Services Operating loss.................................. (15,689) (19,920) (29,425) Minority interests benefit (expense)............ 342 (304) 986 Equity in earnings of affiliated companies...... 443 444 30 -------- -------- -------- Subtotal -- International Services......... (14,904) (19,780) (28,409) Corporate and other expenses....................... (8,856) (3,926) (1,965) Nonrecurring expenses.............................. -- -- (4,808) -------- -------- -------- Operating Results.......................... $ 7,755 $ 14,907 $ (4,076) ======== ======== ========
14 16 Revenues from the Company's U.S. services business in 1998 were 8.3% higher than in 1997, while revenues in 1997 increased 6.4% over 1996. These revenue increases were primarily due to the expanded use of the Company's services and products, particularly its retailer specific and all store (i.e., Census) databases. Revenue increases came primarily from existing customers, as the Company's market share in the U.S. has remained relatively unchanged over the period. U.S. operating profit decreased 18.4% in 1998 due to an 11.4% increase in expenses. Results in 1998 were negatively affected by higher costs, including compensation, benefits, training and recruiting and by increased data collection efforts related to the Company's expanded household panel and convenience store operations. U.S. operating profit increased 24.1% in 1997 as margins expanded on the benefit of lower expense growth resulting from the Company's cost containment and reengineering initiatives. Total international service revenues in 1998 increased 27.5% over 1997. Revenues in 1998 reflect the benefit of the consolidation of IRI's majority-owned Netherlands operation, IRI/GfK Retail Services, B.V., effective in 1998. Excluding the Netherlands, European revenues increased 21.8% compared to 1997. International service revenues in 1997 increased 47.0% over 1996 in dollar terms despite the dampening effect of a strong U.S. dollar against European currencies. Revenues in 1997 also reflect the benefit of the consolidation of IRI's majority-owned German operation, IRI/GfK Retail, effective in early 1997. Excluding the German results and foreign exchange effect, European revenues increased 27.0% in 1997 compared to 1996 as the Company made continued inroads with multi-national customers. Operating Results for the Company's International businesses were a ($14.9) million loss in 1998, 24.7% below the ($19.8) million loss in 1997. The improved International Operating Results were principally due to continuing revenue growth of the Company's major European services, primarily France, the U.K. and Italy. The International Operating Results were a ($19.8) million loss in 1997 compared to a ($28.4) million loss in 1996. The reduced international losses are principally due to continued sharp revenue increases in each of the Company's major European countries. Corporate and other expenses increased in 1998 and 1997 over prior years due to higher legal expenses in the U.S. attributable to the anti-trust litigation, and increased compensation expense in 1998 primarily related to severance and recruiting costs. Year Ended December 31, 1998: Consolidated net earnings were $3.8 million in 1998 compared to net earnings of $7.7 million in 1997. Results in 1998 reflect a decrease in operating earnings in the Company's U.S. business caused by increased employee related expenses and data collection costs. Consolidated revenues increased 12.1% to $511.3 million in 1998. Revenues in 1998 reflect strong market share growth in Europe specifically in the U.K., France and Italy. Revenues in 1998 also benefited somewhat from the inclusion of the Company's majority-owned operations in the Netherlands, effective February 1, 1998. Consolidated cost of information services sold increased by $48.4 million, or 12.0% to $450.2 million in 1998. Major components of the 1998 increase included: (a) a $26.8 million increase in compensation expense resulting primarily from salary increases in the U.S. and growing European operations; (b) a $10.1 million increase in the amortization of deferred data procurement costs, principally resulting from expansion of information services businesses in Europe; and (c) a $5.8 million increase in operating expenses due to the 1998 consolidation of the Netherlands operation. Consolidated selling, general and administrative expenses increased by $14.4 million or 36.4% to $54.1 million for 1998. This increase was primarily attributable to recruiting, training and severance costs relating to the reorganization and transformation of the Company's U.S. sales, marketing and other operating functions, legal expenses in the U.S., and worldwide increases in other general expenses, including compensation. Increased legal expenses related to the Company's anti-trust lawsuit against The Dun and Bradstreet Corporation, ACNielsen Company and IMS International, Inc. The case is currently in the discovery and deposition phase, and the Company anticipates that it will continue to incur a high level of legal expenses as the case continues to progress toward trial. 15 17 Interest and other expenses were $1.2 million for 1998 compared to $.5 million in 1997. The increase in 1998 is due to increased bank borrowings during 1998 primarily resulting from the Company's purchases of Common Stock. The Company's 1998 income tax expense was higher than the income tax expense computed using the U.S. Federal statutory rate due to certain unbenefitted foreign losses, goodwill amortization and other nondeductible expenses. Year Ended December 31, 1997: Consolidated net earnings were $7.7 million in 1997 compared to a net loss of ($7.6) million in 1996. Results in 1996 included a $4.8 million nonrecurring pretax charge principally related to the disposal of certain cable TV advertising cut-in equipment and a $4.6 million pretax charge primarily related to the final settlement on the sale of a portion of the Company's software business to Oracle in 1995. Consolidated revenues increased 12.5% to $456.3 million in 1997. Revenues in 1997 reflected strong market share growth in Europe. International revenues also reflected the benefit of consolidating IRI's majority-owned German operation, IRI/GfK Retail, effective February 1, 1997. Excluding the German results and foreign exchange effect, consolidated revenues increased 9.5% compared to 1996. Consolidated cost of information services sold increased by $32.9 million, or 8.9% to $401.9 million in 1997. Major components of the 1997 increase included: (a) a $15.9 million increase in operating expenses due to the 1997 consolidation of the German operation; (b) a $10.3 million increase in the amortization of deferred data procurement costs, principally resulting from the expansion of the information services business in Europe; and (c) a $9.1 million increase in compensation expense resulting primarily from the growing European operations and salary increases in the U.S. Consolidated selling, general and administrative expenses increased by $2.7 million or 7.4% to $39.7 million in 1997. These increases were primarily attributable to higher compensation expenses worldwide and legal expenses in the U.S. Increased legal expenses related directly to the Company's antitrust lawsuit against The Dun & Bradstreet Corporation, ACNielsen Company and IMS International, Inc. In that suit, the Company is seeking $1 billion in trebled damages from the defendants for violations of U.S. antitrust laws. The case is currently in the discovery phase, and the Company anticipates incurring continued high legal expenses as the case progresses toward trial. Interest and other expenses were $.5 million for 1997 compared to $1.2 million in 1996. The decrease in 1997 is due to decreased bank borrowings in 1997 resulting from positive cash flow from operations. The Company's 1997 income tax expense was higher than the income tax expense computed using the U.S. Federal statutory rate due to certain unbenefitted foreign losses, goodwill amortization and other nondeductible expenses. LIQUIDITY AND CAPITAL RESOURCES The Company's current cash resources include its $11.1 million consolidated cash balance and $57.0 million available under the Company's bank revolving credit facility. The Company anticipates that it will have sufficient funds from these sources and internally generated funds from its U.S. operations to satisfy its cash needs for the foreseeable future. The Company's bank credit agreement contains covenants which restrict the Company's ability to incur additional indebtedness. Cash Flow for the Year Ended December 31, 1998: Consolidated net cash provided by operating activities was $159.8 million for the year ended December 31, 1998 compared to $151.4 million in 1997. While earnings were lower in 1998, operating cash flow in 1998 contained greater amortization and depreciation elements than in 1997. Consolidated cash used in net investing activities was ($161.1) million in 1998 compared to ($147.6) million in 1997. Investing activity in 1998 reflects higher expenditures for data procurement and software development. Net cash provided (used) before financing activities was ($1.2) million in 1998 and $3.8 million in 1997 primarily due to higher investing activities in 1998. Consolidated cash provided (used) by net financing activities was ($8.7) million in 1998 compared to $6.4 million in 1997. The Company borrowed $3.0 million under its revolving line of credit during 1998 and during 1998 purchased $20.2 million of the Company's stock under its stock purchase plan. 16 18 Cash Flow for the Year Ended December 31, 1997: Consolidated net cash provided by operating activities was $151.4 million for the year ended December 31, 1997 compared to $102.1 million for the year ended December 31, 1996. Cash provided by operating activities increased primarily due to improved operating performance both in Europe and in the U.S. and significantly lower working capital investment in the U.S. in 1997. Consolidated cash used in net investing activities was ($147.6) million in 1997 compared to ($121.2) million in 1996. Investing activity for 1997 reflected higher purchases of equipment and deferred data procurement costs offset by lower investment in capitalized software compared to 1996. Net cash provided (used) before financing activities was $3.8 million in 1997 and ($19.1) million for 1996. Consolidated cash provided by financing activities was $6.4 million in 1997 compared to $7.1 million in 1996 when the bank line was used to fund international operating needs. Proceeds from exercises of stock options were approximately $17.2 million in 1997 and $1.7 million in 1996. In the fourth quarter of 1997, the Company purchased shares of Common Stock at an aggregate purchase price of $3.0 million. Financings: On February 10, 1999, the Company amended its $75 million bank revolving credit facility to (1) reduce the maximum commitments to $60 million, (2) extend the termination date to 2002, and (3) amend certain financial covenants and other terms and conditions of the agreement. The amended facility has floating rate options at or below prime and commitment fees of up to .25% payable on the unused portion. The weighted average interest rate at December 31, 1998 was 6.25%. In October 1997, the Company replaced its $50 million bank revolving credit facility maturing in 1998 with a $75 million facility maturing in 2001. The financial covenants in the bank credit agreement, as well as in the lease agreement for the Company's Chicago headquarters, require the Company to maintain a minimum tangible net worth and to meet certain cash flow coverage and leverage ratios. The agreements also limit the Company's ability to declare dividends or make distributions to holders of capital stock, or redeem or otherwise acquire shares of the Company. Approximately $23.0 million is currently available for such distributions under the most restrictive of these covenants. The bank credit agreement contains covenants which restrict the Company's ability to incur additional indebtedness. Common Stock Purchase Plan: In November 1997 the Company's Board of Directors approved a plan to purchase up to two million shares of the Company's Common Stock from time to time in the open market. Purchases under the plan are subject to a number of considerations including the market price of the Company's Common Stock and general market conditions. As of December 31, 1998, the Company had purchased and retired 1,861,800 shares under the plan at an average cost of $12.46 per share of which 1,442,600 shares were purchased during 1998 at an average cost of $11.96 per share. Other Deferred Costs: Consolidated deferred data procurement expenditures were $120.5 million, $111.8 million and $98.0 million for the years ended December 31, 1998, 1997 and 1996, respectively. These expenditures are amortized over a period of 28 months and include payments to retailers for point-of-sale data and costs related to collecting, reviewing and verifying other data (i.e., causal factors) which are an essential part of the Company's database. The increase in deferred data procurement expenditures was related to the expansion of the Company's International services business and increased convenience store collection costs and expenses related to the expansion of its multi-outlet household panel in the U.S., in 1998 and 1997. Deferred data procurement expenditures for the Company's U.S. services business were $76.9 million, $71.7 million and $65.6 million for the years ended December 31, 1998, 1997 and 1996, respectively. The Company's International services business deferred data procurement expenditures were $43.6 million, $40.1 million and $32.4 million for the years ended December 31, 1998, 1997 and 1996, respectively. NOL Carryforwards: As of December 31, 1998, the Company had cumulative U.S. Federal net operating loss ("NOL") carryforwards of approximately $67.9 million that expire primarily in 2009 and 2011. Certain of these carryforwards have not been examined by the Internal Revenue Service and, therefore, are subject to adjustment. At December 31, 1998 the Company also had general business tax credit carryforwards of approximately $9.6 million which expire primarily between 1999 and 2012, and are available to reduce future Federal income tax liabilities. In addition, at December 31, 1998, various foreign subsidiaries of IRI had aggregate cumulative NOL carryforwards for foreign income tax purposes of approximately $10.9 million which are subject to various income tax provisions of each respective country. Approximately $3.6 million of 17 19 these foreign NOLs may be carried forward indefinitely, while the remaining $7.3 million expire in 2000 through 2003. Impact of Inflation: Inflation has slowed in recent years and is currently not an important determinant of the Company's results of operations. To the extent permitted by competitive conditions, the Company passes increased costs on to customers by adjusting sales prices and, in the case of multi-year contracts, through consumer price index provisions of such agreements. YEAR 2000 ISSUES Background: Many systems (including computers, software and other equipment) include programming code in which calendar year data is abbreviated to only two digits. As a result of this design decision, some of these systems could fail to operate or to produce correct results if "00" is interpreted to mean "1900". For the Company, such failures would cause disruptions of operations including, among other things, a temporary inability to obtain data from retailers, process transactions, communicate information to tracking service clients, send invoices or engage in normal business activities. In 1996 and 1997, various internal review teams within the Company began addressing the Year 2000 issue in their respective areas. In early 1998, a steering committee was established to represent all operating, administrative and finance areas of the Company to direct the process of identifying, assessing and resolving significant Year 2000 issues in a timely manner. The process includes development of remediation plans, where necessary, as they relate to internally used software, commercial software applications licensed to clients, computer hardware and the use of computer applications in the Company's data warehouse operations. In addition, the Company is engaged in assessing the Year 2000 issue with third parties including significant suppliers, such as data vendors and tracking service clients. Executive management including the Company's chairman of the Board of Directors is represented on the steering committee and monitors the status of the Company's Year 2000 plans. In addition, management reports the status of the Year 2000 project to the Board of Directors. The operations of office and facilities equipment, such as fax machines, photocopiers, telephone switches, security systems, elevators and other common devices may also be affected by the Year 2000. The Company's current assessment of the potential effect of the Year 2000 issues on its office and facilities equipment is considered to be minimal, in terms of risk and incremental cost of remediation. Risks: The Company has identified potential Year 2000 risks in the following four categories: (1) reliance upon third party retailers in the U.S. and Europe for data for use in its InfoScan tracking services; (2) processing of data by the various computer applications in its Wood Dale, Illinois facilities; (3) commercial software products and applications produced and/or marketed by the Company; and (4) Company data interfaces with client developed applications which may not be Year 2000 compliant. Third Party Retailers: The Company has identified and has initially contacted, using surveys, all of its critical retailers in the U.S. and Europe to determine the extent to which the Company's interface systems are vulnerable to those third parties' failure to remedy their own Year 2000 issues. It is expected that full certification of Year 2000 compliance for all key suppliers of tracking data to the Company will be completed during the fourth quarter of 1999. To the extent that retailer responses to Year 2000 readiness are unsatisfactory, the Company intends to follow up to assess whether all critical retailers are Year 2000 compliant. In addition, the Company is currently investigating alternative sources or methodologies to provide the Company with reasonable assurance of source retailer data should a U.S. or European key retailer encounter unforeseen difficulties during early 2000. Wood Dale Computer Applications: The Company has commenced a review of its information and operational systems used to process data in its InfoScan tracking services in order to identify those systems that are not Year 2000 compliant. The Company has determined that its InfoScan tracking service is largely Year 2000 compliant due to the Company's main feature of programming design which accounts for data by "weeks" as opposed to calendar dates. However, the Company has identified certain systems which might be 18 20 negatively impacted by Year 2000. Accordingly, it is building a Year 2000 test database and a test environment to assess compliance on programs affecting major services to clients. The test environment will also provide an ongoing benefit to the Company for future programs developed by the Company. The Company estimates that completion of the test database and test environment will occur by mid-1999 and that remediation will be completed by the third quarter of 1999. Commercial Software Products and Applications: During 1997, the Company began an internal review of each of its software products which it intends to maintain through the Year 2000. Based upon this assessment, the Company concluded that its standard policy of regular software maintenance, upgrades and lifecycle evaluation will provide adequate assurance that the Company's current portfolio of software products will be Year 2000 compliant by mid-year 1999. In 1998, the Company began the process of identifying and contacting clients and former clients in both the U.S. and Europe for whom the Company previously developed custom applications. These investigations will determine the extent to which custom applications developed by the Company require Year 2000 remediation and whether the Company will provide software consulting services in order to assist these clients and former clients in such remediation. The Company believes it has completed the identification of all material custom application issues and has no significant obligation for remediation. Data Interfaces with Client Applications: As part of its ongoing services, the Company has begun making inquiries of major clients to identify and resolve potential Year 2000 issues resulting from IRI interfaces with client applications, including any custom applications developed by clients. However, management believes that it may not be possible for it to determine with complete certainty that Year 2000 issues affecting client applications can be identified or corrected due to the complexity of these applications and the fact that these systems interact and operate with computer systems which are not under the Company's control. Consequently, the Company is unable to estimate a timetable for completion of this assessment including remediation and any related costs, as the decision to allow the Company to conduct such investigations on a timely basis resides with each client. Costs: The Company uses both internal and external resources in the assessment and remediation of Year 2000 issues and believes these resources will provide adequate support for such resolution. While the costs of external resources are quantifiable, the costs of internal resources who deal with data vendors and tracking service and software clients on a daily basis on a variety of subjects, including Year 2000 issues, are difficult for the Company to estimate. Accordingly, costs included in the Company's disclosures are subject to uncertainty with respect to internal personnel. The Company currently estimates that the combined 1998 and 1999 internal and external Year 2000 project costs will range from $10 million to $12 million and will be funded through operating cash flow. To date, the Company estimates that approximately $2 million has been spent and expensed, and of the remaining estimated costs, up to approximately $4 million may be capitalized for new systems and equipment. Most Likely Consequences of Year 2000 Problems: The Company expects to identify and resolve all Year 2000 issues that could materially adversely affect its business operations. However, management believes that it may not be possible for it to determine with complete certainty that all Year 2000 issues affecting the Company will be identified or corrected on a timely basis. The number of devices that could be affected and the interactions among these devices are innumerable. In addition, accurate predictions of the extent of Year 2000 problem-related failures or the severity, duration, or financial consequences of these failures, cannot be made. As a result, management expects that the Company could likely suffer the following consequences: 1. A significant number of operational inconveniences and inefficiencies for the Company, its retailers and its clients may divert management's time and attention and financial and human resources from their ordinary business activities; and 2. A lesser number of serious system failures may require significant efforts by the Company, its retailers or its clients to prevent or alleviate material business disruptions. Contingency Plans: The Company is currently developing contingency plans to be implemented as part of its efforts to identify and correct Year 2000 issues affecting its internal systems. The Company expects to 19 21 complete its contingency plans by mid-1999. Depending on the systems affected, these plans could include accelerated replacement of affected equipment or software, short to medium-term use of backup equipment and software, or use of contract personnel to correct on an accelerated schedule any year 2000 issues that arise or to provide manual workarounds for information systems, and similar approaches. If the Company actually is required to implement any of these contingency plans, it could have a material effect on the Company's financial condition and results of operations. However, based on the activities described above, the Company does not believe that the Year 2000 issues will have a material adverse effect on the Company's business or results of operations. Disclaimer: The discussion of the Company's efforts, and management's expectations, relating to Year 2000 compliance are forward-looking statements. The Company's ability to achieve Year 2000 compliance and the level of incremental costs associated therewith, could be adversely impacted by, among other things, the availability and cost of programming and testing resources, retailers' and vendors' ability to modify proprietary software, and unanticipated problems identified in the ongoing compliance review. EUROPEAN CURRENCY CONVERSION ISSUES In accordance with the 1992 treaty of the European Union, on January 1, 1999, a new single European currency, the "euro", became legal tender, which will replace the sovereign currencies ("legacy currencies") of the eleven initial members of the European Union ("participating countries"). On this date, fixed conversion rates between the euro and the legacy currencies in those particular countries were established. During the transition period, which ends on January 1, 2002, the entities within participating countries have the option of accounting for their transactions in either euros or their legacy currencies. Euros are currently available for non-cash transactions only; euro bills and coins will be available for cash transactions at the conclusion of the transition period. No later than July 1, 2002, the participating countries will withdraw their legacy currencies from circulation and they will cease to be legal tender. Participating countries have ceded certain aspects of their monetary policy authority, including money supply and official interest rates for the euro, to the European Central Bank. As the Company has operations in several of the participating countries, it will be affected by issues surrounding the introduction of and transition to the euro. The Company's European Executive Committee ("the Committee") is charged with formulating and executing all aspects of the Company's response concerning the conversion to the euro. The Committee is currently investigating the impact of the euro on all computer systems that affect the Company. Specific systems concerns include the ability to provide its clients InfoScan services in euros and to pay bills, to receive payments, to invoice and to provide pricing in euros. The Company expects all systems issues to be resolved by the conclusion of the transition period and accordingly, anticipates no significant interruptions in its business operations. During the transition period, the Company's clients have the right to settle transactions in both the euro and legacy currencies. The Company may also be affected by other economic, legal, political, and social factors relating to the transition to the euro. The Company may also be impacted by: the ability of the banking systems to function smoothly during and after the transition period; the monetary policy as set by the European Central Bank; the interpretation of the Company's contracts and tax laws, regulations and treaties within the European Union, United States and the World Trade Organization; and by additional macroeconomic and other factors beyond the Company's control. FORWARD LOOKING INFORMATION Certain matters discussed above are forward-looking statements that are subject to risks and uncertainties that could cause actual results to differ materially from those anticipated, including customer renewals of service contracts, the timing of significant new customer engagements, the success of transforming its domestic operations, competitive conditions, changes in client spending for the non-contractual services the Company offers, the release of chain-specific data by European retailers, foreign currency exchange rates, Year 2000 and European currency conversion issues and other factors beyond the Company's control. These 20 22 risks and uncertainties are described in reports and other documents filed by the Company with the Securities and Exchange Commission. ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Not applicable. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA Listed below are the financial statements and supplementary data included in this part of the Annual Report on Form 10-K:
PAGE NO. ---- (a) Financial Statements Report of Independent Auditors.............................. 22 Consolidated Balance Sheets at December 31, 1998 and 1997... 23 Consolidated Statements of Operations for the years ended December 31, 1998, 1997 and 1996............................ 24 Statement of Changes in Stockholders' Equity and Comprehensive Income for the years ended December 31, 1998, 1997 and 1996............................................... 25 Consolidated Statements of Cash Flows for the years ended December 31, 1998, 1997 and 1996............................ 26 Notes to Consolidated Financial Statements.................. 27 (b) Supplementary Data Summary of Quarterly Data................................... 40
Financial statement schedule is included on page 43 preceding the signature pages of this report (see Item 14). 21 23 REPORT OF INDEPENDENT AUDITORS Board of Directors and Stockholders Information Resources, Inc. and Subsidiaries We have audited the accompanying consolidated balance sheets of Information Resources, Inc. and Subsidiaries as of December 31, 1998 and 1997 and the related consolidated statements of operations, stockholders' equity and cash flows for each of the three years in the period ended December 31, 1998. Our audits also included the financial statement schedule listed in the Index at Item 14(a). These financial statements and schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and schedule based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Information Resources, Inc. and Subsidiaries at December 31, 1998 and 1997, and the consolidated results of their operations and their cash flows for each of the three years in the period ended December 31, 1998, in conformity with generally accepted accounting principles. Also, in our opinion, the related financial statement schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects the information set forth therein. ERNST & YOUNG LLP Chicago, Illinois February 11, 1999 22 24 INFORMATION RESOURCES, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS ASSETS
DECEMBER 31, ----------------------- 1998 1997 -------- --------- (IN THOUSANDS) CURRENT ASSETS Cash and cash equivalents................................. $ 11,149 $ 20,925 Accounts receivable, net.................................. 87,637 96,209 Prepaid expenses and other................................ 9,223 9,563 -------- --------- Total Current Assets.............................. 108,009 126,697 -------- --------- Property and equipment, at cost........................... 177,443 180,043 Accumulated depreciation.................................. (97,940) (111,628) -------- --------- Net Property and Equipment........................ 79,503 68,415 Investments............................................... 9,792 13,061 Other assets.............................................. 171,989 158,447 -------- --------- $369,293 $ 366,620 ======== ========= LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES Current maturities of capitalized leases.................. $ 521 $ 2,266 Accounts payable.......................................... 43,640 49,306 Accrued compensation and benefits......................... 20,925 20,357 Accrued property, payroll and other taxes................. 4,486 3,068 Accrued expenses.......................................... 11,287 6,324 Deferred revenue.......................................... 21,940 20,469 -------- --------- Total Current Liabilities......................... 102,799 101,790 -------- --------- Long-term debt............................................ 4,575 640 Deferred income taxes, net................................ 14,017 13,660 Other liabilities......................................... 9,450 8,988 STOCKHOLDERS' EQUITY Preferred stock -- authorized 1,000,000 shares, $.01 par value; none issued..................................... -- -- Common stock -- authorized 60,000,000 shares, $.01 par value; 27,867,884 and 28,713,943 shares issued and outstanding, respectively.............................. 279 287 Capital in excess of par value............................ 190,701 198,537 Retained earnings......................................... 49,778 45,932 Accumulated other comprehensive income (loss)............. (2,306) (3,214) -------- --------- Total Stockholders' Equity........................ 238,452 241,542 -------- --------- $369,293 $ 366,620 ======== =========
The accompanying notes to consolidated financial statements are an integral part of these statements. 23 25 INFORMATION RESOURCES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, -------------------------------------- 1998 1997 1996 ---------- ---------- ---------- (IN THOUSANDS, EXCEPT PER SHARE DATA) Information services revenues........................... $ 511,323 $ 456,327 $ 405,603 Costs and expenses: Information services sold............................. (450,236) (401,876) (368,951) Selling, general and administrative expenses.......... (54,117) (39,684) (36,936) Nonrecurring expenses................................. -- -- (4,808) --------- --------- --------- (504,353) (441,560) (410,695) --------- --------- --------- Operating profit (loss)................................. 6,970 14,767 (5,092) Net loss on sale of assets.............................. -- -- (4,600) Interest expense and other, net......................... (1,174) (545) (1,182) Equity in earnings of affiliated companies.............. 443 444 30 Minority interests benefit (expense).................... 342 (304) 986 --------- --------- --------- Earnings (loss) before income taxes..................... 6,581 14,362 (9,858) Income tax (expense) benefit............................ (2,735) (6,700) 2,300 --------- --------- --------- Net earnings (loss)..................................... $ 3,846 $ 7,662 $ (7,558) ========= ========= ========= Net earnings (loss) per common share -- basic........... $ .13 $ .27 $ (.27) ========= ========= ========= Net earnings (loss) per common and common equivalent share -- diluted...................................... $ .13 $ .26 $ (.27) ========= ========= ========= Weighted average common shares -- basic................. 28,578 28,476 27,755 ========= ========= ========= Weighted average common and common equivalent shares -- diluted............................................... 28,986 29,069 27,755 ========= ========= =========
The accompanying notes to consolidated financial statements are an integral part of these statements. 24 26 INFORMATION RESOURCES, INC. AND SUBSIDIARIES STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY AND COMPREHENSIVE INCOME YEARS ENDED DECEMBER 31,
ACCUMULATED OTHER TOTAL COMMON PAID-IN RETAINED COMPREHENSIVE STOCKHOLDERS' STOCK CAPITAL EARNINGS INCOME EQUITY ------ -------- -------- ------------- ------------- (IN THOUSANDS) Balance at December 31, 1995.............. $276 $183,615 $45,828 $ 35 $229,754 ---- -------- ------- ------- -------- Comprehensive income (loss): Net loss................................ -- -- (7,558) -- (7,558) Other comprehensive income (loss), foreign currency translation adjustment........................... -- -- -- 531 531 -------- Comprehensive income (loss)............. (7,027) Shares issued from employee stock option plan exercises and other................ 3 3,598 -- -- 3,601 ---- -------- ------- ------- -------- Balance at December 31, 1996.............. 279 187,213 38,270 566 226,328 ---- -------- ------- ------- -------- Comprehensive income: Net earnings............................ -- -- 7,662 -- 7,662 Other comprehensive income, foreign currency translation adjustment...... -- -- -- (3,780) (3,780) -------- Comprehensive income.................... 3,882 Shares issued from employee stock option plan exercises and other................ 12 17,269 -- -- 17,281 Shares purchased and retired.............. (4) (5,945) -- -- (5,949) ---- -------- ------- ------- -------- Balance at December 31, 1997.............. 287 198,537 45,932 (3,214) 241,542 ---- -------- ------- ------- -------- Comprehensive income: Net earnings............................ -- -- 3,846 -- 3,846 Other comprehensive income, foreign currency translation adjustment...... -- -- -- 908 908 -------- Comprehensive income.................... 4,754 Shares issued from employee stock option plan exercises and other................ 6 9,398 -- -- 9,404 Shares purchased and retired.............. (14) (17,234) -- -- (17,248) ---- -------- ------- ------- -------- Balance at December 31, 1998.............. $279 $190,701 $49,778 $(2,306) $238,452 ==== ======== ======= ======= ========
The accompanying notes to consolidated financial statements are an integral part of these statements. 25 27 INFORMATION RESOURCES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, --------------------------------- 1998 1997 1996 --------- --------- --------- (IN THOUSANDS) CASH FLOWS FROM OPERATING ACTIVITIES: Net earnings (loss)....................................... $ 3,846 $ 7,662 $ (7,558) Adjustments to reconcile net earnings (loss) to net cash provided by operating activities: Amortization of deferred data procurement costs......... 112,111 101,625 87,944 Depreciation............................................ 23,238 20,421 20,204 Amortization of capitalized software costs and intangibles.......................................... 6,894 6,689 7,140 Deferred income tax expense (benefit)................... 2,606 6,329 (2,938) Equity in earnings of affiliated companies and minority interests............................................ (785) (140) (1,016) Nonrecurring expenses and loss on disposition of assets............................................... -- -- 9,408 Other................................................... (2,864) (3,529) (3,002) Change in assets and liabilities: Decrease (increase) in accounts receivable, net...... 9,615 6,514 (5,444) Increase (decrease) in other current assets.......... 560 (2,379) (1,334) Increase (decrease) in accounts payable and accrued liabilities........................................ 3,147 8,168 (3,314) Increase (decrease) in deferred revenue.............. 1,471 (672) (84) Other, net........................................... 3 679 2,077 --------- --------- --------- Total adjustments............................... 155,996 143,705 109,641 --------- --------- --------- Net cash provided by operating activities....... 159,842 151,367 102,083 CASH FLOWS FROM INVESTING ACTIVITIES: Proceeds from disposition of assets....................... -- 1,500 2,900 Deferred data procurement costs........................... (120,493) (111,814) (98,005) Purchase of property, equipment and software.............. (33,731) (34,444) (18,772) Capitalized software costs................................ (7,167) (3,682) (5,784) Investments and net assets acquired in business acquisitions and other, net............................. 319 889 (1,550) --------- --------- --------- Net cash used by investing activities........... (161,072) (147,551) (121,211) CASH FLOWS FROM FINANCING ACTIVITIES: Net bank borrowings (repayments).......................... 3,000 (5,500) 5,500 Net borrowings (repayments) of capitalized leases......... (810) (2,291) (880) Purchases of Common Stock................................. (20,185) (3,012) -- Proceeds from exercise of stock options and other......... 9,256 17,154 2,445 --------- --------- --------- Net cash provided (used) by financing activities.................................... (8,739) 6,351 7,065 EFFECT OF EXCHANGE RATE CHANGES ON CASH................... 193 (1,437) (626) --------- --------- --------- Net increase (decrease) in cash and cash equivalents................................... (9,776) 8,730 (12,689) Cash and cash equivalents at beginning of year............ 20,925 12,195 24,884 --------- --------- --------- Cash and cash equivalents at end of year.................. $ 11,149 $ 20,925 $ 12,195 ========= ========= =========
The accompanying notes to consolidated financial statements are an integral part of these statements. 26 28 INFORMATION RESOURCES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1998, 1997 AND 1996 1. SUMMARY OF ACCOUNTING POLICIES BUSINESS Information Resources, Inc. ("IRI") and its subsidiaries (collectively the "Company") is a leading provider of universal product code ("UPC"), scanner-based business solutions services to the consumer packaged goods ("CPG") industry, offering services in the U.S., Europe and other international markets. The Company supplies CPG manufacturers, retailers and brokers with information and analysis critical to their sales, marketing and supply chain operations. IRI provides services designed to deliver value through an enhanced understanding of the consumer to a majority of the Fortune 500 companies in the CPG industry. PRINCIPLES OF CONSOLIDATION The consolidated financial statements include the accounts of Information Resources, Inc. and all wholly or majority owned subsidiaries and affiliates. Minority interests reflect the non-Company owned stockholder interests in IRI InfoScan Limited (U.K.), IRI/GfK Retail Services GmbH (Germany) ("IRI/GfK Retail"), effective February 1997, IRI/GfK Retail Services B.V. (the Netherlands), effective February 1998 and Information Resources Espana, S.L., effective November 1998. The equity method of accounting is used for investments in which the Company has a 20% to 50% ownership interest and exercises significant influence over operating and financial policies. All significant intercompany accounts and transactions have been eliminated in consolidation. ACCOUNTING ESTIMATES The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reported period. Actual results may differ from estimates. RECLASSIFICATIONS Certain reclassifications have been made in the prior years' consolidated financial statements to conform to the 1998 presentation. REVENUE RECOGNITION Revenues on contracts for retail tracking services, which generally have terms of not less than one year, are recognized over the terms of the contracts. Such contracts are generally categorized into one of two classes: 1) cancelable at the end of each year by the giving of six months written notice by either party; or 2) multi-year contracts either non-cancelable or cancelable only with significant penalties, generally by the giving of six months written notice after the initial multi-year term. Revenues for special analytical services, market research and consulting projects are recognized as services are performed. Certain of these projects are fixed-price in nature and use the percentage-of-completion method for the recognition of revenue. Revenues from the sale of software application products, or products sold under licensing agreements, are recognized upon delivery when there is a reasonable basis for estimating collectibility and the Company has no significant remaining obligations. Related software maintenance fees are recognized as earned over the terms of their respective contracts. 27 29 INFORMATION RESOURCES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) RESEARCH AND DEVELOPMENT Expenditures for research and development for the years ended December 31, 1998, 1997 and 1996 approximated $33.0 million, $25.0 million and $24.9 million, respectively. Included in these expenditures were $7.1 million, $3.7 million and $5.8 million of commercial software development costs that were capitalized for the years ended December 31, 1998, 1997 and 1996, respectively. Expenditures not capitalized are charged to expense as incurred. BENEFITS PLAN The Company sponsors an employee savings plan that qualifies as a deferred salary arrangement under Section 401(k) of the Internal Revenue Code. The plan allows eligible employees to contribute a portion of their pre-tax income in accordance with specified guidelines. The Company matches a percentage of employee contributions up to certain limits. The expense recognized for the 401(k) plan totaled approximately $2.9 million, $2.4 million and $2.0 million in 1998, 1997 and 1996, respectively. CASH AND CASH EQUIVALENTS For purposes of reporting cash flows, cash and cash equivalents include cash on hand, commercial paper and funds held in money market accounts with a maturity of three months or less. FAIR VALUE OF FINANCIAL INSTRUMENTS AND CREDIT RISK The carrying value of the Company's financial instruments, cash and cash equivalents, investments and debt obligations represent a reasonable estimate of their fair value. As of December 31, 1998 and 1997, the Company had no significant concentrations of credit risk related to cash equivalents and accounts receivable. PROPERTY AND EQUIPMENT Property and equipment is recorded at cost and is depreciated over the estimated service lives. For financial statement purposes, depreciation is provided by the straight-line method. The Company also capitalizes the cost of internal-use computer software as incurred and amortizes such costs over the related project estimated useful lives of three to seven years. Leasehold improvements are amortized over the shorter of their estimated service lives or the terms of their respective lease agreements. Estimated useful lives are as follows: Computer equipment and software............................. 3 to 7 years Market testing and other operating equipment................ 3 to 7 years Leasehold improvements...................................... 5 to 20 years Equipment and furniture..................................... 3 to 8 years
OTHER ASSETS Other assets include deferred data procurement costs, intangible assets and capitalized software costs held for sale. Data procurement costs are amortized over a period of 28 months and include payments and services to retailers for point-of-sale data and causal costs related to collecting, reviewing and verifying other data (i.e., causal factors) which are an essential part of the database. Intangible assets include goodwill, solicitation rights and non-compete agreements, all of which arose from acquisitions, investments or strategic alliances. Goodwill is amortized on a straight-line basis over periods from ten to twenty years. Solicitation rights are amortized on a straight-line basis over the expected useful lives of six to ten years. Non-compete agreements are being amortized over periods from five to seven years. Capitalized costs of computer software 28 30 INFORMATION RESOURCES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) held for sale are amortized on a straight-line basis beginning upon the software's general release date over a period not to exceed three years. On an ongoing basis, management reviews the valuation and amortization of these assets to determine possible impairment by comparing the carrying value to the undiscounted future cash flows of the related assets. Based upon currently projected cash flows, the Company's assessment is that the realizability of these assets is not impaired. INCOME TAXES Deferred income taxes are recognized at statutory rates to reflect the future effects of tax carryforwards and temporary differences arising between the tax bases of assets and liabilities and their financial reporting amounts at each year end. Deferred income taxes arise in business combinations accounted for as purchases as a result of differences between the fair value of assets acquired and their tax bases. EARNINGS (LOSS) PER COMMON AND COMMON EQUIVALENT SHARE AND STOCK-BASED COMPENSATION The Company adopted the Statement of Financial Accounting Standards No. 128, "Earnings per Share" effective January 1, 1997. Net earnings (loss) per share is based upon the weighted average number of shares of common stock outstanding during each year. Net earnings (loss) per common and common equivalent share -- diluted is based upon the weighted average number of shares of common stock and common stock equivalents, entirely comprised of stock options, outstanding during each year. For the years ended December 31, 1998 and 1997, stock options with an exercise price greater than $17.41 and $16.50 per share, aggregating 540,176 and 750,262, respectively, were excluded from the weighted average shares outstanding calculation because they were antidilutive. The Company accounts for stock option grants in accordance with provisions of APB Opinion No. 25, "Accounting for Stock Issued to Employees." ADOPTION OF RECENT STATEMENT OF FINANCIAL ACCOUNTING STANDARDS Adoption of Recent Statement of Financial Accounting Standards: The Company adopted Statement of Financial Accounting Standards No. 130, "Reporting Comprehensive Income", and Statement of Financial Accounting Standards No. 131, "Disclosures about Segments of an Enterprise and Related Information", in its December 31, 1998 consolidated financial statements. 2. SUPPLEMENTAL CASH FLOW INFORMATION Interest expense paid and income taxes paid (refunded) during the years ended December 31, was as follows (in thousands):
1998 1997 1996 ------ ------ ------ Interest................................................... $1,257 $1,346 $2,103 Income taxes............................................... 1,548 262 (735)
Excluded from the consolidated statements of cash flows was the effect of several non-cash investing and financing activities. In 1998, 1997 and 1996, receivables of $1.6 million, $.5 million and $.7 million, respectively, were reclassified to investment in joint ventures. 3. ACQUISITIONS AND JOINT VENTURES IRI began a start-up venture in Spain during April 1998. In November 1998, the Company executed a joint venture agreement with Media Planning, S.A. to create a new retail tracking business to serve the 29 31 INFORMATION RESOURCES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Spanish market under the name Information Resources Espana, S.L. ("IRI-Spain"). On January 18, 1999, IRI-Spain and Dympanel, S.A. signed a cooperation agreement which added Dympanel, S.A. as a third investor in IRI-Spain. The aforementioned agreements resulted in the Company, Media Planning, S.A., and Dympanel, S.A. owning 60%, 30% and 10%, respectively, of the capital shares of IRI-Spain. Under the terms of a 1995 agreement, the Company had a strategic alliance with Middle East Market Research Bureau ("MEMRB"), a market research company based in Cyprus. In October 1998 IRI exercised its option to acquire a 19.9% ownership interest in MEMRB and holds an option to increase its ownership interest of MEMRB to 49%. The Company and GfK AG of Germany ("GfK") operate a joint venture which offers a scanner-based product tracking service to the Netherlands market operating under the InfoScan name. Until early 1998, this joint venture was owned 80.1% by GfK and 19.9% by the Company. In February 1998, the Company increased its ownership to 51% and assumed overall management responsibilities. In 1998, the Company sold a 9.9% interest in GfK Panel Services Benelux B.V. and GfK Belgium S.A., reducing its ownership to 10%. Those companies operate household panel services in the Netherlands and Belgium and continue to cooperate with the Netherlands InfoScan operation in the sale and delivery of services to common customers. Effective May 21, 1998, the Company reduced its ownership in Information Resources, Japan, Ltd., from 60% to 40% by selling a 20% ownership interest to Mitsui & Co., Ltd. In February 1997, the Company and GfK organized a new joint venture company, IRI/GfK Retail. The Company has a 51% ownership interest in IRI/GfK Retail, and GfK owns the remainder. IRI/GfK Retail purchased the German retail tracking business of GfK Panel Services GmbH ("GfK Panel"). In a separate transaction, the Company sold its previously held 15% ownership interest in GfK Panel to GfK at no book gain or loss. GfK Panel, a provider of consumer panel and ad hoc research services, will cooperate with IRI/GfK Retail in selling and delivering services to customers. The consolidation of the Company's Netherlands operations, the exercise of its MEMRB option and the sale of its 20% interest in Information Resources Japan, Ltd. did not have a material impact on the consolidated financial results or position of the Company. 4. NONRECURRING EXPENSES AND NET LOSS ON DISPOSITION OF ASSETS Nonrecurring expenses in 1996 included a $4.8 million charge principally related to the disposal of certain cable TV advertising cut-in equipment originally developed for use in the Company's market-testing operation. In 1995, the Company sold to Oracle Corporation certain assets, liabilities and related software application products relating to the on-line analytical processing business previously operated by the Company's software division. A portion of the cash proceeds were placed into an interest-bearing escrow account. In December 1996, the Company recorded a $4.6 million charge related primarily to the final settlement of the escrow account. 5. INCOME TAXES IRI and its U.S. subsidiaries and partnerships file their U.S. Federal income tax return on a consolidated basis. As of December 31, 1998, the Company had cumulative U.S. Federal net operating loss ("NOL") carryforwards of approximately $67.9 million that expire primarily in 2009 and 2011. Certain of these carryforwards have not been examined by the Internal Revenue Service and, therefore, are subject to adjustment. At December 31, 1998 the Company also had general business tax credit carryforwards of 30 32 INFORMATION RESOURCES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) approximately $9.6 million which expire primarily between 1999 and 2012, and are available to reduce future U.S. Federal income tax liabilities. In addition, at December 31, 1998, various foreign subsidiaries of IRI had aggregate cumulative NOL carryforwards for foreign income tax purposes of approximately $10.9 million which are subject to the various income tax provisions of each respective country. Approximately $3.6 million of these foreign NOLs may be carried forward indefinitely, while the remaining $7.3 million expire in 2000 through 2003. Domestic earnings before income taxes were $16.6 million, $31.4 million and $11.7 million for 1998, 1997 and 1996, respectively. The foreign loss before income taxes was ($10.0) million, ($17.0) million and ($21.6) million for 1998, 1997 and 1996, respectively. A majority of the foreign pre-tax losses are deducted as partnership losses in IRI's consolidated U.S. Federal income tax return in accordance with the U.S. Internal Revenue Code. Income tax (expense) benefit relating to earnings (loss) for the years ended December 31, 1998, 1997 and 1996 consisted of the following components (in thousands):
1998 1997 1996 ------- ------- ------ Current income tax (expense) benefit Federal................................................ $ -- $ -- $ -- Foreign................................................ (129) (371) (638) State and local........................................ -- -- -- ------- ------- ------ (129) (371) (638) ------- ------- ------ Deferred income tax (expense) benefit Federal................................................ (1,939) (6,366) 3,805 Foreign................................................ 21 549 (937) State and local........................................ (688) (512) 70 ------- ------- ------ (2,606) (6,329) 2,938 ------- ------- ------ Income tax (expense) benefit............................. $(2,735) $(6,700) $2,300 ======= ======= ======
The Company has reduced its deferred tax liability by its Federal, state and certain foreign NOL carryforwards in its consolidated financial statements. The Company's recognition of future tax benefits is due to the expected utilization of those benefits based upon future receipt of substantial taxable income, specifically resulting from over $110.0 million of existing net temporary differences at December 31, 1998, primarily deferred data procurement costs, capitalized software costs, and other items, most of which will reverse over the next three years. 31 33 INFORMATION RESOURCES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Significant components of the Company's deferred tax liabilities and assets were as follows (in thousands):
DECEMBER 31, ----------------- 1998 1997 ------- ------- Deferred tax liabilities: Deferred data procurement costs........................... $48,581 $45,366 Capitalized software costs................................ 2,385 4,669 Acquisition related costs................................. 4,536 4,493 Other..................................................... 11,767 8,635 ------- ------- Total deferred tax liabilities.................... 67,269 63,163 Deferred tax assets: Domestic NOL carryforwards................................ 25,003 26,904 Domestic tax credit carryforwards......................... 9,571 9,467 Foreign NOL carryforwards................................. 4,409 3,648 Revenue recognition change................................ 710 1,404 Reserve for compensation related items.................... 4,866 5,021 Other..................................................... 17,486 11,785 ------- ------- Total deferred tax assets......................... 62,045 58,229 Valuation allowance on deferred tax assets.................. (8,793) (8,726) ------- ------- Net deferred tax assets..................................... 53,252 49,503 ------- ------- Net deferred tax liability.................................. $14,017 $13,660 ======= =======
The valuation allowance increased by $.1 million in 1998 and $2.2 million in 1997, as it is more likely than not that the net operating loss and domestic tax credit carryforwards recorded by certain Company subsidiaries in these years will not be fully utilized to offset taxable income. Income tax (expense) benefit differs from the statutory U.S. Federal income tax rate of 35% applied to earnings (loss) before income taxes for the years ended December 31, 1998, 1997 and 1996 as follows (in thousands):
1998 1997 1996 ------- ------- ------ Statutory tax (expense) benefit.......................... $(2,303) $(5,027) $3,450 Effects of -- State income taxes, net of Federal income tax benefit............................................. (447) (333) 45 Nondeductible meals and entertainment.................. (428) (407) (365) Nondeductible acquisition/organization costs........... (180) (127) (210) Other non-taxable income (nondeductible expenses)...... -- (11) 18 Foreign losses and taxes............................... 558 (1,089) (805) Change in valuation allowance.......................... 400 216 419 Other.................................................. (335) 78 (252) ------- ------- ------ $(2,735) $(6,700) $2,300 ======= ======= ======
32 34 INFORMATION RESOURCES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 6. ACCOUNTS RECEIVABLE Accounts receivable at December 31, were as follows (in thousands):
1998 1997 ------- -------- Billed...................................................... $71,141 $ 70,761 Unbilled.................................................... 21,258 29,288 ------- -------- 92,399 100,049 Reserve for accounts receivable............................. (4,762) (3,840) ------- -------- $87,637 $ 96,209 ======= ========
Payments received in advance of revenue recognition are reflected in the consolidated financial statements as deferred revenue. Unbilled accounts receivable represent revenues and fees on contracts and other services earned to date for which customers were not invoiced as of the balance sheet date. 7 . PROPERTY AND EQUIPMENT Property and equipment at December 31, were as follows (in thousands):
1998 1997 -------- --------- Computer equipment and software............................. $ 96,302 $ 102,283 Market testing and other operating equipment................ 30,730 24,581 Leasehold improvements...................................... 14,963 16,513 Equipment and furniture..................................... 35,448 36,666 -------- --------- 177,443 180,043 Accumulated depreciation.................................... (97,940) (111,628) -------- --------- $ 79,503 $ 68,415 ======== =========
8. INVESTMENTS AND OTHER ASSETS Investments at December 31 were as follows (in thousands):
1998 1997 ------ ------- Datos Information Resources, at cost plus equity in undistributed earnings.................................... $5,268 $ 5,143 GfK Panel Services Benelux B.V., at cost.................... 1,272 5,919 Other....................................................... 3,252 1,999 ------ ------- $9,792 $13,061 ====== =======
Other assets at December 31 were as follows (in thousands):
1998 1997 -------- -------- Deferred data procurement costs -- net of accumulated amortization of $123,440 in 1998 and $108,491 in 1997..... $138,356 $126,733 Intangible assets, including goodwill -- net of accumulated amortization of $13,616 in 1998 and $10,233 in 1997....... 18,610 16,463 Capitalized software costs -- net of accumulated amortization of $3,701 in 1998 and $3,578 in 1997......... 9,258 6,093 Other....................................................... 5,765 9,158 -------- -------- $171,989 $158,447 ======== ========
33 35 INFORMATION RESOURCES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 9. LONG-TERM DEBT Long-term debt at December 31, was as follows (in thousands):
1998 1997 ------ ------- Bank borrowings............................................. $3,000 $ -- Capitalized leases and other................................ 2,096 2,906 ------ ------- 5,096 2,906 Less current maturities..................................... (521) (2,266) ------ ------- $4,575 $ 640 ====== =======
Financings: On February 10, 1999 the Company amended its $75 million bank revolving credit facility to (1) reduce the maximum commitments to $60 million, (2) extend the termination date to 2002, and (3) amend certain financial covenants and other terms and conditions of the agreement. The amended facility has floating rate options at or below prime and commitment fees of up to .25% payable on the unused portion. The weighted average interest rate at December 31, 1998 was 6.25%. In October 1997, the Company replaced its $50 million bank revolving credit facility maturing in 1998 with a $75 million facility maturing in 2001. The financial covenants in the bank credit agreement, as well as in the lease agreement for the Company's Chicago headquarters, require the Company to maintain a minimum tangible net worth and to meet certain cash flow coverage and leverage ratios. The agreements also limit the Company's ability to declare dividends or make distributions to holders of capital stock, or redeem or otherwise acquire shares of the Company. Approximately $23.0 million is currently available for such distributions under the most restrictive of these covenants. The bank credit agreement contains covenants which restrict the Company's ability to incur additional indebtedness. Capitalized leases and other primarily consist of leases for computer and communications equipment expiring through 2000. Maturities of capitalized leases in 1999 and 2000 are $.5 million and $1.6 million, respectively. 10. CAPITAL STOCK PREFERRED STOCK PURCHASE RIGHTS In 1989, IRI adopted a shareholder rights plan which attached preferred stock rights ("Rights") to each share of its Common Stock. Each Right entitles the holder to purchase one one-hundredth share of Preferred Stock at an exercise price of $60. The Rights become exercisable upon the acquisition of a certain percentage of IRI Common Stock or a tender offer or exchange offer for IRI Common Stock by a person or group. IRI may redeem the Rights at $.01 per Right at any time prior to a public announcement that a person or group has acquired a certain percentage of IRI's Common Stock. The Rights will expire on October 27, 2007. IRI has authority to issue one million shares of $.01 par value Preferred Stock. COMMON STOCK At December 31, 1998, 1997 and 1996, 27,867,884, 28,713,943 and 27,886,406 shares of Common Stock, respectively were issued and outstanding. At December 31, 1998, .9 million and 3.3 million options were available for grant under the Executive Stock Option Plan and the Employee Stock Option Plan, respectively. In connection with all IRI employee and director stock plans, 11.6 million shares were reserved for issuance at December 31, 1998. In November 1997 the Company's Board of Directors approved a plan to purchase up to two million shares of the Company's Common Stock from time to time in the open market. Purchases under the plan are 34 36 INFORMATION RESOURCES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) subject to a number of considerations including the market price of the Company's Common Stock and general market conditions. As of December 31, 1998, the Company had purchased and retired 1,861,800 shares under the plan at an average cost of $12.46 per share, including 1,442,600 shares purchased during 1998 at an average cost of $11.96 per share. In May 1996, the Company's shareholders approved a stock plan for non-employee directors (the Director's Plan), authorizing the issuance of up to 100,000 shares of Common Stock. Under the Directors' Plan an eligible director is paid annually in shares of Common Stock in lieu of 75% of the cash retainer otherwise payable for services on the Board. The number of shares issued is based upon the fair market value of the Company's Common Stock. The Company issued 8,154, 9,873, and 10,692 shares in 1998, 1997 and 1996 at a price of $17.38, $14.36 and $14.25 per share, respectively, under the Director's Plan. There are restrictions in IRI's bank revolving credit facility and lease agreements which limit the payment of dividends and the purchases or redemption of Common Stock. (See Note 9.) STOCK OPTIONS The Company has several stock option plans. The Employee Stock Option Plan covers most employees other than executive officers and directors. Substantially all options under these plans have been granted at fair market value or higher. Most option grants are exercisable in equal annual increments of 25% beginning on the first anniversary of the grant date and expire ten years after the date of grant. IRI also has an Executive Stock Option Plan covering executive officers and directors which at inception authorized up to 2.5 million stock options. Most options under this plan were granted at fair market value and are exercisable in equal annual increments of 25% beginning on the first anniversary of the grant date and expire ten years after the date of grant. For options granted at less than fair market value, the Company recognizes compensation expense over the vesting period for the difference between the total fair market value and the total exercise price on the date of grant. The following table presents, on a pro forma basis, net earnings (loss) and net earnings (loss) per share for the years ended December 31, 1998, 1997 and 1996 as if an alternate method of accounting as prescribed by Statement of Financial Accounting Standard No. 123 "Accounting for Stock-Based Compensation" for stock options had been adopted (in thousands, except per share data):
1998 1997 1996 ------ ------ ------- Net earnings (loss) -- as reported........................ $3,846 $7,662 $(7,558) ====== ====== ======= Net earnings (loss) -- pro forma.......................... $ 981 $6,096 $(8,673) ====== ====== ======= Net earnings (loss) per common share -- basic -- as reported................................................ $ .13 $ .27 $ (.27) ====== ====== ======= Net earnings (loss) per common share -- basic -- pro forma................................................... $ .03 $ .21 $ (.31) ====== ====== ======= Net earnings (loss) per common and common equivalent share -- diluted -- as reported......................... $ .13 $ .26 $ (.27) ====== ====== ======= Net earnings (loss) per common and common equivalent share -- diluted -- pro forma........................... $ .03 $ .21 $ (.31) ====== ====== =======
The above table is based upon the valuation of option grants using the Black-Scholes pricing model for traded options with assumed risk-free interest rates of 5.5%, 6.6% and 6.7% for 1998, 1997 and 1996, respectively; stock price volatility factor of 55.9%, 46.6% and 41.4% for 1998, 1997 and 1996, respectively; and an expected life of the options of five years. Using the foregoing assumptions, the calculated weighted-average fair value of options granted in 1998, 1997 and 1996 was $6.64, $7.21 and $5.85, respectively. Because the Company's employee stock options have characteristics significantly different from those of traded options, and because changes in the input assumptions can materially affect the fair value estimate, in management's opinion, the model does not necessarily provide a reliable single measure of the fair value of its employee stock options. 35 37 INFORMATION RESOURCES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Transactions involving stock options for the Executive and Employee Stock Option Plans are summarized as follows:
WEIGHTED AVERAGE NUMBER EXERCISE OF OPTIONS PRICE ---------- -------- Outstanding January 1, 1996................................. 8,852,261 $14.44 Granted..................................................... 430,000 12.90 Canceled/Expired............................................ (645,543) 18.43 Exercised................................................... (288,538) 8.32 ---------- ------ Outstanding December 31, 1996............................... 8,348,180 14.26 Granted..................................................... 801,390 14.59 Canceled/Expired............................................ (651,083) 17.06 Exercised................................................... (1,236,864) 12.38 ---------- ------ Outstanding December 31, 1997............................... 7,261,623 14.36 Granted..................................................... 1,647,345 12.52 Canceled/Expired............................................ (997,762) 15.89 Exercised................................................... (584,972) 13.88 ---------- ------ Outstanding December 31, 1998............................... 7,326,234 $13.73 ========== ====== Exercisable December 31, 1998............................... 4,985,449 $14.16 ========== ======
Stock options outstanding at December 31, 1998 are as follows:
WEIGHTED OUTSTANDING EXERCISABLE AVERAGE WEIGHTED WEIGHTED REMAINING AVERAGE AVERAGE NUMBER CONTRACTUAL EXERCISE NUMBER EXERCISE RANGE OF EXERCISE PRICES OUTSTANDING LIFE PRICE EXERCISABLE PRICE - ------------------------ ----------- ----------- ----------- ----------- ----------- $ 6.94-$12.75................ 1,941,440 5.87 $10.09 1,107,791 $10.23 $12.78-$14.00................ 2,314,345 7.34 13.74 1,222,558 13.60 $14.13-$17.25................ 2,530,273 4.90 14.50 2,216,049 14.40 $17.50-$34.00................ 540,176 4.96 23.25 439,051 24.43 --------- ---- ------ --------- ------ $ 6.94-$34.00................ 7,326,234 5.93 $13.73 4,985,449 $14.16 ========= ==== ====== ========= ======
11. COMMITMENTS, CONTINGENCIES AND LITIGATION LEASE AGREEMENTS AND OTHER COMMITMENTS The Company leases certain property and equipment under operating leases expiring at various dates through 2010. At December 31, 1998 obligations to make future minimum payments under all operating leases were $124.0 million in the aggregate and $27.8 million, $21.8 million, $13.5 million, $11.9 million and $11.3 million for the five years ended December 31, 2003, respectively. Rent expense for all operating leases was $30.9 million, $36.1 million and $32.0 million for the years ended December 31, 1998, 1997 and 1996, respectively. LEGAL PROCEEDINGS In July 1996, IRI filed an action against The Dun & Bradstreet Corp., The A.C. Nielsen Company (now a subsidiary of ACNielsen) ("ACNielsen") and IMS International, Inc. (collectively, "the Defendants") in the United States District Court for the Southern District of New York entitled Information Resources, Inc. v. The Dun & Bradstreet Corp., et. al. No. 96 CIV. 5716 (the "Action"). IRI alleged that, among other 36 38 INFORMATION RESOURCES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) things, the Defendants violated Sections 1 and 2 of the Sherman Act, 15 U.S.C. Section 1 and 2, by engaging in a series of anti-competitive practices aimed at excluding the Company from various export markets for retail tracking services and regaining monopoly power in the United States market for such services. These practices included: (i) entering into exclusionary contracts with retailers in several countries, in order to restrict the Company's access to sales data necessary to provide retail tracking services; (ii) illegally tying/bundling services in markets over which Defendants' had monopoly power with services in markets in which ACNielsen competed with the Company; (iii) predatory pricing; (iv) acquiring foreign market competitors with the intent of impeding the Company's efforts at export market expansion; (v) tortiously interfering with Company contracts and relationships with clients, joint venture partners and other market research companies; and (vi) disparaging the Company to financial analysts and clients. By the Action, the Company seeks to enjoin the Defendants' anti-competitive practices and to recover damages in excess of $350 million, prior to trebling. The Action followed legal proceedings by the Canadian Competition Tribunal in 1995 and the European Commission in 1996 against ACNielsen for anti-competitive practices. In 1995, the Canadian Competition Tribunal concluded that ACNielsen had engaged in "anti-competitive acts" with the express intent "to exclude potential competitors generally and IRI specifically" from the Canadian retail tracking and services market. In December 1996, ACNielsen signed an Undertaking to the European Commission agreeing to halt numerous contractual practices which the Company contended was part of an intentional and unlawful strategy aimed at preventing the Company from establishing a competitive position in Europe and eliminating the Company as a competitor. On January 15, 1998, IRI filed an action against Manugistics, Inc. ("Manugistics") in the Circuit Court of Cook County, Illinois, Case No. 99 L 00599. In its two count action, IRI has alleged that Manugistics has breached a Data Marketing and Revenue Agreement between IRI and Manugistics ("Agreement") by failing to pay certain amounts due to IRI thereunder. The Agreement was entered into by IRI and Manugistics in connection with the sale by IRI to Manugistics of certain assets relating to the manufacture, sale and servicing of certain logistics software. IRI has also alleged that Manugistics committed an anticipatory breach of the Agreement with respect to certain other amounts not yet due thereunder. IRI seeks damages in excess of $11.9 million in connection with these claims. IRI has also alleged that Manugistics breached a related non- competition and solicitation agreement between IRI and Manugistics. IRI seeks unspecified damages to be determined at trial under this count. On March 2, 1999, Manugistics filed a Motion to Stay Proceedings and Compel Arbitration which is currently pending before the Court. In the ordinary course of business, IRI and its subsidiaries become involved as plaintiffs or defendants in various other legal proceedings. The claims and counterclaims in such litigation, including those for punitive damages, individually in certain cases and in the aggregate, involve amounts which may be material. However, it is the opinion of the Company's management, based upon advice of counsel, that the ultimate disposition of pending litigation against the Company will not be material. 12. SEGMENT INFORMATION The Company develops and maintains databases, decision support software, and mathematical models, primarily for the analysis of detailed information on purchasing of consumer goods, all within one industry segment -- business information services. The Company's business information services are conducted almost exclusively in the United States and Europe. The Company's operations in other markets account for approximately 1% of consolidated revenues. Executive management of the Company routinely evaluates the performance of its operations against short-term and long-term objectives. In December 1998, the Company adopted the provisions of SFAS No. 131. As a result, the Company's segment disclosure has been reported along geographic areas, which is consistent with the management structure of the Company. The executive management of the Company considers revenues from third parties 37 39 INFORMATION RESOURCES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) and the aggregation of operating profit (loss), equity earnings (losses) and minority interests, ("Operating Results"), on a geographic basis to be the most meaningful measure of the operating performance of each respective geographic segment and of the Company as a whole. The following tables and discussion present certain information regarding the operations of the Company by geographic segment as of December 31, 1998, 1997, and 1996 (in thousands): Segmented Results:
1998 1997 1996 -------- -------- -------- Revenues: U.S. Services............................................. $396,992 $366,678 $344,612 International Services.................................... 114,331 89,649 60,991 -------- -------- -------- Total............................................. $511,323 $456,327 $405,603 ======== ======== ========
1998 1997 1996 -------- -------- -------- Operating Results: U.S. Services............................................. $ 31,515 $ 38,613 $ 31,106 International Services: Operating loss............................................ (15,689) (19,920) (29,425) Minority interests benefit (expense)...................... 342 (304) 986 Equity in earnings of affiliated companies................ 443 444 30 -------- -------- -------- Subtotal -- International Services................ (14,904) (19,780) (28,409) Corporate and other expenses................................ (8,856) (3,926) (1,965) Nonrecurring expenses (a)................................... -- -- (4,808) -------- -------- -------- Operating Results................................. 7,755 14,907 (4,076) -------- -------- -------- Net gain (loss) on sale of assets........................... -- -- (4,600) Interest expense and other, net............................. (1,174) (545) (1,182) -------- -------- -------- Earnings (loss) before income taxes............... $ 6,581 $ 14,362 $ (9,858) ======== ======== ========
Identifiable Assets:
1998 1997 1996 -------- -------- -------- U.S. Services............................................... $232,851 $237,755 $211,634 International Services...................................... 126,650 115,804 104,122 Corporate(b)................................................ 9,792 13,061 18,737 -------- -------- -------- Total Identifiable Assets......................... $369,293 $366,620 $334,493 ======== ======== ========
- --------------- (a) Operating profit includes nonrecurring expenses of $4.8 million in 1996. Operating profit excludes net loss on disposition of assets of ($4.6) million in 1996. (See Note 4.) (b) Identifiable corporate assets represent investments aggregating $9.8 million, $13.1 million and $18.7 million at December 31, 1998, 1997 and 1996, respectively. (See Note 8.) 38 40 INFORMATION RESOURCES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Other Cash Flow Information:
UNITED STATES INTERNATIONAL CORPORATE TOTAL ------- ------------- --------- -------- (IN THOUSANDS) Capital expenditures 1998............................................. $26,976 $ 5,453 $1,302 $ 33,731 1997............................................. 27,293 5,136 2,015 34,444 1996............................................. 14,428 3,614 730 18,772 Depreciation expense 1998............................................. $16,556 $ 4,921 $1,761 $ 23,238 1997............................................. 14,745 3,916 1,760 20,421 1996............................................. 14,212 4,208 1,784 20,204 Data procurement expenditures 1998............................................. $76,940 $43,553 $ -- $120,493 1997............................................. 71,757 40,057 -- 111,814 1996............................................. 65,613 32,392 -- 98,005 Amortization of data procurement expenditures 1998............................................. $74,583 $37,528 $ -- $112,111 1997............................................. 69,844 31,781 -- 101,625 1996............................................. 64,410 23,534 -- 87,944
39 41 INFORMATION RESOURCES, INC. AND SUBSIDIARIES SUMMARY OF QUARTERLY DATA (UNAUDITED) Summaries of consolidated results on a quarterly basis are as follows (in thousands, except per share data):
1998 ----------------------------------------- FIRST SECOND THIRD FOURTH QUARTER QUARTER QUARTER QUARTER -------- -------- -------- -------- Revenues................................... $119,190 $129,392 $125,346 $137,395 ======== ======== ======== ======== Operating profit (loss).................... $ 3,286 $ 5,917 $ (2,341) $ 108 ======== ======== ======== ======== Net earnings (loss)........................ $ 1,910 $ 3,441 $ (1,538) $ 33 ======== ======== ======== ======== Net earnings (loss) per common share -- basic........................... $ .07 $ .12 $ (.05) $ -- ======== ======== ======== ======== Net earnings (loss) per common and common equivalent share -- diluted.............. $ .07 $ .12 $ (.05) $ -- ======== ======== ======== ======== Weighted average common shares -- basic.... 28,671 28,860 28,708 28,071 ======== ======== ======== ======== Weighted average common and common equivalent shares -- diluted............. 28,946 29,839 28,708 28,093 ======== ======== ======== ========
1997 ----------------------------------------- FIRST SECOND THIRD FOURTH QUARTER QUARTER QUARTER QUARTER -------- -------- -------- -------- Revenues................................... $105,128 $113,973 $115,601 $121,625 ======== ======== ======== ======== Operating profit (loss).................... $ (38) $ 4,587 $ 4,282 $ 5,936 ======== ======== ======== ======== Net earnings............................... $ 55 $ 2,129 $ 1,982 $ 3,496 ======== ======== ======== ======== Net earnings per common share -- basic..... $ -- $ .08 $ .07 $ .12 ======== ======== ======== ======== Net earnings per common and common equivalent share -- diluted.............. $ -- $ .07 $ .07 $ .12 ======== ======== ======== ======== Weighted average common shares -- basic.... 28,052 28,260 28,610 28,974 ======== ======== ======== ======== Weighted average common and common equivalent shares -- diluted............. 28,563 28,553 29,468 29,691 ======== ======== ======== ========
ITEM 9. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURES None 40 42 PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT The sections entitled "Election of Directors" and "Section 16(a) Beneficial Ownership Reporting Compliance" are incorporated by reference from the definitive proxy statement to be filed with the Securities and Exchange Commission in connection with the Company's 1999 annual meeting of stockholders scheduled for May 20, 1999. Information about the Company's executive officers is set forth in Item 4(a) in Part I of this Report. ITEM 11. EXECUTIVE COMPENSATION The section entitled "Executive Compensation" excluding the Board Compensation Committee Report and the stock price performance graph is incorporated by reference from the definitive proxy statement to be filed with the Securities and Exchange Commission in connection with the Company's 1999 annual meeting of stockholders scheduled for May 20, 1999. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The section entitled "Ownership of Securities" is incorporated by reference from the definitive proxy statement to be filed with the Securities and Exchange Commission in connection with the Company's 1999 annual meeting of stockholders scheduled for May 20, 1999. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS The section entitled "Certain Transactions" is incorporated by reference from the definitive proxy statement to be filed with the Securities and Exchange Commission in connection with the Company's 1999 annual meeting of stockholders scheduled for May 20, 1999. PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K (a) Documents filed as a part of this Report: 1. Financial Statements The consolidated financial statements of the Company are included in Part II, Item 8 of this Report. PAGE NO. -- 2. Financial Statement Schedules Schedule II -- Valuation and Qualifying Accounts; Reserve for Accounts Receivable..................................... 43 All other schedules are omitted because they are not applicable, or not required, or because the required information is included in the financial statements or notes thereto. 3. Executive Compensation Plans and Arrangements. The following Executive Compensation Plans and Arrangements are listed as exhibits to this Form 10-K: Employment Agreement dated November 27, 1978 between the Company and Gerald Eskin. Employment Agreement dated March 15, 1985 between the Company and Jeffrey Stamen. Employment Agreement dated March 15, 1985 between the Company and Leonard Lodish.
41 43 Noncompetition Agreements dated March 15, 1985 between the Company and John D.C. Little, Glen Urban, and Leonard Lodish, respectively. Letter agreement dated January 17, 1989 between the Company and Glen Urban. Form of letter agreement between the Company and John D.C. Little. Consulting and Noncompetition Agreement dated January 16, 1987 between the Company and Edwin Epstein. Agreement effective January 1, 1989 between the Company and Edwin Epstein, amending the Consulting and Non-competition Agreement dated January 16, 1987, which Consulting and Noncompetition Agreement is referred to above. Letter agreement dated August 7, 1989 between the Company and Leonard Lodish. Employment Agreement dated November 16, 1989 between the Company and James G. Andress. Amended and Restated Employment Agreement dated March 16, 1994 between the Company and Thomas M. Walker. 1992 Executive Stock Option Plan, as amended. 1992 Employee Incentive Stock Option Plan. Employment Agreement dated November 4, 1993 between the Company and George R. Garrick. 1994 Employee Nonqualified Stock Option Plan. Form of Information Resources, Inc. Directorship/Officership Agreement between the Company and its directors, its executive officers and certain other officers. Employment Termination Agreement dated as of March 4, 1996, between the Company and George R. Garrick. Employment Agreement dated as of August 22, 1996, between the Company and Randall S. Smith and First Amendment to Employment Agreement dated November 11, 1996. Information Resources, Inc. Executive Deferred Compensation Plan effective January 1, 1999. Consulting Agreement dated as of February 16, 1999, between the Company and Gian M. Fulgoni. Employment letter agreement dated April 26, 1995 between the Company and Gary M. Hill. Employment letter agreement dated September 23, 1997 between the Company and James R. Chambers, as amended by letter agreement dated August 31, 1998. (b) Reports on 8-K: None (c) Exhibits See Exhibit Index (immediately following the signature pages) 42 44 SCHEDULE II INFORMATION RESOURCES, INC. AND SUBSIDIARIES VALUATION AND QUALIFYING ACCOUNTS RESERVE FOR ACCOUNTS RECEIVABLE (IN THOUSANDS)
CHARGED BALANCE AT TO COSTS DEDUCTIONS BALANCE AT BEGINNING AND (NET WRITEOFFS/ END OF DESCRIPTION OF PERIOD EXPENSES RECOVERIES) PERIOD ----------- ---------- -------- --------------- ---------- Year ended December 31, 1996..................... $3,860 $ 719 $ (242) $4,337 Year ended December 31, 1997..................... $4,337 $1,046 $(1,543) $3,840 Year ended December 31, 1998..................... $3,840 $1,883 $ (961) $4,762
43 45 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. Dated: March 29, 1999 INFORMATION RESOURCES, INC. By: /s/ THOMAS W. WILSON, JR. ---------------------------------- Thomas W. Wilson, Jr. Chief Executive Officer Pursuant to the Requirement of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities indicated on March 29, 1999.
SIGNATURE TITLE --------- ----- /s/ THOMAS W. WILSON, JR. Chairman of the Board of Directors - --------------------------------------------- Chief Executive Officer and Director Thomas W. Wilson, Jr. /s/ GARY M. HILL Executive Vice President and Chief Financial - --------------------------------------------- Officer Gary M. Hill [Principal financial officer] /s/ JOHN P. MCNICHOLAS, JR. Senior Vice President and Controller - --------------------------------------------- [Principal accounting officer] John P. McNicholas, Jr. * /s/ JAMES G. ANDRESS Director - --------------------------------------------- James G. Andress * /s/ GERALD J. ESKIN Director - --------------------------------------------- Gerald J. Eskin * /s/ EDWIN E. EPSTEIN Director - --------------------------------------------- Edwin E. Epstein * /s/ GIAN M. FULGONI Director - --------------------------------------------- Gian M. Fulgoni * /s/ JOHN D.C. LITTLE Director - --------------------------------------------- John D.C. Little * /s/ LEONARD M. LODISH Director - --------------------------------------------- Leonard M. Lodish * /s/ EDWARD E. LUCENTE Director - --------------------------------------------- Edward E. Lucente * /s/ EDITH W. MARTIN Director - --------------------------------------------- Edith W. Martin
44 46
SIGNATURE TITLE --------- ----- * /s/ JEFFREY P. STAMEN Director - --------------------------------------------- Jeffrey P. Stamen * /s/ GLEN L. URBAN Director - --------------------------------------------- Glen L. Urban *By: /s/ THOMAS W. WILSON, JR. - --------------------------------------------- Pursuant to a Power of Attorney
45 47 EXHIBIT INDEX The following documents are the exhibits to this Report. For convenient reference, each exhibit is listed according to the number assigned to it in the Exhibit Table of Item 601 of Regulation S-K.
SEQUENTIAL EXHIBIT DOCUMENT NUMBER DESCRIPTION OF DOCUMENT FILING - ------- ----------------------- ---------- 3(a) -- Copy of the certificate of incorporation of the Company dated May 27, 1982, as amended. (Incorporated by reference. Previously filed as Exhibit 3(a) to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1988.) IBRF (b) -- Copy of the bylaws of the Company, as amended. (Incorporated by reference. Previously filed as Exhibit 3(b) to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1988.) IBRF (c) -- Copy of amendments to the Certificate of Incorporation approved by the stockholders on May 16, 1989. (Incorporated by reference. Previously as Exhibit 3(c) to the Company's Annual Report 10-K for the fiscal year ended December 31, 1989.) IBRF (d) -- Copy of amendments to the bylaws of the Company as approved by the Board of Directors bringing the bylaws into conformity with the amendments to the Certificate of Incorporation approved by the stockholders May 16, 1989. (Incorporated by reference. Previously filed as Exhibit 3(d) to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1989.) IBRF (e) -- Certificate of Designations of Series A Participating Preferred Stock, as adopted by the Board of Directors of the Company on March 2, 1989 and duly filed with the Secretary of State of the State of Delaware March 15, 1989. (Incorporated by reference. Previously filed as Exhibit 3(e) to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1989.) IBRF 10 -- Material Contracts (a) -- 1982 Incentive Stock Option Plan adopted November 3, 1982, as amended. (Incorporated by reference. Previously filed as Exhibit 10(a) to the Company's Registration Statement on Form S-8 filed with the SEC on December 31, 1988.) IBRF (b) -- Information Resources, Inc., Nonqualified Stock Option Plan effective January 1, 1984, as amended. (Incorporated by reference. Previously filed as Exhibit 10(b) to the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 1988.) IBRF (c) -- Employment Agreement dated November 27, 1978 between the Company and Gerald Eskin. (Incorporated by reference. Previously filed as Exhibit 10(e) to Registration Statement No. 2-81544.) IBRF (d) -- Consulting and Noncompetition Agreement dated January 16, 1987 between the Company and Edwin Epstein. (Incorporated by reference. Previously filed as Exhibit 10(e) to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1987.) IBRF (e) -- Employment agreement dated March 15, 1985 between the Company and Jeffrey Stamen. (Incorporated by reference. Previously filed as Exhibit 10(d) to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1985, as amended on Form 8 dated April 29, 1986 and August 25, 1986.) IBRF (f) -- Employment agreements dated March 15, 1985 between the Company and Leonard Lodish. (Incorporated by reference. Previously filed as Exhibit 10.14 to Registration Statement No. 2-96940.) IBRF (g) -- Noncompetition Agreement dated March 15, 1985 between the Company and John Little, Glen Urban, and Leonard Lodish, respectively. (Incorporated by reference. Previously filed as Exhibit 10.15 to Registration Statement No. 2-96490.) IBRF
48
SEQUENTIAL EXHIBIT DOCUMENT NUMBER DESCRIPTION OF DOCUMENT FILING - ------- ----------------------- ---------- (h) -- Letter agreement dated January 17, 1989 between the Company and Glen Urban (Incorporated by reference. Previously filed as Exhibit 10(1) to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1989.) IBRF (i) -- Form of letter agreement between the Company and John D.C. Little (Incorporated by reference. Previously filed as Exhibit 10(m) to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1989.) IBRF (j) -- Agreement effective January 1, 1989 between the Company and Edwin Epstein, amending the Consulting and Noncompetition Agreement dated January 16, 1987, which Consulting and Noncompetition Agreement is referred to in Exhibit 10(d) hereof. (Incorporated by reference. Previously filed as Exhibit 19(a) to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1989.) IBRF (k) -- Letter agreement dated August 7, 1989 between the Company and Leonard Lodish (Incorporated by reference. Previously filed as Exhibit 3(q) to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1989.) IBRF (l) -- Employment Agreement dated November 16, 1989 between the Company and James G. Andress (Incorporated by reference. Previously filed as Exhibit 3(r) to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1989.) IBRF (m) -- Amended and Restated Employment Agreement dated March 16, 1994 between the Company and Thomas M. Walker. (Incorporated by reference. Previously filed as Exhibit 10(s) to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1993.) IBRF (n) -- Lease Agreement dated September 27, 1990 between Randolph/Clinton Limited Partnership and the Company (Incorporated by reference. Previously filed as Exhibit 2.1 to the Company's Current Report on Form 8-K dated September 27, 1990.) IBRF (o) -- 1992 Employee Incentive Stock Option Plan (Incorporated by reference. Previously filed as Exhibit 10(x) to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1992.) IBRF (p) -- 1994 Employee Nonqualified Stock Option Plan. (Incorporated by reference. Previously filed as Exhibit 10(y) to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1993.) IBRF (q) -- Employment Agreement dated November 4, 1993 between the Company and George Garrick. (Incorporated by reference. Previously filed as Exhibit 10(z) to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1993.) IBRF (r) -- Second Amendment to Lease Agreement dated September 27, 1990 between the Company and Randolph/Clinton Limited Partnership. (Incorporated by reference. Previously filed as Exhibit 10 to the Company's Quarterly Report on Form 10-Q for the quarter ended March 31, 1995.) IBRF (s) -- 1992 Executive Stock Option Plan, as amended effective May 24, 1995. (Incorporated by reference. Previously filed as Exhibit 3 to the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 1995.) IBRF (t) -- Amended and Restated Asset Purchase Agreement dated as of June 12, 1995 by and between the Company and Oracle Corporation. (Incorporated by reference. Previously filed as Exhibit 2.1 to the Company's Current Report on Form 8-K dated July 27, 1995 and filed August 11, 1995.) IBRF
49
SEQUENTIAL EXHIBIT DOCUMENT NUMBER DESCRIPTION OF DOCUMENT FILING - ------- ----------------------- ---------- (u) -- Licenses-Back Agreement dated as of July 27, 1995 between the Company and Oracle Corporation. (Incorporated by reference. Previously filed as Exhibit B to the Amended and Restated Asset Purchase Agreement dated as of July 27, 1995 filed as Exhibit 2.1 to the Current Report on Form 8-K dated July 27, 1995 and filed August 11, 1995.) IBRF (v) -- Employment Termination Agreement, dated as of March 4, 1996 between the Company and George R. Garrick (Incorporated by reference. Previously filed as Exhibit 10(dd) to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1995.) IBRF (w) -- Form of Information Resources, Inc. Directorship/Officership Agreement between the Company and each of its directors, executive officers and certain other officers. (Incorporated by reference. Previously filed as Exhibit 10(x) to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1994.) IBRF (x) -- Employment Agreement dated as of August 22, 1996, between the Company and Randall S. Smith and First Amendment to Employment Agreement dated November 11, 1996. (Incorporated by reference. Previously filed as Exhibit 10(gg) to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1996.) IBRF (y) -- Information Resources, Inc. Amended and Restated 401(k) Retirement Savings Plan and Trust adopted by the Company effective May 24, 1995. (Incorporated by reference. Previously filed as Exhibit 10(hh) to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1996. IBRF (z) -- First Amendment to the Information Resources, Inc. Amended and Restated 401(k) Retirement Savings Plan effective July 1, 1996. (Incorporated by reference. Previously filed as Exhibit 10(ii) to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1996.) IBRF (aa) -- Second Amendment to the Information Resources, Inc. Amended and Restated 401(k) Retirement Savings Plan effective March 1, 1997. (Incorporated by reference. Previously filed as Exhibit 10(jj) to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1996.) IBRF (bb) -- Trust Agreement between Information Resources, Inc. and Fidelity Management Trust Company dated as of July 1, 1996. (Incorporated by reference. Previously filed as Exhibit 10(kk) to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1996.) IBRF (cc) -- First Amendment to Trust Agreement between Fidelity Management Trust Company and Information Resources, Inc. effective March 1, 1997. (Incorporated by reference. Previously filed as Exhibit 10(ll) to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1996.) IBRF (dd) -- Credit Agreement dated October 31, 1997 among the Company, the Bank Parties thereto and Harris Trust and Savings Bank, as Agent. (Incorporated by reference. Previously filed as Exhibit 10 to the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 1997.) IBRF
50
SEQUENTIAL EXHIBIT DOCUMENT NUMBER DESCRIPTION OF DOCUMENT FILING - ------- ----------------------- ---------- (ee) -- Rights Agreement between Information Resources, Inc. and Harris Trust and Savings Bank, amended and restated as of October 27, 1997. (Incorporated by reference. Previously filed as Exhibit 4.2 to the Company's Current Report on Form 8-A/A dated October 27, 1997 and filed October 28, 1997.) IBRF (ff) -- Information Resources, Inc. Executive Deferred Compensation Plan effective January 1, 1999 EF (gg) -- Consulting Agreement dated as of February 16, 1999, between the Company and Gian M. Fulgoni EF (hh) -- First Amendment to Credit Agreement dated as of February 10, 1999 between the Company, the Banks Party thereto and Harris Trust and Savings Bank, as agent for the Banks EF (ii) -- Employment letter agreement dated April 26, 1995 between the Company and Gary M. Hill. EF (jj) -- Employment letter agreement dated September 23, 1997 between the Company and James R. Chambers, as amended by letter agreement dated August 31, 1998. EF 18 -- Letter regarding change in accounting principle. (Incorporated by reference. Previously filed as Exhibit 18 to the Company's Quarterly Report on Form 10-Q for the quarter ended March 31, 1994.) IBRF 21 -- Subsidiaries of the Registrant (filed herewith). EF 23 -- Consent of Independent Auditors (filed herewith). EF 24 -- Powers of Attorney (filed herewith). EF 27 -- Financial Data Schedule (filed herewith). EF
EX-10.(FF) 2 EXECUTIVE DEFERRED COMPENSATION PLAN 1 INFORMATION RESOURCES, INC. EXECUTIVE DEFERRED COMPENSATION PLAN EFFECTIVE: JANUARY 1, 1999 2 EXHIBIT ff INFORMATION RESOURCES, INC. EXECUTIVE DEFERRED COMPENSATION PLAN I. PURPOSE The purpose of the Information Resources, Inc. Executive Deferred Compensation Plan is to provide a means whereby the Company may afford certain employees and senior management with an opportunity to accumulate additional financial security, by providing a vehicle to defer compensation amounts in excess of the dollar limitation of Internal Revenue Code Section 402(g) applicable to the amount of compensation which may be deferred under the Information Resources, Inc. 401(k) Retirement Savings Plan. By providing a means whereby Salary and/or Bonus may be deferred into the future, the Plan will aid in attracting and retaining executives of exceptional ability. Compensation reductions made pursuant to the Plan will be credited with investment gains or losses, in accordance with the Plan, and benefits will be paid to the Participant (or his or her Beneficiary) as described herein. The Plan is also designed to provide additional financial security at the time of Retirement, and to supplement other Company-sponsored benefits in the event of death or Disability. II. DEFINITIONS 2.02 "Administrative Committee" and "Committee" mean the Plan Committee appointed pursuant to Article VI to manage and administer the Plan. 2.03 "Age" means the Participant's chronological age on the relevant date. 2.04 "Agreement" means the Information Resources, Inc. Executive Deferred Compensation Plan Participation Agreement, executed between a Participant and the Company, whereby a Participant agrees to defer a portion of his or her Salary and/or Bonus pursuant to the provisions of the Plan, and the Company agrees to make benefit payments in accordance with the provisions of the Plan. 2.05 "Beneficiary" means the person, persons or trust who under the Plan, becomes entitled to receive a Participant's interest in the event of the Participant's death. 2.06 "Board of Directors" means the Board of Directors of Information Resources, Inc. or any committee acting within the scope of its authority. 2.07 "Bonus" means the cash compensation paid during a calendar year to the Participant in excess of Salary. 2.08 "Company" means Information Resources, Inc. (also known as IRI), and its successors and assigns. 2.09 "Company Matching Contribution" means an amount added to a Participant's Deferred Compensation Account, as provided in Section 3.05. 1 3 2.010 "Deferred Compensation Account" means the account(s) maintained by the Company for each Participant, pursuant to Article III. Notwithstanding the provisions of Section 8.10, a Participant's Deferred Compensation Account shall not constitute or be treated as a trust fund or escrow arrangement of any kind. 2.11 "Determination Date" means the date on which the amount of a Participant's Deferred Compensation Account is determined as provided in Article III hereof. The last day of each calendar quarter and the date of a Participant's Termination of Service shall be a Determination Date. 2.12 "Disability" shall have the same meaning and shall be determined in the same manner as in the Company's Long-Term Disability Plan. 2.13 "ERISA Funded" means that the Plan is prevented from meeting the "unfunded" criterion of the exceptions to the application of Parts 2 through 4 of Subtitle B of Title I of the Employee Retirement Income Security Act of 1974 (ERISA). 2.14 "Executive Deferred Compensation Plan Trust" and "Trust" mean the Information Resources, Inc. Executive Deferred Compensation Plan Trust, an irrevocable grantor trust or trusts established by the Company, in accordance with Section 8.10, with an independent trustee for the benefit of persons entitled to receive payments under this Plan. 2.15 "Participant" means an employee of the Company who is eligible to participate in the Plan pursuant to Section 3.01, and who enters into an Agreement. 2.16 "Plan" means the Information Resources, Inc. Executive Deferred Compensation Plan, as amended from time-to-time. 2.17 "Plan Effective Date" means January 1, 1999. 2.18 "Plan Year" means a calendar year. 2.19 "Retirement Date" and "Retirement" mean the date of a Termination of Service of a Participant for reasons other than death or Disability after he or she attains age fifty (50) and the sum of such Participant's Years of Service and age equals or is greater than 55. 2.20 "Retirement Savings Plan" means the Information Resources, Inc. 401(k) Retirement Savings Plan as in effect and amended from time-to-time. 2.21 "Salary" for purposes of the Plan shall be the total of the Participant's base salary paid during a calendar year, and considered "wages" for Medicare and federal income tax withholding, but before any deferrals made pursuant to this or any other plan. For purposes of the Plan, Salary shall not include severance or other payments made in connection with a Participant's Termination of Service. 2.22 "Tax Funded" means that the interest of a Participant in the Plan will be includable in the gross income of the Participant for federal income tax purposes prior to actual receipt of Plan benefits by the Participant. 2 4 2.23 "Termination of Service" means the Participant's ceasing his or her employment with the Company for any reason whatsoever, whether voluntarily or involuntarily, including by reason of Retirement, death, or Disability. 2.24 "Years of Service" shall have the same meaning as defined and measured under the Information Resources, Inc. 401(k) Retirement Savings Plan. X. ELIGIBILITY; PARTICIPATION LIMITS 3.03 a) Eligibility to Participate. Participation in the Plan shall be limited to executives of the Company at the Senior Vice-President level and above or any other executive of the Company approved to participate by the Committee. It is the intention of the Company that all Participants satisfy the term a "select group of management or highly compensated employees" as provided in Sections 201(2), 301(a)(3), 401(a)(1) and 4021(b)(6) of ERISA. a) Acknowledgement of Eligibility and Election to Participate. Each eligible employee shall annually acknowledge his or her eligibility to participate at such time and in such form as the Administrative Committee may require or permit. An eligible employee may elect to become a Participant with respect to a Plan Year by filing a properly completed Agreement with the Administrative Committee no later than December 1st of the preceding calendar year. An eligible employee shall become a Participant with respect to a Plan Year upon acceptance of his or her Agreement by the Administrative Committee. An Agreement, once accepted by the Administrative Committee, shall be irrevocable. b) New Participants. A Participant who first attains status of Senior Vice-President level and above or any other executive of the Company approved to participate by the Committee subsequent to January 1, 1999, shall be eligible to participate in the Plan after satisfying the requirements of Section 3.01(a) and (b) and shall be bound by all the terms and conditions of the Plan, provided, however, that his or her Agreement is filed no later than thirty (30) days following notification by the Administrative Committee of his or her eligibility to participate. 3.02 Deferral of Salary and/or Bonus. A Participant may elect to defer between zero percent (0%) and seventy-five percent (75%) of his or her Salary in five percent (5%) increments during a Plan Year. In addition, a Participant may elect to defer between zero percent (0%) and one hundred percent (100%) of his or her Bonus payable during a Plan Year in twenty percent (20%) increments,. At the time of election, a Participant may elect to defer a different percentage of his or her Salary or Bonus for each Plan Year and may also elect not to defer any portion of his or her Salary or Bonus in a Plan Year. A Participant shall make an annual election for an upcoming Plan Year by December 1st of the year preceding the Plan Year for which the election is being made. Except as provided in Section 4.07, "Hardship Distributions; Waiver of Deferral," any election so made shall be irrevocable with respect to Salary and Bonus applicable to the Plan Year. A Participant who does not file an Agreement for a Plan Year may file an Agreement for any subsequent Plan Year. 3 5 3.03 Suspension of Agreement to Defer Salary and/or Bonus. A Participant's Agreement to defer Salary and/or Bonus shall be suspended in the event that the Administrative Committee, in its sole discretion, reasonably determines that a Participant ceases to meet the eligibility requirements of the Plan. 3.04 Timing of Deferral Credits. The amount of Salary and/or Bonus that a Participant elects to defer in his or her Agreement shall cause an equivalent reduction in the Participant's Salary and/or Bonus, respectively. Deferrals shall be credited to the Participant's Deferred Compensation Account throughout the Plan Year as the Participant otherwise would have been paid the deferred portion of Salary and/or Bonus. 3.05 Company Matching Contribution. The Company may credit a Company Matching Contribution to a Participant's Deferred Compensation Account at some future date to be determined by the Administrative Committee. 3.06 Vesting. A Participant shall be one hundred percent (100%) vested in his or her Deferred Compensation Account equal to the amount of Salary and/or Bonus the Participant deferred into his or her Deferred Compensation Account and the investment gains or losses credited thereon. In the event a Company Matching Contribution is credited to a Participant's Deferred Compensation Account, the Company Matching Contribution and the investment gain or losses credited thereon shall vest in the same manner as under the Company's Retirement Savings Plan. 3.07 Determination of Account. Each Participant's Deferred Compensation Account as of each Determination Date shall consist of the balance of the Participant's Deferred Compensation Account as of the immediately preceding Determination Date adjusted for: - additional deferrals pursuant to Section 3.02, - Company Matching Contributions (if any) pursuant to Section 3.05, - distributions (if any); and - the appropriate investment earnings and gains and/or losses and expenses pursuant to Section 3.08. All adjustments and earnings related thereto,will be determined on a daily basis. 4 6 3.08 Deferred Compensation Account Investment Options. The Administrative Committee shall designate from time to time one or more investment options in which Deferred Compensation Accounts may be deemed invested. A Participant or Beneficiary shall allocate his or her Deferred Compensation Account among the deemed investment options by filing with the Administrative Committee a Deferral Allocation Election Form. A Participant may elect to allocate his or her Deferred Compensation Account, in ten percent (10%) increments among as many of the investment options which are offered by the Company. For the Plan Year beginning January 1, 1999, and until changed by the Administrative Committee, the Administrative Committee has designated the following phantom investment options: - Short-Term Bond Portfolio - Equity Index Portfolio - Large Cap Growth Portfolio - Enhanced U.S. Equity Portfolio - Mid Cap Value Portfolio Any such investment allocation election shall be made initially on the Deferral Allocation Election Form and shall be subject to such rules as the Administrative Committee may prescribe, including, without limitation, rules concerning the manner of making deferral allocation elections and, the frequency and timing of changing such deferral allocation elections. The Administrative Committee shall have the sole discretion to determine the number of investment options to be designated hereunder and the nature of the options and may change or eliminate the investment options provided hereunder from time to time. For each investment option, the Administrative Committee shall, in its sole discretion, select a mutual fund, or an investment index, or shall create a phantom portfolio of such investments as it deems appropriate, to constitute the investment option. The Company may, but is under no obligation to, acquire any investment or otherwise set aside assets for the deemed investment of Deferred Compensation Accounts hereunder. The Administrative Committee shall determine the amount and rate of investment gains or losses with respect to any such investment option for any period, and may take into account deemed expenses which would be incurred if actual investments were made. 3.09 Change of Investment Election. Effective as of any January 1, April 1, July 1 or October 1 (or if the New York Stock Exchange is not open for trading on such day, the close of the last business day of the prior month on which the New York Stock Exchange was open for trading), a Participant may elect by a written notice delivered to the Administrative Committee no later than the 20th day of the prior calendar month, to transfer all or any portion of his or her deemed investment and/or change the manner in which his or her future deferrals are deemed invested among the then-available investment options. 5 7 II. DISTRIBUTIONS 4.01 Distribution on Retirement. Upon a Participant's Termination of Service on or after a Retirement Date, distribution of the Participant's Deferred Compensation Account, determined under Section 3.07, as of the Determination Date coincident with or next following such Retirement Date, shall be made or commence. The distribution shall be made as designated by the Participant in his or her Retirement Payout Election Form, subject to Section 4.05. In the event a distribution is made pursuant to this Section 4.01, the Participant shall immediately cease to be eligible for any other benefit provided under this Plan. 4.02 Distribution on Death. Upon the death of a Participant prior to the distribution of all of his or her Deferred Compensation Account, distribution of the unpaid balance of the Deferred Compensation Account shall be made or continue to be made to such Participant's Beneficiary. If the distribution of the Participant's Deferred Compensation Account has not yet commenced as of the date of death, distribution to the Beneficiary shall be made or commence as soon as practicable and in any event within ninety (90) days following the Participant's death. The method of distribution shall be as designated by the Participant in his or her Retirement Payout Election Form, subject to Section 4.05. In addition to the distribution of the unpaid balance of a Participant's Deferred Compensation Account, in the event a Participant dies prior to his or her Retirement Date, the Company will pay the Participant's Beneficiary a $50,000 lump-sum survivor benefit. The Beneficiary of an employee who is eligible to participate in the Plan but elects not to participate is still eligible to receive the survivor benefit. 4.03 Distribution on Termination of Service. Unless otherwise directed by the Administrative Committee, upon the Termination of Service of a Participant prior to his or her Retirement Date for reasons other than death or Disability, distribution of the Participant's Deferred Compensation Account shall be made as soon as practicable and in any event within ninety (90) days after such Termination of Service, in a single lump sum, notwithstanding the provisions of Section 4.05(a) and (b). Upon a Termination of Service prior to his or her Retirement Date or death or Disability, the Participant shall immediately cease to be eligible for any other benefit provided under this Plan. 4.04 Disability Benefit. In the event a Participant incurs a Disability which first manifests itself after the Participant's initial participation in the Plan but prior to his or her Retirement Date, distribution of the Participant's Deferred Compensation Account shall be made or commence as soon as practicable after the Participant incurs the Disability and in any event within ninety (90) days, following receipt of notice by the Committee of the Participant's Disability. The distribution shall be made as designated by the Participant in his or her Retirement Payout Election Form, subject to Section 4.05. Such benefit shall be payable until the earliest of the following events: (i) there is no longer any balance in the Participant's Deferred Compensation Account; (ii) the Participant ceases to be Disabled and resumes employment with the Company; or (iii) the Participant 6 8 dies. Disability benefits shall be treated as distributions from a Participant's Deferred Compensation Account. If a Disability occurs during the period elected in the Agreement, the disabled Participant's Agreement shall be suspended, and further deferrals shall not be required during the period of Disability. 4.05 Method of Timing of Distribution. e) Election in Agreement. Except in the case of a Termination of Service prior to a Participant's Retirement Date for reasons other than death or Disability, distribution of the Participant's Deferred Compensation Account shall be made in a lump sum or installments, as elected by the Participant in his or her Retirement Payout Election Form relating to each respective Deferred Compensation Account. Installment payments shall be made monthly over a period not to exceed twenty (20) years, as elected by the Participant in his or her Retirement Payout Election Form. The amount of each monthly installment shall be determined annually and shall be equal to the quotient obtained by dividing the balance of the Participant's Deferred Compensation Account being distributed in installments by the number of installments remaining to be paid, including the current installment. f) Election to Change Method of Distribution. A Participant may, by written request filed with the Administrative Committee at least thirteen (13) months prior to the distribution or commencement of distribution of a Deferred Compensation Account, change the method of distribution elected with respect to a Deferred Compensation Account to any other method permitted under Section 4.05(a), provided that such request shall not be effective unless and until approved by the Committee. After a Participant's death, the Participant's Beneficiary may petition the Administrative Committee requesting an acceleration of benefit payments otherwise due to be paid to the Beneficiary. The Administrative Committee may, but is not required to, grant the Beneficiary's request. g) Notwithstanding any payment method elected by a Participant or Beneficiary, the Company may, in its sole discretion, elect to pay in a lump sum any Deferred Compensation Account whose balance is less than $10,000. 4.01 Interim Distribution. At the time a Participant executes an Agreement, he or she may elect to receive an interim distribution equal to the lesser of the principal amount deferred pursuant to such Agreement or the value as of the time of the interim distribution of the Deferred Compensation Account relating to such Agreement. The interim distribution election shall specify the year ("Distribution Year") in which such interim distribution shall be made, which shall be no less than three (3) Plan Years after the Plan Year in which the deferral was originally made. Provided the Participant has not had an earlier Termination of Service, Disability or death, the interim distribution shall be made in a lump sum no later than January 31st of the Distribution Year. Once a Participant elects to receive an interim distribution, the election shall be irrevocable. Any interim distribution paid shall be deemed a distribution, and shall be deducted from the Participant's Deferred Compensation Account. A separate interim distribution election shall be made for each 7 9 Plan Year in which amounts are deferred and a separate interim distribution election shall be made for both Salary and Bonus deferrals. If a Participant is not currently deferring any portion of his or her Salary or Bonus pursuant to the terms of this Plan at the time he or she is scheduled to receive an interim distribution, and his or her remaining Deferred Compensation Account balance after the interim distribution was paid would be less than $5,000, the Participant will be paid his or her total Deferred Compensation Account balance at the time the interim distribution is due to be paid. 4.02 Hardship Distributions; Waiver of Deferral. In the event that the Administrative Committee, upon written petition of the Participant or his or her Beneficiary, determines in its sole discretion, that the Participant or his or her Beneficiary has suffered an unforeseeable financial emergency, the Company may pay to the Participant or his or her Beneficiary as soon as reasonably practicable following such determination, an amount, not in excess of the Participant's Deferred Compensation Account, necessary to satisfy the emergency. For purposes of this Plan, an unforeseeable financial emergency is an unanticipated emergency that is caused by an event beyond the control of the Participant or Beneficiary and that would result in severe financial hardship to the individual if the emergency distribution were not permitted, as may result from illness, casualty loss or sudden financial reversal. Financial needs arising from foreseeable events, such as the purchase of a residence or education expenses for children, shall not be considered a financial emergency. The Committee shall also grant a waiver of the Participant's Agreement to defer a percentage of Salary and/or Bonus upon finding that the Participant has suffered an unforeseeable financial emergency. The waiver shall be for such period of time as the Committee deems necessary under the circumstances. 4.03 Withholding; Employment Taxes. To the extent required by the law in effect at the time payments are made, the Company shall withhold any taxes required to be withheld by the federal, or any state or local, government. 4.04 Commencement of Payments. Unless otherwise provided, payments under this Plan shall commence as soon as practicable following the Participant's eligibility for payment, but in no event later than ninety (90) days following receipt of notice by the Administrative Committee of an event which entitles a Participant or a Beneficiary to payments under this Plan, or at such other date as may be determined by the Administrative Committee in its sole discretion. 4.5 Lump-sum Settlement Option. Notwithstanding any other provision of this Plan, any Participant or Beneficiary may, at any time elect to receive an immediate lump sum payment of the balance of his or her Deferred Compensation Account, reduced by a penalty equal to ten percent (10%) of the value of the Participant's remaining Deferred Compensation Account. The ten percent (10%) penalty amount shall be permanently forfeited and shall not be paid to, or in respect of, the Participant or his or her Beneficiary. In the event no such request is made by a Participant or Beneficiary, the Participant's Deferred Compensation Account shall be paid in accordance with the provisions of this Article IV. Any Participant who elects to receive an immediate lump 8 10 sum payment pursuant to this Section 4.10, shall forego further participation in the Plan for the remainder of the Plan Year in which the payment is received, in addition to the subsequent Plan Year. 4.6 Recipients of Payments: Designation of Beneficiary. All payments to be made by the Company under the Plan shall be made to the Participant during his or her lifetime, provided that if the Participant dies prior to the commencement or completion of such payments, then all subsequent payments under the Plan shall be made by the Company to the Beneficiary determined in accordance with this Section 4.11. The Participant may designate a Beneficiary by filing a written notice of such designation with the Committee in such form as the Committee requires and may include a contingent Beneficiary. The Participant may from time-to-time change the designated Beneficiary by filing a new designation in writing with the Committee. If no designation is in effect at the time any benefits payable under this Plan become due, the Beneficiary shall be the Beneficiary designated by the Participant in the Retirement Savings Plan, if any, or if no such designation exists under the Retirement Savings Plan, the Participant's estate. 4.7 Distributions in Cash. All distributions of Deferred Compensation Accounts shall be paid in United States dollars. X. CLAIM FOR BENEFITS PROCEDURE 5.05 Claim for Benefits. Any claim for benefits under the Plan shall be made in writing to the Committee. If such claim for benefits is wholly or partially denied by the Committee, the Committee shall, within a reasonable period of time, but not later than sixty (60) days after receipt of the claim, notify the claimant of the denial of the claim. Such notice of denial shall be in writing and shall contain: a) The specific reason or reasons for the denial of the claim; b) A reference to the relevant Plan provisions upon which the denial is based; c) A description of any additional material or information necessary for the claimant to perfect the claim, together with an explanation of why such material or information is necessary; and d) An explanation of the Plan's claim review procedure. 5.01 Request for Review of a Denial of a Claim for Benefits. Upon the receipt by the claimant of written notice of the denial of a claim, the claimant may file a written request within ninety (90) days to the Committee requesting a review of the denial of the claim, which review shall include a hearing if deemed necessary by the Committee. In connection with the claimant's appeal of the denial of his or her claim, he or she may review relevant documents and may submit issues and comments in writing. To provide for fair review and a full record, the claimant must submit in writing all facts, reasons and arguments in support of his or her position within the time allowed for filing a written request for review. All issues and matters not raised for review will be deemed waived by the claimant. 9 11 5.02 Decision Upon Review of a Denial of a Claim for Benefits. The Committee shall render a decision on the claim review promptly, but no more than sixty (60) days after the receipt of the claimant's request for review, unless special circumstances (such as the need to hold a hearing) require an extension of time, in which case the sixty (60) day period shall be extended to one hundred-twenty (120) days. Such decision shall: b) Include specific reasons for the decision; c) Be written in a manner calculated to be understood by the claimant; and d) Contain specific references to the relevant Plan provisions upon which the decision is based. The decision of the Committee shall be final and binding in all respects on the Company, the claimant and any other person claiming an interest in the Plan through or on behalf of the claimant. No litigation may be commenced by or on behalf of a claimant with respect to this Plan until after the claim and review process described in this Article V has been exhausted. Judicial review of Committee action shall be limited to whether the Committee acted in an arbitrary and capricious manner. VI. ADMINISTRATION 6.06 Plan Administrative Committee. The Plan shall be administered by the Administrative Committee. The Administrative Committee may assign duties to an officer or other employees of the Company, and may delegate such duties as it sees fit. A member of the Administrative Committee who is also a Participant shall not be involved in the decisions of the Administrative Committee regarding any determination of any specific claim for benefit with respect to himself or herself. 6.07 General Rights, Powers and Duties of Administrative Committee. The Administrative Committee shall be responsible for the management, operation and administration of the Plan. In addition to any powers, rights and duties set forth elsewhere in the Plan, it shall have complete discretion to exercise the following powers and duties: a) To adopt such rules and regulations consistent with the provisions of the Plan as it deems necessary for the proper and efficient administration of the Plan; b) To administer the Plan in accordance with its terms and any rules and regulations it establishes; c) To maintain records concerning the Plan sufficient to prepare reports, returns, and other information required by the Plan or by law; d) To construe and interpret the Plan, and to resolve all questions arising under the Plan; 10 12 e) To direct the Company to pay benefits under the Plan, and to give such other directions and instructions as may be necessary for the proper administration of the Plan; f) To employ or retain agents, attorneys, actuaries, accountants or other persons, who may also be Participants in the Plan or be employed by or represent the Company, as it deems necessary for the effective exercise of its duties, and may delegate to such persons any power and duties, both ministerial and discretionary, as it may deem necessary and appropriate, and the Committee shall be responsible for the prudent monitoring of their performance; and g) To be responsible for the preparation, filing, and disclosure on behalf of the Plan of such documents and reports as are required by any applicable federal or state law. 6.01 Information to be Furnished to Committee. The records of the Company shall be determinative of each Participant's period of employment, Termination of Service and the reason therefore, Disability, leave of absence, reemployment, Years of Service, personal data, and Salary and/or Bonus. Participants and their Beneficiaries shall furnish to the Committee such evidence, data or information, and execute such documents as the Committee requests. 6.02 Responsibility. No member of the Administrative Committee shall be liable to any person for any action taken or omitted in connection with the administration of this Plan unless attributable to his or her own fraud or willful misconduct (or that of the Committee, in which he or she participated); nor shall the Company be liable to any person for any such action unless attributable to fraud or willful misconduct on the part of a director, officer or employee of the Company. This indemnification shall not duplicate, but may supplement, any coverage available under any applicable insurance coverage. III. AMENDMENT AND TERMINATION 7.07 Amendment. The Plan may be amended in whole or in part by a written instrument adopted by the Company at any time. Notice of any material amendment shall be given in writing to the Administrative Committee and to each Participant and each Beneficiary. No amendment shall retroactively decrease either the balance of a Participant's Deferred Compensation Account or a Participant's interest in his or her Deferred Compensation Account as existing immediately prior to the later of the effective date or adoption date of such amendment. 7.08 Company's Right to Terminate. The Company reserves the sole right to terminate, by action of its Administrative Committee, the Plan and/or the Agreement pertaining to a Participant at any time prior to the commencement of payment of his or her benefits. In the event of any such termination, a Participant shall be deemed to have incurred a Termination of Service, and his or her Deferred Compensation Account shall be paid in the manner provided in Section 4.03. 11 13 7.09 Special Termination. Any other provision of the Plan to the contrary notwithstanding, the Plan shall terminate if: The Plan is held to be ERISA Funded or Tax Funded by a federal court,and appeals from that holding are no longer timely or have been exhausted. The Company may terminate the Plan if it determines, based on a legal opinion which is satisfactory to the Company, that either judicial authority or the opinion of the U.S. Department of Labor, Treasury Department or Internal Revenue Service (as expressed in proposed or final regulations, advisory opinions or rulings, or similar administrative announcements) creates a significant risk that the Plan will be held to be ERISA Funded or Tax Funded, and failure to so amend the Plan could subject the Company or the Participants to material penalties. Upon any such termination, the Company may: a) Transfer the rights and obligations of the Company and some or all Participants as determined by the Company in its discretion, to a new plan established by the Company, which is not deemed to be ERISA Funded or Tax Funded, but which is substantially similar in all other respect to this Plan, if the Company determines that it is possible or desirable to establish such a Plan; b) If the Company, in its sole discretion, determines that it is not possible or desirable to establish the Plan in (a) above, for some or all Participants, such Participants shall be paid a lump sum equal to the value of his or her Deferred Compensation Account; c) Pay to a Participant a lump sum benefit equal to the value of his or her Deferred Compensation Account to the extent that a federal court has held that the interest of the Participant in the Plan is includable in the gross income of the Participant for federal income tax purposes prior to actual payment of Plan benefits; d) Pay to a Participant a lump sum benefit equal to the value of his or her Deferred Compensation Account if, based on a legal opinion satisfactory to the Company, there is a significant risk that such Participant will be determined not to be part of a "select group of management or highly compensated employees" for purposes of ERISA. A lump sum payment to be made in accordance with this Section shall be subject to the provisions of Section 4.09. VIII. MISCELLANEOUS 8.08 Separation of Plan: No Implied Rights. Neither the establishment of the Plan nor any amendment thereof shall be construed as giving any Participant, Beneficiary, or any other person any legal or equitable right unless such right shall be specifically provided for in the Plan or conferred by specific action of the Company in accordance with the terms and provisions of the Plan. Except as expressly provided in this Plan, the Company shall not be required or be liable to make any payment under this Plan. 12 14 8.09 No Right to Company Assets. Neither the Participant nor any other person shall acquire by reason of the Plan any right in or title to any assets, funds or property of the Company whatsoever, including, without limiting the generality of the foregoing, any specific funds, assets or other property which the Company, in its sole discretion, may set aside in anticipation of a liability hereunder. Any benefits which become payable hereunder shall be paid from the general assets of the Company. The Participant and his or her Beneficiary shall have only a contractual right to the amounts, if any, payable hereunder, unsecured by any asset of the Company. Nothing contained in the Plan constitutes a guarantee by the Company that the assets of the Company shall be sufficient to pay any benefits to any person. 8.010 No Employment Rights. Nothing herein shall constitute a contract of employment or of continuing service or in any manner obligate the Company to continue the services of the Participant, or obligate the Participant to continue in the service of the Company, or as a limitation of the right of the Company to discharge any of its employees, with or without cause. Nothing herein shall be construed as fixing or regulating the Salary and/or bonus payable to the Participant. 8.011 Offset. If, at the time payments or installments of payments are to be made hereunder, the Participant or Beneficiary is indebted or obligated to the Company, then the payments remaining to be made to the Participant or the Beneficiary may, at the discretion of the Company, be reduced by the amount of such indebtedness or obligation. However, an election by the Company not to reduce any such payment or payments shall not constitute a waiver of its claim, or prohibit or otherwise impair the Company's right to offset future payments for such indebtedness or obligation. 8.012 Protective Provisions. In order to facilitate the payment of benefits hereunder, each employee designated eligible to participate in the Plan, shall cooperate with the Company by furnishing any and all information requested by the Company, including taking such physical examinations as the Company may deem necessary, and taking such other actions as may be requested by the Company. If the employee refuses to cooperate, he or she shall not become a Participant in the Plan and the Company shall have no further obligation to him or her under the Plan, including, but not limited to, the survivor benefit provided under Section 4.02. In the event a Participant has a balance in his or her Deferred Compensation Account, the Participant or his or her Beneficiary shall receive a benefit equal to his or her Deferred Compensation Account determined pursuant to Section 3.08 and paid in accordance with Section 4.03. 8.013 Non-assignability. Neither the Participant nor any other person shall have any voluntary or involuntary right to commute, sell, assign, pledge, anticipate, mortgage or otherwise encumber, transfer, hypothecate, or convey in advance of actual receipt the amounts, if any, payable hereunder, or any part thereof, which are expressly declared to be unassignable and non-transferable. No part of the amounts payable shall be, prior to actual payment, subject to seizure or sequestration for the payment of any debts, judgments, alimony or separate maintenance owed by the Participant or any other person, or be transferable by operation of law in the event of the Participant's or any other person's bankruptcy or insolvency. 13 15 8.014 Gender and Number. Wherever appropriate herein, the masculine may mean feminine and the singular may mean the plural, or vice versa. 8.015 Notice. Any notice required or permitted to be given under the Plan shall be sufficient if in writing and hand delivered, or sent by registered or certified mail, and if given to the Company, delivered to the principal office of the Company, directed to the attention of the Administrative Committee. Such notice shall be deemed given as of the date of delivery, or, if delivery is made by mail, as of the date shown on the postmark or the receipt for registration or certification. 8.016 Governing Laws. The Plan shall be construed and administered according to the laws of the State of Illinois to the extent not pre-empted by Federal Law. 8.17 Executive Deferred Compensation Plan Trust. The Company may establish a Trust with (an) independent trustee(s), and shall comply with the terms of the Trust. The Company may transfer to the trustee(s) an amount of cash, marketable securities, or other property acceptable to the trustee(s) ("Trust Property") equal in value to all or a portion of the amount necessary, calculated in accordance with the terms of the Trust, to pay the Company's obligations under the Plan (the "Funding Amount"), and may make additional transfers to the trustee(s) as may be necessary in order to maintain the Funding Amount. Trust Property so transferred shall be held, managed, and disbursed by the trustee(s) in accordance with the terms of the Trust. To the extent that Trust Property shall be used to pay the Company's obligations under the Plan, such payments shall discharge obligations of the Company; however, the Company shall continue to be liable for amounts not paid by the Trust. Trust Property will nevertheless be subject to claims of the Company's creditors in the event of bankruptcy or insolvency of the Company, and the Participant's rights under the Plan and Trust shall at all times be subject to the provisions of Section 8.02. IN WITNESS WHEREOF, the Company has adopted the Information Resources, Inc. Executive Deferred Compensation Plan effective January 1, 1999. INFORMATION RESOURCES, INC. By: ---------------------------------------- Its: ---------------------------------------- 14 EX-10.(GG) 3 CONSULTING AGREEMENT 1 EXHIBIT gg CONSULTING AGREEMENT THIS CONSULTING AGREEMENT ("AGREEMENT"), is dated as of February 16, 1999, between Information Resources, Inc., a Delaware corporation (the "Company"), and Gian M. Fulgoni ("Consultant"); R E C I T A L S WHEREAS, Consultant has served as Chief Executive Officer of the Company and has acknowledged skills and experience in the business conducted by the Company; and WHEREAS, Consultant has submitted his resignation as Chief Executive Officer of the Company, such resignation being effective as of November 21, 1998; and WHEREAS, Consultant is willing and able to render services to the Company, from and after the date hereof, on the terms and conditions set forth in this Agreement. A G R E E M E N T S NOW, THEREFORE, in consideration of the premises and the mutual agreements, provisions and covenants contained in this Agreement, the Company and Consultant hereby agree as follows: 1. CONSULTING DUTIES. (a) General Duties. During the Consulting Term, Consultant will report directly to the Chief Executive Officer of the Company and will make himself reasonably available to consult with the Company on matters relating to the Company. Consultant will perform such services as the parties shall mutually agree (which agreement Consultant shall not unreasonably withhold) for and on behalf of the Company as shall be requested from time-to-time by the Chief Executive Officer. Such services shall consist principally of (a) transitional matters and (b) assistance in the maintenance and development of client and employee relationships, in order to preserve the goodwill and existing relationships between the Company, and its customers and employees. Consistent with Consultant's obligations hereunder, Consultant shall not be prohibited from engaging in other consulting and employment opportunities with other persons except to the extent prohibited by Section 6 below. (b) Cooperation. During the Consulting Term (as defined in Section 2 below) and thereafter (regardless of the reason for termination of the Consulting Term), if requested by the Company, Consultant will cooperate fully with respect to any claims, litigations or investigations currently pending or to be brought by or against the Company as to which Consultant may have knowledge of the facts and circumstances, which cooperation will include, but not be limited to, providing testimony both by deposition, and at any trial or related hearing. This obligation shall survive the termination or expiration of this Agreement. 2 (c) Consultant shall cooperate with the Company with respect to miscellaneous issues that may arise in connection with Consultant's resignation and the resulting transition, including tendering resignations from positions as officers and\or directors of affiliated entities and transferring to the Company equity interests in such affiliated entities that are held by Consultant in a nominee or similar capacity. 2. TERM OF CONSULTING SERVICES. Unless terminated as provided in Section 3 hereof, Consultant's obligation to provide consulting services hereunder shall terminate on the earlier of the third anniversary of the effective date of Consultant's resignation as Chief Executive Officer of the Company or Consultant's death (the "Consulting Term"). 3. TERMINATION. (a) By the Company. This Agreement as it relates to Consultant's obligation to render services hereunder may be terminated at any time at the option of the Company for cause (as such term is hereinafter defined), effective upon the giving of written notice of termination to Consultant. As used herein, the term "for cause" shall mean and be limited to: (i) any felony conviction; (ii) the willful misconduct or gross negligence by Consultant in connection with the performance of Consultant's duties, responsibilities, agreements and covenants hereunder, or Consultant's refusal to render the consulting services to the Company as required by Section 1 hereof, which misconduct, negligence or refusal to so comply shall continue for a period of 45 days after written notice from the Company; or (iii) the breach of Sections 5 or 6 of this Agreement. (b) By Consultant. (i) For Good Reason. Consultant may terminate this Agreement at any time for Good Reason (as such term is defined below) effective on the giving of written notice of termination to the Company. As used herein, "Good Reason" shall mean and be limited to the Company's material breach of its obligations hereunder which breach shall continue for a period of 45 days after written notice from Consultant. (ii) Upon Notice. Consultant may terminate this Agreement as it relates to his obligation to render services hereunder after the first anniversary of this Agreement by giving the Company 60 days prior written notice of such election to terminate. (c) Survival of Terms. The termination of this Agreement by either party as set forth in Section 3(a) or 3 (b)(ii) above shall not serve to terminate Consultant's obligations under Sections 1(b), 1(c), 5 or 6 hereof. If Consultant terminates the Agreement pursuant to Section 3(b)(i), it shall terminate Consultant's obligations under Sections 1(b), 5 and 6 hereof. 2 3 (d) At Consultant's option, upon written notice to the Company prior to July 31, 1999, except as set forth in the last sentence of this Section 3(d) this Agreement shall terminate in its entirety and have no further force and effect if, (i) the Board of Directors of the Company has not approved the principal terms of a mutually acceptable joint venture arrangement among the Company and Consultant or (ii) if such approval is obtained, the definitive agreements reflecting such joint venture arrangement have not been agreed to prior to June 30, 1999. Notwithstanding the foregoing, Consultant shall not be entitled to terminate this Agreement as contemplated in this Section 3(d) if, as an alternative to such joint venture arrangement, the Company and Consultant enter into a mutually acceptable data license arrangement on or before June 30, 1999 providing for the license of certain data to a business venture formed by Consultant. Notwithstanding the termination of this Agreement pursuant to this Section 3(d), the Company and Consultant agree that Section 5(a) will continue to apply with respect to confidential information of the Company that is disclosed to Consultant following the date of Consultant's resignation as Chief Executive Officer and prior to the date of termination of this Agreement pursuant to this Section 3(d). 4. COMPENSATION AND BENEFITS. (a) Compensation. Unless Consultant's obligation to render services hereunder has been terminated by the Company or Consultant as described in Section 3(a) or 3(b)(ii), the Company shall pay and provide to Consultant for each year during the Consulting Term, as compensation for the services to be rendered by Consultant hereunder, (i) a consulting fee equal to [a] Consultant's salary paid by the Company immediately prior to his resignation as chief executive officer of the Company, plus [b] the incremental dollar amount, on an after tax basis, of social security and unemployment compensation benefits previously paid by the Company on Consultant's behalf, and (ii) make available fringe benefits described in subsection (c) below. All payments provided under this Agreement or any other agreement which may be or have been in effect are in lieu of any severance payments or any other payments to which Consultant may be entitled at any time. At Consultant's option, the Company shall direct payment of the consulting fees to an entity wholly or partly owned by Consultant. (b) Expenses. Unless Consultant's obligation to render services hereunder has been terminated by the Company or Consultant as described in Section 3(a) or 3(b)(ii), during the Consulting Term the Company shall, consistent with the expense reimbursement policy in effect from time to time, reimburse Consultant, upon presentment by Consultant to the Company of appropriate receipts and vouchers, for any reasonable business expenses incurred by Consultant in connection with the performance of his duties specifically requested by the Company hereunder (including reimbursement of business related telephone charges). As part of such reimbursement plan and consistent with past practice, Consultant shall be entitled to reimbursement of first class business travel (including lodging) expenses incurred by him if and to the extent such reimbursement practice remains consistent with the travel reimbursement practice in place for other senior executive officers of the Company. 3 4 (c) Fringe Benefits. For the purposes of this Agreement, the term "fringe benefits" shall exclude any salary, bonus or incentive compensation or outside directors fees, but shall include benefits under health and welfare plans, life insurance, auto insurance, disability and retirement plans and executive deferred compensation plans and the other benefits and perquisites historically provided to Consultant. During the Consulting Term, Consultant shall be acting as an independent contractor of the Company. The Company shall not be required to make any social security, state or federal unemployment compensation payments required by law. Unless (i) Consultant's obligation to render services hereunder has been terminated by the Company or Consultant as described in Section 3(a) or 3(b)(ii), or (ii) Consultant's participation in any such fringe benefit plan is prohibited by law or would cause such plan to be disqualified as a tax qualified plan, during the Consulting Term the Company shall make available to Consultant all fringe benefits made available to Consultant immediately prior to his resignation as chief executive officer of the Company. Such fringe benefits shall made available in amounts and consistent with the terms made available to Consultant immediately prior to such resignation. If such a fringe benefit is terminated or discontinued by the Company and is replaced by a comparable fringe benefit and Consultant's participation in such comparable plan would not be prohibited by law or cause such plan to be disqualified as a tax qualified plan, then Consultant shall be entitled to participate in such fringe benefit during the Consulting Term in amounts and consistent with the terms generally made available by the Company to other senior executive officers of the Company. During the Consulting Term, the Company shall make a cash payment to Consultant equal to the amount of the matching payment the Company would have made to the Company 401(k) plan had Consultant been an employee of the Company. The Company shall provide Consultant with reasonable dedicated office facilities and secretarial and other administrative assistance to the extent necessary to permit Consultant to adequately render the consulting services contemplated hereby. Consultant shall be entitled to retain and use during the Consulting Term the portable phone, laptop computer and residential fax machines previously provided to Consultant and, upon termination of the Consulting Term, shall be entitled to purchase such equipment from the Company at its then book value. Assuming Consultant continues to qualify for such benefit, Consultant shall be entitled to maintain his "platinum" status through the Company's travel plan with American Airlines and Hertz. (d) Stock Options. If during the Consulting Term, the Company acts to reprice (through the cancellation and re-grant of options, or otherwise) stock options previously granted to all of its directors and executive officers (within the meaning of the Securities Act of 1934), the Company shall similarly reprice options held by Consultant on the same basis as such directors and executive officers. Except to the extent the 10-year term of such options terminate pursuant to the terms of the applicable option plan, all options held by Consultant shall remain exercisable through, and shall terminate on, the termination or expiration of the Noncompete Period. 4 5 5. CONFIDENTIAL INFORMATION. (a) Disclosure and Use. The Company and the Consultant acknowledge that during his employment with the Company and in the performance of his consulting duties hereunder, the Consultant has learned and may learn certain information not generally known within the Company's industry that must be kept confidential. Consultant agrees that he shall maintain in strict confidence all such confidential or proprietary information which has been or may be obtained prior to or during the Consulting Term concerning the Company or the Company's business, including specific lines and methods of doing business, specific processes, programs, data, software and techniques which consist of or involve business information, as well as confidential client information. Notwithstanding the foregoing, Consultant shall be entitled to use, exploit, publish and disclose, in a manner which does not otherwise violate the terms and provisions of this Agreement, any information which (i) is or becomes generally available to the public through no fault or action by Consultant, or (ii) is or becomes available to Consultant from a source, other than the Company, or (iii) is subject to disclosure pursuant to applicable law, for instance in response to a subpoena or court or administrative order, or (iv) is used in a manner which maintains its confidentiality in connection with the business activities conducted by the joint venture or other business initiative entered into by the Company and Consultant, if any. Consultant further agrees to return all programs, manuals, documents, records and other information relating to the business of the Company, including materials prepared or obtained by Consultant, in his capacity as same, during the Consulting Term, immediately upon the termination of the Consulting Term. (b) Ideas and Improvements. Consultant agrees promptly to disclose to the Company all ideas, designs, improvements, creations and inventions, whether or not patentable, or subject to other legal protection, which have significant relationship to the Company's business which were developed and created by Consultant for the Company directly as part of his Consulting Duties during the Consulting Term (collectively, "Ideas and Creations"). Consultant further agrees to take all steps necessary to execute and deliver to the Company copyright or patent rights on all matters suitable for such protection, if any, and to execute and deliver to the Company all documents which may be required to assign to the Company such copyright or patent rights, if any, and to otherwise cooperate to the extent within Consultant's control to ensure the Company' use and enjoyment of such Ideas and Creations, provided that there is no obligation for the Consultant to assign an invention for which no equipment, supplies, facility or trade secret information of the Company was used and which was developed entirely on Consultant's own time, unless (a) the invention relates directly to the Consultant's Consulting Duties and (b) the invention results from Consulting Duties performed by Consultant for the Company. 5 6 6. RESTRICTIVE COVENANT. During the Noncompete Period (as defined below), Consultant shall not, without the prior written consent of the Company, directly or indirectly, for himself or for any other person or entity, individually, jointly or as a partner, stockholder (except as a holder of not more than five percent (5%) of the outstanding shares of a publicly-held corporation), employee, agent, consultant or otherwise: (a) work or perform any service for Dun & Bradstreet Corporation, ACNielsen Corporation, Efficient Market Services, Inc., Paragren Technologies, Inc., IMS International, Inc., Spectra Marketing (or any of the other market research businesses of VNU) or any parent, subsidiary, affiliate or successor of any of the foregoing; (b) induce, attempt to induce, or participate in or facilitate the inducing of or attempting to induce, any employee, officer, director, consultant, sales representative or agent of the Company to terminate or alter his or her business relationship with the Company or to breach any agreement or obligation he or she has with or to the Company or to perform work or services for the Consultant or for a competitor of the Company described in Section 6(a), or, without the prior written consent of the Company (which shall not be unreasonably withheld) hire any such person within 12 months of the termination of such business relationship (unless the Company has previously terminated such employee). Notwithstanding the foregoing, Consultant shall be free to hire any former employee of the Company within 12 months of the termination of his/her employment with the Company if (i) such employee terminated his/her employment with the Company prior to November 23, 1998; and (ii) the Company is not also involved in good faith negotiations to re-hire such former employee; or (c) except with the Company's prior written consent (which consent shall not be unreasonably withheld), attempt in any manner to persuade any customer or supplier of the Company to cease or reduce the amount of business which such customer or supplier engages in or contemplates engaging in with the Company, regardless of whether the relationship between such customer or supplier and the Company was originally established in whole or in part through Consultant's efforts. Consultant acknowledges that the restrictions set forth in this Agreement are (x) reasonable and necessary for the protection of the Company' interests and (y) are entered into by Consultant in exchange for adequate consideration granted to him in connection with this Agreement. In the event that any provision of this Section 6 is found by a court of competent jurisdiction to be unreasonable or unenforceable, the parties agree that such provision shall be enforceable against Consultant to the greatest extent that would be found to be reasonable and enforceable. For purposes hereof, the term "Noncompete Period" shall mean three years from the effective date of Consultant's resignation as Chief Executive Officer of the Company. 6 7 Notwithstanding the foregoing, if Consultant terminates this Agreement pursuant to Section 3(b)(ii), the Noncompete Period shall be the earlier of (i) one year following the effective date of such termination and (ii) three years from the date of Consultant's resignation as chief executive officer of the Company. In addition, the Noncompete Period shall terminate if Consultant terminates this Agreement pursuant to Section 3(b)(i) hereof. 7. SEVERABILITY. If any provision of this Agreement is held invalid or unenforceable, either in its entirety or by virtue of its scope or application to given circumstances, such provision shall thereupon be deemed modified only to the extent necessary to render same valid, or not applicable to given circumstances, or excised from this Agreement, as the situation may require, and this Agreement shall be construed and enforced as if such provision had been included herein as so modified in scope or application, or had not been included herein, as the case may be. 8. LEGAL REMEDIES. Consultant hereby acknowledges that the Company would suffer irreparable injury if the provisions of paragraphs 5 and 6 above, which shall survive the termination of this Agreement, were breached and that the Company's remedies at law would be inadequate in the event of such breach. Accordingly, Consultant hereby agrees that any such breach or threatened breach may, in addition to any and all other available remedies, be preliminarily enjoined by the Company without bond. In the event of litigation under this Agreement, each of the Company and Consultant shall pay his or its own attorneys' fees and expenses. 9. NON-ASSIGNABILITY. In light of the unique personal services to be performed by Consultant hereunder, it is acknowledged and agreed that any purported or attempted assignment or transfer by Consultant of this Agreement or any of Consultant's duties, responsibilities or obligations hereunder shall be void. 10. NOTICES. Any notice, request, demand or other communication required or permitted under this Agreement shall be in writing and shall be deemed to have been given when delivered personally or when mailed by certified mail, return receipt requested, addressed as follows: 7 8 If to the Company: Information Resources, Inc. 150 North Clinton Street Chicago, Illinois 60661 Attn: Chief Executive Officer If to Consultant: Gian M. Fulgoni 65 East Bellevue Place Chicago, Illinois 60611 or to such other address or addresses as may be specified from time to time by notice; provided, however, that any notice of change of address shall not be effective until its receipt by the party to be charged therewith. 11. GENERAL. (a) Amendments. Neither this Agreement nor any of the terms or conditions hereof may be waived, amended or modified except by means of a written instrument duly executed by the party to be charged therewith. (b) Captions and Headings. The captions and paragraph headings used in this Agreement are for convenience of reference only, and shall not affect the construction or interpretation of this Agreement or any of the provisions hereof. (c) Governing Law. This Agreement, and all matters or disputes relating to the validity, construction, performance or enforcement hereof, shall be governed, construed and controlled by and under the laws of the State of Illinois without regard to principles of conflicts of law. (d) Successors and Assigns. This Agreement shall be binding upon and shall inure to the benefit of the parties hereto and their respective heirs, executors, administrators, personal representatives, successors and permitted assigns. (e) Counterparts. This Agreement may be executed in any number of counterparts, each of which shall be deemed to be an original hereof, but all of which together shall constitute one and the same instrument. (f) Entire Agreement. Except as otherwise set forth or referred to in this Agreement, this Agreement constitutes the sole and entire agreement and understanding between the parties hereto as to the subject matter hereof, and supersedes all prior discussions, agreements and 8 9 understandings of every kind and nature between them as to such subject matter. Except as provided herein, it is understood that this Agreement supersedes any prior employment compensation agreement, whether written, oral or implied in law or implied in fact between Consultant and the Company (including, but not limited to, that certain letter agreement, dated March 24, 1981, between the Company and Consultant). (g) Reliance by Third Parties. This Agreement is intended for the sole and exclusive benefit of the parties hereto and their respective heirs, executors, administrators, personal representatives, successors and permitted assigns, and no other person or entity shall have any right to rely on this Agreement or to claim or derive any benefit therefrom absent the express written consent of the party to be charged with such reliance or benefit. [signature page follows] 9 10 IN WITNESS WHEREOF, the parties hereto have executed this Agreement on and of the date first set forth above. INFORMATION RESOURCES, INC. By: -------------------------------- Name: ------------------------------ Title: ------------------------------ - ------------------------------------ Gian M. Fulgoni 10 EX-10.(HH) 4 CREDIT AGREEMENT 1 EXHIBIT hh INFORMATION RESOURCES, INC. FIRST AMENDMENT TO CREDIT AGREEMENT This First Amendment to Credit Agreement (herein, the "Amendment") is entered into as of February 10, 1999, between Information Resources, Inc., the Banks party thereto, and Harris Trust and Savings Bank, as Agent for the Banks. PRELIMINARY STATEMENTS A. The Borrower and the Banks entered into a certain Credit Agreement, dated as of October 31, 1997 (the "Credit Agreement"). All capitalized terms used herein without definition shall have the same meanings herein as such terms have in the Credit Agreement. B. The Borrower has requested that the Banks (i) reduce the amount of the Revolving Credit Commitments from $75,000,000 to $60,000,000, (ii) extend the Termination Date from October 31, 2001 to October 31, 2002, (iii) amend the Eurodollar Margin, (iv) increase the amount of the Swing Line Commitment from $5,000,000 to $10,000,000, (v) amend certain financial covenants, and (vi) make certain other amendments to the Credit Agreement, and the Banks are willing to do so under the terms and conditions set forth in this Amendment. NOW, THEREFORE, for good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties hereto agree as follows: SECTION 1. WAIVER The Borrower has informed the Agent and the Banks that as of December 31, 1998, the Borrower was not in compliance with Section 7.8 of the Credit Agreement (Cash Flow Coverage Ratio). The Borrower has requested that the Banks waive compliance with Section 7.8 of the Credit Agreement and, by signing below, the Banks hereby agree to waive compliance with Section 7.8 of the Credit Agreement through the period ending on (but not after) December 31, 1998. Notwithstanding anything herein to the contrary, the waiver in this Section 1 shall not become effective unless and until the conditions precedent set forth in Section 3 hereof have been satisfied. SECTION 2. AMENDMENTS. 2.1 The address, lending office and amount of the Revolving Credit Commitments set forth on the signature pages for the Banks shall be amended in their entirety to read as set forth below: 2
AMOUNT OF COMMITMENTS: NAME OF BANK AND ADDRESS Revolving Credit Commitment: HARRIS TRUST AND SAVINGS BANK $32,000,000 Address: 111 West Monroe Street Chicago, Illinois 60603 Attention: Mr. Richard H. Robb Telecopy: (312) 293-4856 Telephone: (312) 987-4856 Lending Office: 111 West Monroe Street Chicago, Illinois 60603 Revolving Credit Commitment: LASALLE NATIONAL BANK $20,000,000 Address: 135 South LaSalle Street, No. 217 Chicago, Illinois 60603 Attention: Mr. John McGuire Telecopy: (312) 904-4660 Telephone: (312) 904-4657 Lending Office: 135 South LaSalle Street Chicago, Illinois 60603 Revolving Credit Commitment: THE BANK OF NEW YORK $8,000,000 Address: Central Division, 19th Floor One Wall Street New York, New York 10286 Attention: Mr. Ian Nalitt Telecopy: (212) 635-1208 Telephone: (212) 635-1243 Lending Office: Central Division, 19th Floor 1 Wall Street New York, New York 10286
2.2 The definition of "Eurodollar Margin" appearing in Section 1.3 (b) of the Credit Agreement shall be amended and restated to read as follows: "Eurodollar Margin" means, from one Pricing Date to the next, a rate per annum determined in accordance with the following schedule: -2- 3
CASH FLOW COVERAGE RATIO EURODOLLAR MARGIN: FOR SUCH PRICING DATE: Less than 1.0 to 1.0 1.35% Equal to or greater than 1.0 to 1.0, but 1.20% less than or equal to 1.05 to 1.0 Greater than 1.05 to 1.0 1.0%
The Borrower and the Banks acknowledge and agree that from and after the effective date of the First Amendment to Credit Agreement dated as of February 10, 1999, by and among the Borrower, the Banks, and the Agent (the "First Amendment"), until the next Pricing Date, the Eurodollar Margin shall be 1.35%. 2.3 The last sentence of Section 2.1 of the Credit Agreement shall be amended and restated to read as follows: For purposes hereof, the term "Applicable Commitment Fee" means, from one Pricing Date to the next, a rate per annum determined in accordance with the following:
CASH FLOW COVERAGE RATIO APPLICABLE FOR SUCH PRICING DATE: COMMITMENT FEE: Less than 1.0 to 1.0 0.25% Equal to or greater than 1.0 to 1.0, 0.20% but less than or equal to 1.05 to 1.0 Greater than 1.05 to 1.0 0.15%
The Borrower and the Banks acknowledge and agree the from and after the effective date of the First Amendment until the next Pricing Date, the Applicable Commitment Fee shall be .25%. 2.4 The definition of "Swing Line Commitment" appearing in Section 4.1 of the Credit Agreement shall be amended and restated to read as follows: "Swing Line Commitment" means the commitment of Harris Bank to make Swing Loans in the aggregate amount of $10,000,000 at any one time outstanding. 2.5 The definition of "Termination Date" appearing in Section 4.1 of the Credit Agreement shall be amended and restated to read as follows: -3- 4 "Termination Date" means October 31, 2002, or such later date to which the same may be extended pursuant to Section 2.2 hereof, or such earlier date on which the Revolving Credit Commitments are terminated in whole pursuant to Section 1.19, 8.2 or 8.3 hereof. 2.6 Section 7.6 of the Credit Agreement shall be amended and restated to read as follows: Section 7.6. Consolidated Tangible Net Worth. The Borrower shall, as of the last day of each quarter-annual accounting period of the Borrower, maintain Consolidated Tangible Net Worth in an amount not less than the sum of (i) $200,000,000 plus (ii) 25% of Consolidated Net Income for each fiscal year ending on and after December 31, 1999, for which such Consolidated Net Income is a positive amount (i.e., there shall be no reduction to the amount of Consolidated Tangible Net Worth required to be maintained hereunder for any fiscal year in which Consolidated Net Income is less than zero); provided that the minimum required amount of Consolidated Tangible Net Worth set forth above shall be further increased by 100% of the net proceeds received by the Borrower from any offering of equity securities of the Borrower received at any time after December 31, 1998 (other than proceeds received from the exercise of stock options to purchase shares of the Borrower's common stock existing as of October 31, 1997. 2.7 Section 7.7 of the Credit Agreement shall be amended and restated to read as follows: Section 7.7. Leverage Ratio. The Borrower shall, as of the last day of each quarter-annual accounting period of the Borrower, maintain a ratio of Consolidated Total Liabilities to Consolidated Tangible Net Worth of not more than 1.0 to 1.0. 2.8 Section 7.8 of the Credit Agreement shall be amended and restated to read as follows: -4- 5 Section 7.8. Cash Flow Coverage Ratio. The Borrower shall, as of the last day of each quarter-annual accounting period of the Borrower ending during the periods specified below, maintain the ratio of Consolidated Cash Flow for the four fiscal quarters of the Borrower then ended to Consolidated Fixed Charges for the same four fiscal quarters then ended (the "Cash Flow Coverage Ratio") of not less than:
FROM AND TO AND CASH FLOW COVERAGE INCLUDING INCLUDING RATIO SHALL NOT BE LESS THAN: 12/31/98 12/30/99 .85 to 1.0 12/31/99 12/30/00 .90 to 1.0 12/31/00 and at all times thereafter 1.05 to 1.0
2.9 Exhibit A-1 to the Credit Agreement shall be amended and restated to read as set forth on Schedule I attached hereto. 2.10 The Attachment to Compliance Certificate appearing in Schedule 7.5 to the Credit Agreement shall be amended by deleting the ratio "1.30:1.0" appearing in line B-4 thereof and replacing it with the ratio "1.0:1.0" in lieu thereof. SECTION 3. CONDITIONS PRECEDENT. The effectiveness of this Amendment is subject to the satisfaction of all of the following conditions precedent: 3.1 The Borrower and the Banks shall have executed and delivered this Amendment. 3.2 The Borrower shall have executed and delivered to (a) the Agent the Swing Line Note (the "New Swing Line Note") payable to Harris Trust and Savings Bank in the form of note attached hereto as Schedule I, and (b) the Agent for each Bank a Committed Loan Note (the "New Committed Loan Notes") in the amount of each Bank's Revolving Credit Commitment as amended hereby. 3.3 The Agent shall have received copies (executed or certified, as may be appropriate) of all legal documents or proceedings taken in connection with the execution and delivery of this Amendment to the extent the Agent or its counsel may reasonably request. 3.4 Legal matters incident to the execution and delivery of this Amendment shall be satisfactory to the Agent and its counsel. 3.5 The Agent shall have received for each of the Banks an amendment fee equal to 0.10% of each Bank's amended Revolving Credit Commitment. -5- 6 Upon the effectiveness of this Amendment, each Bank shall return to the Agent (for return to the Borrower) the prior Committed Loan Notes and Swing Loan Note (which are being replaced by the New Committed Loan Notes and the New Swing Line Note, respectively) held by such Banks marked "Replaced by promissory note dated February 10, 1999" or words of like import. SECTION 4. REPRESENTATIONS. In order to induce the Banks to execute and deliver this Amendment, the Borrower hereby represents to the Banks that as of the date hereof, the representations and warranties set forth in Section 5 of the Credit Agreement are and shall be and remain true and correct (except that the representations contained in Section 5.4 shall be deemed to refer to the most recent financial statements of the Borrower delivered to the Banks) and the Borrower is in compliance with the terms and conditions of the Credit Agreement and no Default or Event of Default has occurred and is continuing under the Credit Agreement or shall result after giving effect to this Amendment. SECTION 5. MISCELLANEOUS. 5.1 Except as specifically amended herein, the Credit Agreement shall continue in full force and effect in accordance with its original terms. Reference to this specific Amendment need not be made in the Credit Agreement, the Notes, or any other instrument or document executed in connection therewith, or in any certificate, letter or communication issued or made pursuant to or with respect to the Credit Agreement, any reference in any of such items to the Credit Agreement being sufficient to refer to the Credit Agreement as amended hereby. 5.2 The Borrower agrees to pay on demand all costs and expenses of or incurred by the Agent in connection with the negotiation, preparation, execution and delivery of this Amendment and the replacement Notes, including the fees and expenses of counsel for the Agent. 5.3 This Amendment may be executed in any number of counterparts, and by the different parties on different counterpart signature pages, all of which taken together shall constitute one and the same agreement. Any of the parties hereto may execute this Amendment by signing any such counterpart and each of such counterparts shall for all purposes be deemed to be an original. This Amendment shall be governed by the internal laws of the State of Illinois. [SIGNATURE PAGES TO FOLLOW] -6- 7 This First Amendment to Credit Agreement is dated as of the date first above written. INFORMATION RESOURCES, INC. By Name -------------------------------------- Title ------------------------------------- Accepted and agreed to as of the date and year first above written. HARRIS TRUST AND SAVINGS BANK, in its individual capacity as a Bank and as Agent By Name -------------------------------------- Title ------------------------------------- LASALLE NATIONAL BANK By Name -------------------------------------- Title ------------------------------------- THE BANK OF NEW YORK By Name -------------------------------------- Title ------------------------------------- -7- 8 SCHEDULE I EXHIBIT A-1 SWING LINE NOTE Chicago, Illinois $10,000,000.00 __________, 1999 On the Termination Date, for value received, the undersigned, Information Resources, Inc., a Delaware corporation (the "Borrower") hereby promises to pay to the order of Harris Trust and Savings Bank (the "Bank"), at the principal office of Harris Trust and Savings Bank in Chicago, Illinois, the principal sum of (i) Ten Million and 00/100 Dollars ($10,000,000.00), or (ii) such lesser amount as may at the time of the maturity hereof, whether by acceleration or otherwise, be the aggregate unpaid principal amount of all Swing Loans owing from the Borrower to the Bank under the Swing Line Commitment provided for in the Credit Agreement hereinafter mentioned. This Note evidences Swing Loans made and to be made to the Borrower by the Bank under the Swing Line Commitment provided for under that certain Credit Agreement dated as of October 31, 1997, as amended, by and among the Borrower, Harris Trust and Savings Bank, individually and as Agent thereunder, and the other Banks which are now or may from time to time hereafter become parties thereto (said Credit Agreement, as the same may from time to time be modified, amended or restated being referred to herein as the "Credit Agreement"), and the Borrower hereby promises to pay interest at the office described above on each Swing Loan evidenced hereby at the rates and at the times and in the manner specified therefor in the Credit Agreement. Each Swing Loan made under the Swing Line Commitment provided for in the Credit Agreement by the Bank to the Borrower against this Note, any repayment of principal hereon and the interest rates applicable thereto shall be endorsed by the holder hereof on a schedule to this Note or recorded on the books and records of the holder hereof (provided that such entries shall be endorsed on a schedule to this Note prior to any negotiation hereof). The Borrower agrees that in any action or proceeding instituted to collect or enforce collection of this Note, the entries so endorsed on a schedule to this Note or recorded on the books and records of the holder hereof shall be prima facie evidence of the unpaid principal balance of this Note and the interest rates applicable thereto. This Note is issued by the Borrower under the terms and provisions of the Credit Agreement, and this Note and the holder hereof are entitled to all of the benefits and security provided for thereby or referred to therein, to which reference is hereby made for a statement thereof. This Note may be declared to be, or be and become, due prior to its expressed maturity, voluntary prepayments may be made hereon, and certain prepayments are required to be made 9 hereon, all in the events, on the terms and with the effects provided in the Credit Agreement. All capitalized terms used herein without definition shall have the same meanings herein as such terms have in the Credit Agreement. This Note is issued in substitution for and in replacement of, and evidences (among other things) the indebtedness previously evidenced by, that certain Swing Line Note dated October 31, 1997 payable to the order of the Bank in the original principal amount of $5,000,000. This Note shall be construed in accordance with, and governed by, the internal laws of the State of Illinois without regard to principles of conflict of law. The Borrower hereby promises to pay all reasonable costs and expenses (including attorneys' fees) suffered or incurred by the holder hereof in collecting this Note or enforcing any rights in any collateral therefor. The Borrower hereby waives presentment for payment and demand. INFORMATION RESOURCES, INC. By Name ----------------------------------- Title ---------------------------------- -2- EX-10.(II) 5 EMPLOYMENT LETTER AGREEMENT DATED 4/26/95 1 EXHIBIT ii [INFORMATION RESOURCES INC LETTERHEAD] April 26, 1995 Mr. Gary M. Hill 4033 Ellington Avenue Western Springs, Illinois 60558 Dear Gary: We are delighted that you have accepted our offer of employment. The purpose of this letter is to summarize our understanding of the terms to which we have agreed. You will be employed as Executive Vice President, Chief Financial Officer and Treasurer of Information Resources, Inc. (the "Company"). Your base salary will be $275,000 per year, reviewable annually by the Board of Directors. Your initial annual target bonus will be 30% of your base salary, subject to performance. You will enjoy all employee benefits and perquisites available generally to the other senior executive officers of the Company. These include health and welfare plans, life insurance, disability and retirement plans, 401(k) plans, holidays, personal leave, sick leave and vacation allowances (four weeks vacation per year). To cover any preexisting medical conditions, the Company will either indemnify you for uninsured costs or reimburse you for COBRA payments until such conditions are covered by the Company's Group Health Plan. The Company will also pay the initiation fee for your membership in one social club of your choice, up to 10% of your base salary. The Company will also pay the club's dues for as long as you are an executive officer of the Company. On the date of your acceptance of this employment arrangement, the Company will grant you 150,000 options under its Executive Stock Option Plan, to be evidenced by the Company's customary form of stock option agreement. Of those options, 50,000 will vest according to the Company's normal vesting schedule for such grants (i.e., one-third on the second anniversary of your employment, one-third on the third anniversary and one-third on the fourth anniversary). Of the remaining 100,000 options, one-third will vest on each of the first three anniversaries of the starting date of your employment. Should a "change of control" (defined as the sale of the Company, whether by merger or otherwise, or the acquisition of more than 25% of the Company's common stock by an acquirer, or group acting in concert) occur during your employment, the following will apply. If a change in control occurs before the second anniversary of your employment and you leave the Company within one year thereafter for any reason (other than for illegal or fraudulent conduct, i.e., "for cause"), your options (including any granted to you in the future) will continue to vest and become exercisable (until 30 days after the last options vest) in accordance with their vesting schedules notwithstanding the termination of your employment. If a change in control occurs after the second anniversary of your employment, all your unvested options will immediately vest and become exercisable. 2 Mr. Gary Hill Page 2 Upon starting with the Company, you will be expected to execute a customary noncompetition and confidentiality agreement. Should your employment be terminated (including a reduction in responsibility or compensation, other than a reduction in compensation applicable to all executive officers of the Company) for any reason other than for cause, death or your voluntary resignation (except in case of resignation within one year following a change in control), you will continue for the next twelve months to receive all benefits and to be paid at a rate equal to 130% of your base salary then in effect. Also, any options that would otherwise vest in the succeeding 18 month period following such termination not otherwise vested pursuant to the above change in control provision will vest immediately. You will have one year thereafter to exercise your options. As you know, the Board is currently reviewing the appropriateness of formal employment agreements for senior management officials of the Company. As CFO, you will likely be asked to work with the Board's Compensation Committee in this regard. A more formal employment agreement may then be made available to you upon completion of the review, assuming the Board concludes as a matter of policy that such agreements will continue to be appropriate for the Company's senior management officials. Notwithstanding the foregoing, if any of the above provisions create unintended accounting effects, we will negotiate appropriate modification in good faith. Assuming this fairly states our understanding, please so indicate your concurrence by signing below. On behalf of the Company, the Board of Directors and our entire senior management team, we express our great pleasure at your arrival and look forward to a long term and mutually rewarding professional relationship with you. Welcome aboard! Sincerely, Gian M. Fulgoni Co-CEO Accepted this 26th day of April, 1995 - -------------------------------------- Gary M. Hill EX-10.(JJ) 6 EMPLOYMENT LETTER AGREEMENT DATED 9/23/97 1 EXHIBIT jj [INFORMATION RESOURCES INC. LETTERHEAD] September 23, 1997 Mr. James R. Chambers 425 Cherry Lane Mendham, NJ 07945 Dear Jim: We are delighted that you have accepted our offer of employment. The purpose of this letter is to summarize our understanding of the terms to which we have agreed. You will be employed as Group President responsible for IRI's U.S. Commercial Businesses which include Customer Sales and Service, Product Management, Solution Centers, Retail, and Marketing. Your base salary will be $315,000 per year, and will be reviewed on May 1, 1998, and annually thereafter. You will receive merit consideration based on your performance, and any increase will be pro-rata based on your start date. Your initial annual bonus target will be 40% of your base salary, and your final bonus will be based on your performance, and IRI's bonus plan formula. For 1998, we will guarantee you a minimum bonus of $80,000, payable on or about March 15, 1999. We will also provide you with a $40,000 sign on bonus payable 15 days after your start date. You will be required to repay the sign on bonus to IRI if you are terminated for cause or you voluntarily resign your position before your one-year anniversary. You will enjoy all employee benefits and perquisites available generally to the other senior executive officers of the Company. This includes IRI's flexible benefits program which consists of health and welfare plans, life insurance, disability, 401(k) plan, holidays, personal leave, sick leave and vacation allowance (four weeks vacation per year). On you start date, the Company will grant you 125,000 options under its Executive Stock Option Plan, to be evidenced by the Company's customary form of stock option agreement. For these 125,000 options, one-third will vest on each of the first three anniversaries of the starting date of your employment. Should a "change of control" (defined as the sale of the Company, whether by merger or otherwise, or the acquisition of more than 25% of the company's common stock by an acquirer, or group acting in concert) occur during your employment, the following will apply: If a change in control occurs before the second anniversary of your employment and you leave the Company within one year thereafter for any reason (other than for cause), your options (including any granted to you in the future) will continue to vest and become exercisable (until 30 days after the last options vest) in accordance with their vesting schedules notwithstanding the termination of your employment. If a change in control occurs after the second anniversary of your employment, all your unvested options will immediately vest and become exercisable. Upon starting with the Company, you will be expected to execute a customary noncompetition and confidentiality agreement (attached). Should your employment be terminated (including a reduction in responsibility or compensation) for any reason other than for cause, death or your voluntary resignation (except in case of resignation within one year following a change in control), you will continue for the next twelve months to receive all benefits including compensation at a rate equal to 140% of your base salary then in effect. Again, if your employment terminates for cause, or as the result of your death, or your voluntary resignation (except for change of control as stated above) you will receive no severance benefits. Also, any options that would otherwise vest in the succeeding 18 month period following such termination not otherwise vested pursuant to the above change in control provision will vest immediately. 2 JAMES R. CHAMBERS PAGE 2 You will also receive initially IRI's full relocation package for executive officers. As we have discussed, you will work out of IRI's Fairfield, NJ office, but will be expected to work in Chicago an average two days per week. Our intent is to have you move to Chicago, one year from your start date, but I will evaluate with you how things are working on or about July 1, 1998, regarding this issue. Please contact Gary Newman regarding any aspects of your employment offer, especially IRI's benefits and relocation policies. Jim, everyone is extremely excited about your joining our team. We know you can make a difference for IRI, and believe we can offer your the challenges and career opportunities you desire. On behalf of the Company, the Board of Directors and our entire senior management team, we express our great pleasure at your forthcoming arrival and look forward to a long term and mutually rewarding professional relationship with you. Welcome aboard! Sincerely, Gian M. Fulgoni Chief Executive Officer Accepted this 3rd day of October 1997 - -------------------------------- James R. Chambers cc: Gary Newman 3 [INFORMATION RESOURCES INC. LETTERHEAD] August 31, 1998 Mr. James R. Chambers 425 Cherry Lane Mendham, NJ 07945 Dear Jim: This letter will confirm our oral and electronic mail communications regarding amending your September 23, 1997 employment letter and the terms of new stock options recently approved by the IRI Compensation Committee. The option vesting and exercise rights described in this letter are in addition to those described in your offer letter of September 23, 1997. The 125,000 options currently held by you will vest and be exercisable according to the terms set forth below, in the event that your employment is terminated by IRI without cause or is terminated by you for "Good Reason". For purposes of this letter, you shall have ""Good Reason" to terminate your employment hereunder if, but only if: (a) without your express written consent, you are assigned any duties inconsistent with your position, duties, responsibilities and status immediately prior to a change in your reporting responsibilities, title or offices, except (i) in connection with your reassignment by the senior management of Information Resources to a comparable position (i.e., same salary and grade level), (b) the commencement or continuation of a disability preventing you from performing your duties and responsibilities; or (c) you are removed from or not re-elected to any of your offices or positions except in connection with such reassignment or the commencement or continuation of a disability period; (b) a reduction is made by Information Resources in your base salary, except as and only to the extent that the Compensation Committee of the Board of Directors (or its successor) decreases the base salary of all senior officers who are at the rank then held by you in the same fashion. (c) Information Resources fails to continue in effect any benefit, bonus or compensation plan, stock ownership plan, stock purchase plan, stock option plan, life insurance plan, health-and-accident plan or disability plan (other than those plans which expire by their express terms) in which you are participating, other than as part of a reduction or change generally applicable to other senior officers of Information Resources; or (d) Information Resources fails to obtain from any successor entity to Information Resources an agreement to perform this Agreement to the extent and in the manner required to be performed by Information Resources. If any such termination by IRI without cause or by you for "Good Reason" occurs before the second anniversary of your employment, your options will continue to vest and become exercisable (other than terminated or expired options until 30 days after the last options vest) in accordance with their vesting schedules notwithstanding the termination of your employment. If any such termination occurs after the second anniversary of your employment, all your unvested options will immediately vest and all your options (other than terminated or expired options) shall be exercisable for a period of 24 months from the date of termination of employment. 4 Jim Chambers August 31, 1998 Page 2 Further, if Gian Fulgoni ceases to be the Chief Executive Officer of IRI or Tom Wilson ceases to be Chairman, such change shall be treated as if it were a "change of control" for purposes of accelerated option vesting and exercise periods, as described in IRI's offer letter to you of September 23, 1997. You have also been granted another 125,000 stock options with a grant price of $10.938 as of August 25, 1998. You will become vested in these options after one year from the grant date. These options will have all of the conditions as the original options granted to you and stated above. This includes a two year time period to exercise your options when a change of control, good reason or any type of termination (except cause) occurs. Very truly yours, Gary S. Newman Executive Vice President Human Resources Accepted: ------------------------------------ James R. Chambers cc: Gian Fulgoni EX-21 7 SUBSIDIARIES OF THE REGISTRANT 1 EXHIBIT 21 INFORMATION RESOURCES, INC. SUBSIDIARIES DOMESTIC SUBSIDIARIES
STATE OF SUBSIDIARY INCORPORATION ---------- ------------- 564 Randolph Co. #2 Illinois IRI Puerto Rico, Inc. (formerly Market Trends, Inc.) Puerto Rico NEO, Inc Connecticut IRI Venezuela Holdings, Inc Delaware IRI Guatemala Holdings, Inc Delaware IRI Greek Holdings, Inc Delaware IRI French Holdings, Inc Delaware IRI Italy Holdings, Inc Delaware InfoScan Italy Holdings, Inc Delaware IRI Logistics, Inc. (formerly LogiCNet, Inc.) Delaware Shoppers Hotline, Inc Delaware North Clinton Corporation Illinois
FOREIGN SUBSIDIARIES COUNTRY OF SUBSIDIARY INCORPORATION ---------- ------------- Information Resources S.A. France IRI Software, Ltd. (formerly known as Management Decision Systems, Limited) d/b/a Information Resources United Kingdom Information Resources GmbH Federal Republic of Germany Information Resources Australia Pty. Ltd. Australia Information Resources Japan, Ltd. Japan IRI Apollo K.K. Japan Information Resources New Zealand Pty. Ltd. New Zealand Information Resources Singapore Pte. Ltd. Singapore IRI Software (India) Private Limited India Panel Pazar Arastirma ve Danismanlik A.S. Republic of Turkey IRI-SECODIP, S.N.S. France IRI Hellas, S.A. Greece Information Resources de Mexico, S.A. de C.V. (formerly known as IRI Software de Mexico, S.A. de C.V.) Mexico IRI InfoScan S.r.1 Italy Precis (1136) Limited United Kingdom IRI InfoScan Limited (formerly InfoScan NMRA Limited) United Kingdom IRI/GfK Retail Services GmbH Federal Republic of Germany IRI/GfK Retail Services B.V. (formerly GfK InfoScan B.V.) The Netherlands Information Resources Espana, S.L. Spain
EX-23 8 CONSENT OF INDEPENDENT AUDITORS 1 EXHIBIT 23 CONSENT OF INDEPENDENT AUDITORS We consent to the incorporation by reference in the Registration Statement (Form S-8 No. 33-48289) pertaining to the Information Resources, Inc. Nonqualified Stock Option Plan, the Registration Statement (Form S-8 No. 33-48290) pertaining to the Information Resources, Inc. 1992 Incentive Stock Option Plan, the Registration Statement (Form S-8 No. 33-48291) pertaining to the Information Resources, Inc. 1992 Executive Stock Option Plan, the Registration Statement (Form S-8 No. 33-52719) pertaining to the Information Resources, Inc. Nonqualified Stock Option Plan, the Registration Statement (Form S-8 No. 33-52721) pertaining to the Information Resources, Inc. Employee Nonqualified Stock Option Plan, the Registration Statement (Form S-8 No. 33-54649) pertaining to the Information Resources, Inc. 1992 Executive Stock Option Plan and the Registration Statement (Form S-8 No. 333-24041) pertaining to the Information Resources, Inc. 401(k) Retirement Savings Plan and Trust of our report dated February 11, 1999 with respect to the consolidated financial statements and schedule of Information Resources, Inc. included in the Annual Report (Form 10-K) for the year ended December 31, 1998. ERNST & YOUNG LLP Chicago, Illinois March 29, 1999 EX-24 9 POWERS OF ATTORNEY 1 EXHIBIT 24 INFORMATION RESOURCES, INC. AND SUBSIDIARIES POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that the undersigned constitutes and appoints Thomas W. Wilson, Gary M. Hill and Monica M. Weed, and each of them, his/her true and lawful attorneys-in-fact and agents, with full power of substitution and re-substitution, for him and in his name, place and stead, in any and all capacities, to sign the Annual Report on Form 10-K for the year ended December 31, 1998 of Information Resources, Inc., together with any and all amendments to such Annual Report, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said 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, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agent of either of them, or their substitute or substitutes, may lawfully do or cause to be done by virtue hereof. Dated: March 29, 1999 /s/ JAMES G. ANDRESS ---------------------------------- James G. Andress, Director /s/ GERALD J. ESKIN ---------------------------------- Gerald J. Eskin, Director /s/ EDWIN E. EPSTEIN ---------------------------------- Edwin E. Epstein, Director /s/ GIAN M. FULGONI ---------------------------------- Gian M. Fulgoni, Director /s/ JOHN D.C. LITTLE ---------------------------------- John D.C. Little, Director /s/ LEONARD M. LODISH ---------------------------------- Leonard M. Lodish, Director /s/ EDWARD E. LUCENTE ---------------------------------- Edward E. Lucente, Director /s/ EDITH W. MARTIN ---------------------------------- Edith W. Martin, Director /s/ JEFFREY P. STAMEN ---------------------------------- Jeffrey P. Stamen, Director /s/ GLEN L. URBAN ---------------------------------- Glen L. Urban, Director EX-27 10 FINANCIAL DATA SCHEDULE
5 1,000 12-MOS DEC-31-1998 DEC-31-1998 11,149 0 92,399 4,762 0 108,009 177,443 97,940 369,293 102,799 0 0 0 279 238,173 369,293 0 511,323 0 504,353 0 0 1,256 6,581 2,735 3,846 0 0 0 3,846 0.13 0.13
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