-----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, GeluKRNzunJhzlTT3DCuxl0tdrlgIp/LWj9/RkN133TIQqQ7R7knz1ap5CvJ1bMd erRCalA9oiJ2LHTVXoNIlQ== 0000950137-01-504628.txt : 20020410 0000950137-01-504628.hdr.sgml : 20020410 ACCESSION NUMBER: 0000950137-01-504628 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 20010930 FILED AS OF DATE: 20011114 FILER: COMPANY DATA: COMPANY CONFORMED NAME: INFORMATION RESOURCES INC CENTRAL INDEX KEY: 0000714278 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-ENGINEERING, ACCOUNTING, RESEARCH, MANAGEMENT [8700] IRS NUMBER: 521287752 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-11428 FILM NUMBER: 1786595 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-Q 1 c66018e10-q.txt QUARTERLY REPORT SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q (Mark One) X Quarterly Report Pursuant to Section 13 or 15(d) of The Securities - ----- Exchange Act of 1934. For the quarterly period ended September 30, 2001 Transition report pursuant to Section 13 or 15(d) of the Securities - ----- Exchange Act of 1934. Commission file number 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 ------------- 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 ----- ----- The number of shares of the registrant's common stock, $.01 par value per share outstanding, as of October 31, 2001 was 29,313,683. INFORMATION RESOURCES, INC. AND SUBSIDIARIES INDEX
PAGE NUMBER ------ PART I. FINANCIAL INFORMATION Condensed Consolidated Balance Sheets 3 Condensed Consolidated Statements of Operations 4 Condensed Consolidated Statements of Cash Flows 5 Notes to Condensed Consolidated Financial Statements 6 Management's Discussion and Analysis of Financial Condition and Results of Operations 14 PART II. OTHER INFORMATION Item 6 - Exhibits and Reports on Form 8-K 21 Signatures 22
2 INFORMATION RESOURCES, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (IN THOUSANDS, EXCEPT SHARE DATA)
ASSETS SEPTEMBER 30, 2001 DECEMBER 31, 2000 - ------ ------------------ ---------------- (UNAUDITED) CURRENT ASSETS Cash and cash equivalents $ 9,870 $ 11,914 Accounts receivable, net 76,421 80,610 Prepaid expenses and other 7,914 11,009 --------- --------- Total Current Assets 94,205 103,533 --------- --------- Property and equipment, at cost 219,891 203,509 Accumulated depreciation (150,812) (127,777) --------- --------- Net property and equipment 69,079 75,732 Investments 14,757 15,858 Deferred income taxes 8,092 4,031 Other assets 165,886 166,006 --------- --------- $ 352,019 $ 365,160 ========= ========= LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES Current maturities of capitalized leases $ 2,495 $ 2,337 Accounts payable 50,641 53,360 Accrued compensation and benefits 18,346 22,609 Accrued property, payroll and other taxes 2,761 1,980 Accrued expenses 7,323 11,372 Accrued restructuring costs 1,959 2,570 Deferred revenue 36,045 24,487 --------- --------- Total Current Liabilities 119,570 118,715 --------- --------- Long-term debt 6,723 24,628 Other liabilities 14,926 8,686 STOCKHOLDERS' EQUITY Preferred stock-authorized, 1,000,000 shares, $.01 par value; none issued -- -- Common stock - authorized 60,000,000 shares, $.01 par value, 29,327,995 and 29,069,892 shares issued and outstanding, respectively 296 294 Additional paid-in capital 200,170 198,926 Retained earnings 19,648 23,852 Accumulated other comprehensive loss (9,314) (9,941) --------- --------- Total Stockholders' Equity 210,800 213,131 --------- --------- $ 352,019 $ 365,160 ========= =========
The accompanying notes are an integral part of these statements. 3 INFORMATION RESOURCES, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED) (IN THOUSANDS, EXCEPT PER SHARE DATA)
THREE MONTHS ENDED NINE MONTHS ENDED SEPTEMBER 30, SEPTEMBER 30, ------------- ------------- 2001 2000 2001 2000 ----- ---- ---- ---- Information services revenues $ 138,166 $ 131,672 $ 415,380 $ 394,744 Costs and expenses: Information services sold (123,074) (114,581) (369,145) (353,403) Selling, general and administrative expenses (11,807) (13,052) (39,144) (40,294) Restructuring and other charges (4,209) (3,157) (12,408) (8,796) --------- --------- --------- --------- (139,090) (130,790) (420,697) (402,493) --------- --------- --------- --------- Operating profit (loss) (924) 882 (5,317) (7,749) Interest expense and other, net (354) (1,282) (2,751) (2,793) Equity in earnings (losses) of affiliated companies 5 (583) (171) (313) Minority interest benefit 770 487 2,147 2,336 --------- --------- --------- --------- Loss before income taxes (503) (496) (6,092) (8,519) Income tax (expense) benefit 15 (102) 1,889 3,380 --------- --------- --------- --------- Net loss $ (488) $ (598) $ (4,203) $ (5,139) ========= ========= ========= ========= Net loss per common share - basic $ (.02) $ (.02) $ (.14) $ (.18) ========= ========= ========= ========= Net loss per common and common equivalent share - diluted $ (.02) $ (.02) $ (.14) $ (.18) ========= ========= ========= ========= Weighted average common shares - basic 29,310 29,046 29,150 29,061 ========= ========= ========= ========= Weighted average common and common equivalent shares - diluted 29,310 29,046 29,150 29,061 ========= ========= ========= =========
The accompanying notes are an integral part of these statements. 4 INFORMATION RESOURCES, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) (IN THOUSANDS)
NINE MONTHS ENDED SEPTEMBER 30, ------------- 2001 2000 ---- ---- CASH FLOWS FROM OPERATING ACTIVITIES: Net loss $ (4,203) $ (5,139) Adjustments to reconcile net loss to net cash provided by operating activities: Amortization of deferred data procurement costs 93,045 89,996 Depreciation 21,649 22,224 Amortization of capitalized software costs and intangibles 4,487 4,508 Restructuring and other charges, net of cash payments 1,530 (1,912) Deferred income tax benefit (1,889) (3,380) Equity in earnings of affiliated companies and minority interests (1,976) (2,023) Other 558 225 Change in assets and liabilities: Accounts receivable 3,573 15,957 Other current assets 3,095 (351) Accounts payable and accrued liabilities (7,597) (18,186) Deferred revenue 11,558 3,880 Other, net 6,067 (4,761) --------- --------- Net cash provided by operating activities 129,897 101,038 CASH FLOWS FROM INVESTING ACTIVITIES: Deferred data procurement costs (96,200) (92,867) Purchase of property, equipment and software (14,568) (13,259) Capitalized software costs (1,793) (1,490) Investment in joint ventures (2,751) (1,940) Other, net 460 994 --------- --------- Net cash used in investing activities (114,852) (108,562) CASH FLOWS FROM FINANCING ACTIVITIES: Net bank borrowings (repayments) (16,000) 14,750 Purchases of Common Stock (110) (675) Proceeds from issuance of stock and exercise of stock options 927 -- Net repayments of capitalized leases (1,747) (960) --------- --------- Net cash (used) provided by financing activities (16,930) 13,115 EFFECT OF EXCHANGE RATE CHANGES ON CASH (159) (731) --------- --------- Net (decrease) increase in cash and cash equivalents (2,044) 4,860 Cash and cash equivalents at beginning of period 11,914 8,077 --------- --------- Cash and cash equivalents at end of period $ 9,870 $ 12,937 ========= =========
The accompanying notes are an integral part of these statements. 5 INFORMATION RESOURCES, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) NOTE 1 - BASIS OF PRESENTATION Principles of consolidation: The condensed consolidated financial statements include the accounts of Information Resources, Inc. and all wholly or majority owned subsidiaries and affiliates (collectively the "Company"). Minority interests reflect the non-Company owned stockholder interests in international operations. The equity method of accounting is used for investments in which the Company has a 20% to 50% ownership interest because it exercises significant influence over operating and financial policies. All significant intercompany accounts and transactions have been eliminated in consolidation. The excess of the carrying value over the net book value of investments accounted for using the equity method is amortized over ten years. Interim financial statements: The interim financial statements are unaudited, but include all adjustments (consisting of normal recurring adjustments) necessary, in the opinion of management, for a fair statement of financial position and results of operations for the period presented. The preparation of interim financial statements necessarily relies on estimates, requiring the use of caution in estimating results for the full year based on interim results of operations. Reclassifications: Certain amounts in the 2000 condensed consolidated financial statements have been reclassified to conform to the 2001 presentation. Loss per Common and Common Equivalent Share: Net loss per share is based upon the weighted average number of shares of common stock outstanding during each period. Net 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 period. In 2000 and 2001, common stock equivalents were excluded from the weighted average shares outstanding calculation because they were anti-dilutive. NOTE 2 - SUPPLEMENTAL CASH FLOW INFORMATION Cash paid (received) for interest and income taxes during the period was as follows (in thousands):
NINE MONTHS ENDED SEPTEMBER 30, ------------- 2001 2000 ---- ---- Interest $ 1,775 $ 2,529 Income taxes 224 (277)
Non-cash investing and financing activities are excluded from the consolidated statement of cash flows. During the nine months ended September 30, 2001, the Company acquired computer software licenses for $3.0 million in exchange for a financing obligation. 6 INFORMATION RESOURCES, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, CONT'D. (UNAUDITED) NOTE 3 - ACCOUNTS RECEIVABLE Accounts receivable were as follows (in thousands):
SEPTEMBER 30, 2001 DECEMBER 31, 2000 ------------------ ----------------- Billed $ 64,973 $ 69,822 Unbilled 15,201 14,706 -------- -------- 80,174 84,528 Reserve for accounts receivable (3,753) (3,918) -------- -------- $ 76,421 $ 80,610 ======== ========
NOTE 4 - INVESTMENTS AND OTHER ASSETS Investments were as follows (in thousands):
SEPTEMBER 30, 2001 DECEMBER 31, 2000 ------------------ ----------------- Mosaic InfoForce, L.P., at cost plus equity in undistributed earnings $ 5,389 $ 6,101 Datos Information Resources, at cost plus equity in undistributed earnings 4,180 4,439 GfK Panel Services Benelux B.V., at cost 1,315 1,315 Middle East Market Research Bureau ("MEMRB"), at cost 2,784 2,795 Other 1,089 1,208 ------- ------- $14,757 $15,858 ======= =======
7 INFORMATION RESOURCES, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, CONT'D. (UNAUDITED) Other assets were as follows (in thousands):
SEPTEMBER 30, 2001 DECEMBER 31, 2000 ------------------ ----------------- Deferred data procurement costs - net of accumulated amortization of of $138,356 in 2001 and $132,884 in 2000 $144,136 $142,036 Intangible assets, including goodwill - net of accumulated amortization of $13,193 in 2001 and $12,026 in 2000 8,202 9,370 Capitalized software costs - net of accumulated amortization of $6,596 in 2001 and $4,716 in 2000 5,200 5,862 Other 8,348 8,738 -------- -------- $165,886 $166,006 ======== ========
NOTE 5 - LONG TERM DEBT Long-term debt was as follows (in thousands):
SEPTEMBER 30, 2001 DECEMBER 31, 2000 ------------------ ----------------- Bank borrowings $ 5,000 $ 21,000 Capitalized leases and other 4,218 5,965 -------- -------- 9,218 26,965 Less current maturities (2,495) (2,337) -------- -------- $ 6,723 $ 24,628 ======== ========
8 INFORMATION RESOURCES, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, CONT'D. (UNAUDITED) In October 2001, the Company amended certain financial covenants and other terms and conditions of its $60 million bank revolving credit facility. Under the credit facility, the maximum commitment of funds available for borrowings is limited by a defined borrowing base formula related to eligible accounts receivable. Borrowings under the facility are secured by the Company's assets. The Company had $56 million of borrowing availability under the amended revolving credit facility as of November 12, 2001. The financial covenants in the amended 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 $3.5 million is currently available for such distributions under the most restrictive of these covenants. Additionally, the amended bank credit agreement contains covenants that restrict the Company's ability to incur additional indebtedness. NOTE 6 - COMPREHENSIVE INCOME (LOSS) The comprehensive income (loss) summary shown below sets forth certain items that affect stockholders' equity but are excluded from the presentation of net earnings. The components of comprehensive income (loss) were as follows (in thousands):
THREE MONTHS ENDED NINE MONTHS ENDED SEPTEMBER 30, SEPTEMBER 30, ------------- ------------- 2001 2000 2001 2000 ---- ---- ---- ---- Net loss $ (488) $ (598) $ (4,203) $ (5,139) Foreign currency translation adjustment 3,154 (3,062) 627 (6,849) -------- -------- -------- -------- Comprehensive income (loss) $ 2,666 $ (3,660) $ (3,576) $(11,988) ======== ======== ======== ========
NOTE 7 - STOCK REPURCHASE The Company purchased 20,000 shares of common stock aggregating $0.1 million during the first quarter of 2001 in connection with the stock repurchase program announced in August 2000. The stock repurchase program was established principally to acquire shares to fund the Company's 2000 Employee Stock Purchase Plan ("ESPP"). In June 2001, the Company sold 144,939 shares of Common Stock for $0.4 million to employees participating in the ESPP. Of the shares sold, 31,863 were previously held in treasury and 113,076 were newly issued by the Company. 9 INFORMATION RESOURCES, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, CONT'D. (UNAUDITED) NOTE 8 - SEGMENT INFORMATION 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. The executive management of the Company considers revenues from third parties 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 table presents certain information regarding the operations of the Company by geographic segments (in thousands):
THREE MONTHS ENDED NINE MONTHS ENDED SEPTEMBER 30, SEPTEMBER 30, ------------- ------------- 2001 2000 2001 2000 ---- ---- ---- ---- Revenues: U.S. Services $ 105,036 $ 98,589 $ 315,302 $ 298,369 International Services 33,130 33,083 100,078 96,375 --------- --------- --------- --------- Total Revenue $ 138,166 $ 131,672 $ 415,380 $ 394,744 ========= ========= ========= ========= Operating Results: U.S. Services $ 6,813 $ 6,020 $ 19,961 $ 14,580 International Services: Operating loss (743) (1,320) (3,332) (6,278) Equity in earnings of affiliated companies 23 157 149 427 Minority interest benefit 770 487 2,147 2,336 --------- --------- --------- --------- Subtotal -- International Services 50 (676) (1,036) (3,515) Corporate and other expenses including equity in loss of affiliated companies (2,803) (1,401) (9,858) (7,995) Restructuring and other charges (a) (4,209) (3,157) (12,408) (8,796) --------- --------- --------- --------- Operating Results (149) 786 (3,341) (5,726) Interest expense and other, net (354) (1,282) (2,751) (2,793) --------- --------- --------- --------- Loss before income taxes $ (503) $ (496) $ (6,092) $ (8,519) ========= ========= ========= =========
10 INFORMATION RESOURCES, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, CONT'D. (UNAUDITED) (a) Restructuring and other charges for the U.S. Services, International Services and Corporate were $2.0 million, $2.2 million and $0 million, respectively, for the three months ended September 30, 2001 and $1.2 million, $2.0 million and $0 million, respectively, for the three months ended September 30, 2000. Restructuring and other charges for the U.S. Services, International Services and Corporate were $6.0 million, $6.4 million and $0 million, respectively, for the nine months ended September 30, 2001 and $5.4 million, $4.3 million and $(0.9) million, respectively, for the nine months ended September 30, 2000. NOTE 9 - RESTRUCTURING AND OTHER CHARGES The Company began the Project Delta initiative in the fourth quarter of 1999 and completed the project during the third quarter of 2001, with the exception of the transition of German production to the U.S. facility. Costs associated with Project Delta continued to be incurred through the end of the third quarter of 2001. Certain restructuring and other costs were not eligible for accrual in 2000 and were recorded during 2001. For the quarter and nine months ended September 30, 2001 and 2000, the Restructuring and Other Charges included in the Statement of Operations consist of the following (in thousands):
THREE MONTHS NINE MONTHS ENDED ENDED SEPTEMBER 30, SEPTEMBER 30, ------------- ------------- 2001 2000 2001 2000 ---- ---- ---- ---- RESTRUCTURING CHARGES Termination benefits $ 1,341 $ 730 $ 1,362 $ 3,406 Disposition of excess office space 7 (231) 24 519 Transition of German production to U.S. facility 2,067 980 6,070 3,179 Discontinued activities (17) 1,603 2,025 1,603 Other costs of project 811 75 2,927 996 OTHER CHARGES -- -- -- (907) -------- ------- ------- -------- $ 4,209 $ 3,157 $ 12,408 $ 8,796 ======== ======== ======== ========
The following table reflects restructuring and other charges accrued prior to 2001 and expenses incurred and cash payments made during the first nine months of 2001 (in thousands): 11 INFORMATION RESOURCES, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, CONT'D. (UNAUDITED)
2001 ACTIVITY --------------------------------------------------------------------------------- LIABILITY AT LIABILITY AT DECEMBER 31, 2000 PROVISION CASH NON-CASH SEPTEMBER 30, 2001 ----------------- --------- ---- -------- ------------------ Termination benefits $ 2,029 $ 1,362 $ (2,292) $ -- $ 1,099 Disposition of excess office space -- 24 (24) -- -- Transition of German production to U.S. facility -- 6,070 (5,616) -- 454 Discontinued activities 541 2,025 (135) (2,025) 406 Other costs of project -- 2,927 (2,927) -- -- -------- -------- -------- -------- -------- $ 2,570 $ 12,408 $(10,994) $ (2,025) $ 1,959 ======== ======== ======== ======== ========
Termination Benefits: As of September 30, 2001, 394 employees have been terminated under various Project Delta initiatives. The accrual balance remaining as of September 30, 2001 represents the unpaid severance costs associated with employees terminated through the third quarter of 2001. Disposition of Excess Office Space: The Company recorded $.02 million of charges relating to lease buyouts in the first nine months of 2001 relating to office space not currently utilized. Transition of German Production to U.S. Facility: The Company made a decision in the fourth quarter of 1999 to transfer production services for IRI/GfK Retail Services GmbH from an external vendor in Germany to the Company's U.S. data processing facility in order to enhance its InfoScan offering in Germany and to reduce future production costs. In the first three quarters of 2001, charges of approximately $6.1 million were recorded related to this transition. Discontinued Activities: During 2000, it was determined that certain equipment used in the Company's U.S. operations to collect retail information would no longer be utilized after the second quarter of 2001. Accordingly, the Company recognized a non-cash charge of $2.0 million in the first half of 2001 relating to accelerated depreciation on this equipment. Other Restructuring Costs: Other restructuring costs during the first nine months of 2001 relate primarily to the fees paid to a third party for assistance in the identification of process improvements and efficiencies within the U.S. operations. 12 INFORMATION RESOURCES, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, CONT'D. (UNAUDITED) NOTE 10 - RECENT ACCOUNTING PRONOUNCEMENTS In June 2001, the Financial Accounting Standards Board issued Statements of Financial Accounting Standards No. 141, Business Combinations, and No. 142, Goodwill and Other Intangible Assets, effective for fiscal years beginning after December 15, 2001. Under the new rules, goodwill and intangible assets deemed to have indefinite lives will no longer be amortized but will be subject to annual impairment tests in accordance with the Statements. Other intangible assets will continue to be amortized over their useful lives. The Company will apply the new rules on accounting for goodwill and other intangible assets beginning in the first quarter of 2002. Application of the nonamortization provisions of FAS 142 is expected to result in an increase in net income of approximately $900 thousand ($.02 per share) per year. During 2002, the Company will perform the first of the required impairment tests of goodwill as of January 1, 2002 and has not yet determined what the effect of these tests will be on the earnings and financial position of the Company. 13 INFORMATION RESOURCES, INC. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following narrative discusses the results of operations, liquidity and capital resources for the Company on a consolidated basis. This section should be read in conjunction with IRI's Annual Report on Form 10-K for the fiscal year ended December 31, 2000. See "Management's Discussion and Analysis of Financial Condition and Results of Operations" contained therein. RESULTS OF OPERATIONS The Company's consolidated net loss was $.5 million or $(.02) per diluted share for the third quarter of 2001 compared to a consolidated net loss of $.6 million or $(.02) per diluted share for the corresponding 2000 quarter. The Company's consolidated net loss was $4.2 million or $(.14) per diluted share for the nine months ended September 30, 2001 compared to a consolidated net loss of $5.1 million or $(.18) per diluted share for the corresponding 2000 period. Excluding restructuring and other charges, net income for the quarter and year to date 2001 was $2.1 million and $3.6 million or $.07 and $.12 per diluted share compared to $1.3 million and $0.1 million, respectively, or $.05 and $.0 per diluted share for the corresponding 2000 period. Third Quarter Versus Prior Year Consolidated revenues for the quarter ended September 30, 2001 were $138.2 million, an increase of 5% over the corresponding quarter in 2000. U.S revenues were $105.0 million, an increase of 7% compared to the prior year primarily due to increased panel, analytics, and web delivery and access tools revenues. International revenues were $33.1 million for the third quarter of 2001. Excluding foreign currency exchange effects, international revenues increased 1% over the prior year. Consolidated costs of information services sold increased 7% to $123.1 million for the three months ended September 30, 2001 compared to $114.6 million for the third quarter of 2000. This increase is due to higher compensation resulting primarily from annual increases and higher employee incentive accruals. Consolidated selling, general and administrative expenses decreased 10% to $11.8 million for the three months ended September 30, 2001 compared to $13.1 million for the third quarter of 2000. This decrease is primarily due to lower training and recruiting costs. Earnings before interest and taxes, excluding restructuring and other charges of $4.2 million, was $4.1 million for the third quarter of 2001 compared to $3.9 million in the prior year, before restructuring and other charges of $3.2 million. This slight improvement is the result of better performance in both U.S. and international operations. The improvement is somewhat offset by higher corporate expenses which are the result of certain favorable adjustments made in 2000 but not in 2001. Restructuring and other charges are discussed below. Interest and other expenses were $.4 million for the third quarter of 2001, a decrease of $0.9 million over the prior year due to lower bank debt in 2001 and decreased foreign exchange losses resulting from the increased strength of the European currencies during the third quarter of 2001 as compared to the prior year. 14 INFORMATION RESOURCES, INC. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS, CONT'D. Third Quarter Year to Date Versus Prior Year Consolidated revenues were $415.4 million for the nine months ended September 30, 2001, an increase of 5% over the corresponding period of 2000. U.S. revenues increased 6% to $315.3 million for the nine months ended September 30, 2001 compared to the prior year primarily due to increased panel, analytics, and web delivery and access tools revenues. International revenues increased 4% to $100.1 million. Excluding the impact of foreign currency exchange effects, international revenues for the first nine months of 2001 increased 9% over the prior year. Consolidated costs of information services sold increased 4% to $369.1 million for the nine months ended September 30, 2001 compared to costs of $353.4 million for the corresponding period of 2000. This increase is due to higher compensation resulting primarily from annual increases, higher employee incentive accruals and the continued growth of the international business. Consolidated selling, general and administrative expenses decreased 3% to $39.1 million for the nine months ended September 30, 2001 compared to $40.3 million for the first nine months of 2000. This decrease is primarily due to lower training and recruiting costs. For the first nine months of 2001, the Company's earnings before interest and taxes, excluding restructuring and other charges of $12.4 million, was $9.1 million compared to $3.1 million in the prior year before restructuring and other charges of $8.8 million. This $6.0 million improvement is the result of better performance in both U.S. and international operations. The improvement is somewhat offset by higher corporate expenses which are the result of certain favorable adjustments made in 2000 but not in 2001. Restructuring and other charges are discussed below. Interest and other expenses were unchanged at $2.8 million for the nine months ended September 30, 2001 and 2000. LIQUIDITY AND CAPITAL RESOURCES The Company's current cash resources include its $9.9 million consolidated cash balance and $56 million available under the Company's amended bank revolving credit facility as of November 12, 2001. 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 amended bank agreement contains covenants that restrict the Company's ability to incur additional indebtedness. Financings In October 2001, the Company amended certain financial covenants and other terms and conditions of its $60 million bank revolving credit facility. Under the credit facility, the maximum commitment of funds available for borrowings is limited by a defined borrowing base formula related to eligible accounts receivable. The facility is secured by the Company's assets. 15 INFORMATION RESOURCES, INC. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS, CONT'D. 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 $3.5 million is currently available for such distributions under the most restrictive of these covenants. Additionally, the bank credit agreement also contains covenants that restrict the Company's ability to incur additional indebtedness. Cash Flow Consolidated net cash provided by operating activities during the first nine months of 2001 was $129.9 million compared to $101.0 million for the same period in 2000. A significant part of this increase is attributed to a $10.9 million cash payment received by the Company as an early termination fee on a client contract that was to expire in 2005. As part of this arrangement, the Company also entered into a long-term contract with the client's parent. Most of this payment will be recognized as income over four years beginning in 2002. Other items affecting operating cash flow included lower severance and employee incentive payments in 2001, the timing of certain liability payments, including payroll, and higher amortization of deferred data procurement costs. Consolidated cash used in net investing activities increased $6.3 million to $114.9 million in 2001 reflecting higher expenditures for data procurement and capital, and payments made in connection with the formation of Mosaic InfoForce, L.P. Consolidated cash used by net financing activities was $16.9 million for the first nine months of 2001 reflecting repayments of bank borrowings of $16.0 million. This compares to cash provided by financing activities of $13.1 million for the same period in 2000 which included $14.8 million of borrowings under the revolving line of credit. Other Deferred Costs and Capital Expenditures Consolidated deferred data procurement expenditures were $96.2 million for the nine months ended September 30, 2001 and $92.9 million for the same period in 2000. These expenditures are amortized over a period of 28 months and include payments and services to retailers for point-of-sale data and other costs related to collecting, reviewing and verifying panel, causal and other data which are an essential part of the Company's database. Such expenditures were $56.3 million and $54.9 million for the periods ended September 30, 2001 and 2000, respectively, for the Company's U.S. services business and $39.9 million and $38.0 million, respectively, for the Company's International services business. 16 INFORMATION RESOURCES, INC. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS, CONT'D. On May 1, 2001, Wal-Mart Stores, Inc. announced its decision, effective as of the beginning of August, 2001, to discontinue providing point-of-sale and related data for its U.S. business to all third party data providers, including the Company and ACNielsen Corporation. The Company has been focusing its efforts on creating an alternative data solution for its customers that will replace Wal-Mart sample-based point of sale scanner data with the Company's consumer panel data. Although this panel solution has only recently been made available to the marketplace, management believes that it will be a reasonable substitute for the Wal-Mart scanner data. If, however, the marketplace does not view the Company's Wal-Mart panel solution as a reasonable substitute for Wal-Mart scanner data, the Company's revenues and results of operations could be adversely impacted. Consolidated capital expenditures were $14.6 million and $13.3 million for the nine months ended September 30, 2001 and 2000, respectively. Capital expenditures for the Company's U.S. services business were $11.3 million and $9.3 million, while depreciation expense was $18.4 million and $18.8 million for the nine months ended September 30, 2001 and 2000, respectively. The increase in U.S. capital expenditures is primarily due to the purchase of equipment used in connection with the panel business. The Company's International capital expenditures were $3.3 million and $4.0 million for the nine months ended September 30, 2001 and 2000, respectively, while depreciation expense was $3.3 million and $3.4 million for the nine months ended September 30, 2001 and 2000, respectively. Consolidated capitalized software development costs, primarily in the U.S., were $1.8 million for the first three quarters of 2001 and $1.5 million for the corresponding period in 2000. Software and Related Products On May 31, 2001, the Company entered into a new agreement with Oracle Corporation pursuant to which the Company was granted the right to continue to acquire new licenses to current versions of Oracle software products on favorable licensing and maintenance terms. The Company's right to use such licenses includes the right to allow its clients to use such licenses to access Company data. Impact of Inflation Inflation has slowed in recent years, however the Company's results of operations are impacted by rising prices given the labor intensive nature of the business. 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 increases provided for in such agreements. 17 INFORMATION RESOURCES, INC. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS, CONT'D. RESTRUCTURING AND OTHER CHARGES The Company began the Project Delta initiative in the fourth quarter of 1999 and completed the project during the third quarter of 2001, with the exception of the transition of German production to the U.S. facility. Costs associated with Project Delta continued to be incurred through the end of the third quarter of 2001. Certain restructuring and other costs were not eligible for accrual in 2000 and were recorded during 2001. For the quarter and nine months ended September 30, 2001 and 2000, the Restructuring and Other Charges included in the Statement of Operations consist of the following (in thousands):
THREE MONTHS NINE MONTHS ENDED ENDED SEPTEMBER 30, SEPTEMBER 30, ------------- ------------- 2001 2000 2001 2000 ---- ---- ---- ---- RESTRUCTURING CHARGES Termination benefits $ 1,341 $ 730 $ 1,362 $ 3,406 Disposition of excess office space 7 (231) 24 519 Transition of German production to U.S. facility 2,067 980 6,070 3,179 Discontinued activities (17) 1,603 2,025 1,603 Other costs of project 811 75 2,927 996 OTHER CHARGES -- -- -- (907) -------- -------- -------- -------- $ 4,209 $ 3,157 $ 12,408 $ 8,796 ======== ======== ======== ========
The following table reflects restructuring and other charges accrued prior to 2001 and expenses incurred and cash payments made during the first nine months of 2001 (in thousands):
2001 ACTIVITY -------------------------------------------------------------------------------- LIABILITY AT LIABILITY AT DECEMBER 31, 2000 PROVISION CASH NON-CASH SEPTEMBER 30, 2001 ----------------- --------- ---- -------- ------------------ Termination benefits $ 2,029 $ 1,362 $ (2,292) $ -- $ 1,099 Disposition of excess office space -- 24 (24) -- -- Transition of German production to U.S. facility -- 6,070 (5,616) -- 454 Discontinued activities 541 2,025 (135) (2,025) 406 Other costs of project -- 2,927 (2,927) -- -- ------- ------- -------- ------- ------- $ 2,570 $12,408 $(10,994) $(2,025) $ 1,959 ======= ======= ======== ======= =======
18 INFORMATION RESOURCES, INC. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS, CONT'D. Termination Benefits: As of September 30, 2001, 394 employees have been terminated under various Project Delta initiatives. The accrual balance remaining as of September 30, 2001 represents the unpaid severance costs associated with employees terminated through the third quarter of 2001. Disposition of Excess Office Space: The Company recorded $.02 million of charges relating to lease buyouts in the first nine months of 2001 relating to office space not currently utilized. Transition of German Production to U.S. Facility: The Company made a decision in the fourth quarter of 1999 to transfer production services for IRI/GfK Retail Services GmbH from an external vendor in Germany to the Company's U.S. data processing facility in order to enhance its InfoScan offering in Germany and to reduce future production costs. In the first three quarters of 2001, charges of approximately $6.1 million were recorded related to this transition. Discontinued Activities: During 2000, it was determined that certain equipment used in the Company's U.S. operations to collect retail information would no longer be utilized after the second quarter of 2001. Accordingly, the Company recognized a non-cash charge of $2.0 million in the first half of 2001 relating to accelerated depreciation on this equipment. Other Restructuring Costs: Other restructuring costs in the first three quarters of 2001 relate primarily to the fees paid to a third party for assistance in the identification of process improvements and efficiencies within the U.S. operations. Future Restructuring Charges: The Company's Project Delta cost reduction program has been completed, with the exception of the transition of German production to the U.S. data processing facility. The Company expects to incur substantially all of the remaining charges in the fourth quarter of 2001 relating to the German transition. Additionally, the Company has begun a review of its information technology operations to assess potential restructuring costs and benefits. The first phase of this review is expected to last six months beginning in the fourth quarter of 2001, and will include initial assessments of database design, transition planning and cost and savings estimates. Management estimates charges for the first phase will be approximately $3 million in the fourth quarter of 2001 with additional charges of $4 million - $6 million in the first quarter of 2002. RECENT ACCOUNTING PRONOUNCEMENTS In June 2001, the Financial Accounting Standards Board issued Statements of Financial Accounting Standards No. 141, Business Combinations, and No. 142, Goodwill and Other Intangible Assets, effective for fiscal years beginning after December 15, 2001. Under the new rules, goodwill and intangible assets deemed to have indefinite lives will no longer be amortized but will be subject to annual impairment tests in accordance with the Statements. Other intangible assets will continue to be amortized over their useful lives. 19 INFORMATION RESOURCES, INC. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS, CONT'D. The Company will apply the new rules on accounting for goodwill and other intangible assets beginning in the first quarter of 2002. Application of the nonamortization provisions of FAS 142 is expected to result in an increase in net income of approximately $900 thousand ($.02 per share) per year. During 2002, the Company will perform the first of the required impairment tests of goodwill as of January 1, 2002 and has not yet determined what the effect of these tests will be on the earnings and financial position of the Company. 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. The Euro will replace the sovereign currencies ("legacy currencies") of eleven members of the European Union ("participating countries"). On January 1, 1999, fixed conversion rates between the Euro and the legacy currencies in those particular countries were established. As the Company has operations in several of the participating countries, it will be affected by issues relating to the introduction of and transition to the Euro. The Company's European Executive Committee is charged with formulating and executing all aspects of the Company's plan concerning the conversion to the Euro. The Company has not incurred any material costs for system modifications and does not anticipate any material increase in transaction costs. The Company continues to evaluate the impact of the Euro, however, based on currently available information, management does not believe the introduction of the Euro will have a material adverse impact on the Company's financial condition or overall trends in results of operations. FORWARD LOOKING INFORMATION Certain matters discussed in this Quarterly Report on Form 10-Q are forward-looking statements that are subject to risks and uncertainties that could cause actual results to differ materially from those anticipated. These risks and uncertainties are described in reports and other documents filed by the Company with the Securities and Exchange Commission including the Company's Annual Report on Form 10-K for the year 2000. 20 INFORMATION RESOURCES, INC. AND SUBSIDIARIES PART II OTHER INFORMATION ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K a. Exhibits
Exhibit No. Description of Exhibit ----------- ---------------------- 10.1 Fourth Amendment to Credit Agreement dated October 16, 2001 10.2 Amended and Restated Security Agreement dated October 16, 2001
b. Reports on Form 8-K. None. 21 INFORMATION RESOURCES, INC. AND SUBSIDIARIES SIGNATURES Pursuant to the requirements 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. INFORMATION RESOURCES, INC. --------------------------- (Registrant) /s/Andrew G. Balbirer ----------------------------------- Andrew G. Balbirer Executive Vice President and Chief Financial Officer (Authorized Officer of Registrant) /s/Mary K. Sinclair ----------------------------------- Mary K. Sinclair Controller (Principal Accounting Officer) November 13, 2001 22 EX-10.1 3 c66018ex10-1.txt 4TH AMENDMENT TO CREDIT AGREEMENT DATED 10/16/01 Exhibit 10.1 INFORMATION RESOURCES, INC. FOURTH AMENDMENT TO CREDIT AGREEMENT This Fourth Amendment to Credit Agreement (herein, the "Amendment") is entered into as of October 16, 2001, 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, as amended prior to the date hereof, being referred to herein as 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 and the Required Banks have agreed to (i) amend the definition of Consolidated Cash Flow, (ii) amend the definition of EBITDA, (iii) increase the amount of the L/C Commitment (but without any increase in the overall Revolving Credit Commitment), (iv) eliminate the Bid Loan facility, (v) provide for the grant by the Borrower to the Banks of a security interest in the Borrower's Property (other than any real property), (vi) establish a borrowing base comprised of accounts receivable which will limit the credit available to the Borrower under the Credit Agreement and (vii) make certain other amendments to the Credit Agreement, all 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. AMENDMENTS. 1.1. Each of Sections 1.6, 1.7, 1.8, 1.9, 1.10, 1.11, 1.12, 1.15(b), 1.17(b) of the Credit Agreement shall be amended and restated to read in its entirety as follows: Section 1.6. [Intentionally Deleted.] Section 1.7. [Intentionally Deleted.] Section 1.8. [Intentionally Deleted.] Section 1.9. [Intentionally Deleted.] Section 1.10. [Intentionally Deleted.] Section 1.11. [Intentionally Deleted.] Section 1.12. [Intentionally Deleted.] Section 1.15. (b) [Intentionally Deleted.] Section 1.17. (b) [Intentionally Deleted.] 1.2. The first sentence of Section 1.20(b) of the Credit Agreement shall be amended and restated to read in its entirety as follows: (b) Security Effective Date. At the request of the Borrower, the Banks have agreed that the provisions of the Security Agreement shall not become effective, and the Agent and the Banks agree not to perfect the liens or security interests created or provided for by the Security Agreement by filing financing statements or taking any other actions to perfect such security interests or liens, until October 16, 2001 (the "Security Effective Date"). 1.3. Section 4.1 of the Credit Agreement shall be amended by deleting therefrom the following defined terms, along with their corresponding definitions: "Bid", "Bid Loan", "Bid Loan Request", "Bid Loan Request Confirmation", "Bid Note" and "Confirmation of Bid". 1.4. All references in the Credit Agreement and the other Loan Documents to "Bid", "Bid Loan", "Bid Loan Request", "Bid Loan Request Confirmation", "Bid Note", and "Confirmation of Bid", and any related references without using such defined terms to the Bid Loans or the facility for obtaining Bid Loans shall, to the extent not deleted by the amendments to the Credit Agreement set forth in Sections 1.1 and 1.2 of this Amendment, be deemed by the parties hereto to have been deleted and shall no longer be of any force or effect, and the Bid Note shall no longer be of any force or effect. 1.5. Section 4.1 of the Credit Agreement shall be amended by amending the following definitions set forth therein to read in their entirety as follows: "Borrowing Base" means, as of any time it is to be determined, an amount equal to the sum of (a) 85% of the then outstanding unpaid net amount (after deduction of the Dilution Reserve) of Eligible Accounts, plus (b) $20,000,000; provided that the Borrowing Base shall be computed only as against and on so much of the Collateral as is included on the certificates to be furnished from time to time by the Borrower pursuant to Section 7.5(e) hereof and, if required by the Agent or the Required Banks pursuant to any of the terms hereof or any Collateral Document, as verified by such other evidence required to be furnished to the Agent or the Banks pursuant hereto or pursuant to any such Collateral Document. "Consolidated Cash Flow" means, with reference to any period, (1) the sum of (a) Consolidated Net Income for such period plus all amounts deducted in arriving at such Consolidated Net Income amount (but without duplication) in respect of -2- (i) Consolidated Interest Expense for such period, plus (ii) federal, state and local income taxes for such period, plus (iii) all amounts properly charged for depreciation of fixed assets and amortization of intangible assets during such period on the books of the Borrowers and its Consolidated Subsidiaries, plus (iv) all amounts properly charged for amortization of the InfoScan Costs and Software Costs during such period on the books of the Borrower and its Subsidiaries, (b) 100% of the net proceeds received by the Borrower from any new offering of equity securities of the Borrower received at any time during such period, (c) 100% of the net proceeds received by the Borrower from the issuance of any Subordinated Debt of the Borrower received at any time during such period, and (d) for the fiscal quarter ended June 30, 2001 only, 100% of the net cash proceeds (up to a maximum of $8,500,000) received in such period as a result of the termination of the Nabisco Contract, minus (2) for any period after June 30, 2001, all non-cash earnings associated with the Nabisco Contract which are included in Consolidated Net Income for such period. "Dilution Reserve" means an amount, established at the time of any calculation of the Borrowing Base for the purposes of such calculation, equal to 5% of the aggregate gross account receivable balance (before deduction for ineligible accounts) shown on the Borrower's balance sheet as of the close of its most recent fiscal month for which a balance sheet is available. "EBITDA" means, with reference to any period, (1) the sum of (a) Consolidated Net Income for such period plus all amounts deducted in arriving at such Consolidated Net Income amount (but without duplication) in respect of (i) Consolidated Interest Expense for such period, plus (ii) federal, state and local income taxes for such period, plus (iii) all amounts properly charged for depreciation of fixed assets and amortization of intangible assets during such period on the books of the Borrower and its Consolidated Subsidiaries, plus (iv) all amounts properly charged for amortization of the InfoScan Costs and Software Costs during such period on the books of the Borrower and its Subsidiaries, and (b) for the fiscal quarter ended June 30, 2001 only, 100% of the net cash proceeds (up to a maximum of $8,500,000) received in such period as a result of the termination of the Nabisco Contract, minus (2) for any period after June 30, 2001, all non-cash earnings associated with the Nabisco Contract which are included in Consolidated Net Income for such period. "Eligible Account" means each account receivable of the Borrower that: -3- (a) arises out of the sale by the Borrower of finished goods inventory delivered to and accepted by, or out of the rendition of services fully performed by the Borrower and accepted by, the account debtor on such account receivable, and such account receivable otherwise represents a final sale; (b) the account debtor on such account receivable is located within the United States of America or, if such right has arisen out of the sale of such goods shipped to an account debtor located in any other country, such right is secured by a valid and irrevocable letter of credit or insured by foreign credit insurance pursuant to which any of the Borrower or its transferee may draw on a lender or insurer reasonably acceptable to the Agent for the full amount thereof; (c) is the valid, binding and legally enforceable obligation of the account debtor obligated thereon and such account debtor is not (i) a Subsidiary or an Affiliate of the Borrower, (ii) a shareholder, director, officer or employee of the Borrower or any Subsidiary, (iii) the United States of America, or any state or political subdivision thereof, or any department, agency or instrumentality of any of the foregoing unless the Borrower has complied with the Assignment of Claims Act or any similar state or local statute, as the case may be, to the satisfaction of the Agent, (iv) a debtor under any proceeding under the United States Bankruptcy Code, as amended, or any other comparable bankruptcy or insolvency law, or (v) an assignor for the benefit of creditors; (d) is not evidenced by an instrument or chattel paper unless the same has been endorsed and delivered to the Agent; (e) is an asset of the Borrower to which it has good and marketable title, is freely assignable, is subject to a perfected, first priority Lien in favor of the Agent for the benefit of the Banks, and is free and clear of any other Lien other than Liens permitted by Section 7.11(a) and (b) hereof; (f) is net of any credit or allowance given by the Borrower to such account debtor; (g) is not owing from an account debtor who is also creditor or supplier of the Borrower, is not subject to any offset, counterclaim or other defense with respect thereto and, with respect to said account receivable or the contract or purchase order -4- out of which the same arose, no surety bond was required or given in connection therewith; (h) is not unpaid more than 120 days (or in the case of items issued under letters of credit or with the support of foreign credit insurance as described in clause (b) of this definition, 180 days) after the original invoice date (which must be not more than 5 days subsequent to the shipment date or the date services were fully performed by the Borrower); (i) is not owed by an account debtor who is obligated on accounts receivable owed to the Borrower more than 25% of the aggregate unpaid balance of which have been past due for longer than the relevant period specified in subsection (h) above unless the Agent has approved the continued eligibility thereof; (j) would not cause the total accounts receivable owing from any one account debtor and its Affiliates to exceed 10% of all Eligible Accounts; and (k) does not arise from a sale to an account debtor on a bill-and-hold, guaranteed sale, sale-or-return, sale-on-approval, consignment or any other repurchase or return basis. "Security Agreement" means the Security Agreement dated as of October 18, 2000, from the Borrower to the Agent, as the same may from time to time be modified, amended or restated, including without limitation pursuant to the Amended and Restated Security Agreement dated as of October 16, 2001 from the Borrower to the Agent. "L/C Commitment" means $3,710,402. 1.6. Section 4.1 of the Credit Agreement shall be amended by adding the following new definition, in its appropriate place in the alphabetical sequence: "Nabisco Contract" means that certain contract to provide data collection and analytic services between the Borrower and Nabisco Company dated October 25, 1999. 1.7. Section 7.5(a) of the Credit Agreement shall be amended by adding the words "and consolidating" following each usage of the word "consolidated" in such Section. 1.8. Section 7.5(b) of the Credit Agreement shall be amended by (a) adding the words "and consolidating" following the two usages of the word "consolidated" in the second and fourth lines of such Section, and (b) adding the parenthetical phrase "(except for consolidating -5- financial statements, which need not be certified by such accountants)" following the words "financial statements" in the tenth line of such Section. 1.9. Section 7.5(e) of the Credit Agreement shall be amended and restated to read in its entirety as follows: (e) as soon as available, and in any event no later than the last Business Day of every month (commencing on October 31, 2001), a Borrowing Base certificate in the form attached hereto as Schedule 7.5(e) showing the computation of the Borrowing Base in reasonable detail as of the close of business on the fifth day of such month (or the first Business Day thereafter), prepared by the Borrower and certified to by its chief financial officer. 1.10. Schedule 7.5(e) to the Credit Agreement shall be amended and restated to read in its entirety as set forth in Annex A hereto. SECTION 2. CONDITIONS PRECEDENT. The effectiveness of this Amendment is subject to the satisfaction of all of the following conditions precedent: 2.1. The Borrower and the Required Banks shall have executed and delivered this Amendment. 2.2. 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. 2.3. Legal matters incident to the execution and delivery of this Amendment and the Security Agreement shall be satisfactory to the Agent and its counsel. 2.4. The Agent shall have received, for the benefit of the Banks executing this Amendment on or before October 16, 2001, an amendment fee equal to $45,000, to be distributed to such Banks based on their ratable share of the Revolving Credit Commitments. SECTION 3. CONDITION SUBSEQUENT. The continued effectiveness of this Amendment on and after October 31, 2001 is subject to the satisfaction of the following condition subsequent: 3.1. The Borrower shall, on or before October 31, 2001, have executed and delivered to the Agent a security agreement, in form and substance satisfactory to the Agent, and such UCC financing statements and other security documents required by the Agent as are sufficient to -6- grant the Agent, on behalf of the Banks, a first priority perfected security interest in all Property of the Borrower (other than real property). 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, (a) 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), (b) 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, and (c) no Bid Loans are outstanding and no requests therefor are pending. 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] -7- This Fourth 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 BANK NATIONAL ASSOCIATION By Name________________________________ Title_______________________________ THE BANK OF NEW YORK By Name________________________________ Title_______________________________ -8- ANNEX A TO FOURTH AMENDMENT TO CREDIT AGREEMENT SCHEDULE 7.5(E) BORROWING BASE CERTIFICATE To: Harris Trust and Savings Bank, as Agent under, and the Banks party to, the Credit Agreement described below. Pursuant to the terms of the Credit Agreement dated as of October 31, 1997 among us as amended from time to time (the "Credit Agreement"), we submit this Borrowing Base Certificate to you and certify that the information set forth below and on any attachments to this Certificate is true, correct and complete as of the date of this Certificate. A. ACCOUNTS IN BORROWING BASE 1. Gross Accounts __________________ Less (a) Amounts due from affiliates __________________ (b) Ineligible sales (i.e. not within the __________________ U.S. or not supported by an eligible letter of credit) (c) Owed by an account debtor who is a __________________ Subsidiary or an Affiliate (d) Other non-trade receivables __________________ (e) Owed by an account debtor who is in an __________________ insolvency or reorganization proceeding (f) Government items __________________ (g) Credits/allowances/retainage __________________ (h) Unpaid more than 120 days past invoice __________________ date (i) Items issued under letters of credit or __________________ with foreign credit insurance unpaid more than 180 days past invoice date (j) 25% taint factor items __________________
(k) Ineligible because of 10% concentration __________________ factor (l) Contra items __________________ (m) Advance billings/cash in advance __________________ invoices (n) Unbilled AR __________________ (o) Dilution Reserve __________________ (5% of line 1) (p) Otherwise ineligible __________________ 2. Total Deductions (sum of lines A1a - A1p) __________________ 3. Eligible Accounts (line A1 minus line A2) __________________ 4. Accounts in Borrowing Base __________________ (line A3 x .85) 5. Plus $20,000,000 base amount $20,000,000 6. Sum of Line 4 and Line 5 __________________ B. REVOLVING CREDIT ADVANCES 1. Committed Loans __________________ 2. Swing Loans __________________ 3. L/C Obligations __________________ 4. Total Revolving Credit Advances (sum of __________________ lines B1 - B3) C. UNUSED AVAILABILITY (line A6 minus line B4) __________________
Dated as of this ___________ day of __________________, 20____. INFORMATION RESOURCES, INC. By Name_____________________________________ Title____________________________________ -2- EX-10.2 4 c66018ex10-2.txt AMENDED & RESTATED SECURITY AGREEMENT DTD 10/16/01 Exhibit 10.2 INFORMATION RESOURCES, INC. AMENDED AND RESTATED SECURITY AGREEMENT This Amended and Restated Security Agreement (the "Agreement") is dated as of October 16, 2001, between Information Resources, Inc. a Delaware corporation, with its mailing address at 150 N. Clinton Street, Chicago, Illinois 60606 (the "Company"), and Harris Trust and Savings Bank, an Illinois banking corporation ("Harris Bank"), with its mailing address at 111 West Monroe Street, Chicago, Illinois 60603 acting as agent hereunder for the Lenders hereinafter identified and defined (said Harris Bank acting as such agent and any successor or successors to said Harris Bank acting in such capacity being hereinafter referred to as the "Agent"); PRELIMINARY STATEMENT: A. The Company, Harris Bank individually and as agent, certain other financial institutions have entered into a Credit Agreement dated as October 31, 1997, as amended and currently in effect (such Credit Agreement, as so amended, as the same may be further amended, modified or restated from time to time being hereinafter referred to as the "Credit Agreement"), pursuant to which such lenders (those lenders which are now or which from time to time hereafter become party to the Credit Agreement being hereinafter referred to collectively as the "Lenders" and individually as a "Lender") have agreed, subject to certain terms and conditions, to extend a revolving credit facility to the Company; B. The Company may from time to time enter into one or more interest rate exchange, cap, collar, floor or other agreements with one or more of the Lenders party to the Credit Agreement or their affiliates for the purpose of hedging or otherwise protecting the Company against changes in interest rates on the Notes (the liability of the Company in respect of such agreements with such Lenders or their affiliates being hereinafter referred to as the "Hedging Liability"); and C. Indebtedness, obligations, and liabilities of the Company under the Credit Agreement, and the related notes and collateral documents, together with the Hedging Liability, are currently secured by that certain Security Agreement dated as of October 18, 2000, between the Company and Harris Bank, and the personal property of the Company described therein (the "Prior Security Agreement"). D. Effective July 1, 2001, certain states and other jurisdictions adopted revisions to Article 9 of the Uniform Commercial Code (the "Revised UCC"). The Revised UCC, among other things, expands the scope of personal property and transactions covered by such law. E. The Company and the Agent, on behalf of the Lenders, agree to supplement the Security Agreement by including as part of the Collateral certain additional personal property and transactions now covered by the Revised UCC and conforming certain terms used herein to those used in the Revised UCC, all as described herein. F. As a condition to extending credit or otherwise making financial accommodations available to or for the account of the Company (whether under the Credit Agreement or otherwise), the Lenders require, among other things, that the Company grant the Agent, on behalf of the Lenders, a security interest in the Company's personal property described herein subject to the terms and conditions hereof and, in connection therewith, that the Prior Security Agreement be amended and restated in its entirety to read as set forth in this Agreement (this Agreement and the various other instruments and documents entered into in connection herewith being hereinafter referred to as the "Collateral Documents"). NOW, THEREFORE, for and in consideration of the execution and delivery by the Lenders of the Third Amendment to Credit Agreement dated as of even date herewith, and other good and valuable consideration, receipt whereof is hereby acknowledged, the parties hereto hereby agree as follows: Section 1. Grant of Security Interest in the Collateral; Obligations Secured. (a) The Company hereby grants to the Agent for the benefit of the Lenders (and, in the case of Hedging Liability, their affiliates) a security interest in and right of set-off against, and acknowledges and agrees that the Agent has and shall continue to have for the benefit of the Lenders (and, in the case of Hedging Liability, their affiliates) a continuing security interest in and right of set-off against, any and all right, title and interest, whether now owned or existing or hereafter created, acquired or arising, in and to all personal property of the Company including all of the following: (i) Accounts (including Health-Care-Insurance Receivables, if any); (ii) Chattel Paper; (iii) Instruments (including Promissory Notes); (iv) Documents; (v) General Intangibles (including Payment Intangibles and Software); (vi) Letter-of-Credit Rights; (vii) Supporting Obligations; (viii) Deposit Accounts; (ix) Investment Property (including certificated and uncertificated Securities, Securities Accounts, Security Entitlements, Commodity Accounts, and Commodity Contracts); (x) Inventory; -2- (xi) Equipment (including all software, whether or not the same constitutes embedded software, used in the operation thereof); (xii) Fixtures; (xiii) All rights to merchandise and other Goods (including rights to returned or repossessed Goods and rights of stoppage in transit) which is represented by, arises from, or relates to any of the foregoing; (xiv) All personal property and interests in personal property of the Company of any kind or description now held by the Lenders or at any time hereafter transferred or delivered to, or coming into the possession, custody or control of, the Lenders, or any agent or affiliate of the Lenders, whether expressly as collateral security or for any other purpose (whether for safekeeping, custody, collection or otherwise), and all dividends and distributions on or other rights in connection with any such property; (xv) All supporting evidence and documents relating to any of the above-described property, including, without limitation, computer programs, disks, tapes and related electronic data processing media, and all rights of the Company to retrieve the same from third parties, written applications, credit information, account cards, payment records, correspondence, delivery and installation certificates, invoice copies, delivery receipts, notes and other evidences of indebtedness, insurance certificates and the like, together with all books of account, ledgers and cabinets in which the same are reflected or maintained; (xvi) All Accessions and additions to, and substitutions and replacements of, any and all of the foregoing; and (xvii) All Proceeds and products of the foregoing, and all insurance of the foregoing and proceeds thereof; all of the foregoing being herein sometimes referred to as the "Collateral". All terms which are used in this Agreement which are defined in the Uniform Commercial Code of the State of Illinois as in effect from time to time ("UCC") shall have the same meanings herein as such terms are defined in the UCC, unless this Agreement shall otherwise specifically provide. For purposes of this Agreement, the term "Receivables" means all rights to the payment of a monetary obligation, whether or not earned by performance, and whether evidenced by an Account, Chattel Paper, Instrument, General Intangible, or otherwise. (b) This Agreement is made and given to secure, and shall secure, the payment and performance of (i) any and all indebtedness, obligations and liabilities of the Company under or in connection with or evidenced by (w) the Credit Agreement or (x) the Notes of the Company heretofore or hereafter issued under the Credit Agreement and the obligations of the Company to reimburse the Agent for the amount of all drawings on all Letters of Credit issued for the account of the Company pursuant to the Credit Agreement, and all other obligations of the Company under any and all Applications for such Letters of Credit or (y) any of the Collateral Documents -3- or (z) agreements with any one or more of the Lenders or their affiliates with respect to Hedging Liability, in each case whether now existing or hereafter arising (and whether arising before or after the filing of a petition in bankruptcy), due or to become due, direct or indirect, absolute or contingent, and howsoever evidenced, held or acquired and (ii) any and all expenses and charges, legal or otherwise, suffered or incurred by the Agent and the Lenders in collecting or enforcing any of such indebtedness, obligations and liabilities or in realizing on or protecting or preserving any security therefor, including, without limitation, the lien and security interest granted hereby (all of the indebtedness, obligations, liabilities, expenses and charges described in clauses (i) and (ii) above being hereinafter referred to as the "Obligations"). Section 2. Terms Defined in Credit Agreement. All capitalized terms used herein without definition shall have the same meanings herein as such terms have in the Credit Agreement. Section 3. Covenants, Agreements, Representations and Warranties. The Company hereby covenants and agrees with, and represents and warrants to, the Agent and the Lenders that: (a) The Company is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware. The Company shall not change its state of organization without the Agent's prior written consent. The Company is the sole and lawful owner of the Collateral and has full right, power and authority to enter into this Agreement and to perform each and all of the matters and things herein provided for; and the execution and delivery of this Agreement, and the observance and performance of any of the matters and things herein set forth, will not contravene or constitute a default under any provision of law or any judgment, injunction, order or decree binding upon the Company or any provision of the Company's charter, articles of incorporation or by-laws or of any covenant, indenture or agreement of or affecting the Company or any of its properties, or result in the creation or imposition of any lien or encumbrance on any property of the Company. The Company's organizational registration number is DE-0938231. (b) The Collateral is and will remain in the Company's possession or control at the locations listed under Item 1 on Schedule A attached hereto (collectively, the "Permitted Collateral Locations"), except for Collateral which in the ordinary course of the Company's business is in transit between the Permitted Collateral Locations. If for any reason Collateral is at any time kept or located at locations other than the Permitted Collateral Locations, the Agent shall nevertheless have and retain a security interest therein. The Company owns and will at all times own all Permitted Collateral Locations, except to the extent otherwise indicated on Schedule A. The Company's chief executive office and principal place of business is at, and the Company keeps and shall keep all of its books and records relating to Receivables only at, 150 North Clinton Street, Chicago, Illinois 60606 and the Company has no other executive offices or places of business other than those listed under Item 2 on Schedule A. The Company will not maintain an executive office or place of business at a location other than those specified pursuant to the immediately preceding sentence without first providing the Agent 30 days' prior -4- written notice of the Company's intent to do so; provided, however, that the Company will at all times maintain its chief executive office in the contiguous continental United States of America. (c) The Collateral and every part thereof is and will be free and clear of all security interests, liens (including, without limitation, mechanics', laborers' and statutory liens), attachments, levies and encumbrances of every kind, nature and description and whether voluntary or involuntary, except for the security interest of the Agent therein and as otherwise permitted by Section 7.11 of the Credit Agreement. The Company will warrant and defend the Collateral against any claims and demands of all persons or entities at any time claiming the same or any interest in the Collateral adverse to the Agent or any Lender. (d) The Company will promptly pay when due all taxes, assessments and governmental charges and levies upon or against the Company or the Collateral, in each case before the same become delinquent and before penalties accrue thereon, unless and to the extent that the same are being contested in good faith by appropriate proceedings which prevent foreclosure on or other realization upon any Collateral and preclude interference with the operation of the Company's business in the ordinary course and the Company shall have established adequate reserves therefor. (e) The Company will not waste or destroy the Collateral or any part thereof and will not be negligent in the care or use of any Collateral. The Company will not use, manufacture, sell or distribute any Collateral in violation of any statute, ordinance or other governmental requirement. The Company will perform in all material respects its obligations under any contract or other agreement constituting part of the Collateral, it being understood and agreed that the Agent and the Lenders have no responsibility to perform such obligations. (f) Subject to Sections 4(b), 5(a), 6(b) and 6(c) hereof, the Company will not, without the Agent's prior written consent, sell, assign, mortgage, lease or otherwise dispose of the Collateral or any interest therein. (g) The Company will insure the Collateral which is insurable against such risks and hazards as other companies similarly situated insure against, and including in any event loss or damage by fire, theft, burglary, pilferage, loss in transit and such other hazards as the Agent may reasonably specify, in amounts and under policies containing loss payable clauses to the Agent as its interest may appear (and, if the Agent requests, naming the Agent and the Lenders as additional insureds therein) by insurers reasonably acceptable to the Agent. All premiums on such insurance shall be paid by the Company and the policies of such insurance (or certificates therefor) delivered to the Agent. All insurance required hereby shall provide that any loss shall be payable notwithstanding any act or negligence of the Company, shall provide that no cancellation thereof shall be effective until at least thirty (30) days after receipt by the Company and the Agent of written notice thereof, and shall be satisfactory to the Agent in all other respects. In case of any material loss, damage to or destruction of the Collateral or any part thereof, the -5- Company shall promptly give written notice thereof to the Agent and the Lenders generally describing the nature and extent of such damage or destruction. In case of any loss, damage to or destruction of the Collateral or any part thereof, the Company, whether or not the insurance proceeds, if any, received on account of such damage or destruction shall be sufficient for that purpose, at the Company's cost and expense, will promptly repair or replace the Collateral so lost, damaged or destroyed, except to the extent (i) such Collateral, prior to its loss, damage or destruction, had become uneconomical, obsolete or worn out or (ii) such Collateral is not necessary for or of importance to the proper conduct of the Company's business in the ordinary course and such Collateral and all other Collateral lost, damaged or destroyed during the immediately preceding 12 calendar months had an aggregate fair market value, prior to its loss, damage or destruction, of less than $1,000,000. In the event the Company shall receive any proceeds of such insurance, the Company will immediately pay over such proceeds to the Agent. The Company hereby authorizes the Agent, at the Agent's option, to adjust, compromise and settle any losses under any insurance afforded at any time after the occurrence and during the continuation of any Default or Event of Default, and the Company does hereby irrevocably constitute the Agent, its officers, agents and attorneys, as the Company's attorneys-in-fact, with full power and authority to effect such adjustment, compromise and/or settlement and to endorse any drafts drawn by an insurer of the Collateral or any part thereof and to do everything necessary to carry out such purposes and to receive and receipt for any unearned premiums due under policies of such insurance. Unless the Agent elects to adjust, compromise or settle losses as aforesaid, any adjustment, compromise and/or settlement of any losses under any insurance shall be made by the Company subject to final approval of the Agent in the case of losses exceeding $1,000,000. Net insurance proceeds received by the Agent under the provisions hereof or under any policy or policies of insurance covering the Collateral or any part thereof shall be applied to the reduction of the Obligations (whether or not then due); provided, however, that the Agent agrees to release such insurance proceeds to the Company for replacement or restoration of the portion of the Collateral lost, damaged or destroyed required by this Agreement to be so replaced or restored if, but only if, (i) at the time of release no Default or Event of Default exists hereunder, (ii) written application for such release is received from the Company within 30 days of receipt of such proceeds and (iii) the Agent has received evidence reasonably satisfactory to it that the Collateral lost, damaged or destroyed has been or will be replaced or restored to its condition immediately prior to the loss, destruction or other event giving rise to the payment of such insurance proceeds. All insurance proceeds shall be subject to the lien and security interest of the Agent hereunder. UNLESS THE COMPANY PROVIDES THE AGENT WITH EVIDENCE OF THE INSURANCE COVERAGE REQUIRED BY THIS AGREEMENT, THE AGENT MAY PURCHASE INSURANCE AT THE COMPANY'S EXPENSE TO PROTECT THE AGENT'S INTERESTS IN THE COLLATERAL. THIS INSURANCE MAY, BUT NEED NOT, PROTECT THE COMPANY'S INTERESTS IN THE COLLATERAL. THE COVERAGE PURCHASED BY THE AGENT MAY NOT PAY ANY CLAIMS THAT THE COMPANY MAKES OR ANY CLAIM THAT IS MADE AGAINST THE COMPANY IN CONNECTION WITH THE COLLATERAL. THE COMPANY MAY LATER CANCEL ANY SUCH INSURANCE PURCHASED BY THE AGENT, BUT ONLY AFTER -6- PROVIDING THE AGENT WITH EVIDENCE THAT THE COMPANY HAS OBTAINED INSURANCE AS REQUIRED BY THIS AGREEMENT. IF THE AGENT PURCHASES INSURANCE FOR THE COLLATERAL, THE COMPANY WILL BE RESPONSIBLE FOR THE COSTS OF THAT INSURANCE, INCLUDING INTEREST AND ANY OTHER CHARGES THAT THE AGENT MAY IMPOSE IN CONNECTION WITH THE PLACEMENT OF THE INSURANCE, UNTIL THE EFFECTIVE DATE OF THE CANCELLATION OR EXPIRATION OF THE INSURANCE. THE COSTS OF THE INSURANCE MAY BE ADDED TO THE OBLIGATIONS SECURED HEREBY. THE COSTS OF THE INSURANCE MAY BE MORE THAN THE COST OF INSURANCE THE COMPANY MAY BE ABLE TO OBTAIN ON ITS OWN. (h) The Company will at all times allow the Agent, any Lender and their respective representatives free access to and right of inspection of the Collateral, provided that prior to the occurrence of any Default or Event of Default hereunder any such access or inspection shall only be required during the Company's normal business hours. (i) If any Collateral is in the possession or control of any of the Company's agents or processors and the Agent so requests, the Company agrees to notify such agents or processors in writing of the Agent's security interest therein and instruct them to hold all such Collateral for the Agent's account and subject to the Agent's instructions. The Company will, upon request of the Agent, authorize and instruct all bailees and any other parties, if any, at any time processing, labeling, packaging, holding, storing, shipping or transferring all or any part of the Collateral to permit the Agent, any Lender and their respective representatives to examine and inspect any of the Collateral then in such party's possession and to verify from such party's own books and records any information concerning the Collateral or any part thereof which the Agent, any Lender or their respective representatives may seek to verify. As to any premises not owned by the Company wherein any of the Collateral is located, if any, the Company shall, unless the Agent requests otherwise, cause each party having any right, title or interest in, or lien on, any of such premises to enter into an agreement (any such agreement to contain a legal description of such premises) whereby such party disclaims any right, title and interest in, and lien on, the Collateral, allowing the removal of such Collateral by the Agent or by the Lenders and otherwise in form and substance acceptable to the Agent; provided, however, that no such agreement need be obtained with respect to any one location wherein the value of the Collateral as to which such agreement has not been obtained aggregates less than $1,000,000 and the value of all Collateral as to which such agreements have not been obtained aggregates less than $2,000,000. (j) The Company agrees from time to time to deliver to the Agent and any Lender such evidence of the existence, identity and location of the Collateral and of its availability as collateral security pursuant hereto (including, without limitation, schedules describing all Receivables created or acquired by the Company, copies of customer invoices or the equivalent and original shipping or delivery receipts for all merchandise and other goods sold or leased or services rendered, together with the Company's warranty of the genuineness thereof, and reports stating the book value of Inventory and Equipment by major category and location), in each case as the Agent or such Lender may reasonably request. The Agent shall have the right to verify all or any part of the -7- Collateral in any manner, and through any medium, which the Agent or the Lenders consider appropriate, and the Company agrees to furnish all assistance and information, and perform any acts, which the Agent may reasonably require in connection therewith. The Company will promptly notify the Agent and each Lender of any Collateral which the Company has determined to have been rendered obsolete stating the prior book value of such Collateral, its type and location. (k) The Company will comply in all material respects with the terms and conditions of any and all leases, easements, right-of-way agreements and other agreements binding upon the Company or affecting the Collateral, in each case which cover the premises wherein the Collateral is located, and any orders, ordinances, laws or statutes of any city, state or other governmental entity, department or agency having jurisdiction with respect to such premises or the conduct of business thereon. (l) The Company has not invoiced Receivables or otherwise transacted business, and does not invoice Receivables or otherwise transact business, under any trade names other than the Company's name set forth in the introductory paragraph of this Agreement. The Company will not change its name or transact business under any other trade name, in each case without first giving the Agent 30 days' prior written notice of its intent to do so. (m) The Company agrees to execute and deliver to the Agent such further agreements and assignments or other instruments and documents and to do all such other things as the Agent may reasonably deem necessary or appropriate to assure the Agent its security interest hereunder, including (i) such financing statement or statements or amendments thereof or supplements thereto or other instruments and documents as the Agent may from time to time reasonably require in order to comply with the Uniform Commercial Code as enacted in the State of Illinois and any successor statute(s) thereto (the "Code") and (ii) such control agreements with respect to all Deposit Accounts, Securities Accounts, Letter-of-Credit Rights, and electronic Chattel Paper, and to use commercially reasonable efforts to cause the relevant depository institutions, financial intermediaries, and letter of credit issuers to execute and deliver such control agreements, as the Lenders may from time to time require. The Company hereby agrees that a carbon, photographic or other reproduction of this Agreement or any such financing statement is sufficient for filing as a financing statement by the Agent without notice thereof to the Company wherever the Agent in its sole discretion desires to file the same. The Company hereby authorizes the Lenders to file any and all financing statements covering the Collateral or any part thereof as the Lenders may require, including financing statements describing the Collateral as "all assets" or "all personal property" or words of like meaning. The Lenders may order lien searches from time to time against the Company and the Collateral, and the Company shall promptly reimburse the Lenders for all reasonable costs and expenses incurred in connection with such lien searches. In the event for any reason the law of any jurisdiction other than Illinois becomes or is applicable to the Collateral or any part thereof, or to any of the Obligations, the Company agrees to execute and deliver all such instruments and documents and to do all such other things as the Agent in its sole discretion deems necessary or appropriate to preserve, protect and -8- enforce the security interest of the Agent under the law of such other jurisdiction. The Company agrees to mark its books and records to reflect the security interest of the Agent in the Collateral. (n) On failure of the Company to perform any of the covenants and agreements herein contained, the Agent may at its option perform the same and in so doing may expend such sums as the Agent may reasonably deem advisable in the performance thereof, including, without limitation, the payment of any insurance premiums, the payment of any taxes, liens and encumbrances, expenditures made in defending against any adverse claims, and all other expenditures which the Agent may be compelled to make by operation of law or which the Agent may make by agreement or otherwise for the protection of the security hereof. All such sums and amounts so expended shall be repayable by the Company immediately without notice or demand, shall constitute additional Obligations secured hereunder and shall bear interest from the date said amounts are expended at the rate per annum (computed on the basis of a 360-day year for the actual number of days elapsed) determined by adding 2% to the Domestic Rate as from time to time in effect with any change in such rate per annum as so determined by reason of a change in such Domestic Rate to be effective on the date of such change in said Domestic Rate (such rate per annum as so determined being hereinafter referred to as the "Default Rate"). No such performance of any covenant or agreement by the Agent on behalf of the Company, and no such advancement or expenditure therefor, shall relieve the Company of any default under the terms of this Agreement or in any way obligate the Agent or any Lender to take any further or future action with respect thereto. The Agent in making any payment hereby authorized may do so according to any bill, statement or estimate procured from the appropriate public office or holder of the claim to be discharged without inquiry into the accuracy of such bill, statement or estimate or into the validity of any tax assessment, sale, forfeiture, tax lien or title or claim. The Agent in performing any act hereunder shall be the sole judge of whether the Company is required to perform the same under the terms of this Agreement. The Agent is hereby authorized to charge any depository or other account of the Company maintained with the Agent for the amount of such sums and amounts so expended. Section 4. Special Provisions Re: Receivables. (a) As of the time any Receivable becomes subject to the security interest provided for hereby and at all times thereafter, the Company shall be deemed to have warranted as to each and all of such Receivables that all warranties of the Company set forth in this Agreement are true and correct with respect to each such Receivable; that each Receivable and all papers and documents relating thereto are genuine and in all respects what they purport to be; that each Receivable is valid and subsisting and, if such Receivable is an Account, arises out of a bona fide sale of goods sold and delivered by the Company to, or in the process of being delivered to, or out of and for services theretofore actually rendered by the Company to, the account debtor named therein; that no such Receivable is evidenced by any Instrument or Chattel Paper unless such instrument or chattel paper has theretofore been endorsed by the Company and delivered to the Agent (except to the extent the Agent specifically requests the Company not to do so with -9- respect to any such Instrument or Chattel Paper); that no surety bond was required or given in connection with such Receivable or the contracts or purchase orders out of which the same arose; and that if said Receivable is scheduled, listed or referred to on any certificate evidencing the Borrowing Base or is otherwise a Receivable which the Company wants the Lenders to consider as an Eligible Account, that said Receivable qualifies as an Eligible Account. Without limiting the foregoing, if any Receivable which the Company desires to qualify as an Eligible Account arises out of a contract with the United States of America or any of its departments, agencies or instrumentalities, the Company agrees to notify the Agent and execute whatever instruments and documents are required by the Agent in order that such Receivable shall be assigned to the Agent and that proper notice of such assignment shall be given under the federal Assignment of Claims Act (or any successor statute). (b) Unless and until an Event of Default hereunder occurs, any merchandise or other goods which are returned by a customer or account debtor or otherwise recovered may be resold by the Company in the ordinary course of its business as presently conducted in accordance with Section 6(b) hereof; upon the occurrence and during the continuation of any Event of Default hereunder, such merchandise and other goods shall be set aside at the request of the Agent and held by the Company as trustee for the Agent and the Lenders and shall remain part of the Collateral. Unless and until an Event of Default hereunder occurs, the Company may settle and adjust disputes and claims with its customers and account debtors, handle returns and recoveries and grant discounts, credits and allowances in the ordinary course of its business as presently conducted for amounts and on terms which the Company in good faith considers advisable. Upon the occurrence and during the continuation of any Event of Default hereunder, unless the Agent requests otherwise, the Company shall notify the Agent promptly of all returns and recoveries and, on the Agent's request, deliver any such merchandise or other goods to the Agent. Upon the occurrence and during the continuation of any Event of Default hereunder, unless the Agent requests otherwise, the Company shall also notify the Agent promptly of all disputes and claims and settle or adjust them at no expense to the Agent or the Lenders hereunder, but no discount, credit or allowance other than on normal trade terms in the ordinary course of business as presently conducted shall be granted to any customer or account debtor and no returns of merchandise or other goods shall be accepted by the Company without the Agent's consent. The Agent may, at all times upon the occurrence and during the continuation of any Event of Default hereunder, settle or adjust disputes and claims directly with customers or account debtors for amounts and upon terms which the Agent considers advisable. (c) Unless delivered to the Lenders or its Agent, all tangible Chattel Paper and Instruments shall contain a legend acceptable to the Lenders indicating that such Chattel Paper or Instrument is subject to the security interest of the Lenders contemplated by this Agreement Section 5. Collection of Receivables. (a) Except as otherwise provided in this Agreement, the Company shall make collection of all Receivables and may use the same to carry on its business in accordance with sound business practice and otherwise subject to the terms hereof. -10- (b) Whether or not any Default or Event of Default has occurred hereunder and whether or not the Agent has exercised any or all of its rights under other provisions of this Section 5, in the event the Agent requests the Company to do so: (i) all Instruments and Chattel Paper at any time constituting part of the Receivables (including any postdated checks) shall, upon receipt by the Company, be immediately endorsed to and deposited with Agent; and/or (ii) the Company shall instruct all customers and account debtors to remit all payments in respect of Receivables to a lockbox or lockboxes under the sole custody and control of Agent and which are maintained at post offices selected by the Agent. (c) Upon the occurrence and during the continuation of any Default or Event of Default hereunder, whether or not the Agent has exercised any or all of its rights under other provisions of this Section 5, the Agent or its designee may notify the Company's customers and account debtors at any time that Receivables have been assigned to the Agent or of the Agent's security interest therein, and either in its own name, or the Company's name, or both, demand, collect (including, without limitation, through a lockbox analogous to that described in Section 5(b)(ii) hereof), receive, receipt for, sue for, compound and give acquittance for any or all amounts due or to become due on Receivables, and in the Agent's discretion file any claim or take any other action or proceeding which the Agent may deem reasonably necessary or appropriate to protect and realize upon the security interest of the Agent in the Receivables. (d) Any proceeds of Receivables or other Collateral transmitted to or otherwise received by the Agent pursuant to any of the provisions of Sections 5(b) or 5(c) hereof may be handled and administered by the Agent in and through a remittance account or accounts maintained at the Agent or by the Agent at a commercial bank or banks selected by the Agent (each a "Depositary Bank"), and the Company acknowledges that the maintenance of such remittance accounts by the Agent is solely for the Agent's convenience and that the Company does not have any right, title or interest in such remittance accounts or any amounts at any time standing to the credit thereof. The Agent may apply all or any part of any proceeds of Receivables or other Collateral received by it from any source to the payment of the Obligations (whether or not then due and payable), such applications to be made in such amounts, in such manner and order and at such intervals as the Agent may from time to time in its discretion determine, but not less often than once each week. The Agent need not apply or give credit for any item included in proceeds of Receivables or other Collateral until the relevant Depositary Bank has received final payment therefor at its office in cash or final solvent credits current at the site of deposit acceptable to the Agent and the relevant Depositary Bank as such. However, if the Agent does permit credit to be given for any item prior to a Depositary Bank receiving final payment therefor and such Depositary Bank fails to receive such final payment or an item is charged back to the Agent or any Depositary Bank for any reason, the Agent may at its election in either instance charge the amount of such item back against any such remittance accounts or any depository account of the Company maintained with the Agent, together with interest thereon at the Default Rate. Concurrently with each transmission of any proceeds of Receivables or other Collateral to any remittance account, the Company shall furnish the Agent with a report in such form as Agent shall reasonably require identifying the particular Receivable or such other Collateral from which the same arises or -11- relates. Unless and until a Default or an Event of Default shall have occurred and be continuing hereunder, the Agent will cause proceeds of Collateral which the Agent has not applied to the Obligations as provided above to be released from the remittance accounts from time to time or otherwise make such proceeds available to the Company at its request, but not less often than once per week. The Company hereby indemnifies the Agent and the Lenders from and against all liabilities, damages, losses, actions, claims, judgments, costs, expenses, charges and attorneys' fees suffered or incurred by the Agent or any Lender because of the maintenance of the foregoing arrangements; provided, however, that the Company shall not be required to indemnify the Agent or any Lender for any of the foregoing to the extent they arise solely from the gross negligence or willful misconduct of the person seeking to be indemnified. The Agent and the Lenders shall have no liability or responsibility to the Company for the Agent or any other Depositary Bank accepting any check, draft or other order for payment of money bearing the legend "payment in full" or words of similar import or any other restrictive legend or endorsement whatsoever or be responsible for determining the correctness of any remittance. Section 6. Special Provisions Re: Inventory and Equipment. (a) The Company will at its own cost and expense maintain, keep and preserve the Inventory in good and merchantable condition and keep and preserve the Equipment in good repair, working order and condition, ordinary wear and tear excepted, and, without limiting the foregoing, make all necessary and proper repairs, replacements and additions to the Equipment so that the efficiency thereof shall be fully preserved and maintained. (b) The Company may, until an Event of Default has occurred and is continuing and thereafter until otherwise notified by the Agent, use, consume and sell the Inventory in the ordinary course of its business, but a sale in the ordinary course of business shall not under any circumstance include any transfer or sale in satisfaction, partial or complete, of a debt owing by the Company. (c) The Company may, until an Event of Default has occurred and is continuing and thereafter until otherwise notified by the Agent, sell (i) obsolete, worn out or unusable Equipment which is concurrently replaced with similar Equipment at least equal in quality and condition to that sold and owned by the Company free of any lien, charge or encumbrance other than the security interest granted hereby and (ii) Equipment which this Agreement would not require the Company to repair or replace if the same were lost, damaged or destroyed pursuant to Section 3(g) hereof. (d) As of the time any Inventory or Equipment becomes subject to the security interest provided for hereby and at all times thereafter, the Company shall be deemed to have warranted as to any and all of such Inventory and Equipment that all warranties of the Company set forth in this Agreement are true and correct with respect to such Inventory and Equipment; that all of such Inventory and Equipment is located at a location set forth pursuant to Section 3(b) hereof. The Company warrants and agrees that no Inventory is or will be consigned to any other person or entity without the Agent's prior written consent. -12- (e) Upon the Agent's request, the Company shall at its own cost and expense cause the lien of the Agent in and to any portion of the Collateral subject to a certificate of title law to be duly noted on such certificate of title or to be otherwise filed in such manner as is prescribed by law in order to perfect such lien and will cause all such certificates of title and evidences of lien to be deposited with the Agent. (f) Except for Equipment from time to time located on the real estate described on Schedule B attached hereto and as otherwise disclosed to the Lenders in writing, none of the Equipment is or will be attached to real estate in such a manner that the same may become a fixture. (g) If any of the Inventory is at any time evidenced by a document of title, such document shall be promptly delivered by the Company to the Agent. Section 7. Special Provisions Re: Investment Property and Deposits. (a) Unless and until an Event of Default has occurred and is continuing and thereafter until notified to the contrary by the Agent pursuant to Section 9(d) hereof: (i) The Company shall be entitled to exercise all voting and/or consensual powers pertaining to the Investment Property or any part thereof, for all purposes not inconsistent with the terms of this Agreement or any other document evidencing or otherwise relating to any Obligations; and (ii) The Company shall be entitled to receive and retain all cash dividends paid upon or in respect of the Investment Property. (b) All Investment Property of the Company (including all securities, certificated or uncertificated, securities accounts, and commodity accounts) maintained by the Company on the date hereof is listed and identified on Schedule C attached hereto and made a part hereof. The Company shall promptly notify the Agent of any other Investment Property acquired or maintained by the Company after the date hereof, and shall submit to the Agent a supplement to Schedule C to reflect such additional rights (provided the Company's failure to do so shall not impair the Agent's security interest therein). Certificates for all certificated securities now or at any time constituting Investment Property shall, at the Agent's request, be promptly delivered by the Company to the Agent duly endorsed in blank for transfer or accompanied by an appropriate assignment or assignments or an appropriate undated stock power or powers, in every case sufficient to transfer title thereto, including, without limitation, all stock received in respect of a stock dividend or resulting from a split-up, revision, or reclassification of the Investment Property or any part thereof or received in addition to, in substitution of, or in exchange for the Investment Property or any part thereof as a result of a merger, consolidation, or otherwise. With respect to any uncertificated securities or any Investment Property held by a securities intermediary, commodity intermediary, or other financial intermediary of any kind, at the Agent's request, the Company shall execute and deliver, and shall cause any such issuer or intermediary to execute and deliver, an agreement among the Company, the Agent, and such issuer or intermediary in form and substance reasonably satisfactory to the Agent which -13- provides, among other things, for the intermediary's agreement that it shall comply with entitlement orders, and apply any value distributed on account of any Investment Property maintained in an account with such intermediary, as directed by the Agent without further consent by the Company. The Agent may at any time, after the occurrence of an Event of Default or an event or condition which with the lapse of time or the giving of notice, or both, would constitute an Event of Default, cause to be transferred into its name or the name of its nominee or nominees all or any part of the Investment Property hereunder. (c) Unless and until an Event of Default, or an event or condition which with the lapse of time or the giving of notice, or both, would constitute an Event of Default, has occurred and is continuing, the Company may sell or otherwise dispose of any Investment Property, provided that sales or other dispositions of capital stock or other equity interests of any direct or indirect Subsidiary shall be in accordance with the terms of the Credit Agreement. After the occurrence and during the continuation of any Event of Default or of any event or condition which with the lapse of time or the giving of notice, or both, would constitute an Event of Default, the Company shall not sell all or any part of the Investment Property without the prior written consent of the Agent. (d) The Company represents that on the date of this Agreement, none of the Investment Property consists of margin stock (as such term is defined in Regulation U of the Board of Governors of the Federal Reserve System) except to the extent the Company has delivered to the Agent a duly executed and completed Form U-1 with respect to such stock. If at any time the Investment Property or any part thereof consists of margin stock, the Company shall promptly so notify the Agent and deliver to the Agent a duly executed and completed Form U-1 and such other instruments and documents reasonably requested by the Agent in form and substance reasonably satisfactory to the Agent. (e) Notwithstanding anything to the contrary contained herein, in the event any Investment Property is subject to the terms of a separate security agreement in favor of the Agent, the terms of such separate security agreement shall govern and control unless otherwise agreed to in writing by the Agent. (f) All Deposit Accounts maintained by the Company on the date hereof are listed and identified (by account number and depository institution) on Schedule C attached hereto and made a part hereof. The Company shall promptly notify the Agent of any other Deposit Account opened or maintained by the Company after the date hereof, and shall submit to the Agent a supplement to Schedule C to reflect such additional accounts (provided the Company's failure to do so shall not impair the Agent's security interest therein). With respect to any Deposit Account maintained by a depository institution other than the Agent, and as a condition to the establishment and maintenance of any such Deposit Account the Company, the depository institution, and the Lender shall execute and deliver an account control agreement in form and substance satisfactory to the Lender which provides, among other things, for the depository institution's agreement that it will comply with instructions originated by the Agent directing the disposition of the funds in the Deposit Account without further consent by such Company. -14- Section 8. Power of Attorney. In addition to any other powers of attorney contained herein, the Company hereby appoints the Agent, its nominee, or any other person whom the Agent may designate as the Company's attorney-in-fact, with full power upon the occurrence and during the continuation of an Event of Default hereunder to sign the Company's name on verifications of accounts, to send requests for verification of Receivables to the Company's customers and account debtors, to endorse the Company's name on any checks, notes, acceptances, money orders, drafts and any other forms of payment or security that may come into the Agent's possession, to sign the Company's name on any invoice or bill of lading relating to any Receivables, on claims to enforce collection of any Receivable, on notices to and drafts against customers and account debtors, on schedules and assignments of Receivables, on notices of assignment and on public records, to notify the post office authorities to change the address for delivery of the Company's mail to an address designated by the Agent, to receive, open and dispose of all mail addressed to the Company and to do all things necessary to carry out this Agreement. The Company hereby ratifies and approves all acts of any such attorney and agrees that neither the Agent nor any such attorney will be liable for any acts or omissions nor for any error of judgment or mistake of fact or law other than their gross negligence or willful misconduct. The foregoing power of attorney, being coupled with an interest, is irrevocable until the Obligations have been fully paid and satisfied and the commitments of the Lenders to extend credit to or for the account of the Company under the Credit Agreement have terminated. The Agent may file one or more financing statements disclosing its security interest in any or all of the Collateral without the Company's signature appearing thereon. The Company also hereby grants the Agent a power of attorney to execute any such financing statements, or amendments and supplements to financing statements, on behalf of the Company without notice thereof to the Company, which power of attorney is coupled with an interest and is irrevocable until the Obligations have been fully paid and satisfied and the commitments of the Lenders to extend credit to or for the account of the Company under the Credit Agreement have terminated. Section 9. Defaults and Remedies. (a) The occurrence of any event or the existence of any condition which is specified as an "Event of Default" under the Credit Agreement shall constitute an "Event of Default" hereunder. (b) Upon the occurrence and during the continuation of any Event of Default hereunder, the Agent shall have, in addition to all other rights provided herein or by law, the rights and remedies of a secured party under the Code (regardless of whether the Code is the law of the jurisdiction where the rights or remedies are asserted and regardless of whether the Code applies to the affected Collateral), and further the Agent may, without demand and without advertisement, notice, hearing or process of law, all of which the Company hereby waives, at any time or times, sell and deliver any or all Collateral held by or for it at public or private sale, for cash, upon credit or otherwise, at such prices and upon such terms as the Agent deems advisable, in its sole discretion. In addition to all other sums due the Agent or any Lender hereunder, the Company shall pay the Agent and any Lender all costs and expenses incurred by the Agent or such Lender, including attorneys' fees and court costs, in obtaining, liquidating or enforcing payment of Collateral or the Obligations or in the prosecution or defense of any action or proceeding by or against the Agent, such Lender or the Company concerning any matter arising -15- out of or connected with this Agreement or the Collateral or the Obligations, including, without limitation, any of the foregoing arising in, arising under or related to a case under the United States Bankruptcy Code (or any successor statute). Any requirement of reasonable notice shall be met if such notice is personally served on or mailed, postage prepaid, to the Company in accordance with Section 13(b) hereof at least ten days before the time of sale or other event giving rise to the requirement of such notice; provided however, no notification need be given to the Company if the Company has signed, after an Event of Default hereunder has occurred, a statement renouncing any right to notification of sale or other intended disposition. The Agent shall not be obligated to make any sale or other disposition of the Collateral regardless of notice having been given. The Agent or any Lender may be the purchaser at any such sale. The Company hereby waives all of its rights of redemption from any such sale. Subject to the provisions of applicable law, the Agent may postpone or cause the postponement of the sale of all or any portion of the Collateral by announcement at the time and place of such sale, and such sale may, without further notice, be made at the time and place to which the sale was postponed or the Agent may further postpone such sale by announcement made at such time and place. The Agent and the Lenders have no obligation to prepare the Collateral for sale. The Agent and the Lenders may sell or otherwise dispose of the Collateral without giving any warranties as to the Collateral or any part thereof, including disclaimers of any warranties of title or the like, and the Company acknowledges and agrees that the absence of such warranties shall not render the disposition commercially unreasonable. (c) Without in any way limiting the foregoing, upon the occurrence and during the continuation of any Event of Default hereunder, the Agent shall have the right, in addition to all other rights provided herein or by law, to take physical possession of any and all of the Collateral and anything found therein, the right for that purpose to enter without legal process any premises where the Collateral may be found (provided such entry be done lawfully), and the right to maintain such possession on the Company's premises (the Company hereby agreeing to lease such premises without cost or expense to the Agent or its designee if the Agent so requests) or to remove the Collateral or any part thereof to such other places as the Agent may desire. Upon the occurrence and during the continuation of any Event of Default hereunder, the Agent shall have the right to exercise any and all rights with respect to all Deposit Accounts of the Company, including, without limitation, the right to direct the disposition of the funds in each Deposit Account and to collect, withdraw and receive all amounts due or to become due or payable under each such Deposit Account. Upon the occurrence and during the continuation of any Event of Default hereunder, the Company shall, upon the Agent's demand, promptly assemble the Collateral and make it available to the Agent at a place designated by the Agent. If the Agent exercises its right to take possession of the Collateral, the Company shall also at its expense perform any and all other steps requested by the Agent to preserve and protect the security interest hereby granted in the Collateral, such as placing and maintaining signs indicating the security interest of the Agent, appointing overseers for the Collateral and maintaining Collateral records. (d) Without in any way limiting the foregoing, upon the occurrence and during the continuation of any Event of Default, all rights of the Company to exercise the voting and/or consensual powers which it is entitled to exercise pursuant to Section 7(a)(i) hereof and/or to receive and retain the distributions which it is entitled to receive and retain pursuant to -16- Section 7(a)(ii) hereof, shall, at the option of the Agent, cease and thereupon become vested in the Agent, which, in addition to all other rights provided herein or by law, shall then be entitled solely and exclusively to exercise all voting and other consensual powers pertaining to the Investment Property (including, without limitation, the right to deliver notice of control with respect to any Investment Property held in a securities account or commodity account and deliver all entitlement orders with respect thereto) and/or to receive and retain the distributions which the Company would otherwise have been authorized to retain pursuant to Section 7(a)(ii) hereof and shall then be entitled solely and exclusively to exercise any and all rights of conversion, exchange, or subscription or any other rights, privileges, or options pertaining to any Investment Property as if the Agent were the absolute owner thereof. Without limiting the foregoing, the Agent shall have the right to exchange, at its discretion, any and all of the Investment Property upon the merger, consolidation, reorganization, recapitalization, or other readjustment of the respective issuer thereof or upon the exercise by or on behalf of any such issuer or the Agent of any right, privilege, or option pertaining to any Investment Property and, in connection therewith, to deposit and deliver any and all of the Investment Property with any committee, depositary, transfer agent, registrar, or other designated agency upon such terms and conditions as the Agent may determine. In the event the Agent in good faith believes any of the Collateral constitutes restricted securities within the meaning of any applicable securities laws, any disposition thereof in compliance with such laws shall not render the disposition commercially unreasonable. (e) Without in any way limiting the foregoing, the Company hereby grants to the Agent and the Lenders a royalty-free irrevocable license and right to use all of the Company's patents, patent applications, patent licenses, trademarks, trademark registrations, trademark licenses, trade names, trade styles, and similar intangibles in connection with any foreclosure or other realization by the Agent or the Lenders on all or any part of the Collateral. The license and right granted the Agent and the Lenders hereby shall be without any royalty or fee or charge whatsoever. (f) The powers conferred upon the Agent hereunder are solely to protect its interest in the Collateral and shall not impose on it any duty to exercise such powers. The Agent shall be deemed to have exercised reasonable care in the custody and preservation of the Collateral its possession or control if such Collateral is accorded treatment substantially equivalent to that which the Agent accords its own property, consisting of similar type assets, it being understood, however, that the Agent shall have no responsibility for ascertaining or taking any action with respect to calls, conversions, exchanges, maturities, tenders, or other matters relating to any such Collateral, whether or not the Agent has or is deemed to have knowledge of such matters. This Agreement constitutes an assignment of rights only and not an assignment of any duties or obligations of the Company in any way related to the Collateral, and the Agent shall have no duty or obligation to discharge any such duty or obligation. The Agent shall have no responsibility for taking any necessary steps to preserve rights against any parties with respect to any Collateral or initiating any action to protect the Collateral against the possibility of a decline in market value. Neither the Agent nor any party acting as attorney for the Agent shall be liable for any acts or omissions or for any error of judgment or mistake of fact or law other than their gross negligence or willful misconduct. -17- (g) Failure by the Agent to exercise any right, remedy or option under this Agreement or any other agreement between the Company and the Agent or provided by law, or delay by the Agent in exercising the same, shall not operate as a waiver; and no waiver shall be effective unless it is in writing, signed by the party against whom such waiver is sought to be enforced and then only to the extent specifically stated. Neither the Agent or any Lender, nor any party acting as attorney for the Agent or any Lender, shall be liable hereunder for any acts or omissions or for any error of judgment or mistake of fact or law other than their gross negligence or willful misconduct. The rights and remedies of the Agent and the Lenders under this Agreement shall be cumulative and not exclusive of any other right or remedy which the Agent or the Lenders may have. For purposes of this Agreement, a Default or Event of Default shall be construed as continuing after its occurrence until the same is waived in writing by the Lenders or the Required Lenders, as the case may be, in accordance with the Credit Agreement or, in the case of a Default, the same is cured by the Company within any applicable cure period. Section 10. Application of Proceeds. The proceeds and avails of the Collateral at any time received by the Agent upon the occurrence and during the continuation of any Event of Default hereunder shall, when received by the Agent in cash or its equivalent, be applied by the Agent as follows: (a) first, to the payment of any outstanding costs and expenses incurred by the Agent in monitoring, verifying, protecting, preserving or enforcing the Liens on the Collateral, and in protecting, preserving or enforcing rights under this Agreement or any of the other Loan Documents, and in any event including all costs and expenses of a character which the Company has agreed to pay under Section 11.15 of the Credit Agreement (such funds to be retained by the Agent for its own account unless it has previously been reimbursed for such costs and expenses by the Lenders, in which event such amounts shall be remitted to the Lenders to reimburse them for payments theretofore made to the Agent); (b) second, to the payment of any outstanding interest or other fees or amounts due under this Agreement or any of the other Loan Documents other than for principal, pro rata as among the Agent and the Lenders in accord with the amount of such interest and other fees or amounts owing each; (c) third, to the payment of the principal of the Notes and any liabilities in respect of unpaid drawings under the Letters of Credit, pro rata as among the Lenders in accord with the then respective unpaid principal balances of the Notes and the then unpaid liabilities in respect of unpaid drawings under the Letters of Credit; (d) fourth, to the Agent, to be held as collateral security for any undrawn Letters of Credit, until the Agent is holding an amount of cash equal to the then outstanding amount of all Letters of Credit; and (e) fifth, to the Agent and the Lenders pro rata in accord with the amounts of any other Obligations (including, without limitation, Hedging Liability) owing to them -18- and secured hereby unless and until all such Obligations have been fully paid and satisfied. The Company shall remain liable to the Agent and the Lenders for any deficiency. Any surplus remaining after the full payment and satisfaction of the Obligations shall be returned to the Company or to whomsoever the Agent reasonably determines is lawfully entitled thereto. Section 11. Continuing Agreement. This Agreement shall be a continuing agreement in every respect and shall remain in full force and effect until all of the Obligations, both for principal and interest, have been fully paid and satisfied and the commitments of the Lenders to extend credit to or for the account of the Company under the Credit Agreement have terminated. Upon such termination of this Agreement, the Agent shall, upon the request and at the expense of the Company, forthwith release its security interest hereunder. Section 12. The Agent. In acting under or by virtue of this Agreement, the Agent shall be entitled to all the rights, authority, privileges and immunities provided in Section 10 of the Credit Agreement, all of which provisions of said Section 10 are incorporated by reference herein with the same force and effect as if set forth herein in their entirety. The Agent hereby disclaims any representation or warranty to the Lenders concerning the perfection of the security interest granted hereunder or in the value of any of the Collateral. Section 13. Miscellaneous. (a) This Agreement cannot be changed or terminated orally. This Agreement shall create a continuing security interest in the Collateral and shall be binding upon the Company, its successors and assigns and shall inure, together with the rights and remedies of the Agent and the Lenders hereunder, to the benefit of the Agent, the Lenders, and their successors and assigns; provided, however, that the Company may not assign its rights or delegate its duties hereunder without the Agent's prior written consent. Without limiting the generality of the foregoing, and subject to the provisions of Section 11.12 of the Credit Agreement, any Lender may assign or otherwise transfer any indebtedness held by it secured by this Agreement to any other person or entity, and such other person or entity shall thereupon become vested with all the benefits in respect thereof granted to such Lender herein or otherwise, subject, however, to the provisions of the Credit Agreement. The Company hereby releases the Agent and each Lender from any liability for any act or omission relating to the Collateral or this Agreement, except for the Agent's or such Lender's gross negligence or willful misconduct. (b) Except as otherwise specified herein, all notices hereunder shall be in writing (including, without limitation, notice by telecopy) and shall be given to the relevant party, and shall be deemed to have been made when given to the relevant party, in accordance with Section 11.8 of the Credit Agreement. (c) No Lender shall have the right to institute any suit, action or proceeding in equity or at law for the foreclosure or other realization upon any Collateral subject to this Agreement or for the execution of any trust or power hereof or for the appointment of a receiver, or for the enforcement of any other remedy under or upon this Agreement; it being understood and -19- intended that no one or more of the Lenders shall have any right in any manner whatsoever to affect, disturb or prejudice the lien and security interest of this Agreement by its or their action or to enforce any right hereunder, and that all proceedings at law or in equity shall be instituted, had and maintained by the Agent in the manner herein provided for the benefit of the Lenders. (d) In the event that any provision hereof shall be deemed to be invalid or unenforceable by reason of the operation of any law or by reason of the interpretation placed thereon by any court, this Agreement shall be construed as not containing such provision, but only as to such jurisdictions where such law or interpretation is operative, and the invalidity or unenforceability of such provision shall not affect the validity of any remaining provisions hereof, and any and all other provisions hereof which are otherwise lawful and valid shall remain in full force and effect. (e) This Agreement shall be deemed to have been made in the State of Illinois and shall be governed by, and construed in accordance with, the laws of the State of Illinois. All terms which are used in this Agreement which are defined in the Code shall have the same meanings herein as said terms do in the Code unless this Agreement shall otherwise specifically provide. The headings in this Agreement are for convenience of reference only and shall not limit or otherwise affect the meaning of any provision hereof. (f) This Agreement may be executed in any number of counterparts and by different parties hereto on separate counterpart signature pages, each constituting an original, but all together one and the same agreement. (g) Upon the execution and delivery of this Agreement by the Company and the Agent, on behalf of the Lenders, this Agreement shall supersede all provisions of the Prior Security Agreement as of such date. The Company hereby agrees that, notwithstanding the execution and delivery of this Agreement, the liens and security interests created and provided for under the Prior Security Agreement continue in effect under and pursuant to the terms of this Agreement for the benefit of all of the Obligations secured hereby. Nothing herein contained shall in any manner affect or impair the priority of the liens and security interests created and provided for by the Prior Security Agreement as to the indebtedness and obligations which would otherwise be secured thereby prior to giving effect to this Agreement. -20- IN WITNESS WHEREOF, the Company has caused this Agreement to be duly executed and delivered as of the date first above written. INFORMATION RESOURCES, INC. By Name________________________________ Title_______________________________ Accepted and agreed to as of the date first above written. HARRIS TRUST AND SAVINGS BANK, as Agent as aforesaid for the Lenders By Name________________________________ Title_______________________________ -21- SCHEDULE A LOCATIONS Item 1. Debtor's chief financial office and principal place of business: 150 North Clinton Street Chicago, Illinois 60606 Item 2. Additional Places of Business and/or Permitted Collateral Locations: IRI CORPORATE AND BRANCH OFFICES
OFFICE LOCATION STREET ADDRESS CITY STATE ZIP Chicago 150 N. Clinton Chicago IL 60661 Chicago (12/1/2000) 550 W. Washington Chicago IL 60661 Chicago 564 W. Randolph Chicago IL 60661 Chicago 5515 N. Cumberland Chicago IL 60656 Wood Dale 341-361 Haynes Drive Wood Dale IL 60191 Atlanta 7840 Rosewell Road, Building #100, Atlanta GA 30350 Suite Cincinnati Chiquita Center - Suite #700, 250 E. Cincinnati OH 45202 Fifth Fairfield Greenbrook Corporate Center, 100 Fairfield NJ 07004 Passi Fort Washington 500 Office Center Drive Fort Washington PA 19034 Los Angeles 200 North Sepulveda Blvd., Suite #800 El Segundo CA 90245 Bentonville 805 McClain Rd. Bentonville AZ 72712 Minneapolis 7650 Edinborough Way, Suite #650 Edina MN 55435 Norwalk 383 Main Avenue Norwalk CT 06851 San Francisco 525 Market Street, 24th Floor San Francisco CA 94105 Waltham 1601 Trapelo Road Waltham MA 02451 Winston-Salem, N.C. 150 South Stratford Road, Suite #530 Winston-Salem NC 27103 Toronto 4711 Yonge Street North York Ontario M2N 6K8
B'SCAN MARKETS 1/1/2001
OFFICE LOCATION STREET ADDRESS CITY STATE ZIP #10 Cedar Rapids 819 Fifth Street, S.E. Cedar Rapids IA 52401 #3 Eau Claire 3540 Jeffers Road Eau Claire WI 54703 #7 Grand Junction Solarus Square, 2829 North Avenue Grand Junction CO 81501 #4 Midland 15 Byron Road Midland TX 79703 #1 Pittsifeld 631 North Street Pittsfield MA 01201 #1 Visalia 2043 South Court Street Visalia CA 93277
B'SCAN STUDIOS 1/1/2001
OFFICE LOCATION STREET ADDRESS CITY STATE ZIP Cedar Rapids 6300 Council St., N.E., Suite #8 Cedar Rapids IA 52402 Eau Claire 1040 Mary Lane Eau Claire WI 54703 Midland 2528 South Midkiff Avenue Midland TX 79701 Pittsfield 4 Fredrico Drive, Suite #C Pittsfield MA 01201
SCHEDULE B REAL ESTATE LEGAL DESCRIPTIONS --NONE-- SCHEDULE C INVESTMENT PROPERTY AND DEPOSITS A. Investment Property Cantor Fitzgerald a/c # 350000833 (Information Resources, Inc. security account) Account is primarily used to repurchase company stock (ticker symbol "IRIC") Current account balance is $0 Tucker Anthony a/c # DTM-953409-1 (Information Resources, Inc. security account) Account is primarily used to repurchase company stock (ticker symbol "IRIC") Current account balance is $0 See attached for listing of current subsidiary and JV interests. B. Deposits Harris Bank a/c # 294-009-6 (Information Resources, Inc. depository account) Harris Bank a/c # 294-003-9 (Information Resources, Inc. French Holdings) Harris Bank a/c # 294-019-5 (Information Resources, Inc. Venezuela Holdings) Harris Bank a/c # 294-077-3 (Information Resources, Inc. Hellas SA) AS OF OCTOBER, 2001 INFORMATION RESOURCES, INC. LIST OF SUBSIDIARIES AND AFFILIATES
JURISDICTION PERCENTAGE DOMESTIC OF INCORPORATION OWNERSHIP - -------- ---------------- --------- IRI Logistics, Inc. (formerly Delaware 100% LogiCNet, Inc.) * IRI Puerto Rico, Inc. (formerly Puerto Rico 100% Market Trends, Inc.) Mosaic InfoForce, L.P. Delaware 49% Shoppers Hotline, Inc. Delaware 100% North Clinton Corporation Illinois 100% 564 Randolph Co. #2 Illinois 100% IRI French Holdings, Inc. *** Delaware 100% IRI Italy Holdings, Inc. *** Delaware 100% InfoScan Italy Holdings, Inc. *** Delaware 100% IRI Venezuela Holdings, Inc. *** Delaware 100% IRI Guatemala Holdings, Inc. *** Delaware 100% IRI Greek Holdings, Inc. *** Delaware 100%
* Inactive *** Holding companies for IRI's interest in foreign companies and joint ventures -2- INFORMATION RESOURCES, INC. LIST OF SUBSIDIARIES AND AFFILIATES (CONT'D) FOREIGN (including Joint Venture Subsidiaries)
FOREIGN SUBSIDIARIES OWNERSHIP JURISDICTION OF INCORPORATION PERCENTAGE - --------- ----------------------------- ---------- Information Resources, S.A * France 100% IRI Software, Ltd. (formerly Management Decision Systems, Limited) * United Kingdom 100% Information Resources, GmbH * Federal Republic of Germany 100% (thru IRI Software B.V) Information Resources New Zealand * Pty Limited New Zealand 100% Information Resources de Mexico, S.A. de C.V. * Mexico 100% IRI Hellas S.A. + Greece 100% (thru IRI Greek Holding) IRI InfoScan S.r.l. + Italy 100% (80% thru IRI Italy and 20% thru InfoScan Italy Hdg) IRI Software B.V. * Holland 100% Precis (1136) Limited United Kingdom Approx. 95% IRI Apollo K.K. * Japan 100%
* Software Sales offices + Information business -3- INFORMATION RESOURCES, INC. LIST OF SUBSIDIARIES AND AFFILIATES (CONT'D) FOREIGN (Cont'd)
FOREIGN JOINT VENTURES OWNERSHIP JURISDICTION OF INCORPORATION PERCENTAGE - --------- ----------------------------- ---------- IRI-SECODIP, S.C.S + France 92% IRI InfoScan Limited + United Kingdom Approx. 87% (formerly InfoScan NMRA) thru Precis 1136 Radar Retail Research + United Kingdom Approx. 35% thru IRI InfoScan (UK) IRI/GfK Retail Services GmbH + Federal Republic of Germany Approx. 60% as of 9/00 Information Resources-GfK B.V. + (formerly IRI/GfK Retail Services B.V and before that known as GfK InfoScan B.V.) Netherlands 80.1% Information Resources Espana, S.L. + Spain Approx. 65% as of 9/00 GfK Panelservices Benelux B.V + Netherlands 10% (formerly AGB Atwood Hold. B.V. and now holding co. for the one Belgium and three Netherland companies below) Datos Information Resources + Venezuela 49% (thru IRI Venez. Holdings) Grupo de Servicios de Informacion S.A. + Guatemala 19.9% (thru IRI Guat. Holdings w/ option to increase to 49% over time)
-4-
FOREIGN JOINT VENTURES OWNERSHIP JURISDICTION OF INCORPORATION PERCENTAGE - --------- ----------------------------- ---------- GfK InfoScan Sverige AB +/++ Sweden 8% (formerly named GfK Scannerinformation Sverige) MEMRB International Limited (Cyprus) + Cyprus Approx. Information Resources Japan, Ltd. + Japan 40% (thru IRI Apollo KK) Trigent Software India less than 5%
* Software Sales offices + Information business ++ Certain assets of Swedish venture were sold to Nielsen -5- -----END PRIVACY-ENHANCED MESSAGE-----