-----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, DixI9NgfKLLBEM7ricrlVa5JfISnIEO9gkgEjMN8VW9K0KQ87TDJw4HU1sIXQ32+ UMjIypbjxk1qMn0Ee3v4tg== 0000950137-03-001765.txt : 20030327 0000950137-03-001765.hdr.sgml : 20030327 20030327103739 ACCESSION NUMBER: 0000950137-03-001765 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 11 CONFORMED PERIOD OF REPORT: 20021231 FILED AS OF DATE: 20030327 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-K SEC ACT: 1934 Act SEC FILE NUMBER: 000-11428 FILM NUMBER: 03619681 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-K 1 c75466e10vk.txt ANNUAL REPORT - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 --------------------- FORM 10-K (Mark One) [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED) FOR THE FISCAL YEAR ENDED DECEMBER 31, 2002 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
FOR THE TRANSITION PERIOD FROM TO COMMISSION FILE NO. 0-11428 --------------------- INFORMATION RESOURCES, INC. (Exact name of registrant as specified in its charter) DELAWARE 36-2947987 (State or Other Jurisdiction of (I.R.S. Employer Identification No.) Incorporation or Organization) 150 NORTH CLINTON STREET, CHICAGO, ILLINOIS 60661 (Address of Principal Executive Offices) (Zip Code)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE (312) 726-1221 SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT: TITLE OF EACH CLASS COMMON STOCK, $.01 PAR VALUE PER SHARE PREFERRED STOCK PURCHASE RIGHTS --------------------- Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No [ ] Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. X Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Act.) Yes X No [ ] The aggregate market value of the voting stock held by nonaffiliates of the registrant as of June 28, 2002 (based on the closing price as quoted by NASDAQ as of such date) was $243,205,339. The number of shares of the registrant's common stock, $.01 par value per outstanding share, as of February 28, 2003 was 29,861,295. DOCUMENTS INCORPORATED BY REFERENCE Portions of the registrant's definitive proxy statement for the annual meeting of stockholders to be held May 15, 2003 to be filed pursuant to Regulation 14A are incorporated by reference into Part III of this Form 10-K. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- PART I ITEM 1. BUSINESS INTRODUCTION Information Resources, Inc. and its subsidiaries (collectively referred to herein as "IRI" or the "Company") is a leading provider of universal product code ("UPC"), scanner-based business solutions services to the consumer packaged goods ("CPG") industry, offering services in the United States, Europe and other international markets. The Company supplies CPG manufacturers, retailers and brokers with information and analysis critical to their sales and marketing operations. IRI provides services designed to deliver value through an enhanced understanding of the consumer to a majority of the Fortune 500 companies in the CPG industry. The Company currently generates approximately 75% of its revenues from sales and services provided in the U.S. These services include the Company's flagship InfoScan(R) service, which tracks consumer purchasing of products sold in grocery stores, drug stores, mass merchandisers, convenience stores and other retail outlets across the United States, household-level information collected via consumer panels and BehaviorScan(R) which is used for the testing and evaluation of alternative marketing strategies and tactics for both new and established products. The Company also offers modeling and other testing services as well as custom analytic and consulting services to enable clients to address critical business issues. Closely related to its information services, the Company also markets various software applications to the CPG industry. Revenues from the Company's U.S. and International Services were as follows for the years ended December 31 (in thousands):
2002 2001 2000 -------- -------- -------- U.S. Services............................................... $411,572 $420,321 $397,895 International Services...................................... 143,268 135,547 133,028 -------- -------- -------- Total.................................................. $554,840 $555,868 $530,923 ======== ======== ========
U.S. SERVICES The Company's U.S. Services include retail product tracking services, related delivery and software product sales, retail audit services, consumer panel services, analytical and consulting services, BehaviorScan product testing services and a variety of applications using the Company's census (i.e., all stores within participating retail chains) scanner databases and the Company's multi-outlet consumer panel databases. RETAIL TRACKING SERVICES InfoScan. The Company's principal information service marketed in the United States and internationally is InfoScan. InfoScan is a retail tracking service used by the CPG industry to monitor and evaluate the market performance of products sold in retail stores. The InfoScan service provides clients with a variety of information including the quantity of products they and their competitors are selling, where the products are being purchased, at what price the products are being sold and under what promotional conditions sales are occurring. This information helps clients make fundamental strategic and tactical decisions for their businesses in the areas of sales, marketing and promotion. IRI currently collects this information in grocery, drug, mass merchandiser, convenience store, club store and chain liquor outlets across the United States and is also exploring collection in other outlets. InfoScan utilizes data collected from UPC bar codes on CPG product packaging. Scanners at retail checkouts read the UPC code and record product sales electronically. On an on-going basis, the Company procures such electronic sales data along with related promotional data from a sample of national and local market retail stores. The Company also collects consumer purchase information directly from individual households across the United States using proprietary in-home scanning devices and/or consumer 2 identification cards in a store. The consumer purchase information can be used in a complementary fashion with InfoScan data. The Company processes the information at its computer facilities and stores it in the Company's proprietary databases. InfoScan clients access the information in the Company's databases through a variety of means, including the use of analytical software provided by the Company and the use of reports delivered via the Internet. Contracts for InfoScan services with CPG manufacturers are currently a principal source of revenue for the Company. Manufacturers obtain access to the InfoScan databases for specified product categories. InfoScan contracts in the United States generally have multi-year terms, usually of three years or more. InfoScan Census. InfoScan Census applications are based on scanner data collected from all stores within participating retail chains, as opposed to collection from a sample of such stores. InfoScan Census offers the CPG industry more complete and accurate data than sample services, since it has no sampling or projection errors for census chains, and its applications can go beyond traditional market tracking uses. Nearly all of IRI's clients' databases in the United States use a census-based projection system. InfoScan Census revenues also come from manufacturers purchasing key account data, defined as sales data for a product category based on all stores of a specific retailer. This service enables manufacturers' sales representatives to negotiate with retail buyers based on a mutually consistent and accurate measure of retail product movement. In addition, an evaluation of differences in brand and product category purchasing across individual stores within a chain can often pin-point opportunities to effectively build sales to the benefit of both manufacturers and retailers. Other census applications include improved management of trade promotions, validation of "pay-for-performance" promotions, more effective sales force and broker compensation programs and improved inventory and distribution management. There are presently 14,800 grocery stores, 14,000 drug stores and 3,000 mass merchandisers in the Company's InfoScan Census U.S. database. In addition, the Company's InfoScan Census database also includes census data from certain club stores and liquor store chains. Participating retailers typically deliver their scanner data electronically to the Company's computer facilities in Wood Dale, Illinois. While most retail stores in the United States have installed scanner equipment to record product sales information, certain convenience stores and other retail outlets have not. When scanner data are not available, field personnel visit stores and obtain sales information via manual audits of the stores' product purchases and inventory. InfoScan Causal Data Collection. The InfoScan U.S. and international databases typically contain product movement and price information and "causal" data. Causal data consist of information which may explain changes in product sales, such as price promotions, retailers' newspaper ads and in-store displays, as well as other promotion and merchandising data related to the sale of CPG products. For the Company's InfoScan causal data service, the Company continuously collects weekly promotional information from representative retail outlets. Included in the Company's national and local market causal data samples in the U.S. are approximately 4,300 stores in the aggregate, including grocery stores, drug stores, mass merchandisers and convenience stores. IRI's causal data are collected in the United States by Mosaic InfoForce, L.P., a joint venture company formed during 2000 by IRI and Mosaic Group, Inc., a Canadian outsourced marketing services agency with operations in Canada and the United States. Employees of Mosaic InfoForce, L.P. conduct weekly on-site visits to retail stores participating in the InfoScan service to collect causal information such as in-store promotions and displays. Mosaic InfoForce, L.P. provides additional related services, including custom data collection, custom and syndicated observational audits, and other in-store activities such as light merchandising services. The Company often pays a fee for scanner data covering a sample or census of retailers' stores. However, the Company also exchanges software, product movement information and other services to obtain access to data for certain chains or stores. Current retailer data contracts generally have initial multi-year terms, usually of three or more years, some of which are cancelable either during or after the initial term with 3 to 6 months notice by either party. 3 InfoScan Advantage. In August 2001, Wal-Mart Stores, Inc. discontinued providing point-of-sale and related data for its U.S. business to all third party data providers, including IRI and ACNielsen. In response, IRI has enhanced its InfoScan service to provide continued insights into Wal-Mart by using IRI's consumer panel data collected directly from Wal-Mart shoppers as a replacement for Wal-Mart's point-of-sale data. This enhanced service, InfoScan Advantage(TM), provides the ability to integrate the Wal-Mart panel data with IRI's InfoScan Census retail tracking data. IRI began making InfoScan Advantage available to clients in October 2001. Data Processing. With respect to its operations in the United States, United Kingdom, France, Germany, Italy, the Netherlands and Spain, the Company receives and processes data at its production center and computer facilities located in Wood Dale, Illinois. The Company's production center operates with numerous platforms including mainframe, UNIX and Windows NT as well as proprietary production software and related technology developed exclusively by the Company to process and store very large amounts of data. Through direct telecommunication connections with InfoScan clients in the U.S., the Company also provides electronic on-line access to InfoScan data services. The Company currently leases its mainframe computers from third party financial institutions. Data Delivery. IRI's InfoScan service entitles clients to access the Company's databases and receive information for specific product categories. Because large amounts of data are involved, clients in the U.S. usually either take electronic delivery of the data or obtain electronic access to the Company's databases through the Company's on-line service or web-based delivery service. Clients taking on-line electronic delivery generally license software from the Company. The Company's on-line service permits the Company to build, maintain and store client-contracted databases which remain resident on the Company's computers. Clients then access the databases through remote electronic connection. Clients may also purchase software services from the Company. (See "Software and Related Products" below for more information on Company revenues derived from software licensing.) In addition, the Company also provides Internet delivery options, including CPGNetwork(R), its web-based business intelligence resource that delivers custom reports and relevant industry information via a Company-hosted web site. Software and Related Products. A principal source of software revenue is the provision of on-line access services and web delivery services to InfoScan clients who access InfoScan databases residing in the Company's data warehouses. Other revenues are derived from consulting services the Company performs to assist clients with the integration of data into their existing systems. In close association with its retail tracking services, the Company markets analytical software to the CPG industry principally for use in accessing, managing and analyzing the Company's databases. In July 1995, the Company sold its EXPRESS technology and certain software products to Oracle Corporation ("Oracle"), while retaining ownership of certain EXPRESS-based sales and marketing software application products for use in the CPG industry. Many of the Company's U.S. and International clients currently use the Oracle(R)EXPRESS-based software application, Oracle(R) Sales Analyzer, to access, manage and analyze the Company's databases. Oracle EXPRESS is a software technology now owned by Oracle designed for working with large and complex databases. Oracle Sales Analyzer is a decision support software application built in Oracle EXPRESS and is also now owned by Oracle. The product provides users with a range of analytical and reporting tools. Through licensing agreements with Oracle, the Company continues to market and distribute certain Oracle EXPRESS software products, including Oracle Sales Analyzer. The Company also licenses its own applications, such as XLerate(TM), in conjunction with a client's InfoScan data contract. Oracle is entitled to receive royalties on certain types of Oracle software sublicenses granted by the Company and its distributors; however, prior to July 2001, the Company was not required to pay royalties to Oracle on licenses granted by the Company and its affiliates to CPG end-users for use with data provided by the Company or its affiliates. The Company will be required to pay royalties to Oracle for update and support services provided for sublicenses granted by the Company prior to July 2001, but only to the extent that the Company and the sublicensee elect to receive update and support services from Oracle for such sublicenses after July 2001. IRI has also negotiated new royalty rates to be paid to Oracle for any additional sublicenses of Oracle software products granted by the Company and its distributors to CPG entities during the two-year 4 period beginning July 2001 and for any update and support services provided for such Oracle software products during this same two-year period. Thereafter, Oracle and the Company have agreed to negotiate new royalty rates. For a period of three years from July 2001, the Company also has the right to license certain Oracle software products, including Oracle Sales Analyzer and Express Server software products, on favorable terms, for the Company's own use and the use of the Company's clients, in connection with the Company's data operations. Thereafter, the Company expects to negotiate new royalty rates for such use. The Company's current web offering, CPGNetwork, enables clients to access InfoScan and related data and other personalized content via a web browser. The Company is also developing alternative technologies to deliver its data based on Microsoft(R) technology. These alternative technologies are expected to increase accessibility to the Company's InfoScan data, improve compatibility with existing technical architectures of the Company's clients and partners, and extend integration of additional data sources. To support the Microsoft technology, the Company has developed a new easy-to-use data retrieval, analysis and reporting suite called InfoPro(TM). The Company began releasing InfoPro to clients, on a limited basis, beginning in early 2003 and continues to work on enhancing the product. InfoPro will allow users to easily access, manipulate and analyze data from IRI and other sources within the familiar environment of the internet and Microsoft Office(R). InfoPro and CPGNetwork will provide customers a complete end-to-end solution for accessing, analyzing, publishing and integrating IRI and third party data sources. The Company also markets its proprietary Apollo Space Management System(TM) software to CPG retailers, wholesalers, manufacturers and brokers worldwide to enhance the merchandising understanding and business success of our clients through improved performance at the shelf and throughout the total store. Apollo software is designed to provide store specific solutions and detail to drive improved margin performance. Apollo facilitates an integrated approach which enables customers to drive productivity through integration of IRI data and analytics to assist in the management of retail space, providing a range of tools for space management including assortment planning, data integration and management, category analysis, creation of schematics and web enabled access and distribution. The Company also develops and markets other analytical software applications and technology-based consulting services for use in the CPG industry, including tools to help clients receive, analyze, interpret and facilitate enhanced uses of IRI's InfoScan data, consumer panel data and analytics data. PANEL, ANALYTICS AND TESTING Consumer Panel. The Company also collects consumer purchase and attitudinal information through 70,000 hand held bar-code scanners that it places in households throughout the United States. Collection of purchase data from these bar-code scanners enables the Company to ascertain product movement information from a full spectrum of retail outlets, including stores that either do not have scanners or do not provide point-of-sale data to the Company. In addition to the Company's multi-outlet consumer panel services, the Company also maintains a separate consumer panel of shoppers in its BehaviorScan testing markets in connection with the Company's provision of testing and analytics services. These additional households provide the Company's clients with the means to test and evaluate various marketing programs and the impact of different marketing variables on consumer behavior in a controlled environment prior to a full launch. BehaviorScan households use the same scanner device as the multi-outlet panelists and/or present an identification card when shopping at participating stores, thereby allowing scanners to record specific details of their product purchases. The Company provides a variety of syndicated and custom databases and analytics utilizing the multi-outlet panel data to provide retailers and manufacturers with insights into consumer purchase behavior. See "Analytical and Consulting Services" below. Analytical and Consulting Services. The Company emphasizes the provision of experienced and knowledgeable client service personnel to assist clients in the use and interpretation of InfoScan retail tracking data and consumer panel data, as well as in the use of the Company's analytical software. The Company also offers a variety of advanced analytical and consulting services to CPG manufacturers, retailers and brokers to evaluate and address critical business decisions. These services are directed at helping clients identify new marketing opportunities, plan and evaluate new or restaged product launches, evaluate the impact of price 5 changes, evaluate opportunities for product line optimization, and evaluate and increase the effectiveness of marketing expenditures. Advanced analytics typically involve the application of sophisticated statistical models to IRI's InfoScan, consumer panel, attitudinal survey and custom store audit data. These analyses help the clients quantify the sales and profit impact of major sales and marketing decisions. Revenues from analytical and consulting services typically follow from the Company's InfoScan service; however, IRI is increasingly providing analytical and consulting services to clients that do not purchase ongoing tracking services from the Company. Testing Services. The Company provides a number of in-market testing services primarily for CPG manufacturers, including controlled store testing, matched market testing and BehaviorScan. Controlled store testing involves testing the placement of new products or changes in advertising, shelf location, price or other in-store merchandising conditions in a limited group of test stores. In a matched market test, IRI measures the effects of a client's execution of new marketwide advertising or couponing programs in one or more cities. In both types of testing services, IRI applies statistical analysis techniques to the InfoScan data to measure test results. The Company's BehaviorScan service, currently available in five U.S. markets, is the only electronic test marketing system available in the United States. BehaviorScan analyzes consumer purchasing behavior based on exposure to different television advertising plans and allows CPG manufacturers to measure the impact of different marketing variables on consumer purchase behavior, for both existing and new products, including high-risk new brands and brand restages. Typical marketing variables tested in BehaviorScan markets are television advertisements, newspaper ads, manufacturers' coupons, free samples, in-store displays, shelf price and packaging changes. BehaviorScan tests compare the purchases of a group of consumers exposed to test variable(s) with the purchases of a control group of consumers not exposed to the test variable(s). A unique feature of the BehaviorScan system is its ability to deliver alternative television advertising to different groups of panel households using the Company's proprietary targetable television technology. Major costs associated with the BehaviorScan system include payments to retailers, incentive programs for participating panel households, field personnel costs, cable television studio operation, computer resources and client service personnel costs. Healthcare Solutions Services. IRI also provides consumer intelligence, targeting and analytic services for the healthcare and pharmaceutical industries. IRI's newly formed business group, The Healthcare Solutions Group, was created during the fourth quarter of 2002 in response to the increasing need to understand consumer insights and decisions related to prescription and over-the-counter purchasing behaviors, attitudes and preferences. IRI's Healthcare Solutions Group will offer a complete suite of retail tracking, consumer panel and analytic-driven products and services under the RxPulse(TM) brand to help its clients monitor, comprehend and compete within the rapidly evolving healthcare space. INTERNATIONAL SERVICES Through subsidiaries and joint ventures with other leading marketing information firms, in 1992 the Company began offering information services, primarily using scanner-based data, in a number of countries outside of the United States. The Company offers many of the same services internationally as it offers within the U.S., including InfoScan retail tracking services, InfoScan census services, related delivery and software, and analytic and consulting services; however, specific services offered depend upon local country competitive conditions and the prevailing retailer environments. Collection practices for weekly product sales information in the Company's foreign markets are largely scanner-based, although that may vary on a country-by-country basis, depending on scanner data availability. Household panel services are available in European markets from alliance partners of the Company. The Company's major European subsidiaries and joint venture companies rely on the Company's data production facilities in the United States as well as the Company's know-how and intellectual property to provide InfoScan retail tracking services. United Kingdom. The Company's subsidiary in the United Kingdom, IRI InfoScan Ltd., offers scanner-based tracking services under the InfoScan name to the British market. Organized in 1992 as a joint venture, the Company's partners are Taylor Nelson Sofres plc of the United Kingdom ("TNS") and GfK AG of Germany ("GfK"). The Company owns substantially all of the joint venture. Pursuant to contractual arrangements, the Company provides data production services to the subsidiary from the Company's computer 6 facilities in Wood Dale, Illinois. During 2000, the subsidiary acquired a 40% interest in Radar Research Limited ("Radar"), a United Kingdom company that performed testing services for key retailers. TNS owned the remaining 60% of Radar. In the second quarter of 2002, the Company and TNS decided to cease Radar's operations and the Company recorded a pre-tax charge of $966,000 relating to its investment and the accrual of the Company's share of Radar's closing costs. France. The Company's subsidiary in France, IRI-Secodip S.C.S., offers scanner-based tracking services under the InfoScan name. IRI-Secodip S.C.S. was organized in 1993 as a joint venture with GfK and Secodip S.A., a wholly owned subsidiary of TNS. Since 1994, the Company has funded substantially all of the joint venture's capital requirements and the Company now owns substantially all of the joint venture interests. Pursuant to contractual arrangements, the Company provides data production services to the subsidiary from the Company's computer facilities in Wood Dale, Illinois. Italy. In 1994, the Company began development of an information service in Italy through the formation of a wholly-owned subsidiary, IRI InfoScan S.r.l. ("IRI Italy"). Its basic service consists of retail sales and promotion tracking using a sample of retail grocery outlets. Supermarket sales are tracked by means of scanning data, while sales in smaller, traditional shops are measured by manual audit techniques. Pursuant to contractual arrangements, the Company provides data production services to IRI Italy from the Company's computer facilities in Wood Dale, Illinois. Germany. The Company operates a retail tracking service joint venture in Germany, Information Resources GfK GmbH ("IRI Germany"), which the Company currently owns approximately 78% and GfK owns the balance. During 2001, the Company's funding requirements per the joint venture agreement increased to 100% although GfK continued to share in certain operating results through the second quarter of 2002. In 2000, the Company began transitioning data production services for IRI Germany from GfK's facilities in Nuremberg, Germany to the Company's facilities in Wood Dale, Illinois. This transition was completed in the first quarter of 2002 and the Company now provides data production services to IRI Germany pursuant to contractual arrangements. Netherlands. The Company and GfK operate a joint venture which offers a scanner-based retail tracking service to the Netherlands market. This scanner-based retail tracking service, Information Resources GfK B.V. ("IRI Netherlands"), became fully-operational in 1994. The Company currently owns approximately 80% of this company, with GfK owning the balance. In 2001, the Company's funding requirements per the joint venture agreement increased to 100%, although GfK is entitled to 49% of any profits. Pursuant to contractual arrangements, the Company provides data production services to IRI Netherlands through the Company's computer facilities in Wood Dale, Illinois. Benelux. In 1998, the Company sold a 9.9% interest in GfK Panel Services Benelux B.V. to GfK reducing its ownership in this entity to 10%. The Company's interest was further reduced to 7.6% during 2001 following a capital increase. This company operates household panel services in the Netherlands and Belgium and continues to cooperate with IRI Netherlands in the sale and delivery of services to common customers. Spain. IRI began a start-up venture in Spain during April 1998. In November 1998, the Company executed a joint venture agreement with Media Planning, S.A. to create a new retail tracking business to serve the Spanish market under the name Information Resources Espana, S.L. ("IRI Spain"). In January 1999, IRI Spain and Dympanel, S.A., a wholly owned subsidiary of TNS, signed a cooperation agreement which added Dympanel, S.A. as a third investor in IRI Spain. The aforementioned agreements resulted in the Company, Media Planning, S.A., and Dympanel, S.A. owning 65%, 33% and 2%, respectively, of the capital shares of IRI Spain. IRI Spain began providing the InfoScan service to the Spanish market in early 1999, using the Company's production facilities in Wood Dale, Illinois. Greece. The Company operates a retail audit business in Greece which it acquired in 1994. The operation includes collecting, reporting, analyzing and interpreting national and regional sales data from retail audits. Eastern Europe, Middle East and North Africa. In 1995, the Company entered into a strategic alliance with Middle East Market Research Bureau ("MEMRB"), a market research company based in Cyprus. MEMRB provides market research throughout more than 20 countries in the Middle East, Eastern Europe, 7 the Mediterranean, the Commonwealth of Independent States and North Africa. Under the terms of the strategic alliance agreement, MEMRB has agreed to cooperate in the adoption of multi-country technical standards developed by the Company and co-market certain information and software products with the Company. In 1998, IRI acquired a 19.9% ownership interest in MEMRB. The Company holds an option to increase its ownership interest of MEMRB to 49%. Asia and Australia. The Company had a joint venture in Japan with Tokyo-based Mitsui & Co., Ltd. ("Mitsui") to provide information services in Japan under the name Information Resources Japan, Ltd. The joint venture was formed in 1995. Effective December 2002, the Company sold its 40% interest to Mitsui and granted Mitsui the right to continue to use the trade name "Information Resources Japan" for a period of twelve months after the date of sale. Until September 2000, the Company also had wholly-owned software distribution subsidiaries in Japan and Australia. The distribution of the Company's proprietary Apollo software products has now been transferred to Information Resources Japan, Ltd. and an unrelated company in Australia in exchange for royalties and the businesses of these subsidiaries have been discontinued. Latin America. The Company has operations in certain Latin American markets through joint ventures and subsidiaries in Venezuela, Puerto Rico, Guatemala and Mexico. The Company owns 49% of the Venezuelan joint venture, Datos Information Resources, which provides audit-based product tracking as well as ad hoc and software services to the Venezuelan market. The Company's wholly-owned subsidiary in Puerto Rico offers both audit-based product tracking and ad hoc marketing research services. The Company owns 19.9% of a Guatemalan-based company that provides research services in Central America. The Company also has a wholly-owned software distribution subsidiary in Mexico to provide software and consultancy services to both CPG and non-CPG clients in Mexico. In addition, the Company has distributors of its proprietary Apollo software products in Peru, Brazil, Chile and Argentina. TRADEMARKS, PATENTS, LICENSES AND SOFTWARE PROTECTION The Company is the owner of various trademarks, including Apollo(TM), Attitudelink(TM), Attribute Drivers(TM), BehaviorScan(R), Builders(TM) Suite, Choice Drivers(TM), Consumer Knowledge Suite(TM), Consumer Network(TM), CouponScan(TM), CPGNetwork(R), CPGNetwork.com(R), Drivers on Demand(TM), EZPrompt(R), InfoForce(R), InfoPro(TM), InfoScan Advantage(TM), InfoScan(R), InfoScan Census(TM), InSite Reporting(TM), IntroCast(TM), IRI Software(TM), Knowledge Group(TM), Mix Drivers(TM), Mix Planner(TM), Pilote(TM), Promo Drivers(TM), PromoProphet(TM), PromotionScan(TM), QScan(R), Retail Network(TM), ReviewNet(TM), Reviews Advantage(TM), RxPulse(TM), Sales Web(TM), ScanKey(TM), Shoppers' Hotline(R), Shoppers Hotline Elite(R), Shoppers Hotline EliteNet(TM)and XLerate(TM) . The Company also holds certain patents relating to the targetable television technology utilized in its BehaviorScan service. The patents expire at various dates through 2005. Loss or infringement of these patents would likely not have a material adverse effect upon the Company's revenues. As a result of the Company's sale of its EXPRESS technology and line of certain software products to Oracle in July 1995, the Company no longer owns a large portion of the software that is currently used in the delivery of InfoScan data. The Company secured a license back from Oracle providing for the continued use of certain of the EXPRESS software products in the Company's business, including rights to sublicense software to clients of the Company. The initial term of the license expired in July 2001. The Company has negotiated various rights with Oracle to continue to license, sublicense and support Oracle software products beyond July 2001. The Company also has rights to use various trademarks owned by Oracle, including Oracle EXPRESS and Oracle Sales Analyzer. (See "Software and Related Products" above.) The Company regards its databases as proprietary and, in addition to copyright protection, relies upon trade secret laws, limitations on access to its computer source codes, confidentiality agreements with clients and internal nondisclosure safeguards to protect its rights to proprietary interests. The Company's own computer software is also proprietary and bears appropriate copyright notices. Because of the rapid pace of technological change, trademark, patent or copyright protection is of less significance than the knowledge and experience of the Company's personnel and their ability to develop and market new products, services and software applications and to leverage information delivery technologies. 8 WORKING CAPITAL PRACTICES The Company invoices its information service clients in accordance with agreed contract terms. Typical billing cycles are quarterly or monthly in advance for long-term contracts and payment is typically due within 30 days of receipt of invoice. Software licenses granted separate from data contracts generally require payment of license fees in full upon delivery of software. License fees for software licenses granted as part of data contracts are generally received ratably over the term of the data contract. The Company pays fees to some retailers in accordance with negotiated terms for access to their scanner data for use in the InfoScan service. Payments to other vendors are normally made in accordance with vendor terms. CUSTOMERS The Company had approximately 2,500, 2,600 and 2,800 clients using its services in 2002, 2001 and 2000, respectively. The decline in customers since 2000 is primarily due to invoicing arrangements whereby clients and their affiliates were combined for billing purposes. Most of the Company's clients are CPG manufacturers and retailers in the United States or in other countries where the Company offers its services. No client of the Company accounted for revenues in excess of 10% of the Company's total revenues. The Company's top ten clients in 2002 accounted for approximately 37% of the Company's 2002 revenues. BACKLOG ORDERS At December 31, 2002, 2001 and 2000, the Company had committed contract revenues for services of approximately $440 million, $479 million and $507 million, respectively. Backlog revenue to be earned in the immediate year following December 31, 2002, 2001 and 2000 is $264 million, $237 million and $248 million, respectively. Variations in the backlog relate to the timing of certain contract renewals and expirations. Contracts for retail tracking services generally have terms of three to five years and not less than one year. Such contracts are generally categorized into one of two classes: 1) cancelable at the end of each year by giving six months written notice by either party, or 2) multi-year contracts either non-cancelable or cancelable only with significant early termination fees, generally by giving six months written notice after the initial multi-year term. Committed contract revenues include only the non-cancelable portion of a contract. COMPETITION Numerous firms supply marketing and advertising research products and services to CPG manufacturers and retailers. However, the Company and ACNielsen are the only major firms that provide scanner-based product tracking services to such manufacturers and retailers. In February 2001, VNU N.V. acquired the stock of ACNielsen, resulting in a combined company that has access to greater financial resources than the Company and is far larger than IRI in terms of worldwide revenues. In most of the product tracking services markets in which IRI and ACNielsen compete, ACNielsen currently maintains a larger market share. Principal competitive factors include: price, data quality, reliability, timeliness and comprehensiveness of analytical services and data; flexibility and innovation in tailoring services to client needs; experience; the capability of technical and client service personnel; and data processing and decision support software. The Company's market is very competitive and as a result of certain trends and general economic conditions, the industry is facing a number of challenges. Specifically, increasing customer consolidation among consumer packaged goods manufacturers has caused the overall market for retail tracking services to contract. In addition, retail tracking services offered by the Company and its competitors, particularly in the U.S., now cover less of the total marketplace than in prior years as a result of the decision by Wal-Mart in 2001 to discontinue providing its point-of-sale data to third party data suppliers, including the Company and ACNielsen, and the emergence and growth of new channels of trade that do not release point-of-sale data for inclusion in retail tracking services. Further, general global economic conditions in 2002 have resulted in pricing pressure and reductions in overall customer spending on retail tracking services. The Company expects these conditions to continue to impact the consumer packaged goods industry and the demand for retail tracking services for the foreseeable future. 9 Due to certain fixed costs of the Company's operations, including data procurement and processing costs, erosion of its revenue base could have a significant impact on profitability. From time to time competitive factors such as quality, service and price cause clients to change their providers of retail tracking services. Because of the lag effect between notification by a client of its intent to switch suppliers and actual expiration of its contract, revenue gains and losses are generally not reflected in the financial results until the year following notification of a switch. Therefore, client gains and losses in a given year are a key indicator, but not the only indicator of the following year's performance. Other factors would include availability of new products as well as market conditions for selling non-tracking products such as analytic and store audit services. RESEARCH AND DEVELOPMENT The Company is continuously developing new products and services. In this regard, the Company is actively engaged in research and development of new database analyses and applications, software applications and services and data delivery systems. Expenditures for research and development for the years ended December 31, 2002, 2001 and 2000 approximated $11.2 million, $11.7 million and $15.8 million, respectively. All research and development expenditures were expensed as incurred. PERSONNEL At December 31, 2002, the Company had approximately 3,600 full-time and 750 part-time employees worldwide. The Company depends to a significant extent on its skilled technical personnel to execute product development, delivery and client service. Its future success will depend to a large degree upon its ability to continue to hire, train and retain its professional staff. WEBSITE ACCESS TO COMPANY REPORTS The Company maintains an internet website at www.infores.com. IRI makes available on the website annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and all amendments to those reports as soon as reasonably practicable after such material is electronically filed with the Securities and Exchange Commission. ITEM 2. PROPERTIES The Company markets and provides its information services and software support services to U.S. clients from full-service sales offices in Bentonville, Arkansas; San Francisco and Los Angeles, California; Norwalk, Connecticut; Atlanta, Georgia; Waltham, Massachusetts; Minneapolis, Minnesota; Fairfield, New Jersey; Winston-Salem, North Carolina; Cincinnati, Ohio; Fort Washington, Pennsylvania as well as from its corporate headquarters in Chicago, Illinois. The Company markets to international clients through subsidiaries, joint ventures and/or offices in Belgium, Cyprus, France, Germany, Guatemala, Greece, Italy, Japan, Mexico, the Netherlands, Puerto Rico, Spain, United Kingdom and Venezuela as well as through its various distributors. Principal leased facilities of the Company are as follows:
APPROXIMATE FLOOR AREA LOCATION PRINCIPAL OPERATION (SQ. FT.) -------- ------------------- ----------- Chicago, IL............................ Corporate headquarters and offices for professional staff 370,000 Wood Dale, IL.......................... Computer facilities 45,000 Regional sales and client service offices.............................. Sales, client service and analysis 209,000 International offices.................. Sales, client service, computer facilities and professional staff 228,000 Data collection facilities............. Data collection and client test market control and cable TV studio facilities 58,000
10 ITEM 3. LEGAL PROCEEDINGS On July 29, 1996, IRI filed an action against The Dun & Bradstreet Corp., The A.C. Nielsen Company (now owned by VNU, N.V.) and IMS International, Inc. (collectively, the "Defendants") in the United States District Court for the Southern District of New York entitled Information Resources, Inc. v. The Dun & Bradstreet Corp., et. al. No. 96 CIV. 5716 (the "Action"). IRI alleged that, among other things, the Defendants violated Sections 1 and 2 of the Sherman Act, 15 U.S.C. Sections 1 and 2, by engaging in a series of anti-competitive practices aimed at excluding the Company from various export markets for retail tracking services and regaining monopoly power in the United States market for such services. These practices included: i) entering into exclusionary contracts with retailers in several countries, in order to restrict the Company's access to sales data necessary to provide retail tracking services; ii) illegally tying/bundling services in markets over which Defendants' had monopoly power with services in markets in which ACNielsen competed with the Company; iii) predatory pricing; iv) acquiring foreign market competitors with the intent of impeding the Company's efforts at export market expansion; v) tortiously interfering with Company contracts and relationships with clients, joint venture partners and other market research companies; and vi) disparaging the Company to financial analysts and clients. By the Action, the Company sought to enjoin the Defendants' anti-competitive practices and to recover damages in excess of $350 million, prior to trebling. In procedural rulings, the District Court dismissed IRI's claims for injury suffered from Defendants' activities in foreign markets, where IRI operates through subsidiaries, and denied IRI leave to join such subsidiaries as parties. IRI continues to pursue any and all appeal rights of these procedural rulings prior to trial and to vigorously prosecute its claims for injuries in the U.S. and other markets, which the Company believes to be substantial. As previously reported, in 1999 IRI filed an action against Manugistics, Inc. in the Circuit Court of Cook County, Illinois. In this action IRI was seeking damages for Manugistics' alleged breach of a Data Marketing and Guaranteed Revenue Agreement and a related Non-Competition and Non-Solicitation Agreement. In December 2001, IRI and Manugistics settled their dispute under these agreements. Pursuant to the settlement agreement, Manugistics agreed to pay IRI a total of $8.625 million. Of this amount, $4.75 million was paid in cash installments. Manugistics also agreed to issue shares of its common stock representing the remaining $3.875 million (the "Settlement Shares"). On February 26, 2002, Manugistics issued the Settlement Shares to IRI. All of the Settlement Shares were sold by IRI for $3.875 million, net of commissions, on March 1, 2002. In the ordinary course of business, IRI and its subsidiaries become involved as plaintiffs or defendants in various other legal proceedings. The claims and counterclaims in such litigation, including those for punitive damages, individually in certain cases and in the aggregate, involve amounts which may be material. However, it is the opinion of the Company's management, based upon the advice of counsel, that the ultimate disposition of pending litigation against the Company will not be material. 11 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None. ITEM 4(a). EXECUTIVE OFFICERS OF THE REGISTRANT
NAME AGE POSITION WITH COMPANY AND BUSINESS EXPERIENCE - ---- --- --------------------------------------------- Joseph P. Durrett.............. 57 Chairman of the Board of Directors, Chief Executive Officer and President of the Company since May 1999. President and Chief Executive Officer of Broderbund Software, Inc. from October 1996 to December 1998. Member of the Board of Directors of Broderbund Software, Inc. from October 1996 to September 1998. President, Chief Operating Officer and Director of Advo, Inc. from September 1992 to July 1996. Andrew G. Balbirer............. 48 Executive Vice President and Chief Financial Officer of the Company since February 2000. Chief Executive Officer of Arkidata Corporation from October 1999 until February 2000. Independent Consultant from April 1998 to October 1999. Executive Vice President and Chief Operating Officer of Metz Baking Company (a division of Specialty Foods Corporation) from February 1996 to April 1998. Chief Executive Officer of Mother's Cake & Cookie Company (a division of Specialty Foods Corporation) from July 1995 to February 1996. Chief Financial Officer of Specialty Foods Corporation from February 1995 to February 1996. Prior to 1995, Mr. Balbirer served in various senior management positions, including Chief Financial Officer and General Manager of Consumer Products with The NutraSweet Company, then a wholly-owned subsidiary of Monsanto Company. Edward C. Kuehnle.............. 48 Group President of IRI North America since November 1999. Division President of Customer Sales and Service from October 1998 to November 1999. Vice President of Sales of Pharmacia & Upjohn Consumer Healthcare from January 1998 to September 1998. Manager of Strategic Services Group of Coopers & Lybrand Consulting, LLP from January 1997 to January 1998. Senior Vice President of Consumer & Medical Sales of Whitehall Robins Healthcare (a division of American Home Products Corp.) from July 1995 to October 1996. Executive Vice President of Marketing & Sales of American Home Foods (a division of American Home Products Corp.) from July 1994 to July 1995. Senior Vice President of Sales of American Home Foods from July 1993 to July 1995. Prior to July 1993, Mr. Kuehnle served in various senior management sales, marketing, and supply chain positions at Bristol-Myers Squibb Company. Mark A. Tims................... 46 Group President of International Operations of the Company since January 2003. Managing Director of the Company's United Kingdom subsidiary, IRI InfoScan Ltd. from November 1996 to January 2003. Managing Director of the Company's Netherlands operation, Information Resources GfK B.V. from April 2000 to January 2003.
12
NAME AGE POSITION WITH COMPANY AND BUSINESS EXPERIENCE - ---- --- --------------------------------------------- Monica M. Weed................. 42 Executive Vice President and General Counsel of the Company since November 1998. Corporate Secretary since February 2000. Assistant Secretary from May 1993 to February 2000. Senior Vice President and Assistant General Counsel of the Company from December 1994 to November 1998. Vice President of the Company from September 1991 to December 1994. Mary K. Sinclair............... 39 Executive Vice President and Corporate Controller of the Company since June 2000. Corporate Controller of Favorite Brands International, Inc. from January 1999 to May 2000. Chief Financial Officer of Federated Group, Inc. from 1996 to 1999.
All of the foregoing executive officers hold office until the next annual meeting of the Board of Directors and until their successors are elected and qualified. 13 PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS The Company's Common Stock has traded on the NASDAQ Stock Market under the symbol "IRIC" since 1983. The stock currently trades on the National Market System. Share data has been adjusted for all stock splits and stock dividends to date. The high and low closing sales prices for the Company's Common Stock were as follows:
QUARTERS HIGH LOW -------- ------ ----- 2001 1st quarter............................................... $ 6.50 $3.06 2nd quarter............................................... $10.34 $5.40 3rd quarter............................................... $11.16 $5.75 4th quarter............................................... $ 9.44 $5.45 2002 1st quarter............................................... $ 9.38 $6.90 2nd quarter............................................... $10.52 $7.96 3rd quarter............................................... $ 8.36 $3.53 4th quarter............................................... $ 3.94 $1.55
The last sale price on February 28, 2003 was $1.72 per share. As of February 28, 2003 there were 1,539 record holders of the Company's Common Stock. The Company has never paid cash dividends. It is the present policy of the Company's Board of Directors to retain earnings for use in the Company's business. Accordingly, the Board of Directors does not anticipate that cash dividends will be paid in the foreseeable future. There are restrictions in IRI's bank revolving credit facility and certain lease agreements which prohibit the payment of dividends without prior consent and limit the purchase or redemption of Common Stock. (See Note 9 of the Notes to the Consolidated Financial Statements.) 14 ITEM 6. SELECTED FINANCIAL DATA
YEARS ENDED DECEMBER 31, ---------------------------------------------- 2002 2001 2000 1999 1998 ------ ------ ------ ------ ------ (IN MILLIONS, EXCEPT PER SHARE DATA) HISTORICAL RESULTS OF OPERATIONS Revenue............................................. $554.8 $555.9 $530.9 $546.3 $511.3 ====== ====== ====== ====== ====== Special charges, net(1)............................. $(14.9) $(15.4) $(13.6) $(24.8) $ -- ====== ====== ====== ====== ====== Defined contribution plan expense(2)................ $ -- $ -- $ -- $ (7.9) $ -- ====== ====== ====== ====== ====== Operating profit (loss)............................. $ (9.1) $ (4.9) $(12.3) $(32.6) $ 7.0 ====== ====== ====== ====== ====== Earnings (loss) before cumulative effect of accounting change................................. $ (6.0) $ (3.9) $ (7.5) $(18.4) $ 3.8 ====== ====== ====== ====== ====== Cumulative effect of accounting change -- impairment of goodwill(3).................................... $ (7.1) $ -- $ -- $ -- $ -- ====== ====== ====== ====== ====== Net earnings (loss)................................. $(13.0) $ (3.9) $ (7.5) $(18.4) $ 3.8 ====== ====== ====== ====== ====== Net earnings (loss) per common share before cumulative effect of accounting change -- basic(3)................................ $(0.20) $(0.13) $(0.26) $(0.66) $ 0.13 ====== ====== ====== ====== ====== Net earnings (loss) per common share -- basic....... $(0.44) $(0.13) $(0.26) $(0.66) $ 0.13 ====== ====== ====== ====== ====== Weighted average common shares -- basic............. 29.5 29.2 29.0 28.0 28.6 ====== ====== ====== ====== ====== Net earnings (loss) per common and common equivalent share before cumulative effect of accounting change -- diluted(3).............................. $(0.20) $(0.13) $(0.26) $(0.66) $ 0.13 ====== ====== ====== ====== ====== Net earnings (loss) per common and common equivalent share -- diluted.................................. $(0.44) $(0.13) $(0.26) $(0.66) $ 0.13 ====== ====== ====== ====== ====== Weighted average common and common equivalent shares -- diluted................................. 29.5 29.2 29.0 28.0 29.0 ====== ====== ====== ====== ====== BALANCE SHEET DATA Total assets........................................ $359.2 $353.4 $365.2 $368.5 $369.3 ====== ====== ====== ====== ====== Working capital..................................... $(30.0) $(27.1) $(15.2) $(11.1) $ 5.2 ====== ====== ====== ====== ====== Long-term debt...................................... $ 4.5 $ 2.2 $ 24.6 $ 10.8 $ 4.6 ====== ====== ====== ====== ====== Stockholders' equity................................ $203.7 $210.8 $213.1 $225.0 $238.5 ====== ====== ====== ====== ====== Book value per common share......................... $ 6.83 $ 7.17 $ 7.33 $ 7.74 $ 8.56 ====== ====== ====== ====== ====== Dividends paid per common share..................... $ -- $ -- $ -- $ -- $ -- ====== ====== ====== ====== ====== ADDITIONAL FINANCIAL INFORMATION Deferred data procurement costs..................... $140.9 $129.0 $124.8 $130.2 $120.5 ====== ====== ====== ====== ====== Capital expenditures................................ $ 14.0 $ 20.9 $ 19.8 $ 31.1 $ 33.7 ====== ====== ====== ====== ======
- --------------- (1) In 2002, special charges aggregated $14.9 million relating to the Company's restructuring programs and a workforce reduction in the fourth quarter of the year. During 2001, the Company recorded net charges aggregating $15.4 million reflecting $17.4 million of charges relating to its restructuring programs and $2.0 million of other income resulting from the settlement of the dispute with Manugistics. During 2000, the Company recorded charges aggregating $14.5 million relating to its restructuring program and ($0.9) million relating to other charges. In December 1999, the Company recorded a $19.7 million charge 15 relating to its restructuring program and a $5.1 million charge resulting from asset impairments, primarily goodwill at IRI Germany. (See Notes 4 and 11 of the Notes to Consolidated Financial Statements). (2) In December 1999, the Company adopted the Information Resources, Inc. Nonqualified Defined Contribution Plan (the "Plan"). In December 1999, the Company made an irrevocable contribution of 877,000 shares of IRI common stock to the Plan trust, resulting in a $7.9 million charge which represents the fair market value of the common stock contribution. (3) In 2002, the Company adopted Statement of Financial Accounting Standards No. 142, "Goodwill and Other Intangible Assets". As required by Statement No. 142, a goodwill impairment test was performed as of January 1, 2002 and the Company recognized a goodwill impairment charge of $7.1 million as the cumulative effect of a change in accounting principle in the Statement of Operations. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OVERVIEW The Company's market is very competitive and as a result of certain trends and general economic conditions, the industry is facing a number of challenges. Specifically, increasing customer consolidation among consumer packaged goods manufacturers has caused the overall market for retail tracking services to contract. In addition, retail tracking services offered by the Company and its competitors, particularly in the U.S., now cover less of the total marketplace than in prior years as a result of the decision by Wal-Mart in 2001 to discontinue providing its point-of-sale data to third party data suppliers, including the Company and ACNielsen, and the emergence and growth of new channels of trade that do not release point-of-sale data for inclusion in retail tracking services. Further, general global economic conditions in 2002 have resulted in pricing pressure and reductions in overall customer spending on retail tracking services. The Company expects these conditions to continue to impact the consumer packaged goods industry and the demand for retail tracking services for the foreseeable future. See "Business -- Competition." The Company's revenues are affected in any given year by the net effect of client gains and losses. The impact of client gains and losses has a somewhat delayed effect on reported revenues in the Company's consolidated financial statements. This lagging effect is due to the long-term nature of many contracts and the fact that there is generally a period of transition between the date on which a client makes a contract decision and the effective date of the agreement. In addition, because of certain fixed costs of the Company's retail tracking operations, including data procurement and processing costs, small variations in revenue can have a significant impact on profitability. With respect to the Company's U.S. retail tracking business, certain client decisions in 2002, including the decision by one of IRI's largest clients, Procter & Gamble ("P&G"), not to renew their retail tracking business with IRI in the U.S. will negatively impact 2003 U.S. revenues and operating results. However, the Company believes that, on a consolidated basis, it will be able to mitigate the earnings impact of these U.S. revenue losses in 2003 by the addition of new retail tracking clients that will begin generating revenue in 2003, increases in the sales of existing and new products to its current client base and the realization of further cost efficiencies. In addition, although IRI will stop providing retail tracking data to P&G in the second half of 2003, the Company expects to continue to provide some services to P&G in 2003 and beyond. The Company's Panel, Analytics and Testing business is growing through increased spending by existing customers, the addition of new customers and the introduction of new products and services. For example, in the U.S., the Company has been experiencing increased demand for its panel and analytics services resulting in an 11.2% increase in 2002 over the prior year. The Company anticipates continued growth in these areas of its business as CPG companies require increasingly more and advanced consumer intelligence and analysis. The Company also continued to experience revenue growth in 2002 in most of the Company's European markets, with the notable exception being Germany. Although International operating losses were higher in 2002, they were primarily driven by the Company's German operation. Losses from the German operation in 2002 increased over the prior year as a result of the Company's transition to a new service in that country. As discussed below in Special Charges, German production was transitioned to the U.S. in the first quarter of 16 2002. However, the German operation was also transitioning customers to a new scan-based service during 2002 and experienced difficulty meeting client expectations during this transition. This resulted in lower revenues due to lost customers and credits provided to existing customers. Absent the losses attributable to the Company's German business, the Company's International operations would have reflected a profit in 2002. The Company believes that most of the operational difficulties in Germany have been addressed and that results will improve in 2003. Management continues to evaluate various options to achieve International operating profit. In February 2003, the Company announced the retention of an investment banking firm to assist in its exploration of strategic options. Such options include selling all or parts of the Company, joint ventures, restructuring and capital infusions. GOODWILL IMPAIRMENT The Company performed a goodwill impairment test as required by Statement No. 142 to determine the implied fair value of the goodwill recorded on its books as of January 1, 2002. As the goodwill related entirely to previous international transactions, the fair value was estimated by discounting the estimated future cash flows of the international reporting unit. Based on this analysis, the Company recognized a goodwill impairment charge of $7.1 million. In accordance with Statement No. 142, the charge was reflected as the cumulative effect of a change in accounting principle in the Statement of Operations. SPECIAL CHARGES Since 1999, the Company has undertaken major initiatives resulting in significant or incremental expenditures that have been classified as Special Charges in the Statement of Operations. In 2002, Special Charges aggregated $14.9 million relating to the Company's restructuring programs and a workforce reduction in the fourth quarter of the year. Special Charges are discussed in detail below. Management reviews the operations and related costs on a continuous basis and believes further charges are likely to be required in 2003. CRITICAL ACCOUNTING POLICIES AND ESTIMATES The consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States, which require management to make estimates and assumptions. Management believes that of the Company's significant accounting policies as disclosed in Note 1 of the Notes to Consolidated Financial Statements, the following affect its more significant judgments and estimates used in the preparation of the consolidated financial statements. Allowance for Bad Debts: IRI maintains an allowance for doubtful accounts for estimated losses resulting from the inability of its clients to make required payments. If the financial condition of the Company's clients were to deteriorate, resulting in an impairment of their ability to make payments, additional allowances may be required. No client accounted for 10% or more of consolidated revenue in 2002, 2001 or 2000. Deferred Taxes: The Company has significant net operating loss carryforwards that result in a deferred tax asset. The asset has been reduced by a valuation allowance to an amount that is more likely than not to be realized. Realization of the asset is primarily dependent on the future recognition of substantial taxable income resulting from the reversal of existing net temporary differences. However, in the event that IRI were to determine that the deferred tax asset would not be realized, a material adjustment to the deferred tax asset could be required. Investments: The Company has equity investments in companies having operations in areas within its strategic focus. An investment impairment charge is required if management believes the investment has experienced a decline in value that is other than temporary. The Company is required to review all of its investments periodically for impairment, however, the investments are in non-marketable equity securities for which no open market valuations are available and the impairment analysis requires significant judgment. Future adverse changes in market conditions or poor operating results of underlying investments could result 17 in losses or an inability to recover the carrying value of the investments and the Company may be required to record an impairment charge in the future. Deferred Data Procurement Costs: IRI capitalizes data procurement expenditures as an asset and amortizes the expenditures over a period of 28 months, which is the average number of months of back-data provided to clients. Capitalized costs include payments to retailers for point-of-sale data and costs related to collecting, reviewing and verifying other data (i.e., causal factors) which are an essential part of the Company's database. The asset is reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of the asset may not be recoverable. An estimate of the undiscounted future cash flows produced by the asset is compared to the carrying value to determine whether an impairment exists. If estimates of cash flows change in the future, the Company may be required to reduce the carrying value of the asset resulting in a material non-cash expense in the Statement of Operations. RESULTS OF OPERATIONS Consolidated revenues in 2002 were slightly lower than 2001 while 2001 revenues increased 4.7% over 2000. 2002 net losses were $13.0 million compared to losses of $3.9 million in 2001 and losses of $7.5 million in 2000. The Company considers the aggregation of operating profit (loss), equity earnings (losses) and minority interests ("operating results") on a geographic basis to be a meaningful measure of the Company's operating performance. A comparative analysis of consolidated revenues and operating results for the years ended December 31, 2002, 2001 and 2000 follows (in thousands):
2002 2001 2000 -------- -------- -------- Revenues: U.S. Services....................................... $411,572 $420,321 $397,895 International Services.............................. 143,268 135,547 133,028 -------- -------- -------- Total.......................................... $554,840 $555,868 $530,923 ======== ======== ======== Operating Results: U.S. Services....................................... $ 20,892 $ 25,895 $ 15,833 International Services Operating loss................................... (8,800) (4,405) (4,628) Minority interests benefit....................... 610 2,694 2,746 Equity in earnings (losses) of affiliated companies...................................... (78) 311 575 -------- -------- -------- Subtotal -- International Services............. (8,268) (1,400) (1,307) Corporate and other expenses including equity in loss of affiliated companies..................... (5,874) (11,275) (10,960) Special charges, net................................ (14,915) (15,434) (13,590) -------- -------- -------- Operating Results.............................. $ (8,165) $ (2,214) $(10,024) ======== ======== ========
Revenues from the Company's U.S. Services business in 2002 were 2.1% lower than in 2001, while revenues in 2001 were 5.6% higher than in 2000. The decrease in 2002 revenue was primarily due to a 5.1% decrease in retail tracking revenue that was partially offset by an 11.2% increase in revenue from panel and analytics products and services. The decline in retail tracking revenue is primarily a result of the delayed impact of customer losses in 2001 that were not completely offset by revenues generated from new customers and increased spending by existing customers during 2002. The increase in 2001 over 2000 revenue was primarily due to a 17.1% increase in analytic and panel revenue, a 2.8% increase in retail tracking services driven primarily by the growth of the Company's Web access portal, CPGNetwork, and a 10.7% increase in retail audit services. U.S. operating results before special charges decreased by $5.0 million or 19.3% due to a 2.1% decrease in revenues that was partially offset by a 1.0% decline in expenses. While the Company incurred additional costs associated with the growth of its analytics business, these costs were generally offset by savings in a number of 18 other areas as a result of the Company's ongoing cost saving efforts. Additionally, 2002 incentive compensation was less than the prior year due to lower operating results. U.S. operating results before special charges increased $10.1 million or 63.5% in 2001 due to a 5.6% increase in revenues partially offset by a 3.2% increase in expenses. International Services revenues in 2002 increased by 5.7%, 1.0% in local currency, over 2001. Revenues in 2001 increased by 1.9%, 6.0% in local currency, over 2000. Operating results, before special charges, for the Company's International businesses reflected an $8.3 million loss for 2002 compared to a loss of $1.4 million in 2001. The higher losses in 2002 were primarily driven by the Company's German operation. Revenue growth continued in 2002 in most of the Company's European markets, with the notable exception being Germany. Excluding Germany and the impact of currency, International revenues increased 4.0%. Expense increases in 2002 of 4.0% on a local currency basis offset the favorable impact of revenue growth. However, excluding Germany, International operating results were positive in 2002 and 2001. International operating results, before special charges, reflected a $1.4 million loss in 2001 compared to a $1.3 million loss in 2000. Revenue growth continued in 2001 in the Company's European markets, primarily in the U.K., France, Italy and Spain. Expense increases in 2001 of 5.0% on a local currency basis partially offset the favorable impact of revenue growth. Year Ended December 31, 2002: Consolidated net losses were $13.0 million in 2002 compared to net losses of $3.9 million in 2001. The 2002 net loss increased primarily due to lower U.S. and international contributions and a charge of $7.1 million relating to the cumulative effect of an accounting change for goodwill. Results in 2002 reflect a net after tax charge of $9.4 million for special charges compared to $9.7 million in 2001. (See further discussion of Special Charges below.) Consolidated revenues decreased slightly to $554.8 million in 2002. U.S. revenues decreased 2.1% primarily due to a decrease in retail tracking revenue of 5.1% that was partially offset by an 11.2% increase in revenue from panel and analytics products and services. International revenues increased 5.7% over 2001, however, international revenue growth in local currency was 1.0%, reflecting the strength of the European currencies versus the U.S. dollar. Excluding Germany and the impact of currency, international revenue grew 4.0% reflecting continued growth in the Company's European markets, primarily in the U.K., France, Italy and Spain. Consolidated cost of information services sold increased by $8.1 million, or 1.6%, to $502.1 million in 2002. The increase is primarily the result of foreign currency exchange effects. While the Company incurred additional costs associated with the growth of its analytics business, these costs were generally offset by savings in a number of areas as a result of the Company's ongoing cost saving efforts and reduced incentive compensation. Consolidated selling, general and administrative expenses decreased by $4.4 million, or 8.5%, to $47.0 million for 2002. The unfavorable impact of strengthening European currencies during 2002 was more than offset by lower costs as a result of ongoing cost savings efforts. Special charges are discussed below. Interest and other expenses were $0.3 million for 2002 compared to $3.1 million in 2001. The decrease in 2002 is due to lower interest expense resulting from decreased bank borrowings and foreign exchange gains resulting from the strength of the European currencies against the U.S. dollar during 2002. The Company's 2002 income tax benefit was lower than the income tax rates computed using the U.S. Federal statutory rate primarily due to the effects of non-deductible expenses. Effective January 1, 2002, the Company adopted Statement of Financial Accounting Standards No. 142, "Goodwill and Other Intangible Assets." Under the new rules, goodwill, the excess of the carrying value over the net book value of investments accounted for using the equity method and intangible assets deemed to have indefinite lives, are no longer amortized but are subject to annual impairment tests. Other intangible assets continue to be amortized over their useful lives. 19 The Company performed a goodwill impairment test as required by Statement No. 142 to determine the implied fair value of the goodwill recorded on its books as of January 1, 2002. Based on this analysis, the Company recognized a goodwill impairment charge of $7.1 million and reflected the charge as the cumulative effect of a change in accounting principle in the Statement of Operations. Proforma results for 2001, had the provisions of Statement No. 142 been applied and no goodwill impairment recorded, would have been a net loss of $3.0 million or $.10 per diluted share compared to a reported net loss of $3.9 million or $.13 per diluted share. Year Ended December 31, 2001: Consolidated net losses were $3.9 million in 2001 compared to net losses of $7.5 million in 2000. The 2001 net loss decreased primarily due to higher revenues, which outpaced increases in operating and special charges. Results in 2001 reflect a net after tax charge of $9.7 million for special charges compared to $7.9 million in 2000. (See further discussion of Special Charges below.) Consolidated revenues increased 4.7% to $555.9 million in 2001. U.S. revenues increased 5.6% primarily due to increases in analytic, CPGNetwork and retail tracking services revenue. International revenues increased 1.9% over 2000, reflecting continued growth in the Company's European markets, primarily in the U.K., France, Italy and Spain. However, international revenue growth in local currency was 6.0%, reflecting the strength of the U.S. dollar versus European currencies. Consolidated cost of information services sold increased by $19.8 million, or 4.2%, to $493.9 million in 2001. The increase is primarily attributable to increases in compensation and benefits and market operations resulting from increased revenues. These increases were offset by declines in office and travel expenses. Additionally, the strength of the U.S. dollar versus European currencies favorably impacted expenses. Consolidated selling, general and administrative expenses decreased by $4.0 million, or 7.2%, to $51.4 million for 2001. The decrease is primarily attributable to declines in recruiting and office expenses. Special charges are discussed below. Interest and other expenses were $3.1 million for 2001 compared to $3.6 million in 2000. The decrease in 2001 is due to lower interest expense resulting from decreased bank borrowings offset by higher foreign currency losses. The Company's 2001 income tax benefit was lower than the income tax rates computed using the U.S. Federal statutory rate primarily due to the effects of non-deductible expenses. LIQUIDITY AND CAPITAL RESOURCES The Company's current cash resources include its $9.0 million consolidated cash balance and $26.9 million available, net of letters of credit, under the Company's new revolving credit facility discussed below, as of December 31, 2002. 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 new credit agreement, which contains covenants restricting the Company's ability to incur additional indebtedness, expires in July 2005. The new bank revolving credit facility includes financial and non-financial covenants as discussed below. The Company expects to be in compliance with all of its covenants during 2003 however, if the Company violates a covenant that the bank group is unwilling to amend or waive, and the bank group declares a default under the credit agreement, liquidity could be negatively impacted. Cash Flow for the Year Ended December 31, 2002: Consolidated net cash provided by operating activities was $154.3 million for the year ended December 31, 2002 compared to $179.7 million in 2001. This decrease was primarily attributable to changes in accounts receivable and accounts payable resulting from the timing of collections and payments and including a $10.9 million cash payment the Company received in 2001 as an early termination fee on a client contract that was to expire in 2005. Consolidated cash used in net investing activities was $156.5 million in 2002 compared to $154.9 million in 2001. Investing activity in 2002 reflects higher expenditures for data procurement relating to product enhancements. Additionally, data expenditures were higher due to the impact of currency on international data payments as well as increased international retailer payments. These expenditures were partially offset by 20 lower expenditures for capital. 2001 investing activity also included payments made in connection with the formation of Mosaic InfoForce, L.P. Net cash used before financing activities was $2.2 million in 2002 compared to net cash provided before financing activities of $24.7 million in 2001. Consolidated cash used by net financing activities was $3.3 million in 2002 compared to $22.6 million in 2001. In 2002, the Company purchased $1.2 million of its stock compared to $0.2 million of stock purchases in 2001. Additionally the Company repaid $21.0 million under its revolving line of credit during 2001. Cash Flow for the Year Ended December 31, 2001: Consolidated net cash provided by operating activities was $179.7 million for the year ended December 31, 2001 compared to $143.9 million in 2000. In addition to improved earnings in 2001, a significant portion of this increase is attributable 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. Net cash provided by operating activities was also higher due to improved working capital management in 2001. Consolidated cash used in net investing activities was $154.9 million in 2001 compared to $148.2 million in 2000. Investing activity in 2001 reflects higher payments for U.S. convenience and drug store data and higher retailer payments in the U.K. and France. Additionally, 2001 investing activity reflects reduced capital contributions from minority partners. 2001 investing activity also includes payments of $3.7 million made in connection with the formation of Mosaic InfoForce, L.P. Net cash provided before financing activities was $24.7 million in 2001 compared to a net cash use before financing activities of $4.3 million in 2000. Consolidated cash used by net financing activities was $22.6 million in 2001 compared to net cash provided by financing activities of $8.4 million in 2000. The Company repaid $21.0 million under its revolving line of credit during 2001 and purchased $0.2 million of the Company's stock compared to borrowings of $11.0 million and $0.9 million of stock purchases in 2000. Financings: On July 12, 2002, the Company replaced its existing $35.0 million credit facility, which was scheduled to expire in October 2002, with a new $40.0 million credit facility. The new facility has floating rate interest options that range between 2.25% and 3.00% over LIBOR and commitment fees of up to 0.50% payable on the unused portion. The weighted average interest rate at December 31, 2002 was 4.17%. The new credit facility expires in July 2005. Under the new credit facility, the maximum commitment of funds available for borrowings is limited by a defined borrowing base formula related to eligible accounts receivable, which fluctuates during the quarter. Borrowings under the facility are secured by the Company's assets. The financial covenants in the new 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. The new bank credit agreement contains covenants which restrict the Company's ability to incur additional indebtedness. As of December 31, 2002, the Company was in compliance with all covenants. Contractual Obligations and Commercial Commitments: Following is a summary of the Company's commitments as of December 31, 2002 (in thousands):
PAYMENTS DUE BY PERIOD -------------------------------------------------------- AFTER CONTRACTUAL OBLIGATIONS TOTAL 2003 2004-2005 2006-2007 2007 ----------------------- -------- ------- --------- --------- ------- Long-Term Debt............................... $ 1,177 $ 914 $ 263 $ -- $ -- Capital Lease Obligations.................... 6,957 2,725 4,232 -- -- Operating Leases............................. 105,506 25,756 34,828 21,447 23,475 Other Liabilities............................ 885 885 -- -- -- -------- ------- ------- ------- ------- Total Contractual Cash Obligations...... $114,525 $30,280 $39,323 $21,447 $23,475 ======== ======= ======= ======= =======
21
AMOUNT OF COMMITMENTS EXPIRATION PER PERIOD TOTAL ----------------------------------------- AMOUNTS AFTER OTHER COMMERCIAL COMMITMENTS COMMITTED 2003 2004-2005 2006-2007 2007 - ---------------------------- --------- ------ --------- --------- ----- Standby Letters of Credit....................... $3,847 $3,847 $-- $ -- $ -- Guarantees -- Mosaic InfoForce, L.P............. 1,538 1,094 444 -- -- ------ ------ ---- ----- ----- Total Commercial Commitments............... $5,385 $4,941 $444 $ -- $ -- ====== ====== ==== ===== =====
Common Stock Repurchase Program: During 2000, the Company began acquiring shares of its Common Stock in connection with a stock repurchase program announced in August 2000 that was established to acquire shares to fund the Company's 2000 Employee Stock Purchase Plan ("ESPP"). The program, approved by the Company's Board of Directors, authorized the periodic repurchase of up to one million shares of its Common Stock on the open market, or in privately negotiated transactions, depending upon market conditions and other factors. During 2002, the Company purchased 210,000 shares of Common Stock aggregating $1.2 million at an average cost of $5.70 per share. The Company purchased 40,000 shares of Common Stock aggregating $0.2 million during 2001 at an average cost of $5.50 per share. During 2002, the Company sold 286,452 shares, 210,000 shares of which were held in treasury and the remainder of which were newly issued shares of Common Stock, for $0.7 million to employees participating in the ESPP. During 2001, the Company sold 199,720 shares, 40,000 shares of which were held in treasury and the remainder of which were newly issued shares of Common Stock, for $0.8 million to employees participating in the ESPP. During 2000, the Company sold 158,827 shares of Common Stock, which were held in treasury, for $0.4 million to employees participating in the ESPP. Other Deferred Costs: Consolidated deferred data procurement expenditures were $140.9 million, $129.0 million and $124.8 million for the years ended December 31, 2002, 2001 and 2000, respectively. These expenditures are amortized over a period of 28 months, which is the average number of months of back-data provided to clients, and include payments to retailers for point-of-sale data and costs related to collecting, reviewing and verifying other data (i.e., causal factors) which are an essential part of the Company's database. Deferred data procurement expenditures for the Company's U.S. services business were $81.7 million, $76.4 million and $74.7 million for the years ended December 31, 2002, 2001 and 2000, respectively. The increase in deferred data procurement expenditures in 2002 over the prior year is primarily due to increased causal collection costs associated with InfoScan product enhancements. The increase in deferred data expenditures in 2001 over the prior year was primarily due to higher payments for convenience and drug store data. The Company's International services business deferred data procurement expenditures were $59.2 million, $52.6 million and $50.1 million for the years ended December 31, 2002, 2001 and 2000, respectively. International expenditures increased in 2002 due to the impact of currency, product enhancements as well as increased retailer payments. The increase in deferred data expenditures in 2001 over the prior year was primarily due to increases in retailer payments in the U.K. and France. Capital Expenditures: Consolidated capital expenditures were $14.0 million, $20.9 million and $19.8 million for the years ended December 31, 2002, 2001 and 2000, respectively. Capital expenditures for the Company's U.S. services business were $10.1 million, $16.5 million, and $14.0 million, while depreciation expense was $22.8 million, $24.4 million and $25.2 million for the years ended December 31, 2002, 2001 and 2000, respectively. Non-cash investing and financing activities are excluded from the consolidated Statement of Cash Flows. In 2002, the Company acquired computer and data collection equipment for $6.5 million in exchange for capital leases. During 2001, the Company acquired computer software licenses for $4.8 million in exchange for long-term obligations and during 2000, the Company acquired mainframe computer equipment in exchange for a capital lease obligation recorded at $7.4 million. The Company's International services business capital expenditures were $3.9 million, $4.4 million and $5.8 million, while depreciation expense was $4.9 million, $4.5 million and $4.6 million for the years ended December 31, 2002, 2001 and 2000, respectively. Consolidated capitalized software development costs, primarily in the U.S., were $2.2 million, $2.1 million and $1.6 million for the years ended December 31, 2002, 2001 and 2000, respectively. 22 NOL & Tax Credit Carryforwards: As of December 31, 2002, the Company had cumulative U.S. federal taxable net operating loss ("NOL") carryforwards of $116.8 million which expire primarily in 2009, 2011, 2020 and 2022. At December 31, 2002, the Company also had U.S. tax credit carryforwards of $7.0 million, $5.8 million of which expire primarily between 2003 and 2012, and the remainder of which can be carried forward indefinitely. Certain of these carryforwards have not been examined by the Internal Revenue Service and, therefore, are subject to potential adjustment. U.S. tax rules could limit the utilization of these carryforwards in the event of a future change in ownership of the Company. The Company has reduced the deferred tax liabilities in its consolidated financial statements by the deferred tax assets related to its U.S. federal and state NOL carryforwards and certain foreign NOL carryforwards. The Company expects to realize these deferred tax assets primarily from future recognition of substantial taxable income resulting from the reversal of $90.2 million of existing net temporary differences. 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. The Company passes increased costs on to customers with multi-year contracts by adjusting sales prices through consumer price index increases to the extent provided for in such contracts. SPECIAL CHARGES Since 1999, the Company has undertaken major initiatives as described below resulting in significant or incremental expenditures that have been classified as special charges in the Statement of Operations. 2002 Workforce Reduction: In the fourth quarter of 2002, the Company eliminated approximately 5% of its total workforce in the United States and Europe through layoffs and the elimination of open positions. A charge of $7.8 million was recorded in the fourth quarter of 2002 for severance and other costs related to the layoffs in accordance with EITF Issue No. 94-3. The Company expects to realize cost savings of approximately $15.0 million per year as a result of the workforce reduction. Project Delta: In the third quarter of 1999, the Company initiated a comprehensive program named Project Delta. The objective of Project Delta was to improve productivity and operating efficiencies to reduce the Company's ongoing cost structure in its U.S. operations. As a result, 16% of the U.S. workforce was eliminated. The work outlined as part of Project Delta was completed during the third quarter of 2001. A restructuring accrual was established in 1999 to reflect certain of the outstanding obligations related to 1999 restructuring charges. Certain costs were not eligible for accrual in 1999 in accordance with EITF Issue No. 94-3 and were recorded during 2000 and 2001. The Company realized cost savings from Project Delta of $30.0 million in 2000 and an additional $10.0 million in 2001, before the impact of certain other planned cost increases. Transition of German Production to U.S. Facility: The Company made the decision in the fourth quarter of 1999 to transfer production services for IRI Germany from an external vendor in Germany to the Company's U.S. headquarters facility in order to enhance its InfoScan offering in Germany and to reduce future production costs. The transition of German production to the U.S. facility began in the first quarter of 2000 and was completed in the first quarter of 2002. Information Technology Assessment: During the fourth quarter of 2001, the Company began a review of its information technology operations to assess potential restructuring costs and benefits. The review included initial assessments of database design, transition planning and cost and savings estimates and was completed in the second quarter of 2002. This project resulted in cost savings, process efficiencies and a plan for continuous improvement of the technology infrastructure. 23 The following tables reflect special charges incurred during 2002, 2001 and 2000 and all cash payments made to date (in thousands):
2002 ACTIVITY LIABILITY --------------------------------- (RECEIVABLE) AT LIABILITY AT DECEMBER 31, 2001 PROVISION CASH NON-CASH DECEMBER 31, 2002 ----------------- --------- -------- -------- ----------------- SPECIAL CHARGES 2002 workforce reduction........ $ -- $ 7,763 $ (144) $ -- $ 7,619 Project Delta Termination benefits......... 634 (240) (394) -- -- Discontinued activities...... 265 -- (46) -- 219 Transition of German production to U.S. facility............. 592 1,131 (1,723) -- -- Information technology assessment................... 1,413 6,261 (7,674) -- -- Other items..................... (1,036) -- 1,036 -- -- ------- ------- -------- ------- ------- $ 1,868 $14,915 $ (8,945) $ -- $ 7,838 ======= ======= ======== ======= =======
2001 ACTIVITY --------------------------------- LIABILITY LIABILITY AT (RECEIVABLE) AT DECEMBER 31, 2000 PROVISION CASH NON-CASH DECEMBER 31, 2001 ----------------- --------- -------- -------- ----------------- SPECIAL CHARGES Project Delta Termination benefits......... $ 2,029 $ 1,362 $ (2,757) $ -- $ 634 Discontinued activities...... 541 2,025 (276) (2,025) 265 Disposition of excess office space...................... -- 24 (24) -- -- Other costs.................. -- 2,926 (2,926) -- -- Transition of German production to U.S. facility............. -- 7,828 (7,236) -- 592 Information technology assessment................... -- 3,305 (1,892) -- 1,413 Other items..................... -- (2,036) 1,000 -- (1,036) ------- ------- -------- ------- ------- $ 2,570 $15,434 $(14,111) $(2,025) $ 1,868 ======= ======= ======== ======= =======
2000 ACTIVITY LIABILITY AT --------------------------------- LIABILITY AT DECEMBER 31, 1999 PROVISION CASH NON-CASH DECEMBER 31, 2000 ----------------- --------- -------- -------- ----------------- SPECIAL CHARGES Project Delta Termination benefits......... $ 8,391 $ 3,649 $(10,011) $ -- $ 2,029 Discontinued activities...... -- 3,443 (1,302) (1,600) 541 Disposition of excess office space...................... 494 557 (534) (517) -- Other costs.................. -- 2,168 (2,168) -- -- Transition of German production to U.S. facility............. -- 4,680 (4,680) -- -- Other items..................... -- (907) 907 -- -- ------- ------- -------- ------- ------- $ 8,885 $13,590 $(17,788) $(2,117) $ 2,570 ======= ======= ======== ======= =======
2002 WORKFORCE REDUCTION In the fourth quarter of 2002, the Company decided to terminate approximately 140 full-time employees in the United States and Europe in 2002 and the beginning of 2003. The Company recorded a charge of $7.8 million in the fourth quarter of 2002 for termination benefits when communication of such benefits had been made to affected employees. 24 PROJECT DELTA Termination Benefits: In the fourth quarter of 1999, the Company decided to terminate approximately 325 full-time positions during 2000, impacting virtually all areas of the U.S. business, including operations, client services, technology and marketing, as well as corporate headquarters. The Company recorded a charge of $8.4 million in 1999 for termination benefits when communication of such benefits had been made to affected employees. Additional provisions of $1.4 million and $3.6 million were made in 2001 and 2000, respectively, to cover retention and relocation incentive costs that were not eligible for accrual at December 31, 1999. As of December 31, 2001, 397 employees had been terminated under various Project Delta initiatives. 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 2001 and 2000 relating to accelerated depreciation on this equipment. During 2000, the Company ceased operations of entities in Japan (IRI Apollo K.K.) and Australia (Information Resources Australia Pty, Ltd.) which were responsible for distributing Apollo software. The Company entered into agreements with its 40% owned affiliate, Information Resources Japan Ltd. and an unrelated company in Australia to distribute its Apollo software. In connection with the cessation of local operations, the Company incurred charges during 2000 of $0.7 million and $1.0 million relating to the Japan and Australia businesses, respectively. Disposition of Excess Office Space: As a result of planned headcount reductions and space not currently utilized, office space was reduced. The Company recorded $0.02 million and $0.6 million of charges in 2001 and 2000, respectively, relating to accelerated depreciation on leasehold improvements and furniture and fixtures and lease buyouts associated with these facilities. Other Costs: Other costs in 2001 and 2000 relate primarily to consulting fees paid to third parties for assistance in the identification of process improvements and efficiencies within the U.S. operations. TRANSITION OF GERMAN PRODUCTION TO U.S. FACILITY During 2002, 2001 and 2000, charges of approximately $1.1 million, $7.8 million and $4.7 million, respectively, were recorded related to the transition of German production to the U.S. facility. These costs consist primarily of parallel processing and temporary workforce expenses. The transition was completed in the first quarter of 2002. INFORMATION TECHNOLOGY ASSESSMENT These costs related primarily to consulting fees paid to a third party in connection with the technology project. FUTURE RESTRUCTURING CHARGES Management reviews the operations and related costs on a continuous basis and believes further charges are likely to be required in 2003. OTHER ITEMS Dispute Settlement: During the fourth quarter of 2001, the Company settled a dispute with Manugistics, Inc. as further discussed in Note 11, Legal Proceedings, of the Notes to Consolidated Financial Statements. Manugistics agreed to pay IRI a total of $8.625 million, resulting in a gain of $2.0 million which was reflected as other income in Special Charges. Asset Impairments: In the fourth quarter of 1999, Special Charges included a $0.9 million charge for a non-current receivable reserve. This reserve was reversed during 2000 pursuant to a settlement agreement reached with the other party. 25 RECENT ACCOUNTING PRONOUNCEMENTS In July 2002, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standard No. 146, "Accounting for Costs Associated with Exit or Disposal Activities." Statement No. 146 requires companies to recognize costs associated with exit or disposal activities when they are incurred rather than at the date that a commitment to an exit or disposal plan is made. Examples of costs covered by the statement include lease termination expenses and certain employee severance costs that are associated with a restructuring, discontinuing an operation or other exit or disposal activities. Statement No. 146 is to be applied prospectively to exit or disposal activities initiated after December 31, 2002. In November 2002, the FASB issued Interpretation (FIN) No. 45, "Guarantor's Accounting and Disclosure Requirements for Guarantees, Including Guarantees of Indebtedness of Others." FIN No. 45 requires certain guarantees to be recorded at fair value, and requires guarantors to make significant new disclosures, even if the likelihood of making payments under the guarantees is remote. The initial recognition and measurement provisions of FIN No. 45 are to be applied on a prospective basis for guarantees issued or modified after December 31, 2002. The disclosure requirements are effective for financial statements issued after December 15, 2002. In January 2003, the FASB issued FIN No. 46, "Consolidation of Variable Interest Entities." FIN No. 46 addresses accounting for variable interest entities (VIE), defined as a separate legal structure that either 1) does not have equity investors with voting rights, or 2) has equity investors with voting rights that do not provide sufficient financial resources for the entity to support its own activities. FIN No. 46 requires that a VIE be consolidated by a company if that company is subject to a majority of the VIE's residual return, and also requires disclosures concerning VIEs that a company is not required to consolidate but in which it has a significant variable interest. Consolidation requirements apply immediately to VIEs created after January 31, 2003, and to existing VIEs in the first fiscal year or interim period beginning after June 15, 2003. Certain of the disclosure requirements apply to financial statements issued after January 31, 2003, regardless of when the VIE was created. The Company and Mosaic Group, Inc. formed a joint venture company, Mosaic InfoForce, L.P. ("MIF"), in which the Company currently has a 49% ownership interest and Mosaic Group, Inc., through wholly-owned subsidiaries, owns the remainder. The Company is currently in the process of a complex analysis to determine if MIF is a VIE and if so which, if any entity, is the primary beneficiary for consolidation purposes. FORWARD LOOKING INFORMATION All statements other than statements of historical fact made in this Annual Report on Form 10-K are forward looking. In particular, statements regarding industry prospects, our future results of operations or financial position, and statements preceded by, followed by or that include the words "intends," "estimates," "believes," "expects," "anticipates," "should," "could," or similar expressions, are forward-looking statements and reflect our current expectations and are inherently uncertain. The Company's actual results may differ significantly from our expectations for a number of reasons, including risks and uncertainties relating to: - customer renewals of service contracts - timing of significant new customer engagements - competitive conditions - the Company's ability to successfully implement its cost containment efforts - client acceptance of new products and services - potential loss or increased cost of ongoing supply of point-of-sale data from cooperating retailers - changes in client spending for the non-contractual services the Company offers - the success of technology alternatives currently being developed or implemented by the Company to provide access to Company data 26 - other technology changes that may impact Company services - material changes in partnerships and strategic alliances - foreign currency exchange rates - adverse impacts on liquidity - other factors beyond the Company's control These risks and uncertainties are described herein and in reports and other documents filed by the Company with the Securities and Exchange Commission. ITEM 7A.QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Market risk represents the risk of loss that may impact the consolidated financial position, results of operations or cash flows of the Company due to adverse changes in financial rates. The Company is exposed to market risk in the area of foreign exchange and interest rates. Foreign Currency Exchange Rates: The Company operates and conducts business in several foreign countries, primarily in Europe, and as a result is exposed to movements in foreign exchange rates. Exchange rate movements upon consolidation of the foreign subsidiaries for which the functional currency is not the U.S. dollar could impact the Company's revenues, expenses and equity. The Company's net earnings are also exposed to exchange rate movements relating to certain intercompany transactions between the U.S. and foreign subsidiaries. The Company does not use derivative financial instruments to manage changes in foreign currency exchange rates. Interest Rate Risk: A 1% fluctuation in interest rates would not have a significant impact on the operating results of the Company. The Company does not currently maintain any interest rate hedge agreements. ITEM 8.FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA Listed below are the financial statements and supplementary data included in this part of the Annual Report on Form 10-K:
PAGE NO. ---- (a) Financial Statements Report of Independent Auditors......... 28 Consolidated Balance Sheets at December 31, 2002 and 2001... 29 Consolidated Statements of Operations for the years ended December 31, 2002, 2001 and 2000............................ 30 Statement of Changes in Stockholders' Equity and Comprehensive Income for the years ended December 31, 2002, 2001 and 2000............................................... 31 Consolidated Statements of Cash Flows for the years ended December 31, 2002, 2001 and 2000............................ 32 Notes to Consolidated Financial Statements.................. 33 (b) Supplementary Data Summary of Quarterly Data................................... 51
Financial statement schedule is included on page 56 preceding the signature page of this report (see Item 15). 27 REPORT OF INDEPENDENT AUDITORS Board of Directors and Stockholders Information Resources, Inc. We have audited the accompanying consolidated balance sheets of Information Resources, Inc. and Subsidiaries as of December 31, 2002 and 2001 and the related consolidated statements of operations, changes in stockholders' equity and comprehensive income and cash flows for each of the three years in the period ended December 31, 2002. Our audits also included the financial statement schedule listed in the Index at Item 15(a). These financial statements and schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and schedule based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Information Resources, Inc. and Subsidiaries at December 31, 2002 and 2001, and the consolidated results of their operations and their cash flows for each of the three years in the period ended December 31, 2002, in conformity with accounting principles generally accepted in the United States. Also, in our opinion, the related financial statement schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects the information set forth therein. As discussed in Note 1 to the consolidated financial statements, effective January 1, 2002, the Company changed its method of accounting for goodwill and other intangible assets to conform with Statement of Financial Accounting Standards No. 142, "Goodwill and Other Intangible Assets." ERNST & YOUNG LLP Chicago, Illinois February 5, 2003 28 INFORMATION RESOURCES, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS
DECEMBER 31, ---------------------- 2002 2001 --------- --------- (IN THOUSANDS) ASSETS CURRENT ASSETS Cash and cash equivalents................................. $ 8,968 $ 13,708 Accounts receivable, net.................................. 85,453 74,669 Prepaid expenses and other................................ 15,801 11,283 --------- --------- Total Current Assets................................. 110,222 99,660 --------- --------- Property and equipment, at cost............................. 234,857 214,392 Accumulated depreciation.................................... (171,478) (144,461) --------- --------- Net Property and Equipment........................... 63,379 69,931 Deferred income taxes....................................... 6,286 7,465 Investments................................................. 13,165 14,573 Other assets................................................ 166,145 161,794 --------- --------- $ 359,197 $ 353,423 ========= ========= LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES Current maturities of long-term debt...................... $ 3,639 $ 3,549 Accounts payable.......................................... 66,614 59,708 Accrued compensation and benefits......................... 17,797 20,368 Accrued property, payroll and other taxes................. 1,876 1,949 Other accrued expenses.................................... 6,207 5,851 Accrued restructuring costs............................... 7,838 2,904 Deferred revenue.......................................... 36,247 32,464 --------- --------- Total Current Liabilities............................ 140,218 126,793 --------- --------- Long-term debt.............................................. 4,495 2,234 Other liabilities........................................... 10,812 13,565 STOCKHOLDERS' EQUITY Preferred stock -- authorized 1,000,000 shares, $.01 par value; none issued..................................... -- -- Common stock -- authorized 60,000,000 shares, $.01 par value; 29,808,550 and 29,397,373 shares issued and outstanding, respectively.............................. 301 297 Additional paid-in capital................................ 202,857 200,826 Retained earnings......................................... 6,906 19,945 Accumulated other comprehensive loss...................... (6,392) (10,237) --------- --------- Total Stockholders' Equity........................... 203,672 210,831 --------- --------- $ 359,197 $ 353,423 ========= =========
The accompanying notes to consolidated financial statements are an integral part of these statements. 29 INFORMATION RESOURCES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, --------------------------------------- 2002 2001 2000 --------- --------- --------- (IN THOUSANDS, EXCEPT PER SHARE DATA) Information services revenues............................. $ 554,840 $ 555,868 $ 530,923 Costs and expenses: Information services sold............................... (502,053) (493,944) (474,190) Selling, general and administrative expenses............ (47,021) (51,410) (55,424) Special charges, net.................................... (14,915) (15,434) (13,590) --------- --------- --------- (563,989) (560,788) (543,204) --------- --------- --------- Operating loss............................................ (9,149) (4,920) (12,281) Interest expense.......................................... (769) (1,911) (2,657) Other, net................................................ 446 (1,158) (982) Equity in earnings (loss) of affiliated companies......... 374 12 (489) Minority interests in losses of subsidiaries.............. 610 2,694 2,746 --------- --------- --------- Loss before income taxes and cumulative effect of accounting change....................................... (8,488) (5,283) (13,663) Income tax benefit........................................ 2,514 1,376 6,125 --------- --------- --------- Loss before cumulative effect of accounting change........ (5,974) (3,907) (7,538) Cumulative effect of accounting change -- impairment of goodwill................................................ (7,065) -- -- --------- --------- --------- Net loss.................................................. $ (13,039) $ (3,907) $ (7,538) ========= ========= ========= Net loss per common share before cumulative effect of accounting change -- basic.............................. $ (0.20) $ (0.13) $ (0.26) ========= ========= ========= Net loss per common share -- basic........................ $ (0.44) $ (0.13) $ (0.26) ========= ========= ========= Net loss per common and common equivalent share before cumulative effect of accounting change -- diluted....... $ (0.20) $ (0.13) $ (0.26) ========= ========= ========= Net loss per common and common equivalent share -- diluted........................................ $ (0.44) $ (0.13) $ (0.26) ========= ========= ========= Weighted average common shares -- basic................... 29,544 29,193 29,034 ========= ========= ========= Weighted average common and common equivalent shares -- diluted................................................. 29,544 29,193 29,034 ========= ========= =========
The accompanying notes to consolidated financial statements are an integral part of these statements. 30 INFORMATION RESOURCES, INC. AND SUBSIDIARIES STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY AND COMPREHENSIVE INCOME YEARS ENDED DECEMBER 31,
ACCUMULATED ADDITIONAL OTHER TOTAL COMMON PAID-IN RETAINED COMPREHENSIVE STOCKHOLDERS' STOCK CAPITAL EARNINGS LOSS EQUITY ------ ---------- -------- ------------- ------------- (IN THOUSANDS) Balance at December 31, 1999............ $291 $198,863 $31,390 $ (5,569) $224,975 Comprehensive loss: Net loss.............................. -- -- (7,538) -- (7,538) Other comprehensive loss, foreign currency translation adjustment.... -- -- -- (4,372) (4,372) -------- Comprehensive loss.................... -- -- -- -- (11,910) Restricted stock granted................ -- 405 -- -- 405 Shares issued to Employee Stock Purchase Plan.................................. 2 445 -- -- 447 Shares issued to Board Directors and other................................. 4 143 -- -- 147 Shares purchased........................ (3) (930) -- -- (933) ---- -------- ------- -------- -------- Balance at December 31, 2000............ 294 198,926 23,852 (9,941) 213,131 ---- -------- ------- -------- -------- Comprehensive loss: Net loss.............................. -- -- (3,907) -- (3,907) Other comprehensive loss, foreign currency translation adjustment.... -- -- -- (296) (296) -------- Comprehensive loss.................... -- -- -- -- (4,203) Restricted stock granted................ -- 343 -- -- 343 Shares issued to Employee Stock Purchase Plan.................................. 2 831 -- -- 833 Shares issued from employee stock option plan exercises and other.............. 2 946 -- -- 948 Shares purchased........................ (1) (220) -- -- (221) ---- -------- ------- -------- -------- Balance at December 31, 2001............ 297 200,826 19,945 (10,237) 210,831 ---- -------- ------- -------- -------- Comprehensive loss: Net loss.............................. -- -- (13,039) -- (13,039) Other comprehensive income, foreign currency translation adjustment.... -- -- -- 3,845 3,845 -------- Comprehensive loss.................... -- -- -- -- (9,194) Restricted stock granted................ -- 343 -- -- 343 Shares issued to Employee Stock Purchase Plan.................................. 3 709 -- -- 712 Shares issued from employee stock option plan exercises and other.............. 3 1,482 -- -- 1,485 Income tax benefit from the exercise of stock options......................... -- 691 -- -- 691 Shares purchased........................ (2) (1,194) -- -- (1,196) ---- -------- ------- -------- -------- Balance at December 31, 2002............ $301 $202,857 $ 6,906 $ (6,392) $203,672 ==== ======== ======= ======== ========
The accompanying notes to consolidated financial statements are an integral part of these statements. 31 INFORMATION RESOURCES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, ----------------------------------- 2002 2001 2000 --------- --------- --------- (IN THOUSANDS) CASH FLOWS FROM OPERATING ACTIVITIES: Net loss................................................... $ (13,039) $ (3,907) $ (7,538) Adjustments to reconcile net loss to net cash provided by operating activities: Amortization of deferred data procurement costs.......... 133,178 124,517 119,831 Special charges.......................................... 5,667 1,291 (3,532) Depreciation............................................. 27,649 28,921 29,775 Amortization of capitalized software costs and intangibles........................................... 2,919 5,926 6,082 Deferred income tax benefit.............................. (2,672) (1,829) (6,390) Equity in earnings of affiliated companies and minority interests............................................. (984) (2,706) (2,257) Impairment of goodwill................................... 7,065 -- -- Other.................................................... 621 460 525 Change in operating assets and liabilities: Accounts receivable, net.............................. (11,463) 9,422 13,425 Other current assets.................................. (12) (112) (2,440) Accounts payable and accrued liabilities.............. 4,402 2,351 (6,044) Deferred revenue...................................... 3,783 7,977 1,324 Other, net............................................ (2,833) 7,348 1,089 --------- --------- --------- Net cash provided by operating activities........... 154,281 179,659 143,850 CASH FLOWS FROM INVESTING ACTIVITIES: Deferred data procurement costs............................ (140,889) (128,991) (124,840) Purchase of property, equipment and software............... (14,002) (20,909) (19,768) Capitalized software costs................................. (2,227) (2,091) (1,635) Investment in joint ventures............................... -- (3,668) (4,678) Proceeds from disposition of assets........................ 41 15 365 Capital contributions from minority interests and other, net...................................................... 548 695 2,393 --------- --------- --------- Net cash used by investing activities............... (156,529) (154,949) (148,163) CASH FLOWS FROM FINANCING ACTIVITIES: Net bank borrowings (repayments)........................... -- (21,000) 11,000 Net repayments of long-term debt........................... (4,322) (2,855) (2,124) Purchases of Common Stock.................................. (1,196) (220) (933) Proceeds from exercise of stock options and other.......... 2,197 1,464 447 --------- --------- --------- Net cash provided (used) by financing activities.... (3,321) (22,611) 8,390 EFFECT OF EXCHANGE RATE CHANGES ON CASH.................... 829 (305) (240) --------- --------- --------- Net increase (decrease) in cash and cash equivalents...................................... (4,740) 1,794 3,837 Cash and cash equivalents at beginning of year............. 13,708 11,914 8,077 --------- --------- --------- Cash and cash equivalents at end of year................... $ 8,968 $ 13,708 $ 11,914 ========= ========= =========
The accompanying notes to consolidated financial statements are an integral part of these statements. 32 INFORMATION RESOURCES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2002 1. SUMMARY OF ACCOUNTING POLICIES BUSINESS Information Resources, Inc. and its subsidiaries (collectively referred to herein as "IRI" or the "Company") is a leading provider of universal product code ("UPC"), scanner-based business solutions services to the consumer packaged goods ("CPG") industry, offering services primarily in the U.S. and Europe. The Company supplies CPG manufacturers, retailers and brokers with information and analysis critical to their sales, marketing and supply chain operations. IRI provides services designed to deliver value through an enhanced understanding of the consumer to a majority of the Fortune 500 companies in the CPG industry. PRINCIPLES OF CONSOLIDATION The consolidated financial statements include the accounts of Information Resources, Inc. and all wholly-or majority-owned subsidiaries. Minority interests reflect the non-Company owned stockholder interests in Information Resources GfK GmbH ("IRI Germany"), Information Resources GfK B.V. (the Netherlands) and Information Resources Espana, S.L. (Spain). 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. ACCOUNTING ESTIMATES The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reported period. Actual results may differ from estimates. REVENUE RECOGNITION Revenues on contracts for retail tracking services, which generally have terms of three to five years, are recognized over the terms of the contracts. Such contracts are generally categorized into one of two classes: 1) cancelable at the end of each year by giving six months written notice by either party; or 2) multi-year contracts either non-cancelable or cancelable only with significant penalties, generally by giving six months written notice after the initial multi-year term. Revenues for special analytical services, market research and consulting projects are recognized as services are performed. Certain of these projects are fixed-price in nature and use the percentage-of-completion method for the recognition of revenue. Revenues from the license of software products, subject to perpetual license agreements, are recognized upon delivery when there is a reasonable basis for estimating collectibility and the Company has no significant remaining obligations. License fees for software licenses granted as part of data contracts are recognized ratably over the term of the data contract. Related software maintenance fees are recognized as earned over the terms of their respective contracts. RESEARCH AND DEVELOPMENT The Company is continuously developing new products and services. In this regard, the Company is actively engaged in research and development of new database analyses and applications, software applications and services and data delivery systems. Expenditures for research and development for the years ended 33 INFORMATION RESOURCES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) DECEMBER 31, 2002 December 31, 2002, 2001 and 2000 approximated $11.2 million, $11.7 million and $15.8 million, respectively. All research and development expenditures were expensed as incurred. BENEFIT PLANS The Company sponsors an employee savings plan that qualifies as a deferred salary arrangement under Section 401(k) of the Internal Revenue Code. The plan allows eligible employees to contribute a portion of their pre-tax income in accordance with specified guidelines. The Company matches a percentage of employee contributions up to certain limits. The expense recognized for the 401(k) plan totaled approximately $2.1 million, $2.6 million and $2.8 in 2002, 2001 and 2000, respectively. CASH AND CASH EQUIVALENTS For purposes of reporting cash flows, cash and cash equivalents include cash on hand and funds held in money market accounts with a maturity of three months or less. FAIR VALUE OF FINANCIAL INSTRUMENTS AND CREDIT RISK The carrying value of the Company's financial instruments, cash and cash equivalents, investments and debt obligations represent a reasonable estimate of their fair value. As of December 31, 2002 and 2001, the Company had no significant concentrations of credit risk related to cash equivalents and accounts receivable. PROPERTY AND EQUIPMENT Property and equipment is recorded at cost and is depreciated over the estimated service lives. For financial statement purposes, depreciation is provided by the straight-line method. The Company also capitalizes the cost of internal-use computer software as incurred and amortizes such costs over the respective estimated useful lives in accordance with SOP 98-1. Leasehold improvements are amortized over the shorter of their estimated service lives or the terms of their respective lease agreements. Estimated useful lives are as follows: Computer equipment and software............................. 3 to 7 years Market testing and other operating equipment................ 3 to 7 years Leasehold improvements...................................... 4 to 20 years Equipment and furniture..................................... 3 to 8 years
OTHER ASSETS Other assets include deferred data procurement costs, intangible assets and capitalized costs of software held for sale. Data procurement costs are amortized over a period of 28 months, which is the average number of months of back-data provided to clients, and include payments and services to retailers for point-of-sale data and costs related to collecting, reviewing and verifying other data (i.e., causal factors) which are an essential part of the database. Intangible assets include goodwill (prior to 2002) and solicitation rights which arose from acquisitions, investments or strategic alliances. Prior to 2002, goodwill was amortized on a straight-line basis over periods from ten to twenty years. Solicitation rights are amortized on a straight-line basis over the expected useful lives of six to ten years. The Company capitalizes costs incurred for computer software to be sold in accordance with Statement of Financial Accounting Standards No. 86. Capitalized costs of computer software held for sale are amortized on a straight-line basis beginning upon the software's general release date over a period not exceeding three years. 34 INFORMATION RESOURCES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) DECEMBER 31, 2002 On an ongoing basis, management reviews the valuation and amortization of these assets to determine possible impairment by comparing the carrying value to the undiscounted future cash flows of the related assets. Effective January 1, 2002, the Company adopted Statement of Financial Accounting Standards No. 142, "Goodwill and Other Intangible Assets." Under the new rules, goodwill, the excess of the carrying value over the net book value of investments accounted for using the equity method and intangible assets deemed to have indefinite lives, are no longer amortized but are subject to annual impairment tests. Other intangible assets continue to be amortized over their useful lives. The Company performed a goodwill impairment test as required by Statement No. 142 to determine the implied fair value of the goodwill recorded on its books as of January 1, 2002. As the goodwill related entirely to previous international transactions, the fair value was estimated by discounting the estimated future cash flows of the international reporting unit. Based on this analysis, the Company recognized a goodwill impairment charge of $7.1 million. In accordance with Statement No. 142, the charge was reflected as the cumulative effect of a change in accounting principle in the Statement of Operations. INCOME TAXES Deferred income taxes are recognized at statutory rates to reflect the future effects of tax carryforwards and temporary differences arising between the tax bases of assets and liabilities and their financial reporting amounts at each year end. Deferred income taxes may also arise in business combinations accounted for as purchases as a result of differences between the fair value of assets acquired and their tax bases. FOREIGN CURRENCY TRANSLATION The financial position and results of operations of the Company's foreign operations are measured using local currency as the functional currency. Accordingly, assets and liabilities have been translated into U.S. dollars at the rates of exchange at the balance sheet date and revenues and expenses have been translated at average exchange rates prevailing during the period. Translation gains and losses are deferred as a separate component of stockholders' equity while foreign currency transaction gains and losses are included in determining net earnings. EARNINGS (LOSS) PER COMMON AND COMMON EQUIVALENT SHARE Net earnings (loss) per share is based upon the weighted average number of shares of common stock outstanding during each year. Net earnings (loss) per common and common equivalent share -- diluted is based upon the weighted average number of shares of common stock and common stock equivalents, entirely comprised of stock options, outstanding during each year. For the years ended December 31, 2002, 2001 and 2000, all stock options, aggregating 8,913,012 shares, 9,013,672 shares and 8,704,117 shares, respectively, were excluded from the weighted average shares outstanding calculation because they were anti-dilutive. STOCK-BASED COMPENSATION Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based Compensation," as amended by Statement of Financial Accounting Standards No. 148, "Accounting for Stock-Based Compensation -- Transition and Disclosure," encourages, but does not require, companies to record compensation cost for stock-based employee compensation plans at fair value. The Company has chosen to account for stock-based compensation using the intrinsic value method prescribed in Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees," and related interpretations. Accordingly, compensation expense for stock options is measured as the excess, if any, of the quoted market price of the Company's stock 35 INFORMATION RESOURCES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) DECEMBER 31, 2002 at the date of the grant over the amount an employee must pay to acquire the stock. The Company grants options at fair market value and therefore recognizes no compensation expense. The following table illustrates the effect on the net loss and net loss per share for the years ended December 31, 2002, 2001 and 2000 if the Company had applied the fair value recognition provisions of Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based Compensation," to stock-based employee compensation (in thousands, except per share data):
2002 2001 2000 -------- ------- -------- Net loss, as reported....................................... $(13,039) $(3,907) $ (7,538) Deduct: Total stock-based employee compensation expense determined under fair value based method for all awards, net of related tax effects................................ (3,416) (3,957) (3,132) -------- ------- -------- Net loss, pro forma......................................... $(16,455) $(7,864) $(10,670) ======== ======= ======== Earnings per share: Basic -- as reported........................................ $ (0.44) $ (0.13) $ (0.26) ======== ======= ======== Basic -- pro forma.......................................... $ (0.56) $ (0.27) $ (0.37) ======== ======= ======== Diluted -- as reported...................................... $ (0.44) $ (0.13) $ (0.26) ======== ======= ======== Diluted -- pro forma........................................ $ (0.56) $ (0.27) $ (0.37) ======== ======= ========
The above table is based upon the valuation of option grants using the Black-Scholes pricing model for traded options with assumed risk-free interest rates of 3.82%, 4.55% and 6.15% for 2002, 2001 and 2000, respectively; stock price volatility factor of 86.3%, 71.9% and 69.0% for 2002, 2001 and 2000, respectively; and an expected life of the options of five years. Using the foregoing assumptions, the calculated weighted-average fair value of options granted in 2002, 2001 and 2000 was $5.34, $3.30 and $3.19, respectively. Because the Company's employee stock options have characteristics significantly different from those of traded options, and because changes in the input assumptions can materially affect the fair value estimate, in management's opinion, the model does not necessarily provide a reliable single measure of the fair value of its employee stock options. RECENT ACCOUNTING PRONOUNCEMENTS In July 2002, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standard No. 146, "Accounting for Costs Associated with Exit or Disposal Activities." Statement No. 146 requires companies to recognize costs associated with exit or disposal activities when they are incurred rather than at the date that a commitment to an exit or disposal plan is made. Examples of costs covered by the statement include lease termination expenses and certain employee severance costs that are associated with a restructuring, discontinuing an operation or other exit or disposal activities. Statement No. 146 is to be applied prospectively to exit or disposal activities initiated after December 31, 2002. In November 2002, the FASB issued Interpretation (FIN) No. 45, "Guarantor's Accounting and Disclosure Requirements for Guarantees, Including Guarantees of Indebtedness of Others." FIN No. 45 requires certain guarantees to be recorded at fair value, and requires guarantors to make significant new disclosures, even if the likelihood of making payments under the guarantees is remote. The initial recognition and measurement provisions of FIN No. 45 are to be applied on a prospective basis for guarantees issued or modified after December 31, 2002. The disclosure requirements are effective for financial statements issued after December 15, 2002. 36 INFORMATION RESOURCES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) DECEMBER 31, 2002 In January 2003, the FASB issued FIN No. 46, "Consolidation of Variable Interest Entities." FIN No. 46 addresses accounting for variable interest entities (VIE), defined as a separate legal structure that either 1) does not have equity investors with voting rights, or 2) has equity investors with voting rights that do not provide sufficient financial resources for the entity to support its own activities. FIN No. 46 requires that a VIE be consolidated by a company if that company is subject to a majority of the VIE's residual return, and also requires disclosures concerning VIEs that a company is not required to consolidate but in which it has a significant variable interest. Consolidation requirements apply immediately to VIEs created after January 31, 2003, and to existing VIEs in the first fiscal year or interim period beginning after June 15, 2003. Certain of the disclosure requirements apply to financial statements issued after January 31, 2003, regardless of when the VIE was created. The Company and Mosaic Group, Inc. formed a joint venture company, Mosaic InfoForce, L.P. ("MIF"), in which the Company currently has a 49% ownership interest and Mosaic Group, Inc., through wholly-owned subsidiaries, owns the remainder. The Company is currently in the process of a complex analysis to determine if MIF is a VIE and if so which, if any entity, is the primary beneficiary for consolidation purposes. 2. SUPPLEMENTAL CASH FLOW INFORMATION Interest expense paid and income taxes paid (refund received) during the years ended December 31 were as follows (in thousands):
2002 2001 2000 ---- ------ ------ Interest.................................................... $761 $1,961 $2,627 Income taxes................................................ 428 (283) (124)
Non-cash investing and financing activities are excluded from the consolidated Statements of Cash Flows. In 2002, the Company acquired computer and data collection equipment for $6.5 million in exchange for capital leases. During 2001, the Company acquired computer software licenses for $4.8 million in exchange for long-term obligations. During 2000, the Company acquired mainframe computer equipment in exchange for capital lease obligations recorded at $7.4 million. Additionally in 2000, the Company also capitalized $3.7 million as an investment relating to the formation of the Mosaic InfoForce, L.P. joint venture in exchange for an obligation due in 2001. 3. JOINT VENTURES During 2000, the Company and Mosaic Group, Inc. formed a joint venture company, Mosaic InfoForce, L.P. ("MIF"), in which the Company currently has a 49% ownership interest and Mosaic Group, Inc., through wholly-owned subsidiaries, owns the remainder. The Company's domestic causal and custom audit data collection and merchandising services are provided by MIF pursuant to an agreement that expires in 2010. The Company capitalized $7.4 million in connection with the formation of MIF, which is being accounted for using the equity method of accounting. During 2002 and 2001, the Company expended $35.8 million and $32.9 million relating to MIF services. At December 31, 2002, IRI had a receivable from MIF of $1.8 million and at December 31, 2001, IRI owed MIF $3.0 million. As of December 31, 2002, IRI has guaranteed $1.5 million of MIF equipment capital leases that the Company would be obligated to pay in the event MIF can not make the payments required under the leases. The capital leases have varying expiration dates through 2004. 4. SPECIAL CHARGES Since 1999, the Company has undertaken major initiatives as described below resulting in significant or incremental expenditures that have been classified as special charges in the Statement of Operations. 37 INFORMATION RESOURCES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) DECEMBER 31, 2002 2002 Workforce Reduction: In the fourth quarter of 2002, the Company eliminated approximately 5% of its total workforce in the United States and Europe through layoffs and the elimination of open positions. A charge of $7.8 million was recorded in the fourth quarter of 2002 for severance and other costs related to the layoffs. Project Delta: In the third quarter of 1999, the Company initiated a comprehensive program named Project Delta. The objective of Project Delta was to improve productivity and operating efficiencies to reduce the Company's ongoing cost structure in its U.S. operations. The work outlined as part of Project Delta was completed during the third quarter of 2001. A restructuring accrual was established in 1999 to reflect certain of the outstanding obligations related to 1999 restructuring charges. Certain costs were not eligible for accrual in 1999 and were recorded during 2000 and 2001. Transition of German Production to U.S. Facility: The Company made the decision in the fourth quarter of 1999 to transfer production services for IRI Germany from an external vendor in Germany to the Company's U.S. headquarters facility in order to enhance its InfoScan offering in Germany and to reduce future production costs. The transition of German production to the U.S. facility began in the first quarter of 2000 and was completed in the first quarter of 2002. Information Technology Assessment: During the fourth quarter of 2001, the Company began a review of its information technology operations to assess potential restructuring costs and benefits. The review included initial assessments of database design, transition planning and cost and savings estimates and was completed in the second quarter of 2002. This project resulted in cost savings, process efficiencies and a plan for continuous improvement of the technology infrastructure. The following tables reflect special charges incurred during 2002, 2001 and 2000 and all cash payments made to date (in thousands):
2002 ACTIVITY LIABILITY -------------------------------- (RECEIVABLE) AT LIABILITY AT DECEMBER 31, 2001 PROVISION CASH NON-CASH DECEMBER 31, 2002 ----------------- --------- ------- -------- ----------------- SPECIAL CHARGES 2002 workforce reduction.......... $ -- $ 7,763 $ (144) $ -- $7,619 Project Delta Termination benefits........... 634 (240) (394) -- -- Discontinued activities........ 265 -- (46) -- 219 Transition of German production to U.S. facility.................. 592 1,131 (1,723) -- -- Information technology assessment..................... 1,413 6,261 (7,674) -- -- Other items....................... (1,036) -- 1,036 -- -- ------- ------- ------- ----- ------ $ 1,868 $14,915 $(8,945) $ -- $7,838 ======= ======= ======= ===== ======
38 INFORMATION RESOURCES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) DECEMBER 31, 2002
2001 ACTIVITY --------------------------------- LIABILITY LIABILITY AT (RECEIVABLE) AT DECEMBER 31, 2000 PROVISION CASH NON-CASH DECEMBER 31, 2001 ----------------- --------- -------- -------- ----------------- SPECIAL CHARGES Project Delta Termination benefits.......... $2,029 $ 1,362 $ (2,757) $ -- $ 634 Discontinued activities....... 541 2,025 (276) (2,025) 265 Disposition of excess office space....................... -- 24 (24) -- -- Other costs................... -- 2,926 (2,926) -- -- Transition of German production to U.S. facility.............. -- 7,828 (7,236) -- 592 Information technology assessment.................... -- 3,305 (1,892) -- 1,413 Other items...................... -- (2,036) 1,000 -- (1,036) ------ ------- -------- ------- ------- $2,570 $15,434 $(14,111) $(2,025) $ 1,868 ====== ======= ======== ======= =======
2000 ACTIVITY LIABILITY AT --------------------------------- LIABILITY AT DECEMBER 31, 1999 PROVISION CASH NON-CASH DECEMBER 31, 2000 ----------------- --------- -------- -------- ----------------- SPECIAL CHARGES Project Delta Termination benefits.......... $8,391 $ 3,649 $(10,011) $ -- $2,029 Discontinued activities....... -- 3,443 (1,302) (1,600) 541 Disposition of excess office space....................... 494 557 (534) (517) -- Other costs................... -- 2,168 (2,168) -- -- Transition of German production to U.S. facility.............. -- 4,680 (4,680) -- -- Other items...................... -- (907) 907 -- -- ------ ------- -------- ------- ------ $8,885 $13,590 $(17,788) $(2,117) $2,570 ====== ======= ======== ======= ======
2002 WORKFORCE REDUCTION In the fourth quarter of 2002, the Company decided to terminate approximately 140 full-time employees in the United States and Europe in 2002 and the beginning of 2003. The Company recorded a charge of $7.8 million in the fourth quarter of 2002 for termination benefits when communication of such benefits had been made to affected employees. PROJECT DELTA Termination Benefits: In the fourth quarter of 1999, the Company decided to terminate approximately 325 full-time positions during 2000, impacting virtually all areas of the U.S. business, including operations, client services, technology and marketing, as well as corporate headquarters. The Company recorded a charge of $8.4 million in 1999 for termination benefits when communication of such benefits had been made to affected employees. Additional provisions of $1.4 million and $3.6 million were made in 2001 and 2000, respectively, to cover retention and relocation incentive costs that were not eligible for accrual at December 31, 1999. As of December 31, 2001, 397 employees had been terminated under various Project Delta initiatives. 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. 39 INFORMATION RESOURCES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) DECEMBER 31, 2002 Accordingly, the Company recognized a non-cash charge of $2.0 million in 2001 and 2000 relating to accelerated depreciation on this equipment. During 2000, the Company ceased operations of entities in Japan (IRI Apollo K.K.) and Australia (Information Resources Australia Pty, Ltd.) which were responsible for distributing Apollo software. The Company entered into agreements with its 40% owned affiliate, Information Resources Japan Ltd. and an unrelated company in Australia to distribute its Apollo software. In connection with the cessation of local operations, the Company incurred charges during 2000 of $0.7 million and $1.0 million relating to the Japan and Australia businesses, respectively. Disposition of Excess Office Space: As a result of planned headcount reductions and space not currently utilized, office space was reduced. The Company recorded $0.02 million and $0.6 million of charges in 2001 and 2000, respectively, relating to accelerated depreciation on leasehold improvements and furniture and fixtures and lease buyouts associated with these facilities. Other Costs: Other costs in 2001 and 2000 relate primarily to consulting fees paid to third parties for assistance in the identification of process improvements and efficiencies within the U.S. operations. TRANSITION OF GERMAN PRODUCTION TO U.S. FACILITY During 2002, 2001 and 2000, charges of approximately $1.1 million, $7.8 million and $4.7 million, respectively, were recorded related to the transition of German production to the U.S. facility. These costs consist primarily of parallel processing and temporary workforce expenses. The transition was completed in the first quarter of 2002. INFORMATION TECHNOLOGY ASSESSMENT These costs related primarily to consulting fees paid to a third party in connection with the technology project. OTHER ITEMS Dispute Settlement: During the fourth quarter of 2001, the Company settled a dispute with Manugistics, Inc. as further discussed in Note 11, Legal Proceedings, of the Notes to Consolidated Financial Statements. Manugistics agreed to pay IRI a total of $8.625 million, resulting in a gain of $2.0 million which was reflected as other income in Special Charges. Asset Impairments: In the fourth quarter of 1999, Special Charges included a $0.9 million charge for a non-current receivable reserve. This reserve was reversed during 2000 pursuant to a settlement agreement reached with the other party. 5. INCOME TAXES As of December 31, 2002, the Company had cumulative U.S. federal taxable net operating loss ("NOL") carryforwards of $116.8 million which expire primarily in 2009, 2011, 2020 and 2022. At December 31, 2002, the Company also had U.S. tax credit carryforwards of $7.0 million, $5.8 million of which expire primarily between 2003 and 2012, and the remainder of which can be carried forward indefinitely. Certain of these carryforwards have not been examined by the Internal Revenue Service and, therefore, are subject to potential adjustment. U.S. tax rules could limit the utilization of these carryforwards in the event of a future change in ownership of the Company. Substantially all of the foreign pre-tax results are included in IRI's consolidated U.S. Federal income tax return as partnership income or loss. Domestic losses before income taxes were $9.4 million, $6.1 million and 40 INFORMATION RESOURCES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) DECEMBER 31, 2002 $10.0 million for 2002, 2001 and 2000, respectively. The foreign earnings (losses) before income taxes for those entities not included in the U.S. consolidated tax return were $0.9 million, $0.8 million and ($3.7) million for 2002, 2001 and 2000, respectively. The income tax benefit relating to the years ended December 31, 2002, 2001 and 2000 consisted of the following components (in thousands):
2002 2001 2000 ------ ------ ------ Current income tax (expense) benefit: Federal................................................... $ 166 $ (236) $ -- Foreign................................................... (324) (217) (265) State and local........................................... -- -- -- ------ ------ ------ (158) (453) (265) ------ ------ ------ Deferred income tax (expense) benefit: Federal................................................... 2,779 1,869 4,357 Foreign................................................... (108) (72) 228 State and local........................................... 1 32 1,805 ------ ------ ------ 2,672 1,829 6,390 ------ ------ ------ Income tax benefit.......................................... $2,514 $1,376 $6,125 ====== ====== ======
Significant components of the Company's deferred tax liabilities and assets were as follows (in thousands):
DECEMBER 31, ------------------ 2002 2001 ------- ------- Deferred tax liabilities: Deferred data procurement costs........................... $58,375 $51,458 Capitalized software costs................................ 1,938 1,199 Other..................................................... 930 1,256 ------- ------- Total deferred tax liabilities....................... 61,243 53,913 Deferred tax assets: Domestic NOL carryforwards................................ 41,703 33,380 Domestic tax credit carryforwards......................... 7,029 6,757 Depreciation.............................................. 6,520 7,834 Accrual for compensation related items.................... 14,219 12,404 Other..................................................... 2,263 5,300 ------- ------- Total deferred tax assets............................ 71,734 65,675 Valuation allowance on deferred tax assets.................. (4,205) (4,297) ------- ------- Net deferred tax assets..................................... 67,529 61,378 ------- ------- Net deferred tax asset...................................... $(6,286) $(7,465) ======= =======
Except to the extent that a valuation allowance has been established, the Company expects to realize the deferred tax assets related to its U.S. federal and state NOL carryforwards and certain foreign NOL carryforwards, primarily from the future recognition of substantial taxable income resulting from the reversal of $90.2 million of existing net temporary differences. 41 INFORMATION RESOURCES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) DECEMBER 31, 2002 The income tax benefit differs from the statutory U.S. Federal income tax rate of 35% applied to losses before income taxes for the years ended December 31, 2002, 2001 and 2000 as follows (in thousands):
2002 2001 2000 ------ ------ ------ Statutory tax benefit...................................... $2,972 $1,849 $4,783 Effects of -- State income taxes, net of Federal income tax effect..... 1 21 1,173 Nondeductible meals and entertainment.................... (330) (385) (453) Nondeductible acquisition/organization costs............. -- (142) (153) Foreign taxes............................................ (107) 5 265 Other.................................................... (22) 28 510 ------ ------ ------ $2,514 $1,376 $6,125 ====== ====== ======
6. ACCOUNTS RECEIVABLE Accounts receivable at December 31 were as follows (in thousands):
2002 2001 ------- ------- Billed...................................................... $70,216 $66,065 Unbilled.................................................... 19,832 12,555 ------- ------- 90,048 78,620 Reserve for accounts receivable............................. (4,595) (3,951) ------- ------- $85,453 $74,669 ======= =======
Payments received in advance of revenue recognition are reflected in the consolidated financial statements as deferred revenue. Unbilled accounts receivable represent revenues and fees on contracts and other services earned to date for which customers were not invoiced as of the balance sheet date. 7. PROPERTY AND EQUIPMENT Property and equipment at December 31 were as follows (in thousands):
2002 2001 --------- --------- Computer equipment and software............................. $ 147,329 $ 134,852 Market testing and other operating equipment................ 29,257 24,742 Leasehold improvements...................................... 21,014 19,347 Equipment and furniture..................................... 37,257 35,451 --------- --------- 234,857 214,392 Accumulated depreciation.................................... (171,478) (144,461) --------- --------- $ 63,379 $ 69,931 ========= =========
The net book value of computer and data collection equipment under capital leases aggregated $7.5 million and $3.9 million for the years ended December 31, 2002 and 2001, respectively, and is included in the above amounts. Amortization of assets under capital leases is included in depreciation expense in the accompanying financial statements. 42 INFORMATION RESOURCES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) DECEMBER 31, 2002 8. INVESTMENTS AND OTHER ASSETS Investments at December 31 were as follows (in thousands):
2002 2001 ------- ------- Mosaic InfoForce, L.P., at cost plus equity in undistributed earnings.................................................. $ 4,845 $ 5,273 Datos Information Resources, at cost plus equity in undistributed earnings.................................... 4,009 4,341 GfK Panel Services Benelux B.V., at cost.................... 1,315 1,315 Middle East Market Research Bureau ("MEMRB"), at cost....... 2,768 2,781 Other....................................................... 228 863 ------- ------- $13,165 $14,573 ======= =======
In June 2002, the Company and its partner in Radar Retail Research ("Radar"), Taylor Nelson Sofres, decided to cease Radar's operations. Accordingly, operating expenses for 2002 include a charge of $966,000 relating to the write-off of the Company's 40% investment and the accrual of the Company's share of Radar's closing costs. Other assets at December 31 were as follows (in thousands):
2002 2001 -------- -------- Deferred data procurement costs -- net of accumulated amortization of $152,635 in 2002 and $138,046 in 2001..... $160,615 $144,500 Goodwill -- net of accumulated amortization of $8,319 in 2001...................................................... -- 7,059 Capitalized software costs -- net of accumulated amortization of $2,315 in 2002 and $4,665 in 2001......... 4,341 4,412 Other -- net of accumulated amortization of $5,867 in 2002 and $5,520 in 2001........................................ 1,189 5,823 -------- -------- $166,145 $161,794 ======== ========
Commercial software development costs of $2.2 million, $2.1 million and $1.6 million were capitalized for the years ended December 31, 2002, 2001 and 2000. As described in Note 1, on January 1, 2002, the Company adopted Statement No. 142, and accordingly no longer amortizes goodwill and the excess of the carrying value over the net book value of investments accounted for using the equity method. Proforma results are summarized below, assuming the provisions of 43 INFORMATION RESOURCES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) DECEMBER 31, 2002 Statement 142 had been adopted effective January 1, 2000 and assuming no goodwill impairment was required in 2000, 2001 or 2002 (in thousands, except per share data):
2002 2001 2000 -------- ------- ------- Reported net loss...................................... $(13,039) $(3,907) $(7,538) Add: Goodwill amortization.................................. -- 555 542 Amortization of Mosaic InfoForce, L.P. investment.... -- 317 138 Cumulative effect of accounting change -- impairment of goodwill....................................... 7,065 -- -- -------- ------- ------- Adjusted net loss.................................... $ (5,974) $(3,035) $(6,858) ======== ======= ======= Basic and diluted earnings per share: Reported net loss.................................... $ (0.44) $ (0.13) $ (0.26) Goodwill amortization and amortization of Mosaic InfoForce, L.P. investment........................ -- 0.03 0.02 Cumulative effect of accounting change -- impairment of goodwill....................................... .24 -- -- -------- ------- ------- Adjusted net loss.................................... $ (0.20) $ (0.10) $ (0.24) ======== ======= =======
9. LONG-TERM DEBT Long-term debt at December 31 was as follows (in thousands):
2002 2001 ------- ------- Bank borrowings............................................. $ -- $ -- Capitalized leases and other................................ 8,134 5,783 ------- ------- 8,134 5,783 Less current maturities..................................... (3,639) (3,549) ------- ------- $ 4,495 $ 2,234 ======= =======
On July 12, 2002, the Company replaced its existing $35.0 million credit facility, which was scheduled to expire in October 2002, with a new $40.0 million credit facility. The new facility has floating rate interest options that range between 2.25% and 3.00% over LIBOR and commitment fees of up to 0.50% payable on the unused portion. The weighted average interest rates at December 31, 2002 and 2001 under the new and previous credit agreements were 4.17% and 6.58%, respectively. The new credit facility expires in July 2005. Under the new credit facility, the maximum commitment of funds available for borrowings is limited by a defined borrowing base formula related to eligible accounts receivable, which fluctuates during the quarter. Borrowings under the facility are secured by the Company's assets. As of December 31, 2002, the Company had $26.9 million of borrowing availability, net of letters of credit, under the new revolving credit facility. The financial covenants in the new 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. The new bank credit agreement contains covenants which restrict the Company's ability to incur additional indebtedness. As of December 31, 2002, the Company was in compliance with all covenants. 44 INFORMATION RESOURCES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) DECEMBER 31, 2002 Capitalized leases and other primarily consist of leases for computer and data collection equipment expiring through 2005. Minimum payments under capital lease obligations are as follows (in thousands):
YEAR ENDING DECEMBER 31, MINIMUM PAYMENTS ------------------------ ---------------- 2003........................................................ $4,079 2004........................................................ 3,247 2005........................................................ 1,423 ------ 8,749 Less imputed interest....................................... (615) ------ $8,134 ======
10. CAPITAL STOCK PREFERRED STOCK PURCHASE RIGHTS In 1989, IRI adopted a shareholder rights plan which attached preferred stock rights ("Rights") to each share of its Common Stock. Each Right entitles the holder to purchase one one-hundredth share of Preferred Stock at an exercise price of $60. The Rights become exercisable upon the acquisition of 15% of IRI Common Stock or a tender offer or exchange offer for IRI Common Stock by a person or group. IRI may redeem the Rights at $.01 per Right at any time prior to a public announcement that a person or group has acquired 15% of IRI's Common Stock. The Rights will expire on October 27, 2007. IRI has authority to issue one million shares of $.01 par value Preferred Stock. COMMON STOCK At December 31, 2002, 2001 and 2000, 29,808,550, 29,397,373 and 29,069,892 shares of Common Stock, respectively, were issued and outstanding. In connection with the IRI Directors' Plan (see below), 7,043 shares were reserved for future issuance at December 31, 2002. In connection with all IRI employee stock option plans, 9.9 million shares were reserved for issuance at December 31, 2002. These reserved shares were reduced by 8.9 million stock options outstanding at December 31, 2002, resulting in 1.0 million stock options available for grant under the Amended and Restated 1992 Executive Stock Option Plan, the Amended and Restated 1994 Employee Nonqualified Stock Option Plan and the Amended and Restated 1992 Stock Option Plan. In May 2000, the Company established the 2000 Employee Stock Purchase Plan ("ESPP") providing employees the opportunity to purchase Common Stock of the Company through accumulated payroll deductions. The plan qualifies as an Employee Stock Purchase Plan under Section 423 of the Internal Revenue Code of 1986, as amended. Employees are eligible to purchase Common Stock at the end of an accumulation period at an amount equal to 85% of the fair market value of a share of Common Stock on the first or last day of an accumulation period, whichever is lower. Employees are restricted from trading stock purchased under the ESPP for six months from the date of purchase. During 2002, the Company sold 286,452 shares, 210,000 shares of which were held in treasury and the remainder of which were newly issued shares of Common Stock, for $0.7 million to employees participating in the ESPP. During 2001, the Company sold 199,720 shares, 40,000 shares of which were held in treasury and the remainder of which were newly issued shares of Common Stock, for $0.8 million to employees participating in the ESPP. During 2000, the Company sold 158,827 shares of Common Stock, which were held in treasury, for $0.4 million to employees participating in the ESPP. During 2000, the Company began acquiring shares of its Common Stock in connection with a stock repurchase program announced in August 2000 that was established to acquire shares to fund the Company's 45 INFORMATION RESOURCES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) DECEMBER 31, 2002 ESPP. The program, approved by the Company's Board of Directors, authorizes the periodic repurchase of up to one million shares of its Common Stock on the open market, or in privately negotiated transactions, depending upon market conditions and other factors. During 2002, the Company purchased 210,000 shares of Common Stock, at an average cost of $5.70 per share, aggregating $1.2 million. The Company purchased 40,000 shares of Common Stock, at an average cost of $5.50 per share, aggregating $0.2 million during 2001. During 2000, the Company purchased 158,700 shares of Common Stock, at an average cost of $5.88 per share, aggregating $0.9 million. In May 1996, the Company's shareholders approved a stock plan for non-employee directors (the "IRI Directors' Plan"), authorizing the issuance of up to 100,000 shares of Common Stock. Under the IRI Directors' Plan, an eligible director is paid annually in shares of Common Stock in lieu of 75% of the cash retainer otherwise payable for services on the Board. The number of shares issued is based upon the fair market value of the Company's Common Stock. The Company issued 17,850, 12,075 and 13,098 shares in 2002, 2001 and 2000 at an average price of $5.07, $6.51 and $5.41 per share, respectively, under the IRI Directors' Plan. There are restrictions in IRI's bank revolving credit facility and lease agreements which prohibit the payment of dividends without prior consent and limit the purchases or redemption of Common Stock. (See Note 9). STOCK OPTIONS The Company has several stock option plans. The Amended and Restated 1994 Employee Nonqualified Stock Option Plan and the Amended and Restated 1992 Stock Option Plan cover most employees other than executive officers and directors. All options under these plans have been granted at fair market value or higher. Most option grants are exercisable in equal annual increments of 25% beginning on the first anniversary of the grant date and expire ten years after the date of grant. IRI also has an Amended and Restated 1992 Executive Stock Option Plan covering executive officers and directors which at inception authorized up to 2.5 million stock options. Most options under this plan were granted at fair market value and are exercisable in equal annual increments of 25% beginning on the first anniversary of the grant date and expire ten years after the date of grant. 46 INFORMATION RESOURCES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) DECEMBER 31, 2002 Transactions involving stock options for the Executive and Employee Stock Option Plans are summarized as follows:
NUMBER WEIGHTED AVERAGE OF OPTIONS EXERCISE PRICE ---------- ---------------- Outstanding January 1, 2000............................... 7,451,373 $12.68 Granted................................................... 3,400,215 5.12 Canceled/Expired.......................................... (2,147,471) 12.32 Exercised................................................. -- -- ---------- ------ Outstanding December 31, 2000............................. 8,704,117 9.82 Granted................................................... 1,933,500 5.28 Canceled/Expired.......................................... (1,468,759) 13.45 Exercised................................................. (155,186) 4.06 ---------- ------ Outstanding December 31, 2001............................. 9,013,672 8.35 Granted................................................... 1,273,300 7.67 Canceled/Expired.......................................... (1,057,085) 10.40 Exercised................................................. (316,875) 4.40 ---------- ------ Outstanding December 31, 2002............................. 8,913,012 $ 8.16 ========== ====== Exercisable December 31, 2002............................. 4,724,758 $ 9.92 ========== ======
Stock options outstanding at December 31, 2002 are as follows:
WEIGHTED OUTSTANDING EXERCISABLE AVERAGE WEIGHTED WEIGHTED REMAINING AVERAGE AVERAGE NUMBER CONTRACTUAL EXERCISE NUMBER EXERCISE RANGE OF EXERCISE PRICES OUTSTANDING LIFE PRICE EXERCISABLE PRICE ------------------------ ----------- ----------- ----------- ----------- ----------- $ 1.60-$ 4.13.................. 1,872,932 7.70 $ 3.85 677,938 $ 3.92 $ 4.22-$ 7.31.................. 1,953,986 7.88 $ 5.32 559,741 $ 5.73 $ 7.36-$ 8.38.................. 1,782,468 7.92 $ 8.16 766,003 $ 8.10 $ 8.38-$13.56.................. 1,803,599 5.82 $10.54 1,221,049 $10.83 $13.63-$34.00.................. 1,500,027 2.47 $14.37 1,500,027 $14.37 --------- ---- ------ --------- ------ $ 1.60-$34.00.................. 8,913,012 6.52 $ 8.16 4,724,758 $ 9.92 ========= ==== ====== ========= ======
47 INFORMATION RESOURCES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) DECEMBER 31, 2002 11. COMMITMENTS, CONTINGENCIES AND LITIGATION LEASE AGREEMENTS AND OTHER COMMITMENTS Future minimum lease payments under all operating leases as of December 31, 2002 are as follows (in thousands):
YEAR ENDING DECEMBER 31, OPERATING LEASE PAYMENTS ------------------------ ------------------------ 2003........................................................ $ 25,756 2004........................................................ 20,573 2005........................................................ 14,255 2006........................................................ 11,623 2007........................................................ 9,824 After 2007.................................................. 23,475 -------- Total minimum lease payments................................ $105,506 ========
Total rental expense for the years ended December 31, 2002, 2001 and 2000 was $26.5 million, $22.3 million and $24.9 million, respectively. LEGAL PROCEEDINGS On July 29, 1996, IRI filed an action against The Dun & Bradstreet Corp., The A.C. Nielsen Company (now owned by VNU, N.V.) and IMS International, Inc. (collectively, the "Defendants") in the United States District Court for the Southern District of New York entitled Information Resources, Inc. v. The Dun & Bradstreet Corp., et. al. No. 96 CIV. 5716 (the "Action"). IRI alleged that, among other things, the Defendants violated Sections 1 and 2 of the Sherman Act, 15 U.S.C. Sections 1 and 2, by engaging in a series of anti-competitive practices aimed at excluding the Company from various export markets for retail tracking services and regaining monopoly power in the United States market for such services. These practices included: i) entering into exclusionary contracts with retailers in several countries, in order to restrict the Company's access to sales data necessary to provide retail tracking services; ii) illegally tying/bundling services in markets over which Defendants' had monopoly power with services in markets in which ACNielsen competed with the Company; iii) predatory pricing; iv) acquiring foreign market competitors with the intent of impeding the Company's efforts at export market expansion; v) tortiously interfering with Company contracts and relationships with clients, joint venture partners and other market research companies; and vi) disparaging the Company to financial analysts and clients. By the Action, the Company sought to enjoin the Defendants' anti-competitive practices and to recover damages in excess of $350 million, prior to trebling. In procedural rulings, the District Court dismissed IRI's claims for injury suffered from Defendants' activities in foreign markets, where IRI operates through subsidiaries, and denied IRI leave to join such subsidiaries as parties. IRI continues to pursue any and all appeal rights of these procedural rulings prior to trial and to vigorously prosecute its claims for injuries in the U.S. and other markets, which the Company believes to be substantial. As previously reported, in 1999 IRI filed an action against Manugistics, Inc. in the Circuit Court of Cook County, Illinois. In this action IRI was seeking damages for Manugistics' alleged breach of a Data Marketing and Guaranteed Revenue Agreement and a related Non-Competition and Non-Solicitation Agreement. In December 2001, IRI and Manugistics settled their dispute under these agreements. Pursuant to the settlement agreement, Manugistics agreed to pay IRI a total of $8.625 million. Of this amount, $4.75 million was paid in cash installments and Manugistics agreed to issue shares of its common stock representing the remaining $3.875 million (the "Settlement Shares"). In February 2002, Manugistics issued the Settlement Shares to IRI which were sold by the Company for $3.875 million, net of commissions, in March 2002. 48 INFORMATION RESOURCES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) DECEMBER 31, 2002 In the ordinary course of business, IRI and its subsidiaries become involved as plaintiffs or defendants in various other legal proceedings. The claims and counterclaims in such litigation, including those for punitive damages, individually in certain cases and in the aggregate, involve amounts which may be material. However, it is the opinion of the Company's management, based upon the advice of counsel, that the ultimate disposition of pending litigation against the Company will not be material. 12. SEGMENT INFORMATION The Company develops and maintains databases, decision support software and mathematical models, primarily for the analysis of detailed information on purchasing of consumer goods, all within one industry segment -- business information services. The Company's business information services are conducted almost exclusively in the United States and Europe. The Company's operations in other markets account for less than 1% of consolidated revenues. Management of the Company routinely evaluates the performance of its operations against short-term and long-term objectives. The Company's segment disclosure by geographic areas is consistent with the management structure of the Company. 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 tables and discussion present certain information regarding the operations of the Company by geographic segment as of December 31, 2002, 2001 and 2000 (in thousands): SEGMENTED RESULTS:
2002 2001 2000 -------- -------- -------- Revenues: U.S. Services....................................... $411,572 $420,321 $397,895 International Services.............................. 143,268 135,547 133,028 -------- -------- -------- Total.......................................... $554,840 $555,868 $530,923 ======== ======== ======== Operating Results: U.S. Services....................................... $ 20,892 $ 25,895 $ 15,833 International Services: Operating loss................................... (8,800) (4,405) (4,628) Minority interests benefit....................... 610 2,694 2,746 Equity in earnings of affiliated companies....... (78) 311 575 -------- -------- -------- Subtotal -- International Services............. (8,268) (1,400) (1,307) Corporate and other expenses including equity in loss of affiliated companies..................... (5,874) (11,275) (10,960) Special charges, net(a)............................. (14,915) (15,434) (13,590) -------- -------- -------- Operating Results.............................. (8,165) (2,214) (10,024) Interest expense and other, net..................... (323) (3,069) (3,639) -------- -------- -------- Loss before income taxes....................... $ (8,488) $ (5,283) $(13,663) ======== ======== ========
49 INFORMATION RESOURCES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) DECEMBER 31, 2002 IDENTIFIABLE ASSETS:
2002 2001 2000 -------- -------- -------- U.S. Services......................................... $212,393 $217,072 $223,916 International Services................................ 133,639 122,412 126,258 Corporate(b).......................................... 13,165 13,939 14,986 -------- -------- -------- Total Identifiable Assets...................... $359,197 $353,423 $365,160 ======== ======== ========
- --------------- (a) Special charges, net (in millions):
2002 2001 2000 ----- ----- ----- U.S. Services.......................................... $ 8.8 $ 9.3 $ 7.4 International Services................................. 6.0 8.1 7.1 Corporate.............................................. 0.1 (2.0) (0.9) ----- ----- ----- Total........................................... $14.9 $15.4 $13.6 ===== ===== =====
(b) Identifiable corporate assets represent investments. (See Note 8). OTHER CASH FLOW INFORMATION:
INTERNATIONAL U.S. SERVICES SERVICES CORPORATE TOTAL ------------- ------------- --------- -------- (IN THOUSANDS) Capital expenditures 2002.................................... $ 8,975 $ 3,947 $1,080 $ 14,002 2001.................................... 15,578 4,359 972 20,909 2000.................................... 11,860 5,791 2,117 19,768 Depreciation expense 2002.................................... $19,487 $ 4,854 $3,308 $ 27,649 2001.................................... 21,193 4,526 3,202 28,921 2000.................................... 21,216 4,618 3,941 29,775 Data procurement expenditures 2002.................................... $81,648 $59,241 -- $140,889 2001.................................... 76,396 52,595 -- 128,991 2000.................................... 74,761 50,079 -- 124,840 Amortization of data procurement expenditures 2002....................... $78,401 $54,777 -- $133,178 2001.................................... 76,517 48,000 -- 124,517 2000.................................... 75,749 44,082 -- 119,831
50 INFORMATION RESOURCES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) DECEMBER 31, 2002 SUMMARY OF QUARTERLY DATA (UNAUDITED) Summaries of consolidated results on a quarterly basis are as follows (in thousands, except per share data):
2002 -------------------------------------------- FIRST SECOND THIRD FOURTH QUARTER QUARTER QUARTER QUARTER -------- -------- -------- -------- Revenues.................................... $133,119 $139,832 $140,561 $141,328 ======== ======== ======== ======== Special charges, net........................ $ (5,292) $ (1,860) $ -- $ (7,763) ======== ======== ======== ======== Operating profit (loss)..................... $ (3,476) $ 137 $ 1,440 $ (7,250) ======== ======== ======== ======== Net earnings (loss) before cumulative effect of accounting change...................... $ (2,291) $ 293 $ 850 $ (4,826) ======== ======== ======== ======== Net earnings (loss)......................... $ (9,356) $ 293 $ 850 $ (4,826) ======== ======== ======== ======== Net earnings (loss) per common share before cumulative effect of accounting change -- basic........................... $ (0.08) $ 0.01 $ 0.03 $ (0.16) ======== ======== ======== ======== Net earnings (loss) per common share -- basic............................ $ (0.32) $ 0.01 $ 0.03 $ (0.16) ======== ======== ======== ======== Net earnings (loss) per common and common equivalent share before cumulative effect of accounting change -- diluted........... $ (0.08) $ 0.01 $ 0.03 $ (0.16) ======== ======== ======== ======== Net earnings (loss) per common and common equivalent share -- diluted............... $ (0.32) $ 0.01 $ 0.03 $ (0.16) ======== ======== ======== ======== Weighted average common shares -- basic..... 29,430 29,526 29,579 29,572 ======== ======== ======== ======== Weighted average common and common equivalent shares -- diluted.............. 29,430 30,909 29,920 29,572 ======== ======== ======== ========
2001 -------------------------------------------- FIRST SECOND THIRD FOURTH QUARTER QUARTER QUARTER QUARTER -------- -------- -------- -------- Revenues.................................... $136,308 $140,906 $138,166 $140,488 ======== ======== ======== ======== Special charges, net........................ $ (4,097) $ (4,102) $ (4,209) $ (3,026) ======== ======== ======== ======== Operating profit (loss)..................... $ (3,372) $ (1,021) $ (924) $ 397 ======== ======== ======== ======== Net earnings (loss)......................... $ (2,475) $ (1,240) $ (488) $ 296 ======== ======== ======== ======== Net earnings (loss) per common share -- basic............................ $ (0.09) $ (0.04) $ (0.02) $ 0.01 ======== ======== ======== ======== Net earnings (loss) per common and common equivalent share -- diluted............... $ (0.09) $ (0.04) $ (0.02) $ 0.01 ======== ======== ======== ======== Weighted average common shares -- basic..... 29,069 29,068 29,310 29,323 ======== ======== ======== ======== Weighted average common and common equivalent shares -- diluted.............. 29,069 29,068 29,310 30,229 ======== ======== ======== ========
As described in Note 1, during the first quarter of 2002, the Company recognized a goodwill impairment charge of $7.1 million. 51 ITEM 9. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURES None PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT The sections entitled "Election of Directors" and "Section 16(a) Beneficial Ownership Reporting Compliance" are incorporated by reference from the definitive proxy statement to be filed with the Securities and Exchange Commission in connection with the Company's 2003 annual meeting of stockholders scheduled for May 15, 2003. Information about the Company's executive officers is set forth in Item 4(a) in Part I of this Report. ITEM 11. EXECUTIVE COMPENSATION The section entitled "Executive Compensation" excluding the Board Compensation Committee Report and the stock price performance graph is incorporated by reference from the definitive proxy statement to be filed with the Securities and Exchange Commission in connection with the Company's 2003 annual meeting of stockholders scheduled for May 15, 2003. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The section entitled "Ownership of Securities" is incorporated by reference from the definitive proxy statement to be filed with the Securities and Exchange Commission in connection with the Company's 2003 annual meeting of stockholders scheduled for May 15, 2003. The following information relates to the Company's equity compensation plans and individual compensation arrangements as of December 31, 2002. (See Note 10 of the Notes to the Consolidated Financial Statements.)
NUMBER OF SECURITIES TO BE NUMBER OF SECURITIES REMAINING ISSUED UPON EXERCISE OF WEIGHTED-AVERAGE EXERCISE AVAILABLE FOR FUTURE ISSUANCE OUTSTANDING OPTIONS, WARRANTS PRICE OF OUTSTANDING OPTIONS, UNDER EQUITY COMPENSATION PLAN CATEGORY AND RIGHTS WARRANTS AND RIGHTS PLANS(1) - ------------- ----------------------------- ----------------------------- ------------------------------ Equity compensation plans approved by security holders.................... 8,913,012 $8.16 1,328,277 Equity compensation plans not approved by security holders.................... -- -- -- --------- ----- --------- Total...................... 8,913,012 $8.16 1,328,277 ========= ===== =========
- --------------- (1) Includes 355,001 shares authorized for issuance under the Company's 2000 Employee Stock Purchase Plan ("ESPP"). The Company may either issue such shares or may acquire such shares on the open market or in privately negotiated transactions, depending upon market conditions and other factors. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS The section entitled "Certain Transactions" is incorporated by reference from the definitive proxy statement to be filed with the Securities and Exchange Commission in connection with the Company's 2003 annual meeting of stockholders scheduled for May 15, 2003. ITEM 14. CONTROLS AND PROCEDURES As of December 31, 2002, an evaluation was performed under the supervision and with the participation of the Company's management, including the Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of the Company's disclosure controls and procedures. Based on that 52 evaluation, the Company's management, including the Chief Executive Officer and Chief Financial Officer, concluded that the Company's disclosure controls and procedures were effective as of December 31, 2002. There have been no significant changes in the Company's internal controls or in other factors that could significantly affect internal controls subsequent to December 31, 2002. 53 PART IV ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K (a) Documents filed as a part of this Report: 1. Financial Statements The consolidated financial statements of the Company are included in Part II, Item 8 of this Report.
PAGE ---- 2. Financial Statement Schedules Schedule II -- Valuation and Qualifying Accounts; Reserve for Accounts Receivable..................................... 56 All other schedules are omitted because they are not applicable, or not required, or because the required information is included in the financial statements or notes thereto. 3. Executive Compensation Plans and Arrangements. The following Executive Compensation Plans and Arrangements are listed as exhibits to this Form 10-K: Form of letter agreement between the Company and John D.C. Little. Letter agreement dated August 7, 1989 between the Company and Leonard Lodish. Form of Information Resources, Inc. Directorship/Officership Agreement between the Company and its directors and executive officers. Information Resources, Inc. Executive Deferred Compensation Plan effective January 1, 1999. Employment agreement dated April 30, 1999 between the Company and Joseph P. Durrett. Restricted stock agreement dated April 30, 1999 between the Company and Joseph P. Durrett. Employment agreement dated May 28, 1999 between the Company and Rick Kurz. Information Resources, Inc. 1999 Restricted Stock Plan. Information Resources, Inc. 1999 Nonqualified Defined Contribution Plan. Information Resources, Inc. 1999 Nonqualified Defined Contribution Plan Trust. Employment agreement dated March 1, 1999, as amended by letter agreement dated April 27, 1999, between the Company and Timothy Bowles. Employment letter agreement dated September 8, 1999, as amended by letters dated September 11, 1999 and September 15, 1999, respectively, between the Company and Edward Kuehnle. Employment agreement dated February 4, 2000 between the Company and Andrew Balbirer. Amendment to employment letter agreement dated June 16, 2000 between the Company and Edward Kuehnle. Amended and Restated 1992 Stock Option Plan, as amended effective June 29, 2000. 1992 Executive Stock Option Plan, as amended effective June 29, 2000.
54 Amended and Restated 1994 Employee Nonqualified Stock Option Plan, as amended effective June 29, 2000. Employment letter agreement dated May 19, 2000 between the Company and Mary K. Sinclair. Form of Employment and Change in Control Agreement between the Company and certain executive officers. Information Resources, Inc. Directors Deferred Compensation Plan effective May 1, 2000. Information Resources, Inc. 2000 Employee Stock Purchase Plan effective as of May 19, 2000. Amendment One to Employment Agreement dated April 30, 1999 between the Company and Joseph P. Durrett. Information Resources, Inc. Amended and Restated 401(k) Retirement Savings Plan, as amended effective as of August 17, 2000. First Amendment to Information Resources, Inc. Amended and Restated 401(k) Retirement Savings Plan, effective as of November 13, 2002. Second Amendment to Information Resources, Inc. Amended and Restated 401(k) Retirement Savings Plan, effective as of November 13, 2002.
(b) Reports on 8-K During the last quarter of 2002, the Company filed a Current Report on Form 8-K on December 19, 2002, covering Item 5 (Other Events) and Item 7 (Exhibits), which contained the press release commenting on Procter & Gamble's decision not to renew its U.S. market measurement business with the Company. During the first quarter of 2003, the Company filed a Current Report on Form 8-K on March 4, 2003, covering Item 5 (Other Events) and Item 7 (Exhibits), which contained the press release announcing that the Company has engaged the investment banking firm of William Blair & Company, L.L.C. to assist the Company in its exploration of strategic options. (c) Exhibits See Exhibit Index (immediately following the CFO certification) 55 SCHEDULE II INFORMATION RESOURCES, INC. AND SUBSIDIARIES VALUATION AND QUALIFYING ACCOUNTS RESERVE FOR ACCOUNTS RECEIVABLE (IN THOUSANDS)
BALANCE AT CHARGED TO DEDUCTIONS BALANCE AT BEGINNING COSTS AND (NET WRITEOFFS/ END OF DESCRIPTION OF PERIOD EXPENSES RECOVERIES) PERIOD ----------- ---------- ---------- --------------- ---------- Year ended December 31, 2000..................... $3,774 $1,121 $(977) $3,918 Year ended December 31, 2001..................... $3,918 $ 648 $(615) $3,951 Year ended December 31, 2002..................... $3,951 $1,054 $(410) $4,595
56 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. Dated: March 27, 2003 INFORMATION RESOURCES, INC. By: /s/ JOSEPH P. DURRETT ---------------------------------- Joseph P. Durrett President and Chief Executive Officer Pursuant to the Requirement of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities indicated on March 27, 2003.
SIGNATURE TITLE --------- ----- /s/ JOSEPH P. DURRETT Chairman of the Board of Directors, - ----------------------------------------------------------- President, Chief Executive Officer and Joseph P. Durrett Director /s/ ANDREW G. BALBIRER Executive Vice President and Chief - ----------------------------------------------------------- Financial Officer [Principal financial Andrew G. Balbirer officer] /s/ MARY K. SINCLAIR Executive Vice President and Controller - ----------------------------------------------------------- [Principal accounting officer] Mary K. Sinclair * /s/ JAMES G. ANDRESS Director - ----------------------------------------------------------- James G. Andress * /s/ WILLIAM B. CONNELL Director - ----------------------------------------------------------- William B. Connell * /s/ BRUCE A. GESCHEIDER Director - ----------------------------------------------------------- Bruce A. Gescheider * /s/ EILEEN A. KAMERICK Director - ----------------------------------------------------------- Eileen A. Kamerick * /s/ JOHN D.C. LITTLE Director - ----------------------------------------------------------- John D.C. Little * /s/ LEONARD M. LODISH Director - ----------------------------------------------------------- Leonard M. Lodish * /s/ RAYMOND H. VAN WAGENER, JR. Director - ----------------------------------------------------------- Raymond H. Van Wagener, Jr.
57
SIGNATURE TITLE --------- ----- * /s/ THOMAS W. WILSON, JR. Director - ----------------------------------------------------------- Thomas W. Wilson, Jr. *By: /s/ JOSEPH P. DURRETT ------------------------------------------------------ Pursuant to a Power of Attorney
58 CERTIFICATIONS I, Joseph P. Durrett, certify that: 1. I have reviewed this annual report on Form 10-K of Information Resources, Inc.; 2. Based on my knowledge, this annual report does not contain any untrue statements of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report; 3. Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have: a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared; b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this annual report (the "Evaluation Date"); and c) presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions): a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officers and I have indicated in this annual report whether there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. /s/ JOSEPH P. DURRETT - -------------------------------------- Joseph P. Durrett Chief Executive Officer March 27, 2003 59 CERTIFICATIONS I, Andrew G. Balbirer, certify that: 1. I have reviewed this annual report on Form 10-K of Information Resources, Inc.; 2. Based on my knowledge, this annual report does not contain any untrue statements of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report; 3. Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have: a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared; b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this annual report (the "Evaluation Date"); and c) presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions): a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officers and I have indicated in this annual report whether there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. /s/ ANDREW G. BALBIRER - -------------------------------------- Andrew G. Balbirer Chief Financial Officer March 27, 2003 60 EXHIBIT INDEX The following documents are the exhibits to this Report. For convenient reference, each exhibit is listed according to the number assigned to it in the Exhibit Table of Item 601 of Regulation S-K.
SEQUENTIAL EXHIBIT DOCUMENT NUMBER DESCRIPTION OF DOCUMENT FILING - ------- ----------------------- ---------- 3(a) -- Copy of the certificate of incorporation of the Company dated May 27, 1982, as amended. (Incorporated by reference. Previously filed as Exhibit 3(a) to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1988). IBRF (b) -- Copy of the bylaws of the Company, as amended. (Incorporated by reference. Previously filed as Exhibit 3(b) to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1988). IBRF (c) -- Copy of amendments to the Certificate of Incorporation approved by the stockholders on May 16, 1989. (Incorporated by reference. Previously filed as Exhibit 3(c) to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1989). IBRF (d) -- Copy of amendments to the bylaws of the Company as approved by the Board of Directors bringing the bylaws into conformity with the amendments to the Certificate of Incorporation approved by the stockholders May 16, 1989. (Incorporated by reference. Previously filed as Exhibit 3(d) to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1989). IBRF (e) -- Certificate of Designations of Series A Participating Preferred Stock, as adopted by the Board of Directors of the Company on March 2, 1989 and duly filed with the Secretary of State of the State of Delaware March 15, 1989. (Incorporated by reference. Previously filed as Exhibit 3(e) to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1989). IBRF 10 -- Material Contracts (a) -- Information Resources, Inc., Nonqualified Stock Option Plan effective January 1, 1984, as amended. (Incorporated by reference. Previously filed as Exhibit 10(b) to the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 1988). IBRF (b) -- Form of letter agreement between the Company and John D.C. Little. (Incorporated by reference. Previously filed as Exhibit 10(m) to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1989). IBRF (c) -- Letter agreement dated August 7, 1989 between the Company and Leonard Lodish. (Incorporated by reference. Previously filed as Exhibit 3(q) to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1989). IBRF (d) -- Lease Agreement dated September 27, 1990 between Randolph/Clinton Limited Partnership and the Company. (Incorporated by reference. Previously filed as Exhibit 2.1 to the Company's Current Report on Form 8-K dated September 27, 1990). IBRF (e) -- Second Amendment to Lease Agreement dated September 27, 1990 between the Company and Randolph/Clinton Limited Partnership. (Incorporated by reference. Previously filed as Exhibit 10 to the Company's Quarterly Report on Form 10-Q for the quarter ended March 31, 1995). IBRF (f) -- Amended and Restated Asset Purchase Agreement dated as of June 12, 1995 by and between the Company and Oracle Corporation. (Incorporated by reference. Previously filed as Exhibit 2.1 to the Company's Current Report on Form 8-K dated July 27, 1995 and filed August 11, 1995). IBRF
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SEQUENTIAL EXHIBIT DOCUMENT NUMBER DESCRIPTION OF DOCUMENT FILING - ------- ----------------------- ---------- (g) -- Licenses-Back Agreement dated as of July 27, 1995 between the Company and Oracle Corporation. (Incorporated by reference. Previously filed as Exhibit B to the Amended and Restated Asset Purchase Agreement dated as of July 27, 1995 filed as Exhibit 2.1 to the Current Report on Form 8-K dated July 27, 1995 and filed August 11, 1995). IBRF (h) -- Information Resources, Inc. Amended and Restated 401(k) Retirement Savings Plan and Trust adopted by the Company effective May 24, 1995. (Incorporated by reference. Previously filed as Exhibit 10(hh) to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1996). IBRF (i) -- First Amendment to the Information Resources, Inc. Amended and Restated 401(k) Retirement Savings Plan effective July 1, 1996. (Incorporated by reference. Previously filed as Exhibit 10(ii) to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1996). IBRF (j) -- Second Amendment to the Information Resources, Inc. Amended and Restated 401(k) Retirement Savings Plan effective March 1, 1997. (Incorporated by reference. Previously filed as Exhibit 10(jj) to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1996). IBRF (k) -- Trust Agreement between Information Resources, Inc. and Fidelity Management Trust Company dated as of July 1, 1996. (Incorporated by reference. Previously filed as Exhibit 10(kk) to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1996). IBRF (l) -- First Amendment to Trust Agreement between Fidelity Management Trust Company and Information Resources, Inc. effective March 1, 1997. (Incorporated by reference. Previously filed as Exhibit 10(ll) to the Company's Annual Report on Form 10K for the fiscal year ended December 31, 1996). IBRF (m) -- Credit Agreement dated October 31, 1997 among the Company, the Bank Parties thereto and Harris Trust and Savings Bank, as Agent. (Incorporated by reference. Previously filed as Exhibit 10 to the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 1997). IBRF (n) -- Rights Agreement between Information Resources, Inc. and Harris Trust and Savings Bank, amended and restated as of October 27, 1997. (Incorporated by reference. Previously filed as Exhibit 4.2 to the Company's Current Report on Form 8-A/A dated October 27, 1997 and filed October 28, 1997). IBRF (o) -- Information Resources, Inc. Executive Deferred Compensation Plan effective January 1, 1999. (Incorporated by reference. Previously filed as Exhibit 10(ff) to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1998). IBRF (p) -- First Amendment to Credit Agreement dated as of February 10, 1999 between the Company, the Banks Party thereto and Harris Trust and Savings Bank, as agent for the Banks. (Incorporated by reference. Previously filed as Exhibit 10(hh) to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1998). IBRF (q) -- Employment agreement dated April 30, 1999 between the Company and Joseph P. Durrett. (Incorporated by reference. Previously filed as Exhibit 10(kk) to the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 1999). IBRF (r) -- Restricted stock agreement dated April 30, 1999 between the Company and Joseph P. Durrett. (Incorporated by reference. Previously filed as Exhibit 10(ll) to the Company's Quarterly Report Form on 10-Q for the quarter ended June 30, 1999). IBRF
62
SEQUENTIAL EXHIBIT DOCUMENT NUMBER DESCRIPTION OF DOCUMENT FILING - ------- ----------------------- ---------- (s) -- Employment agreement dated May 28, 1999 between the Company and Rick Kurz. (Incorporated by reference. Previously filed as Exhibit 10(mm) to the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 1999). IBRF (t) -- Information Resources, Inc. 1999 Restricted Stock Plan. (Incorporated by reference. Previously filed as Exhibit 99-1 to the Company's Registration Statement filed with the SEC on February 25, 2000). IBRF (u) -- Information Resources, Inc. 1999 Nonqualified Defined Contribution Plan. (Incorporated by reference. Previously filed as Exhibit 99-2 to the Company's Registration Statement filed on February 25, 2000). IBRF (v) -- Information Resources, Inc. 1999 Nonqualified Defined Contribution Plan Trust. (Incorporated by reference. Previously filed as Exhibit 99-3 to the Company's Registration Statement filed on February 25, 2000). IBRF (w) -- Second Amendment to Credit Agreement dated as of February 9, 2000 between the Company, the Banks party thereto and Harris Trust and Savings Bank, as agent for the Banks. (Incorporated by reference. Previously filed as Exhibit 10(gg) to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1999). IBRF (x) -- Employment agreement dated March 1, 1999, as amended by letter agreement dated April 27, 1999, between the Company and Timothy Bowles. (Incorporated by reference. Previously filed as Exhibit 10(hh) to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1999). IBRF (y) -- Employment letter agreement dated September 8, 1999, as amended by letters dated September 11 and September 13, respectively, between the Company and Edward Kuehnle. (Incorporated by reference. Previously filed as Exhibit 10(ii) to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1999). IBRF (z) -- Employment agreement dated February 4, 2000 between the Company and Andrew Balbirer. (Incorporated by reference. Previously filed as Exhibit 10(jj) to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1999). IBRF (aa) -- Amendment to employment letter agreement dated June 16, 2000 between the Company and Edward Kuehnle. (Incorporated by reference. Previously filed as Exhibit 10(kk) to the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 2000). IBRF (bb) -- Amended and Restated 1992 Stock Option Plan, as amended effective June 29, 2000. (Incorporated by reference. Previously filed as Exhibit 10(ll) to the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 2000). IBRF (cc) -- 1992 Executive Stock Option Plan, as amended effective June 29, 2000. (Incorporated by reference. Previously filed as Exhibit 10(mm) to the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 2000). IBRF (dd) -- Amended and Restated 1994 Employee Nonqualified Stock Option Plan, as amended effective June 29, 2000. (Incorporated by reference. Previously filed as Exhibit 10(nn) to the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 2000). IBRF (ee) -- Employment letter agreement dated May 19, 2000 between the Company and Mary K. Sinclair. (Incorporated by reference. Previously filed as Exhibit 10(oo) to the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 2000). IBRF
63
SEQUENTIAL EXHIBIT DOCUMENT NUMBER DESCRIPTION OF DOCUMENT FILING - ------- ----------------------- ---------- (ff) -- Form of Employment and Change in Control Agreement between the Company and certain executive officers. (Incorporated by reference. Previously filed as Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 2000). IBRF (gg) -- Outsourcing Services Agreement between the Company and Mosaic InfoForce, L.P. (Incorporated by reference. Previously filed as Exhibit 10.2 to the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 2000). IBRF (hh) -- Information Resources, Inc. Third Amendment to Credit Agreement. (Incorporated by reference. Previously filed as Exhibit 10.3 to the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 2000). IBRF (ii) -- Information Resources, Inc. Directors Deferred Compensation Plan effective May 1, 2000. (Incorporated by reference. Previously filed as Exhibit 10.4 to the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 2000). IBRF (jj) -- Information Resources, Inc. 2000 Employee Stock Purchase Plan effective as of May 19, 2000. (Incorporated by reference. Previously filed as Exhibit 99.1 to the Company's Registration Statement filed with the Securities and Exchange Commission on June 15, 2000). IBRF (kk) -- Fourth Amendment to Lease Agreement effective December 28, 2000 by and between the Company and Randolph/Clinton Limited Partnership. (Incorporated by reference. Previously filed as Exhibit 10(nn) to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2000). IBRF (ll) -- Amendment One to Employment Agreement dated April 30, 1999 between the Company and Joseph P. Durrett. (Incorporated by reference. Previously filed as Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q for the quarter ended March 31, 2001). IBRF (mm) -- Fourth Amendment to Credit Agreement dated October 16, 2001. (Incorporated by reference. Previously filed as Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 2001). IBRF (nn) -- Amended and Restated Security Agreement dated October 16, 2001. (Incorporated by reference. Previously filed as Exhibit 10.2 to the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 2001). IBRF (oo) -- Revolving Credit Agreement dated July 12, 2002 between the Company, the Lenders thereto and LaSalle Bank National Association, as agent for the Lenders. (Incorporated by reference. Previously filed as Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 2002). IBRF (pp) -- Security Agreement dated July 12, 2002 in favor of Lenders who are a party to the Revolving Credit Agreement dated July 12, 2002 and LaSalle Bank National Association, as agent for the Lenders. (Incorporated by reference. Previously filed as Exhibit 10.2 to the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 2002). IBRF (qq) -- U.S. Subsidiary Pledge Agreement dated July 12, 2002 in favor of LaSalle Bank National Association, as agent for the Lenders. (Incorporated by reference. Previously filed as Exhibit 10.3 to the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 2002). IBRF
64
SEQUENTIAL EXHIBIT DOCUMENT NUMBER DESCRIPTION OF DOCUMENT FILING - ------- ----------------------- ---------- (rr) -- Foreign Subsidiary Pledge Agreement dated July 12, 2002 in favor of LaSalle Bank National Association, as agent for the Lenders. (Incorporated by reference. Previously filed as Exhibit 10.4 to the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 2002). IBRF (ss) -- Information Resources, Inc. Amended and Restated 401(k) Retirement Savings Plan, as amended, effective as of August 17, 2000. EF (tt) -- First Amendment to Information Resources, Inc. Amended and Restated 401(k) Retirement Savings Plan, effective as of November 13, 2002. EF (uu) -- Second Amendment to Information Resources, Inc. Amended and Restated 401(k) Retirement Savings Plan, effective as of November 13, 2002. EF (vv) -- First Amendment to Revolving Credit Agreement dated July 12, 2002 between the Company, the Lenders thereto and LaSalle Bank National Association, as agent for the Lenders, effective January 31, 2003. EF (ww) -- Form of Information Resources, Inc. Directorship/Officership Agreement between the Company and each of its directors and executive officers. EF 18 -- Letter regarding change in accounting principle. (Incorporated by reference. Previously filed as Exhibit 18 to the Company's Quarterly Report on form 10-Q for the quarter ended March 31, 1994). IBRF 21 -- Subsidiaries of the Registrant (filed herewith). EF 23 -- Consent of Independent Auditors (filed herewith). EF 24 -- Powers of Attorney (filed herewith). EF 99.1 -- Chief Executive Officer Certification of Annual Report EF 99.2 -- Chief Financial Officer Certification of Annual Report EF
65 EX-10.(SS) 3 c75466exv10wxssy.txt AMENDED & RESTATED 401(K) RETIREMENT SAVINGS PLAN EXHIBIT (ss) INFORMATION RESOURCES, INC. AMENDED AND RESTATED 401(k) RETIREMENT SAVINGS PLAN (AMENDED AS OF AUGUST 17, 2000) INFORMATION RESOURCES, INC. AMENDED AND RESTATED 401(k) RETIREMENT SAVINGS PLAN This amended and restated agreement (the "Amended and Restated Plan") is made as of this 17th day of August, 2000 by Information Resources, Inc. (hereinafter referred to as "Company"). WITNESSETH: WHEREAS, the Company established a 401(k) Retirement Savings Plan and Trust which became effective August 1, 1989 (the "Plan and Trust"); WHEREAS, the Plan and Trust is for the exclusive benefit of eligible employees (and their beneficiaries) of the Company or any affiliated employer that participates in the Plan and Trust; WHEREAS, the Plan and Trust was intended to be qualified under Section 401 et. seq. of the Internal Revenue Code of 1986, as amended (the "Code") and tax exempt under Section 501 of the Code; WHEREAS, the Board of Directors of the Company has, since the effective date of the Plan and Trust, adopted various amendments to the Plan and Trust and renamed the Plan and Trust the "Information Resources, Inc. Amended and Restated 401(k) Retirement Savings Plan and Trust"; and WHEREAS, the Board of Directors of the Company has determined it to be in the best interests of the Company to now incorporate all previous amendments to the Plan and Trust into one restated document, update the Plan and Trust in accordance with all applicable legislative and regulatory requirements and rename the Plan and Trust the "Information Resources, Inc. Amended and Restated 401(k) Retirement Savings Plan"; NOW, THEREFORE, BE IT RESOLVED, that the Information Resources, Inc. Amended and Restated 401(k) Retirement Savings Plan is hereby amended and restated. TABLE OF CONTENTS
ARTICLE HEADING PAGE - ------- ------- ---- I. DEFINITIONS 4 II. SERVICE 9 III. ELIGIBILITY FOR PARTICIPATION 11 IV. CONTRIBUTIONS AND FORFEITURES 12 V. MAXIMUM ANNUAL ADDITIONS 19 VI. MAINTENANCE OF PARTICIPANTS' ACCOUNTS 20 VII. VESTED INTERESTS 22 VIII. DISTRIBUTION OF BENEFITS 24 IX. INVESTMENT DISCRETION 27 X. ADMINISTRATION 29 XI. AMENDMENTS AND DISCONTINUANCE 33 XII. TOP-HEAVY PROVISIONS 35 XIII. TRUST PROVISIONS 37 XIV. ADOPTION BY SUBSIDIARIES AND AFFILIATES 37 XV. LOANS 37 XVI. MISCELLANEOUS 39
3 INFORMATION RESOURCES, INC. AMENDED AND RESTATED 401(k) RETIREMENT SAVINGS PLAN ARTICLE I DEFINITIONS As used in this Amended and Restated Plan, the following terms shall have the meaning hereinafter set forth unless the context shall clearly indicate otherwise. 1.1 "ACCRUED BENEFIT" as of any date shall mean the combined balances of Participant's 401(k) Account, Matching Contribution Account, and Rollover Contribution Account. 1.2 "ANNUAL ADDITIONS" to a Participant's accounts for any Plan Year shall mean the sum of the contributions to the Participant's 401(k) Account and Matching Contribution Account for the Plan Year under consideration, including the Participant's share, if any, of forfeitures in accordance with Section 415(c)(2) of the Code. 1.3 "AUTHORIZED LEAVE OF ABSENCE" shall mean, as to any Employee, an absence authorized by an Employer for non-working time by reason of layoff, pregnancy, jury duty, illness, temporary disability, military service or family leave under the Family and Medical Leave Act of 1993. In granting such Authorized Leaves of Absence, an Employer shall treat similarly situated Employees uniformly. 1.4 "BENEFICIARY" shall mean any person or persons designated by a Participant in accordance with Section 8.6 to receive any death benefits that may be payable under the Plan. Wherever the rights of Participants are stated or limited herein, their Beneficiaries shall be deemed bound thereby. 1.5 "CHIEF EXECUTIVE OFFICER" shall mean the Chief Executive Officer of the Company. 1.6 "CODE" shall mean the Internal Revenue Code of 1986, as amended from time-to-time. 1.7 "COMMITTEE" shall mean the individuals designated by the Company pursuant to Article X to administer the Plan. 1.8 "COMPANY" shall mean Information Resources, Inc. 1.9 "COMPENSATION" shall mean an Employee's total cash compensation as defined in Section 415(c) of the Code, as modified by the safe harbor provisions of Treasury Regulation 4 Section 1.414(s)-1(c)(3), and excluding any compensation in excess of $160,000 or such higher amount which may from time to time be prescribed in accordance with regulations issued by the Secretary of the Treasury or his delegate in accordance with Section 401(a)(17) of the Code and subject to the provisions of Article IV below. If a Participant enters into a Salary Reduction Agreement (as defined in Section 4.2) for a given Plan Year, his compensation for such Plan Year for all purposes of this Plan shall be equal to his compensation without application of any Salary Reduction Agreement. If any amounts are contributed or deferred at the election of a Participant by reason of Section 125 of the Code, his compensation for such Plan Year for all purposes of this Plan shall be equal to his compensation without application of the provisions of Section 125 of the Code. 1.10 "DATE OF TERMINATION" shall mean the earlier of the following dates: (a) the date an Employee quits, is discharged, retires for reasons other than disability, or dies; (b) the date which is the first anniversary of the date an Employee is laid off or commences an Authorized Leave of Absence, excluding Military Leave of Absence, if such Employee has not returned to the active employ of an Employer by such anniversary; or (c) the date which is the ninety-first (91st) day following the date an Employee separates from military service, if such Employee was on a Military Leave of Absence, and such Employee has not returned to the active employ of an Employer by such date. 1.11 "DETERMINATION DATE" means, with respect to any Plan Year, the last day of the preceding Plan Year. 1.12 "DISABLED" OR "DISABILITY" shall mean a physical or mental condition which qualifies an Employee for disability benefits under an Employer's disability plan. Retirement due to disability shall be granted on a uniform basis for all Participants in similar circumstances. 1.13 "EARLY RETIREMENT DATE" shall mean, as applicable, the date an Employee retires from the active employ of an Employer on or after attaining age fifty-five (55) and receiving credit for at least five (5) years of Vesting Service, or the date that an Employee who has satisfied such five (5) year Vesting Service requirement before separating from service with an Employer (with a nonforfeitable right to an Accrued Benefit), but who separated from service prior to reaching such age requirement, attains age fifty-five (55). 1.14 "EFFECTIVE DATE" shall mean August 1, 1989. 1.15 "EMPLOYEE" shall mean any individual currently in the employ of an Employer, including Leased Employees, but excluding any director of an Employer who is not in the employ of such Employer. 5 1.16 "EMPLOYER" shall mean the Company and each affiliate or subsidiary of the Company which adopts this Plan with the consent of the Board of Directors of the Company in accordance with the provisions of Article XIV. 1.17 "ERISA" shall mean the Employee Retirement Income Security Act of 1974 as amended from time-to-time. 1.18 "FORMER PARTICIPANT" shall mean a former Employee or Beneficiary who is entitled to receive, is receiving, or has received distributions provided herein. 1.19 "FUND" shall mean all monies as from time-to-time held by the Trustees. 1.20 "401(k) ACCOUNT" shall mean an account established by the Company for each Participant to hold the 401(k) Contributions made hereunder on behalf of such Participant and a proportionate share of the net earnings for each Plan Year. The maintenance of separate 401(k) Accounts shall be primarily for accounting purposes and shall not restrict Fund investments. 1.21 "401(k) CONTRIBUTION" shall mean contributions made by an Employer to the Plan on behalf of a Participant under the terms of a Participant's Salary Reduction Agreement (as defined in Section 4.2). 1.22 "HIGHLY COMPENSATED EMPLOYEE" means any Employee or former Employee who, at any time during the Plan Year or the preceding Plan Year, is a Highly Compensated Employee as defined in Code Section 414(q), or any successor Code Section(s), and the implementing regulations thereunder, as amended from time to time. 1.23 "HOUR OF SERVICE" shall mean and be determined on the following basis for all Employees: (a) each hour for which he is either directly or indirectly paid or entitled to payment by the Company or an Affiliated Company (as defined in Sections 414(b), 414(c), and 414(o) and the applicable regulations thereunder) for the performance of duties (these hours shall be credited to the period in which the duties are performed); excluding, payments on account of a period during which no duties are performed if such payment is made or due under a plan maintained solely for the purpose of complying with applicable worker's compensation, or unemployment compensation or disability insurance laws; (b) each hour for which he is directly or indirectly paid, or entitled to payment, by the Company or an Affiliated Company for reasons (such as vacation, holiday, illness, incapacity (including disability), layoff, jury duty, military duty or leave of absence) other than for the performance of duties (these 6 hours shall be credited to the computation period or periods as determined under the rules set forth in Section 2530.200b-2 of the Department of Labor Regulations which is incorporated herein by reference); and (c) each hour for which back pay, irrespective of mitigation of damages, has been awarded to the Employee or Participant or agreed to by the Company or an Affiliated Company, except that hours under this paragraph 1.23(c) shall not duplicate hours under paragraph 1.23(a) and (b) (these hours shall be credited for the computation period or periods to which the award or agreement pertains rather than the computation period in which the award, agreement, or payment was made). No more than 501 hours of service shall be credited under subparagraph 1.23(b) to an Employee or Participant on account of any single continuous period during which he performs no duties (whether or not such period occurs in a single computation period) unless the Committee establishes uniform, nondiscriminating rules which provide to the contrary. An Employee or Participant who is on leave due to military duty shall be treated as required by Federal law, provided the Participant returns to an Affiliated Company within the time provided under Federal and State laws following eligibility for discharge, at a rate of 8 hours a day, 40 hours a week during such period of time. In case of payment which is made or due on account of a period during which an Employee performs no duties, and which results in the crediting of Hours of Service under paragraph 1.23(c), or in the case of an award or agreement is made with respect to a period described in paragraph 1.23(b), the number of Hours of Service to be credited shall be determined on the basis of the rules set forth in Department of Labor Regulations Section 2530.200b-2(b). 1.24 "KEY EMPLOYEE" means any Participant or Former Participant in the Plan who, at any time during the Plan Year or any of the preceding four (4) Plan Years, is a Key Employee as defined in Code Section 416(i)(1). Upon the death of a Key Employee, the Key Employee's Beneficiary shall be considered a Key Employee. 1.25 "LEASED EMPLOYEE" shall mean any individual who is not an Employee of an Employer and who has provided services for such Employer on a substantially full time basis for a period of at least a year, and such services are performed under primary direction or control of an Employer; provided, however that any individual determined not to be a leased employee by the Internal Revenue Service prior to August 20, 1996 shall continue to be so classified thereafter. Contributions or benefits provided a leased employee by a leasing organization which are attributable to services performed for the recipient company shall be treated as provided by an Employer. 1.26 "LIMITATION YEAR" shall mean the Plan Year. 7 1.27 "LOAN ADMINISTRATOR" shall mean the individual designated by the Committee to administer the Plan's loan program described in Article XV. If at any time and for any reason there ceases to be a Loan Administrator, the term "Loan Administrator" shall mean the Committee until such time as a new Loan Administrator is appointed. 1.28 "MATCHING CONTRIBUTION ACCOUNT" shall mean an account established by the Company for each Participant to hold the Participant's share of the Matching Contribution for each Plan Year, if any, and a proportionate share of the net earnings for each Plan Year. The maintenance of separate Matching Contribution Accounts shall be primarily for accounting purposes and shall not restrict Fund investments. 1.29 "MILITARY LEAVE OF ABSENCE" shall mean a leave of absence granted automatically for any period of military service in which an individual's employment rights are protected by any law of the United States governing military service, provided such individual returns to the service of an Employer within ninety (90) days of his or her separation from such military service. 1.30 "NON-HIGHLY COMPENSATED EMPLOYEE" shall mean an Employee who is not a Highly Compensated Employee. 1.31 "NON-KEY EMPLOYEE" shall mean an Employee who is not a Key Employee. 1.32 "NORMAL RETIREMENT DATE" shall mean the Participant's sixty-fifth (65th) birthday. 1.33 "PARTICIPANT" shall mean an Employee of an Employer who becomes a Participant as provided in Article III. Once a Participant becomes eligible for participation in the Plan, he shall continue to be a Participant under the Plan until the date he terminates his employment with an Employer. 1.34 "PLAN" shall mean the Information Resources, Inc. Amended and Restated 401(k) Retirement Savings Plan as set forth herein or as amended from time to time. 1.35 "PLAN ADMINISTRATOR" shall mean the Company. 1.36 "PLAN YEAR" shall mean the twelve-month period commencing on a January 1 and ending on the following December 31. 1.37 "RETIREMENT DATE" shall mean a Participant's date of retirement on or after his Normal Retirement Date, Early Retirement Date, or retirement due to Disability, whichever is applicable. 1.38 "ROLLOVER CONTRIBUTION ACCOUNT" shall mean an account established by the Company for each Participant to hold any rollover contributions made to the Plan by or on behalf of the Participant pursuant to Section 6.3, and a proportionate share of net earnings for each Plan Year. 8 The maintenance of separate Rollover Contribution Accounts shall primarily be for accounting purposes and shall not restrict Fund investments. 1.39 "TOP-HEAVY PLAN" means a defined contribution plan where, as of a Determination Date, the aggregate of the accounts of Key Employees under the plan is greater than sixty percent (60%) of the aggregate of the accounts of all Employees under such plan. The calculation of the aggregate of Employees' accounts for both Key and Non-Key Employees shall exclude amounts attributable to (a) deductible Employee contributions (in accordance with Treasury Department regulations Section 1.416-1 T-28 and its successor provisions), and (b) rollover contributions from a plan of an unrelated employer accepted by the Plan. 1.40 "TRUST" shall mean the funding instrument established and maintained under the Trust Agreement referenced in Article XIII. 1.41 "TRUSTEES" shall mean the individual, individuals or corporation designated by the Company to hold and administer the Fund, and any successor trustees appointed in accordance with the terms of the Trust. 1.42 "VALUATION DATE" shall mean at least March 31, June 30, October 31 and December 31 of each Plan Year and may be more frequent (including daily), at the discretion of the Company, applied consistently. ARTICLE II SERVICE 2.1 ONE-YEAR PERIOD OF SEVERANCE. An Employee shall suffer a One-Year Period of Severance during any 12-consecutive-month period beginning on the severance from service date and ending on the first anniversary of that date, provided that within this period the Employee does not perform an Hour of Service during such period of severance. The severance from service date is the earlier of the date the employee quits, retires, is discharged, or dies or the first anniversary of the first day of a period of absence from service for any reason other than quitting, retiring, discharge or death. Notwithstanding anything contained in this Section 2.1 to the contrary, an Employee shall not incur the first One-Year Period of Severance that would otherwise be counted if said period is attributable to an Authorized Leave of Absence for reasons of (a) the pregnancy of the Participant, (b) the birth of a child to the Participant or the Participant's spouse, (c) the placement of a child with the Participant, or (d) caring for a child immediately following birth or placement in connection with adoption. 2.2 PARTICIPATION SERVICE. Participation Service shall mean employment for which an Employee receives credit for purposes of determining his eligibility for participation in the Plan. One 9 year of Participation Service shall be granted if, during the initial twelve-month period commencing with an Employee's date of employment, he or she is credited with at least one thousand (1,000) Hours of Service. If an Employee is not credited with at least one thousand (1,000) Hours of Service during this initial twelve-month period, one year of Participation Service shall be granted for the first Plan Year, commencing with the Plan Year immediately following an Employee's date of hire, during which the Employee is credited with at least one thousand (1,000) Hours of Service. Thirty days of Participation Service shall be granted for the first calendar month that an employee is credited with at least eighty-three (83) Hours of Service. For purposes hereunder, employment with any corporation, trade, or business which is a member of a controlled group of corporations or under common control (as defined in Code Sections 1563(a) and), or is a member of an affiliated service group (as defined in Code Section 414(m)) and any other entity required to be aggregated with the Company pursuant to regulations under Code Section 414(o) shall be recognized. In case of subsidiaries or affiliates which adopt this Plan in accordance with Section 1.8, the Board of Directors of the Company, in its sole discretion, at the time of adoption by the subsidiary or affiliate, shall determine the date from which Participation Service is to be credited. 2.3 VESTING SERVICE. Vesting Service shall mean employment for which an Employee receives credit for purposes of determining his eligibility to receive early retirement or vested benefits hereunder. Prior to July 1, 1996, an Employee shall receive one year of Vesting Service for each calendar year in which he is credited with 1,000 or more Hours of Service. Notwithstanding the above, no Vesting Service shall be credited for calendar years prior to 1984. Effective July 1, 1996, for purposes of determining a Participant's Vesting Service, the Plan shall apply the "elapsed time" method of crediting Vesting Service, based upon the Participant's date of hire and as such method is described in Department of Labor Regulations Section 2530.200b-9. In accordance therewith, all Participants shall thereupon receive vested credit in a manner that is consistent with Paragraph (f) of Department of Labor Regulations Section 2530.200b-9; provided that, a Participant shall be credited with no fewer years of Vesting Service as of July 1, 1996 than he had been credited with under the Plan as of June 30, 1996. In the event an Employee suffers a One-Year Period of Severance prior to having a nonforfeitable interest in his Matching Contribution Account, as determined in accordance with the provisions of Section 7.2, his Vesting Service shall be forfeited if the Employee suffers the greater of (a) five (5) consecutive One-Year Periods of Severance and (b) the number of consecutive One-Year Periods of Severance if equal to or in excess of his Vesting Service. For purposes hereunder, employment with any corporation, trade, or business which is a member of a controlled group of corporations or under common control (as defined in Code Section 1563(a) and Section 414), or is a member of an affiliated service group (as defined in Code Section 414(m)) shall be recognized. 10 In the case of subsidiaries or affiliates which adopt this Plan in accordance with Article XIV, the Board of Directors of the Company, in its sole discretion, shall determine the date from which Vesting Service is to be credited. 2.4 PREDECESSOR COMPANY SERVICE. Notwithstanding anything herein to the contrary, an Employee who was an employee of a predecessor company shall receive credit for employment and Vesting Service hereunder for his service with the predecessor company, provided, however, that where this Plan is not an amendment, restatement or continuation of the plan of the predecessor company, service credit may be limited to the extent permitted under regulations to Code Section 414. ARTICLE III ELIGIBILITY FOR PARTICIPATION 3.1 ELIGIBILITY (1) A Full-Time Employee of an Employer shall become a Participant on the first day of the month coincident with or following the later of (1) the date on which the Full-Time Employee attains age twenty-one (21) and (2) the date on which the Full-Time Employee is hired by such Employer, provided that the Full-Time Employee remains in the employ of an Employer as a Full-time Employee on the first day of such month. For purposes of this Section 3.1, a Full-Time Employee is an Employee that is treated by an Employer as working for such Employer at least 40 hours per week. (2) A Part-Time Employee of an Employer shall become a Participant on the first day of the month coincident with or following the later of (1) the date on which the Part-Time Employee attains age twenty-one (21) and (2) the date on which the Part-Time Employee completes 1,000 Hours of Service with the Employer, provided that the Part-Time Employee remains in the employ of the Employer on the first day of such month. For purposes of this Section 3.1, a Part-Time Employee is an Employee that is treated by an Employer as working for such Employer less than 40 hours per week. 3.2 PARTICIPATION UPON REEMPLOYMENT. In the event a Participant terminates his employment and is subsequently reemployed as an Employee, he shall resume participation on the first day of the month coincident with or following his date of reemployment. 11 ARTICLE IV CONTRIBUTIONS AND FORFEITURES 4.1 401(k) CONTRIBUTION. For each Plan year, the appropriate Employer shall contribute to the Plan an amount equal to the total amount of contributions which such Employer has agreed to make pursuant to Participants' Salary Reduction Agreements, subject to the limitations in Article V. 4.2 SALARY REDUCTION AGREEMENT. Subject to the provisions stated herein, a Participant may enter into a written Salary Reduction Agreement with the Company. The terms of such Agreement shall provide that the Participant agrees to accept a reduction in Compensation from the Company or appropriate Employer based on multiples of one percent (1%) of his Compensation per payroll period in an amount which is at least two percent (2%) and does not exceed fifteen percent (15%). This reduction in compensation shall not exceed the amount which may from time-to-time be prescribed in accordance with regulations issued by the Secretary of the Treasury or his delegate. In consideration of such Salary Reduction Agreement, the Company or appropriate Employer shall make a 401(k) Contribution to the Participant's 401(k) Account on behalf of such Participant for such Plan Year in an amount equal to the total amount by which the Participant's Compensation was reduced during the Plan Year. The Salary Reduction Agreement and other such forms as may be required hereunder shall be filed at the time and in the manner specified by the Committee. The Committee shall be the agent of the Company or appropriate Employer for the purpose of executing, amending or revoking Salary Reduction Agreements, and for giving or receiving notices as provided herein. All Salary Reduction Agreements shall be governed by the following: (a) A Salary Reduction Agreement shall apply to each payroll period during which it is on file with the Committee until terminated, amended, or revoked as provided herein. Each Salary Reduction Agreement shall be deemed to be renewed on each January 1 unless the Company, appropriate Employer or Participant shall give not less than thirty (30) days advance written notice of termination. (b) Salary Reduction Agreements, or any changes thereto, revocations or reinstatements thereof, shall be effective as of the first day of any month, provided the Participant submits an appropriate authorization and notice to the Company or appropriate Employer prior to such month, on a form or in the manner prescribed by the Plan Administrator. The Plan Administrator may establish additional rules regarding the timing and frequency of a change in the amount of salary reductions, provided such policy is applied uniformly to all Participants. 12 (c) The Company may amend or revoke its Salary Reduction Agreement with any Participant at any time if the Company determines that such revocation or amendment is necessary to insure that a Participant's Annual Additions for any Plan Year will not exceed the limitations of Article V or to insure that the discrimination tests are met for such Plan Year, provided that no such amendment shall increase the salary reduction percentage specified in a Participant's Salary Reduction Agreement. Any such amendment, revocation or reinstatement shall be done in a manner which shall not discriminate in favor of officers, shareholders, directors or other highly compensated Participants. (d) A Participant who suspends 401(k) Contributions on account of a hardship withdrawal pursuant to Section 4.7 shall not be eligible to resume 401(k) Contributions until the time specified in Section 4.7(b)(iii). (e) The Committee may make such reasonable rules as it shall deem desirable to reduce undue clerical and administrative time and expense in connection with filing or amending Salary Reduction Agreements. (f) The Plan is to be interpreted and applied in a manner that satisfies the requirements of Section 401(k) of the Code, including Section 401(k)(3) thereof, and the regulations promulgated thereunder, as amended from time to time, and all provisions of the Plan shall be construed and applied in accordance with such requirements. In the event the Plan shall fail in the Committee's reasonable judgment to meet the nondiscrimination tests for 401(k) Contributions of Section 401(k) of the Code for any Plan Year, the Committee may, during the two and a half (2 1/2) month period following the close of the Plan Year, return all or any portion of such salary reduction amounts (including income allocable thereto for the Plan Year) to the Highly Compensated Employees, in accordance with the nondiscrimination test and corrective provisions of Section 401(k) and the regulations promulgated thereunder, as amended from time to time, including but not limited to Treasury Regulations Sections 1.401(k)-1 (g)(1)(ii), 1.401(k)-1(f)(2), 1.401(k)-1 (f)(5)(i) and 1.401(k)-1-(f)(5)(ii); provided, however, that to the extent not inconsistent with the foregoing, any such excess contributions shall be distributed first from 401(k) Contributions in excess of 6% of the Participant's Compensation. For purposes of this subsection (f), in order to meet the nondiscrimination tests for 401(k) Contributions, one of the following tests must be satisfied: (i) The average percentage of compensation contributed by the Company or appropriate Employer to the Plan attributable to 401(k) 13 Contributions on behalf of the eligible Highly Compensated Employees for the current Plan Year may not exceed one hundred twenty-five percent (125%) of the average percentage of compensation contributed by the Company or appropriate Employer to the Plan attributable to 401(k) Contributions on behalf of the eligible Non-Highly Compensated Employees for the prior Plan Year; or (ii) The average percentage of compensation contributed by the Company or appropriate Employer to the Plan attributable to 401(k) Contributions on behalf of the Highly Compensated Employees for the current Plan Year may not exceed the average percentage of compensation contributed by the Company or appropriate Employer to the Plan attributable to 401(k) Contributions on behalf of the eligible Non-Highly Compensated Employees for the prior Plan Year, plus two percent (2%), up to a maximum of two hundred percent (200%) of such average percentage on behalf of the eligible Non-Highly Compensated Employees for the prior Plan Year. For purposes of the foregoing tests, and in accordance with Code Sections 401(k)(9) and 414(s), "compensation" shall be defined in accordance with Code Sections 401(k)(9) and 414(s) and the regulations promulgated thereunder, specifically including Treasury Regulations Section 1.414(s)-1, as the same may be amended from time to time. (g) In the event the Company's or appropriate Employer's tax deduction shall be denied for any 401(k) Contribution, then all Salary Reduction Agreements shall be deemed retroactively amended pursuant to subsection (c) above, and upon the Company's or appropriate Employer's recovery of the amount disallowed (as provided in Section 4.8), the amount so recovered shall be allocated among Participants in accordance with such amended Salary Reduction Agreements and paid to such Participants as Compensation. (h) In the event the 401(k) Contribution made on behalf of a Participant for any Plan Year shall exceed $10,000 (or such other amount as may be prescribed in accordance with Code Section 402(g) and regulations promulgated thereunder), the Committee may, no later than April 15 after the close of the applicable Plan Year, return the amount of the excess. Such amounts returned to the affected Participants shall be deemed Compensation to the Participants in the year to which the deferral applied, and the Salary Reduction Agreements of all affected Participants shall be deemed retroactively amended. 14 4.3 AFTER-TAX EMPLOYEE CONTRIBUTIONS. No after-tax employee contributions are required or permitted under the terms of this Plan. 4.4 MATCHING CONTRIBUTIONS. The Committee shall have the option, in its sole discretion, to determine the amount, if any, of Matching Contributions to be made to the Plan for each Plan Year. Any such Matching Contribution as the Committee may designate shall be a percentage of the total amount the Participant defers for a Plan Year; provided that such amount that may be considered for the Matching Contribution shall not exceed six percent (6%) of Participant Plan Year Compensation. Any such Matching Contribution shall be allocated to each applicable Participant's Matching Contribution Account in accordance with procedures established by the Committee. Such procedures are hereby incorporated herein by reference. 4.5 CONTRIBUTIONS. The Matching Contributions under Section 4.4 shall be made monthly on any date or dates selected by the Company; provided, however, that the total annual contribution for each Plan Year shall be paid on or before the date on which the Company's or appropriate Employer's federal income tax return is due, including any extensions of time obtained for the filing of the return. The 401(k) Contributions shall be made as of the end of each Participant's payroll period provided, however, that in no event shall any 401(k) contribution for a Plan Year be paid on or after the fifteenth (15th) business day of the month immediately following the month in which the 401(k) Contributions would otherwise have been payable to the Participant in cash. Notwithstanding anything herein to the contrary, the sum of the 401(k) Contributions and Matching Contributions for any Plan year shall not exceed an amount equal to fifteen percent (15 %) of Compensation otherwise paid or accrued to all Participants for the Plan Year under consideration. The Plan is to be interpreted and applied in a manner that satisfies the requirements of Section 401(m) of the Code, including Section 401(m)(2) thereof, and the regulations promulgated thereunder, as amended from time to time, and all provisions of the Plan shall be construed and applied in accordance with such requirements. In the event the Plan shall fail in the Committee's reasonable judgment to meet the nondiscrimination tests for Matching Contributions or other contributions of Section 401(m) of the Code for any Plan Year, the Committee may, before the close of the following Plan Year, cause the amount of the excess aggregate contributions by Highly Compensated Employees (including the income allocable thereto) for such Plan Year to be distributed or, if forfeitable, forfeited, to such Highly Compensated Employees in accordance with the requirements of Section 401(m) and the regulations thereunder. The amount of such excess aggregate contributions shall be determined in accordance with the requirements of Section 401(m)(6) of the Code and the regulations promulgated thereunder. For purposes of this Section 4.5, in order to meet the nondiscrimination tests for Matching Contributions, one of the following tests must be satisfied: (i) The average contribution percentage on behalf of the eligible Highly Compensated Employees for the current Plan Year may not exceed one hundred twenty-five percent (125 %) of the average contribution 15 percentage on behalf of the eligible Non-Highly Compensated Employees for the prior Plan Year. (ii) The average contribution percentage on behalf of the eligible Highly Compensated Employees for the current Plan Year may not exceed the average contribution percentage on behalf of the eligible Non-Highly Compensated Employees, plus two percent (2%), up to a maximum of two hundred percent (200%) of such average contribution percentage on behalf of the eligible Non-Highly Compensated Employees for the prior Plan Year. Average contribution percentage for purposes of the above tests is the average of the ratios (calculated separately for each Employee who is an "eligible employee" within the meaning of Code Section 401(m)(5)) of (i) the Matching Contributions paid under the Plan on behalf of each such Employee for the respective Plan Year and (ii) such Employee's compensation for the respective Plan Year, computed in accordance with Code Section 401(m) and regulations promulgated thereunder. Optional Use of Matching Contributions to Comply With 401(k) Nondiscrimination Test. The Company may, if it so elects, include Matching Contributions, if any, as employer contributions for purposes of compliance with the nondiscrimination test specified in Section 4.2(f) of this Plan, provided that it does so in accordance with the requirements of Code Section 401(k)(3)(D) and regulations promulgated thereunder, including but not limited to Treas. Reg. Sections 1.401(k)-l(g)(13) and 1.401(k)-l(b)(5). In the event the Company makes such an election, to the extent so used, such Matching Contributions shall not additionally be taken into account under the nondiscrimination test of Code Section 401(m) for such year, in accordance with Code Section 401(m)(3). As required to prevent the occurrence of a "multiple use of limitations" prohibited by Code Section 401(m)(9), the Company shall calculate the actual deferral percentage of those Highly Compensated Employees eligible to make both 401(k) and 401(m) contributions in the manner described in, and in accordance with the requirements of, Treasury Regulations Sections 1.401(k)-l(f)(2), 1.401(m)-2(c)(1) and 1.401(m)-2(c)(3), as the same may be amended from time to time. 4.6 FORFEITURES. If upon termination of employment, a Participant's vested interest in his Matching Contribution Account is less than one hundred percent (100%), a "forfeiture" shall occur as of the end of the Plan Year in which the Participant's termination of employment occurs or a distribution under the Plan is received, whichever is later. The forfeiture shall equal the portion of the Participant's Matching Contribution Account in which the Participant is not vested as of his Date of Termination. Notwithstanding anything herein to the contrary, reference to a Matching Contribution under the Plan for any Plan Year shall mean the portion of the forfeitures so applied to reduce the total amount the Company or appropriate Employer may otherwise contribute for that Plan Year. 16 4.7 WITHDRAWALS. A Participant may elect in writing (or in such other form as may be permitted from time to time by the Plan Administrator) to withdraw any amount (but not less than $500) from his 401(k) Account or Rollover Contribution Account at any time subject to the following conditions: (a) The distribution from a Participant's 401(k) Account or Rollover Contribution Account shall not commence prior to his death, Disability, attainment of age fifty-nine (59 l/2) or termination of employment, except upon his demonstration of financial hardship. A distribution based upon financial hardship may be made only if the Participant has an immediate and heavy financial need, and cannot exceed the amount required to satisfy such financial need, which may not be satisfied from other resources reasonably available to the Participant. A Participant shall be deemed to have an immediate and heavy financial need if the distribution is on account of: (i) Medical expenses described in Code Section 213(d) incurred by the Participant, the Participant's spouse or any of the Participant's dependents (as defined in Code Section 152); (ii) The purchase (excluding mortgage payments) of a principal residence of the Participant; (iii) The need to prevent the eviction of the Participant from his principal residence or foreclosure on the mortgage of the Participant's principal residence; or (iv) Any other emergency that the Plan Administrator, pursuant to a uniform and nondiscriminatory policy and in accordance with guidelines issued by the Internal Revenue Service, deems a bona fide financial emergency. (b) A distribution shall be considered necessary to satisfy an immediate and heavy financial need if: (i) The distribution is not in excess of the amount of the immediate and heavy financial need of the Participant; (ii) The Participant has obtained all distributions, other than hardship distributions, and all nontaxable loans currently available under all plans maintained by the Company; and (iii) The Participant does not make elective deferrals or employee contributions under any plan maintained by the Company for a twelve (12) month period following the date of receipt of the hardship distribution, nor does he make elective deferrals under any plan maintained by the Company for the taxable 17 year immediately following the taxable year of the hardship distribution in excess of the limitation imposed by Section 402(g) of the Code for such next taxable year, less the amount of such Participant's elective deferrals for the taxable year of the hardship distribution. (c) The Participant must request a hardship withdrawal in writing on a form provided by the Plan Administrator, or in such other form or manner as the Plan Administrator may from time to time determine. The Plan Administrator shall specify any supporting data required and shall follow a uniform, nondiscriminatory policy in determining the eligibility form, and timing of, hardship withdrawal. (d) A Participant shall be entitled to a hardship withdrawal pursuant to this Section 4.7 from that portion of his 401(k) Account that represents his 401(k) Contributions, but not on that portion that represents any earnings credited on such account. 4.8 RETURN OF CONTRIBUTIONS. It shall be impossible at any time prior to the satisfaction of all liabilities with respect to Participants or Former Participants and their Beneficiaries under the Plan for any part of the corpus or income to be used for, or diverted to, purposes other than (a) the exclusive benefit of Participants and Former Participants or the Beneficiaries, or (b) defraying reasonable expenses of administering the Plan and Fund to the extent such expenses are not paid by the Company, provided that: (a) if the Plan is denied either initial qualification or qualification due to an amendment under Section 401(a) of the Code, any contribution conditioned upon the continued qualification of the Plan shall be returned to the Company or appropriate Employer within one (1) year of the denial of qualification; (b) if, and to the extent, a tax deduction for a contribution under Section 404 of the Code is disallowed, contributions conditioned upon deductibility shall be returned to the Company or appropriate Employer within one (1) year after the disallowance of the deduction; and (c) if, and to the extent, a contribution is made through a mistake of fact, such Company contribution shall be returned to the Company or appropriate Employer within one (1) year of the payment of the contribution. 4.9 UNIFORMED SERVICES EMPLOYMENT AND REEMPLOYMENT RIGHTS ACT OF 1994. Notwithstanding any provision of this Plan to the contrary, effective December 12, 1994 contributions, benefits and service credit with respect to qualified military service will be provided in accordance with Code Section 414(u). 18 ARTICLE V MAXIMUM ANNUAL ADDITIONS 5.1 MAXIMUM LIMITATIONS. Notwithstanding any other provisions of this Plan, the Annual Additions to a Participant's accounts for any Limitation Year shall not exceed the lesser of: (a) $30,000, as adjusted under Code Section 415(d) or a successor Code Section, and the regulations thereunder; or (b) 25% of such Participant's Code Section 415(c)(3) compensation received during the Limitation Year under consideration. 5.2 DEFINED BENEFIT PLAN FRACTION. For any Plan Year, the numerator of the defined benefit plan fraction is the projected annual benefit of a Participant under any defined benefit plan maintained by the Company, determined as of the end of the Plan Year, and the denominator of the defined benefit plan fraction is the lesser of (a) the product of 1.25 multiplied by the dollar limitation in effect under Code Section 415(b)(1)(A) for such year, or (b) the product of 1.4 multiplied by the amount which may be taken into account under Code Section 415(b)(1)(B) with respect to such Participant under the plan for such year. For any Plan Year in which a defined benefit plan maintained by the Company is Top-Heavy, the 1.25 in (a) above shall be replaced by 1.0. 5.3 DEFINED CONTRIBUTION PLAN FRACTION. For any Plan Year, the numerator of the defined contribution plan fraction is the sum of the Annual Additions to a Participant's account for the Plan Year under consideration and all prior Plan Years, and the denominator of the defined contribution plan fraction is the sum of the lesser of the following amounts determined for the current Plan Year and for each prior year: (a) the product of 1.25 multiplied by the dollar limitation in effect under Code Section 415(c)(1)(A) for such year or (b) the product of 1.4 multiplied by the amount which may be taken into account under Code Section 415(c)(1)(B) (or subsection (c)(7) or (8), if applicable) with respect to such Participant under the Plan for such year. For any Plan Year in which the Plan is a Top-Heavy Plan, the 1.25 in (a) above shall be replaced by 1.0. 5.4 COMBINED PLAN LIMITATION. For all applicable Limitation Years, in the event any Participant under this Plan is also a Participant under a defined benefit plan maintained by the Company, the Annual Additions to a Participant's accounts for any Plan Year shall not cause the sum of the Participant's Defined Benefit Plan Fraction for such Plan Year and his Defined Contribution Plan Fraction for such Plan Year to exceed 1.0. If the sum of the Defined Benefit Plan Fraction and the Defined Contribution Plan Fraction shall exceed 1.0 in any such Plan Year, the numerator of the Defined Benefit Plan Fraction shall be adjusted so that the sum of both fractions shall not exceed 1.0 for such year. 5.5 EXCESS ADDITIONS. In the event it is determined that the Annual Additions to a Participant's accounts for any Plan Year would be in excess of the limitations described in Section 19 5.1 herein, such Annual Additions for the Plan Year shall be reduced to the extent necessary to bring the Annual Additions for such Plan Year within such limitations in the following order of precedence: (a) Reduction of the Participant's allocable share of the Matching Contribution to his Matching Contribution Account for the Plan Year; and (b) Reduction of such Participant's share of the 401(k) Contribution pursuant to his Salary Reduction Agreement for the Plan Year, and such reduction shall be deemed to be an amendment to the Participant's Salary Reduction Agreement as provided in Section 4.2. 5.6 AMOUNT OF REDUCTION. If, and to the extent that the Annual Additions to a Participant's Accounts is reduced in accordance with the provisions of Section 5.5(a) above, the amount of such reduction shall, subject to the limitations in Sections 5.1 and 5.4, be allocated among the respective Accounts respectively of all remaining Participants in the proportion that the Compensation of a Participant bears to the total Compensation of all Participants, excluding those affected by the limitations in Sections 5.1 and 5.4. ARTICLE VI MAINTENANCE OF PARTICIPANTS' ACCOUNTS 6.1 ALLOCATION PROCEDURE. As of each Valuation Date, the Company shall adjust the individual accounts of each Participant and Former Participant, as follows, in the order indicated: (a) Each Participant's and Former Participant's 401(k) Account, Matching Contribution Account and Rollover Contribution Account shall be reduced by any payments received from such account since the prior Valuation Date. (b) Subject to the provisions of Sections 5.1 and 5.4, each Participant's 401(k) Account shall be increased on each Valuation Date by the amount of 401(k) Contributions made by the Company or appropriate Employer on behalf of the Participant for the period from the prior Valuation Date to the current Valuation Date under the terms of the Participant's Salary Reduction Agreement. (c) Subject to the provisions of Sections 5.1 and 5.4, each Participant's Matching Contribution Account shall be increased on each Valuation Date by the amount of Matching Contributions made on behalf of the Participant for the period from the prior Valuation Date to the current Valuation Date. 20 (d) Each Valuation Date, pursuant to Section 9.1(e), the value in each Participant's accounts (including undistributed balances of Former Participant's accounts and including the adjustments in subsections (a), (b), and (c) above but excluding Loan Accounts under Section 15.2), shall be proportionately increased or decreased so that the total of all such accounts shall equal the total assets of the Fund at fair market value as of the current Valuation Date. In determining the assets of the Fund, one half (1/2) of the Matching Contributions and one half (1/2) of the 401(k) Contributions with respect to the current Valuation Date shall be deducted. Notwithstanding anything herein to the contrary, in the event the Trustees are able to accurately record investment gains and losses of Participant's accounts due to segregated investments or otherwise, such records shall be used in lieu of the allocation method set forth in subsection (d) above. In all other circumstances, the method established in subsection (d) above shall be followed. 6.2 LATE RETIREMENT. In the event a Participant remains in the active employ of an Employer beyond the Plan Year in which occurs his Normal Retirement Date, the Participant shall be entitled to continue his participation in the Plan in all respects as if he had not yet reached his Normal Retirement Date. 6.3 ROLLOVERS (a) Requirements for Rollover Contributions. If an Employee receives, either before or after becoming a Participant, an eligible rollover distribution from a qualified trust or a qualified annuity plan within the meaning of Section 402(c) or Section 403(a) of the Code, then such Employee may contribute to the Plan an amount which does not exceed the portion of such eligible rollover distribution that would be includible in the gross income of the Employee but for the application of Section 402(c)(1) or Section 403(a)(4) of the Code. If an Employee receives, either before or after becoming a Participant, a distribution or distributions from an individual retirement account, an individual retirement annuity or a simplified employee pension within the meaning of Section 408 of the Code, then such Employee may contribute to the Plan an amount which does not exceed the portion of such distribution or distributions that would be treated as a rollover contribution within the meaning of Section 408(d)(3) of the Code. (b) Delivery of Rollover Contributions. Any rollover contribution pursuant to this Section shall be delivered by the Employee to the Trustees on or before the 60th day after the day on which the Employee receives the distribution or on or before such later date as may be prescribed by law. Any such contributions must be accompanied by (i) a statement of the Employee that to the best of his knowledge the amount so transferred meets the conditions 21 specified in this Section, (ii) a copy of such documents as may have been received by the Employee advising him of the amount of and the character of such distribution, and (iii) if the Employee is not a Participant, an investment election under Section 9.1. Notwithstanding the foregoing, the Trustees shall not accept a rollover contribution if in its judgment, accepting such contribution would cause the Plan to violate any provision of the Code or regulations, or if such contribution would cause the qualified joint and survivor annuity rules of Section 401(a)(11) of the Code to take effect hereunder. ARTICLE VII VESTED INTERESTS 7.1 401(k) ACCOUNT AND ROLLOVER CONTRIBUTION ACCOUNT VESTING. The amounts credited to a Participant's 401(k) Account and Rollover Contribution Account shall be fully vested and nonforfeitable at all times. 7.2 VESTING OF MATCHING CONTRIBUTION ACCOUNT. A Participant's matching Contribution Account shall become vested and nonforfeitable under the following circumstances, and to the extent indicated: (a) In the event of the Participant's retirement (i) on or after his Normal Retirement Date, (ii) on or after his Early Retirement Date, or (iii) due to Disability, his vested interest shall be 100% of his individual Matching Contribution Account. Notwithstanding anything herein to the contrary, a Participant shall be one hundred percent (100%) vested in his individual Matching Contribution Account upon reaching his Normal Retirement Date. (b) In the event of the Participant's death, his vested interest shall be 100% of his individual Matching Contribution Account. (c) In the event a Participant terminates employment prior to becoming eligible for retirement as set forth in subsection (a) or for reasons other than death, his vested interest in his Matching Contribution Account shall be determined from the following table: 22
Years of Vesting Service Vesting Percentage -------------------------------------------- Less than 3 0% 3 but less than 4 50% 4 but less than 5 75% 5 or more 100%
; provided, however, that a Participant who has 2 but less than 3 years of Vesting Service on March 1, 1997 shall retain a 10% vesting percentage in his or her Matching Contribution Account until such time as such Participant has 3 years of Vesting Service, at which time such Participant's Vesting Service shall be determined in accordance with the vesting schedule contained in this Section 7.2(c), as amended. (d) Effective July 1, 1996, for purposes of determining a Participant's vested interest in accordance with this Paragraph 7.2, the Plan shall apply the "elapsed time" method of crediting Vesting Service, based upon the Participant's date of hire and as such method is described in Department of Labor Regulations Section 2530.200b-9. In accordance therewith, all Participants shall thereupon receive vested credit in a manner that is consistent with Paragraph (f) of Department of Labor Regulations Section 2530.200b-9; provided that, a Participant shall be credited with no fewer years of Vesting Service as of July 1, 1996 than he had been credited with under the Plan as of June 30, 1996. (e) As required under Section 2(j)(ii) of that certain Group Hire Agreement by and between Information Resources, Inc. (the "Company") and Mosaic InfoForce, L.P. as to the transfer and hire of certain employees of the Company by Mosaic InfoForce, L.P., the benefits payable under the Plan to any Participant who becomes employed by Mosaic InfoForce, L.P. on the date the transactions contemplated by the Group Hire Agreement and the agreements referenced therein are consummated (a "Transferred Participant") shall be fully vested and nonforfeitable, effective as of the date such Transferred Participant commences employment with Mosaic InfoForce, L.P. No Transferred Participant shall accrue additional benefits under the Plan after the date such Transferred Participant commences employment with Mosaic InfoForce, L.P. or, if later, the date of such Transferred Participant's termination of employment with the Company. 7.3 REEMPLOYMENT. In the event (a) a Participant terminates his employment for any reason other than retirement or death, (b) the Participant has less than a 100% vested interest in his Matching Contribution Account on his Date of Termination, and (c) such Participant is subsequently 23 reemployed after having suffered the greater of (i) five (5) consecutive One-Year Periods of Severance or (ii) the number of consecutive One-Year Periods of Severance if equal to or in excess of his Vesting Service, the Participant's Matching Contribution Account shall remain fixed except for any net earnings which may be allocated to such account in accordance with the provisions of Section 6.1 (c). Upon reemployment, the Company shall set up a new Matching Contribution Account for the reemployed Participant, primarily for accounting purposes, such that any additional Vesting Service that the Participant is credited with on account of his reemployment shall cause his vested interest to increase from his vested interest prior to reemployment, but such vested interest shall only apply to the Participant's new Matching Contribution. 7.4 RESTORATION OF FORFEITURES. In the event a Participant who has terminated employment resumes employment covered under the Plan prior to incurring five (5) consecutive One-Year Periods of Severance, any forfeiture from his Matching Contribution Account shall be restored and shall be credited to his Matching Contribution Account as of the end of the Plan Year in which he resumes employment, to be held and thereafter applied to provide benefits in accordance with the provisions of the Plan, provided if such Participant has already received a distribution in accordance with Article VIII, the provisions of Section 8.8 are met. Any forfeiture so restored shall be deducted from the forfeitures otherwise available for the Plan Year in which such restoration is made, or to the extent such forfeitures are insufficient, shall be paid to the Fund by the Company or appropriate Employer. See Article VIII, Section 8.12, for rules regarding reemployment of a Participant. ARTICLE VIII DISTRIBUTION OF BENEFITS 8.1 RETIREMENT. Subject to the provisions of Section 8.7, in the event a Participant becomes entitled to benefits because of his retirement on or after his Normal Retirement Date or on or after his Early Retirement Date, benefit payments shall commence as soon as administratively possible following the actual date of retirement; provided, that with respect to an early retirement benefit, the Participant has made a claim for benefits to the Company in accordance with Treasury Regulation Section l.401(a)-14(c)(1)(ii). Benefit payments shall be based on the value of the Participant's vested amount (determined under Article VII hereof) in his or her Matching Contribution Account, 401(k) Account, and Rollover Contribution Account, if any, determined as of the Valuation Date immediately preceding the benefit commencement date hereunder. 8.2 DEATH. In the event a Participant dies in the active employ of an Employer prior to receiving his nonforfeitable rights hereunder, benefit payments shall commence as soon as administratively possible following the Participant's actual date of death. Benefit payments shall be based on the value of the Participant's Matching Contribution Account, 401(k) Account, and Rollover Contribution Account, if any, determined as of the Valuation Date immediately preceding 24 the benefit commencement date hereunder. 8.3 DISABILITY. Subject to provisions of Section 8.7, in the event a Participant becomes eligible for disability benefits under an Employer-sponsored insured long-term disability plan, benefit payments shall commence as soon as administratively possible following the actual date of disability. However, if such disability plan benefits would be reduced by the benefits payable from this Plan, the payment of his accounts can be deferred until the earlier of the end of the Plan Year during which a member attains age 65 or the date as of which the insured disability benefits cease. Benefit payments shall be based on the value of the Participant's Matching Contribution Account, 401(k) Account, and Rollover Contribution Account, if any, determined as of the Valuation Date immediately preceding the benefit commencement date hereunder. 8.4 TERMINATION. In the event a Participant's employment terminates for reasons other than retirement, Disability, or death, payments shall commence as soon as administratively possible following the actual Date of Termination; provided that the Participant has made a claim for immediate benefit payment to the Company in accordance with procedures established by the Plan Administrator. Benefit payments shall be based on the value of the Participant's 401(k) Account, Matching Contribution Account, and Rollover Contribution Account, if any, determined as of the Valuation Date immediately preceding the date of distribution. 8.5 MANNER OF DISTRIBUTION. Distribution of any Participant's share in the Fund shall be made to the person or persons entitled to such distribution by payment in a lump sum, unless the distribution is made to an eligible retirement plan in accordance with Section 8.10 hereof. 8.6 BENEFICIARY. Each Participant shall designate one or more persons to receive any distribution payable upon the death of the Participant by filing such designation in writing with the Committee. The Participant has the right to change and successively change his designated Beneficiary. In no event, however, shall such designation or change of Beneficiary be valid unless the Participant's spouse, if any, consents in writing to the designation, or change in designation, of a Beneficiary or Beneficiaries. If the Participant has filed no designation, the death benefits shall be paid to the Participant's spouse, if any. If the Participant has filed no designation and there is no spouse, or if such person or persons so designated shall have predeceased the Participant, the death benefits shall be paid to the Participant's duly appointed and qualified executor or administrator, or if no executor or administrator is appointed and qualified, within sixty (60) days following receipt by the Committee of notice of the death of the Participant, such death benefits may be paid, as the Committee in its sole discretion may determine, to or among any one or more of the following: the spouse, issue of the Participant, or any person or persons found by the Committee to be equitably entitled thereto by reason of having paid or incurred expenses on account of the funeral or the last illness of the Participant. 8.7 REQUIRED DISTRIBUTION DATES. In no event shall any distributions hereunder be made later than sixty (60) days after the close of the Plan Year in which occurs the Participant's Normal 25 Retirement Date, or, if later, his actual retirement. Notwithstanding the above, distributions hereunder shall be made no later than the later of the April 1 after the close of the Plan Year in which the Participant attains age seventy and one half (70 1/2) or retires; provided, however, that distributions to a five percent (5%) or greater owner must commence by the April 1 of the Plan Year following the Plan Year in which the Participant attains age seventy and one half (70 1/2), regardless of whether or not the Participant actually retires. A Participant who attained age seventy and one half (70 1/2) prior to 1997, but who did not retire before January 1, 1997 may elect to stop distributions at any time until he or she retires. If any distribution is made hereunder to a Participant prior to age fifty-nine and one half (59 1/2), the Participant may be subject to a ten percent (10%) tax based on the amount of contributions allocated to him. 8.8 FACILITY OF PAYMENT. If the Committee shall be of the opinion, from information deemed by it to be reliable, that a person entitled to distributions hereunder is unable for any reason to attend to his affairs, the Committee may direct that benefits due shall be withheld until a guardian for such person has been duly appointed and that such benefits be paid only to such guardian; or, in the alternative, the Committee may direct that such benefits be paid to any relative by blood or connection by marriage of the person appearing to the Committee to be equitably entitled to same or best qualified to apply same to the comfort, maintenance, and support of such person. The Committee's decision on such matters shall be conclusive and binding on all persons and parties in interest. 8.9 CASH-OUT. Subject to the provisions of Section 8.7, the Plan may not make a distribution to a Participant if the value of the Participant's account is in excess of $3,500, for Plan Years beginning before August 6, 1997, or $5,000, for Plan Years beginning after August 5, 1997, unless the Participant consents to such distribution. 8.10 DIRECT ROLLOVERS. Notwithstanding any provision of the Plan to the contrary that would otherwise limit a distributee's election under this Section, a distributee may elect, at the time and in the manner prescribed by the Plan Administrator, to have any portion of an eligible rollover distribution paid directly to a eligible retirement plan specified by the distributee in a direct rollover. The following definitions shall apply for purposes of the application of this Section: (a) Eligible Rollover Distribution. An eligible rollover distribution is any distribution of all or any portion of the balance to the credit of the distributee, except that an eligible rollover distribution does not include: any distribution that is one of a series of substantially equal periodic payments (not less frequently than annually) made for the life (or life expectancy) of the distributee or the joint lives (or joint life expectancies) of the distributee and the distributee's designated beneficiary, or for a specified period of ten years or more; any distribution to the extent such distribution is required under Section 401(a)(9) of the Code; and the portion of any distribution that is not 26 includible in gross income (determined without regard to the exclusion for net unrealized appreciation with respect to employer securities). (b) Eligible Retirement Plan. An eligible retirement plan is an individual retirement account described in Section 408(a) of the Code, an individual retirement annuity described in Section 408(b) of the Code, an annuity plan described in Section 403(a) of the Code, or a qualified trust described in Section 401(a) of the Code, that accepts the distributee eligible rollover distribution. However, in the case of an eligible rollover distribution to the surviving spouse, an eligible retirement plan is an individual retirement account or individual retirement annuity. (c) Distributee. A distributee includes an employee or former employee. In addition, the employee's or former employee's surviving spouse and the employee's or former employee's spouse or former spouse who is the alternate payee under a qualified domestic relations order, as defined in Section 414(p) of the Code, are distributees with regard to the interest of the spouse or former spouse. (d) Direct Rollover. A direct rollover is a payment by the Plan to the eligible retirement plan specified by the distributee. 8.11 TAX WITHHOLDING ON DISTRIBUTIONS. The Trustee or other payor of any distribution under the Plan is authorized to withhold from any distribution the amount of any tax required by law to be withheld from such distribution and to pay such amount over to the appropriate taxing authorities. 8.12 REEMPLOYMENT OF A PARTICIPANT. In the event a Participant is reemployed by the Employer prior to incurring five (5) consecutive one-year periods of severance and the Participant had previously received a lump sum distribution of his Accounts representing less than a one hundred percent (100%) interest in all such Accounts, the Participant shall have the right to pay back the amount of his lump sum distribution, and thus be entitled to a restoration of his forfeitures in accordance with the procedures established in Section 7.4. Such repayment shall be made not later than the earlier of five (5) consecutive periods of severance or five (5) years from the date the Participant is reemployed. ARTICLE IX INVESTMENT DISCRETION 9.1 DIRECTED INVESTMENT ACCOUNTS (a) The Company may establish separate investment funds (including a Company stock fund) in which the assets of the Trust will be held. Upon such 27 establishment, the Trustee shall, if the Plan Administrator so directs, and in accordance with the Trust Agreement, permit the Participants to direct the Trustee as to the investment of all or a portion of their Accrued Benefit. If such authorization is given by the Plan Administrator, Participants may, subject to a procedure established and applied in a uniform and nondiscriminatory manner, direct the Trustee to invest their Accrued Benefit in a specific investment fund or funds. To the extent so directed, and as permitted by law, the Trustee and the Plan Administrator shall be relieved of their fiduciary responsibilities under Section 404 of ERISA. That portion of the accounts of any Participant so directed will thereupon be considered a "Directed Investment Account," which shall not share in Trust Fund earnings nor be taken into consideration for purposes of Section 6.1. In lieu thereof, the Trustee shall, following the end of each Valuation Date, value all assets of the Trust Fund, allocate net gains or losses, and process additions to and withdrawals from Participants' accounts in the following manner: (i) The Trustee shall first compute the fair market value of securities and/or the other assets comprising each investment fund. Each account shall be adjusted each business day by applying the closing market price of the investment fund on the current business day to the share/unit balance of the investment fund as of the close of business on the current business day. (ii) The Trustee then shall account for any requests of additions or withdrawals made to or from a specific designated investment fund by any Participant, including allocations of contributions. In completing the valuation procedure described above, such adjustments in the amounts credited to such accounts shall be made on the business day to which the investment activity relates. Contributions received by the Trustee pursuant to the Plan shall not be taken into account until the Valuation Date coinciding with or next following the date such contribution was both actually paid to the Trustee and allocated among the accounts of the Participants. (iii) Notwithstanding paragraphs (i) and (ii) above, if a pooled investment fund is created as a designated fund for Participants, valuation of the pooled investment fund and allocation of earnings of the pooled investment fund shall be governed by any agreement of such pooled investment fund. The provisions of any agreement shall be incorporated by reference in this Section 9.1. 28 It is intended that this Section 9.1 operate to distribute among each Participant all income of the Trust Fund and changes in the value of the assets of the Trust Fund. (b) A separate Directed Investment Account shall be established for each Participant who has directed an investment. Transfers between a Participant's regular account, if any, and his Directed Investment Account shall be charged and credited as the case may be to each account. (c) All investments, including that of any common stock, shall be held in the name of the Trustee or one or more of its nominees as provided in the Trust Agreement. (d) Each Participant shall file an investment election with, and on a form or in the manner provided by, the Plan Administrator at the time he becomes a Participant in the Plan. A Participant may change his investment fund elections regarding existing accounts and future contributions pursuant to procedures established by the Plan Administrator, which may include daily trading via the Trustee's telephonic toll-free system. A Participant also may transfer amounts attributable to prior contributions among the investment funds pursuant to such procedures. All investments and changes must be made in multiples of one percent (1%), or, for purposes of transfers only, in multiples of one dollar ($1.00) (with minimum transfers to be equal to the lesser of $250 or 100% of a fund account). Elections shall become effective as soon as practicable after receipt by the Plan Administrator, subject to such limitations and restrictions as the Plan Administrator may, from time to time, establish. (e) If no election form has been executed by the Participant for his Directed Investment Account, his entire Accrued Benefit shall be invested by the Trustee pursuant to the Trust Agreement. ARTICLE X ADMINISTRATION 10.1 APPOINTMENT OF COMMITTEE. The Company may appoint at least five (5) individuals to serve as the Committee responsible for administering the Plan. These individuals may, but need not be, Employees of the Company. A Committee member shall continue to serve as such until his death, resignation or incapability, or until he shall be removed by Company. Such removal shall become effective upon delivery to the Committee member of written notice to that effect. Any Committee member may resign and such resignation shall become effective thirty (30) days after 29 delivery of a notice thereof to the Company, or sooner, if designated by the Company. In the event of the death, resignation or removal of any Committee member, the Company shall appoint a successor Committee member. 10.2 COMMITTEE RIGHTS. The Committee shall have the following powers, rights, and duties in addition to those given it elsewhere in the Plan: (a) To select a secretary, if it believes it advisable, who may, but need not be, an Employee of the Company; (b) To determine all questions arising under the Plan, including the power to determine the rights or eligibility of Employees or Participants and their Beneficiaries, or the amount in their accounts under the Plan, and to remedy ambiguities, inconsistencies or omissions; (c) To adopt such rules and regulations as, in its opinion, may be necessary for the proper and efficient administration of the Plan, provided such rules and regulations are consistent with the Plan; (d) To enforce the Plan and the rules and regulations, if any, adopted by the Committee; (e) To direct the Trustees as respects payments under the Plan; (f) To prepare and distribute, in such manner as the Committee determines to be appropriate, information explaining the Plan; and (g) To appoint or employ individuals to assist in the administration of the Plan and any other agents it deems advisable, including legal and actuarial counsel. 10.3 RESPONSIBILITY OF COMMITTEE. In the execution of its duties according to Section 10.2, the Committee shall, to the best of its ability, discharge its duties: (a) For the exclusive purpose of providing benefits to Participants and their Beneficiaries; (b) For the exclusive purpose of defraying reasonable expenses for the administration of this Plan; (c) With the care, prudence, and diligence under the circumstances then prevailing that a prudent man acting in like capacity and familiar with such 30 matters would use in the conduct of an enterprise of a like character with like aims; and (d) Solely in the interest of Participants and their Beneficiaries in accordance with the provisions of Title I of the Employee Retirement Income Security Act of 1974. 10.4 CLAIMS PROCEDURE. Each Employee, Participant, or Beneficiary shall submit his claim for benefits to the Committee in writing in such a form as is permitted by the Committee. A Participant or Beneficiary shall have no right to seek review of a denial of benefits, or to bring any action in any court to enforce a claim for benefits prior to his filing a claim for benefits and exhausting his rights to review under this Article. When a claim for benefits has been filed properly, such claim for benefits shall be evaluated and the claimant shall be notified of the approval or the denial within ninety (90) days after the receipt of such claim unless special circumstances require an extension of time for processing the claim. If such an extension of time for processing is required, written notice of the extension shall be furnished to the claimant prior to the termination of the initial ninety (90) day period which shall specify the special circumstances requiring an extension and the date by which a final decision will be reached (which date shall not be later than one hundred eighty (180) days after the date on which the claim was filed). A claimant shall be given a written notice on which the claimant shall be advised as to whether the claim is granted or denied, in whole or in part. If a claim is denied in whole or in part, the claimant shall be given written notice which shall contain (a) the specific reasons for the denial, (b) references to pertinent Plan provisions on which the denial is based, (c) a description of any additional material or information necessary to perfect the claim, and an explanation of why such material or information is necessary, and (d) the claimant's rights to seek review of the denial. If a claim is denied in whole or in part, the claimant shall have the right to request that the Committee review the denial, provided that the claimant files a written request for review with the Committee within sixty (60) days after the date on which the claimant received written notification of the denial. Within sixty (60) days after a request for review is received, the review shall be made and the claimant shall be advised in writing of the decision on review, unless special circumstances require an extension of time for processing the review, in which case the claimant shall be given a written notification within such initial sixty (60) day period specifying the reasons for the extension and when such review shall be completed (provided that such review shall be completed within one hundred twenty (120) days after the date on which the request for review was filed). The decision on review shall be forwarded to the claimant in writing and shall include specific reasons for the decision and references to Plan provisions upon which the decision is based. A decision on review shall be final and binding on all persons for all purposes. If a claimant shall fail to file a request for review in accordance with the procedures herein outlined, such claimant shall have no rights to review and shall have no right to bring action in any court and the denial of the claim shall become final and binding on all persons for all purposes. 31 10.5 RULES GOVERNING COMMITTEE ACTION. In the administration of the Plan, the following provisions shall apply where the context permits: (a) A Committee member may delegate in writing any or all of his rights, powers, duties, and discretions to any other member, with the consent of the latter. (b) The Committee members may act by meeting or by written statement without meeting, and may sign any document on behalf of the Committee by signing one document or by signing concurrent documents. (c) An action or a decision of a majority of Committee members as to a matter shall be effective as if taken or made by all Committee members. (d) If a Committee member is also a Participant in the Plan, he may not decide or determine any matter or question concerning distributions of any kind to be made to him, or the amount or nature of his benefits with him. (e) If, because of the number qualified to act, there is an even division of opinion among the Committee members as to a matter, the Company shall decide the matter. (f) The certificate of the majority of the Committee members or any person the Committee may authorize to act on their behalf as to any action the Committee has taken as authorized shall be conclusive in favor of any person relying on the certificate. 10.6 REIMBURSEMENT. The Committee members shall be reimbursed for expenses reasonably incurred, but no compensation shall be paid to any Committee member as such. 10.7 FIDUCIARY DESIGNATION. The Company and the members of the Committee are hereby designated as "named fiduciaries" within the meaning of Section 402(a) of the Employee Retirement Income Security Act, with respect to the operation and administration of the Plan. The Trustees, the Company, and the Committee are hereby designated as "named fiduciaries" of the Plan with respect to control and management of the assets of the Plan, except as it relates to individual investment elections under Article IX. Each named fiduciary may establish procedures for the allocation of its fiduciary responsibilities among its members and the designation of persons other than the named fiduciaries to carry out its fiduciary responsibilities. In addition, the Company or the Trustees may appoint as investment manager of all or any portion of the assets of the Fund, one or more banks, investment advisers registered under the Investment Advisers Act of 1940 or insurance companies qualified under the laws of more than one state to manage assets of the Fund. Each named fiduciary shall be responsible for the proper exercise of its own powers, duties, responsibilities and obligations under the Plan, and to the maximum extent allowable under ERISA, may rely upon the directions, 32 information or actions of any other named fiduciary as being proper under the Plan and shall not guaranty the Trust and assets of the Trust in any manner against investment loss or depreciation in asset value. 10.8 MISSING PARTICIPANTS. Subject to all applicable laws relating to unclaimed property, if the Plan Administrator mails by registered or certified mail, postage prepaid, to the last known address of a Participant or Beneficiary, a notification that he is entitled to a distribution hereunder, and if the notification is returned by the United States Postal Service as being undeliverable because the addressee cannot be located at the address indicated, and if the Plan Administrator has no knowledge of such Participant's or Beneficiary's whereabouts within three (3) years from the date the notification was mailed, or if within three (3) years from the date the notification was mailed to the Participant or Beneficiary, he does not respond thereto by informing the Plan Administrator of his whereabouts, then, and in either of those events, upon the Valuation Date coincident with or next succeeding the third anniversary of the mailing of the notification, the then undistributed Accrued Benefit shall serve to reduce the Matching Contribution, if any, on that Valuation Date or any subsequent Valuation Date; provided, however, that such amounts shall be reinstated to the proper Participant Accounts upon a valid claim therefor by the proper Participant or Beneficiary. ARTICLE XI AMENDMENTS AND DISCONTINUANCE 11.1 AMENDMENT OF PLAN. The provisions of this Plan may be amended at any time and from time-to-time by the Board of Directors of the Company, provided that no amendment: (a) shall cause or permit any part of the Fund to revert to or become the property of the Company or to be diverted to purposes other than for the exclusive benefit of Participants or their Beneficiaries hereunder, except as provided in Section 4.8; (b) shall increase the duties or liabilities of the Committee without its written consent; or (c) shall cause the Accrued Benefit of any Participant to be decreased unless authority to decrease such Accrued Benefit is applied for and specifically granted by the Secretary of Labor. 11.2 RIGHT TO TERMINATE. Although the Company expects to maintain this Plan indefinitely as a continuing program, the right to terminate the provision of benefits hereunder is unconditionally reserved by the Board of Directors of the Company. 33 11.3 MERGER OR CONSOLIDATION. In the event of any merger or consolidation of the Plan with any other plan, or the proposed transfer of assets or liabilities, in whole or in part, of the Fund to any other fund, the assets of the Fund shall be transferred to the other fund only if: (a) the other fund is maintained or established for the benefit of some or all of the Participants of this Plan; (b) each Participant of this Plan would be entitled to receive a benefit from the other plan immediately after the date of the merger, consolidation or transfer, if the other plan then terminated, which is not less than the benefit the Participant was entitled to receive under the provisions of Section 11.5 of this Plan, if this Plan had been terminated on the date of the merger, consolidation, or transfer; (c) resolutions of the Board of Directors of the Company and the board of directors of any new or successor company under the other plan authorize such transfer of assets; and, in the case of the new or successor company, its resolution includes an assumption of liabilities with respect to those Participants who, as a result of the merger, consolidation or transfer, are participants under the new or successor company's plan; and (d) such other plan and trust are qualified under Sections 401(a) and 501(a) of the Code. 11.4 DISCONTINUANCE OF PLAN UPON DISSOLUTION. In the event the Company is legally dissolved or liquidated by any procedure other than by consolidation, merger or sale of substantially all of its assets, this Plan shall automatically be terminated and the Fund disposed of as hereinafter provided. 11.5 DISTRIBUTION OF FUND ON DISCONTINUANCE OF THE PLAN. In the event this Plan shall be completely or partially terminated for any reason, or the contributions are permanently suspended, the Company shall, after the Fund has been evaluated and all expenses are paid, determine or cause to be determined the respective interests of the Participants, Former Participants and Beneficiaries affected by the Plan termination and shall authorize and direct the Trustees to pay out such respective interests in cash or in kind to the Participants, Former Participants and Beneficiaries within a reasonable period of time after the date of such termination. There shall be full vesting in the accounts of all affected Participants at the time of the complete or partial termination of the Plan or if contributions are permanently suspended, and such accounts shall be nonforfeitable. No Participant herein who has not yet reached his Normal Retirement Date shall receive a lump sum distribution in excess of $5,000 without the written consent of the Participant. 11.6 RIGHTS AGAINST COMPANY. Neither the establishment of the Plan, nor the payments of any benefits hereunder shall be construed as giving to any Participant or any person whomsoever any 34 legal or equitable rights against the Company, an Employer, or the officers, directors or shareholders of the Company or an Employer as such. All benefits payable under the Plan shall be paid or provided for solely from the Fund, and the Company or appropriate Employer shall have no liability or responsibility other than to make contributions to such Fund as herein provided. ARTICLE XII TOP-HEAVY PROVISIONS 12.1 TOP-HEAVY PLAN. In accordance with Section 416 of the Code, the Top-Heavy provisions as outlined in this Article XII shall come into effect for any Plan Year in which this Plan is a Top-Heavy Plan, notwithstanding any contrary provisions in any other Article of this Plan. If this Plan is not Top-Heavy, then the provisions of this Article should have no force and effect. 12.2 MINIMUM VESTING. If this Plan is considered a Top-Heavy Plan, then the following vesting schedule will take effect in lieu of the schedule set forth in Section 7.2(c):
Years of Vesting Service Vesting Percentage ------------------------ ------------------ Less than 2 0% 2 but less than 3 20% 3 but less than 4 50% 4 but less than 5 75% 5 or more 100%
The schedule set forth herein shall continue to be in effect until such time that the Plan ceases to be a Top-Heavy Plan, in which event, the provisions of Sections 7.2(c) and 12.5 shall apply. Such schedule shall not apply to Participants who do not complete at least one Hour of Service after the Plan becomes a Top-Heavy Plan. 12.3 COMPENSATION LIMIT. For any Plan Year in which this Plan is considered a Top-Heavy Plan, the Compensation taken into account for that Plan Year on behalf of any Employee shall be limited to a maximum of $200,000 (as adjusted in accordance with regulations adopted by the Secretary of the Treasury). 12.4 MINIMUM CONTRIBUTION. For any Plan Year in which this Plan is considered a Top Heavy Plan, notwithstanding the contribution allocation procedures outlined in Section 6.1, any Participant who is not a Key Employee and who is not a participant in any defined benefit plan maintained by the Company shall have a minimum amount allocated to his Matching Contribution Account. Such minimum shall be equal to the lesser of three percent (3%) of such Participant's compensation, which shall include base pay or salary, overtime, bonuses, commissions and any other form of remuneration included in Section 1.415-2 of the Income Tax Regulations, or the highest amount allocated to a Key Employee's Matching Contribution Account, expressed as a percent of 35 compensation for the Plan Year as aforesaid. Any required additional contributions hereunder shall be made by the Company. For Participants who are not Key Employees and who also are participants in any defined benefit plan maintained by the Company, the minimum benefit required under the defined benefit plan shall apply in lieu of the minimum contribution hereunder. 12.5 ANTI-CUTBACK PROVISIONS. In the event that the Top-Heavy Plan provisions come into effect, no amendment to the vesting provisions shall deprive a Participant of his nonforfeitable right accrued to the date such provisions come into effect. This requirement shall also apply to any amendment to the vesting provisions made as a result of a Top-Heavy Plan ceasing to be a Top-Heavy Plan. Upon any amendment to the vesting provisions, each Participant with at least two (2) years of vesting Service with an Employer may elect to have his nonforfeitable percentage computed under the Plan without regard to such amendment. Each Participant so entitled shall be given a period of not less than sixty (60) days following the latest of the effective date of the amendment or the date written notice of said amendment is furnished to the Participant in which he may make the election outlined herein. Such election shall be made in writing to the Committee. 12.6 AGGREGATION RULES. Notwithstanding anything to the contrary herein, this Plan shall not be considered a Top-Heavy Plan if it is part of either a "required aggregation group" or a "permissive aggregation group" and such aggregation group is not top-heavy. An aggregation group will be considered top-heavy if the sum of the present value of accrued benefits and account balances of Key Employees is more than sixty percent (60%) of the sum of the present value of accrued benefits and account balances for all Employees. The "required aggregation group" of a company includes (a) each plan of a company in which a Key Employee participates, (b) each other plan of the company that enables a plan covering a Key Employee to meet the nondiscrimination requirements of Code Sections 401(a)(4) and 410, and (c) each plan or a company which has been terminated in the five (5) Plan Years immediately preceding the determination date. Each plan in a required aggregation group will be top-heavy if the group is top-heavy. No plan in a required aggregation group will be top-heavy if the group is not top-heavy. A "permissive aggregation group" consists of plans that are required to be aggregated plus one or more plans (providing comparable benefits or contributions) that are not required to be aggregated, all of which, when taken together, meet the requirements of Code Sections 401(a)(4) or 410. If a permissive aggregation group is top-heavy, only those plans that are part of an underlying top-heavy required aggregation group are top-heavy. No plan in a permissive aggregation group will be top-heavy if the group is not top-heavy. 36 ARTICLE XIII TRUST PROVISIONS The Trust provisions under the Plan are governed by the Trust Agreement entered into by and between Fidelity Management Trust Company and Information Resources, Inc., which Trust Agreement forms an integral part of this Plan, or any successor Trust Agreement thereto. ARTICLE XIV ADOPTION BY SUBSIDIARIES AND AFFILIATES 14.1 ADOPTION BY SUBSIDIARIES AND AFFILIATES. Any employer which is a subsidiary or affiliate of the Company may adopt the Plan by instrument to that effect, and thereafter, if such adoption is consented to by the Board of Directors of the Company, such employer shall be treated as an Employer under the Plan. 14.2 DELEGATION OF AUTHORITY. Each such adopting employer hereby irrevocably grants to the Committee full and exclusive authority to exercise all of the powers conferred on the Company by the terms of the Plan and to take or refrain from taking any and all action which such employer might otherwise take or refrain from taking with respect to the Plan, including the exclusive power to amend or terminate the Plan, to appoint the Committee and Trustees, and to exercise, enforce or waive any rights whatsoever which such employer might otherwise have with respect to the Plan, and each such employer, by adopting the Plan, irrevocably appoints the Committee as its agent for those purposes. ARTICLE XV LOANS 15.1 LOANS TO PARTICIPANTS. Upon application by an Employee who is a Participant or any other party-in-interest, as defined in Section 3(14) of ERISA, the Trustee may lend such Employee or other party-in-interest an amount such that the aggregate of all of his outstanding loans under this Plan and all other plans maintained by the Company does not exceed the lesser of: (1) fifty thousand dollars ($50,000) (reduced by the excess, if any, of (A) the highest outstanding balance of loans from the Plan and all other plans maintained by the Company during the one (1) year period ending on the day before the date on which such loan is made over (B) the outstanding balance of loans from the Plan and all other plans maintained by the Company on the date on which such loan is made); or (2) an amount which does not exceed one-half (1/2) of the vested interest of his Accrued Benefit, if any, under the Plan as of the date on which the loan is approved. All loans shall follow a uniform, nondiscriminatory policy. Loans 37 shall not be made available to Highly Compensated Employees in an amount greater than the amount made available to other Employees. In addition to such rules and regulations as the Plan Administrator may adopt, all loans shall comply with the following terms and conditions: (a) An application for a loan by an Employee or other party-in-interest shall be made in writing to the Plan Administrator, whose action thereon shall be final. The Plan Administrator shall specify the form of the application and any supporting data required. (b) The period of repayment for any loan shall be five (5) years, unless the loan is used to acquire a dwelling unit which within a reasonable time shall be used as the principal residence of the Employee or other party-in-interest, in which case the period of repayment shall be determined by the Plan Administrator but shall not be greater than twenty (20) years. Loans shall be repayable in substantially equal amortized installments of both principal and interest payable not less frequently than quarterly. Loans to Employees shall be repaid through automatic payroll deduction, and for parties-in-interest who are not Employees, on such other terms and conditions as the Plan Administrator deems appropriate. To the extent that such loan is unpaid at the time a distribution of such Participant's Accrued Benefit becomes payable, such unpaid amount shall be deducted from the amount otherwise payable from his Accrued Benefit. Notwithstanding the foregoing, no unpaid amount shall be deducted from the amount otherwise payable from the Accrued Benefit of any Participant who (1) becomes a Transferred Participant (as defined in Section 7.2(e)); (2) elects pursuant to Section 8.10 of this Plan to designate a direct rollover of his account balance in the Plan, including the outstanding loan note, to a qualified retirement plan maintained by Mosaic InfoForce, L.P. (the "Mosaic Plan"); (3) acknowledges the Mosaic Plan as the new obligee of the loan note involved in the direct rollover; and (4) accepts that the Mosaic Plan will administer the outstanding loan balance of the Participant pursuant to and in accordance with the same terms and conditions to which the loan note was subject prior to the direct rollover, until such outstanding loan note is satisfied. Any loan described in this Section 15.1 shall be considered an investment of the account from which it was borrowed. Such account shall not share in the allocation of earnings under the Plan to the extent of such loan. (c) Each loan shall bear interest at a rate which is the rate being charged by the area banking businesses for similar well-secured loans. 38 (d) Each loan shall be supported by collateral equal to no more than fifty percent (50%) of the Employee's or other party-in-interest's entire vested interest in the Trust. A loan also shall be supported by the Employee's or other party-in-interest's promissory note for the amount of the loan, including interest, payable to the order of the Trustee. The promissory note shall require that the unpaid principal and interest will become due and payable if a loan payment is not made by the last day of the calendar year quarter following the calendar year quarter in which the installment was due and owing. In the event of default, foreclosure on the note and attachment of security will not occur until a distributable event occurs in the Plan. (e) Each loan shall be in an amount not less than one thousand dollars ($1,000.00) and shall be made in increments of not less than ten dollars ($10.00). No more than one (1) loan may be outstanding at any one time. (f) Each loan shall be for a period of not less than six (6) months. 15.2 UNIFORMED SERVICES EMPLOYMENT AND REEMPLOYMENT RIGHTS ACT OF 1994. Loan repayments will be suspended under this Plan as permitted under Code Section 414(u)(4). ARTICLE XVI MISCELLANEOUS 16.1 INFORMATION TO BE FURNISHED BY PARTICIPANTS. Participants must furnish to the Committee such evidence, data or information as the Committee considers necessary to carry out the Plan. The benefits of the Plan for each person are on the condition that they furnish prompt, true and complete evidence, data and information requested by the Committee. 16.2 EVIDENCE. Evidence required of anyone under the Plan may be by certificate, affidavit, document or other information which the person acting on it considers pertinent and reliable, and signed, made or presented by the proper party or parties. Any notice required under the Plan may be waived by the person entitled to such notice, provided that all Participants similarly situated are treated uniformly. 16.3 EMPLOYMENT RIGHTS. The Plan does not constitute a contract of employment, and participation in the Plan will not give any Employee the right to be retained in the employ of an Employer, nor any right or claim to any benefit under the Plan, unless such right or claim has specifically accrued under the terms of the Plan. 39 16.4 NONALIENATION OF BENEFITS. No benefits payable under the Plan shall be subject in any manner to attachment, anticipation, alienation, sale, transfer, pledge, encumbrance or charge, and any attempt to so attach, anticipate, alienate, sell transfer, pledge, encumber or charge shall not be recognized. No benefit payable under the Plan shall be subject in any manner to the debts, contract, liabilities, engagements, or torts of any person, except as may be required by law; provided, however, that notwithstanding anything to the contrary specified herein, this Plan shall comply with any order or requirement to pay under any judgment rendered pursuant to Code Section 401(a)(13)(C) or any such successor Code Section. Notwithstanding anything to the contrary specified herein, in the case of a qualified domestic relations order as defined in Section 414(p) of the Code, the Committee shall adopt such procedures and comply with such order in accordance with the provisions of Section 414(p) of the Code. If a qualified domestic relations order requires that payment be made to an alternate payee prior to the date of the Participant's "earliest retirement age" as defined in Section 414(p)(4)(B) of the Code and Section 206(d)(3)(E)(ii) of ERISA, a distribution may be made out of the Plan to such alternate payee in accordance with the terms of the qualified domestic relations order. 16.5 QUALIFICATION. The Company shall apply for a ruling by the United States Treasury Department that the Plan is qualified under Section 401(a) and 401(k) and that the fund is exempt from Federal income taxation under Section 501(a) of the Code. Any modification or amendment of the Plan may be retroactive, as necessary or appropriate, to maintain such qualification and exemption. 16.6 TERMINOLOGY. Except as otherwise indicated by the context, any masculine terminology used herein shall also include the feminine and the neuter, and the definition of any term in the singular may include the plural. 16.7 APPLICABLE LAWS. Subject to the provisions of ERISA, the Plan shall be construed, administered and governed under and by the laws of the State of Illinois. 16.8 CONTEXT TO CONTROL. The headings of the sections are included solely for convenience of reference, and if there is any conflict between headings and the text of this Plan, the text shall control. 40 IN WITNESS WHEREOF, Information Resources, Inc. has caused this Amended and Restated Plan to be executed by its Chief Executive Officer thereunto duly authorized as of this 17th day of August, 2000. Information Resources, Inc. By: --------------------------------- Its Chief Executive Officer 41 EX-10.(TT) 4 c75466exv10wxtty.txt 1ST AMENDMENT TO AMENDED & RESTATED 401(K) PLAN EXHIBIT (tt) FIRST AMENDMENT TO INFORMATION RESOURCES, INC. AMENDED AND RESTATED 401(k) RETIREMENT SAVINGS PLAN (AMENDED AS OF AUGUST 17, 2000) First Amendment to the Information Resources, Inc. Amended and Restated 401(k) Retirement Savings Plan (amended as of August 17, 2000) (hereinafter the "Plan"), is made by Information Resources, Inc., an Illinois corporation (hereinafter the "Company"), effective as of November 13th 2002, except as otherwise specified herein, to read as follows: 1. Section 1.9 is amended by the addition of the following paragraph: For Plan Years beginning on and after January 1, 2001, "Compensation" shall include elective amounts that are not includible in the gross income of the Participant by reason of Code Section 132(f)(4). 2. Section 5.4 is hereby amended by the addition of the following paragraph: Notwithstanding anything in the Plan to the contrary, effective with respect to Limitation Years beginning after 1999, the provisions of Code Section 415(e) as in effect prior to the enactment of the Small Business Job Protection Act of 1996 are hereby deleted. 3. Section 8.9 of the Plan is amended by the addition of the following paragraph: The determination of whether the $5,000 (or, if applicable, $3,500) threshold has been exceeded is generally based on the value of the vested benefit as of the Valuation Date preceding the date of the distribution. With respect to any distributions made on or after October 17, 2000, the "lookback rule" will not apply. 4. Section 8.10(a) is replaced in its entirety with the following provision: (a) Eligible Rollover Distribution. An eligible rollover distribution is any distribution of all or any portion of the balance to the credit of the distributee, except that an eligible rollover distribution does not include: any distribution that is one of a series of substantially equal periodic payments (not less frequently than annually) made for the life (or life expectancy) of the distributee or the joint lives (or joint life expectancies) of the distributee and the distributee's designated beneficiary, or for a specified period of ten years or more; any distribution to the extent such distribution is required under Code Section 401(a)(9); the portion of 1 any other distribution that is not includible in gross income (determined without regard to the exclusion for net unrealized appreciation with respect to employer securities); and for distributions occurring on or after January 1, 2000, any hardship distribution as defined in Code Section 401(k)(2)(B)(i)(IV), which is attributable to the Participant's elective contributions under Treasury Regulation Section 1.401(k)-1(d)(2)(ii). IN WITNESS WHEREOF, Information Resources, Inc. has caused this First Amendment to be executed by its Chief Executive Officer thereunto duly authorized as of this 13th day of November 2002. INFORMATION RESOURCES, INC. By ___________________________________ Its Chief Executive Officer 2 EX-10.(UU) 5 c75466exv10wxuuy.txt 2ND AMENDMENT TO AMENDED & RESTATED 401(K) PLAN EXHIBIT (uu) SECOND AMENDMENT TO INFORMATION RESOURCES INC. AMENDED AND RESTATED 401(k) RETIREMENT SAVINGS PLAN This Second Amendment to the Information Resources, Inc. Amended and Restated 401(k) Retirement Savings Plan (the "Plan"), is made this 13th day of November, 2002, by Information Resources, Inc., an Illinois corporation (hereinafter referred to as the "Company"). W I T N E S S E T H: WHEREAS, pursuant to Section 11.1, Amendment of Plan, the Company has reserved the right to amend the Plan; WHEREAS, the Company desires to amend the Plan to reflect certain provisions of the Economic Growth and Tax Relief Reconciliation Act of 2001] ("EGTRRA"); WHEREAS, this Second Amendment is intended as good faith compliance with the requirements of EGTRRA, and is to be construed in accordance with EGTRRA and guidance issued thereunder, including IRS Notices 2001-42, 2001-56, and 2001-57; WHEREAS, this Second Amendment to the Plan shall supersede the provisions of the Plan to the extent any of those provisions may be inconsistent with the provisions of this amendment; WHEREAS, the Board of Directors of the Company has approved and authorized this Second Amendment to the Plan; NOW, THEREFORE, effective January 1, 2002, except as otherwise specified herein, the Plan is hereby amended in the following manner: 1. Section 1.9 - Compensation is hereby amended by the addition of the following new paragraph to the end thereof: 1 "The annual Compensation of each Participant taken into account in determining allocations for any Plan Year beginning after December 31, 2001, shall not exceed $200,000, as adjusted for cost-of-living increases in accordance with Section 401(a)(17)(B) of the Code. The cost-of-living adjustment in effect for a calendar year applies to annual Compensation for the Plan Year that begins with or within such calendar year." 2. Section 1.24 - Key Employee is hereby amended by the addition thereto of the following text to the end thereof: "Effective for Plan Years beginning January 1, 2002, and thereafter, "Key Employee" shall mean any Employee or former Employee (including any deceased Employee) who, at any time during the Plan Year that includes the Determination Date, was: (1) An officer of the Company, if such Employee's annual Compensation was greater than $130,000 (as adjusted under Code Section 416(i)(1) for Plan Years beginning after December 31, 2002); (2) A 5-percent owner of the Company; or (3) A 1-percent owner of the Company who has annual Compensation of more than $150,000. For purposes of this Section, the constructive ownership provisions of Code Section 318 shall apply. The determination of who is a Key Employee will be made in accordance with Code Section 416(i)(1) and the applicable regulations and other guidance of general applicability issued thereunder. For purposes of this Section, annual Compensation means Compensation within the meaning of Code Section 415(c)(3)." 3. Section 4.2 - Salary Reduction Agreement is hereby amended by the addition of the following text in parenthetical immediately following the phrase "and does not exceed fifteen percent (15%)" found in the first full paragraph of Section 4.2 thereof: "Twenty five percent (25%) for Plan Years beginning after December 31, 2001." 2 4. Section 4.2 - Salary Reduction Agreement is further amended by the addition of the following text after the first full paragraph of Section 4.2 thereof: "Notwithstanding the above, neither the restrictions contained in this paragraph nor the restrictions set forth in Section 4.2(h) or Section 5.1 shall preclude an otherwise eligible Participant from making Catch-Up Contributions. Effective for contributions after December 31, 2001, all Employees who are eligible to make 401(k) Contributions under this Plan and who have attained age 50 before the close of the Plan Year shall be eligible to make Catch-Up Contributions in accordance with and subject to the limitations of Code Section 414(v). Such Catch-Up Contributions shall not be taken into account for purposes of the provisions of the Plan implementing the required limitations of Code Section 402(g) and Code Section 415. The Plan shall not be treated as failing to satisfy the provisions of the Plan implementing the requirements of Code Section 401(k)(3), Section 401(k)(11), Section 401(k)(12), Section 410(b), or Section 416, as applicable, by reason of the making of such Catch-Up Contributions." 5. Section 4.4 - Matching Contributions is hereby amended by the addition of the following text in parenthetical immediately following the phrase "defers for a Plan Year": "excluding Catch-Up Contributions made after December 31, 2001" 6. Section 4.5 - Contributions is hereby amended by adding the following text to the end thereof: "The multiple use test described in Treasury Regulation Section 1.401(m)-2 and in the Plan shall not apply for Plan Years beginning after December 31, 2001." 7. Section 4.7 - Withdrawals is hereby amended by the addition of the following text in parenthetical immediately following the phrase "for a twelve (12) month period" found in subparagraph (b) (iii) thereof: "(Six (6) months in the case of a Participant who receives a hardship withdrawal after December 31, 2001)" 3 8. Section 5.1 - Maximum Limitations is hereby amended by adding the following text to the end thereof: "Effective for Limitation Years beginning after December 31, 2001, except to the extent permitted under Section 6 of this Second Amendment permitting certain "Catch-Up" contributions and Code Section 414(v), the amount of Annual Additions that may be contributed or allocated to a Participant's accounts under the Plan for any Limitation Year shall not exceed the lesser of: (a) $40,000, as adjusted for increases in the cost-of-living under Code Section 415(d) or a successor Code Section, and the regulations thereunder; or (b) 100% of such Participant's Code Section 415(c)(3) compensation received during the Limitation Year under consideration (the maximum permissible amount). Any adjustment in the $40,000 limit specified above and in the Code by the Secretary of the Treasury to reflect increases in the cost of living shall be incorporated herein. If the Company contribution that would otherwise be contributed or allocated to the Participant's accounts would cause the amount for the Limitation Year to exceed the maximum permissible amount, the amount contributed or allocated will be reduced so that the Annual Additions for the Limitation Year will equal the maximum permissible amount." 9. Section 6.3 - Rollovers is hereby amended by adding the following text to the end of - subparagraph (b) thereof: "The Employer, operationally and on a nondiscriminatory basis, may limit the source of Rollover Contributions that may be accepted by this Plan." 10. Section 7.2 - Vesting of Matching Contribution Account is hereby amended by the addition of the following text to the end of subparagraph (c) thereof: "Notwithstanding the above, with respect to a Participant whose Account derives from Matching Contributions who completes an Hour of Service under the Plan in a Plan Year beginning after December 31, 2001, Matching Contributions for a Participant who terminates employment prior to becoming eligible for retirement as set forth in subsection (a) or for reasons other than death, shall vest for Plan Years beginning after December 31, 2001 in accordance with the following schedule without regard to whether the Plan is Top-Heavy: 4
Years of Vesting Service Non-forfeitable Percentage ------------------------ -------------------------- 1 0% 2 20% 3 50% 4 75% 5 100"
11. Section 8.9 - Cash-Out is hereby amended by the addition of the following text to the end thereof: "The Company does not elect to exclude Rollover Contributions in determining the value of the Participant's nonforfeitable account balance for purposes of the Plan's involuntary cash-out rules." 12. Section 8.10 - Direct Rollovers is hereby amended by the addition of the following text to the end thereof: "Effective for distributions made after December 31, 2001, an eligible retirement plan shall also mean an annuity contract described in Code Section 403(b) and an eligible plan under Code Section 457(b) which is maintained by a state, political subdivision of a state, or any agency or instrumentality of a state or political subdivision of a state and which agrees to separately account for amounts transferred into such plan from this Plan. The definition of eligible retirement plan shall also apply in the case of a distribution to a surviving spouse, or to a spouse or former spouse who is the alternate payee under a qualified domestic relation order, as defined in Code Section 414(p). Effective for distributions made after December 31, 2001, any amount that is distributed on account of hardship shall not be an eligible rollover distribution and the distributee may not elect to have any portion of such a distribution paid directly to an eligible retirement plan." 13. Section 8.13 - Severance from Employment. Article VIII, Distribution of Benefits is hereby amended by the addition of new Section 8.13 as follows: "Notwithstanding anything herein to the contrary, with respect to distributions and transactions made after December 31, 2001, a Participant's 401(k) Contribution Account, Matching Contribution Account and Rollover Contribution Account, if any, and earnings attributable to these contributions, shall be distributed on account of the Participant's severance from employment. However, such a distribution 5 shall be subject to the other provisions of the Plan regarding distributions, other than provisions that require a separation from service before such amounts may be distributed." 14. Section 12.4 - Minimum Contributions is hereby amended by the addition of the following text to the end thereof: "Matching Contributions shall be taken into account for purposes of satisfying the minimum contribution requirements of Code Section 416(c)(2) and the Plan. The preceding sentence shall apply with respect to Matching Contributions under the Plan or, if the Plan provides that the minimum contribution requirement shall be met in another plan, such other plan. Matching Contributions that are used to satisfy the minimum contribution requirements shall be treated as Matching Contributions for purposes of the actual contribution percentage test and other requirements of section 401(m)." 15. Section 12.7 - Determination of present value. Article XII, Top-Heavy Provisions is hereby amended by the addition of new Section 12.7 as follows: "This Section 12.7 shall apply for purposes of determining the present value of the Accrued Benefit of Participants as of the Determination Date. (a) Distributions during year ending on the Determination Date. The present value of the Accrued Benefit of a Participant as of the Determination Date shall be increased by the distributions made with respect to the Participant under the Plan and any Plan aggregated with the Plan under Code Section 416(g)(2) during the 1-year period ending on the Determination Date. The preceding sentence shall also apply to distributions under a terminated plan which, had it not been terminated, would have been aggregated with the Plan under Code Section 416(g)(2)(A)(i). In the case of a distribution made for a reason other than separation from service, death, or disability, this provision shall be applied by substituting "5-year period" for "1-year period. (b) Participants not performing services during year ending on the Determination Date. The Accrued Benefit of any Participant who has not performed services for the Employer during the 1-year period ending on the Determination Date shall not be taken into account." 16. In all other respects, the Plan, as amended, shall continue in full force and effect. 6 IN WITNESS WHEREOF, the Company has caused this Second Amendment to be executed upon the signature of its duly qualified officer this 13th day of November, 2002. INFORMATION RESOURCES, INC. An Illinois corporation By:_____________________________ 7 EX-10.(VV) 6 c75466exv10wxvvy.txt 1ST AMENDMENT TO REVOLVING CREDIT AGREEMENT EXHIBIT (vv) EXECUTION COPY FIRST AMENDMENT TO REVOLVING CREDIT AGREEMENT THIS FIRST AMENDMENT TO REVOLVING CREDIT AGREEMENT (this "AMENDMENT"), dated January 31, 2003, is entered into among INFORMATION RESOURCES, INC., a Delaware corporation, 564 RANDOLPH CO. #2, a Delaware corporation, IRI PUERTO RICO, INC., a Puerto Rico corporation, IRI VENEZUELA HOLDINGS, INC., a Delaware corporation, IRI GUATEMALA HOLDINGS, INC., a Delaware corporation, IRI GREEK HOLDINGS, INC., a Delaware corporation, IRI FRENCH HOLDINGS, INC., a Delaware corporation, IRI ITALY HOLDINGS, INC., a Delaware corporation, INFOSCAN ITALY HOLDINGS, INC., a Delaware corporation, SHOPPERS HOTLINE, INC., a Delaware corporation, and NORTH CLINTON CORPORATION, an Illinois corporation (collectively, the "CURRENT BORROWERS"), IRI INFOSCAN S.R.L., an Italian corporation (the "NEW BORROWER" and together with the Current Borrowers, the "BORROWERS" and each, a "BORROWER"), LASALLE BANK NATIONAL ASSOCIATION, as Administrative Agent for Lenders ("ADMINISTRATIVE AGENT"), and KEY CORPORATE CAPITAL, INC., as Syndication Agent for Lenders ("SYNDICATION AGENT") (Administrative Agent and Syndication Agent may also each hereinafter be referred to as a "LENDER" and together, with any other lenders executing this Amendment, "LENDERS"). W I T N E S S E T H: WHEREAS, Current Borrowers and Lenders are parties to that certain Revolving Credit Agreement, dated July 12, 2002 (the "CREDIT AGREEMENT") pursuant to which Lenders agreed to make available to the Current Borrowers a revolving credit facility up to $40,000,000 (the "CREDIT FACILITY"); WHEREAS, in connection with establishment of the Credit Facility, Borrowers executed a Memorandum of Understanding dated July 12, 2002, as amended and restated on December 31, 2002 and as further amended on January 31, 2003 (the "MEMORANDUM") pursuant to which the Current Borrowers agreed to cause the New Borrower to become a borrower under the Credit Agreement, and Lenders agreed to make the Credit Facility available to the New Borrower on the same terms and conditions as the Current Borrowers; and WHEREAS, to satisfy the terms of the Memorandum and to amend the Credit Agreement in certain respects, the Current Borrowers, the New Borrower and Lenders have agreed to execute this Amendment. NOW, THEREFORE, in consideration of the premises and mutual agreements herein contained, the parties hereto agree as follows: SECTION 1 DEFINED TERMS Capitalized terms used herein but not defined herein shall have the meaning ascribed to such terms in the Credit Agreement. SECTION 2 AMENDMENTS TO EXISTING CREDIT AGREEMENT Effective on the Amendment Effective Date, the Credit Agreement is amended as follows: 2.1 By its execution hereof, the New Borrower hereby agrees to become party to the Credit Agreement with the Current Borrowers and is hereby bound by its terms and conditions in all respects as if it had been an original Borrower, notwithstanding the fact that New Borrower's obligations under the Credit Agreement, as amended hereby and as may from time to time be further amended or modified, are evidenced by separate Revolving Credit Notes, the forms of which are attached hereto as Exhibits A and B. 2.2 The first sentence of Section 2.4(A) is amended and restated to read in its entirety as follows: "Unless otherwise provided in writing evidencing such Indebtedness, each Borrower agrees to pay Administrative Agent, for the benefit of each Lender, interest on the outstanding principal balance of its Loans from time to time at a rate equal to (i) with respect to Base Rate Loans, the Base Rate plus the Applicable Margin and (ii) with respect to LIBOR Loans, the LIBOR Rate plus the Applicable Margin." 2.3 Section 2.7(A) is amended and restated to read in its entirety as follows: "[Intentionally Omitted]". 2.4 The first sentence of Section 2.9(A) is amended by replacing the phrase "Borrowers agree, jointly and severally, to pay such Lender" with "each applicable Borrower agrees to pay such Lender". 2.5 Section 2.9(B) is amended by replacing the phrase "Borrowers agree, jointly and severally, to pay to such Lender" with "each applicable Borrower agrees to pay to such Lender". 2.6 The last sentence of Section 2.9(C) is amended by replacing the phrase "conclusive and binding on Borrowers" with "conclusive and binding on each applicable Borrower". 2 2.7 Section 2.11 is amended and restated in its entirety to read as follows: "Each Borrower agrees to indemnify any Lender and to hold such Lender harmless from any cost, loss or expense which such Lender may sustain or incur as a consequence of (i) such Borrower making a payment or prepayment of principal or interest on any LIBOR Loan (including through a conversion to the same or a different type of Loan or pursuant to Sections 2.3(B) and 2.9 above) on a day which is not the last day of an Interest Period with respect thereto (other than interest paid on the last day of a three month interval in respect of a LIBOR Loan having an Interest Period longer than three months), (ii) any failure by such Borrower to borrow or convert any Loan hereunder after a Notice of Borrowing or Notice of Conversion has been given (in the case of LIBOR Loans) by it, (iii) default by such Borrower in making any prepayment of a LIBOR Loan after such Borrower has given a notice of prepayment and (iv) any acceleration of the maturity of the Loans in accordance with the terms of this Agreement, including, but not limited to, any such reasonable cost, loss or expense arising in liquidating the Loans and from interest or fees payable by such Lender to lenders of funds obtained by it in order to maintain the Loans hereunder. The provisions of this Section 2.11 shall survive the repayment of the Loans and the termination of this Agreement." 2.8 The first sentence of Section 3.3(A) is amended by replacing the phrase "Borrowers agree" with "Each Borrower for whose account a Letter of Credit is issued agrees". 2.9 The second sentence of Section 3.3(A) is amended by: (a) replacing the phrase "Borrowers agree" with "Each Borrower for whose account a Letter of Credit is issued agrees" and (b) adding the phrase "issued for its account" immediately after the phrase "Letter of Credit" and immediately before the phrase "immediately when due". 2.10 Section 3.3(B) is amended and restated to read in its entirety as follows: "Notwithstanding any provisions to the contrary in any Master Letter of Credit Agreement, each Borrower for whose account a Letter of Credit is issued agrees to reimburse the Issuing Lender for amounts which the Issuing Lender pays under such Letter of Credit no later than the time specified in this Agreement. If such Borrower does not pay any such Reimbursement Obligations when due, such Borrower shall be deemed to have immediately requested that the Lenders make a Base Rate Loan under this Agreement in a principal amount equal to such unreimbursed Reimbursement Obligations. Administrative Agent shall promptly notify Lenders of such deemed request and, without the necessity of compliance with the requirements of Sections 2.1 and 6.1, each Lender shall make available to Administrative Agent its Loan in the manner prescribed for Base Rate Loans. The proceeds of such Loans shall be paid over by Administrative Agent to the Issuing Lender for the account of such Borrower in satisfaction of such 3 unreimbursed Reimbursement Obligations, which shall thereupon be deemed satisfied by the proceeds of, and replaced by, such Base Rate Loan." 2.11 The first sentence of Section 3.3(C) is amended by replacing the phrase "reimbursed therefore by Borrowers" with "reimbursed therefore by the Borrower for whose account such Letter of Credit was issued". 2.12 The first sentence of Section 3.4 is amended by (a) replacing the phrase "Borrowers shall deliver" with "the requesting Borrower" and (b) replacing the phrase "signed by Borrowers" with "signed by such Borrower". 2.13 Section 3.6 is amended and restated to read in its entirety as follows: "IRI shall pay to Administrative Agent (for the benefit of the Issuing Lender and the other Lenders) on the last Business Day of each calendar quarter, in arrears, a letter of credit fee at a rate per annum (the "LETTER OF CREDIT FEES") equal to the Applicable Margin for outstanding Letters of Credit. In addition, the Borrower for whose account a Letter of Credit is issued shall pay to Administrative Agent (for the benefit of the Issuing Lender and the other Lenders) any other processing, issuance, amendment or other similar fees customarily charged in connection with Letters of Credit, together with the Issuing Lender's out-of-pocket costs of issuing and servicing letters of credit. All Letter of Credit Fees shall be computed on the basis of the actual number of days elapsed in a year of 360 days." 2.14 The first sentence of Section 4.1(A) is amended by replacing the phrase "Borrowers agree, jointly and severally, to pay" with "IRI agrees to pay". 2.15 Section 4.1(B) is amended and restated to read in its entirety as follows: "Each Borrower agrees to pay to Administrative Agent such other Fees as such Borrower has agreed to pay in this Agreement or under any other fee agreement between such Borrower and Administrative Agent in connection herewith." 2.16 The third sentence of Section 4.4(B) is amended and restated to read in its entirety as follows: "In the event Borrowers have exceeded any of the foregoing limits, each applicable Borrower agrees to repay any excess to Administrative Agent within two (2) Business Days after being provided of notice by Administrative Agent of the occurrence thereof." 2.17 Section 5.1(D) is amended and restated to read in its entirety as follows: "The execution, delivery and performance by such Borrower of this Agreement and the Ancillary Agreements shall not, by its execution or performance, the lapse of time, the giving of notice or otherwise, constitute a violation of any material 4 and any applicable law, rule, regulation, judgment, order or decree applicable to such Borrower or its assets (with respect to any Borrower organized under the laws of a jurisdiction other than the Unites States or a state or territory thereof (a "FOREIGN JURISDICTION"), this representation as to applicable laws, rules, regulations, judgments, orders or decrees is qualified to the extent enforcement of the Credit Documents is sought in such Foreign Jurisdiction, as such Foreign Jurisdiction may have mandatory provisions of laws of public order that may be different than the provisions set forth in the Credit Documents or applicable Illinois law) or constitute a material breach of any provision contained in such Borrower's charter or by-laws or contained in any material agreement, instrument, indenture or other document to which such Borrower is now a party or by which it or any of its property is bound;". 2.18 The first two sentences of Section 5.1(J) are amended and restated read in their entirety as follows: "Except for the Collective Labor Agreement to which IRI Infoscan S.r.l. is a party and any other mandatory provisions of Italian labor laws applicable to IRI Infoscan S.r.l. with respect to contracts with its employees, (i) there are no strikes, work stoppages, labor disputes decertification petitions, union organizing efforts, grievances or other claims pending or, to such Borrower's knowledge, threatened in writing, between such Borrower and any of its employees, other than employee grievances or other claims arising in the ordinary course of business which, in the aggregate, would not have a Material Adverse Effect on each Borrower and (ii) to the best of such Borrower's knowledge, such Borrower has no obligation under any collective bargaining agreement or any employment agreement. Except for the Collective Labor Agreement to which IRI Infoscan S.r.l. is a party, to such Borrower's knowledge, there is no organizing activity pending or threatened in writing by any labor union or group of employees." 2.19 Section 7.2(A) is amended and restated to read in its entirety as follows: "Pay to Administrative Agent on demand, any and all reasonable fees, costs or expenses which Administrative Agent or any Lender incurs arising out of or in connection with (i) the forwarding to such Borrower or any other Person on behalf of such Borrower, by Administrative Agent of proceeds of Loans made to such Borrower pursuant to this Agreement and (ii) the depositing for collection by Administrative Agent, of any check or item of payment received or delivered to Administrative Agent on account of the Indebtedness;". 2.20 The first sentence of Section 7.2(G) is amended by adding the phrase "of such Borrower" at the end of such sentence. 2.21 Section 7.2(M) is amended and restated to read in its entirety as follows: 5 "Execute a mortgage in a form acceptable to Administrative Agent in favor of Administrative Agent and the other Lenders in the event a Borrower (other than IRI Infoscan S.r.l.) acquires any real property that is valued, in the aggregate of more than $1,000,000; and". 2.22 A new Section 7.8 shall be added to the end of Section 7 to state as follows: "7.8 OWNERSHIP OF SUBSIDIARIES. The Borrowers shall ensure that at all times the shares of IRI Infoscan S.r.l., Information Resources S.A., and IRI Software Ltd. (each a "FOREIGN PLEDGED SUBSIDIARY") pledged under the Collateral Documents, entered into on or about January 31, 2003, constitute, in the aggregate, 65% of the total capital stock of each such Foreign Pledged Subsidiary, on a fully-diluted basis. IRI shall ensure that at all times it owns 100% of the total capital stock of IRI Software B.V. (the "DUTCH SUBSIDIARY"), on a fully-diluted basis; provided that once Articles 8 and 9 of the Articles of Association of the Dutch Subsidiary are amended to provide that a transfer of shares of the Dutch Subsidiary shall require the approval of a general shareholders' meeting (as opposed to granting other shareholders a right of first refusal over such shares), IRI shall only be required to own 65% of the total capital stock of the Dutch Subsidiary, on a fully-diluted basis." 2.23 The first sentence of Section 10.3 is amended (a) by replacing the phrase "Borrowers, jointly and severally, hereby agree to pay" with "IRI hereby agrees to pay" and (b) by replacing the phrase "shall be payable by Borrowers, jointly and severally, to Administrative Agent" with "shall be payable by IRI to Administrative Agent". 2.24 Section 11.6 is amended by adding the following sentence at the end of Section 11.6: "Further, notwithstanding the foregoing and any provision herein contained to the contrary, and with respect to any Borrower that is organized under the laws of Italy, including IRI Infoscan S.r.l. (each an "ITALIAN BORROWER"), the liability of any Italian Borrower under this Section 11 (which liability is in any event in addition to amounts for which such Italian Borrower may be primarily liable under Section 2) shall be limited to an amount not to exceed as of any date of determination the lesser of: (i) the net amount of all Loans advanced to any other Borrower under this Agreement and then re-loaned or otherwise transferred to, or for the benefit of, such Italian Borrower and for which such Italian Borrower is still owing to such other Borrower at the time of determination; and (ii) $40,000,000." 2.25 The Schedules to the Credit Agreement are hereby amended and restated to read in their entirety as set forth in Exhibit E hereto. 6 SECTION 3 REPRESENTATIONS AND WARRANTIES Each Borrower hereby represents and warrants to Lenders that: 3.1 DUE AUTHORIZATION, ETC. The execution and delivery of this Amendment and the performance of such Borrower's obligations under the Credit Agreement, as amended by this Amendment, are duly authorized by all necessary corporate action, do not require any filing or registration with or approval or consent of any governmental agency or authority, do not and will not conflict with, result in any violation of or constitute any default under any provision of its articles of incorporation or by-laws of that of any of its Subsidiaries or any material agreement or other document binding upon or applicable to it or any of its Subsidiaries (or any of their respective properties) or any material law or governmental regulation or court decree or order applicable to it or any of its Subsidiaries, and will not result in or require the creation or imposition of any Lien in any of its properties or the properties of any of its Subsidiaries pursuant to the provisions of any agreement binding upon or applicable to it or any of its Subsidiaries, except in favor of Lenders. 3.2 VALIDITY. This Amendment has been duly executed and delivered by such Borrower and, together with the Credit Agreement, constitutes a legal, valid and binding obligation of such Borrower to the extent such Borrower is a party thereto, enforceable against such Borrower in accordance with their respective terms subject, as to enforcement only, to bankruptcy, insolvency, reorganization, moratorium or similar laws affecting the enforceability of the rights of creditors generally, and with respect to the New Borrower, subject to the application of mandatory provisions of Italian law if this Amendment or the Credit Agreement is sought to be enforced in Italy. 3.3 REPRESENTATIONS AND WARRANTIES. The representations and warranties contained in Section 5 of the Credit Agreement are true and correct on the date of this Amendment, except to the extent (a) that such representations and warranties solely relate to an earlier date or (b) changed by circumstances permitted by the Credit Agreement. 3.4 ABSENCE OF DEFAULTS. No Event of Default or default has occurred or is occurring as of the date hereof. SECTION 4 CONDITIONS PRECEDENT This Amendment shall become effective and the New Borrower shall have the right (subject to the conditions set forth in Section 6.1 of the Credit Agreement) to borrow funds under the Credit Facility upon satisfaction of all of the following conditions precedent (the date on which such conditions are satisfied or waived, the "AMENDMENT EFFECTIVE DATE"): 7 4.1 RECEIPT OF DOCUMENTS. Administrative Agent shall have received all of the following, each in form and substance satisfactory to Administrative Agent: (a) Amendment. A counterpart original of this Amendment duly executed by Borrowers and Syndication Agent. (b) Revolving Credit Note for Administrative Agent. A Revolving Credit Note in favor of the Administrative Agent in the form of Exhibit A to this Amendment, duly executed by New Borrower. (c) Revolving Credit Note for Syndication Agent. A Revolving Credit Note in favor of the Syndication Agent in the form of Exhibit B to this Amendment, duly executed by New Borrower. (d) Opinion of Foreign Counsel. A legal opinion issued to Lenders by New Borrower's local counsel, in form and substance reasonably acceptable to Lenders. (e) Opinion of US Counsel. A legal opinion issued to Lenders by Current Borrower's U.S. counsel, in form and substance reasonably acceptable to Lenders. (f) Director's Certificate #1. A certificate dated of even date herewith and signed by a director of the New Borrower, substantially in the form of Exhibit C to this Amendment. (g) Director's Certificate #2. A certificate dated of even date herewith and signed by a director of the New Borrower, substantially in the form of Exhibit D to this Amendment. (h) Other. Such other documents as Administrative Agent may reasonably request. SECTION 5 MISCELLANEOUS 5.1 DOCUMENTS REMAIN IN EFFECT. Except as amended and modified by this Amendment and the exhibits attached hereto, the Credit Agreement and the other documents executed pursuant to the Credit Agreement remain in full force and effect. Further, notwithstanding the amendments to the Credit Agreement contained in Section 2 of this Amendment, it is still the intention of the parties hereto that, except with respect to the new limitation for Italian Borrowers contained in Section 2.24 of this Amendment (with the New Borrower being an Italian Borrower), all Borrowers shall remain jointly and severally liable and unconditionally guarantee the Indebtedness owed or hereafter owing to Administrative Agent and each Lender pursuant to Section 11 of the Credit Agreement. 8 5.2 COUNTERPARTS. This Amendment may be executed in any number of counterparts (including by fax), and by the parties hereto on the same or separate counterparts, and each such counterpart, when executed and delivered, shall be deemed to be an original, but all such counterparts shall together constitute but one and the same Amendment. 5.3 EXPENSES. Borrowers agree to pay all costs and expenses of Lenders (including reasonable fees, charges and disbursements of Lenders' attorneys) in connection with the preparation, negotiation, execution, delivery and administration of this Amendment and all other instruments or documents provided for herein or delivered or to be delivered hereunder or in connection herewith, including, without limitation, the transactions contemplated by the Memorandum. In addition, Borrowers agree to pay, and save Lenders harmless from all liability for, any stamp or other taxes which may be payable in connection with the execution or delivery of this Amendment, the borrowings under the Credit Agreement, as amended hereby, and the execution and delivery of any instruments or documents provided for herein or delivered or to be delivered hereunder or in connection herewith. All obligations provided in this Section 5.3 shall survive any termination of the Credit Agreement. 5.4 GOVERNING LAW. This Amendment shall be a contract made under and governed by the internal laws of the State of Illinois. Wherever possible, each provision of this Amendment shall be interpreted in such manner as to be effective and valid under applicable laws, but if any provision of this Amendment shall be prohibited by or invalid under such laws, such provisions shall be ineffective only to the extent of such prohibition or invalidity, without invalidating the remainder of such provision or the remaining provisions of this Amendment. 5.5 SUCCESSORS. This Amendment shall be binding upon Borrowers, Lenders and their respective successors and assigns, and shall inure to the benefit of Borrowers, Lenders and the successors and permitted assigns of Lenders. [signature page attached] 9 IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be executed by their respective officers thereunto duly authorized and delivered at Chicago, Illinois as of the date first above written.
CURRENT BORROWERS: - ----------------- INFORMATION RESOURCES, INC. 564 RANDOLPH CO. #2 a Delaware corporation a Delaware corporation By: By: -------------------------------------------------- ------------------------------------------- Name: Name: ------------------------------------------------ ----------------------------------------- Title: Title: ----------------------------------------------- ---------------------------------------- IRI PUERTO RICO, INC. IRI VENEZUELA HOLDINGS, INC. a Puerto Rico corporation a Delaware corporation By: By: -------------------------------------------------- ------------------------------------------- Name: Name: ------------------------------------------------ ----------------------------------------- Title: Title: ----------------------------------------------- ---------------------------------------- IRI GUATEMALA HOLDINGS, INC. IRI GREEK HOLDINGS, INC. a Delaware corporation a Delaware corporation By: By: -------------------------------------------------- ------------------------------------------- Name: Name: ------------------------------------------------ ----------------------------------------- Title: Title: ----------------------------------------------- ---------------------------------------- IRI ITALY HOLDINGS, INC. IRI FRENCH HOLDINGS, INC. a Delaware corporation a Delaware corporation By: By: -------------------------------------------------- ------------------------------------------- Name: Name: ------------------------------------------------ ----------------------------------------- Title: Title: ----------------------------------------------- ---------------------------------------- INFOSCAN ITALY HOLDINGS, INC. SHOPPERS HOTLINE, INC. a Delaware corporation a Delaware corporation By: By: -------------------------------------------------- ------------------------------------------- Name: Name: ------------------------------------------------ ----------------------------------------- Title: Title: ----------------------------------------------- ---------------------------------------- NORTH CLINTON CORPORATION an Illinois corporation By: -------------------------------------------------- Name: ------------------------------------------------ Title: -----------------------------------------------
10 NEW BORROWER: - ------------- IRI INFOSCAN S.R.L. an Italian corporation By: -------------------------------------------------- Name: ------------------------------------------------ Title: ----------------------------------------------- 11 LENDERS: -------- LASALLE BANK NATIONAL ASSOCIATION, as a Lender and as Administrative Agent By: ------------------------------------- Name: Meghan C. Blake Title: Vice President KEY CORPORATE CAPITAL, INC., as a Lender and Syndication Agent By: ------------------------------------- Name: ----------------------------------- Title: ---------------------------------- 12 EX-10.(WW) 7 c75466exv10wxwwy.txt FORM OF DIRECTORSHIP AGREEMENT EXHIBIT (ww) INFORMATION RESOURCES, INC. DIRECTORSHIP AGREEMENT This Agreement is made as of February 13, 2003, by and between Information Resources, Inc., a Delaware corporation (the "Corporation"), and the individual whose name and signature appears on the last page hereof under the heading "Director," a director of the Corporation (the "Director"). WHEREAS, it is essential to the Corporation that it attract and retain as directors the most capable persons available and persons who have significant experience in business, corporate and financial matters; and WHEREAS, the Corporation has identified the Director as a person possessing the background and abilities desired by the Corporation and desires the Director to serve as a member of the Corporation's Board of Directors; and WHEREAS, the substantial increase in corporate litigation may, from time to time, subject directors to burdensome litigation, the risks of which frequently far outweigh the advantages of serving in such capacity; and WHEREAS, the cost and availability of directors' and officers' liability insurance has not only fluctuated widely over time, but such insurance frequently contains express or implied limitations on coverage of specific risks and may involve protracted claims procedures that prevent the timely payment or reimbursement of losses incurred by directors and officers in their own defense, or by the Company on their behalf; and WHEREAS, the Corporation and the Director recognize that serving as a director of a corporation at times calls for subjective evaluations and judgments upon which reasonable persons may differ and that, in that context, it is anticipated and expected that directors of corporations will and do from time to time commit actual or alleged errors or omissions in the good faith exercise of their duties and responsibilities; and WHEREAS, it is now and has always been the express policy of the Corporation to indemnify its directors to the fullest extent permitted by law; and WHEREAS, the Corporation and the Director desire to articulate clearly in contractual form, their respective rights and obligations with regard to the Director's service on behalf of the Corporation and with regard to claims for loss, liability, expense or damage which, directly or indirectly, may arise out of or relate to such service, NOW, THEREFORE, the Corporation and the Director agree as follows: 1 1. AGREEMENT TO SERVE The Director shall serve as a director of the Corporation for as long as the Director is duly elected or appointed or until said Director tenders a resignation in writing. 2. DEFINITIONS As used in this Agreement: (a) The term "Proceeding" includes, without limitation, any threatened, pending or completed action, suit or proceeding, whether brought in the right of the Corporation or otherwise and whether of a civil, criminal, administrative or investigative nature, in which the Director may be, may become, or may have been involved as a party, witness or otherwise, by reason of the fact that the Director is or was a director of the Corporation, or is or was serving at the request of the Corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, whether or not serving in such capacity at the time any liability or expense is incurred for which exculpation, indemnification or reimbursement can be provided under this Agreement. (b) The term "Expenses" includes, without limitation, expenses of investigations, judicial or administrative proceedings or appeals, attorney, accountant and other professional fees and disbursements and any expenses of establishing a right to indemnification under Section 12 of this Agreement, but shall not include amounts paid in settlement by the Director or the amount of judgments or fines against the Director. (c) References to "other enterprise" include, without limitation, employee benefit plans; references to "fines" include, without limitation, any excise tax assessed with respect to any employee benefit plan; references to "serving at the request of the Corporation" include, without limitation, any service as a director, officer, employee or agent which imposes duties on, or involves services by, such director, officer, employee or agent with respect to an employee benefit plan, its participants, or its beneficiaries; and a person who acted in good faith and in a manner reasonably believed to be in the interest of an employee benefit plan shall be deemed to have acted in a manner "not opposed to the best interests of the Corporation" as referred to in this Agreement. 3. LIMITATION OF LIABILITY (a) To the fullest extent permitted by law, the Director shall have no monetary liability of any kind or nature with respect to the Director's conduct in serving the Corporation or any of its subsidiaries, their respective stockholders or any other enterprise at the request of the Corporation, except that this Section 3(a) shall not affect liability of the Director for: 2 (i) any breach of the Director's duty of loyalty to the Corporation, such subsidiaries, stockholders or enterprises; (ii) any act or omission not in good faith or which involved intentional misconduct or a knowing violation of law; (iii) any transaction from which the Director derived an improper personal benefit; or (iv) any unlawful payment of dividends. (b) Without limiting the generality of (a) above and to the fullest extent permitted by law, the Director shall have no personal liability to the Corporation or any of its subsidiaries, their respective stockholders or any other person claiming derivatively through the Corporation or a subsidiary of the Corporation, regardless of the theory or principle under which such liability may be asserted, for: (i) punitive, exemplary or consequential damages; (ii) treble or other damages computed based upon any multiple of damages actually and directly proved to have been sustained; (iii) fees of attorneys, accountants, expert witnesses or professional consultants; or (iv) civil fines or penalties of any kind or nature whatsoever. 4. INDEMNITY IN THIRD PARTY PROCEEDINGS The Corporation shall indemnify the Director in accordance with the provisions of this Section 4, if the Director is made a party to any Proceeding (other than a Proceeding by or in the right of the Corporation to procure a judgment in its favor), against all Expenses, judgments, fines and amounts paid in settlement, actually and reasonably incurred by the Director in connection with such Proceeding if the conduct of the Director was in good faith and the Director reasonably believed that the Director's conduct was in, or not opposed to, the best interests of the Corporation, and, in the case of a criminal proceeding, the Director, in addition, had no reasonable cause to believe that the Director's conduct was unlawful. However, the Director shall not be entitled to indemnification under this Section 4 in connection with any Proceeding charging improper personal benefit to the Director in which the Director was adjudged liable on the basis that personal benefit was improperly received by the Director unless and only to the extent that the court conducting such Proceeding or any other court of competent jurisdiction determines, upon application, that despite the adjudication of liability, the Director is fairly and reasonably entitled to indemnification in view of all the relevant circumstances. 5. INDEMNITY IN PROCEEDINGS BY OR IN THE RIGHT OF THE CORPORATION 3 The Corporation shall indemnify the Director in accordance with the provisions of this Section 5, if the Director is made a party to any Proceeding by or in the right of the Corporation to procure a judgment in its favor, against all Expenses actually and reasonably incurred by the Director in connection with such Proceeding if the conduct of the Director was in good faith and the Director reasonably believed that the Director's conduct was in the best interests of the Corporation, or at least, not opposed to its best interests. However, the Director shall not be entitled to indemnification under this Section 5 in connection with any issue, claim or matter in a Proceeding to the extent that the Director has been adjudged liable to the Corporation with respect to such issue, claim or matter, unless and only to the extent that the court conducting such Proceeding or any other court of competent jurisdiction determines upon application, that, despite the adjudication of liability, the Director is fairly and reasonably entitled to indemnification in view of all the relevant circumstances. 6. INDEMNIFICATION OF EXPENSES OF SUCCESSFUL PARTY Notwithstanding any other provisions of this Agreement, to the extent that the Director has been successful, on the merits or otherwise, in defense of any Proceeding or in defense of any claim, issue or matter therein, the Corporation shall indemnify the Director against all Expenses incurred in connection therewith. 7. ADDITIONAL INDEMNIFICATION (a) Notwithstanding any limitation in Sections 4, 5 or 6, the Corporation shall indemnify the Director to the fullest extent permitted by law, with respect to any Proceeding (including a Proceeding by or in the right of the Corporation to procure a judgment in its favor), against all Expenses, judgment, fines and amounts paid in settlement, actually and reasonably incurred by the Director in connection with such Proceeding, except that the Director shall not be entitled to indemnification under this Section 7(a) on account of liability for: (i) any breach of the Director's duty of loyalty to the Corporation or any of its subsidiaries, their respective stockholders, or any other enterprise that the Director was serving at the request of the Corporation at the time of such breach; (ii) any act or omission not in good faith or which involved intentional misconduct or a knowing violation of law; or (iii) any transaction from which the Director derived an improper personal benefit. (b) Notwithstanding any limitation in Sections 4, 5, 6 or 7(a), the Corporation shall indemnify the Director to the fullest extent permitted by law with respect to any Proceeding (including a Proceeding by or in the right of the Corporation to procure a judgment in its favor) 4 against all Expenses, judgment, fines and amounts paid in settlement, actually and reasonably incurred by the Director in connection with such Proceeding. 8. EXCLUSIONS Notwithstanding any provision in this Agreement, the Corporation shall not be obligated under this Agreement to make any indemnification in connection with any claim made against the Director: (a) to the extent to which any payment has been made to or on behalf of the Director under any insurance policy or indemnity arrangement, except with respect to any excess amount to which the Director is entitled under this Agreement beyond the amount of payment under such insurance policy or arrangement; (b) if a court having jurisdiction in the matter finally determines that such indemnification is not lawful under any applicable statute or public policy (and, in this respect, both the Corporation and the Director have been advised that in the opinion of the Securities and Exchange Commission indemnification for liabilities arising under the Securities Act of 1933 is against public policy and is, therefore, unenforceable and that claims for such indemnification should be submitted to appropriate courts for adjudication unless, in the opinion of counsel, the matter has been settled by controlling precedent); or (c) in connection with any Proceeding (or part of any Proceeding) initiated by the Director, or any Proceeding by the Director against the Corporation or its directors, officers, employees or other persons entitled to be indemnified by the Corporation, unless (i) the Corporation is expressly required by law to make the indemnification, (ii) the Proceeding was authorized by the Board of Directors of the Corporation, or (iii) the Director initiated the Proceeding pursuant to Section 12 of this Agreement and the Director is successful in whole or in part in the Proceeding. 9. ADVANCES OF EXPENSES The Corporation shall pay the Expenses incurred by the Director in any Proceeding in advance of the final disposition of the Proceeding at the written request of the Director, if the Director: (a) furnishes the Corporation a written affirmation of the Director's good faith belief that the Director is entitled to be indemnified under this Agreement; and (b) furnishes the Corporation a written undertaking to repay the advance to the extent that it is ultimately determined that the Director is not entitled to be indemnified by the Corporation. Such undertaking shall be an unlimited general obligation of the Director but need not be secured, except as otherwise provided herein. 5 Advances pursuant to this Section 9 shall be made no later than ten days after receipt by the Corporation of the affirmation and undertaking described in Sections 9(a) and 9(b) above, and, except as provided in Section 11, shall be made without regard to the Director's ability to repay the amount advanced and without regard to the Director's ultimate entitlement to indemnification under this Agreement. The Corporation may establish a trust, escrow account or other secured funding source for the payment of advances made and to be made pursuant to this Section 9 or of other liability incurred by the Director in connection with any Proceeding. 10. NONEXCLUSIVITY AND CONTINUITY OF RIGHTS The indemnification, advancement of Expenses and exculpation from liability provided by this Agreement shall not be deemed exclusive of any other rights to which the Director may be entitled under any other agreement, any articles of incorporation, bylaws or vote of shareholders or directors, or otherwise, both as to action in the Director's official capacity and as to action in another capacity while holding such office. The indemnification under this Agreement shall cover the Director's service as a director and all of his acts in such capacity, whether prior to or on or after the date of this Agreement, and such indemnification shall continue as to the Director even though the Director may have ceased to be director of the Corporation or a director, officer, employee or agent of an enterprise related to the Corporation and shall inure to the benefit of the heirs, executors, administrators and personal representatives of the Director. 11. PROCEDURE UPON APPLICATION FOR INDEMNIFICATION Any indemnification under Sections 4, 5, 6 or 7 shall be made no later than 45 days after receipt of the written request of the said Director, unless a determination is made within such 45 day period by (a) the Board of Directors by a majority vote of a quorum consisting of directors who were not parties to the applicable Proceeding, even though less than a quorum; (b) a committee of such directors designated by a majority vote of such directors, even though less than a quorum; (c) independent legal counsel in a written opinion or (d) a majority vote of the shareholders that, on the basis of facts then known, the said Director is not entitled to indemnification under this Agreement. In the event that the Board of Directors, committee, independent counsel or shareholders, as the case may be, determine that they cannot reasonably determine entitlement to indemnification within the 45 day period, the director shall be entitled to an advancement of the amount of the indemnification requested, subject to such security for repayment as the board of directors may require. 12. ENFORCEMENT The Director may enforce any right to indemnification or advances provided by this Agreement in any court of competent jurisdiction if (a) the Corporation denies the claim for indemnification or advances, in whole or in part, or (b) the Corporation does not dispose of such 6 claim within the time period required by this Agreement. It shall be a defense to any such enforcement action (other than an action brought to enforce a claim for advancement of Expenses pursuant to, and in compliance with, Section 9 of this Agreement) that the Director is not entitled to indemnification under this Agreement. However, except as provided in Section 13 of this Agreement, the Corporation shall have no defense to an action brought to enforce a claim for advancement of Expenses pursuant to Section 9 of this Agreement if the Director has tendered to the Corporation the affirmation and undertaking required thereunder. The burden of proving by clear and convincing evidence that indemnification is not appropriate shall be on the Corporation. Neither the failure of the Corporation (including its Board of Directors or independent legal counsel) to have made a determination prior to the commencement of such action that indemnification or advancement of Expenses is proper in the circumstances because the Director has met the applicable standard of conduct nor an actual determination by the Corporation (including its Board of Directors or independent legal counsel) that indemnification is improper because the said Director has not met such applicable standard of conduct, shall be a defense to the action or create a presumption that the Director is not entitled to indemnification under this Agreement or otherwise. The Director's Expenses incurred in connection with successfully establishing the Director's right to indemnification, advances or exculpation, in whole or in part, in any Proceeding shall also be indemnified by the Corporation. The termination of any Proceeding by judgment, order of court, settlement, conviction or upon a plea of nolo contendere, or its equivalent, shall not, of itself, create a presumption that (a) the Director is not entitled to indemnification under Sections 4, 5 or 7 of this Agreement, or (b) the Director is not entitled to exculpation under Section 3 of this Agreement. 13. NOTIFICATION AND DEFENSE OF CLAIM Not later than 90 days after receipt by the Director of notice of the commencement of any Proceeding, the Director shall, if a claim in respect of the Proceeding is to be made against the Corporation under this Agreement, notify the Corporation of the commencement of the Proceeding. The omission to notify the Corporation will not relieve the Corporation from any liability which it may have to the Director otherwise than under this Agreement. With respect to any Proceeding as to which the Director notifies the Corporation of the commencement: (a) The Corporation shall be entitled to participate in the Proceeding at its own expense. (b) Except as otherwise provided below, the Corporation may, at its option and jointly with any other indemnifying party similarly notified and electing to assume such defense, assume the defense of the Proceeding, with legal counsel reasonably satisfactory to the Director. The Director shall have the right to use separate legal counsel in the Proceeding, but the Corporation shall not be liable to the Director under this Agreement, including Section 9 above, for the fees and expenses of separate legal counsel incurred after notice from the Corporation of its assumption of the defense, unless (i) the Director reasonably concludes that there may be a 7 conflict of interest between the Corporation and the Director in the conduct of the defense of the Proceeding, or (ii) the Corporation does not use legal counsel to assume the defense of such Proceeding. The Corporation shall not be entitled to assume the defense of any Proceeding brought by or on behalf of the Corporation or as to which the Director has made the conclusion provided for in (i) above. (c) If two or more persons who may be entitled to indemnification from the Corporation, including the Director, are parties to any Proceeding, the Corporation may require the Director to use the same legal counsel as the other parties. The Director shall have the right to use separate legal counsel in the Proceeding, but the Corporation shall not be liable to the Director under this Agreement, including Section 9 above, for the fees and expenses of separate legal counsel incurred after notice from the Corporation of the requirement to use the same legal counsel as the other parties, unless the Director reasonably concludes that there may be a conflict of interest between the Director and any of the other parties required by the Corporation to be represented by the same legal counsel. (d) Notwithstanding any other provision of this agreement, the Corporation shall not be liable to indemnify the Director under this Agreement for any amounts paid in settlement of any Proceeding effected without its written consent, which shall not be unreasonably withheld. The Director shall permit the Corporation to settle any Proceeding that the Corporation assumes the defense of, except that the Corporation shall not settle any action or claim in any manner that would impose any penalty or limitation on the Director without the Director's written consent, which may be given or withheld in the said Director's sole discretion. 14. PARTIAL INDEMNIFICATION If the Director is entitled under any provisions of this Agreement to indemnification by the Corporation for some or a portion of the Expenses, judgments, fines or amounts paid in settlement, actually and reasonably incurred by the Director in connection with such Proceeding, but not, however, for the total amount thereof, the Corporation shall nevertheless indemnify the Director, and advance Expenses, for the portion of such Expenses, judgments, fines or amounts paid in settlement to which the Director is entitled. 15. SEVERABILITY If this Agreement or any portion thereof shall be invalidated on any ground by any court of competent jurisdiction, then the remainder of this Agreement shall continue to be valid and the Corporation shall nevertheless indemnify the Director as to Expenses, judgments, fines and amounts paid in settlement, with respect to any Proceeding, to the fullest extent permitted by any applicable portion of this Agreement that shall not have been invalidated or by any other applicable law. 16. SUBROGATION 8 In the event of payment under this Agreement, the Corporation shall be subrogated to the extent of such payment to all of the rights of recovery of the Director. The Director shall execute all documents required and shall do all acts that may be necessary to secure such rights and to enable the Corporation effectively to bring suit to enforce such rights. 17. NOTICES All notices, requests, demands and other communications under this Agreement shall be in writing and shall be deemed to have been duly given (a) upon delivery by hand to the party to whom the notice or other communication shall have been directed, or (b) on the third business day after the date on which it is mailed by certified or registered mail with postage prepaid, addressed as follows: (i) If to the Director, to the address indicated on the signature page of this Agreement, below said Director's signature. (ii) If to the Corporation, to: Information Resources, Inc. 150 North Clinton Street Chicago, Illinois 60661 Attention: General Counsel or to any other address as either party may designate to the other in writing. 18. COUNTERPARTS This Agreement may be executed in any number of counterparts, each of which shall constitute the original. 9 19. APPLICABLE LAW This Agreement shall be governed by and construed in accordance with the internal laws of the State of Delaware without regard to the principles of conflict of laws. 20. SUCCESSORS AND ASSIGNS This Agreement shall be binding upon the Corporation and its successors and assigns. IN WITNESS WHEREOF, the parties hereby have caused this Agreement to be duly executed and signed as of the day and year first above written. CORPORATION: INFORMATION RESOURCES, INC., a Delaware corporation Attest: By: --------------------------- ----------------------------------- Secretary Chief Executive Officer DIRECTOR: -------------------------------------- Address: 10 EX-21 8 c75466exv21.txt SUBSIDIARIES OF THE REGISTRANT . . . EXHIBIT 21 INFORMATION RESOURCES, INC. AND SUBSIDIARIES DOMESTIC SUBSIDIARIES
STATE OF SUBSIDIARY INCORPORATION - ---------- ------------- 564 Randolph Co. #2 Illinois IRI Puerto Rico, Inc. (formerly Market Trends, Inc.) Puerto Rico IRI Venezuela Holdings, Inc. Delaware IRI Guatemala Holdings, Inc. Delaware IRI Greek Holdings, Inc. Delaware IRI French Holdings, Inc. Delaware IRI Italy Holdings, Inc. Delaware InfoScan Italy Holdings, Inc. Delaware Shoppers Hotline, Inc. Delaware North Clinton Corporation Illinois Mosaic InfoForce, L.P. Delaware FOREIGN SUBSIDIARIES COUNTRY OF SUBSIDIARY INCORPORATION - ---------- ------------- IRI Software S.A. France IRI Software, Ltd. (formerly known as Management Decision Systems, Limited) d/b/a Information Resources United Kingdom IRI Software B.V. The Netherlands Information Resources GmbH Germany IRI Apollo K.K. Japan IRI-SECODIP, S.C.S. France IRI Hellas, S.A. Greece Information Resources de Mexico, S.A. de C.V. (formerly known as IRI Software de Mexico, S.A. de C.V.) Mexico IRI InfoScan S.r.1. Italy Fielco S.r.l. Italy Precis (1136) Limited United Kingdom IRI InfoScan Limited (formerly InfoScan NMRA Limited) d/b/a Information Resources United Kingdom Information Resources GfK GmbH (formerly known as IRI/GfK Retail Services GmbH) Germany Information Resources GfK B.V. (formerly known as IRI/GfK Retail Services B.V.) The Netherlands Information Resources Espana, S.L. Spain Datos Information Resources Venezuela
EX-23 9 c75466exv23.txt CONSENT OF INDEPENDENT AUDITORS EXHIBIT 23 CONSENT OF INDEPENDENT AUDITORS We consent to the incorporation by reference in the Registration Statement (Form S-8 No. 333-39408) pertaining to the Information Resources, Inc. 2000 Employee Stock Purchase Plan, the Registration Statement (Form S-8 No. 333-31182) pertaining to the Information Resources, Inc. 1999 Restricted Stock Plan and 1999 Nonqualified Defined Contribution Plan, the Registration Statement (Form S-8 No. 333-31416) pertaining to the Information Resources, Inc. Restricted Stock Plan - Joseph P. Durrett, the Registration Statement (Form S-8 No. 33-48289) pertaining to the Information Resources, Inc. Employee Nonqualified Stock Option Plan, the Registration Statement (Form S-8 No. 33-48290) pertaining to the Information Resources, Inc. Amended and Restated 1992 Stock Option Plan, the Registration Statement (Form S-8 No. 33-48291) pertaining to the Information Resources, Inc. 1992 Executive Stock Option Plan, the Registration Statement (Form S-8 No. 33-52719) pertaining to the Information Resources, Inc. Employee Nonqualified Stock Option Plan, the Registration Statement (Form S-8 No. 33-52721) pertaining to the Information Resources, Inc. Employee Nonqualified Stock Option Plan, the Registration Statement (Form S-8 No. 33-54649) pertaining to the Information Resources, Inc. 1992 Executive Stock Option Plan and the Registration Statement (Form S-8 No. 333-24041) pertaining to the Information Resources, Inc. 401(k) Retirement Savings Plan and Trust of our report dated February 5, 2003 with respect to the consolidated financial statements and schedule of Information Resources, Inc. included in the Annual Report (Form 10-K) for the year ended December 31, 2002. ERNST & YOUNG LLP Chicago, Illinois March 27, 2003 EX-24 10 c75466exv24.txt POWERS OF ATTORNEY EXHIBIT 24 INFORMATION RESOURCES, INC. AND SUBSIDIARIES POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that the undersigned constitutes and appoints Joseph P. Durrett and Monica M. Weed, and each of them, his/her true and lawful attorneys-in-fact and agents, with full power of substitution and re-substitution, for him and in his name, place and stead, in any and all capacities, to sign the Annual Report on Form 10-K for the year ended December 31, 2002 of Information Resources, Inc., together with any and all amendments to such Annual Report, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agent of either of them, or their substitute or substitutes, may lawfully do or cause to be done by virtue hereof. Dated: March 20, 2003 /S/ JOSEPH P. DURRETT --------------------------------------- Joseph P. Durrett, Director /S/ JAMES G. ANDRESS --------------------------------------- James G. Andress, Director /S/ WILLIAM B. CONNELL --------------------------------------- William B. Connell, Director /S/ BRUCE A. GESCHEIDER --------------------------------------- Bruce A. Gescheider, Director /S/ EILEEN A. KAMERICK --------------------------------------- Eileen A. Kamerick, Director /S/ JOHN D.C. LITTLE --------------------------------------- John D.C. Little, Director /S/ LEONARD M. LODISH --------------------------------------- Leonard M. Lodish, Director /S/ RAYMOND H. VAN WAGENER, JR. --------------------------------------- Raymond H. Van Wagener, Jr., Director /S/ THOMAS W. WILSON, JR. --------------------------------------- Thomas W. Wilson, Jr., Director EX-99.1 11 c75466exv99w1.txt CEO CERTIFICATION EXHIBIT 99.1 CERTIFICATION OF CEO PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Annual Report on Form 10K of Information Resources, Inc. (the "Company") for the annual period ended December 31, 2002 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), Joseph P. Durrett, Chief Executive Officer of the Company, hereby certifies, pursuant to 18 U.S.C.sec. 1350, as adopted pursuant to sec. 906 of the Sarbanes-Oxley Act of 2002, that, to the best of his knowledge: (1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. /s/ JOSEPH P. DURRETT - -------------------------------------- Joseph P. Durrett Chief Executive Officer March 27, 2003 This certification accompanies the Report pursuant to sec. 906 of the Sarbanes-Oxley Act of 2002 and shall not, except to the extent required by the Sarbanes-Oxley Act of 2002, be deemed filed by the Company for purposes of sec. 18 of the Securities Exchange Act of 1934, as amended. EX-99.2 12 c75466exv99w2.txt CFO CERTIFICATION EXHIBIT 99.2 CERTIFICATION OF CFO PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Annual Report on Form 10K of Information Resources, Inc. (the "Company") for the annual period ended December 31, 2002 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), Andrew G. Balbirer, Chief Financial Officer of the Company, hereby certifies, pursuant to 18 U.S.C. sec. 1350, as adopted pursuant to sec. 906 of the Sarbanes-Oxley Act of 2002, that, to the best of his knowledge: (1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. /s/ ANDREW G. BALBIRER - -------------------------------------- Andrew G. Balbirer Chief Financial Officer March 27, 2003 This certification accompanies the Report pursuant to sec. 906 of the Sarbanes-Oxley Act of 2002 and shall not, except to the extent required by the Sarbanes-Oxley Act of 2002, be deemed filed by the Company for purposes of sec. 18 of the Securities Exchange Act of 1934, as amended. -----END PRIVACY-ENHANCED MESSAGE-----