-----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, TfmNWha/iHz0ebdMPe94kRw40QjS4H3zrJgUiwtZVS+Y1dUeyGLl8TSOUCfAqEpE rpvg4G9Txti6Wz97V8T1bQ== 0000950137-03-005896.txt : 20031113 0000950137-03-005896.hdr.sgml : 20031113 20031113113505 ACCESSION NUMBER: 0000950137-03-005896 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 7 CONFORMED PERIOD OF REPORT: 20030930 FILED AS OF DATE: 20031113 FILER: COMPANY DATA: COMPANY CONFORMED NAME: INFORMATION RESOURCES INC CENTRAL INDEX KEY: 0000714278 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-ENGINEERING, ACCOUNTING, RESEARCH, MANAGEMENT [8700] IRS NUMBER: 521287752 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-11428 FILM NUMBER: 03996439 BUSINESS ADDRESS: STREET 1: 150 N CLINTON ST CITY: CHICAGO STATE: IL ZIP: 60661-1416 BUSINESS PHONE: 3127261221 MAIL ADDRESS: STREET 1: 150 N CLINTON ST CITY: CHICAGO STATE: IL ZIP: 60661-1416 10-Q 1 c80873e10vq.txt QUARTERLY REPORT SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q (Mark One) [X] Quarterly Report Pursuant to Section 13 or 15(d) of The Securities Exchange Act of 1934. For the quarterly period ended September 30, 2003 [ ] Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934. Commission file number 0-11428 INFORMATION RESOURCES, INC. --------------------------- (Exact name of registrant as specified in its charter) Delaware 36-2947987 -------- ---------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 150 North Clinton Street, Chicago, Illinois 60661 --------------------------------------------------- (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code (312) 726-1221 Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes [X] No [ ] The number of shares of the registrant's common stock, $.01 par value per share outstanding, as of October 31, 2003 was 31,287,225. INFORMATION RESOURCES, INC. AND SUBSIDIARIES INDEX
PAGE NUMBER ------ PART I. FINANCIAL INFORMATION Condensed Consolidated Balance Sheets 3 Condensed Consolidated Statements of Operations 4 Condensed Consolidated Statements of Cash Flows 5 Notes to Condensed Consolidated Financial Statements 6 Management's Discussion and Analysis of Financial Condition and Results of Operations 14 Item 4 - Controls and Procedures 20 PART II. OTHER INFORMATION Item 6 - Exhibits and Reports on Form 8-K 21 Signatures 22
2 INFORMATION RESOURCES, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (IN THOUSANDS, EXCEPT SHARE DATA)
SEPTEMBER 30, 2003 DECEMBER 31, 2002 ------------------ ----------------- (UNAUDITED) ASSETS CURRENT ASSETS Cash and cash equivalents $ 14,122 $ 8,968 Accounts receivable, net 67,924 85,453 Prepaid expenses and other 12,848 15,801 ----------- ----------- Total Current Assets 94,894 110,222 ----------- ----------- Property and equipment, at cost 243,993 234,857 Accumulated depreciation (192,267) (171,478) ----------- ----------- Net property and equipment 51,726 63,379 Deferred income taxes 6,067 6,286 Investments 12,991 13,165 Other assets 174,780 166,145 ----------- ----------- $ 340,458 $ 359,197 =========== =========== LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES Current maturities of long-term debt $ 3,367 $ 3,639 Accounts payable 56,109 66,614 Accrued compensation and benefits 15,095 17,797 Accrued property, payroll and other taxes 4,014 1,876 Accrued expenses 7,187 6,207 Accrued restructuring costs 1,794 7,838 Deferred revenue 29,934 36,247 ----------- ----------- Total Current Liabilities 117,500 140,218 ----------- ----------- Long-term debt 2,180 4,495 Other liabilities 9,831 10,812 STOCKHOLDERS' EQUITY Preferred stock-authorized, 1,000,000 shares, $.01 par value; none issued -- -- Common stock - authorized 60,000,000 shares, $.01 par value; 30,727,260 and 29,808,550 shares issued and outstanding, respectively 310 301 Additional paid-in capital 206,266 202,857 Retained earnings 6,874 6,906 Accumulated other comprehensive loss (2,503) (6,392) ----------- ----------- Total Stockholders' Equity 210,947 203,672 ----------- ----------- $ 340,458 $ 359,197 =========== ===========
The accompanying notes are an integral part of these statements. 3 INFORMATION RESOURCES, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED) (IN THOUSANDS, EXCEPT PER SHARE DATA)
THREE MONTHS ENDED NINE MONTHS ENDED SEPTEMBER 30, SEPTEMBER 30, ------------- ------------- 2003 2002 2003 2002 ---- ---- ---- ---- Information services revenues $ 136,029 $ 140,561 $ 416,061 $ 413,512 Costs and expenses: Information services sold (122,854) (127,190) (377,708) (373,321) Selling, general and administrative expenses (12,214) (11,931) (34,560) (34,938) Special charges, net (727) - (2,999) (7,152) --------- --------- --------- --------- (135,795) (139,121) (415,267) (415,411) --------- --------- --------- --------- Operating income (loss) 234 1,440 794 (1,899) Interest expense (123) (241) (470) (584) Other, net (260) 46 (324) 189 Equity in (losses) earnings of affiliated companies (10) 246 (118) 512 Minority interest (expense) benefit (3) - 61 395 --------- --------- --------- --------- Income (loss) before income taxes and cumulative effect of accounting change (162) 1,491 (57) (1,387) Income tax benefit (expense) 71 (641) 25 239 --------- --------- --------- --------- Income (loss) before cumulative effect of accounting change (91) 850 (32) (1,148) Cumulative effect of accounting change - impairment of goodwill - - - (7,065) --------- --------- --------- --------- Net income (loss) $ (91) $ 850 $ (32) $ (8,213) ========= ========= ========= ========= Net income (loss) per common share before cumulative effect of accounting change - basic $ - $ .03 $ - $ (.04) ========= ========= ========= ========= Net income (loss) per common share - basic $ - $ .03 $ - $ (.28) ========= ========= ========= ========= Net income (loss) per common and common equivalent share before cumulative effect of accounting change - diluted $ - $ .03 $ - $ (.04) ========= ========= ========= ========= Net income (loss) per common and common equivalent share - diluted $ - $ .03 $ - $ (.28) ========= ========= ========= ========= Weighted average common shares - basic 30,272 29,579 29,969 29,534 ========= ========= ========= ========= Weighted average common and common equivalent shares - diluted 30,272 29,920 29,969 29,534 ========= ========= ========= =========
The accompanying notes are an integral part of these statements. 4 INFORMATION RESOURCES, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) (IN THOUSANDS)
NINE MONTHS ENDED SEPTEMBER 30, ------------------- 2003 2002 ---- ---- CASH FLOWS FROM OPERATING ACTIVITIES: Net loss $ (32) $ (8,213) Adjustments to reconcile net loss to net cash provided by operating activities: Amortization of deferred data procurement costs 109,175 98,637 Depreciation 18,946 20,380 Amortization of capitalized software costs and intangibles 1,266 2,352 Special charges, net of cash paid (6,044) (1,922) Deferred income tax benefit (25) (239) Equity in losses (earnings) of affiliated companies and minority interests 57 (907) Impairment of goodwill - 7,065 Other (60) 625 Change in assets and liabilities: Accounts receivable 17,559 (2,031) Prepaid expenses and other 2,953 390 Accounts payable and accrued liabilities (10,089) (5,696) Deferred revenue (6,313) 957 Other, net (4,070) (1,303) ---------- ---------- Net cash provided by operating activities 123,323 110,095 CASH FLOWS FROM INVESTING ACTIVITIES: Deferred data procurement costs (110,617) (105,905) Purchase of property, equipment and software (6,538) (10,972) Capitalized software costs (2,371) (1,435) Other, net 3 193 ---------- ---------- Net cash used by investing activities (119,523) (118,119) CASH FLOWS FROM FINANCING ACTIVITIES: Net bank borrowings (repayments) - 1,779 Purchases of Common Stock - (1,196) Proceeds from issuance of stock and exercise of stock options 3,161 1,840 Net repayments of capitalized leases (2,939) (3,177) ---------- ---------- Net cash provided (used) by financing activities 222 (754) EFFECT OF EXCHANGE RATE CHANGES ON CASH 1,132 429 ---------- ---------- Net increase (decrease) in cash and cash equivalents 5,154 (8,349) Cash and cash equivalents at beginning of period 8,968 13,708 ---------- ---------- Cash and cash equivalents at end of period $ 14,122 $ 5,359 ========== ==========
The accompanying notes are an integral part of these statements. 5 INFORMATION RESOURCES, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) NOTE 1 - BASIS OF PRESENTATION Principles of consolidation: The condensed consolidated financial statements include the accounts of Information Resources, Inc. and all wholly or majority owned subsidiaries and affiliates (collectively the "Company"). Minority interests reflect the non-Company owned stockholder interests in international operations. The equity method of accounting is used for investments in which the Company has a 20% to 50% ownership interest because it exercises significant influence over operating and financial policies. All significant intercompany accounts and transactions have been eliminated in consolidation. Interim financial statements: The interim financial statements are unaudited, but include all adjustments (consisting of normal recurring adjustments) necessary, in the opinion of management, for a fair statement of financial position and results of operations for the period presented. The preparation of interim financial statements necessarily relies on estimates, requiring the use of caution in estimating results for the full year based on interim results of operations. Income (loss) per common and common equivalent share: Net income (loss) per share is based upon the weighted average number of shares of common stock outstanding during each period. Net income (loss) per common and common equivalent share - diluted is based upon the weighted average number of shares of common stock and common stock equivalents, entirely comprised of stock options, outstanding during each period. For the first three quarters of 2003 and 2002, all stock options aggregating 7,958,456 shares and 8,909,924 shares, respectively, were excluded from the weighted average shares outstanding calculation because they were anti-dilutive. For the third quarter of 2003 and 2002, stock options aggregating 7,958,456 shares and 6,238,930 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 at the date of the grant over the amount an employee must pay to acquire the stock. The Company grants options at the quoted market price of the stock and therefore recognizes no compensation expense. 6 INFORMATION RESOURCES, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, CONT'D. (UNAUDITED) The following table illustrates the effect on the net income (loss) and net income (loss) per share for the third quarter and the nine months ended September 30, 2003 and 2002 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):
THREE MONTHS ENDED NINE MONTHS ENDED SEPTEMBER 30, SEPTEMBER 30, ------------- ------------- 2003 2002 2003 2002 ---- ---- ---- ---- Net income (loss), as reported $ (91) $ 850 $ (32) $ (8,213) Deduct: Total stock-based employee compensation expense determined under fair value based method for all awards, net of related tax effects (694) (842) (2,235) (2,654) ------ ------- ------- -------- Net income (loss), pro forma $ (785) $ 8 $(2,267) $(10,867) ====== ======= ======= ======== Earnings (loss) per share: Basic -- as reported $ - $ .03 $ - $ (.28) ====== ======= ======= ======== Basic -- pro forma $ (.03) $ - $ (.08) $ (.37) ====== ======= ======= ======== Diluted -- as reported $ - $ .03 $ - $ (.28) ====== ======= ======= ======== Diluted -- pro forma $ (.03) $ - $ (.08) $ (.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 2.87% and 3.82% for 2003 and 2002, respectively; stock price volatility factor of 86.6% for 2003 and 2002; and an expected life of the options of five years. Using the foregoing assumptions, the calculated weighted-average fair value of options granted in 2003 and 2002 was $.88 and $5.40, 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. NOTE 2 - SUPPLEMENTAL CASH FLOW INFORMATION Cash paid for interest and income taxes during the period was as follows (in thousands):
NINE MONTHS ENDED SEPTEMBER 30, ------------- 2003 2002 ---- ---- Interest $474 $572 Income taxes 913 340
7 INFORMATION RESOURCES, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, CONT'D. (UNAUDITED) Non-cash investing and financing activities are excluded from the consolidated statement of cash flows. During the nine months ended September 30, 2003 and 2002, the Company acquired computer and data collection equipment for $.4 million and $4.8 million, respectively, in exchange for capital lease obligations. NOTE 3 - ACCOUNTS RECEIVABLE Accounts receivable were as follows (in thousands):
SEPTEMBER 30, 2003 DECEMBER 31, 2002 ------------------ ----------------- Billed $ 56,131 $ 70,216 Unbilled 17,106 19,832 -------- -------- 73,237 90,048 Allowance for doubtful accounts (5,313) (4,595) -------- -------- $ 67,924 $ 85,453 ======== ========
NOTE 4 - INVESTMENTS AND OTHER ASSETS Investments were as follows (in thousands):
SEPTEMBER 30, 2003 DECEMBER 31, 2002 ------------------ ----------------- Mosaic InfoForce, L.P., at cost plus equity in undistributed earnings $ 4,727 $ 4,845 Datos Information Resources, at cost plus equity in undistributed earnings 3,963 4,009 GfK Panel Services Benelux B.V., at cost 1,315 1,315 Middle East Market Research Bureau, at cost 2,758 2,768 Other 228 228 -------- -------- $ 12,991 $ 13,165 ======== ========
Other assets were as follows (in thousands):
SEPTEMBER 30, 2003 DECEMBER 31, 2002 ------------------ ----------------- Deferred data procurement costs - net of accumulated amortization of $157,631 in 2003 and $152,635 in 2002 $167,367 $160,615 Capitalized software costs - net of accumulated amortization of $1,998 in 2003 and $2,315 in 2002 5,639 4,341 Other - net of accumulated amortization of $6,050 in 2003 and $5,867 in 2002 1,774 1,189 -------- -------- $174,780 $166,145 ======== ========
8 INFORMATION RESOURCES, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, CONT'D. (UNAUDITED) NOTE 5 - LONG-TERM DEBT Long-term debt was as follows (in thousands):
SEPTEMBER 30, 2003 DECEMBER 31, 2002 ------------------ ----------------- Bank borrowings $ - $ - Capitalized leases and other 5,547 8,134 -------- -------- 5,547 8,134 Less current maturities (3,367) (3,639) -------- -------- $ 2,180 $ 4,495 ======== ========
In July 2002, the Company entered into a $40.0 million credit facility which expires in July 2005. The 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. Under the credit facility, the maximum commitment of funds available for borrowings is limited by a defined borrowing base formula related to eligible accounts receivable, which fluctuates during the quarter. Borrowings under the facility are secured by the Company's assets. As of September 30, 2003, the Company had $12.2 million of borrowing availability, net of letters of credit, under the revolving credit facility. On November 4, 2003, the Company's credit facility was reduced to $25 million pursuant to an agreement with the Company's lenders on October 22, 2003. Also, pursuant to this agreement, the lenders consented to among other things, the acquisition by Gingko Acquisition Corp. of all of the outstanding capital stock of the Company and, in connection with such acquisition, agreed to release their security interest in certain of the Company's assets if and when Gingko Acquisition Corp. acquires 53% or more of the outstanding capital stock of the Company. All other terms and conditions remain unchanged. See Note 9. The financial covenants in the 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 capital stock of the Company. The bank credit agreement contains covenants which restrict the Company's ability to incur additional indebtedness. As of September 30, 2003, the Company was in compliance with all covenants. 9 \ INFORMATION RESOURCES, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, CONT'D. (UNAUDITED) NOTE 6 - COMPREHENSIVE INCOME (LOSS) The comprehensive income (loss) summary shown below sets forth certain items that affect stockholders' equity but are excluded from the presentation of net earnings. The components of comprehensive income (loss) were as follows (in thousands):
THREE MONTHS ENDED NINE MONTHS ENDED SEPTEMBER 30, SEPTEMBER 30, ------------- ------------- 2003 2002 2003 2002 ------ ----- ------- ------- Net income (loss) $ (91) $ 850 $ (32) $(8,213) Foreign currency translation adjustment 455 173 3,889 3,809 ------ ------- ------ ------- Comprehensive income (loss) $ 364 $ 1,023 $3,857 $(4,404) ====== ======= ====== =======
NOTE 7 - SEGMENT INFORMATION The Company's business information services are conducted almost exclusively in the United States and Europe. The Company's operations in other markets account for approximately 1% of consolidated revenues. The Company considers revenues from third parties and the aggregation of operating profit (loss), equity earnings (losses) and minority interests ("Operating Results") on a geographic basis to be the most meaningful measure of the operating performance of each respective geographic segment and of the Company as a whole. The following table presents certain information regarding the operations of the Company by geographic segments (in thousands):
THREE MONTHS ENDED NINE MONTHS ENDED SEPTEMBER 30, SEPTEMBER 30, ------------- ------------- 2003 2002 2003 2002 ---- ---- ---- ----- Revenues: U.S. Services $ 94,779 $ 104,202 $ 296,593 $ 309,009 International Services 41,250 36,359 119,468 104,503 ---------- ---------- --------- ---------- Total Revenue $ 136,029 $ 140,561 $ 416,061 $ 413,512 ========== ========== ========= ========== Operating Results: U.S. Services $ 4,088 $ 5,221 $ 14,132 $ 17,762 International Services: Operating loss (400) (2,020) (5,054) (7,976) Equity in losses of affiliated companies - - - (78) Minority interest (expense) benefit (3) - 61 395 ---------- ---------- --------- ---------- Subtotal--International Services (403) (2,020) (4,993) (7,659) Corporate and other expenses including equity in affiliated companies (2,737) (1,515) (5,403) (3,943) Special charges, net (a) (727) - (2,999) (7,152) ---------- ---------- --------- ---------- Operating Results 221 1,686 737 (992) Interest expense and other, net (383) (195) (794) (395) ---------- ---------- --------- ---------- Income (loss) before income taxes $ (162) $ 1,491 $ (57) $ (1,387) ========== ========== ========= ==========
10 INFORMATION RESOURCES, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, CONT'D. (UNAUDITED) (a) Special charges for U.S. Services were $.7 million for the three months ended September 30, 2003. Special charges for U.S. Services and International Services were $3.0 million and $0.0 million, respectively, for the nine months ended September 30, 2003 and $6.0 million and $1.1 million, respectively, for the nine months ended September 30, 2002. NOTE 8 - 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. 2003 Workforce Reductions: In the second and third quarters of 2003, the Company eliminated approximately 140 full-time employees or approximately 6% of its total workforce in the United States. The total charge for severance and other costs approximates $3.3 million. 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. Approximately 140 full-time employees were terminated in the fourth quarter of 2002 and the beginning of 2003. A charge of $7.8 million was recorded in the fourth quarter of 2002 for severance and other costs related to the layoffs when communication of such benefits had been made to affected employees. 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. Transition of German Production to U.S. Facility: The Company made the decision in the fourth quarter of 1999 to transfer production services for Information Resources GfK GmbH 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. 2002 charges of $1.1 million consisted primarily of parallel processing and temporary workforce expenses. 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. Charges of $6.3 million during 2002 related primarily to consulting fees paid to a third party. 11 INFORMATION RESOURCES, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, CONT'D. (UNAUDITED) The following tables reflect special charges incurred and cash payments made during the nine months ended September 30, 2003 and 2002 (in thousands):
2003 ACTIVITY LIABILITY AT ------------- LIABILITY AT DECEMBER 31, 2002 PROVISION CASH SEPTEMBER 30, 2003 ------------------ --------- -------- ------------------- SPECIAL CHARGES 2003 workforce reductions $ - $ 3,281 $ (2,354) $ 927 2002 workforce reduction 7,619 (282) (6,552) 785 Project Delta Discontinued activities 219 - (137) 82 --------- --------- -------- ---------- $ 7,838 $ 2,999 $ (9,043) $ 1,794 ========= ========= ======== ==========
LIABILITY 2002 ACTIVITY (RECEIVABLE) AT ------------- LIABILITY AT DECEMBER 31, 2001 PROVISION CASH SEPTEMBER 30, 2002 ------------------ --------- -------- ------------------- SPECIAL CHARGES Project Delta Termination benefits $ 634 $ (240) $ (394) $ - Discontinued activities 265 - (15) 250 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 $ 7,152 $ (8,770) $ 250 ========= ========= ======== ==========
NOTE 9 - OTHER EVENTS On September 8, 2003 the Company entered into an Agreement and Plan of Merger ("Merger Agreement") with Gingko Corporation and Gingko Acquisition Corp. Pursuant to the Merger Agreement, Gingko Acquisition Corp. commenced a tender offer for all of the Company's outstanding common shares. As of November 4, 2003, Gingko Acquisition Corp. had accepted for payment all of the approximately 19,366,962 shares of common stock, or 62% of the outstanding common stock, that were tendered. Gingko Acquisition Corp. commenced a subsequent offering period which will expire on November 21, 2003 for the remaining outstanding shares of the Company. Gingko Acquisition Corp. will then be merged into the Company with the Company as the surviving entity and all remaining public shareholders will receive the merger consideration in exchange for their shares of the Company. The transaction is expected to be completed by the end of the year or early in 2004. 12 INFORMATION RESOURCES, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, CONT'D. (UNAUDITED) NOTE 10 - RECENT ACCOUNTING PRONOUNCEMENTS In January 2003, the Financial Accounting Standards Board issued Interpretation No. 46, "Consolidation of Variable Interest Entities, an interpretation of Accounting Research Bulletin No. 51" ("Interpretation"). The Interpretation requires the consolidation of entities in which an enterprise absorbs a majority of the entity's expected losses, receives a majority of the entity's expected residual returns, or both, as a result of ownership, contractual or other financial interest in the entity. Currently, entities are generally consolidated by an enterprise when it has a controlling financial interest through ownership of a majority voting interest in the entity. During 2000, the Company and Mosaic Group, Inc. formed a joint venture company, Mosaic InfoForce, L.P. ("MIF"), in which the Company 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 has evaluated its investment in MIF and determined that it will begin consolidating MIF as of December 31, 2003. The equity interest of MIF not owned by the Company will be reported as minority interest upon consolidation. MIF was financed with a $1.9 million initial equity contribution made by the Company and an additional $2.1 million equity contribution made by Mosaic Group, Inc., through wholly-owned subsidiaries. The Company capitalized $7.4 million in connection with the formation of MIF, which is currently being accounted for using the equity method of accounting. As of September 30, 2003, the Company has guaranteed $.6 million of MIF equipment capital leases that the Company would be obligated to pay in the event MIF cannot make the payments required under the leases. The capital leases have varying expiration dates through 2004. 13 INFORMATION RESOURCES, INC. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following narrative discusses the results of operations, liquidity and capital resources for the Company on a consolidated basis. This section should be read in conjunction with the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2002. See "Management's Discussion and Analysis of Financial Condition and Results of Operations" contained therein. 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 ("CPG") 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 have resulted in pricing pressure and reductions in overall customer spending on retail tracking services. In addition, the Company has filed an antitrust lawsuit against The Dun & Bradstreet Corp., A.C. Nielsen Co. (now owned by VNU, N.V.) and IMS International, Inc. in which the Company alleges that it was the target of numerous anticompetitive practices by the defendants aimed at excluding the Company from the markets for retail tracking services. The Company believes that such practices continue to impair its ability to compete in the markets and to respond to the conditions confronting the industry. 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. For the nine months ended September 30, 2003, the Company's U.S. retail tracking revenues, which comprise 73% of the U.S. business, declined by 4% compared to the same period in 2002. The decline is the result of the financial lag of customer losses in 2002, including the loss of the Procter & Gamble ("P&G") retail tracking contract in the U.S., that were not fully offset by revenues generated from new customers and increased spending by existing customers during the period. Panel and analytics revenues were flat for the nine months ended September 30, 2003 compared to the prior year primarily due to the loss of the contractual P&G panel business in the U.S. Absent the impact of the P&G loss, for the nine months ended September 30, 2003, the U.S. panel and analytics business was 5% higher compared to the prior year as a result of increased spending by existing customers, the addition of new customers and the introduction of new products and services. The International operating loss was lower for the first nine months of 2003 compared to the prior year. The loss continues to be driven primarily by the Company's German operation as a result of difficulties encountered in connection with the transition to a new service in that country. The Company believes that most of the operational difficulties in Germany have been addressed and that results will continue to improve during the remainder of 2003. International operating results for the period ended September 30, 2003, excluding Germany, improved by approximately $1.7 million over the prior year largely due to expense reductions. Absent the losses attributable to the German business, the International operation would have reflected a profit for the nine months ended September 30, 2003. 14 INFORMATION RESOURCES, INC. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS, CONT'D. On September 8, 2003 the Company entered into an Agreement and Plan of Merger ("Merger Agreement") with Gingko Corporation and Gingko Acquisition Corp. Pursuant to the Merger Agreement, Gingko Acquisition Corp. commenced a tender offer for all of the Company's outstanding common shares. As of November 4, 2003, Gingko Acquisition Corp. had accepted for payment all of the approximately 19,366,962 shares of common stock, or 62% of the outstanding common stock, that were tendered. Gingko Acquisition Corp. commenced a subsequent offering period which will expire on November 21, 2003 for the remaining outstanding shares of the Company. Gingko Acquisition Corp. will then be merged into the Company with the Company as the surviving entity and all remaining public shareholders will receive the merger consideration in exchange for their shares of the Company. The transaction is expected to be completed by the end of the year or early in 2004. RESULTS OF OPERATIONS The Company's consolidated net loss was $.1 million or $.00 per diluted share for the third quarter of 2003 compared to a consolidated net income of $.9 million or $.03 per diluted share for the corresponding 2002 quarter. The Company's consolidated net loss was $32 thousand or $.00 per diluted share for the nine months ended September 30, 2003 compared to a consolidated net loss of $8.2 million or $.28 per diluted share for the corresponding 2002 period. 2003 year-to-date results were positively impacted by lower special charges compared to the prior year. Additionally, 2002 results included a charge of $7.1 million relating to the cumulative effect of an accounting change for goodwill. Third Quarter Versus Prior Year Consolidated revenues for the quarter ended September 30, 2003 were $136.0 million, a decrease of 3% over the corresponding quarter in 2002. U.S. revenues were $94.8 million, a decrease of 9% compared to the prior year, reflecting the loss of the P&G U.S. retail tracking contract. U.S. retail tracking revenues declined by 6% from the prior year and U.S. panel and analytics revenues decreased by 13% primarily due to the impact of the P&G loss in the U.S. International revenues increased 13% to $41.3 million over the prior year, however, on a local currency basis, International revenues increased 2%. Consolidated costs of information services sold decreased 3% to $122.9 million for the three months ended September 30, 2003 compared to $127.2 million for the third quarter of 2002. This decrease is primarily the result of savings in a number of areas as a result of the Company's ongoing costs saving efforts that were partially offset by foreign currency exchange effects and higher costs relating to investments in new business initiatives. Consolidated selling, general and administrative expenses increased 2% to $12.2 million for the three months ended September 30, 2003 compared to $11.9 million for the third quarter of 2002. Expenses in the third quarter of 2003 included transaction costs of $1.6 million related to the pending tender offer transaction for all of the Company's outstanding common shares. These costs were offset by lower compensation in 2003 compared to the prior year. Earnings before interest and other and taxes were $.2 million for the third quarter of 2003 compared to $1.7 million in the prior year. Results declined due to an increase in corporate professional fee expenses relating to the pending tender offer transaction, a decrease in U.S. results primarily due to the loss of the U.S. retail tracking contract with P&G and higher special charges in 2003 which were partially offset by an improvement in International results. Special charges are discussed below. Interest and other expenses were $.4 million for the third quarter of 2003, an increase of $.2 million over the prior year. 15 INFORMATION RESOURCES, INC. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS, CONT'D. Third Quarter Year to Date Versus Prior Year Consolidated revenues were $416.1 million for the nine months ended September 30, 2003, an increase of 1% over the corresponding period of 2002. U.S. revenues decreased 4% to $296.6 million for the nine months ended September 30, 2003 compared to the prior year. U.S. retail tracking revenues declined by 4% compared to the corresponding period in 2002 and U.S. panel and analytics revenues were flat compared to the prior year. International revenues increased by 14% to $119.5 million compared to the prior year, however, on a local currency basis, International revenues decreased 1%. Consolidated costs of information services sold increased 1% to $377.7 million for the nine months ended September 30, 2003 compared to costs of $373.3 million for the corresponding period of 2002. This increase is primarily the result of foreign currency exchange effects. While the Company incurred additional costs in certain areas including investments in new business initiatives, these costs were generally offset by savings in a number of other areas as a result of the Company's ongoing cost saving efforts. Consolidated selling, general and administrative expenses decreased 1% to $34.6 million for the nine months ended September 30, 2003 compared to $34.9 million for the prior year. This decline is attributable to lower compensation that was partially offset by foreign currency exchange effects and professional fees of $2.3 million incurred in connection with the pending tender offer transaction. For the first nine months of 2003, the Company's earnings before interest and other and taxes were $.7 million compared to a loss of $1.0 million in the prior year. The increase was the result of improved International results and lower special charges that were partially offset by a decline in the U.S. results and higher corporate expenses. Special charges are discussed below. Interest and other expenses were $.8 million for the nine months ended September 30, 2003, an increase of $.4 million over the prior year. LIQUIDITY AND CAPITAL RESOURCES The Company's current cash resources include its $14.1 million consolidated cash balance and $12.2 million available, net of letters of credit, under the Company's bank revolving credit facility as of September 30, 2003. The Company anticipates that it will have sufficient funds from these sources and internally generated funds from its U.S. operations to satisfy its cash needs for the foreseeable future. The Company's bank credit agreement, which contains covenants restricting the Company's ability to incur additional indebtedness, expires in July 2005. The credit facility includes financial and non-financial covenants discussed below. The Company expects to be in compliance with all of its covenants during the remainder of 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. Financings In July 2002, the Company entered into a $40.0 million credit facility which expires in July 2005. The 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. Under the credit facility, the maximum commitment of funds available for borrowings is limited by a defined borrowing base formula related to eligible accounts receivable, which fluctuates during the quarter. Borrowings under the facility are secured by the Company's assets. The financial covenants in the 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 flow coverage 16 INFORMATION RESOURCES, INC. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS, CONT'D. 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 capital stock of the Company. As of September 30, 2003, the Company was in compliance with all covenants. On November 4, 2003, the Company's credit facility was reduced to $25 million pursuant to an agreement with the Company's lenders on October 22, 2003. Also, pursuant to this agreement, the lenders consented to among other things, the acquisition by Gingko Acquisition Corp. of all of the outstanding capital stock of the Company and, in connection with such acquisition, agreed to release their security interest in certain of the Company's assets if and when Gingko Acquisition Corp. acquires 53% or more of the outstanding capital stock of the Company. All other terms and conditions remain unchanged. Cash Flow Consolidated net cash provided by operating activities during the first nine months of 2003 was $123.3 million, compared to $110.1 million for the same period in 2002. This increase was primarily attributable to improved earnings in 2003 and to changes in accounts receivable, accounts payable and accruals and deferred revenue resulting from the timing of collections and payments. Consolidated cash used in net investing activities was $119.5 million in the first nine months of 2003 compared to $118.1 million for the same period in 2002. Investing activity in 2003 reflects higher expenditures for data procurement, primarily due to the impact of foreign currency, that were partially offset by lower capital expenditures. Consolidated cash flow provided by net financing activities was $.2 million for the first nine months of 2003 compared to a use of $.8 million for the same period in 2002. During the nine months ended September 30, 2003, the Company had $0 net bank borrowings compared to $1.8 million in 2002. Other Deferred Costs and Capital Expenditures Consolidated deferred data procurement expenditures were $110.6 million for the nine months ended September 30, 2003 and $105.9 million for the same period in 2002. These expenditures are amortized over a period of 28 months and include payments and services to retailers for point-of-sale data and other costs related to collecting, reviewing and verifying panel, causal and other data which are an essential part of the Company's database. Such expenditures for the Company's U.S. business were $60.6 million and $61.8 million, while amortization expense was $60.5 million and $58.6 million for the periods ended September 30, 2003 and 2002, respectively. Expenditures for the Company's International business were $50.0 million and $44.1 million, while amortization expense was $48.7 million and $40.0 million for the periods ended September 30, 2003 and 2002, respectively. International data expenditures for the first three quarters of 2003 were higher than the prior year due to the impact of foreign currency. Consolidated capital expenditures were $6.5 million and $11.0 million for the nine months ended September 30, 2003 and 2002, respectively. Capital expenditures for the Company's U.S. business were $3.8 million and $7.7 million, while depreciation expense was $15.0 million and $16.9 million for the nine months ended September 30, 2003 and 2002, respectively. The decrease in U.S. capital expenditures is primarily due to the timing of projects. The Company's International capital expenditures were $2.7 million and $3.3 million while depreciation expense was $3.9 million and $3.5 million for the nine months ended September 30, 2003 and 2002, respectively. 17 INFORMATION RESOURCES, INC. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS, CONT'D. Consolidated capitalized software development costs, primarily in the U.S., were $2.4 million for the first three quarters of 2003 and $1.4 million for the corresponding period in 2002. 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. 2003 Workforce Reductions: In the second and third quarters of 2003, the Company eliminated approximately 140 full-time employees or approximately 6% of its total workforce in the United States. The total charge for severance and other costs approximates $3.3 million. 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. Approximately 140 full-time employees were terminated in the fourth quarter of 2002 and the beginning of 2003. A charge of $7.8 million was recorded in the fourth quarter of 2002 for severance and other costs related to the layoffs when communication of such benefits had been made to affected employees. 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. Transition of German Production to U.S. Facility: The Company made the decision in the fourth quarter of 1999 to transfer production services for Information Resources GfK GmbH 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. 2002 charges of $1.1 million consisted primarily of parallel processing and temporary workforce expenses. 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. Charges of $6.3 million during 2002 related primarily to consulting fees paid to a third party. 18 INFORMATION RESOURCES, INC. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS, CONT'D. The following tables reflect special charges incurred and cash payments made during the nine months ended September 30, 2003 and 2002 (in thousands):
2003 Activity LIABILITY AT ---------------------- LIABILITY AT DECEMBER 31, 2002 PROVISION CASH SEPTEMBER 30, 2003 ----------------- --------- -------- ------------------ SPECIAL CHARGES 2003 workforce reductions $ - $ 3,281 $ (2,354) $ 927 2002 workforce reduction 7,619 (282) (6,552) 785 Project Delta Discontinued activities 219 - (137) 82 ----------------- --------- -------- ------------------ $ 7,838 $ 2,999 $ (9,043) $ 1,794 ================= ========= ======== ==================
LIABILITY 2002 ACTIVITY (RECEIVABLE) AT ---------------------- LIABILITY AT DECEMBER 31, 2001 PROVISION CASH SEPTEMBER 30, 2002 ----------------- --------- -------- ------------------ SPECIAL CHARGES Project Delta Termination benefits $ 634 $ (240) $ (394) $ - Discontinued activities 265 - (15) 250 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 $ 7,152 $ (8,770) $ 250 ================= ========= ======== ==================
2003 Restructuring Charges: Management reviews the operations and related costs on a continuous basis. Although firm restructuring plans are not in place, the possibility exists that additional charges may be required in the fourth quarter of 2003 and beyond. RECENT ACCOUNTING PRONOUNCEMENTS In January 2003, the Financial Accounting Standards Board issued Interpretation No. 46, "Consolidation of Variable Interest Entities, an interpretation of Accounting Research Bulletin No. 51" ("Interpretation"). The Interpretation requires the consolidation of entities in which an enterprise absorbs a majority of the entity's expected losses, receives a majority of the entity's expected residual returns, or both, as a result of ownership, contractual or other financial interest in the entity. Currently, entities are generally consolidated by an enterprise when it has a controlling financial interest through ownership of a majority voting interest in the entity. 19 INFORMATION RESOURCES, INC. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS, CONT'D. During 2000, the Company and Mosaic Group, Inc. formed a joint venture company, Mosaic InfoForce, L.P. ("MIF"), in which the Company 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 has evaluated its investment in MIF and determined that it will begin consolidating MIF as of December 31, 2003. The equity interest of MIF not owned by the Company will be reported as minority interest upon consolidation. MIF was financed with a $1.9 million initial equity contribution made by the Company and an additional $2.1 million equity contribution made by Mosaic Group, Inc., through wholly-owned subsidiaries. The Company capitalized $7.4 million in connection with the formation of MIF, which is currently being accounted for using the equity method of accounting. As of September 30, 2003, the Company has guaranteed $.6 million of MIF equipment capital leases that the Company would be obligated to pay in the event MIF cannot make the payments required under the leases. The capital leases have varying expiration dates through 2004. FORWARD LOOKING INFORMATION Certain matters discussed in this Quarterly Report on Form 10-Q are forward-looking statements that are subject to risks and uncertainties that could cause actual results to differ materially from those anticipated. These risks and uncertainties are described in reports and other documents filed by the Company with the Securities and Exchange Commission including the Company's Annual Report on Form 10-K for the year 2002. ITEM 4. CONTROLS AND PROCEDURES As of September 30, 2003, 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 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 September 30, 2003. There have been no significant changes in the Company's internal controls or in other factors that could significantly affect internal controls subsequent to September 30, 2003. 20 INFORMATION RESOURCES, INC. AND SUBSIDIARIES PART II OTHER INFORMATION ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K a. Exhibits
Exhibit No. Description of Exhibit - ----------- -------------------------------------------------------------- 31.1 Certification of CEO Pursuant to Section 302 of the Sarbanes - Oxley Act 31.2 Certification of CFO Pursuant to Section 302 of the Sarbanes - Oxley Act 32.1 Chief Executive Officer Certification of Periodic Report 32.2 Chief Financial Officer Certification of Periodic Report 99.1 Consent and Release dated October 22, 2003 relating to the Revolving Credit Agreement 99.2 Fifth Amendment to Lease and Waiver Agreement for headquarters lease dated as of June 13, 2003
b. Reports on Form 8-K. During the third quarter of 2003, the Company filed a Current Report on Form 8-K on July 24, 2003, covering Item 12, which contained the press release announcing the Company's second quarter 2003 results of operations. During the third quarter of 2003, the Company filed a Current Report on Form 8-K on September 10, 2003, covering Items 5, 7 and 9 which contained the press release announcing that the Company entered into an Agreement and Plan of Merger, dated as of September 7, 2003, with Gingko Corporation and Gingko Acquisition Corp. 21 INFORMATION RESOURCES, INC. AND SUBSIDIARIES SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. INFORMATION RESOURCES, INC. --------------------------- (Registrant) /s/ Andrew G. Balbirer ---------------------------------------- Andrew G. Balbirer Executive Vice President and Chief Financial Officer (Authorized Officer of Registrant) /s/ Mary K. Sinclair ---------------------------------------- Mary K. Sinclair Controller (Principal Accounting Officer) November 13, 2003 22 EX-31.1 3 c80873exv31w1.txt 302 CERTIFICATION OF CEO EXHIBIT 31.1 CERTIFICATIONS I, Joseph P. Durrett, certify that: 1. I have reviewed this quarterly report on Form 10-Q of Information Resources, Inc.; 2. Based on my knowledge, this quarterly 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 quarterly report; 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly 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 quarterly 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 quarterly 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 quarterly report (the "Evaluation Date"); and c) presented in this quarterly 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 quarterly report whether or not 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 November 13, 2003 EX-31.2 4 c80873exv31w2.txt 302 CERTIFICATION OF CFO EXHIBIT 31.2 CERTIFICATIONS I, Andrew G. Balbirer, certify that: 1. I have reviewed this quarterly report on Form 10-Q of Information Resources, Inc.; 2. Based on my knowledge, this quarterly 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 quarterly report; 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly 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 quarterly 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 quarterly 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 quarterly report (the "Evaluation Date"); and c) presented in this quarterly 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 quarterly report whether or not 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 November 13, 2003 EX-32.1 5 c80873exv32w1.txt CHIEF EXECUTIVE OFFICER CERTIFICATION Exhibit 32.1 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 Quarterly Report on Form 10Q of Information Resources, Inc. (the "Company") for the quarterly period ended September 30, 2003 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. Section 1350, as adopted pursuant to Section 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 November 13, 2003 This certification accompanies the Report pursuant to Section 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 Section 18 of the Securities Exchange Act of 1934, as amended. EX-32.2 6 c80873exv32w2.txt CHIEF FINANCIAL OFFICER CERTIFICATION Exhibit 32.2 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 Quarterly Report on Form 10Q of Information Resources, Inc. (the "Company") for the quarterly period ended September 30, 2003 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. Section 1350, as adopted pursuant to Section 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 November 13, 2003 This certification accompanies the Report pursuant to Section 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 Section 18 of the Securities Exchange Act of 1934, as amended. EX-99.1 7 c80873exv99w1.txt CONSENT & RELEASE TO REVOLVING CREDIT AGREEMENT EXHIBIT 99.1 CONSENT AND RELEASE This consent AND RELEASE (this "Agreement") is made and entered into as of the 22nd day of October, 2003 by LaSalle Bank National Association ("LaSalle"), Key Corporate Capital Inc. ("Key" and together with LaSalle, "Lenders"), Key Equipment Finance, a Division of Key Corporate Capital Inc. ("KEF"), Information Resources, Inc. ("IRI") and its wholly-owned U.S. subsidiaries (each, a "Borrower" and collectively, the "Borrowers"), Gingko Corporation ("Parent") and Gingko Acquisition Corp. ("Merger Sub" and together with Parent, the "Acquirors"). RECITALS WHEREAS, on July 12, 2002, Lenders and Borrowers entered into that certain Revolving Credit Agreement (as the same has been and may be amended in accordance with its terms and as amended hereby, the "Credit Agreement"), pursuant to which Lenders agreed to extend credit to Borrowers in an aggregate principal amount not to exceed $40,000,000 (the "Credit Facility"); and WHEREAS, on July 19, 2002, KEF and IRI entered into that certain Master Equipment Lease Agreement, as amended (the "Master Lease"), pursuant to which KEF agreed to lease IRI the Equipment (as defined in the Master Lease); and WHEREAS, on September 8, 2003, pursuant to an Agreement and Plan of Merger (as the same has been amended on October 19, 2003 and as the same may be amended from time to time in accordance with its terms and conditions, the "Merger Agreement"), the Acquirors and certain other affiliated persons commenced a tender offer (the "Tender Offer") to acquire all the outstanding shares of IRI for $3.30 in cash for each IRI share plus a registered and tradable Contingent Value Right per share (each, a "CVR" and together with the cash for each IRI share, the "Merger Consideration"); and WHEREAS, each CVR will be evidenced by a CVR Certificate (as defined in the Merger Agreement) issued by the Information Resources, Inc. Litigation Contingent Payment Rights Trust (the "Trust") established pursuant to a the Certificate of Trust filed with the Secretary of the State of Delaware and an Amended and Restated Declaration of Trust to be entered into on and after the date hereof (the "Declaration of Trust"); and WHEREAS, pursuant to the Declaration of Trust and that certain Contingent Value Rights Agreement to be entered into by IRI, the Acquirors, the Rights Agents and the Trust, substantially in the form attached as Exhibit C to the Merger Agreement (as the same has been amended on October 19, 2003 and as the same may be amended from time to time in accordance with its terms and conditions, the "CVR Agreement"), holders of CVR Certificates are entitled to 68% of the proceeds received by IRI, if any, from the antitrust suit pending against ACNielsen (now owned by VNU NV), The Dun & Bradstreet Corp., and IMS International, Inc. (the "Lawsuit"), to the extent those proceeds are equal to or less than $200 million, and 75% of any such proceeds above $200 million, in each case subject to certain adjustments as further provided in the CVR Agreement (in the aggregate, the "CVR Litigation Proceeds"); and WHEREAS, in the event the Tender Offer is successful, Merger Sub will subsequently merge with and into IRI with IRI continuing as the surviving corporation (the "Merger"); and WHEREAS, the Credit Agreement and, derivatively through the Credit Agreement, the Master Lease, prohibits Borrowers from consummating certain of the transactions contemplated by the Merger Agreement and the CVR Agreement without the express written consent of Lenders and KEF; and WHEREAS, Borrowers and Acquirors desire that (i) Lenders and KEF provide the consents set forth in this Agreement and (ii) Lenders release their first priority security interest in the Lawsuit and the CVR Litigation Proceeds (collectively, the "Collateral"); and WHEREAS, Lenders and KEF agree to (i) grant those consents and (ii) release their first priority security interest in the Collateral, subject to the terms and conditions contained in this Agreement. NOW, THEREFORE, in consideration of the mutual agreements set forth herein and for other good and valuable consideration (the receipt and sufficiency of which is hereby acknowledged), the parties agree as follows: AGREEMENT 1. Consent to Transactions under the Merger Agreement and the CVR Agreement. (a) Subject to Section 1(b) of this Agreement, Lenders and KEF hereby consent to all of the actions and transactions contemplated by the Merger Agreement, the CVR Agreement and the Declaration of Trust, including, but not limited to (i) the Acquirors acquiring (A) that number of shares of IRI common stock which, when added together with all other shares of IRI common stock owned by the Acquirors, would equal 16,000,000 shares, or such other number of shares of IRI common stock as agreed to by the Acquirors and Borrowers pursuant to the Tender Offer and (B) any other shares of IRI common stock acquired, directly or indirectly, by the Acquirors after consummation of the Tender Offer, whether in any "subsequent offering period" or otherwise, (ii) the actions contemplated by Section 5.1(h)(ii) of the CVR Agreement and (iii) the subsequent Merger as proposed by the Merger Agreement and related agreements. For the sake of clarity, assuming Lenders' and KEF consent to an action or transaction contemplated by the Merger Agreement, the CVR Agreement and/or the Declaration of Trust shall not have been withdrawn in accordance with Section 1(b), the consummation of that action or transaction shall not (x) constitute a default, an event of default or the failure of any condition, or a breach or violation of any covenant, agreement, representation or warranty, in or under the Credit Agreement, the Master Lease or any related documents or (y) give rise to any rights or remedies that may be deemed to be otherwise available to Lenders under the Credit Agreement, KEF under the Master Lease or any related documents as a consequence of that action or transaction. (b) Any consent granted by Lenders and KEF pursuant to Section 1(a) of this Agreement to any action or transaction contemplated by the Merger Agreement, the CVR Agreement, and/or the Declaration of Trust may be withdrawn by means of written notice provided to IRI and Acquirors in the event there is a change to the terms of the Tender Offer or the Merger that is materially adverse to Lenders or KEF without Lenders' and KEF's prior written consent, provided, however, that it is expressly agreed that any extension of the Expiration Date (as defined in the Merger Agreement) of the Tender Offer to a date on or -2- prior to February 29, 2004, or any other administrative change shall not be deemed such a material adverse change. It is expressly understood by Borrowers that any extension of the Expiration Date past February 29, 2004 may be deemed by Lenders and KEF as such a material adverse change. Lenders' and KEF's consent shall be deemed withdrawn in the event (i) Borrowers accept a Superior Proposal made by a Potential Acquiror (as such terms are defined in the Merger Agreement) prior to the completion of the Merger, (ii) the Tender Offer is terminated for any reason that is materially adverse to Lenders or KEF without Lenders' and KEF's prior written consent or (iii) the Merger Agreement is terminated for any reason. 2. Release of Collateral. (a) Subject to the satisfaction of the conditions set forth in Section 2(b) of this Agreement, on the Acceptance Date (as defined in the Merger Agreement), Lenders shall release their first priority security interest in the Collateral, provided, however, Borrowers and Acquirors hereby acknowledge and agree that any litigation proceeds that IRI is entitled to retain from the Lawsuit consistently with the CVR Agreement and the Declaration of Trust (which excludes, for the sake of clarity, the CVR Litigation Proceeds) shall not be deemed part of the Collateral released and will remain subject to Lenders' first priority security interest pursuant to the Credit Agreement and related documents. (b) Lenders' obligation pursuant to Section 2(a) to release the Collateral on the Acceptance Date is conditioned upon the satisfaction of all of the following: (i) the Acquirors shall have accepted shares of IRI common stock for payment pursuant to the Tender Offer; (ii) the Merger Agreement shall have not been terminated prior to the Acquirors accepting shares of IRI common stock for payment pursuant to the Tender Offer, and the Acquirors shall be paying the Merger Consideration to those IRI shareholders who have tendered their shares pursuant to the Tender Offer, including, but not limited to, the issuance of the CVR Certificates; (iii) Lenders shall not have provided prior written notice to IRI and Acquirors in respect of any change to the terms of the Tender Offer that shall have previously occurred that is materially adverse to Lenders without Lenders' prior written consent, provided, however, that it is expressly agreed that any extension of the Expiration Date of the Tender Offer or any other administrative change shall not be deemed such a material adverse change; and (iv) Borrowers shall not have accepted a Superior Proposal made by a Potential Acquiror prior to the Acceptance Date. (c) In the event all of the conditions contained in Section 2(b) have been satisfied on the Acceptance Date, the release of the Collateral will be deemed effective on the Acceptance Date, and Lenders will promptly file the requisite UCC financing statements, in form and substance reasonably acceptable to Borrowers and Acquirors, releasing Lenders' first priority security interest in the Collateral. -3- (d) Lenders' agreement to release the Collateral pursuant to this Section 2 will be terminated if (i) Borrowers accept a Superior Proposal made by a Potential Acquiror prior to the completion of the Merger or (ii) the Merger Agreement is terminated for any reason. 3. Payment of Fee to Lenders. In consideration of the consents granted by Lenders pursuant to Section 1(a) of this Agreement and their agreement to release the Collateral pursuant to Section 2(a) of this Agreement, IRI agrees to pay Lenders a fee of One Hundred Thousand Dollars ($100,000) in the aggregate (the "Fee"), which amount shall be divided between the Lenders in accordance with their Revolving Credit Commitments relative to the Aggregate Revolving Credit Commitments (as such terms are defined in the Credit Agreement). The Fee will be paid in full in immediately available funds upon execution of this Agreement by all parties and will be non-refundable in all cases, irrespective of whether the Tender Offer is successful, the Merger is completed, the Collateral is released, any consent granted pursuant to Section 1 of this Agreement is subsequently withdrawn in accordance with the terms of this Agreement or otherwise. 4. Reduction in Revolving Credit Commitments. If and only if the Acceptance Date shall have previously occurred and the Tender Offer shall have been completed, Borrowers agree to a reduction in the Aggregate Revolving Credit Commitments available under the Credit Agreement, effective as of the Acceptance Date, to an amount not to exceed $25,000,000 (the "New Aggregate Revolving Credit Commitments"), which shall have the effect of reducing each Lender's Revolving Credit Commitment under the Credit Agreement to $15,625,000 for LaSalle and $9,375,000 for Key (each, a "New Revolving Credit Commitment"). The New Aggregate Revolving Credit Commitments and each New Revolving Credit Commitment for each Lender shall only be effective upon completion of the Tender Offer and the effective release of the Collateral, and shall remain in effect until the Credit Termination Date (as defined in Section 7). 5. Firm Commitment Letter. Within twenty-eight (28) days after the Acceptance Date, IRI (or the Acquirors on IRI's behalf) shall obtain a firm, written commitment letter (the "Commitment Letter") from (or shall enter into a credit agreement with) a national financial institution reasonably acceptable to Lenders, which shall contemplate (or shall provide for one or more loans to IRI in an aggregate amount that is sufficient to satisfy in full), among other things, (i) the repayment of all Indebtedness (as defined in the Credit Agreement) owed under the Credit Facility and termination of the Credit Agreement and (ii) the termination of the Master Lease not later than fifteen (15) days after the Credit Termination Date and the payment of all obligations of IRI to KEF under and in respect of the termination of the Master Lease, such amounts shall be detailed in the payoff letter to be issued by KEF and shall be consistent with the terms and conditions of the Master Lease (the "Payoff Letter"). In the event IRI is unable to obtain a Commitment Letter (or enter into a credit agreement) that meets the foregoing criteria, Borrowers shall pay to Lenders in lieu thereof a non-refundable fee in immediately available funds of Fifty Thousand Dollars ($50,000), which amount shall be divided among the Lenders in accordance with each New Revolving Credit Commitment relative to the New Aggregate Revolving Credit Commitments. 6. Deposit Account. On or before the Credit Termination Date, IRI shall have established a deposit account with KeyBank National Association (the "Deposit Account") and shall maintain a balance of at least Two Million Seven Hundred Thousand Dollars ($2,700,000) in such account until all amounts due under the Payoff Letter have been paid in full. -4- 7. Repayment of Indebtedness under the Credit Agreement. If and only if the Acceptance Date shall have previously occurred and the Tender Offer shall have been completed, upon the earlier of (i) the consummation of the Merger or (ii) the earlier of March 30, 2004 and thirty (30) days after termination of the Merger Agreement (each, a "Credit Termination Date"), Borrowers shall repay all Indebtedness owed to Lenders under the Credit Agreement, including, but not limited to, all principal and interest due Lenders under the Credit Agreement. In the event the Acceptance Date shall have occurred and the Tender Offer shall have been completed, and Borrowers fail to repay all Indebtedness (as such term is defined in the Credit Agreement) owed to Lenders under the Credit Agreement on or before the Credit Termination Date, an "Event of Default" will be deemed to have occurred under the Credit Agreement, and Lenders will be entitled to all rights and remedies available to Lenders under the Credit Agreement and related documents upon the occurrence of an Event of Default thereunder. All Indebtedness still outstanding under the Credit Agreement will accrue interest at the following rates during the following periods: (i) the Default Rate (as defined in the Credit Agreement) for the first 30-day period following the Credit Termination Date, (ii) the Default Rate plus 2.00% from the 31st day through the 60th day, and (iii) Default Rate plus 4.00% from the 60th day after the Credit Termination Date and thereafter. 8. Termination and Satisfaction of Obligations Under the Master Lease. IRI and KEF agree that not later than fifteen (15) days after the Credit Termination Date, IRI shall pay to KEF all amounts due pursuant to the termination of the Master Lease, such amounts to be set forth in the Payoff Letter and to be consistent with the terms and conditions of the Master Lease. In the event IRI fails to pay all amounts due pursuant to the Payoff Letter within fifteen (15) days after the Credit Termination Date, an "Event of Default" will be deemed to have occurred under the Master Lease and KEF will be entitled to all rights and remedies available to KEF under the Master Lease and related documents upon the occurrence of an Event of Default thereunder. All amounts due under the Payoff Letter still outstanding more than fifteen (15) days after the Credit Termination Date will accrue interest at the following rates during the following periods: (i) the Default Rate (as defined in the Master Lease) from the 16th day through the 30th day following the Credit Termination Date, (ii) the Default Rate plus 2.00% from the 31st day through the 60th day, and (ii) the Default Rate plus 4.00% from the 60th day after the Credit Termination Date and thereafter. 9. Disputes; Specific Performance. Any disputes that arise under this Agreement will be handled in the same manner as if such dispute arose under the Credit Agreement (which shall include the provisions thereof with respect to selection of jurisdiction and waiver of jury trial by the parties thereto), except where such dispute is specific to the Master Lease, in which case, such dispute shall be handled as if such dispute occurred under the Master Lease. The parties hereto agree that irreparable harm would occur if any provision of this Agreement were not performed in accordance with the terms hereof and that the parties shall be entitled to seek and obtain an injunction or injunctions to prevent breaches of this Agreement or to enforce specifically the performance of the terms and provisions hereof in any federal court located in the State of Illinois or any Illinois state court located in Cook County, Illinois, in addition to any other remedy to which they are entitled at law or in equity. 10. Severability. If any clause, provision or part of a clause or provision of this Agreement shall be adjudged invalid or unenforceable by a court of competent jurisdiction or by operation of any applicable law, it shall not affect the validity of any other clause, provision or part of a clause or provision, which shall remain in full force and effect. -5- 11. Costs and Expenses. Borrowers shall be responsible for all reasonable, documented and out-of-pocket fees, costs and expenses incurred by Lenders and KEF, including attorneys' fees and costs, in connection with (i) the negotiation and preparation of this Agreement and the transactions contemplated hereby and (ii) the administration, enforcement and collection by Lenders or KEF of their rights and remedies under this Agreement, the Credit Agreement and the Master Lease, as the case may be. 12. Successors and Assigns. This Agreement shall inure to the benefit of and be binding upon the successors and assigns of all parties, provided that no assignment of any party's rights or obligations under this Agreement shall relieve that party of any of its obligations under this Agreement. 13. Entire Agreement; Amendments and Waivers. This Agreement constitutes the entire agreement between the parties with respect to the subject matter hereof and supersedes all prior agreements and understandings with respect to that subject matter. Any modification, amendment or waiver of any right, remedy, obligation or provision of this Agreement may be made only by an instrument in writing signed by (a) in the case of a modification or amendment, all of the parties hereto or (b) in the case of a waiver, the party against which that waiver is to be effective (and, if IRI is the waiving party, the Acquirors). No failure or delay by any party in exercising any right, power or privilege hereunder shall operate as a waiver thereof nor shall any single or partial exercise thereof preclude any other or further exercise thereof or the exercise of any other right, power or privilege. The rights and remedies herein provided shall be cumulative and not exclusive of any rights or remedies provided by law. No provision of this Agreement is intended to confer any rights, benefits, remedies, obligations or liabilities hereunder upon any person, other than the parties hereto and their respective successors and assigns. 14. Governing Law. This Agreement shall be governed by and construed in accordance with the internal laws of the State of Illinois, without regard to choice or conflict of law provisions. 15. Counterpart Execution. This Agreement may be executed in two or more counterparts, each of which will be deemed original, but all of which together will constitute one and the same instrument. 16. Notices. All notices and other communications hereunder shall be in writing and shall be deemed given if provided in accordance with Section 10.10 of the Credit Agreement, provided that copies thereof are also delivered personally, mailed by registered or certified mail (return receipt requested) or sent via facsimile to the following parties at the following addresses (or at such other address for a party as shall be specified by like notice): Gingko Corporation c/o Symphony Technology Group 4015 Miranda Avenue 2nd Floor Palo Alto, California 94304 Attention: Managing Partner Facsimile: (650) 935-9501 -6- Davis Polk & Wardwell 450 Lexington Avenue New York, New York 10017 Attention: John D. Amorosi Facsimile: 212 450 3010 No notice or other communication under this Agreement shall be deemed received until the time set forth in the Credit Agreement and receipt by the above persons on the date of actual receipt by such persons if received before 5:00 p.m. in the place of receipt and such day is a business day in the place of receipt. Otherwise, any such notice, request or communication shall be deemed not to have been received until the next succeeding business day in the place of receipt by such persons. [signature page attached] -7- IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first written above. INFORMATION RESOURCES, INC. a Delaware corporation, on behalf of all Borrowers By: ____________________________________ Its: ___________________________________ LASALLE BANK NATIONAL ASSOCIATION By: ____________________________________ Its: ___________________________________ KEY CORPORATE CAPITAL INC. By: ____________________________________ Its: ___________________________________ KEY EQUIPMENT FINANCE, a Division of Key Corporate Capital Inc. By: ____________________________________ Its: ___________________________________ GINGKO ACQUISITION CORP. By: ____________________________________ Its: ___________________________________ GINGKO CORPORATION By: ____________________________________ Its: ___________________________________ -8- EX-99.2 8 c80873exv99w2.txt 5TH AMENDMENT TO LEASE AND WAIVER AGREEMENT EXHIBIT 99.2 FIFTH AMENDMENT TO LEASE AND WAIVER AGREEMENT THIS FIFTH AMENDMENT TO LEASE AND WAIVER AGREEMENT (this "Agreement") dated as of June 13, 2003, by and between RANDOLPH/CLINTON LIMITED-PARTNERSHIP, a Delaware limited partnership ("Landlord") with an address at c/o W.P. Carey & Co. LLC, 50 Rockefeller Plaza, 2nd Floor, New York, NY 10020, and INFORMATION RESOURCES, INC., a Delaware corporation ("Tenant") with an address at 150 North Clinton Street and 564 West Randolph Street, Chicago, IL. W I T N E S S E T H : WHEREAS, Landlord and Tenant entered into a certain Lease Agreement dated as of September 27, 1990, as amended by that certain Amendment Number 1 to Lease Agreement between Landlord and Tenant dated as of March 29, 1991, as further amended by that certain Second Amendment to Lease Agreement dated as of March 29, 1995 between Landlord and Tenant, as further amended by that certain Waiver, Consent and Covenant Agreement dated as of February 8, 1999 between Landlord and Tenant (the "1999 Waiver Agreement"), as further amended by that certain Third Amendment and Waiver Agreement dated as of February 9, 2000 between Landlord and Tenant, as further amended by that certain Fourth Amendment to Lease dated as of December 28, 2000 between Landlord and Tenant (as so amended, the "Lease"); WHEREAS, Tenant has entered into a letter of intent with Symphony Technology, Fund II-A, LP ("Symphony") pursuant to which Tenant and Symphony intend to cause an entity that is at least 50% owned and controlled by Symphony to merge with Tenant and immediately following such merger Symphony will directly or indirectly own and control at least 50% of Tenant (the "Change of Control Transaction"); WHEREAS, upon the consummation of the Change of Control Transaction, Tenant will not be in compliance with certain financial covenants set forth in the Lease and has requested that such covenants be amended; WHEREAS, as the consummation of the Change of Control Transaction would violate Paragraph C(vi) of Exhibit "E" of the Lease, Tenant has requested that Landlord provide a waiver with respect to the Change of Control Transaction; WHEREAS, Landlord has requested that Tenant agree to extend the initial Term of the Lease by three (3) years; and WHEREAS, subject to the consent of the Lender and the closing of the Change of Control Transaction, Landlord and Tenant have agreed to (i) amend or waive certain financial covenants to permit the Change of Control Transaction to proceed and (ii) extend the initial Term of the Lease by three (3) years, all pursuant to the terms and conditions of the Lease as amended by this Agreement. NOW, THEREFORE, intending to be legally bound, the parties hereto agree as follows: 1. Financial Covenants and Related Matters. The Lease is hereby amended as follows: (a). Paragraph 28(b) is hereby amended by deleting the second sentence thereof and inserting the following in lieu thereof: Tenant shall also furnish to Landlord within forty-five (45) days after the end of each of the first three fiscal quarters of each fiscal year unaudited financial statements and all other quarterly reports of Tenant, certified by Tenant's chief financial officer, and all filings, if any, of Form 10-K, Form 10-Q and other required filings with the Securities and Exchange Commission pursuant to the provisions of the Securities Exchange Act of 1934, as amended, or any other Law. (b) A new Paragraph 28(c) is hereby added as follows: All quarterly and annual financial statements shall be accompanied by a certification ("Covenant Certification") of the chief financial officer of Tenant, as of the last day of the fiscal quarter or annual period to which such financial statements relate, that Tenant is in camphene with the covenants set forth in Paragraph C of Exhibit "E" (except as otherwise specified in the Covenant Certification), together with a calculation of the covenants described in Paragraph C of Exhibit "E". (c) Paragraph 39(b) is hereby amended by adding the following sentence at the end of Paragraph 39(b): If a Senior Lender is paid any consideration for such a waiver, then, Tenant shall simultaneously pay to Landlord an amount equal to thirty-three (33%) percent of such consideration as Additional Rent. The term "waiver" as used in the preceding sentence shall be deemed to include any modification or amendment of such Senior Lender's financial covenant. (d) Paragraph 39(f) is hereby amended by deleting the definition of "Senior Lender" and inserting the following in lieu thereof: "Senior Lender" shall mean any bank or financial institution (or a syndicate of banks and/or financial institutions) providing credit to Tenant, the commitments or outstanding borrowings of which exceed $5,000,000. (For clarification purposes, the term "Senior" as used herein shall not be interpreted to impact or affect the relative priority of any bank or financial institution that constitutes a "Senior Lender" hereunder vis-a-vis any other such "Senior Lender".) (e) The Paragraph C(i) of Exhibit "E" is hereby deleted and the following is hereby inserted in lieu thereof: (i) Minimum Tangible Net Worth. Permit Consolidated Tangible Net Worth to be less than the amount set forth below at the end of each fiscal quarter during the indicated period: Period Minimum Tangible Net Worth Through December 31, 2004 $20,000,000.00 January 1, 2005 through the balance of the Term $30,000,000.00 (f) Paragraph C(iii) of Exhibit "E" is hereby deleted and the following is hereby inserted in lieu thereof: (iii) Indebtedness. Permit, or permit any Subsidiary to, at any time, create, incur, assume or suffer to exist any Indebtedness in an -2- aggregate amount in excess of $500,000.00, except that Tenant may incur any Indebtedness provided that, after the incurrence of such Indebtedness, (i) the ratio of Consolidated Net Tangible Assets to Consolidated Funded Indebtedness would not be less than 1.0:1 through December 31, 2004, not less than 1.2:1 from January 1,2005 through December 31, 2008 and not less than 2.0:1 thereafter, and (ii) after December 31, 2004, the Fixed Charge Coverage Ratio would not be less than 1.35:1. (g) Paragraph C(ii) of Exhibit "E" is amended by deleting the word "and" at the end of subparagraph (e), replacing the period (.) at the end of subparagraph (f) with "; and", and inserting a new subparagraph (g) as follows: (g) liens, pledges, mortgages or other charges placed upon any property or assets owned by Tenant or any Subsidiary which secure Indebtedness incurred in connection with the Change of Control Transaction provided that such Indebtedness has a final maturity date of no later than December 31, 2009 (including any modifications, extensions, replacements or refinancings of such Indebtedness so long as such Indebtedness continues to have a final maturity date of no later than December 31, 2009). 2. Modification of 1999 Waiver Agreement. The covenant set forth in Paragraph 3(b) of the 1999 Waiver Agreement with respect to Consolidated Tangible Net Worth is hereby deleted. 3. Increase of Duration of the Initial Term. Paragraphs 5(a) and (b) are hereby deleted and the following is hereby inserted in lieu thereof: (a) Subject to the provisions hereof, Tenant shall have and hold the Leased Premises for an initial term (such term, as extended or renewed in accordance with the provisions hereof, being called the "Term") commencing on the date hereof (and ending on October 31, 2013 (the "Expiration Date"). (b) Provided that if, on or prior to the Expiration Date or any other Renewal Date (as hereinafter defined) this Lease shall not have been terminated pursuant to any provision hereof, then on the Expiration Date and the fifth (5th) anniversary of the Expiration Date (the Expiration) Date and said fifth (5th) anniversary being a "Renewal Date"), the Term shall be deemed to have been automatically extended for an additional period of five (5) years (such extension, the "Renewal Term"), unless Tenant shall notify Landlord in writing in recordable form at least eighteen (18) months prior to the Renewal Date that Tenant is terminating this Lease as of the Renewal Date. Any such extension of the Term shall be subject to all of the provisions of this Lease, as the same may be amended, supplemented or modified (except that Tenant shall not have the right to any additional Renewal terms). 4. Basic Rent During the Final Three Years of the Initial Term. The Lease is hereby amended as follows: (a) The following definition is hereby added to Paragraph 2: "Fair Market Rental Value" shall mean the fair market rental value of the Leased Premises for the relevant Renewal Term determined in accordance with the procedure specified in Paragraph 29. -3- (b) The definition for "Fair Market Value Date" in Paragraph 2 of the Lease is hereby deleted and the following is hereby inserted in lieu thereof: "Fair Market Value Date" shall mean the date when Fair Market Value or Fair Market Rental Value, as applicable, is determined in accordance with Paragraph 29. (c) Paragraph 29(a) is hereby amended by deleting the introductory sentence and inserting the following in lieu thereof: Whenever a determination of Fair Market Value or Fair Market Rental Value, as applicable, is required pursuant to any provision of this Lease, such Fair Market value or Fair Market Rental Value, as applicable, shall be determined in accordance with the following procedure: (d) Paragraph 29(a)(i) is hereby amended by inserting the following sentence after the first sentence of Paragraph 29(a)(i): Landlord and Tenant shall endeavor to agree on Fair Market Rental Value on or before April 30, 2013 (also, an "Applicable Initial Date"). (e) Paragraphs 29(a)(ii), (ii), (iii), (iv) and (v) are hereby deleted in their entirety and the allowing is hereby inserted in lieu thereof: (ii) If the parties shall not have signed such agreement within thirty (30) days after the Applicable Initial Date, Tenant shall within fifty (50) days after the Applicable Initial Date select an appraiser and notify Landlord in writing of the name, address and qualifications of such appraiser. Within twenty (20) days following Landlord's receipt of Tenant's notice of the appraiser selected by Tenant, Landlord shall select an appraiser and notify Tenant of the name, address and qualifications of such appraiser. Such two appraisers shall endeavor to agree upon Fair Market Value or the Fair Market Rental Value based on a written appraisal made by each of them (and given to Landlord by Tenant) as of the Relevant Date. If such two appraisers shall agree upon a Fair Market Value or the Fair Market Rental Value, the amount of such Fair Market Value or the Fair Market Rental Value as so agreed shall be binding and conclusive upon Landlord and Tenant. (iii) If such two appraisers shall be unable to agree upon a Fair Market Value or the Fair Market Rental Value within twenty (20) days after the selection of an appraiser by Landlord, then such appraisers shall advise Landlord and Tenant of their respective determination of Fair Market Value or the Fair Market Rental Value and shall select a third appraiser to make the determination of Fair Market Value or the Fair Market Rental Value. The selection of the third appraiser shall be binding and conclusive upon Landlord and Tenant. (iv) If such two appraisers shall be unable to agree upon the designation of a third appraiser within ten (10) days after the expiration of the twenty (20) day period referred to in clause (iii) above, or if such third appraiser does not make a determination of Fair Market Value or the Fair Market Rental Value within twenty (20) days after his selection, then such third appraiser or a substituted third appraiser, as applicable, shall, at the request of either party hereto, be appointed by the President or Chairman of the American Arbitration Association in New York, New -4- York. The determination of Fair Market Value or the Fair Market Rental Value made by the third appraiser appointed pursuant hereto shall be made within twenty (20) days after such appointment. (v) If a third appraiser is selected, Fair Market Value or the Fair Market Rental Value shall be the average of the determination of Fair Market Value or the Fair Market Rental Value made by the third appraiser and the determination of Fair Market Value made by the appraiser (selected pursuant to Paragraph 29(a)(ii) hereof) whose determination of Fair Market Value or the Fair Market Rental Value is nearest to that of the third appraiser. Such average shall be binding and conclusive upon Landlord and Tenant. (vi) All appraisers selected or appointed pursuant to this Paragraph 29(a) shall (A) be independent qualified MAI appraisers (B) have no right, power or authority to alter or modify the provisions of this Lease, (C) utilize the definition of Fair Market Value or the Fair Market Rental Value set forth above, and (D) be registered in the State if such State provides for or requires such registration. (vii) The Cost of the procedure described in this Paragraph 29(a) above shall be borne as follows: Tenant shall pay or reimburse the fees and expenses of the appraiser selected by Tenant; Landlord shall pay or reimburse the fees and expenses of the appraiser selected by Landlord; and the costs and expenses of the third appraiser (if any) shall be paid by the party who selected an appraiser whose appraised value was not the closest to the appraised value reached by the third appraiser. (f) Paragraph 29(b) is hereby amended by adding the following after the last sentence thereof: If, by virtue of any delay, Fair Market Rental Value is not determined by the twentieth (20th) anniversary of the First Basic Rent Payment Date, then, until Fair Market Rental Value is determined, Tenant shall continue to pay Basic Rent in the same amount which it was obligated under this Lease to pay immediately prior to the twentieth (20th) anniversary of the First Basic Rent Payment Date. When Fair Market Rental Value is determined, the appropriate Basic Rent shall be calculated retroactive to the twentieth (20th) anniversary of the First Basic Rent Payment Date and Tenant shall either receive a refund from Landlord (in the case of an overpayment) or shall pay any deficiency to Landlord (in the case of an underpayment). (g) A new Paragraph 29(c) is hereby added as follows: In determining Fair Market Rental Value, the appraisers shall determine the amount that a willing tenant would pay, and a willing landlord of a comparable building located within the Chicago, IL central business district office market would accept, at arm's length, to rent a building of comparable size and quality as the Improvements, taking into account: (a) the age, quality, condition (as required by the Lease) of the Improvements; (b) that the Leased Premises will be leased as a whole or substantially as a whole to a single user; (c) a lease term of three (3) years; (d) an absolute triple net lease; and (e) such other items that professional real estate appraisers customarily consider. -5- (h) Paragraph 3 of Exhibit "D" is hereby amended by deleting the text "tenth (10th) anniversary and, if the initial Term is extended, on the fifteenth (15th) and twentieth (20th) anniversaries" and inserting "tenth (10th) and fifteenth (15th) anniversaries, and, if the initial Term is extended, twenty-third (23rd) and twenty-eighth (28th) anniversaries" in lieu thereof. (i) A new Paragraph 5 to Exhibit "D" is hereby added as follows: Basic Rent for the Final Three Years of the Initial Term. Notwithstanding anything to the contrary in this Exhibit "D", the annual Basic Rent payable for the period commencing on the twentieth (20th) anniversary of the First Basic Rent Payment Date through and including the day immediately preceding the twenty-third (23rd ) anniversary of the First Basic Rent Payment date (the "Final Three Year Period of the Initial Term") shall be an amount equal to the annual Fair Market Rental Value as of October 1, 2010 as determined in accordance with Paragraph 29 of the Lease, provided, however, that (i) if the annual Fair Market Rental Value is greater than the annual Basic Rent in effect immediately prior to the Final Three Year Period of the Initial Term (the "Prior Rent"), then, the annual Basic Rent payable during the Final Three Year Period of the Initial Term shall equal the Prior Rent, and (ii) if the annual Fair Market Rental Value is less than $4,536,000.00, then, the annual Basic Rent for the Final Three Year Period of the Initial Term shall be $4,536,000.00. The annual Basic Rent for the Final Three Year Period of the Initial Term shall payable in equal monthly installments. 5. Waiver to Permit the Change of Control Transaction to Proceed. Landlord hereby waives the requirements of Paragraph C(vi) with respect to the Change of Control Transaction only. The requirements of paragraph C(vi) shall remain in full force and effect with respect to any other event or circumstances to which Paragraph C(vi) applies. 6. Conditions Precedent. Notwithstanding anything to the contrary herein, except with respect to the obligations of Tenant set forth in Paragraph 10 of this Agreement, this Agreement shall be of no force or effect and shall automatically become null and void ab initio unless (i) Lender consents in writing to the execution and delivery of this Agreement by Landlord, and (ii) on or before December 31, 2003, Tenant provides Landlord with evidence reasonably satisfactory to Landlord that the Change of Control Transaction has closed. 7. Counterparts. This Agreement may be executed in any number of counterparts and by the different parties thereto on separate counterparts, each of which, when so executed, shall be deemed an original, but all counterparts shall constitute but one and the same instrument. 8. Undefined Terms. All undefined capitalized terms used herein shall have the same meanings as set forth in the Lease. 9. Entire Agreement. This Amendment and the Lease together contain the entire understanding between the parties hereto and supersedes all prior agreements and understandings, if any, relating to the subject matter hereof or thereof. Any promises, representations, warranties or guarantees not herein or therein contained and hereinafter made shall have no force and effect unless in writing, and executed by the party or parties making such representations, warranties or guarantees. Neither this Amendment nor the Lease nor any portion or provisions hereof or thereof may be changed, modified, amended, waived, supplemented, discharged, cancelled or terminated orally or by any course of dealing, or in any manner other than by an agreement in writing, signed by the party to be charged. 10. Fees. Tenant shall pay all of its, Landlord's and Lender's respective legal fees and expenses in preparing, reviewing and negotiating this Agreement. -6- EXECUTED as of the day and year first above written. RANDOLPH/CLINTON LIMITED PARTNERSHIP, a Delaware limited partnership By: QRS 10-1 (ILL), INC., general partner By /s/ DONNA M. NEILEY ----------------------------------------------- Name: Donna M. Neiley Title: Senior Vice President INFORMATION RESOURCES, INC., a Delaware corporation By /s/ JOSEPH P. DURRETT ----------------------------------------------- Name: Joseph P. Durrett Title: Chief Executive Officer -7- LENDER'S CONSENT The undersigned, the successor to the lender under that certain loan in the amount of $26,000,000.00 made to Randolph/Clinton Limited Partnership, a Delaware limited partnership (the "Borrower"), which loan is evidenced by a certain Promissory Note dated as of December 29, 2000 and secured by property located in Chicago, Illinois, does hereby consent to the foregoing Fifth Amendment to Lease and Waiver by and between Borrower and Information Resources, Inc. LaSalle Bank National Association, Trustee for, the Certificate Holders of GE Capital Commercial Mortgage Corporation: Commercial Mortgage Pass-Through Certificates, Series 2000-1. By: GEMSA Loan Services, L.P. By: -------------------------- Name: Title: Dated: June __, 2003 -8- -----END PRIVACY-ENHANCED MESSAGE-----