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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE QUARTER ENDED MARCH 31, 2003
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM ____________ TO ______________
COMMISSION FILE NUMBER: 000-27577
HARRIS INTERACTIVE INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 16-1538028
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
135 CORPORATE WOODS, ROCHESTER, NY 14623
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (585) 272-8400
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 CHECKMARK WHETHER THE REGISTRANT IS AN ACCELERATED FILER (as defined
in Rule 12b-2 of the Exchange Act). Yes [ ] No [ ]
On March 31, 2003, 53,615,395 shares of the Registrant's Common Stock, $.001 par
value, were outstanding.
HARRIS INTERACTIVE INC.
FORM 10-Q
QUARTER ENDED MARCH 31, 2003
INDEX
PAGE
----
Part I: Financial Information
Item 1: Financial Statements (Unaudited)
Consolidated Balance Sheets at March 31, 2003
and June 30, 2002 3
Consolidated Statements of Operations for the three
and nine months ended March 31, 2003 and 2002 4
Consolidated Statements of Cash Flows for the nine months
ended March 31, 2003 and 2002 5
Notes to Unaudited Consolidated Financial Statements 6
Item 2: Management's Discussion and Analysis of Financial Condition
and Results of Operations 13
Item 3: Quantitative and Qualitative Disclosures About Market Risk 19
Item 4: Controls and Procedures 20
Part II: Other Information
Item 1: Legal proceedings 21
Item 2: Changes in Securities and Use of Proceeds 21
Item 3: Defaults Upon Senior Securities 21
Item 4: Submission of Matters to a Vote of Security Holders 21
Item 5: Other Information 21
Item 6: Exhibits and Reports on Form 8-K 21
Signatures 22
2
HARRIS INTERACTIVE INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
(UNAUDITED)
March 31, June 30,
2003 2002
---- ----
ASSETS
Current assets:
Cash and cash equivalents $ 16,449 $ 10,787
Marketable securities 18,836 17,070
Accounts receivable, less allowances of $300 and $474, respectively 18,902 20,791
Costs and estimated earnings in excess of billings on uncompleted
contracts 3,497 4,669
Other current assets 4,651 4,808
---------- ---------
Total current assets 62,335 58,125
Property, plant and equipment, net 7,862 9,703
Goodwill 63,677 63,428
Other intangibles, less accumulated amortization of $642 and $408,
respectively 808 1,042
Other assets 3,382 3,221
---------- ---------
Total assets $ 138,064 $ 135,519
========== =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current installment of long-term debt $ 161 $ 1,193
Accounts payable 4,943 7,417
Accrued expenses 8,783 11,081
Short-term borrowings 758 811
Billings in excess of costs and estimated earnings on
uncompleted contracts 11,617 9,824
---------- ---------
Total current liabilities 26,262 30,326
Long-term debt, excluding current installment 199 314
Other long-term liabilities 789 1,579
Stockholders' equity:
Common stock, $.001 par value, 100,000,000
shares authorized; 54,270,995 shares issued at March 31,
2003 and 53,020,087 shares issued at June 30, 2002 54 53
Additional paid in capital 178,609 177,014
Unamortized deferred compensation (79) (147)
Accumulated other comprehensive loss (300) (248)
Accumulated deficit (65,777) (71,402)
Officer loan - (277)
Less: Treasury stock at cost, 655,600 shares at
March 31, 2003 and June 30, 2002 (1,693) (1,693)
---------- ---------
Total stockholders' equity 110,814 103,300
---------- ---------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 138,064 $ 135,519
========== =========
The accompanying notes are an integral part of these consolidated financial
statements.
3
HARRIS INTERACTIVE INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
(UNAUDITED)
Three Months Ended Nine Months Ended
March 31, March 31,
-------------------------- ----------------------------
2003 2002 2003 2002
---- ---- ---- ----
Revenue from services $ 32,080 $ 28,323 $ 94,877 $ 70,261
Cost of services 16,141 14,536 49,637 38,129
---------- ---------- ---------- ----------
Gross profit 15,939 13,787 45,240 32,132
Operating expenses:
Sales and marketing expenses 2,352 3,023 6,487 7,376
General and administrative expenses 11,411 12,205 34,177 34,612
Restructuring (credits) charges and asset write-downs (273) (662) 6,222
---------- ---------- ---------- ----------
Operating income (loss) 2,449 (1,441) 5,238 (16,078)
Interest and other income 114 247 431 1,181
Interest expense (6) (22) (44) (65)
---------- ---------- ---------- ----------
Income (loss) before income taxes 2,557 (1,216) 5,625 (14,962)
---------- ---------- ---------- ----------
Income tax expense - - - -
---------- ---------- ---------- ----------
Net income (loss) 2,557 (1,216) 5,625 (14,962)
========== ========== ========== ==========
Basic net income (loss) per share $ 0.05 $ (0.02) $ 0.11 $ (0.34)
========== ========== ========== ==========
Diluted net income (loss) per share $ 0.05 $ (0.02) $ 0.10 $ (0.34)
========== ========== ========== ==========
Weighted average shares outstanding - basic 53,162,127 51,998,168 52,680,549 44,133,169
========== ========== ========== ==========
Weighted average shares outstanding - diluted 55,424,689 51,998,168 54,330,591 44,133,169
========== ========== ========== ==========
The accompanying notes are an integral part of these consolidated financial
statements.
4
HARRIS INTERACTIVE INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
For the Nine Months Ended
March 31,
--------------------------
2003 2002
---- ----
Cash flows from operating activities:
Net income (loss) $ 5,625 $ (14,962)
Adjustments to reconcile net income (loss) to net cash
used in operating activities -
Depreciation and amortization 4,130 5,312
Restructuring (credits) charges and asset write-offs (662) 6,222
Less: Cash outflows related to restructuring charges and
asset write-offs (925) (1,104)
Amortization of deferred compensation 68 361
Amortization of premium and discount on marketable securities 164 (6)
(Increase) decrease in -
Accounts receivable 1,837 6,875
Cost and estimated earnings in excess of billings on
uncompleted contracts 1,164 768
Other current assets 119 366
Other assets (160) 279
(Decrease) increase in -
Accounts payable (2,450) (4,051)
Accrued expenses (635) (5,102)
Other liabilities (823) 1,331
Billings in excess of costs and estimated earnings on
uncompleted contracts 1,816 (1,517)
-------- ---------
Net cash provided by (used in) operating activities 9,268 (5,228)
-------- ---------
Cash flows from investing activities:
Cash paid in connection with acquisitions, net of cash acquired (249) (3,775)
Purchase of marketable securities (24,130) (24,728)
Proceeds from maturities and sales of marketable securities 22,142 39,220
Capital expenditures (2,086) (1,991)
-------- ---------
Net cash (used in) provided by investing activities (4,323) 8,726
-------- ---------
Cash flows from financing activities :
Decrease in short-term borrowings (57) (541)
Decrease in long-term borrowings (1,150) (1,611)
Issuance of common stock and stock options 1,896 639
Purchase of treasury stock - (902)
-------- ---------
Net cash provided by (used in) financing activities 689 (2,415)
Effect of exchange rate changes on cash and cash equivalents 28 (392)
-------- ---------
Net increase in cash and cash equivalents 5,662 691
Cash and cash equivalents at beginning of period 10,787 10,585
-------- ---------
Cash and cash equivalents at end of period $ 16,449 $ 11,276
======== =========
The accompanying notes are an integral part of these consolidated financial
statements.
5
HARRIS INTERACTIVE INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
1. BASIS OF PRESENTATION
Harris Interactive Inc. (the "Company" or "Harris Interactive") is a global
market research, polling and consulting firm, using Internet-based and
traditional methodologies to provide our clients with information about the
views, behaviors and attitudes of people worldwide. Known for The Harris Poll
(R), the Company has over 45 years experience in providing clients with market
research and polling services. The accompanying unaudited consolidated financial
statements have been prepared in accordance with generally accepted accounting
principles for interim financial information and with the instructions to Form
10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of
the information and footnotes required by generally accepted accounting
principles for complete financial statements. In the opinion of management, all
adjustments (consisting of normal recurring adjustments) considered necessary
for a fair presentation have been included. The consolidated balance sheet as of
June 30, 2002 has been derived from the audited consolidated financial
statements of the Company.
These unaudited consolidated financial statements should be read in conjunction
with the consolidated financial statements and notes thereto included in the
Annual Report on Form 10-K for the fiscal year ended June 30, 2002, filed by the
Company with the Securities and Exchange Commission on September 30, 2002.
2. EARNINGS PER SHARE
The following table presents the shares used in computing basic and diluted
earnings per share ("EPS") for the three and nine months ended March 31, 2003.
Unexercised stock options to purchase 549,540 and 1,736,285 shares of the
Company's common stock for the three and nine months ended March 31, 2003,
respectively, at weighted average prices per share of $8.67 and $5.27,
respectively, were not included in the computations of diluted earnings per
share because the options exercise prices were greater than the average market
price of the Company's common stock during the respective periods. During
periods of losses from continuing operations, all potentially dilutive
securities are excluded from the calculation of diluted net loss per share as
the effect would be anti-dilutive.
- -----------------------------------------------------------------------------------------------------
Three Months ended Nine Months ended
March 31, 2003 March 31, 2003
- -----------------------------------------------------------------------------------------------------
Weighted average outstanding common shares for basic EPS 53,162,127 52,680,549
- -----------------------------------------------------------------------------------------------------
Diluted effect of outstanding stock options 2,262,562 1,650,042
- -----------------------------------------------------------------------------------------------------
Shares for diluted EPS 55,424,689 54,330,591
- -----------------------------------------------------------------------------------------------------
6
HARRIS INTERACTIVE INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
3. COMPREHENSIVE INCOME (LOSS)
The components of the Company's total comprehensive income (loss) were:
Three months ended Nine months ended
-------------------------- -----------------------------
March 31, March 31, March 31, March 31,
2003 2002 2003 2002
---- ---- ---- ----
Net income (loss) $ 2,557 $ (1,216) $ 5,625 $ (14,962)
Foreign currency translation
adjustments (56) (154) 6 (345)
Unrealized loss on
marketable securities (12) (99) (58) (175)
---------- ---------- ---------- ----------
Total comprehensive income (loss) $ 2,489 $ (1,469) $ 5,573 $ (15,482)
========== ========== ========== ==========
4. RECENT ACCOUNTING PRONOUNCEMENTS
SFAS 145, SFAS 146 and SFAS 148
In May 2002, the Financial Accounting Standards Board issued SFAS No. 145,
"Rescission of FASB Statements 4, 44 and 64, Amendment of FASB Statement No. 13
and Technical Corrections". SFAS No. 145 eliminates the requirement that gains
and losses from the extinguishment of debt be aggregated and, if material,
classified as an extraordinary item, net of the related income tax effect.
However, an entity is not prohibited from classifying such gains and losses as
extraordinary items, so long as they meet the criteria outlined in Accounting
Principles Board Opinion No. 30, "Reporting the Results of Operations -
Reporting the Effects of Disposal Occurring Events and Transactions. SFAS No.
145 also eliminates the inconsistency between the accounting for sale-leaseback
transactions and certain lease modifications that have economic effects that are
similar to sale-leaseback transactions. This statement is effective for
financial statements issued for fiscal years beginning after May 15, 2002, with
early adoption encouraged. The Company has adopted SFAS No. 145. The adoption
did not have an impact on the Company's financial statements.
In July 2002, the Financial Accounting Standards Board issued SFAS 146,
"Accounting for Costs Associated with Exit or Disposal Activities". SFAS No. 146
requires companies to recognize costs associated with exit or disposal
activities when they are incurred rather than at the date of a commitment to an
exit or disposal plan. Examples of costs covered by the standard include lease
termination costs and certain employee severance costs that are associated with
a restructuring, discontinued operation, plant closing, or other exit or
disposal activity. Previous accounting guidance was provided by Emerging Issues
Task Force ("EITF") Issue No. 94-3, "Liability Recognition for Certain Employee
Termination Benefits and Other Costs to Exit an Activity (including Certain
Costs Incurred in a Restructuring)". SFAS No. 146 replaces EITF Issue No. 94-3.
This standard is to be applied prospectively to exit or disposal activities
initiated after December 31, 2002. The Company adopted SFAS No. 146 on January
1, 2003. This adoption did not have an impact on the Company's financial
statements.
In December 2002, the Financial Accounting Standards Board issued SFAS No. 148,
"Accounting for Stock-Based Compensation - Transition and Disclosure." SFAS No.
148 provides alternative methods of transition for a voluntary change to the
fair value based method of accounting for stock-based employee compensation.
SFAS No. 148 also amends the disclosure requirements of SFAS No. 123 to require
prominent disclosures in both annual and interim financial statements about the
method of accounting for stock-based employee compensation and the effect of the
method used on reported results. The Company is required to follow the
prescribed format and provide the additional disclosures required by SFAS No.
148 in its annual financial statements for the year ending June 30, 2003 and is
also required to provide the disclosures in its quarterly reports containing
condensed financial statements for interim periods beginning with the quarterly
period ended March 31, 2003. The Company adopted SFAS 148 on January 1, 2003 and
elects to continue to account for its stock based compensation plans under the
provisions of APB Opinion No. 25, "Accounting for Stock Issued to Employees" as
are described in Note 10 of these Unaudited Consolidated Financial Statements.
The adoption did not have an impact on the Company's consolidated financial
statements.
In November 2002, the FASB published Interpretation No. 45, "Guarantor's
Accounting and Disclosure Requirements for Guarantees, Including Indirect
Guarantees of Indebtedness of Others." FIN 45 requires that a guarantor
recognize a liability for the fair value of an
7
HARRIS INTERACTIVE INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
4. RECENT ACCOUNTING PRONOUNCEMENTS CONT
obligation assumed under a guarantee and also discusses additional disclosures
to be made in the interim and annual financial statements of the guarantor
regarding obligations under certain guarantees. The initial measurement and
recognition requirements of FIN 45 are effective prospectively for guarantees
issued or modified after December 31, 2002. The Company adopted FIN 45 on
January 1, 2003 and there was no impact.
In January 2003, the FASB issued Interpretation No. 46, "Consolidation of
Variable Interest Entities." This standard clarifies the application of
Accounting Research Bulletin No. 51, "Consolidated Financial Statements," and
addresses consolidation by business enterprises of variable interest entities
(more commonly known as Special Purpose Entities or SPE's). FIN No. 46 requires
existing unconsolidated variable interest entities to be consolidated by their
primary beneficiaries if the entities do not effectively disperse risk among the
parties involved. FIN No. 46 also enhances the disclosure requirements related
to variable interest entities. This statement is effective for variable interest
entities created or in which an enterprise obtains an interest after January 31,
2003. The Company adopted FIN 45 on January 1, 2003 and there was no impact.
5. BUSINESS COMBINATIONS
On November 1, 2001 the Company acquired all of the issued and outstanding
shares of common stock, par value $.001 per share, of Total Research Corporation
("Total Research"), a Delaware corporation, located in Princeton, New Jersey,
pursuant to the Agreement and Plan of Merger, dated as of August 5, 2001, among
the Company, Total Merger Sub Inc., a Delaware corporation and direct, wholly
owned subsidiary of the Company, and Total Research. Pursuant to the merger
agreement, Total Merger Sub was merged with and into Total Research (the
"Merger"), with Total Research continuing as the surviving corporation and as a
direct, wholly owned subsidiary of the Company. Harris Interactive and Total
Research are engaged in complementary businesses in the market research and
polling industry. The acquisition has created revenue growth, cost savings and
other synergies including the ability to convert Total Research
traditional-based clients to the Internet, sell to one another's customers,
offer customers more comprehensive and diverse services, and use a combined
worldwide network.
Upon consummation of the Merger, each outstanding share of Total Research common
stock was converted into the right to receive 1.222 shares of Harris Interactive
common stock, par value $.001 per share. An aggregate of approximately
16,610,000 shares of common stock, with an estimated fair value of $41,259, was
issued to the stockholders of Total Research Corporation. The value was
determined using the average fair market value of the stock for the range of
trading days beginning August 2, 2001 and ending August 8, 2001. Additionally,
pursuant to the merger agreement, all outstanding options to purchase shares of
Total Research common stock were, upon consummation of the Merger, fully vested
and converted into an option to purchase 1.222 shares of Harris Interactive
common stock. As a result, the former option holders of Total Research received
from Harris Interactive options to purchase approximately 2,899,000 shares of
Harris Interactive common stock, with an estimated fair value of $3,609. The
acquisition was accounted for as a purchase in accordance with FAS 141 and is
included in the Company's financial statements commencing on November 1, 2001.
The Company recorded approximately $50,530 in goodwill and intangibles related
to the acquisition in accordance with the provisions of SFAS 142 (See Notes 8
and 9).
The pro forma information set forth below assumes the acquisition with Total
Research Corporation had occurred at the beginning of fiscal 2002, after giving
effect to adjustments for amortization of intangibles. The pro forma information
is presented for informational purposes only and is not necessarily indicative
of the results of operations that would have been achieved had the acquisition
been consummated at that time.
Three months ended Nine months ended
March 31, March 31,
-------------------------- --------------------------
2003 2002 2003 2002
---------- ---------- ---------- ----------
Revenue $ 32,080 $ 28,323 $ 94,877 $ 84,352
Net income (loss) 2,557 (1,216) 5,625 (22,924)
Income(loss) per share - basic $ 0.05 $ (0.02) $ 0.11 $ (0.44)
Income(loss) per share - diluted $ 0.05 $ (0.02) $ 0.10 $ (0.44)
8
HARRIS INTERACTIVE INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
5. BUSINESS COMBINATIONS CONT.
In September 2001, the Company acquired all of the issued and outstanding stock
of M&A Create Limited, a privately owned company headquartered in Tokyo, Japan,
in consideration of cash and shares of Harris Interactive common stock.
Additionally, in August 2001, the Company acquired all of the issued and
outstanding stock of Market Research Solutions Limited, a privately owned U.K.
company, headquartered in Oxford, England, in consideration of a combination of
cash and shares of Harris Interactive common stock.
Supplemental cash flow information and non-cash investing and financing
activities are as follows:
As of March 31, 2003
Acquisitions - Market Research Solutions Limited
And M&A Create Limited:
Fair value of assets acquired $ 4,500
Liabilities assumed 6,568
Stock issued 2,256
Acquisition - Total Research Corporation:
Fair value of assets acquired $ 13,443
Liabilities assumed 16,925
Stock issued 41,259
Fair value of stock options issued 3,609
6. RESTRUCTURING (CREDITS) CHARGES AND ASSET WRITE-DOWNS
During the second quarter of fiscal 2002, the Company recorded a restructuring
and asset write-down charge of $6,222 directly related to the operational
integration of Harris Interactive and Total Research. Management developed a
formal plan that included a 5% reduction in Harris Interactive staff of the
full-time workforce in Rochester, NY; New York, NY; Norwalk, CT and a few other
outlying locations. The affected employees were mainly support staff with
overlapping functions in the combined Company. Other integration actions
included the closing of our telephone center located in Youngstown, OH and
offices in New York, NY and Chicago, IL, which resulted in asset write-downs and
a reserve for lease commitments at these locations. The plan was formally
communicated to the affected employees during the second fiscal quarter of 2002.
The following table summarizes activity with respect to the restructuring
charges for the period ended March 31, 2003:
Asset write- Lease
Severance downs Commitments Total
--------- ------------ ----------- -----
Net charge fiscal 2002 $ 1,169 $ 2,792 $ 2,261 $ 6,222
Asset write-offs during fiscal 2002 0 (2,792) 0 (2,792)
Cash payments during fiscal 2002 (1,098) 0 (160) (1,258)
------- ------- ------- -------
Remaining reserve at June 30, 2002 71 0 2,101 2,172
Cash payments during fiscal 2003 (71) 0 (854) (925)
Fiscal 2003 second quarter adjustments (389) (389)
Fiscal 2003 third quarter adjustments (273) (273)
------- ------- ------- -------
Remaining reserve at March 31, 2003 $ 0 $ 0 $ 585 $ 585
======= ======= ======= =======
As of June 30, 2002, all actions were completed, however cash payments for lease
commitments will be made on a longer-term basis according to the contractually
scheduled payments of such commitments and will continue through 2005. The total
number of employees included in the charge and ultimately terminated was 82.
During the second and third quarters of fiscal 2003, the Company adjusted the
reserve for restructuring charges by $389 and $273, respectively, for lease
commitments that were no longer required. The adjustments are due to the Company
obtaining a release from its obligations under previous lease obligations.
9
HARRIS INTERACTIVE INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
7. GEOGRAPHIC INFORMATION
The Company identifies its segments based on the Company's geographic locations
and industries in which the Company operates. The Company currently has one
reportable segment. However, the Company is comprised of operations in the
United States, the United Kingdom and Japan. Non-U.S. market research is
comprised of operations in the United Kingdom and Japan. There were no
significant inter-segment transactions that materially affected the financial
statements and all inter-segment sales have been eliminated upon consolidation.
Geographic information for the three and nine months ended March 31, 2003 and
2002 are as follows:
U.S. U.K. Japan
Market Market Market
Research Research Research Total
-------- -------------- --------- -------
Three months ended March 31, 2003:
Revenue.................................. $ 24,874 $ 5,598 $ 1,608 $ 32,080
Long-lived assets........................ 62,529 9,123 3,205 74,857
Three months ended March 31, 2002:
Revenue.................................. $ 21,868 $ 5,305 $ 1,150 $ 28,323
Long-lived assets........................ 66,016 8,808 3,157 77,981
Nine months ended March 31, 2003:
Revenue.................................. $ 73,352 $ 16,896 $ 4,629 $ 94,877
Long-lived assets........................ 62,529 9,123 3,205 74,857
Nine months ended March 31, 2002:
Revenue.................................. $ 55,132 $ 11,701 $ 3,428 $ 70,261
Long-lived assets........................ 66,016 8,808 3,157 77,981
10
HARRIS INTERACTIVE INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
8. ACQUIRED INTANGIBLE ASSETS SUBJECT TO AMORTIZATION
As of March 31, 2003
--------------------------------
Gross carrying Accumulated
Amount Amortization
-------------- ------------
Amortized intangible assets
Contract-based intangibles $1,450 $ 642
------ ------
Total $1,450 $ 642
====== ======
March 31, March 31,
Aggregate amortization expense: 2003 2002
------ ------
For the three months ended $ 78 $ 78
------ ------
For the nine months ended $ 234 $ 163
------ ------
Estimated amortization expense:
For the year ending June 30, 2003 $ 312
------
For the year ending June 30, 2004 $ 312
------
For the year ending June 30, 2005 $ 312
------
For the year ending June 30, 2006 $ 106
------
9. GOODWILL
The changes in the carrying amount of goodwill for the period ended March 31,
2003 is as follows:
Balance as of July 1, 2001 $ 8,913
Acquisitions of Market Research Solutions Limited and M&A Create Limited
during the quarter ended September 30, 2001 $ 5,276
------------
Balance as of September 30, 2001 $ 14,189
Acquisition of Total Research during the quarter ended December 31, 2001 $ 49,488
------------
Balance as of March 31, 2003 $ 63,677
============
11
HARRIS INTERACTIVE INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
10. ACCOUNTING FOR STOCK-BASED COMPENSATION
The Company accounts for its stock-based compensation plans in accordance with
Accounting Principles Board ("APB") Opinion No. 25, Accounting for Stock Issued
to Employees. The pro forma information below illustrates the effect on net
income (loss) and net income (loss) per share based on provisions of Statement
of Financial Accounting Standard ("FAS") No. 123, Accounting for Stock-Based
Compensation, as amended by FAS 148, Accounting for Stock-Based Compensation -
Transition and Disclosure, issued in December 2002.
Three months ended Nine months ended
March 31, March 31,
-------------------------- --------------------------
2003 2002 2003 2002
---------- ---------- ---------- ----------
Net Income (Loss) - As Reported $ 2,557 $ (1,216) $ 5,625 $ (14,962)
Net Income (Loss) - Pro Forma 2,156 (1,582) 4,839 (15,987)
Basic Net Income (Loss) Per Share
- As Reported 0.05 (0.02) 0.11 (0.34)
Basic Net Income (Loss) Per Share
- Pro Forma 0.04 (0.03) 0.09 (0.36)
Diluted Net Income (Loss) Per Share
- As Reported 0.05 (0.02) 0.10 (0.34)
Diluted Net Income (Loss) Per Share
- Pro Forma 0.04 (0.03) 0.09 (0.36)
Compensation costs charges against income for options granted under the plans
that had an exercise price less than the market value of the underlying common
stock on the date of grant for the three and nine months ended March 31, 2003
totaled $23 and $68, respectively. Total compensation costs charged against
income for the three and nine months ended March 31, 2002 totaled $72 and $216,
respectively.
12
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
THE DISCUSSION IN THIS FORM 10-Q CONTAINS FORWARD-LOOKING STATEMENTS THAT
INVOLVE RISKS AND UNCERTAINTIES. THE STATEMENTS CONTAINED IN THIS FORM 10-Q THAT
ARE NOT PURELY HISTORICAL ARE FORWARD-LOOKING STATEMENTS WITHIN THE MEANING OF
SECTION 27A OF THE SECURITIES ACT OF 1933, AS AMENDED, AND SECTION 21E OF THE
SECURITIES EXCHANGE ACT OF 1934, AS AMENDED, INCLUDING STATEMENTS REGARDING
EXPECTATIONS, BELIEFS, INTENTIONS OR STRATEGIES REGARDING THE FUTURE. ALL
FORWARD-LOOKING STATEMENTS INCLUDED IN THIS DOCUMENT ARE BASED ON THE
INFORMATION AVAILABLE TO HARRIS INTERACTIVE ON THE DATE HEREOF, AND HARRIS
INTERACTIVE ASSUMES NO OBLIGATION TO UPDATE ANY SUCH FORWARD-LOOKING STATEMENT.
ACTUAL RESULTS COULD DIFFER MATERIALLY FROM THE RESULTS DISCUSSED HEREIN. THE
RISK FACTORS SET FORTH IN OTHER REPORTS OR DOCUMENTS HARRIS INTERACTIVE FILES
FROM TIME TO TIME WITH THE SECURITIES AND EXCHANGE COMMISSION, SUCH AS OUR 10-K
FILED SEPTEMBER 30, 2002 FOR THE FISCAL YEAR ENDED JUNE 30, 2002 WITH THE
SECURITIES AND EXCHANGE COMMISSION SHOULD BE REVIEWED.
OVERVIEW
Harris Interactive provides market research, polling and consulting services to
a broad range of companies, non-profit organizations and governmental agencies.
Since 1956, we have provided these services utilizing traditional market
research and polling methodologies, such as direct mail, telephone-based
surveys, mall intercepts, focus groups and in-person interviews. In September
1997, we began developing our Internet panel and building the technology
infrastructure to provide online market research and polling services. In
November 1997, we introduced our first Internet-based market research and
polling services.
We generally perform traditional and Internet-based custom research services on
a fixed fee basis in response to client-generated requests. We sell our
multi-client research services on a periodic subscription basis, typically
annually. Harris Interactive Service Bureau performs research for other market
research firms on a project-by-project basis in response to requests from those
firms.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
The preparation of financial statements requires management to make estimates
and assumptions that affect amounts reported therein. The most significant of
these involving difficult or complex judgements in fiscal 2003 include:
o Revenue recognition,
o Provision for uncollectible accounts,
o Valuation of goodwill and intangible assets and other long-lived assets,
o Realizability of deferred tax assets, and
o HIpoints(TM) loyalty program.
In each situation, management is required to make estimates about the effects of
matters or future events that are inherently uncertain.
Revenue under fixed fee arrangements is recognized on a proportional performance
basis based on the ratio of costs incurred to total estimated costs. This
revenue includes amounts billed to our clients to cover subcontractor costs and
other direct expenses. Provisions for estimated contract losses, if any, are
made in the period such losses are determined. Subscription revenue is
recognized upon delivery of the research results. Revisions to estimated costs
and differences between actual contract losses and estimated contract losses
would affect both the timing of revenue allocated and the results of operations
of the Company.
The Company maintains provisions for uncollectible accounts and estimated losses
resulting from the inability of its customers to remit payments. If the
financial condition of customers were to deteriorate, thereby resulting in an
inability to make payments, additional allowances may be required.
The Company assesses the carrying value of its identifiable intangible assets,
long-lived assets and goodwill whenever events or changes in circumstances
indicate that the carrying amount of the underlying asset may not be
recoverable. Certain factors which may occur and indicate that an impairment
exists include, but are not limited to: significant under performance relative
to historical or projected future operating results; significant changes in the
manner of the Company's use of the underlying assets; and significant adverse
industry or market trends. In the event that the carrying value of assets is
determined to be unrecoverable, the Company would record an adjustment to the
respective carrying value. With respect to goodwill, the Company will complete
its two-step impairment test on an annual basis.
The Company evaluates the valuation allowance and potential realization of its
deferred tax assets on an ongoing basis. In the determination of the valuation
allowance, the Company has considered future taxable income. Should the Company
determine that it is more likely than not that it will realize certain of its
deferred tax assets in the future, an adjustment would be required to reduce the
existing valuation allowance and increase income.
13
Since July 2001, the Company has had a loyalty program (HIpointsTM) whereby
points are awarded to market survey respondents who register for the Company's
online panel, complete online surveys and refer others to join the online panel.
The earned points, which are non-transferable, may be redeemed for gifts from a
specific product folio. The Company maintains a reserve for the obligation of
future redemption of outstanding points, calculated based on the expected
redemption rate of the points. This expected redemption rate is estimated based
on research from other loyalty and retention programs and the Company's actual
redemption rates to date. An actual redemption rate that differs from this
estimated redemption rate may have a material impact on the results of
operations of the Company.
BUSINESS COMBINATIONS
On November 1, 2001 the Company acquired all of the issued and outstanding
shares of common stock, par value $.001 per share, of Total Research Corporation
("Total Research"), a Delaware corporation, headquartered in Princeton, New
Jersey, pursuant to the Agreement and Plan of Merger, dated as of August 5,
2001, among the Company, Total Merger Sub Inc., a Delaware corporation and
direct, wholly owned subsidiary of the Company, and Total Research. Pursuant to
the merger agreement, Total Merger Sub was merged with and into Total Research
(the "Merger"), with Total Research continuing as the surviving corporation and
as a direct, wholly owned subsidiary of the Company. Harris Interactive and
Total Research are engaged in complementary businesses in the market research
and polling industry. The acquisition has created revenue growth, cost savings
and other synergies including the ability to convert Total Research
traditional-based clients to the Internet, sell to one another's customers,
offer customers more comprehensive and diverse services, and use a combined
worldwide network. For example, the Company was able to build on Total
Research's prior relationship with a key customer to win unrelated
Internet-based work in excess of $1 million over the past year.
Upon consummation of the Merger, each outstanding share of Total Research common
stock was converted into the right to receive 1.222 shares of Harris Interactive
common stock, par value $.001 per share. An aggregate of approximately
16,610,000 shares of common stock, with an estimated fair value of $41.3
million, was issued to the stockholders of Total Research Corporation. The value
was determined using the average fair market value of the stock for the range of
trading days beginning August 2, 2001 and ending August 8, 2001. Additionally,
pursuant to the merger agreement, all outstanding options to purchase shares of
Total Research common stock were, upon consummation of the Merger, fully vested
and converted into an option to purchase 1.222 shares of Harris Interactive
common stock. As a result, the former option holders of Total Research received
from Harris Interactive options to purchase approximately 2,899,000 shares of
Harris Interactive common stock, with an estimated fair value of $3.6 million.
The acquisition was accounted for as a purchase in accordance with FAS 141 and
is included in the Company's financial statements commencing on November 1,
2001.
The Company recorded approximately $50.5 million in goodwill and intangibles
related to the acquisition in accordance with the provisions of SFAS 142 (See
Notes 8 and 9).
14
RESTRUCTURING (CREDITS) CHARGES AND ASSET WRITE-DOWN CHARGE
During the second quarter of fiscal 2002, the Company recorded a restructuring
and asset write-down charge of $6.2 million directly related to the operational
integration of Harris Interactive and Total Research. Management developed a
formal plan that included a 5% reduction in Harris Interactive staff of the
full-time workforce in Rochester, NY; New York, NY; Norwalk, CT and a few other
outlying locations. The affected employees were mainly support staff with
overlapping functions in the combined Company. Other integration actions
included the closing of our telephone center located in Youngstown, OH and
offices in New York, NY and Chicago, IL, which resulted in asset write-downs and
a reserve for lease commitments at these locations. The plan was formally
communicated to the affected employees during the second fiscal quarter of 2002.
The Company realized approximately $1.1 million in non-cash savings and $1.9
million in cash savings in fiscal 2002. The Company estimates non-cash savings
of approximately $2.1 million and cash savings of approximately $5.6 million, in
fiscal 2003. The following table summarizes activity with respect to the
restructuring charges for the period ended March 31, 2003:
Asset write- Lease
Severance downs Commitments Total
--------- ------------ ----------- -----
Net charge fiscal 2002 $ 1,169 $ 2,792 $ 2,261 $ 6,222
Asset write-offs during fiscal 2002 0 (2,792) 0 (2,792)
Cash payments during fiscal 2002 (1,098) 0 (160) (1,258)
------- ------- ------- -------
Remaining reserve at June 30, 2002 71 0 2,101 2,172
Cash payments during fiscal 2003 (71) 0 (854) (925)
Fiscal 2003 second quarter adjustment - - (389) (389)
Fiscal 2003 third quarter adjustment - - (273) (273)
------- ------- ------- -------
Remaining reserve at March 31, 2003 $ 0 $ 0 $ 585 $ 585
======= ======= ======= =======
As of June 30, 2002, all actions were completed, however cash payments for lease
commitments have been, and will continue to be, made on a longer-term basis
according to the contractually scheduled payments of such commitments and will
continue through 2005. During the second and third quarters of fiscal 2003, the
Company adjusted the reserve for restructuring charges by $389 and $273,
respectively, for lease commitments that were no longer required. The
adjustments are due to the Company obtaining a release from its obligations
under lease obligations previously included in restructuring charges.
The total number of employees included in the charge and ultimately terminated
was 82.
15
RESULTS OF OPERATIONS
The following table sets forth for the periods indicated our results of
operations expressed as a percentage of revenue:
Three months ended Nine months ended
March 31, March 31,
------------------- ------------------
2003 2002 2003 2002
---- ---- ---- ----
Revenue from services 100% 100% 100% 100%
Cost of services 50 51 52 54
------ ------ ------ ------
Gross profit 50 49 48 46
------ ------ ------ ------
Operating expenses:
Sales and marketing 7 11 7 11
General and administrative 36 43 36 49
Restructuring (credits) charges and
asset write-downs (1) (1) 9
------ ------ ------ ------
Operating income (loss) 8 (5) 6 (23)
Interest and other income, net - 1 - 2
------ ------ ------ ------
Net income (loss) 8 (4) 6 (21)
====== ====== ====== ======
THREE MONTHS ENDED March 31, 2003 AND 2002
Revenue from services. Total revenue increased 13% to $32.1 million for the
quarter ended March 31, 2003, from $28.3 million for the quarter ended March 31,
2002. This increase in quarterly revenue was primarily driven by the $3 million
increase in U.S. revenue, or 14%, to $24.9 million for the quarter ended March
31, 2003. The increased U.S. revenue was attributable to growth in several
markets, most prominently healthcare and customer loyalty management. Although
revenue in the United Kingdom was lower than the Company's expectations because
of a continuing British market research industry recession, revenue in that
market increased 6% over the prior year third quarter to $5.6 million. Revenue
in Japan increased 40%, to $1.6 million, with continued benefit from new
contracts with selected customers.
Gross profit. Gross profit increased to $15.9 million, or 50% of revenue, during
the third quarter of fiscal 2003, from $13.8 million or 49% of revenue for the
same prior year quarter, primarily due to the growth in Internet-related
business relative to overall revenue growth. We consider all of the revenue from
a project to be Internet-based whenever 50% or more of the surveys used were
completed over the Internet. Revenue from Internet-based services was $15.3
million, or 48% of total revenue, for the third quarter of fiscal 2003, compared
with $12.2 million, or 43% of revenue for the third quarter of fiscal 2002. This
increase in Internet revenue was due to the acquisition of new Internet-based
projects as well as the conversion of existing, traditional work to the
Internet. The Company's service bureau ("HISB"), which is 100% Internet based,
has also played a significant role in the growth of Internet revenue. HISB
projects generate higher gross margins due to the fact that they are data
collection only and typically do not include as much professional time as custom
Internet-based research work. For the third quarter ended March 31, 2003, HISB
achieved an all time high in revenue, as the Company's Internet-based research
business model continues to mature and expand, primarily in the United States.
Sales and marketing. Sales and marketing expenses decreased to $2.4 million, or
7% of revenue, for the third quarter of fiscal 2003 compared with $3 million, or
11% of revenue, from the same prior year quarter. As a percentage of revenue,
sales and marketing expenses decreased four percentage points. The decrease is
attributable to reductions in headcount and related expenses, reflecting the
Company's continuing efforts to reduce costs, as well as productivity
improvements from the increased experience level of the Company's sales force.
The quarter's sales and marketing costs as a percentage of sales are in line
with the prior fiscal 2003 quarters.
General and administrative. General and administrative expenses decreased to
$11.4 million, or 36% of revenue, for the quarter ended March 31, 2003, as
compared to $12.2 million or 43% of revenue for the same prior year quarter. The
decrease reflects reductions in headcount and related expenses, as well as
depreciation and equipment rental and maintenance expenses, and reflects the
Company's continuing efforts to reduce costs. Third quarter depreciation and
equipment rental and maintenance expenses decreased by a combined $0.4 million,
or 19%, as a result of the fixed asset write-offs and lease terminations in
connection with the Company's fiscal 2002 second quarter restructuring charge
which reduced the level of gross fixed assets. While the Company continues to
maintain the major systems and assets established in prior years, overall
capital expenditures continue to decrease.
16
Interest and other income, net. Net interest and other income totaled $0.1
million for the quarter ended March 31, 2003 compared with $0.2 million for the
quarter ended March 31, 2002. The decrease was primarily attributable to a lower
average marketable securities balance and interest rates for fiscal 2003
compared to the prior year.
NINE MONTHS ENDED MARCH 31, 2003 AND 2002
Revenue from services. Total revenue for the first nine months of fiscal 2003
increased 35%, from $70.2 million in fiscal 2002 to $94.9 million in fiscal
2003. This increase in revenue was primarily driven by the $18.2 million
increase in U.S. revenue, or 33%, to $73.4 million for the nine months ended
March 31, 2003. The increased U.S. revenue was partially attributable to the
incremental revenue generated from the acquisition of Total Research Corporation
as well as overall growth in several U.S. markets, most prominently healthcare
and customer loyalty management. Additionally, excluding the Total Research
acquisition, the Company recognized a modest increase in U.S. revenue related to
our expanding Internet client base and Internet-based market research services,
which contributed $41.7 million in total Internet-based revenue for the nine
months ended March 31, 2003, as compared to $28.3 million for the same prior
year period.
Revenue for the United Kingdom and Japan for the first nine months of fiscal
2003 increased from the comparable prior year period by $5.2 million, or 44%,
and $1.2 million, or 35%, respectively. The increase in U.K. revenue was
primarily attributable to the incremental revenue generated from the acquisition
of Total Research in November 2001. Revenue from Japan increased with continued
benefit from new contracts with selected customers throughout the period.
Gross profit. Gross profit was $45.2 million, or 48% of revenue, for the first
nine months of fiscal 2003, compared with $32.1 million, or 46% of revenue, for
the same period in fiscal 2002. The improvement in gross margin percentage
resulted primarily from the growth in Internet-related business relative to
overall revenue growth. Revenue from Internet-based services was $42.0 million,
or 44% of total revenue, for the nine months ended March 31, 2003, compared with
$28.3 million, or 40% of revenue for the comparable period of fiscal 2002. This
increase in Internet revenue was due to the acquisition of new Internet-based
revenue as well as the conversion of existing, traditional work to the Internet.
Through increasing the level of Internet related work, the Company has been able
to use our existing panel for research in place of more expensive outsourcing
and telephone costs. HISB has also played a significant role in the growth of
Internet revenue. HISB projects generate higher gross margins due to the fact
that they are data collection only and typically do not include as much
professional time as customer Internet-based research work.
Sales and marketing. Sales and marketing expenses for the first nine months of
fiscal 2003 were $6.5 million, or 7% of revenue, compared with $7.4 million, or
11% of revenue, for the comparable period in fiscal 2002. As a percentage of
revenue, sales and marketing expenses decreased four basis points. The decrease
is attributable to reductions in headcount and related expenses, reflecting the
Company's continuing efforts to reduce costs, as well as productivity
improvements from the increased experience level of the Company's sales force
with Harris Interactive sales and marketing strategies. The Company has been
able to maintain consistent sales and marketing costs as a percentage of sales
throughout the fiscal year and the annual expenditures support the Company's
overall business model established in the prior year.
General and administrative. General and administrative expenses were $34.2
million, or 36% of revenue, for the first nine months of fiscal 2003 compared
with $34.6 million, or 49% of revenue, for the comparable period in fiscal 2002.
The thirteen basis points decrease reflects reductions in headcount and related
expenses, rent expense and depreciation expense, and reflects the Company's
continuing efforts to reduce costs. Depreciation and equipment rental and
maintenance expenses decreased by a combined $1.5 million, or 23%, as a result
of the fixed asset write-offs and lease terminations in connection with the
Company's fiscal 2002 second quarter restructuring charge which reduced the
level of gross fixed assets. The cost savings from the prior year restructuring
plan were partially offset by increased database development costs related to
the establishment of our Western European panel as well as the continued
expansion of our U.S. panel, which are expected to continue throughout fiscal
2003. As part of its cost savings efforts, the Company has eliminated all but
two telephone centers, retaining one each in the United States and the United
Kingdom primarily to support committed projects with longer-term, predictable
needs. The balance of telephone data collection has been migrated to lower cost
providers, including some in foreign countries.
Interest and other income, net. Net interest and other income totaled $0.4
million for the first nine months of fiscal 2003 compared with $1.1 million for
fiscal 2002. The decrease was primarily attributable to a lower average
marketable securities balance and interest rates for fiscal 2003 compared to the
prior year.
17
SIGNIFICANT FACTORS AFFECTING COMPANY PERFORMANCE
In the past, the Company has reported EBITDA (Earnings Before Interest, Taxes,
Depreciation and Amortization), which is a non-GAAP financial measure as defined
under SEC Regulation G. The Company has reported EBITDA because management
believes that EBITDA, although not a GAAP measurement, is widely understood and
is an additional tool that assists investors in evaluating current operating
performance of the business without the effect of the non-cash depreciation and
amortization expenses. Management internally monitors EBITDA to monitor cash
flow unencumbered by non-cash items. While instructive, EBITDA should be
considered in addition to, rather than as a substitute for, operating income,
net income or cash flows from operations or any other GAAP measure of
performance or liquidity.
Globally, for the three and nine months ended March 31, 2003, EBITDA was $3.9
million, or 12% of revenue, and $9.4 million, or 10% of revenue, respectively,
as reconciled with the most directly comparable financial measure calculated in
accordance with GAAP within the following table.
Three months ended Nine months ended
March 31, March 31,
------------------- ------------------
2003 2002 2003 2002
------ ------ ------ ------
Net income (loss) 2,557 (1,216) 5,625 (14,962)
Less: interest and other income, net (108) (225) (387) (1,116)
Plus: income tax expense - - - -
Plus: depreciation and amortization 1,443 1,764 4,200 5,510
------ ------ ------ ------
EBITDA 3,892 323 9,438 (10,568)
------ ------ ------ ------
Net income (loss) as a % of revenue 8% (4%) 6% (21%)
------ ------ ------ ------
EBITDA as a % of revenue 12% 1% 10% 15%
====== ====== ====== ======
By comparison, a published index reports average EBITDA as a percentage of
revenue of 5.9% for the U.S. market research industry as a whole.
The primary factors driving the growth in the Company's gross profit, EBITDA and
net income (loss) are growth in revenue and the mix of the revenue derived from
Internet versus Non-Internet work. The Company's model is based upon the premise
that Internet work is more profitable than traditional work, due to the
comparatively low variable data collection cost of Internet work. The model,
which the Company believes reasonably represents comparability of traditional
and Internet-based projects, is as follows:
Traditional Internet-Based
----------- --------------
Revenue 100% 100%
Cost of Services
(as a % of Revenue)
Direct Payroll 25% 30%
Variable Data Collection 40% 5% - 10%
Variable Gross Profit 35% 60% - 65%
(as a % of Revenue)
In addition to the Variable Data Collection Costs, the Internet-Based model has
additional fixed costs associated with the development and maintenance of
underlying databases and Internet technology. Such costs decrease EBITDA and Net
Income for Internet-based work. In general, however, due to the interplay
between the variable and fixed components of cost, the premise is that, as the
percentage of Internet work increases, and assuming that project professional
service components and pricing are comparable and operating expenses continue to
be managed in the ordinary course, Net Income and EBITDA as a percentage of
revenue should also increase. Based upon the operation of the model, the Company
believes that net operating margins of its business can grow steadily over a
period of years with a potential as high as EBITDA in the range of high teens to
20%. Such growth is predicated upon the Company's global mix of Internet-based
versus traditional work, continued growth of revenue with the ability to
continue to achieve reasonable pricing, controlled growth of operating expenses,
and maintenance and continued growth of the respondent database sufficient to
support the Company's business at reasonable per-unit costs. The model should be
viewed as illustrative and not as an actual measure or predictor of any
particular project or the Company's projects as a whole at any given point in
time.
Regarding the Company's ability to continue to generate revenue, the Company
must constantly develop new business, both for growth and to replace non-renewed
projects. Although work for no one client constitutes more than 5% of the
Company's revenue, the Company has had to, and in the future will likely have
to, find significant amounts of replacement and additional revenue as customer
relationships and work for continuing customers change. The Company's ability to
generate revenue is dependent not only on execution of its business plan but
also on general market factors outside of its control.
18
Regarding the mix of work, for the quarter ended March 31, 2003, the Company's
actual Internet mix was 48% on a global basis and 61% in the United States
alone. Although the Company continues to work to convert projects to the
Internet in the United States, the primary new growth opportunity is in Europe,
where the ability to change the Internet mix is dependent upon the Company's
ability to continue to expand the size of its respondent panel and increase
customer acceptance of Internet-based work. The globalization of the Internet
portion of the Company's business has commenced and will ramp up over the next
several years.
The Company's database of Internet survey respondents continues to be a critical
component of its success. The Company believes that its multi-million
participant U.S. database continues to be adequate to service its Internet-based
business. In fiscal 2003, the Company launched an initiative to build a European
database as well. To that end, it has entered into name acquisition agreements
with a major Internet portal and others. Names are being added regularly to the
European database and the Company is now conducting Internet-based projects in
Europe. The Company will continue to expand the European panel in fiscal 2003
and beyond in order to support growth of Internet-based research in Europe. Both
in the U.S. and in Europe, the Company continues efforts to enhance existing and
build new specialty panels. For example, it has entered into joint development
activities with IMS Health, Inc. to build physician specialty panels. The amount
of the Company's investments in names for its databases will continue to vary,
particularly quarter by quarter, based upon factors such as panel availability,
opportunities that arise for acquisition or development of panels in specialty
or under-represented groups, and attrition.
Internet databases by their nature have participant attrition. There are no
standard measurement systems for such attrition, particularly in the Internet
survey response field. Measurement involves complex variables. For example,
determining attrition, by lack of response from a panelist for a set length of
time since last contact, is not necessarily reflective of expected long-term
attrition. The panelist may not have had an interest in responding regarding
particular survey topics offered over a period of time but may, after an
absence, respond to a later survey covering a topic of particular interest to
the respondent. Thus, percentage rates of attrition may not be comparable or
meaningful within the industry. When the Company first developed its Internet
model, it expected attrition of panel members to be in the range of 20%
annually. With the Company's increased expertise gained from several years of
investment in panel management techniques, it monitors panel fatigue and
attrition in multiple ways. Its overall attrition rates by most measures,
however, are significantly less than originally anticipated.
LIQUIDITY AND CAPITAL RESOURCES
The Company maintains a line of credit with a commercial bank providing
borrowing availability up to $5.0 million in fiscal 2003 and 2002, at the prime
rate. The prime rate in effect at March 31, 2003 was 4.25% and borrowings under
this arrangement are due upon demand. There were no borrowings outstanding under
this agreement at March 31, 2003 or 2002. The line of credit is collateralized
by the assets of the Company.
As of March 31, 2003, the Company had short-term and long-term borrowings of
$0.8 million and $0.4 million, respectively, primarily limited to operations in
Japan. Interest rates related to the borrowings range from 1.8% to 3.0% with
maturity dates extending to 2006. There are no restrictive covenants associated
with these borrowings.
Net cash provided by operating activities was $9.3 million for the first nine
months of fiscal 2003 compared with net cash used in operating activities of
$5.2 million for the same period during fiscal 2002. The positive cash flow in
fiscal 2003 was primarily the result of the Company generating net income in
fiscal 2003, compared to the funding of net losses, including the restructuring
and asset impairment charge, in fiscal 2002.
Net cash used in investing activities was $4.3 million for the first nine months
of fiscal 2003, compared with net cash provided by investing activities of $8.7
million for the same period in the prior year. The decrease resulted from the
maturity and liquidation of fewer marketable securities in fiscal 2003 compared
to fiscal 2002. Investing activities for the first nine months of fiscal 2002
also included the use of $3.8 million related to acquisitions. Capital
expenditures of $2.1 million for the first nine months of fiscal 2003 were
consistent with the $2.0 million for the same prior year period.
Net cash provided by financing activities was $0.7 million for the first nine
months of fiscal 2003, compared with net cash used in financing activities of
$2.4 million for the same period during fiscal 2002. The change is due to fewer
repayments of long-term and short-term debt obligations for the period in fiscal
2003 compared to fiscal 2002 as well as $1.9 million in proceeds from the
issuance of common stock and exercise of stock options in fiscal 2003 as
compared to $0.6 million from the same prior year period. Financing activities
for the first nine months of fiscal 2002 also included the repurchase of 422,900
shares being held as Treasury Stock. There were no buy backs of Treasury Stock
in the first nine months of fiscal 2003, although the buy back agreement is
still in effect
Our capital requirements depend on numerous factors, including market acceptance
of our services, the resources we allocate to the continuing development of our
Internet infrastructure and Internet panel, marketing and selling of our
services, our promotional activities, acquisition activity and other factors.
Management anticipates that continuing expenditures for property, plant and
equipment and working capital requirements throughout fiscal 2003 will be
consistent with fiscal 2002.
At March 31, 2003, the Company had $35.3 million in cash and marketable
securities. The Company believes that its existing funds and funds generated
from operations will be sufficient to support its planned operations for the
foreseeable future.
19
ITEM 3 - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The carrying values of financial instruments including cash and cash
equivalents, marketable securities, accounts receivable and accounts payable,
approximate fair value because of the short maturity of these instruments.
We have historically had very low exposure to changes in foreign currency
exchange rates. Therefore we have not used derivative financial instruments to
manage foreign currency fluctuation risk. While the United Kingdom now
contributes significantly to our revenue, we continue to believe our exposure to
foreign currency fluctuation risk is low. As we continue to expand globally, the
risk of foreign currency exchange rate fluctuation may increase. Therefore, in
the future, we may consider utilizing derivative instruments to mitigate such
risks.
ITEM 4 - CONTROLS AND PROCEDURES
(a) Evaluation of disclosure controls and procedures. Based on their evaluation
as of a date within 90 days of the filing date of this report, the Company's
principal executive officer and principal financial officer have concluded
that the Company's disclosure controls and procedures (as defined in Rules
13a-14(c) and 15d-14(c) under the Securities Exchange Act of 1934 (the
"Exchange Act") are effective to ensure that information required to be
disclosed by the Company in reports that it files or submits under the
Exchange Act is recorded, processed, summarized and reported within the time
periods specified in Securities and Exchange Commission rules and forms.
(b) Changes in internal controls. There were no significant changes in the
Company's internal controls or in other factors that could significantly
affect these controls subsequent to the date of their evaluation. There were
no significant deficiencies or material weaknesses in the Company's internal
controls, and therefore there were no corrective actions taken.
20
PART II: OTHER INFORMATION
ITEM 1 - LEGAL PROCEEDINGS
In the normal course of business, the Company is at times subject to pending and
threatened legal actions and proceedings. After reviewing pending and threatened
actions and proceedings with counsel, management believes that the outcome of
such actions or proceedings is not expected to have a material adverse effect on
our business, financial condition or results of operations.
ITEM 2 - CHANGES IN SECURITIES AND USE OF PROCEEDS
On December 6, 1999, the Securities and Exchange Commission declared effective
the Company's Registration Statement on Form S-1 (No. 333-87311). Pursuant to
this Registration Statement, the Company completed an initial public offering of
6,670,000 shares of its common stock. Proceeds to the Company from the Offering
totaled approximately $85.5 million.
The Company issued and sold an aggregate of 737,701 shares of its common stock
to employees during the third quarter of fiscal 2003, upon the exercise of
options granted under the Company's 1997 stock option plan, at prices ranging
from of $0.35 to $3.70 per share, for an aggregate cash consideration of
$469,574. As to each employee of the Company who was issued the common stock
described in this paragraph, the Company relied on the exemption from
registration provided by Rule 701 under the Securities Act of 1933, as amended.
Each person was granted an option to purchase shares of the Company's common
stock pursuant to a written contract between such person and the Company, and
the Company was eligible to use Rule 701 at the time the options herein reported
as exercised were originally granted in accordance with Rule 701(b).
During the period from December 6, 1999 through March 31, 2003, the Company used
a portion of the proceeds from its initial public offering as follows: (i)
approximately $56.1 million of net cash used for working capital and general
corporate purposes, including capital expenditures, (ii) approximately $11.4
million of net cash used for the expansion of our Internet panel, (iii)
approximately $11.3 million of net cash for business acquisitions, and (iv)
approximately $4.0 million of net cash used in connection with the repayment of
short-term and long-term borrowings.
ITEM 3 - DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM 5 - OTHER INFORMATION
None.
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
(a) - Exhibits
10.1 Form of Change of Control Agreement entered into by the Company with each
of the following individuals:
Dennis K. Bhame Arthur E. Coles
Gareth Davies James E. Fredrickson
Ronald B. Knight Peter J. Milla
Gregory T. Novak George H. Terhanian
David B. Vaden
99.1 Certificate of the Chief Executive Officer pursuant to 18 U.S.C.ss.1350
(Section 906 of the Sarbanes-Oxley Act of 2002).
99.2 Certificate of the Chief Financial Officer pursuant to 18 U.S.C.ss.1350
(Section 906 of the Sarbanes-Oxley Act of 2002).
(b) - Reports on Form 8-K
None.
21
SIGNATURE
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,
May 14, 2003 Harris Interactive Inc.
By /s/ BRUCE A. NEWMAN
----------------------------------------------
Bruce A. Newman
Chief Financial Officer, Secretary and Treasurer
(On Behalf of the Registrant and as Principal
Financial and Accounting Officer)
22
CERTIFICATION
I, Gordon S. Black, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Harris Interactive
Inc.;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement 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 officer 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 we 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 officer and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of
the registrant's board of directors (or persons performing the equivalent
function);
(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 officer 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.
Date: May 14, 2003 Signature: /s/ GORDON S. BLACK
------------------------------------
Gordon S. Black
Chairman and Chief Executive Officer
(Principal Executive Officer)
23
CERTIFICATION
I, Bruce A. Newman, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Harris Interactive
Inc.;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement 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 officer 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 we 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 officer and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of
the registrant's board of directors (or persons performing the equivalent
function);
(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
7. The registrant's other certifying officer 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.
Date: May 14, 2003 Signature: /s/ BRUCE A. NEWMAN
------------------------------------
Bruce A. Newman
Chief Financial Officer, Secretary
And Treasurer
(Principal Financial Officer)
24
Exhibit Index
10.1 Form of Change of Control Agreement entered into by the Company with each
of the following individuals:
Dennis K. Bhame Arthur E. Coles
Gareth Davies James E. Fredrickson
Ronald B. Knight Peter J. Milla
Gregory T. Novak George H. Terhanian
David B. Vaden
99.1 Certificate of the Chief Executive Officer pursuant to 18 U.S.C.ss.1350
(Section 906 of the Sarbanes-Oxley Act of 2002).
99.2 Certificate of the Chief Financial Officer pursuant to 18 U.S.C.ss.1350
(Section 906 of the Sarbanes-Oxley Act of 2002).
25
Exhibit 10.1
During the three month period ended March 31, 2003, the following change of
control agreement was entered into between the Company and each of the following
individuals:
- - Dennis K. Bhame
- - Arthur E. Coles
- - Gareth Davies
- - James E. Fredrickson
- - Ronald B. Knight
- - Peter J. Milla
- - Gregory T. Novak
- - George H. Terhanian
- - David B. Vaden
26
AGREEMENT
This Agreement is made as of January 27, 2003 by and between HARRIS
INTERACTIVE INC., a Delaware corporation with offices at 135 Corporate Woods,
Rochester, New York 14623 ("Harris") and ____________________ ("Employee").
WHEREAS, Employee is employed by Harris in a senior managerial role,
and Harris desires to provide additional employment incentives to Employee,
NOW THEREFORE, in consideration of the continued employment of Employee
by Harris, the mutual promises herein contained, and other good and valuable
consideration, the receipt of which is hereby acknowledged, the parties agree as
follows:
1. Definitions.
(a) "Bonus" shall mean non-salary, discretionary cash compensation,
whether paid under a performance based bonus plan or otherwise.
(b) "Cause" shall mean (i) refusal or substantial failure to perform
(other than due to physical or mental disability), or misconduct in the
performance of, the ordinary and customary duties of Employee as reasonably
required by Harris or a New Employer, provided that such refusal, failure, or
misconduct has continued after Harris or the New Employer has given Employee
five business days written notice of same, (ii) overt and willful disobedience
of orders or directives issued by the Board of Directors of Harris or the New
Employer that are within the reasonable scope of Employee's duties to Harris or
the New Employer, (iii) conviction of or commission of any felony, whether or
not related to performance of duties under this Agreement, (iv) commission of
any other illegal act if committed in connection with the performance of duties
for Harris or the New Employer if such act could reasonably tend to bring Harris
or Employee into disrepute in the community, or (v) material violation of
Harris's or the New Employer's written rules, regulations or policies of general
application provided that such violation has continued after Harris or the New
Employer has given Employee five business days written notice of same.
(c) A "Change of Control" shall be deemed to have occurred if:
(i) a majority of the members of the Board of Directors changes
within any twelve month period;
(ii) the stockholders of Harris approve a complete liquidation or
dissolution of Harris, except in connection with a recapitalization or
other transaction which does not otherwise constitute a Change of
Control for purposes of subsection (iii) or (iv) below;
(iii) any consolidation or merger of Harris occurs; or
(iv) any sale, lease, exchange or other transfer (in one
transaction or a series of related transactions) of assets accounting
for fifty percent (50%) or more of total assets or fifty percent (50%)
or more of the total revenues of Harris occurs;
other than, in case of either subsection (iii) or (iv), a transaction in which
immediately following such transaction, (x) more than fifty percent (50%) of the
combined voting power of the then outstanding voting securities of the surviving
entity in the case of a merger or consolidation or acquiring entity in the case
of a transfer (in each case, the "Surviving Entity") entitled to vote generally
in the election of directors (or other determination of governing body) is then
beneficially owned (within the meaning of Rule 13d-3 under the Securities
Exchange Act of 1934) by all or substantially all of the individuals and
entities who were the owners of Harris common stock immediately prior to such
transaction in substantially the same proportion, as among themselves, as their
ownership of such common stock immediately prior to such transaction, or (y) a
majority of the directors (or other governing body) of the Surviving Entity
consists of members of the Board of Directors of Harris in office during the
twelve months preceding the applicable transaction.
(d) "Confidential Information" shall mean any and all information and
material proprietary to Harris or not generally known or available to the public
in which Harris has any interest or rights now or in the future, including
without limitation Harris's business strategies, client lists, supplier lists,
partners, agreement terms, pricing, databases, products, designs, processes,
systems, methods; trade secrets, know-how, data, technical plans, drawings,
information, inventions, formulas, technology and anything else that might be
construed as proprietary or confidential in nature. Confidential Information
shall not include information and material (i) publicly available through no
action by Employee, (ii) released by Harris with a written waiver of
confidentiality, (iii) lawfully obtained from third parties, or (iv) previously
known or developed by third parties independently of Harris and Employee
provided that such knowledge or development can be independently substantiated.
27
(e) "Good Reason" shall mean:
(i) material breach of Harris's or the New Employer's obligations
to Employee, provided that Employee shall have given reasonably
specific written notice thereof to Harris and/or the New Employer, and
Harris and/or the New Employer shall have failed to remedy the
circumstances within ten business days thereafter;
(ii) any decrease in Employee's base salary as in effect
immediately prior to any Change of Control, or any material decrease in
Employee's benefits if such modification is not of general
applicability to other senior managerial Employees of Harris or the New
Employer;
(iii) the relocation of Employee's principal office to a location
more than thirty (30) miles from the location of his[her] office
immediately prior to any Change of Control; provided, however, that
Employee's principal office shall not be deemed to be relocated by
virtue of Employee being required to spend up to ten working days per
month on average in Harris's or the New Employer's, and their
affiliates', other offices; or
(iv) the failure of any New Employer or successor in interest of
Harris to be bound by the terms of this Agreement.
(f) "New Employer" shall mean the new employer resulting from a Change
of Control.
2. Compensation After Change of Control. If at any time within the
first year after a Change of Control Employee's employment is terminated by
Harris or a New Employer other than for Cause, or Employee terminates his[her]
employment for Good Reason, Employee shall be entitled to receive the benefits
provided in this Section 2. No benefits shall be payable under this Section 2
under other circumstances.
For the one year period following the date of termination (the
"Coverage Period"), Harris or the New Employer shall pay to the Employee an
aggregate amount equal to (i) Employee's base annual salary at the rate in
effect immediately before the effective date of the Change of Control, and (ii)
the average annual value of the Employee's annual Bonus (with such average based
on Bonuses earned during the immediately preceding two full fiscal years).
Payments shall be made in bi-weekly installments, less standard deductions, in
the same manner and frequency as compensation payments were made prior to the
Coverage Period. If, however, termination is by Employee for Good Reason under
subsection (iv) of the definition thereof, the payment to Employee shall be made
in a single aggregate lump sum, rather than in installments.
In addition to such compensation and during the same period Harris or
the New Employer shall provide, or cause to be provided, health insurance
benefits equivalent to those provided by Harris immediately prior to the Change
of Control, or to the extent that such benefits are not available under Harris's
or the New Employer's group plans, reimbursement to the Employee of an amount
equivalent to the cost paid by Harris for such benefits immediately prior to the
Change of Control. Harris or the New Employer also shall provide reimbursement
for reasonable (in the discretion of Harris or, if applicable, the New Employer)
and actual expenses incurred by Employee for six months of out-placement
services.
Such payments shall be in addition to, and not in lieu of, payments
otherwise due under Harris and/or the New Employer's employment policies.
3. Confidentiality. During the course of his[her] employment, Employee
may have access to, develop, or otherwise be exposed to or aware of Confidential
Information. Employee acknowledges that the Confidential Information must be
kept strictly confidential. During and after termination of Employee's
employment by Harris Employee agrees: (a) to take every reasonable precaution to
safeguard and treat the Confidential Information as confidential, (b) not to
disclose the Confidential Information to any third party except as part and in
furtherance of the business of Harris, and (c) not to disclose or use the
Confidential Information in any manner that would not be in furtherance of the
interests of Harris.
4. Non-Compete; Non-Solicitation. In consideration of, and as a
condition to the benefits afforded Employee under this Agreement and in
consideration of the other rights and privileges of Employee, Employee agrees
that:
(a) during the term of his[her] employment, Employee shall not, directly or
indirectly, including among others as a director, officer, employee, agent,
partner or equity owner (except as owner of less than 1% of the shares of
the publicly traded stock of a corporation) of any entity, compete in any
manner with Harris, or if applicable, the New Employer;
(b) if at any time within the first year after a Change of Control either (i)
Employee voluntarily terminates his[her] employment except for Good Reason
or (ii) Employee is terminated for Cause, then for a period of one year
following the date of such employment termination Employee shall not,
directly or indirectly, including among others as a director, officer,
employee, agent, partner or equity owner (except as owner of less than 1% of
the shares of the publicly traded stock of a corporation) of any entity,
solicit or otherwise deal in any way with any of the clients or customers of
Harris, or if applicable New Employer, as of the time of his[her] voluntary
termination (including also and without limitation any client to whom
Harris, or after a Change of Control New Employer, has sold services or
products in the two years prior to termination and any prospective client or
customer for whom a bid or proposal has been prepared within the previous
six months) with respect to any services or products competitive with those
of Harris;
28
(c) if at any time within the first year after a Change of Control either (i)
Employee's employment is terminated by Harris or a New Employer other than
for Cause, or (ii) Employee terminates his[her] employment for Good Reason,
then during the Coverage Period Employee shall not, directly or indirectly,
including among others as a director, officer, employee, agent, partner or
equity owner (except as owner of less than 1% of the shares of the publicly
traded stock of a corporation) of any entity, solicit or otherwise deal in
any way with any of the clients or customers of Harris, or if applicable New
Employer, as of the time of his[her] voluntary termination (including also
and without limitation any client to whom Harris, or after a Change of
Control New Employer, has sold services or products in the two years prior
to termination and any prospective client or customer for whom a bid or
proposal has been prepared within the previous six months) with respect to
any services or products competitive with those of Harris;
(d) if at any time within the first year after a Change of Control either (i)
Employee voluntarily terminates his[her] employment except for Good Reason
or (ii) Employee is terminated for Cause, then for a period of two years
following the date of such employment termination Employee shall not solicit
for hire or hire, or in any manner, whether directly or indirectly, be
involved in, participate in, or benefit from the solicitation for hire or
hiring of, any employee of Harris or any person who was employed by Harris
within the six month period prior to such solicitation or hire (including
employees and previous employees of New Employer who were employees of
Harris immediately prior to the Change of Control); and
(e) if at any time within the first year after a Change of Control either (i)
Employee's employment is terminated by Harris or a New Employer other than
for Cause, or (ii) Employee terminates his[her] employment for Good Reason,
then during the Coverage Period and one-year period following the Coverage
Period, Employee shall not solicit for hire or hire, or in any manner,
whether directly or indirectly, be involved in, participate in, or benefit
from the solicitation for hire or hiring of, any employee of Harris or any
person who was employed by Harris within the six month period prior to such
solicitation or hire (including employees and previous employees of New
Employer who were employees of Harris immediately prior to the Change of
Control).
Employee acknowledges that Harris's legal remedies for a breach of this
provision shall be inadequate and that in addition to any other rights,
including among others the right to terminate further payments hereunder, Harris
shall be entitled to obtain injunctive relief to enforce this provision.
5. Successors and Assigns. This Agreement shall inure to the benefit
of, and shall be binding upon, the respective heirs, legal representatives,
successors, and assigns of the parties hereto.
6. Governing Law. This Agreement shall be construed under and governed
by the laws of the State of New York, without reference to principles of
conflicts of laws. The parties hereto consent to exclusive venue in the courts
of the State of New York sitting in Monroe County, or in the United States
District Court, Western District of New York.
7. Entire Agreement/Waivers. This Agreement constitutes the entire
agreement of the parties with respect to the subject matter hereof and shall not
be modified or amended except in writing signed by both of the parties. No
waiver of any breach of this Agreement shall be a waiver of any preceding or
succeeding breach, and no waiver of any right under this Agreement shall be
construed as a waiver of any other right.
8. Severability. If one or more of the provisions in this Agreement are
deemed unenforceable by law, then the remaining provisions will continue in full
force and effect.
IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed and delivered as of the date first above written.
HARRIS INTERACTIVE INC.
By: /s/ COMPANY Date:
---------------
Company
/s/ EMPLOYEE Date:
---------------
Employee
29