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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON SEPTEMBER 16, 1996
REGISTRATION NO.
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
INTER(BULLET)ACT SYSTEMS, INCORPORATED
(Exact name of registrant as specified in its charter)
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<S> <C> <C>
NORTH CAROLINA 7389 56-1817510
(State or other jurisdiction (Primary Standard Industrial (I.R.S. Employer
of incorporation or organization) Classification Code Number) Identification No.)
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14 WESTPORT AVENUE
NORWALK, CONNECTICUT 06851
(203) 750-0300
(Address, including zip code, and telephone number, including
area code, of registrants principal executive offices)
ARETAS E. STEARNS
PRESIDENT
INTER(BULLET)ACT SYSTEMS, INCORPORATED
14 WESTPORT AVENUE
NORWALK, CONNECTICUT 06851
(203) 750-0300
(Name, address, including zip code, and telephone number, including
area code, of agent for service)
WITH COPIES TO:
DORIS R. BRAY
SCHELL BRAY AYCOCK ABEL & LIVINGSTON L.L.P.
POST OFFICE BOX 21847
GREENSBORO, NORTH CAROLINA 27403
(910) 370-8800
Approximate date of commencement of proposed distribution of the securities
to the public: As soon as practicable after the Registration Statement becomes
effective.
If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box.
CALCULATION OF REGISTRATION FEES
[CAPTION]
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TITLE OF EACH CLASS PROPOSED MAXIMUM PROPOSED MAXIMUM
OF SECURITIES TO AMOUNT TO BE OFFERING PRICE PER AGGREGATE OFFERING
BE REGISTERED REGISTERED NOTE PRICE
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14% Senior Discount Notes due
2003............................ $142,000,000(1) (2) (2)
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TITLE OF EACH CLASS
OF SECURITIES TO AMOUNT OF
BE REGISTERED REGISTRATION FEE
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14% Senior Discount Notes due
2003............................ $16,322
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(1) Equals the aggregate principal amount of the securities being registered.
(2) Pursuant to Rule 457(f)(2), the registration fee has been calculated using
one-third of the aggregate principal amount of the securities being
registered ($47,333,333).
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
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INTER(BULLET)ACT SYSTEMS, INCORPORATED
CROSS-REFERENCE SHEET
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ITEM
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1. Front of Registration Statement and Outside
Front Cover of Prospectus....................... Facing Page of the Registration Statement; Cross-Reference Sheet;
Outside Front Cover Page of Prospectus
2. Inside Front and Outside Back Cover Pages of
Prospectus...................................... Available Information; Outside Back Cover Page of Prospectus
3. Risk Factors, Ratio of Earnings to Fixed Charges
and Other Information........................... Prospectus Summary; Summary Consolidated Financial and Operating Data;
Risk Factors; Capitalization; Selected Consolidated Financial Data; The
Exchange Offer
4. Terms of the Transaction........................ Prospectus Summary; The Exchange Offer; Description of New Notes; Plan
of Distribution; Certain Federal Income Tax Considerations
5. Pro Forma Financial Information................. (Not Applicable)
6. Material Contacts with the Company Being
Acquired........................................ (Not Applicable)
7. Additional Information Required for Reoffering
by Persons and Parties Deemed to be
Underwriters.................................... (Not Applicable)
8. Interests of Named Experts and
Counsel......................................... Legal Matters; Experts
9. Disclosure of Commission Position on
Indemnification for Securities Act
Liabilities..................................... (Not Applicable)
10. Information with Respect to S-3 Registrants..... (Not Applicable)
11. Incorporation of Certain Information by
Reference....................................... (Not Applicable)
12. Information with Respect to S-3 or S-2
Registrants..................................... (Not Applicable)
13. Incorporation of Certain Information by
Reference....................................... (Not Applicable)
14. Information with Respect to Registrants Other
Than S-3 or S-2 Registrants
(a) Description of Business..................... Prospectus Summary; Business
(b) Description of Property..................... Prospectus Summary; Business -- Properties
(c) Legal Proceedings........................... Business -- Legal Proceedings
(d) Dividends and Related Stockholder Matters... (Not Applicable)
(e) Financial Statements........................ Financial Statements of the Company
(f) Selected Financial Data..................... Prospectus Summary; Selected Consolidated Financial Data
(g) Supplementary Financial
Information.................................. (Not Applicable)
(h) Management's Discussion and Analysis of
Financial Condition and Results of
Operations.................................. Management's Discussion and Analysis of Financial Condition and Results
of Operations
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ITEM
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(i) Changes In and Disagreements with
Accountants................................. (Not Applicable)
15. Information with Respect to S-3 Companies....... (Not Applicable)
16. Information with Respect to S-2 or S-3
Companies....................................... (Not Applicable)
17. Information with Respect to Companies Other Than
S-3 or S-2 Companies............................ (Not Applicable)
18. Information if Proxies, Consents or
Authorizations are to be Solicited.............. (Not Applicable)
19. Information if Proxies, Consents or
Authorizations are not to be Solicited
or in an Exchange Offer
(a) Material Interests of Affiliates in the
Company Being Acquired...................... (Not Applicable)
(b) Voting Securities and Principal Holders
Thereof..................................... Prospectus Summary; Risk Factors; Principal Stockholders and Certain
Transactions
(c) Vote Required for Approval.................. (Not Applicable)
(d) Directors and Executive Officers............ Management
(e) Executive Compensation...................... Executive Compensation
(f) Certain Relationships and Related
Transactions................................ Principal Stockholders and Certain Transactions
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INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR
MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR
THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE
UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS
OF ANY SUCH STATE.
SUBJECT TO COMPLETION (DATED SEPTEMBER 16, 1996)
PROSPECTUS
INTER(BULLET)ACT SYSTEMS, INCORPORATED
OFFER TO EXCHANGE ITS 14% SENIOR DISCOUNT NOTES DUE 2003,
WHICH HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED, FOR ANY AND ALL OF ITS
OUTSTANDING 14% SENIOR DISCOUNT NOTES DUE 2003
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, ON
,1996, UNLESS EXTENDED.
Inter(Bullet)Act Systems, Incorporated (the "Company" or "Inter(Bullet)Act ")
hereby offers, upon the terms and subject to the conditions set forth in this
Prospectus and the accompanying letter of transmittal (the "Letter of
Transmittal" and, together with this Prospectus, the "Exchange Offer"), to
exchange its 14% Senior Discount Notes due 2003 (the "New Notes") which have
been registered under the Securities Act of 1933, as amended (the "Securities
Act"), pursuant to a Registration Statement of which this Prospectus is a part,
for an equal principal amount of its outstanding 14% Senior Discount Notes due
2003 (the "Old Notes"), of which $142,000,000 aggregate principal amount is
outstanding as of the date hereof. The New Notes and the Old Notes are
collectively referred to herein as the "Notes."
The Company will accept for exchange any and all Old Notes that are validly
tendered and not withdrawn on or prior to 5:00 P.M., New York City time, on the
date the Exchange Offer expires (the "Expiration Date"), which will be
, 1996 (30 days following the commencement of the Exchange
Offer), unless the Exchange Offer is extended. Tenders of Old Notes may be
withdrawn at any time prior to 5:00 P.M., New York City time, on the Expiration
Date. The Exchange Offer is not conditioned upon any minimum principal amount of
Old Notes being tendered for exchange. Old Notes may be tendered only in
integral multiples of $1,000. See "The Exchange Offer."
The New Notes will be obligations of the Company evidencing the same
indebtedness as the Old Notes and will be entitled to the benefits of the same
Indenture (as defined), which governs both the Old Notes and the New Notes. The
form and terms of the New Notes are generally the same as the form and terms of
the Old Notes, except that the New Notes do not contain terms with respect to
the interest rate step-up provisions and the New Notes have been registered
under the Securities Act and therefore will not bear legends restricting the
transfer thereof. See "Description of the New Notes."
The New Notes will mature on August 1, 2003. No cash interest will be payable on
the New Notes prior to February 1, 2000. The New Notes will accrue cash interest
at a rate of 14% per annum, commencing on August 1, 1999, payable semi-annually
on February 1 and August 1 of each year commencing on February 1, 2000. At any
time and from time to time prior to August 1, 1999, the Company may redeem in
the aggregate up to $30 million of the principal amount at maturity of the New
and/or Old Notes with the proceeds of one or more Public Equity Offerings (as
defined herein), at a redemption price (expressed as a percentage of Accreted
Value (as defined herein)) of 114%; PROVIDED, HOWEVER, that at least $112
million aggregate principal amount at maturity of New Notes must remain
outstanding after each such redemption. In addition, the Notes will be
redeemable in whole or in part, at any time after August 1, 2000, at the option
of the Company, at the redemption price set forth herein plus accrued and unpaid
interest, if any, to the date of redemption.
The New Notes will rank senior in right of payment to all subordinated
indebtedness of the Company and PARI PASSU in right of payment with all
unsecured senior indebtedness of the Company. At June 30, 1996, on a pro forma
as adjusted basis after giving effect to the sale of the Old Notes, the Company
would have had $ million of total indebtedness, including $ of indebtedness
subordinated in right of payment to the Notes. See "Description of the New
Notes."
Based on interpretations by the staff of the Securities and Exchange Commission
(the "Commission"), as set forth in no-action letters issued to third parties,
the Company believes that the New Notes issued pursuant to the Exchange Offer
may be offered or sold, or otherwise transferred by holders thereof (other than
any holder that is an "affiliate" of the Company as defined under Rule 405 of
the Securities Act), provided that such New Notes are acquired in the ordinary
course of such holders' business and such holders are not engaged in, and do not
intend to engage in, a distribution of such New Notes and have no arrangement
with any person to participate in the distribution of such New Notes. However,
the staff of the Commission has not considered the Exchange Offer in the context
of a no-action letter and there can be no assurance that the staff of the
Commission would make a similar determination with respect to the Exchange Offer
as in such other circumstances. By tendering the Old Notes in exchange for the
New Notes, each holder, will represent to the Company that: (i) it is not an
affiliate of the Company (as defined under Rule 405 of the Securities Act); (ii)
any New Notes to be received by it were acquired in its ordinary business; and
(iii) it is not engaged in, and does not intend to engage in, a distribution of
such New Notes and has no arrangement or understanding to participate in a
distribution of New Notes. Each broker-dealer that receives New Notes for its
own account pursuant to the Exchange Offer must acknowledge that it will deliver
a prospectus in connection with any resale of such New Notes. The Letter of
Transmittal states that by so acknowledging and by delivering a prospectus, a
broker-dealer will not be deemed to admit that it is an "underwriter" within the
meaning of the Securities Act. This Prospectus, as it may be amended or
supplemented from time to time, may be used by a broker-dealer in connection
with resales of New Notes received in exchange for Notes where such Notes were
acquired by such broker-dealer as a result of market-making activities or other
trading activities. The Company has agreed that, starting on the Expiration Date
and ending on the close of business 90 days after the Expiration Date, it will
make this Prospectus available to any broker-dealer for use in connection with
any such resale. See "Plan of Distribution."
Prior to this Exchange Offer, there has been no public market for the Old Notes
or New Notes. If such a market were to develop, the New Notes could trade at
prices that may be higher or lower than their principal amount. The Company does
not intend to apply for listing or quotation of the New Notes on any securities
exchange or stock market. Therefore, there can be no assurance as to the
liquidity of any trading market for the New Notes or that an active public
market for the New Notes will develop. See "Risk Factors -- Lack of Public
Market."
Salomon Brothers Inc, BT Securities Corporation, and Toronto Dominion Securities
(the "Initial Purchasers") have agreed that one or more of them will act as
market-makers for the New Notes. However, the Initial Purchasers are not
obligated to so act and they may discontinue any such market-making at any time
without notice. The Company will not receive any proceeds from this Exchange
Offer. The Company has agreed to pay the expenses of the Exchange Offer. No
underwriter is being used in connection with this Exchange Offer.
FOR A DISCUSSION OF CERTAIN FACTORS THAT SHOULD BE CONSIDERED BY HOLDERS OF OLD
NOTES WHO TENDER THEIR OLD NOTES IN THE EXCHANGE OFFER, SEE "RISK FACTORS"
BEGINNING ON PAGE 8 OF THIS PROSPECTUS.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
The date of this Prospectus is , 1996.
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AVAILABLE INFORMATION
The Company has filed with the Commission a registration statement on Form S-4
(herein, together with all amendments and exhibits, referred to as the
"Registration Statement") under the Securities Act with respect to the New Notes
offered hereby. This Prospectus, which forms a part of the Registration
Statement, does not contain all of the information set forth in the Registration
Statement and the exhibits and schedules thereto, certain parts of which are
omitted in accordance with the rules and regulations of the Commission. For
further information with respect to the Company and the new Notes offered
hereby, reference is made to the Registration Statement. This Prospectus
contains summaries of the material terms and provisions of certain documents
and, in each instance, reference is made to the copy of such document filed as
an exhibit to the Registration Statement. Copies of the Registration Statement
and the exhibits thereto may be inspected, without charge, at the public
reference facilities of the Commission at Room 1024, Judiciary Plaza, 450 Fifth
Street N.W., Washington, D.C., 20549.
<PAGE>
SUMMARY
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY THE MORE DETAILED
INFORMATION AND CONSOLIDATED HISTORICAL FINANCIAL STATEMENTS (INCLUDING THE
NOTES THERETO) INCLUDED ELSEWHERE IN THIS PROSPECTUS. SEE "RISK FACTORS" FOR
CERTAIN FACTORS THAT SHOULD BE CONSIDERED BY HOLDERS OF OLD NOTES BEFORE
TENDERING THEIR OLD NOTES IN THE EXCHANGE OFFER. AS USED IN THIS PROSPECTUS,
UNLESS OTHERWISE INDICATED OR THE CONTEXT OTHERWISE REQUIRES, REFERENCES TO
"INTER(BULLET)ACT" OR THE "COMPANY" SHALL MEAN INTER(BULLET)ACT SYSTEMS,
INCORPORATED, A NORTH CAROLINA CORPORATION, AND ITS SUBSIDIARY.
THE COMPANY
The Company develops, owns and operates proprietary electronic marketing
systems that are designed to give consumer products manufacturers (the
"Manufacturers") and retailers the ability to influence the purchasing behavior
of consumers moments before shopping begins and to track and analyze individual
consumer purchasing behavior on an ongoing basis. The Company's current
commercial product offering utilizes interactive "touch-screen" terminals inside
the entrance of retail supermarkets that issue individually targeted, and
immediately usable, coupons and other promotional incentives based on each
consumer's cumulative purchasing history. This automated process saves consumers
time and money while providing Manufacturers and retailers substantially more
control, efficiency and cost effectiveness than traditional mass advertising and
promotion media. The Company receives recurring revenue from transaction fees
paid by Manufacturers for each electronic redemption of their coupons and other
incentives. Since its formation in 1993, the Company has focused its system
development and commercialization efforts primarily in the retail supermarket
industry.
The Company competes in the in-store marketing segment of the $30 billion
consumer product promotion and couponing business via its proprietary,
interactive multi-media system called the Inter(Bullet)Act Promotion Network
(the "IPN"). It is estimated that more than 70% of all brand purchasing
decisions for supermarket products are made in-store, according to a 1995 study
conducted by the Point-of-Purchase Advertising Institute. Upon entering a
supermarket, consumers insert their frequent shopper cards in the Company's
ATM-like terminals, known to customers as COUPON XPRESS(REGISTER MARK) or COUPON
CENTRALTM. The IPN terminals, which are interconnected to a store's
point-of-sale system, then present a series of screens displaying full-color
icons of targeted product promotions -- usually price discounts or multiple
purchase bonuses -- that have been selected for each consumer by the Company's
proprietary Target Engine Software ("TES") based on each consumer's purchases
recorded in that store during the most recent period of up to 12 months. The TES
categorizes consumers based on their degree of loyalty to a specific brand
within a product category and provides the Manufacturer with the ability to
target its promotions accordingly. After the shopper touches the desired icons,
the terminal can deliver either individual coupons or a "shopping list" for all
selected promotions, identified by aisle so that the products can be easily
located when shopping. The entire process takes most shoppers less than 60
seconds. At checkout, the Company's automated clearing process, when used in
conjunction with the store's point-of-sale system, virtually eliminates the
problem of mistaken and fraudulent redemptions associated with the handling of
traditional paper coupons, which is estimated by industry sources to cost
Manufacturers more than $500 million per year.
The Company believes its IPN offers Manufacturers two unique competitive
advantages compared to alternative in-store marketing techniques: (1) the
ability to offer promotions targeted to each individual consumer AT THE
BEGINNING of the shopping experience and (2) the highest redemption rate,
currently averaging approximately 35%, of distributed product promotions (free
standing newspaper insert coupons ("FSIs") average under 2%). As a result of
these key advantages, and because the Company charges Manufacturers a fee only
for redeemed promotions rather than for the distribution of promotions, the
Company is positioning itself to Manufacturers as the lowest cost, most
efficient provider in the in-store marketing industry. See "Business -- Benefits
of IPN -- Manufacturers and Other Brand Marketers."
Currently, the Company has contractual commitments and letters of intent
with retail supermarket chains to deploy the IPN in more than 2,800 stores. The
retail chains under contract with the Company to participate in the IPN include:
A&P-Metro, ACME, Food Emporium, Gerland's, Grand Union, Jewel, Price Chopper,
SuperFresh, Marsh, Food Lion and Waldbaum's. The chains that have entered into
letters of intent with the Company include Kings and Riser Foods. The Company is
in active discussions with retail grocery chains representing a large number of
potential additional stores and plans to continue a nationwide expansion
strategy over the next several years. As of September 10, 1996, Inter(Bullet)Act
had 529 IPN terminals in commercial operation in 301 grocery stores located in
seven states.
As of September 10, 1996, 23 Manufacturers representing 63 different
packaged goods brand offerings were participating in the IPN. Participating
Manufacturers currently include, among others, Lever Brothers, James River,
2
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Nabisco, Nestle, Reynolds, Gillette and Kodak. The Company believes that its
current level of retailer commitments and the pace of IPN installations provide
the critical mass necessary to continue securing new commitments from additional
Manufacturers as well as to gain more substantial commitments from Manufacturers
that are already participating in the IPN.
The Company's strategy is to achieve increasing recurring revenue through
the nationwide commercialization of its proprietary IPN. Accordingly, the
Company plans to accelerate the installation of the IPN in the more than 2,800
retail grocery stores under contract or letter of intent, further expand
retailer commitments, procure new commitments from Manufacturers and more
substantial commitments from Manufacturers already supporting the IPN and
increase consumer acceptance.
While the Company's primary objective is the nationwide commercialization
of the IPN in retail grocery stores in the United States, it believes that its
proprietary technology may have several other commercial applications such as
the electronic delivery of information and targeted promotions in retail
pharmacies. See "Business -- Other Opportunities."
Inter(Bullet)Act has received, and expects to continue receiving,
substantial business development support from its three largest shareholders:
Vanguard Cellular Systems, Inc. ("Vanguard") (NASDAQ: VCELA), one of the largest
independent operators of cellular telephone systems in the United States; the
Richardson Family, founders and former operators of the consumer products
company Richardson-Vicks, Inc.; and Toronto Dominion Investments, Inc., a wholly
owned indirect subsidiary of Toronto Dominion Bank, which is one of the largest
media finance institutions in the world.
The principal executive offices of the Company are located at 14 Westport
Avenue, Norwalk, Connecticut 06851 and its telephone number is (203) 750-0300.
RECENT DEVELOPMENTS
On August 2, 1996, the Company completed a private offering of 142,000
units (the "Units") consisting of $142,000,000 principal amount of Old Notes and
warrants (the "Warrants") to purchase initially an aggregate of 1,041,428 shares
of the Company's Common Stock, for which it received net proceeds of
approximately $90.9 million (after deduction of discounts and estimated offering
expenses) (the "Private Placement"). See "Management's Discussion and Analysis
of Financial Condition and Results of Operations -- Liquidity and Capital
Resources."
SALES AND MARKETING. On June 10, 1996, the Company received a letter of
intent from General Mills, Inc. to promote one or more cereal brands on the IPN
and, on May 31, 1996, the Company received a written indication of interest from
Borden, Inc. to promote several brands on a trial basis. In addition, Lever
Brothers Company, a customer of the Company since 1994, recently entered into a
renewal contract for promotion of 17 brand offerings.
The Company is also continuing to expand its retailer base. Recently, the
Company has obtained contractual agreements with Food Lion, Marsh and The Great
Atlantic & Pacific Tea Company (A&P) (covering A&P-Metro, Food Emporium,
SuperFresh and Waldbaum's), and letters of intent from Kings and Riser Foods.
OPERATIONS. The Company has accelerated its pace of installations of the
IPN. The Company installed 409 IPN terminals in 228 store locations between
February 1, 1996 and July 23, 1996 and plans to maintain this pace of
installations in order to meet its nationwide commercial roll-out objective.
Consistent with its strategy of outsourcing certain tasks, on September 9,
1996, the Company sold its manufacturing operations to Coleman Resources
Corporation ("Coleman Resources") and entered into a supply agreement whereby
Coleman Resources is to fulfill the Company's anticipated requirements for
terminals for the next three years with fixed pricing for the first 5,000
terminals.
MANAGEMENT. In January 1996, Aretas E. Stearns, then a senior executive of
Vanguard with over 20 years experience in retail management, began to serve as
the Company's President and Chief Operating Officer. In June 1996, Stephen R.
Leeolou, a co-founder, executive officer and director of Vanguard and Chairman
of the Board of Directors of the Company, was also elected Chief Executive
Officer of the Company. In addition, at that time, the Company and Vanguard
entered into a management services agreement whereby Vanguard will provide
advice and assistance over the next two years with respect to the development of
certain aspects of the Company's operations in exchange for the issuance of
10,000 shares of the Company's Common Stock per year. See "Certain
Transactions". In September 1996, Richard A. Vinchesi, then a Vice President of
Salomon Brothers Inc in its Media Corporate Finance group, began to serve as the
Company's Vice President and Chief Financial Officer.
3
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THE EXCHANGE OFFER
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Registration Agreement................ The Old Notes were sold by the Company on August 2, 1996, to the Initial Purchasers,
which placed the Old Notes with institutional investors. In connection therewith, the
Company executed and delivered for the benefit of the holders of the Old Notes the
Registration Agreement (as defined) providing, among other things, for the Exchange
Offer.
The Exchange Offer.................... New Notes are being offered in exchange for an equal principal amount of Old Notes. As
of the date hereof, $142,000,000 aggregate principal amount of Old Notes are
outstanding. Since the New Notes will be recorded in the Company's accounting records
at the same carrying value as the Old Notes, no gain or loss will be recognized by the
Company upon the consummation of the Exchange Offer. See "The Exchange
Offer -- Accounting Treatment." Holders of the Old Notes do not have appraisal or
dissenter's rights in connection with the Exchange Offer under the North Carolina
Business Corporation Act, the governing law of the state of incorporation of the
Company. Based on interpretations by the staff of the Commission, as set forth in
no-action letters issued to third parties, the Company believes that holders of Old
Notes (other than any holder who is an "affiliate" of the Company within the meaning
of Rule 405 under the Securities Act) who exchange their Old Notes for New Notes
pursuant to the Exchange Offer may offer such New Notes for resale, resell such New
Notes and otherwise transfer such New Notes without compliance with the registration
and prospectus delivery provisions of the Securities Act; provided such New Notes are
acquired in the ordinary course of the holder's business and such holders are not
engaged in, and do not intend to engage in, a distribution of such New Notes and have
an arrangement or understanding with any person to participate in a distribution of
such New Notes. The staff of the Commission has not considered the Exchange Offer in
the context of a no-action letter and there can be no assurance that the staff of the
Commission would make a similar determination with respect to the Exchange Offer. Each
broker-dealer that receives New Notes for its own account in exchange for Old Notes,
where such Old Notes were acquired by such broker-dealer as a result of market-making
activities or other trading activities, must acknowledge that it will deliver a
prospectus in connection with any resale of such New Notes. See "Plan of
Distribution." To comply with the securities laws of certain jurisdictions, it may be
necessary to qualify for sale or register the New Notes prior to offering or selling
such New Notes. The Company has agreed, pursuant to the Registration Agreement and
subject to certain specified limitations therein, to register or qualify the New Notes
for offer or sale under the securities or "blue sky" laws of such jurisdictions as may
be necessary to permit the holders of New Notes to trade the New Notes without any
restrictions or limitations under the securities laws of the several states of the
United States. If a holder of Old Notes does not exchange such Old Notes for New Notes
pursuant to the Exchange Offer, such Old Notes will continue to be subject to the
restrictions on transfer contained in the legend thereon. In general, the Old Notes
may not be offered or sold, unless registered under the Securities Act, except
pursuant to an exemption from, or in a transaction not subject to, the Securities Act
and applicable state securities laws. See "Risk Factors -- Consequences of Failure to
Exchange" and "Description of the New Notes -- Exchange Offer -- , Registration
Rights."
Expiration Date....................... 5:00 P.M., New York City time, on , 1996 (30 days
following the commencement of the Exchange Offer), unless the Exchange Offer is
extended, in which case the term "Expiration Date" means the latest date and time to
which the Exchange Offer is extended.
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4
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<TABLE>
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Conditions to the Exchange Offer...... The Exchange Offer is subject to certain customary conditions, which may be waived by
the Company. See "The Exchange Offer -- Conditions." Except for the requirements of
applicable Federal and state securities laws, there are no Federal or state regulatory
requirements to be complied with or obtained by the Company in connection with the
Exchange Offer. NO VOTE OF THE COMPANY'S SECURITYHOLDERS IS REQUIRED TO EFFECT THE
EXCHANGE OFFER AND NO SUCH VOTE (OR PROXY THEREFOR) IS BEING SOUGHT HEREBY.
Procedures for Tendering Old Notes.... Each holder of Old Notes wishing to accept the Exchange Offer must complete, sign and
date the Letter of Transmittal, or a facsimile thereof, in accordance with the
instructions contained herein and therein, and mail or otherwise deliver such Letter
of Transmittal, or such facsimile, together with the Old Notes to be exchanged and any
other required documentation to the Exchange Agent (as defined) at the address set
forth herein and therein. See "The Exchange Offer -- Procedures for Tendering."
Withdrawal Rights..................... Tenders of Old Notes may be withdrawn at any time prior to 5:00 P.M., New York City
time, on the Expiration Date. To withdraw a tender of Old Notes, a written or
facsimile transmission notice of withdrawal must be received by the Exchange Agent at
its address set forth below under "Exchange Agent" prior to 5:00 P.M., New York City
time, on the Expiration Date.
Acceptance of Old Notes and all Subject to certain conditions, the Company will accept for exchange any Old Notes
Delivery of New Notes............... which are properly tendered in the Exchange Offer prior to 5:00 P.M., New York City
time, on the Expiration Date. The New Notes issued pursuant to the Exchange Offer will
be delivered promptly following the Expiration Date. See "The Exchange Offer -- Terms
of the Exchange Offer."
Certain Tax Considerations............ The exchange of New Notes for Old Notes should not be a sale or exchange or otherwise
a taxable event for Federal income tax purposes. See "Certain Federal Income Tax
Considerations."
Exchange Agent........................ Fleet National Bank is serving as exchange agent (the "Exchange Agent") in connection
with the Exchange Offer.
Use of Proceeds....................... There will be no proceeds to the Company from the Exchange Offer. The net proceeds of
the Private Placement were approximately $90.9 million. The Company will continue to
use such proceeds (i) predominantly to fund capital expenditures, working capital
requirements and operating losses incurred in connection with the large-scale
commercialization of the IPN (primarily in retail supermarket chains) and (ii) for
general corporate purposes. See "Use of Proceeds."
</TABLE>
SUMMARY OF TERMS OF NEW NOTES
The Exchange Offer relates to the exchange of up to $142,000,000 aggregate
principal amount of Old Notes for up to an equal aggregate principal amount of
New Notes. The New Notes will be obligations of the Company evidencing the same
indebtedness as the Old Notes, and will be entitled to the benefits of the same
Indenture. The form and terms of the New Notes are generally the same as the
form and terms of the Old Notes, except that the New Notes have been registered
under the Securities Act and therefore will not bear legends restricting the
transfer thereof. See "Description of the New Notes."
COMPARISON WITH OLD NOTES
<TABLE>
<S> <C>
Freely Transferable................... Generally, the New Notes will be freely transferable under the Securities Act by
holders who are not affiliates of the Company. The New Notes otherwise will be
substantially identical in all material respects (including interest rate and
maturity) to the Old Notes. See "The Exchange Offer -- Terms of the Exchange Offer."
</TABLE>
5
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<TABLE>
<S> <C>
Registration Rights................... The holders of Old Notes currently are entitled to certain registration rights
pursuant to a registration rights agreement (the "Registration Agreement") dated as of
July 30, 1996, between the Company and the Initial Purchasers. However, upon
consummation of the Exchange Offer, subject to certain exceptions, holders of Old
Notes who do not exchange their Old Notes for New Notes in the Exchange Offer will no
longer be entitled to registration rights and will not be able to offer or sell their
Old Notes, unless such old Notes are subsequently registered under the Securities Act
(which, subject to certain limited exceptions, the Company will have no obligation to
do), except pursuant to an exemption from, or in a transaction not subject to, the
Securities Act and applicable state securities laws. See "Risk Factors Consequences of
Failure to Exchange."
</TABLE>
THE NEW NOTES
TERMS OF THE NEW NOTES
<TABLE>
<S> <C>
Maturity Date......................... August 1, 2003.
Yield and Interest.................... 14% per annum (computed on a semi-annual bond equivalent basis). Cash interest will
not accrue on the New Notes prior to August 1, 1999. Thereafter, interest on the Notes
will accrue in cash and be payable semi-annually on each February 1 and August 1,
commencing February 1, 2000.
Original Issue Discount............... The Old Notes were issued with original issue discount requiring holders of the New
Notes to include amounts as gross income for Federal income tax purposes prior to the
receipt of the cash to which the income is attributable. See "Certain Federal Income
Tax Considerations -- Tax Consequences to U.S. Persons -- Original Issue Discount."
Optional Redemption................... The New Notes are redeemable at the option of the Company, in whole or in part, on or
after August 1, 2000, at 107% of their principal amount at maturity, declining to par
on or after August 1, 2002, plus accrued and unpaid interest, if any, to the date of
redemption. In addition at any time and from time to time prior to August 1, 1999, the
Company may redeem in the aggregate up to $30 million of the principal amount at
maturity of the Old and New Notes with the proceeds of one or more Public Equity
Offerings (as defined herein), at a redemption price (expressed as a percentage of
Accreted Value (as defined herein)) of 114%; PROVIDED, HOWEVER, that at least $112
million aggregate principal amount at maturity of Notes must remain outstanding after
each such redemption. See "Description of Notes -- Optional Redemption."
Sinking Fund.......................... None.
Change of Control..................... Upon a Change of Control (as defined herein), the Company will be required to make an
offer to purchase the Old and New Notes at a purchase price equal to 101% of the
Accreted Value thereof plus accrued and unpaid interest, if any, to the date of
purchase. There can be no assurance that the Company will have the financial resources
necessary to purchase the Notes upon a Change of Control. See "Description of
Notes -- Change of Control Offer."
Ranking............................... The New Notes are senior unsecured obligations of the Company, ranking PARI PASSU with
all other existing and future senior indebtedness of the Company, and ranking senior
in right of payment to all existing and future subordinated indebtedness of the
Company. As of June 29, 1996, on an as adjusted basis after giving effect to the
Private Placement, the Company's total indebtedness (including the Notes) would have
been $70.5 million, including $322,747 of subordinated indebtedness owed to
shareholders of the Company.
</TABLE>
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<TABLE>
<S> <C>
Certain Covenants..................... The Indenture for the New Notes contains limitations on, among other things, (a) the
ability of the Company and its Restricted Subsidiaries (as defined herein) to incur
additional indebtedness, (b) the payment of dividends and other distributions with
respect to the capital stock of the Company and the purchase, redemption or retirement
of capital stock of the Company, (c) the incurrence of certain liens, (d) the ability
of the Company to restrict distributions by Restricted Subsidiaries, (e) the use of
proceeds from certain asset sales, (f) the ability of the Company and any Restricted
Subsidiary to engage in any business other than a Related Business (as defined
herein), (g) transactions with affiliates and (h) certain consolidations, mergers and
transfers of assets. All these limitations are subject to a number of important
qualifications. See "Description of New Notes -- Certain Covenants."
</TABLE>
SUMMARY CONSOLIDATED FINANCIAL DATA
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
The information below should be read in conjunction with "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
the audited and unaudited Consolidated Financial Statements included elsewhere
in this Offering Memorandum.
<TABLE>
<CAPTION>
FOR THE PERIOD
FROM
FEBRUARY 25, 1993 FOR THE PERIOD FROM
(DATE OF YEAR ENDED NINE MONTHS ENDED FEBRUARY 25, 1993
INCEPTION) TO SEPTEMBER 30, JULY 1, JUNE 29, (DATE OF INCEPTION) TO
SEPTEMBER 30, 1993 1994 1995 1995 1996 JUNE 29, 1996
<S> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Net sales......................... $ 11 $ 3 $ 110 $ 73 $ 104 $ 228
Gross profit (deficit)............ 7 (260) (732) (524) (1,183) (2,168)
Loss from operations.............. (1,295) (2,267) (4,427) (3,015) (5,638) (13,627)
Net loss.......................... (1,295) (2,344) (4,526) (3,072) (5,584) (13,749)
Net loss per share................ $ (0.46) $ (0.83) $ (1.27) $ (1.04) $ (1.02) N/A
Weighted average common shares
outstanding..................... 2,793 2,830 3,556 2,942 5,493 N/A
Deficiency of earnings available
to cover fixed charges (a)...... $ 1,295 $ 2,354 $ 4,615 $ 3,135 $ 5,749 $ 14,013
</TABLE>
<TABLE>
<CAPTION>
JUNE 29, 1996
ACTUAL AS ADJUSTED (B)
<S> <C> <C>
BALANCE SHEET DATA:
Working capital................................................................................. $ 5,288 $ 96,138
Total assets.................................................................................... 16,783 111,439
Total debt...................................................................................... 323 70,516(c)
Common stock purchase warrants.................................................................. -- 24,463(c)
Stockholders' equity............................................................................ 13,902 13,902
</TABLE>
(a) For purposes of computing the deficiency of earnings available to cover
fixed charges, earnings include loss from operations, which excludes
interest expense and other income, net. Fixed charges consist of interest
expense.
(b) As adjusted amounts reflect the issuance of the Old Notes and the Warrants
in the Private Placement, less discounts and estimated expenses thereof.
(c) Reflects the effect of the valuation of Warrants issued in the Private
Placement with respect to 7.334 shares issuable per warrant. Does not
reflect additional shares which would be issuable if the Company has not
completed a Qualifying Initial Public Offering (as defined) by September 30,
1997.
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RISK FACTORS
HOLDERS OF OLD NOTES SHOULD CAREFULLY CONSIDER THE FOLLOWING RISK FACTORS,
AS WELL AS OTHER INFORMATION SET FORTH IN THIS PROSPECTUS, BEFORE TENDERING
THEIR OLD NOTES IN THE EXCHANGE OFFER. THE RISK FACTORS SET FORTH BELOW (OTHER
THAN "CONSEQUENCES OF FAILURE TO EXCHANGE") ARE GENERALLY APPLICABLE TO THE NEW
NOTES AS WELL AS THE OLD NOTES.
CONSEQUENCES OF FAILURE TO EXCHANGE
Holders of Old Notes who do not exchange their Old Notes for New Notes
pursuant to the Exchange Offer will continue to be subject to the restrictions
on transfer of such Old Notes as set forth in the legend thereon as a
consequence of the issuance of the Old Notes pursuant to exemptions from, or in
transactions not subject to, the registration requirements of the Securities Act
and applicable state securities laws. In general, the Old Notes may not be
offered or sold, unless registered under the Securities Act, except pursuant to
an exemption from, or in a transaction not subject to, the Securities Act and
applicable state securities laws. The Company does not currently anticipate that
it will register the Old Notes under the Securities Act. Based on
interpretations by the staff of the Commission, as set forth in no-action
letters to third parties, the Company believes that the New Notes issued
pursuant to the Exchange Offer in exchange for Old Notes may be offered for
resale, resold or otherwise transferred by holders thereof (other than any such
holder that is an "affiliate" of the issuer within the meaning of Rule 405 under
the Securities Act) without compliance with the registration and prospectus
delivery provisions of the Securities Act provided that such New Notes are
acquired in the ordinary course of such holder's business and such holders are
not engaged in, and do not intend to engage in, a distribution of such New Notes
and have an arrangement or understanding with any person to participate in a
distribution of such New Notes. The staff of the Commission has not considered
the Exchange Offer in the context of a no-action letter and there can be no
assurance that the staff of the Commission would make a similar determination
with respect to the Exchange Offer. Each broker-dealer that receives New Notes
for its own account pursuant to the Exchange Offer must acknowledge that it will
deliver a prospectus in connection with any resale of such New Notes. The Letter
of Transmittal states that by so acknowledging and by delivering a prospectus, a
broker-dealer will not be deemed to admit that it is an "underwriter" within the
meaning of the Securities Act. This Prospectus, as it may be amended or
supplemented from time to time, may be used by a broker-dealer in connection
with resales of New Notes received in exchange for Notes where such Notes were
acquired by such broker-dealer as a result of market-making activities or other
trading activities. The Company has agreed that, starting on the Expiration Date
and ending on the close of business 90 days after the Expiration Date, it will
make this Prospectus available to any broker-dealer for use in connection with
any such resale. See "Plan of Distribution." However, to comply with the
securities laws of certain jurisdictions, if applicable, the New Notes may not
be offered or sold unless they have been registered or qualified for sale in
such jurisdictions or an exemption from registration or qualification is
available and is complied with. To the extent that Old Notes are tendered and
accepted in the Exchange Offer, the trading market for untendered and tendered
but unaccepted Old Notes could be adversely affected.
LIMITED OPERATING HISTORY; SIGNIFICANT LOSSES; ACCUMULATED DEFICIT; FUTURE
LOSSES
The Company was incorporated in February 1993 and has concentrated its
efforts on the development, testing and initial deployment of the IPN, on
capital formation and on the recruitment of management and other key employees.
Accordingly, the Company has a limited operating history upon which an
evaluation of the Company and its prospects can be based. To date, the Company
has generated minimal operating revenue, has incurred significant losses and has
experienced substantial negative cash flow from operations. The Company had
operating losses of $2.3 million for the year ended September 30, 1994, $4.5
million for the year ended September 30, 1995 and $5.6 million for the nine
months ended June 29, 1996. The Company expects to incur substantial additional
costs to install additional IPN terminals and to sponsor selected promotions to
demonstrate the utility of the IPN to consumers, retailers and Manufacturers.
See "Business -- Business Strategy -- Brand Strategy -- Selective Brand
Promotions By the Company." The Company expects to incur net losses in fiscal
1996 and fiscal 1997 and may operate at a loss for the foreseeable future, and
there can be no assurance that the Company will ever be able to achieve
profitability or, if achieved, sustain such profitability.
The Company's prospects must be considered in light of the risks, expenses
and difficulties frequently encountered by companies in the early stages of
their development. To address these risks, the Company must, among other things,
manage effectively any growth that may occur, successfully commercialize its
product by
8
<PAGE>
securing new and renewal commitments from Manufacturers, respond to competitive
developments and attract and retain management and other key personnel.
ABILITY TO OBTAIN BRAND CONTRACTS; LENGTHY SALES CYCLE; UNCERTAINTY OF MARKET
ACCEPTANCE
All or substantially all of the Company's revenue is expected to be derived
for the foreseeable future from fees paid by Manufacturers that place product
promotions on the IPN. However, Manufacturers currently participating in the IPN
are doing so at relatively low promotional dollar commitments to trial the IPN's
effectiveness. Accordingly, the Company's future success will depend
substantially on its ability to establish, maintain and expand relationships
with Manufacturers to promote their products using the IPN. Moreover, it is
critical that the Company obtain additional commitments from Manufacturers of
major brands in the most popular consumer product categories and develop
long-term relationships with these Manufacturers in order to ensure that an
appropriate mix of products is displayed on the IPN.
The Company has experienced a lengthy sales cycle in marketing the IPN to
Manufacturers. In most cases, the time between initial contact with the
Manufacturer and the execution of the final contract, if any, exceeds five
months. However, the Company is commencing its large-scale installation of the
IPN prior to obtaining commitments from major and other Manufacturers sufficient
to support its future operations. The Company could fail to obtain such
commitments or could experience substantial delays in obtaining such
commitments, or the Company could fail to maintain relationships through renewal
contracts. There can be no assurance that the Company will obtain additional
commitments on a timely basis from any Manufacturers and maintain long-term
relationships with these Manufacturers to participate in the IPN. Even if the
Company obtains initial commitments from additional major and other
Manufacturers, these contracts typically have had short-term durations and there
can be no assurance that such Manufacturers will make the IPN a component of
their long-term promotional strategies. If any of the foregoing events occur,
the Company may be required to delay implementation of its large-scale
commercialization of the IPN and it may incur substantially greater losses for a
longer period than expected and experience a material adverse effect on its
results of operations and financial condition. In addition, as a new market
participant, it may only receive one opportunity to convince any single
Manufacturer to become and remain a customer of the Company. As a result, even
short-term difficulties in implementing its strategies could have a material
adverse effect on its results of operations and financial condition.
In order to enhance its prospects of enrolling major and other
Manufacturers in the IPN, the Company has elected in the past, and expects to
elect in the future, to sponsor from time to time, at its own cost, selected
product promotions in its stores to continue to demonstrate the effectiveness of
the IPN in prompting product sales and targeting promotions to individual
consumers. Since these promotional expenditures are classified as selling,
general and administrative expenses and are incurred to attract Manufacturers
and enhance future revenue, the Company's current losses will be increased in
the period of the expenditures and, if the expected future revenue does not
materialize, any liquidity difficulties being experienced by the Company could
be exacerbated.
Because the utility and the ultimate attractiveness of the IPN to
Manufacturers is substantially dependent on the number of shoppers using the
system, the size of the Company's installed store base significantly affects its
revenue generation potential. The Company's profitability and the success of its
growth plans will be significantly affected by its ability to contract with
additional retailers for the installation of the IPN and to install the system
in such stores in a rapid and orderly manner. While the Company has contractual
commitments and letters of intent from 13 supermarket chains as of September 10,
1996, there can be no assurance that retailers who currently or in the future
have IPN terminals installed will retain the IPN in their stores or that the
Company will be able to continue to increase the number of stores in which the
IPN is installed.
The Company also is dependent on the level of general acceptance and usage
by consumers. Consumer acceptance and usage are dependent on many factors, such
as actual and perceived ease of use, access to terminals during peak shopping
periods, reliability of the Company's IPN and perceived attractiveness of the
product offerings of the IPN. There can be no assurance that an adequate number
of consumers will use the IPN at a level sufficient to support the IPN on an
ongoing basis.
Inasmuch as demand by Manufacturers, retailers and consumers is
substantially interrelated, any significant continuous lack or lessening of
demand by any one of these constituencies could have an adverse effect on
overall market acceptance. See "Business -- Business Strategy" and
"Business -- Sales and Marketing."
9
<PAGE>
MANAGEMENT OF GROWTH; EARLY STAGE PRODUCTS AND SERVICES; ACCELERATED
INSTALLATION
The Company's rapid growth has placed, and is expected to continue to
place, significant pressure on the Company's managerial, operational and
financial resources. To manage its growth, the Company must continue to
implement and improve its operational and financial systems and to expand, train
and manage its employee base. The Company also will be required to develop and
manage multiple relationships with various customers, business partners and
other third parties. The Company's systems, procedures or controls may not be
adequate to support the Company's operations and Company management may not be
able to achieve the rapid expansion necessary to exploit potential market
opportunities for the Company's products and services. Any significant problems
in the Company's commercialization of the IPN could create a negative image in
the consumer product promotion and couponing business that may be impossible to
overcome. The Company's future operating results will also depend on its ability
to expand its sales and marketing and research and development organizations, to
implement and manage new distribution channels to penetrate markets and to
expand its support organization. If the Company is unable to manage growth
effectively, the Company's business, operating results and financial condition
will be materially adversely affected.
Although it has been tested in commercial and noncommercial environments,
the IPN is in the early stages of implementation and is subject to the risks
inherent in the commercialization of new products. There can be no assurance
that these or other risks associated with new product commercialization will not
occur. It can be expected that as the Company installs terminals on a greater
scale, there may be certain technical implementation problems, some of which may
be material. The Company has limited experience in installing and operating
substantial numbers of IPN terminals. The occurrence of difficulties in
installing and operating a large number of terminals could have a material
adverse effect on the Company's prospects, operating results and financial
condition.
RISKS RELATING TO SUBSTANTIAL LEVERAGE AND DEBT SERVICE OBLIGATIONS
Upon the consummation of the Offering, the Company will be highly
leveraged, with indebtedness that is substantial in relation to its
stockholders' equity. As of June 29, 1996, on an as adjusted basis after giving
effect to the Private Placement as if the Private Placement had occurred on such
date, the Company would have had an estimated aggregate of $70.5 million of
indebtedness and stockholders' equity of $13.9 million. See "Capitalization."
Earnings before income taxes and fixed charges were insufficient to cover fixed
charges by $4.6 million and $5.7 million for the year ended September 30, 1995
and for the nine months ended June 29, 1996, respectively. See "Selected
Consolidated Financial Data."
The Company's high degree of leverage could have important consequences to
the holders of the Notes and Warrants, including but not limited to the
following: (i) the Company's ability to obtain additional financing for capital
expenditures, working capital, general corporate purposes or other purposes
(including potential acquisitions) may be impaired in the future; and (ii) the
Company's flexibility to adjust to changing market conditions and ability to
withstand competitive pressures could be limited, and the Company may be more
vulnerable to a downturn in general economic conditions of its business, or be
unable to carry out capital spending that is important to its growth strategy.
The Company's ability to make scheduled payments or to refinance its
obligations with respect to the Notes and its other indebtedness will ultimately
depend on its financial and operating performance, which in turn, is subject to
prevailing economic and competitive conditions and to certain financial,
business and other factors that may be beyond its control, including operating
difficulties, increased operating costs, product prices, the response of
competitors, regulatory developments and delays in implementing its strategy.
The Company's ability to meet its debt service and other obligations will depend
on the extent to which the Company can implement successfully its business
strategy of achieving large-scale commercialization of the IPN. There can be no
assurance that the Company will be able to implement fully its strategy or that
the anticipated results of its strategy will be realized. See
"Business -- Business Strategy."
If the Company's cash flow and capital resources are insufficient to fund
its debt service obligations, the Company may be forced to reduce or delay
capital expenditures, sell assets, seek to obtain additional equity capital, or
restructure its debt. There can be no assurance that the Company's cash flow and
capital resources will be sufficient for payment of interest on and principal of
its indebtedness in the future, or that any such alternative measures would be
available at reasonable costs or would permit the Company to meet its scheduled
debt service
10
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obligations. In the absence of adequate operating results and/or capital
resources, the Company could face substantial liquidity problems and might be
required to dispose of material assets or operations to meet its debt service
and other obligations, and there can be no assurance as to the timing of such
sales or the proceeds which the Company could realize therefrom.
NEED FOR ADDITIONAL FINANCING
The Company may require additional capital in 1998 to fund its planned
expansion. The Company also may need to raise additional capital prior to that
time in order to fund more rapid expansion or to address liquidity needs caused
by shortfalls in revenue. If additional funds are raised through debt financing,
such financing will increase the financial leverage of the Company and earnings
would be reduced by the associated interest expense. The Indenture permits the
Company to incur additional indebtedness, subject to certain limitations. There
can be no assurance that additional financing will be available when needed on
terms favorable to the Company or at all. If adequate funds are not available on
acceptable terms, the Company may be unable to continue its planned IPN
installations, expand both the number and dollar amount of Manufacturer
commitments, or respond to competitive pressures, any of which could have a
material adverse effect on the Company's results of operations and financial
condition.
LACK OF PRODUCT DIVERSIFICATION; DEPENDENCE ON CONSUMER PRODUCTS ADVERTISING AND
PROMOTIONAL BUSINESS
The Company's business is currently concentrated in the commercialization
of the IPN for use in supermarkets and is expected to be so concentrated for the
foreseeable future, thereby making the Company susceptible to a downturn in that
industry. For the year ended September 30, 1995 and the nine months ended June
29, 1996, the Company derived all its revenue from its IPN operations, and
substantially all the Company's revenue for the foreseeable future is expected
to be derived from the operation of the IPN in supermarkets. Any decrease in
Manufacturers' promotional expenditures could result in a smaller overall market
for the Company's services. In addition, Manufacturers may decide to decrease
promotional expenditures in favor of increased advertising, lower prices or
other marketing strategies, including "every day low price" and efficient
consumer response initiatives. For example, the Company is aware of one major
Manufacturer that has been testing, in selected markets, a strategy of
eliminating the use of FSIs. These factors as well as others affecting the
advertising and promotional strategy of consumer products manufacturers could
have a material adverse effect on the Company's business, operating results and
financial condition.
DEPENDENCE ON THIRD PARTIES
The expected growth of the market for the IPN, in conjunction with the
Company's limited resources, make the success of the Company and its business
dependent on, among other things, its ability to work successfully with third
parties. There can be no assurance that the Company will be successful in
identifying such third parties, that it will be able to maintain suitable
agreements with such third parties or that it will be able to implement
successfully any future agreements should they become necessary. Failure by the
Company to accomplish any of the above could have a material adverse effect on
the Company's business, operating results and financial condition.
For example, the Company has sold its manufacturing operations to Coleman
Resources and the Company's success will depend particularly on the ability of
Coleman Resources to fulfill the Company's needs on a timely basis. The ability
of the Company to realize recurring revenue from promotion redemptions will be
dependent on the success of the Company's plan to accelerate installation of IPN
terminals in retail stores with whom the Company has secured contractual
commitments. Failure of Coleman Resources to generate and sustain production
demand for the finished IPN terminals would have a material adverse effect on
the Company's business, operating results and financial condition.
Although the Company views strategic and other alliances with third parties
as an important factor in the development and commercialization of its products
and services, there can be no assurance that such third parties will view their
alliances with the Company as significant for their own businesses or that they
will not reassess their commitment to the Company at any time in the future.
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COMPETITION
The consumer product advertising and promotional business is intensely
competitive. Many media outlets compete for the advertising and promotional
dollars Manufacturers spend to help sell their products. The Company's services
compete against these media outlets, such as television, radio, newspapers and,
most directly, coupons. A number of new, electronic marketing products and
services also have been introduced, including electronic shelf markers,
computer-screen equipped shopping carts, battery-powered coupon dispensers,
electronic marketing networks and frequent shopper programs. A number of
potential competitors have failed because of a lack of acceptance, lack of
capital, technical problems or a combination of these factors. While the Company
believes it provides a cost-effective targeted marketing service, there are many
factors a Manufacturer will take into account in allocating advertising or
promotional expenditures, and there can be no assurance that the Company's
services will compete effectively against alternative marketing outlets. Most of
the Company's competitors in the consumer product promotional and advertising
business are larger, possess significantly greater financial resources and have
longer operating histories than the Company. See "Business -- Competition."
PATENTS, PROPRIETARY INFORMATION AND TRADEMARKS
The Company holds licenses to United States patents which cover various
aspects of its systems and methods of distributing promotions, and the Company
also has an additional patent application pending. The Company believes that its
early entrance into interactive electronic marketing provides an advantage over
later market entrants. However, it is possible that patent rights held by the
Company may be held invalid or that disputes with third parties over the scope
of licensed patents or other proprietary rights may occur. In addition, certain
aspects of the Company's services may not be adequately protected from
infringement or copying. Further, there can be no assurance that the Company's
licensed patents or its trademarks would be upheld if challenged or that
competitors might not develop similar or superior processes or services outside
the protection of any patents licensed to the Company. See "Business -- Patents,
Proprietary Information and Trademarks."
NEW MANAGEMENT; DEPENDENCE ON KEY EMPLOYEES
The Company's Chief Operating Officer has served in such capacity since
January 1996, its Chief Financial Officer has served in such capacity since
September 1996, its Senior Vice President of Sales and Marketing has served
since 1995 and substantially all the Company's sales force has been hired in the
current year. The Company's Chief Executive Officer was elected to such position
on June 12, 1996 and is also a co-founder and executive officer of Vanguard. An
inability of new management and other recently hired employees of the Company to
adjust quickly to, and to perform as expected in, their respective roles within
the Company or an inability of the Company to attract and retain employees with
such skills could have a material adverse effect on the Company's business,
operating results and financial condition. See "Management."
The Company is also highly dependent on certain key technical employees and
on its ability to recruit, retain and motivate high quality technical personnel.
Competition for such personnel is intense, and the inability to attract and
retain additional qualified employees or the loss of current key technical
employees could materially and adversely affect the Company's business,
operating results and financial condition. See "Management."
RELATIONSHIP WITH VANGUARD; POTENTIAL CONFLICTS OF INTEREST
Directors and officers of Vanguard who are also directors or officers of
the Company have certain fiduciary obligations to each organization. Vanguard
and directors and officers of Vanguard who are also directors and officers of
the Company are in positions involving the possibility of conflicts of interest
with respect to certain transactions concerning the Company. In addition, the
Company and Vanguard have entered into arrangements which provide for certain
transactions and relationships between the parties or which otherwise affect the
Company. See "Certain Transactions." Although the terms of certain of these
arrangements were established by Vanguard in consultation with the Company, they
were not the result of arm's-length negotiations. Accordingly, although the
Company believes that the terms of these arrangements were reasonable under the
circumstances, there can be no assurance that these agreements, or the terms of
any future arrangements between Vanguard or any of its affiliates and the
Company, are or will be as favorable to the Company as those that could be
obtained from unaffiliated third parties. The Company currently has not adopted
or formulated any procedures to resolve conflicts of interest other than
customary board practices such as relying on the judgment of disinterested
directors, when appropriate.
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ABSENCE OF PUBLIC TRADING MARKET
The New Notes will constitute a new issue of securities for which there is
no established trading market and may not be widely distributed. The Initial
Purchasers have informed the Company that they currently intend to make a market
in the New Notes as permitted by applicable laws and regulations; however, the
Initial Purchasers are not obligated to do so and may discontinue market making
at any time without notice. The Company does not intend to list the New Notes on
any national securities exchange or to seek the admission thereof to trading in
the Nasdaq National Market, and there can be no assurance as to the development
of any market or liquidity of any market that may develop for the New Notes. If
a market does develop, the price of the New Notes may fluctuate and liquidity
may be limited. If a market for the New Notes does not develop, purchasers may
be unable to resell such securities for an extended period of time, if at all.
ORIGINAL ISSUE DISCOUNT
The Old Notes were issued at a substantial discount from their principal
amount at maturity. Consequently, holders of the New Notes generally will be
required to include amounts in gross income for federal income tax purposes in
advance of receipt of the cash payments to which the income is attributable. See
"Certain Federal Income Tax Considerations" for a more detailed discussion of
the federal income tax consequences to the holders of the New Notes of the
acquisition, ownership and disposition of the New Notes.
If a bankruptcy case is commenced by or against the Company under federal
bankruptcy law after the issuance of the New Notes, the claim of a holder of New
Notes with respect to the principal amount thereof may be limited to an amount
equal to the sum of (i) the initial offering price of the Old Notes exchanged
for New Notes and (ii) that portion of the original issue discount that is not
deemed to constitute "unmatured interest" for purposes of federal bankruptcy
law. Any original issue discount that was not amortized as of any such
bankruptcy filing would constitute "unmatured interest."
13
<PAGE>
THE EXCHANGE OFFER
TERMS OF THE EXCHANGE OFFER
GENERAL
In connection with the sale of the Old Notes pursuant to a Purchase
Agreement dated as of July 30, 1996, between the Company and the Initial
Purchasers, the Initial Purchasers and their assignees became entitled to the
benefits of the Registration Agreement.
Under the Registration Agreement, the Company is obligated to (i) file the
Registration Statement of which this Prospectus is a part for the Exchange Offer
within 45 days after August 2, 1996, the date the Old Notes were issued (the
"Issue Date"), and (ii) use its best efforts to cause the Registration Statement
to become effective within 120 days after the Issue Date. The Exchange Offer
being made hereby, if commenced and consummated within such applicable time
periods, will satisfy those requirements under the Registration Agreement. See
"Description of the New Notes -- Exchange Offer, Registration Rights."
Upon the terms and subject to the conditions set forth in this Prospectus
and in the Letter of Transmittal (which together constitute the Exchange Offer),
the Company will accept for exchange all Old Notes validly tendered and not
withdrawn prior to 5:00 p.m., New York City time, on the Expiration Date. The
Company will issue New Notes in exchange for an equal principal amount of
outstanding Old Notes accepted in the Exchange Offer.
As of the date of this Prospectus, $142,000,000 aggregate principal amount
of Old Notes was outstanding. This Prospectus, together with the Letter of
Transmittal, is being sent to all registered holders as of , 1996.
The Company's obligation to accept Old Notes for exchange pursuant to the
Exchange Offer is subject to certain conditions as set forth herein under
" -- Conditions."
The Company shall be deemed to have accepted validly tendered Old Notes
when, as and if the Company has given oral or written notice thereof to the
Exchange Agent. The Exchange Agent will act as agent for the tendering holders
of Old Notes for the purposes of receiving the New Notes from the Company and
delivering New Notes to such holders.
In the event the Exchange Offer is consummated, subject to certain limited
exceptions, the Company will not be required to register the Old Notes. In such
event, holders of Old Notes seeking liquidity in their investment would have to
rely on exemptions to registration requirements under the U.S. securities laws.
See "Risk Factors -- Consequences of Failure to Exchange."
EXPIRATION DATE; EXTENSIONS; AMENDMENTS
The term "Expiration Date" shall mean , 1996 (30 days following
the commencement of the Exchange Offer), unless the Company, in its sole
discretion, extends the Exchange Offer, in which case the term "Expiration Date"
shall mean the latest date to which the Exchange Offer is extended.
Notwithstanding any extension of the Exchange Offer, if the Exchange Offer is
not consummated within 150 days of the Issue Date, a Registration Default will
occur and additional cash interest will accrue on the Notes at the rate of 0.50%
per annum. See "Description of New Notes -- Exchange Offer; Registration
Rights." See " -- Acceptance of Old Notes for Exchange; Delivery of New Notes."
In order to extend the Expiration Date, the Company will notify the
Exchange Agent of any extension by oral or written notice and will mail to the
record holders of Old Notes an announcement thereof, each prior to 9:00 a.m.,
New York City time, on the next business day after the previously scheduled
Expiration Date. Such announcement may state that the Company is extending the
Exchange Offer for a specified period of time.
The Company reserves the right (i) to delay accepting any Old Notes, to
extend the Exchange Offer or to terminate the Exchange Offer and not accept Old
Notes not previously accepted if any of the conditions set forth herein under
" -- Conditions" shall have occurred and shall not have been waived by the
Company, by giving oral or written notice of such delay, extension or
termination to the Exchange Agent, or (ii) to amend the terms of the Exchange
Offer in any manner deemed by it to be advantageous to the holders of the Old
Notes. Any such delay in acceptance, extension, termination or amendment will be
followed as promptly as practicable by oral or written notice thereof. If the
Exchange Offer is amended in a manner determined by the Company to constitute a
material change, the Company will promptly disclose such amendment in a manner
reasonably calculated to inform the holders of the Old Notes of such amendment
and the Company will extend the Exchange Offer for a period of five
14
<PAGE>
to 10 business days, depending upon the significance of the amendment and the
manner of disclosure to holders of the Old Notes, if the Exchange Offer would
otherwise expire during such five to 10 business day period.
Without limiting the manner in which the Company may choose to make public
announcement of any delay, extension, amendment or termination of the Exchange
Offer, the Company shall have no obligation to publish, advertise, or otherwise
communicate any such public announcement, other than by making a timely release
to an appropriate news agency.
NO VOTE OF THE COMPANY'S SECURITY HOLDERS IS REQUIRED UNDER APPLICABLE LAW
TO EFFECT THE EXCHANGE OFFER AND NO SUCH VOTE (OR PROXY THEREFOR) IS BEING
SOUGHT HEREBY.
Holders of Old Notes do not have any appraisal or dissenters' rights in
connection with the Exchange Offer under the North Carolina Business Corporation
Act, the state in which the Company is incorporated.
PROCEDURES FOR TENDERING
To tender in the Exchange Offer, a holder must complete, sign and date the
Letter of Transmittal, or a facsimile thereof, have the signatures thereon
guaranteed if required by the Letter of Transmittal and mail or otherwise
deliver such Letter of Transmittal or such facsimile, together with any other
required documents, to the Exchange Agent prior to 5:00 p.m., New York City
time, on the Expiration Date. In addition, either (i) certificates for such Old
Notes must be received by the Exchange Agent along with the Letter of
Transmittal, (ii) a timely confirmation of a book-entry transfer (a "Book-Entry
Confirmation") of such Old Notes, if such procedure is available, into the
Exchange Agent's account at The Depository Trust Company (the "Book-Entry
Transfer Facility") pursuant to the procedure for book-entry transfer described
below, must be received by the Exchange Agent prior to the Expiration Date or
(iii) the holder must comply with the guaranteed delivery procedures described
below. THE METHOD OF DELIVERY OF OLD NOTES, LETTERS OF TRANSMITTAL AND ALL OTHER
REQUIRED DOCUMENTS IS AT THE ELECTION AND RISK OF THE HOLDERS. IF SUCH DELIVERY
IS BY MAIL, IT IS RECOMMENDED THAT REGISTERED MAIL, PROPERLY INSURED, WITH
RETURN RECEIPT REQUESTED, BE USED. IN ALL CASES, SUFFICIENT TIME SHOULD BE
ALLOWED TO ASSURE TIMELY DELIVERY. NO LETTERS OF TRANSMITTAL OR OLD NOTES SHOULD
BE SENT TO THE COMPANY. To be tendered effectively, the Old Notes, Letter of
Transmittal and all other required documents must be received by the Exchange
Agent prior to 5:00 p.m., New York City time, on the Expiration Date. Delivery
of all documents must be made to the Exchange Agent at its address set forth
below. Holders may also request their respective brokers, dealers, commercial
banks, trust companies or nominees to effect such tender for such holders.
The tender by a holder of Old Notes will constitute an agreement between
such holder and the Company in accordance with the terms and subject to the
conditions set forth herein and in the Letter of Transmittal.
Only a holder of Old Notes may tender such Old Notes in the Exchange Offer.
The term "holder" with respect to the Exchange Offer means any person in whose
name Old Notes are registered on the books of the Company or any other person
who has obtained a properly completed bond power from the registered holder.
Any beneficial owner whose Old Notes are registered in the name of a
broker, dealer, commercial bank, trust company or other nominee and who wishes
to tender should contact such registered holder promptly and instruct such
registered holder to tender on his behalf. If such beneficial owner wishes to
tender on his own behalf, such beneficial owner must, prior to completing and
executing the Letter of Transmittal and delivering his Old Notes, either make
appropriate arrangements to register ownership of the Old Notes in such owner's
name or obtain a properly completed bond power from the registered holder. The
transfer of registered ownership may take considerable time.
Signatures on a Letter of Transmittal or a notice of withdrawal, as the
case may be, must be guaranteed by any member firm of a registered national
securities exchange or of the National Association of Securities Dealers, Inc.
or a commercial bank or trust company having an office or correspondent in the
U.S. (an "Eligible Institution") unless the Old Notes tendered pursuant thereto
are tendered (i) by a registered holder who has not completed the box entitled
"Special Issuance Instructions" or "Special Delivery Instructions" on the Letter
of Transmittal or (ii) for the account of an Eligible Institution. In the event
that signatures on a Letter of Transmittal or a notice of withdrawal, as the
case may be, are required to be guaranteed, such guarantee must be by an
Eligible Institution.
15
<PAGE>
If the Letter of Transmittal is signed by a person other than the
registered holder of any Old Notes listed therein, such Old Notes must be
endorsed or accompanied by bond powers and a proxy which authorizes such person
to tender the Old Notes on behalf of the registered holder, in each case as the
name of the registered holder or holders appears on the Old Notes.
If the Letter of Transmittal or any Old Notes bond powers are signed by
trustees, executors, administrators, guardians, attorneys-in-fact, officers of
corporations or others acting in a fiduciary or representative capacity, such
person should so indicate when signing, and unless waived by the Company,
evidence satisfactory to the Company of their authority to so act must be
submitted with the Letter of Transmittal.
All questions as to the validity, form, eligibility (including time of
receipt) and withdrawal of the tendered Old Notes will be determined by the
Company in its sole discretion, which determination will be final and binding.
The Company reserves the absolute right to reject any and all Old Notes not
properly tendered or any Old Notes which, if accepted by the Company, would, in
the opinion of counsel for the Company, be unlawful. The Company also reserves
the right to waive any irregularities or conditions of tender as to particular
Old Notes. The Company's interpretation of the terms and conditions of the
Exchange Offer (including the instructions in the Letter of Transmittal) will be
final and binding on all parties. Unless waived, any defects or irregularities
in connection with tenders of Old Notes must be cured within such time as the
Company shall determine. None of the Company, the Exchange Agent or any other
person shall be under any duty to give notification of defects or irregularities
with respect to tenders of Old Notes, nor shall any of them incur any liability
for failure to give such notification. Tenders of Old Notes will not be deemed
to have been made until such irregularities have been cured or waived. Any Old
Notes received by the Exchange Agent that are not properly tendered and as to
which the defects or irregularities have not been cured or waived will be
returned without cost to such holder by the Exchange Agent to the tendering
holders of Old Notes, unless otherwise provided in the Letter of Transmittal, as
soon as practicable following the Expiration Date.
In addition, the Company reserves the right in its sole discretion, subject
to the provisions of the Indenture, to (i) purchase or make offers for any Old
Notes that remain outstanding subsequent to the Expiration Date or, as set forth
under " -- Conditions," to terminate the Exchange Offer in accordance with the
terms of the Registration Agreement and (ii) to the extent permitted by
applicable law, purchase Old Notes in the open market, in privately negotiated
transactions or otherwise. The terms of any such purchases or offers could
differ from the terms of the Exchange Offer.
By tendering, each holder will represent to the Company that: (i) it is not
an affiliate of the Company (as defined under Rule 405 of the Securities Act);
(ii) any New Notes to be received by it were acquired in the ordinary course of
its business; and (iii) at the time of commencement of the Exchange Offer, it
was not engaged in, and did not intend to engage in, a distribution of such New
Notes and had no arrangement or understanding with any person to participate in
the distribution (within the meaning of the Securities Act) of the New Notes. If
a holder of Old Notes is an affiliate of the Company, and is engaged in or
intends to engage in a distribution of the New Notes or has any arrangement or
understanding with respect to the distribution of the New Notes to be acquired
pursuant to the Exchange Offer, such holder could not rely on the applicable
interpretations of the staff of the Commission and must comply with the
registration and Prospectus delivery requirements of the Securities Act in
connection with any secondary resale transaction. Each broker or dealer that
receives New Notes for its own account in exchange for Old Notes, where such Old
Notes were acquired by such broker or dealer as a result of market-making
activities, or other trading activities, must acknowledge that it will deliver a
prospectus in connection with any resale of such New Notes. See "Plan of
Distribution."
ACCEPTANCE OF OLD NOTES FOR EXCHANGE; DELIVERY OF NEW NOTES
Upon satisfaction or waiver of all of the conditions to the Exchange Offer,
the Company will accept, promptly after the Expiration Date, all Old Notes
properly tendered and will issue the New Notes promptly after acceptance of the
Old Notes. See " -- Conditions" below. For purposes of the Exchange Offer, the
Company shall be deemed to have accepted validly tendered Old Notes for exchange
when, as and if the Company has given oral or written notice thereof to the
Exchange Agent. For each Old Note accepted for exchange, the holder of such Old
Notes will receive a New Note having a principal amount equal to that of the
surrendered Old Note.
In all cases, issuance of New Notes for Old Notes that are accepted for
exchange pursuant to the Exchange Offer will be made only after timely receipt
by the Exchange Agent of certificates for such Old Notes or a timely
16
<PAGE>
Book-Entry Confirmation of such Old Notes into the Exchange Agent's account at
the Book-Entry Transfer Facility, a properly completed and duly executed Letter
of Transmittal and all other required documents. If any tendered Old Notes are
not accepted for any reason set forth in the terms and conditions of the
Exchange Offer or if Old Notes are submitted for a greater principal amount than
the holder desires to exchange, such unaccepted or nonexchanged Old Notes will
be returned without expense to the tendering holder thereof (or, in the case of
Old Notes tendered by book-entry transfer procedures described below, such
nonexchanged Old Notes will be credited to an account maintained with such
Book-Entry Transfer Facility) as promptly as practicable after the expiration or
termination of the Exchange Offer.
BOOK-ENTRY TRANSFER
The Exchange Agent will make a request to establish an account with respect
to the Old Notes at the Book-Entry Transfer Facility for purposes of the
Exchange Offer within two business days after the date of this Prospectus. Any
financial institution that is a participant in the Book-Entry Transfer
Facility's systems may make book-entry delivery Old Notes by causing the
Book-Entry Transfer Facility to transfer such Old Notes into the Exchange
Agent's account at the Book-Entry Transfer Facility in accordance with such
Book-Entry Transfer Facility's procedures for transfer. However, although
delivery of Old Notes may be effected through book-entry transfer at the
Book-Entry Transfer Facility, the Letter of Transmittal or facsimile thereof
with any required signature guarantees and any other required documents must, in
any case, be transmitted to and received by the Exchange Agent at one of the
addresses set forth below under " -- Exchange Agent" on or prior to the
Expiration Date or the guaranteed delivery procedures described below must be
complied with.
GUARANTEED DELIVERY PROCEDURES
If a registered holder of the Old Notes desires to tender such Old Notes,
and the Old Notes are not immediately available, or time will not permit such
holder's Old Notes or other required documents to reach the Exchange Agent
before the Expiration Date, or the procedures for book-entry transfer cannot be
completed on a timely basis, a tender may be effected if (i) the tender is made
through an Eligible Institution, (ii) prior to the Expiration Date, the Exchange
Agent received from such Eligible Institution a properly completed and duly
executed Letter of Transmittal (or a facsimile thereof) and Notice of Guaranteed
Delivery, substantially in the form provided by the Company (by facsimile
transmission, mail or hand delivery), setting forth the name and address of the
holder of Old Notes and the amount of Old Notes tendered, stating that the
tender is being made thereby and guaranteeing that within five New York Stock
Exchange ("NYSE") trading days after the date of execution of the Notice of
Guaranteed Delivery, the certificates for all physically tendered Old Notes, in
proper form for transfer, or a Book-Entry Confirmation, as the case may be, and
any other documents required by the Letter of Transmittal will be deposited by
the Eligible Institution with the Exchange Agent and (iii) the certificates for
all physically tendered Old Notes, in proper form for transfer, or a Book-Entry
Confirmation, as the case may be, and all other documents required by the Letter
of Transmittal are received by the Exchange Agent within five NYSE trading days
after the date of execution of the Notice of Guaranteed Delivery.
WITHDRAWAL OF TENDERS
Tenders of Old Notes may be withdrawn at any time prior to 5:00 p.m., New
York City time, on the Expiration Date.
For a withdrawal to be effective, a written notice of withdrawal must be
received by the Exchange Agent at one of the addresses set forth below under
"Exchange Agent." Any such notice of withdrawal must specify the name of the
person having tendered the Old Notes to be withdrawn, identify the Old Notes to
be withdrawn (including the principal amount of such Old Notes) and (where
certificates for Old Notes have been transmitted) specify the name in which such
Old Notes are registered, if different from that of the withdrawing holder. If
certificates for Old Notes have been delivered or otherwise identified to the
Exchange Agent, then, prior to the release of such certificates, the withdrawing
holder must also submit the serial numbers of the particular certificates to be
withdrawn and a signed notice of withdrawal with signatures guaranteed by an
Eligible Institution unless such holder is an Eligible Institution. If Old Notes
have been tendered pursuant to the procedure for book-entry transfer described
above, any notice of withdrawal must specify the name and number of the account
at the Book-Entry Transfer Facility to be credited with the withdrawn Old Notes
and otherwise comply with the procedures of such facility. All questions as to
the validity, form and eligibility (including time of receipt) of such notices
will be determined by the Company,
17
<PAGE>
whose determination shall be final and binding on all parties. Any Old Notes so
withdrawn will be deemed not to have been validly tendered for exchange for
purposes of the Exchange Offer. Any Old Notes which have been
tendered for exchange but which are not exchanged for any reason will be
returned to the holder thereof without cost to such holder (or, in the case of
Old Notes tendered by book-entry transfer into the Exchange Agent's account at
the Book-Entry Transfer Facility pursuant to the book-entry transfer procedures
described above, such Old Notes will be credited to an account maintained with
such Book-Entry Transfer Facility for the Old Notes) as soon as practicable
after withdrawal, rejection of tender or termination of the Exchange Offer.
Properly withdrawn Old Notes may be retendered by following one of the
procedures described under " -- Procedures for Tendering" above at any time on
or prior to the Expiration Date.
CONDITIONS
Notwithstanding any other term of the Exchange Offer, the Company will not
be required to accept for exchange, or to issue New Notes in exchange for, any
Old Notes and may terminate or amend the Exchange Offer as provided herein
before the acceptance of such Old Notes, if because of any change in law, or
applicable interpretations thereof by the Commission, the Company determines
that it is not permitted to effect the Exchange Offer, and the Company has no
obligation to, and will not knowingly, accept tenders of Old Notes from
affiliates of the Company (within the meaning of Rule 405 under the Securities
Act) or from any other holder or holders who are not eligible to participate in
the Exchange Offer under applicable law or interpretations thereof by the
Commission, or if the New Notes to be received by such holder or holders of Old
Notes in the Exchange Offer, upon receipt, will not be tradeable by such holder
without restriction under the Securities Act and the Exchange Act and without
material restrictions under the "blue sky" or securities laws of substantially
all of the states.
EXCHANGE AGENT
Fleet National Bank has been appointed as Exchange Agent for the Exchange
Offer. Questions and requests for assistance and requests for additional copies
of this Prospectus or of the Letter of Transmittal should be directed to the
Exchange Agent addressed as follows:
BY MAIL: BY HAND/OVERNIGHT DELIVERY:
Fleet National Bank Fleet National Bank
777 Main Street 777 Main Street
Hartford, Connecticut 06115 Hartford, Connecticut 06115
CTMO 0238 CTMO 0238
FACSIMILE TRANSMISSION:
(860) 986-7920
CONFIRM BY TELEPHONE:
Michael Hopkins
(860) 986-4236
FEES AND EXPENSES
The expenses of soliciting tenders pursuant to the Exchange Offer will be
borne by the Company. The principal solicitation for tenders pursuant to the
Exchange Offer is being made by mail; however, additional solicitations may be
made by telegraph, telephone, telecopy or in person by officers and regular
employees of the Company.
The Company will not make any payments to brokers, dealers or other persons
soliciting acceptances of the Exchange Offer. The Company, however, will pay the
Exchange Agent reasonable and customary fees for its services and will reimburse
the Exchange Agent for its reasonable out-of-pocket expenses in connection
therewith. The Company may also pay brokerage houses and other custodians,
nominees and fiduciaries the reasonable out-of-pocket expenses incurred by them
in forwarding copies of the Prospectus and related documents to the beneficial
owners of the Old Notes, and in handling or forwarding tenders for exchange.
The expenses to be incurred in connection with the Exchange Offer will be
paid by the Company, including fees and expenses of the Exchange Agent and
Trustee (as hereinafter defined) and accounting, legal, printing and related
fees and expenses.
18
<PAGE>
The Company will pay all transfer taxes, if any, applicable to the exchange
of Old Notes pursuant to the Exchange Offer. If, however, certificates
representing New Notes or Old Notes for principal amounts not tendered or
accepted for exchange are to be delivered to, or are to be registered or issued
in the name of, any person other than the registered holder of the Old Notes
tendered, or if tendered Old Notes are registered in the name of any person
other than the person signing the Letter of Transmittal, or if a transfer tax is
imposed for any reason other than the exchange of Old Notes pursuant to the
Exchange Offer, then the amount of any such transfer taxes (whether imposed on
the registered holder or any other persons) will be payable by the tendering
holder. If satisfactory evidence of payment of such taxes or exemption therefrom
is not submitted with the Letter of Transmittal, the amount of such transfer
taxes will be billed directly to such tendering holder.
ACCOUNTING TREATMENT
The New Notes will be recorded in the Company's accounting records at the
same carrying value as the Old Notes as reflected in the Company's accounting
records on the date of the exchange. Accordingly, no gain or loss for accounting
purposes will be recognized upon the consummation of the Exchange Offer. The
expenses of the Exchange Offer will be amortized by the Company over the term of
the New Notes in accordance with generally accepted accounting principles.
USE OF PROCEEDS
There will be no cash proceeds to the Company from the issuance of the New
Notes pursuant to the Exchange Offer. The Company will continue using the net
proceeds from the Private Placement of the Old Notes as described in the
Offering Memorandum dated July 30, 1996, (i) predominately to fund capital
expenditures, working capital requirements and operating losses incurred in
connection with the large-scale commercialization of the IPN (primarily in
retail supermarket chains) and (ii) for general corporate purposes. Pending such
uses, the Company intends to invest such net proceeds in short-term,
investment-grade, interest-bearing securities. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations."
CAPITALIZATION
The following table sets forth as of June 29, 1996 (i) the actual cash
position and capitalization of the Company and (ii) the cash position and
capitalization of the Company as adjusted to give effect to the consummation of
the Private Placement and the application of the gross proceeds therefrom. This
table should be read in conjunction with the Company's Consolidated Financial
Statements appearing elsewhere in this Prospectus.
<TABLE>
<CAPTION>
AT JUNE 29, 1996
ACTUAL AS ADJUSTED
<S> <C> <C>
(DOLLARS IN THOUSANDS)
Cash and cash equivalents.......................................................................... $ 7,417 $ 98,267
Long-term Debt:
14% Senior Discount Notes Due 2003............................................................... $ -- $ 70,193(a)
Notes Payable to Stockholders.................................................................... 256 256
Total long-term debt..................................................................... 256 70,449(a)
Other long-term liabilities........................................................................ 83 83
Common stock purchase warrants..................................................................... -- 24,463(a)
Stockholders' equity:
Common stock, no par value; 20,000,000 shares authorized, 7,658,555 shares outstanding, actual
and as adjusted............................................................................... 27,651 27,651
Deficit accumulated during the development stage................................................. (13,749) (13,749)
Total stockholders' equity............................................................... 13,902 13,902
Total capitalization................................................................... $ 14,241 $ 108,897
</TABLE>
(a) Reflects the effect of the valuation of Warrants issued in the Private
Placement with respect to 7.334 shares issuable per warrant. Does not
reflect additional shares which would be issuable if the Company has not
completed a Qualifying Initial Public Offering (as defined) by September 30,
1997.
19
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
The following table presents selected financial data for the periods
indicated. The following financial data should be read in conjunction with the
information set forth under "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and the audited and unaudited Consolidated
Financial Statements included elsewhere in this Offering Memorandum.
<TABLE>
<CAPTION>
FOR THE PERIOD FROM FOR THE PERIOD FROM
FEBRUARY 25, 1993 YEAR ENDED FEBRUARY 25, 1993
(DATE OF INCEPTION) TO SEPTEMBER 30, NINE MONTHS ENDED (DATE OF INCEPTION) TO
SEPTEMBER 30, 1993 1994 1995 JULY 1, 1995 JUNE 29, 1996 JUNE 29, 1996
<S> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Net sales................. $ 11 $ 3 $ 110 $ 73 $ 104 $ 228
Gross profit
(deficit)............... 7 (260) (732) (524) (1,183) (2,168)
Loss from operations...... (1,295) (2,267) (4,427) (3,015) (5,638) (13,627)
Net loss.................. (1,295) (2,344) (4,526) (3,072) (5,584) (13,749)
Net loss per
share................... (0.46) (0.83) (1.27) (1.04) (1.02) N/A
Weighted average common
shares outstanding...... 2,793 2,830 3,556 2,942 5,493 N/A
Deficiency of earnings
available to cover fixed
charges (a)............. $ 1,295 $ 2,354 $ 4,615 $ 3,135 $ 5,749 $ 14,013
</TABLE>
<TABLE>
<CAPTION>
JUNE
SEPTEMBER 30, 29,
1994 1995 1996
<S> <C> <C> <C>
BALANCE SHEET DATA:
Working capital (deficit)................................................................... $ 63 $ (753) $ 5,288
Total assets................................................................................ 644 2,178 16,783
Total debt.................................................................................. 1,893 2,042 323
Stockholders' equity (deficit).............................................................. (1,417) (910) 13,902
</TABLE>
(a) For purposes of computing the deficiency of earnings available to cover
fixed charges, earnings include loss from operations, which excludes
interest expense and other income, net. Fixed charges consist of interest
expense.
20
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
COMPANY OVERVIEW
The Company develops, owns and operates proprietary electronic marketing
systems that are designed to give consumer products manufacturers (the
"Manufacturers") and retailers the ability to influence the purchasing behavior
of consumers moments before shopping begins and to track and analyze individual
consumer purchasing behavior on an ongoing basis. The Company's current
commercial product offering utilizes interactive "touch-screen" terminals inside
the entrance of retail supermarkets that issue individually targeted, and
immediately usable, coupons and other promotional incentives based on each
consumer's cumulative purchasing history. Since its formation in 1993, the
Company has concentrated on the development and commercialization of its systems
primarily in retail supermarkets. For the period from inception (February 25,
1993) through June 29, 1996 the Company was a development stage company, and its
activities principally related to the development, testing and initial
deployment of the IPN, capital formation and the recruitment of management and
other key employees.
To date, the Company has generated minimal operating revenue, has incurred
significant losses and has experienced substantial negative cash flow from
operations. The Company's prospects must be considered in light of the risks,
expenses and difficulties frequently encountered by companies in their early
stage of development. The Company had an accumulated deficit as of June 29, 1996
of $13,748,673 with net losses of $2,343,510 and $4,525,722 for the years ended
September 30, 1994 and 1995, respectively and a net loss of $5,584,389 for the
nine months ended June 29, 1996. The Company expects to incur substantial
additional costs to install additional IPN terminals in retail supermarket
stores and to sponsor selected promotions to demonstrate the utility of the IPN
to consumers, retailers and Manufacturers. The Company expects to incur net
losses in fiscal 1996 and 1997 and may operate at a loss for the foreseeable
future, and there can be no assurance that the Company will ever be able to
achieve profitability or, if achieved, sustain such profitability.
During 1995, the Company installed its IPN in grocery stores under one
retail grocery store chain, offering consumers a minimal number of brand
incentive coupons. Starting in 1995, the Company conducted a pilot in 25 retail
grocery stores whereby it supported a full scale offering of brand incentives in
order to gauge customer usage levels. Although the pilot tests confirmed
substantial customer usage, the Company also recognized that a larger base of
installed stores would be necessary to secure ongoing Manufacturer
participation. To that end, the Company has more recently concentrated its
efforts on marketing its IPN to supermarket chains to gain sufficient
penetration in particular markets to make the IPN more attractive to
Manufacturers. This expansion is being financed with the net proceeds of the
Private Placement. As of September 10, 1996, the Company had contracts and
letters of intent to install and operate its IPN in approximately 2,800 stores
of which 301 were installed and operating.
As of September 10, 1996, 23 Manufacturers representing 63 brand offerings
were under contract to participate in the IPN, most of which were short-term and
at relatively low expenditure levels to trial the effectiveness of the IPN.
OVERVIEW OF REVENUE AND EXPENSES
The Company anticipates that its primary source of revenue will continue to
be from transaction fees it charges participating Manufacturers. Each electronic
redemption of a promotion by a consumer will generate a transaction fee,
consisting of a fee for the retailer, a fee for Inter(Bullet)Act and the face
value of the coupon (which the Company passes on to the retailer).
Direct operating expenses consist primarily of (i) uncapitalized costs of
installing IPN terminals in stores, (ii) store support and various marketing
expenses, (iii) retailer processing fees and (iv) paper for "shopping list" or
coupon printing.
Selling, general and administrative expenses consist primarily of costs
associated with (i) the Company's sales force, (ii) marketing and administrative
personnel, (iii) royalties for use of patents and licenses, (iv) travel,
consulting, professional fees, business communications and other expenses and
(v) research and product development costs, composed mainly of the IPN's
hardware and software development costs. In addition, as part of its development
strategy to attract substantial retailer and Manufacturer commitments and to
encourage consumer usage of the system, the Company from time to time includes
in the IPN in certain stores a number of product
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<PAGE>
promotions for which the Company has no contract for transaction fees from the
Manufacturer. For such products, the Company bears the full cost of each
redemption and receives no transaction fee from the Manufacturer. These costs
are included as marketing expenses in selling, general and administrative
expenses. See "Business -- Business Strategy -- Brand Strategy -- Selective
Brand Promotions by the Company."
Depreciation and amortization expenses are principally incurred in
connection with installed IPN terminals and, to a lesser extent, Company-owned
computers, development and testing equipment, office equipment, furniture,
fixtures and improvements.
RESULTS OF OPERATIONS
FISCAL NINE MONTHS ENDED JUNE 29, 1996 AND JULY 1, 1995
REVENUE. Revenue was $104,275 and $73,143 in the 1996 and 1995 periods,
respectively. The increase was primarily attributable to the addition of IPN
terminals installed in stores in the 1996 period. As of June 29, 1996 and July
1, 1995, 276 and 25 stores contained IPN terminals, respectively. Revenue did
not increase proportionately to stores and terminals as the majority of the
installations occurred in the latter months of the period in 1996 and since many
of the IPN terminals in the 1996 period were being supported by the Company
through nonpaid incentives.
DIRECT OPERATING EXPENSES. Direct operating expenses were $1,287,560 and
$597,295 in the 1996 and 1995 periods, respectively. The increase was primarily
due to (i) increased employee headcount to support additional store
installations and monitor existing stores and (ii) increased supplies related to
IPN usage.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses were $4,020,926 and $2,349,080 in the 1996 and 1995
periods, respectively. The increase of $1,671,846 was due to (i) increased
personnel, professional fees and other expenses to support the expanded store
roll-out, (ii) increased brand promotions sponsored by the Company, primarily
due to the increased store roll-out, to $485,000 in the 1996 period from
$160,000 in the 1995 period, (iii) a one-time consulting charge of $375,000 in
the form of a note to a related party issued upon installation of the 50th store
in 1996 pursuant to an agreement with this related party and (iv) an increase in
research and development expense from $439,000 to $538,000. See Note 9 to the
June 29, 1996 Consolidated Financial Statements for additional discussion.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization was $433,895
and $141,647 for the 1996 and 1995 periods, respectively. The increase was
principally due to an increase in the number of IPN terminals in stores, as well
as computer and office equipment additions.
INTEREST EXPENSE. Interest expense was $111,377 and $120,405 for the 1996
and 1995 periods, respectively.
OTHER INCOME, NET. Other income, net was $165,094 and $62,955 in 1996 and
1995, respectively. The increase of approximately $102,000 in the 1996 period
was primarily due to an increase in interest income of approximately $154,000,
offset by approximately $35,000 in expenses associated with exploring other
opportunities for the Company's proprietary technology.
FISCAL YEARS ENDED SEPTEMBER 30, 1995 AND SEPTEMBER 30, 1994 AND FOR THE
PERIOD FROM FEBRUARY 25, 1993 (DATE OF INCEPTION) TO SEPTEMBER 30, 1993
REVENUE. Revenue was $110,239, $2,761 and $10,600 in 1995, 1994 and for the
period from February 25, 1993 (Date of Inception) to September 30, 1993,
respectively. The increase during 1995 was attributable to the addition of 22
stores in which IPN terminals were installed throughout 1995. IPN stores in
operation at September 30, 1995, 1994 and 1993 were 25, 3 and 0, respectively.
DIRECT OPERATING EXPENSES. Direct operating expenses were $842,025,
$262,389 and $3,349 in 1995, 1994 and for the period from February 25, 1993
(Date of Inception) to September 30, 1993, respectively. The increase was
attributable to (i) an increase in employee headcount to support new store
roll-out and maintain quality operations at current stores and (ii) increased
supplies related to IPN usage.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses were $3,504,751, $1,975,313 and $1,294,762 in 1995, 1994
and for the period from February 25, 1993 (Date of Inception) to September 30,
1993, respectively. Selling and marketing expenses increased by $506,468 and
$484,248 from 1994 to
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<PAGE>
1995 and for the period from February 23, 1993 (Date of Inception) through
September 30, 1993 to 1994, respectively. The increase from 1994 to 1995 was
attributable to (i) marketing costs associated with selective brand promotions
of $325,000 in 1995 and (ii) the hiring of additional marketing and sales force
personnel to support and accelerate the marketing and roll-out of IPN terminals.
The increase from the period from February 23, 1993 (Date of Inception) to
September 30, 1993 to 1994 was attributable to the hiring of marketing and sales
force personnel. General and administrative expenses were $2,514,035, $1,491,065
and $1,294,762 for 1995, 1994 and for the period from February 23, 1993 (Date of
Inception) to September 30, 1993, respectively. Research and development,
primarily the development of hardware and software to support the IPN terminals,
accounted for $625,000 in 1995, $350,000 in 1994 and $611,000 for the period
from February 23, 1993 (Date of Inception) to September 30, 1993. The $611,000
was a one-time charge for purchased technology. See Note 7 to the September 30,
1995 and 1994 Consolidated Financial Statements for additional discussion. The
balance of the increases were due to additional personnel and professional costs
required in the progression of the Company through its development stage.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization was $190,748,
$31,604 and $7,541 in 1995, 1994 and for the period from February 25, 1993 (Date
of Inception) to September 30, 1993, respectively. The increase was principally
due to an increase in the number of IPN terminals in stores, as well as computer
and office equipment additions.
INTEREST EXPENSE. Interest expense was $187,249, $87,808 and $0 in 1995,
1994 and for the period from February 25, 1993 (Date of Inception) to September
30, 1993. Interest expense increased by $99,441 in 1995 and by $87,808 in 1994
due to additional debt issued to various shareholders of the Company. See Notes
5 and 6 to the September 30, 1995 and 1994 Consolidated Financial Statements for
further discussion.
OTHER INCOME, NET. Other income, net was $88,812, $10,843 and $0 in 1995,
1994 and for the period from February 25, 1993 (Date of Inception) to September
30, 1993, respectively. The significant increase in 1995 was due to an increase
of approximately $26,000 of interest income and $60,000 of non-recurring revenue
derived during a test of an application of the Company's proprietary technology.
LIQUIDITY AND CAPITAL RESOURCES
From February 25, 1993, (Date of Inception) to June 29, 1996 the net cash
used in operating activities was $9,984,713 as the Company generated minimal
revenue yet incurred expenses related to the development of its IPN technology,
test marketing the product and recruiting personnel. In addition, cash used in
investing activities was $9,330,852, primarily related to expenditures for IPN
equipment. The Company has funded its operations through equity contributed by
its stockholders and through convertible debt, which on February 1, 1996 was
converted into equity. From its inception through June 29, 1996, the Company's
stockholders had contributed $27,651,071 of equity to the Company. Of the
aforementioned amount, $1,600,000 was originally issued as debt and subsequently
converted to equity. As of June 29, 1996, the Company had cash and cash
equivalents of $7,416,893 and working capital of $5,287,965.
As of September 10, 1996, the Company had contracts and letters of intent
to install and operate the IPN in approximately 2,800 stores, of which 300
stores were installed and operating. Installation costs associated with the
stores to be installed will cost approximately $26.6 million and $49.3 million
during calendar years 1996 and 1997, respectively, based on the Company's
estimated average cost of installation (assuming an average of two terminals per
store) of approximately $19,000 per store. The Company also plans to offer
product promotions for which it will bear the full cost of each redemption
without reimbursement from Manufacturers of approximately $4.5 million and $7.5
million during calendar years 1996 and 1997, respectively. In addition, the
Company has settled a lawsuit and the settlement requires the Company to pay an
aggregate of $400,000 by January 1997, $350,000 of which is expected to be paid
in fiscal 1996.
As of September 9, 1996, the Company sold its inventory and fixed assets
used in its terminal assembly operations in South Carolina to Coleman Resources
for a purchase price of approximately $2.6 million. In connection therewith,
Coleman Resources hired the Company's employees involved in such operations and
entered into a supply agreement whereby it will fulfill the Company's
anticipated terminal requirements for the next three years with fixed pricing
for the first 5,000 IPN terminals. No material gain or loss was realized in the
transaction.
The Company consummated the Private Placement on August 2, 1996 for which
it received net proceeds of approximately $90.9 million. The Company will
continue to use the net proceeds from the Private Placement to
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<PAGE>
fund capital expenditures, working capital requirements and operating losses
incurred in connection with the increased commercialization of its IPN during
1996 and 1997. The Company believes that the proceeds from the Private
Placement, together with existing cash and cash equivalents will be sufficient
to meet the Company's currently anticipated operating and capital expenditure
requirements both for the short-term and through December 31, 1997. However, the
Company may require additional capital in 1998 to fund its planned expansion,
and the Company also may need to raise additional capital prior to the end of
1997 in order to fund more rapid expansion or to address liquidity needs caused
by shortfalls in revenue. If additional funds are raised through the issuance of
equity securities, the percentage ownership of the stockholders of the Company
(as well as the percentage ownership represented by the Warrants) will be
reduced, stockholders may experience additional dilution, or such equity
securities may have rights, preferences or privileges senior to the Common
Stock. If additional funds are raised through debt financing, such financing
will increase the financial leverage of the Company and earnings would be
reduced by the associated interest expense. The Indenture permits the Company to
incur additional indebtedness, subject to certain limitations. There can be no
assurance that additional financing will be available when needed on terms
favorable to the Company or at all. If adequate funds are not available on
acceptable terms, the Company may be unable to continue its planned IPN
installations, expand both the number and dollar amount of Manufacturer
commitments, or respond to competitive pressures, any of which could have a
material adverse effect on the Company's results of operations and financial
condition.
24
<PAGE>
BUSINESS
GENERAL
The Company develops, owns and operates proprietary electronic marketing
systems that are designed to give consumer products manufacturers (the
"Manufacturers") and retailers the ability to influence the purchasing behavior
of consumers moments before shopping begins and to track and analyze individual
consumer purchasing behavior on an ongoing basis. The Company's current
commercial product offering utilizes interactive "touch-screen" terminals inside
the entrance of retail supermarkets that issue individually targeted, and
immediately usable, coupons and other promotional incentives based on each
consumer's cumulative purchasing history. This automated process saves consumers
time and money while providing Manufacturers and retailers substantially more
control, efficiency and cost effectiveness than traditional mass advertising and
promotion media. The Company receives recurring revenue from transaction fees
paid by Manufacturers for each electronic redemption of their coupons and other
incentives. Since its formation in 1993, the Company has focused its system
development and commercialization efforts primarily in the retail supermarket
industry.
The Company competes in the in-store marketing segment of the $30 billion
consumer product promotion and couponing business via its proprietary,
interactive multi-media system called the Inter(Bullet)Act Promotion Network
(the "IPN"). It is estimated that more than 70% of all brand purchasing
decisions for supermarket products are made in-store, according to a 1995 study
conducted by the Point-of-Purchase Advertising Institute. Upon entering a
supermarket, consumers insert their frequent shopper cards in the Company's
ATM-like terminals, known to customers as COUPON XPRESS(REGISTER MARK) or COUPON
CENTRALTM. The IPN terminals, which are interconnected to a store's
point-of-sale system, then present a series of screens displaying full-color
icons of targeted product promotions -- usually price discounts or multiple
purchase bonuses -- that have been selected for each consumer by the Company's
proprietary Target Engine Software ("TES") based on each consumer's purchases
recorded in that store in the most recent period of up to 12 months. The TES
categorizes consumers based on their degree of loyalty to a specific brand
within a product category and provides the Manufacturer with the ability to
target its promotions accordingly. After the shopper touches the desired icons,
the terminal can deliver either individual coupons or a "shopping list" for all
selected promotions, identified by aisle so that the products can be easily
located when shopping. The entire process takes most shoppers less than 60
seconds. At checkout, the Company's automated clearing process, when used in
conjunction with the store's point-of-sale system, virtually eliminates the
problem of mistaken and fraudulent redemptions associated with the handling of
traditional paper coupons, which is estimated by industry sources to cost
Manufacturers more than $500 million per year.
The Company believes its IPN offers Manufacturers two unique competitive
advantages compared to alternative in-store marketing techniques: (1) the
ability to offer promotions targeted to each individual consumer AT THE
BEGINNING of the shopping experience and (2) the highest redemption rate,
currently averaging approximately 35%, of distributed product promotions (free
standing newspaper insert coupons ("FSIs") average under 2%). As a result of
these key advantages, and because the Company charges Manufacturers a fee only
for redeemed promotions, rather than for the distribution of promotions, the
Company is positioning itself to Manufacturers as the lowest cost, most
efficient provider in the in-store marketing industry. See " -- Benefits of
IPN -- Manufacturers and Other Brand Marketers."
The IPN capitalizes on a major trend in supermarket retailing of pursuing
loyalty-building programs, such as card-based frequent shopper programs, which
are intended to help counteract competition from other supermarkets, mass
merchandisers, warehouse clubs and specialty retailers. The IPN, as a card-based
system, is designed to benefit retailers by stimulating interest in existing
card membership and marketing programs, providing a distribution fee for every
offer redeemed and encouraging customer loyalty.
The IPN is designed to be user-friendly through its ease of use (no
code-numbers or key strokes), convenient location at the entrance of the store
and a short session time of less than one minute on average. The IPN allows
consumers, who are increasingly value-conscious and receptive to "continuity
programs" (such as airline frequent flyer programs), to avoid the inconvenience
of clipping, saving and tracking expiration dates of traditional paper coupons.
It also provides consumers with the instant gratification of on-the-spot
savings.
Currently, the Company has contractual commitments and letters of intent
with retail supermarket chains to deploy the IPN in more than 2,800 stores. The
retail chains under contract with the Company to participate in the IPN include:
A&P-Metro, ACME, Food Emporium, Gerland's, Grand Union, Jewel, Price Chopper,
SuperFresh, Marsh, Food Lion and Waldbaum's. The chains that have entered into
letters of intent with the Company include
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<PAGE>
Kings and Riser Foods. The Company is in active discussions with retail grocery
chains representing a large number of potential additional stores and plans to
continue a nationwide expansion strategy over the next several years. As of
September 10, 1996, Inter(Bullet)Act had 529 IPN terminals in commercial
operation in 301 grocery stores located in seven states.
As of September 10, 1996, 23 Manufacturers representing 63 different
packaged goods brand offerings were participating in the IPN. Participating
Manufacturers currently include, among others, Lever Brothers, James River,
Nabisco, Nestle, Reynolds, Gillette and Kodak. The Company believes that its
current level of retailer commitments and the pace of IPN installations provide
the critical mass necessary to continue securing new commitments from additional
Manufacturers as well as to gain more substantial commitments from Manufacturers
that are already participating in the IPN.
The Company's strategy is to achieve increasing recurring revenue through
the nationwide commercialization of its proprietary IPN. Accordingly, the
Company plans to accelerate the installation of the IPN in the more than 2,800
retail grocery stores under contract or letter of intent, further expand
retailer commitments, procure new commitments from Manufacturers and more
substantial commitments from Manufacturers already supporting the IPN and
increase consumer acceptance.
While the Company's primary objective is the nationwide commercialization
of the IPN in retail grocery stores in the United States, it believes that its
proprietary technology may have several other commercial applications such as
the electronic delivery of information and targeted promotions in retail
pharmacies. See " -- Other Opportunities."
Inter(Bullet)Act has received, and expects to continue receiving,
substantial business development support from its three largest shareholders:
Vanguard Cellular Systems, Inc. ("Vanguard") (NASDAQ: VCELA), one of the largest
independent operators of cellular telephone systems in the United States; the
Richardson Family, founders and former operators of the consumer products
company Richardson-Vicks, Inc.; and Toronto Dominion Investments, Inc., a wholly
owned indirect subsidiary of Toronto Dominion Bank, which is one of the largest
media finance institutions in the world.
RECENT DEVELOPMENTS
On August 2, 1996, the Company completed a private offering of 142,000
units consisting of $142,000,000 principal amount of Old Notes and warrants (the
"Warrants") to purchase initially an aggregate of 1,041,428 shares of the
Company's Common Stock, for which it received net proceeds of approximately
$90.9 million (after deduction of discounts and estimated offering expenses)
(the "Private Placement"). See "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Liquidity and Capital
Resources."
SALES AND MARKETING. On June 10, 1996, the Company received a letter of
intent from General Mills, Inc. to promote one or more cereal brands on the IPN
and, on May 31, 1996, the Company received a written indication of interest from
Borden, Inc. to promote several brands on a trial basis. In addition, Lever
Brothers Company, a customer of the Company since 1994, recently entered into a
renewal contract for promotion of 17 brand offerings.
The Company is also continuing to expand its retailer base. In recent
weeks, the Company has obtained contractual agreements with Food Lion, Marsh and
the Great Atlantic & Pacific Tea Company (A&P) (covering A&P-Metro, Food
Emporium, SuperFresh and Waldbaum's) and letters of intent from Kings and Riser
Foods.
OPERATIONS. The Company has accelerated its pace of installations of the
IPN. The Company installed 409 IPN terminals in 228 store locations between
February 1, 1996 and July 23, 1996 and plans to maintain this pace of
installations in order to meet its nationwide commercial roll-out objective.
Consistent with its strategy of outsourcing certain tasks, on September 9,
1996 the Company sold its manufacturing operations to Coleman Resources
Corporation ("Coleman Resources") and entered into a supply agreement whereby
Coleman Resources is to fulfill the Company's anticipated requirements for
terminals for the next three years with fixed pricing for the first 5,000
terminals.
MANAGEMENT. In January 1996, Aretas E. Stearns, then a senior executive of
Vanguard with over 20 years experience in retail management, began to serve as
the Company's President and Chief Operating Officer. In June 1996, Stephen R.
Leeolou, a co-founder, executive officer and director of Vanguard, and Chairman
of the Board of Directors of the Company, was also elected Chief Executive
Officer of the Company. In addition, at that time, the
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<PAGE>
Company and Vanguard entered into a management services agreement whereby
Vanguard will provide advice and assistance over the next two years with respect
to the development of certain operational aspects of the Company's business in
exchange for the issuance of 10,000 shares of the Company's Common Stock per
year. See "Certain Transactions." In September 1996, Richard A. Vinchesi, then a
Vice President of Salomon Brothers Inc in its Media Corporate Finance group,
began to serve as the Company's Vice President and Chief Financial Officer.
TRENDS IN INDUSTRIES AFFECTING THE COMPANY
Within the $70 billion promotional industry, more than $30 billion in 1995
was channeled toward the direct to consumer business, according to PROMO
magazine. The Company believes that increasing portions of these promotional and
couponing expenditures can be captured by in-store promotional vehicles, such as
the Company's IPN, as a result of the following trends:
BRANDS SEEKING MORE EFFICIENT PROMOTION TECHNIQUES
Brand promotional sponsors distributed over 325 billion coupons in the
United States during 1995. However, it is estimated that less than 2% of all
coupons distributed as FSIs (which constituted 89% of all coupons distributed)
were redeemed. In addition, Manufacturers face increasing numbers of competing
brands and private label products. The convergence of these trends has
compounded the cost of maintaining brand loyalty for products and has fueled the
industry's interest in efficient and targeted promotions. The Company believes
that Manufacturers are actively seeking promotional alternatives that can
selectively reward loyal consumers and identify potential new customers to whom
incentives can be offered.
In-store promotion is the fastest growing segment within Manufacturers'
consumer promotional spending, growing 20% in 1995, versus FSIs, which decreased
1% according to PROMO magazine. In-store promotion offers Manufacturers higher
redemption rates (35% on average for the Company's IPN coupons distributed at
store-entry, 17% for coupons distributed in-aisle and 9% for coupons distributed
at checkout) than those for FSIs. In addition to increased consumer response,
targeted in-store promotions allow Manufacturers to print fewer coupons and, if
desired, minimize the costs associated with redemption by consumers who would
have purchased the product regardless of the coupon offering.
RETAILER EXPANSION OF FREQUENT SHOPPER CARD PROGRAMS
According to a PROMO magazine special report (August 1995), over 30 million
consumers are now using frequent shopper cards in supermarkets. In a recent
survey conducted by SUPERMARKET NEWS (April 1, 1996), 32% of retailers surveyed
reported offering electronic card-based marketing programs and 17% had plans to
begin offering such card programs in 1996. Supermarket retailers are pursuing
loyalty-building programs using frequent shopper cards in order to counteract
competition from other supermarkets, mass merchandisers, warehouse clubs and
specialty retailers. These frequent shopper cards enable participating customers
to take advantage of product discounts offered by the local or regional retailer
in the store's shopping circular without clipping the coupon. When the store
card is swiped at checkout, the electronic cash register credits the coupon
discount only if the accompanying product is purchased. The combination of
reduced prices to cardholders without the inconvenience involved in clipping and
saving coupons encourages loyalty to the store. Retailers can then use the
resulting cardholder data to selectively offer promotions to shopper segments
based on their revenue and margin contribution to the store. Prior to the
introduction of frequent shopper cards, retailers had no proven way of offering
incentives to selected customers based on their shopping behavior or value to
the store.
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<PAGE>
INCREASING CONSUMER ACCEPTANCE OF ELECTRONIC COMMERCE
The Company believes that consumers are increasingly accepting of
electronic commerce processes based on their efficiency and convenience when
compared to traditional paper-based transactions. The Company believes that the
significant increase over the past five years in the use of ATMs and debit cards
for banking and retail transactions, as illustrated in the following graph, is
indicative of potential consumer adaptation to other applications of electronic
platforms such as the Company's IPN.
A chart appears here with the following plot points:
Average Monthly Transactions Per Electronic Card User
Source: Star System 1995 Consumer Survey
1990 1991 1992 1993 1994 1995
Purchase Goods/Services 0.9 0.9 1.4 2.0 2.2 2.7
Use at ATMs 5.8 6.3 7.1 8.9 9.6 10.6
In addition, the continued penetration of personal computers in the home
and the rapid increase in the use of the Internet and on-line services are
helping to fuel a demonstrable cultural shift toward automated, and away from
manual, transactions and access to information.
BUSINESS STRATEGY
Since 1993, Inter(Bullet)Act has been developing its IPN technology,
initiating customer relationships with Manufacturers and developing a
commercialization strategy for the IPN. During 1995, the Company conducted a
pilot in 25 retail grocery stores whereby Inter(Bullet)Act financially supported
a full scale promotion of brands in order to gauge customer usage levels. See
" -- Selective Brand Promotions by the Company." With positive results of the
IPN's consumer acceptance and sales impact established, and the raising of
additional capital initiated in October 1995, the Company is now accelerating
the commercialization of the IPN.
The Company's strategy is to achieve increasing recurring revenue through
the nationwide commercialization of its proprietary IPN. Accordingly, the
Company plans to accelerate the installation of the IPN in the more than 2,800
retail grocery stores under contract or letter of intent, further expand
retailer commitments, procure new commitments from Manufacturers and more
substantial commitments from Manufacturers already supporting the IPN and
increase consumer acceptance.
RETAILER STRATEGY
NATIONWIDE INSTALLATION OF IPN. As of September 10, 1996, the Company had
secured contractual commitments and letters of intent from 13 grocery chains
representing approximately 2,800 grocery stores. The Company intends to
accelerate installation of IPN terminals in such stores in order to increase the
Company's attractiveness to Manufacturers who are considering enrolling in the
IPN, as well as to pre-empt potential competitors from entering stores with
competing systems. The Company is not aware of any interactive systems in any
widespread commercial use with the same functionality as its IPN. The Company
had installed its IPN in 301 stores as of September 10, 1996, and plans to
install its IPN in approximately 938 additional stores by the end of 1996.
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INCREASE REGIONAL MARKET PENETRATION. There are approximately 30,000
supermarkets in the United States with annual sales of greater than $2 million
of which chain supermarkets, Inter(Bullet)Act's target markets, represent 18,500
stores. By penetrating an increasing percentage of these stores, the Company
seeks to expand its all commodity volume ("ACV") penetration (a measure of
market share in a given retail grocery market), particularly in the nation's top
markets.
Set forth below are the retailers who have entered into contracts and
letters of intent as of September 10, 1996 to use the IPN and the resulting ACV
penetration the Company will have in various markets once all such stores have
been equipped with IPN terminals.
<TABLE>
<CAPTION>
METROPOLITAN ACV PENETRATION
STATISTICAL AREA (A) CHAIN TOTAL STORES
<S> <C> <C> <C>
NEW YORK................... 26% A&P Metro 146
Waldbaum's 91
Grand Union South 104
Food Emporium 33
ACME 30
SuperFresh 2
Kings Super Markets (b) 20
426
PHILADELPHIA............... 37% ACME 164
SuperFresh 70
Grand Union South 1
235
CHICAGO.................... 36% Jewel Food Stores 188
ALBANY..................... 61% Grand Union North 118
Price Chopper 92
210
CHARLOTTE.................. 30% Food Lion 107
RICHMOND................... 30% Food Lion 97
RALEIGH/GREENSBORO......... 32% Food Lion 125
INDIANAPOLIS............... 26% Marsh 90
CLEVELAND.................. 30% Riser Foods (b) 47
HOUSTON.................... 4% Gerland's 20
OTHER...................... N/A A&P -- Remaining Stores 594
Food Lion -- Remaining
Stores 748
2,887
</TABLE>
(a) The source of the ACV computation is Information Resources, Inc.
(b) These chains have entered into letters of intent with the
Company.
BRAND STRATEGY
The Company's goal is to attain and maintain contractual commitments from
approximately 10% of the estimated 3,000 packaged goods product brands. As IPN
terminals are installed in an increasing number of supermarket chains with
greater ACV penetration, the Company believes it will attract new Manufacturers
and expand contracts with existing ones. See " -- Selective Brand Promotions by
the Company."
INCREASE MANUFACTURER PENETRATION. The Company is continually working to
increase both the breadth (number of brands per Manufacturer) and depth (dollars
committed per brand) of its Manufacturer commitments by continuing to build ACV
penetration in top markets and through its direct sales force strategy. Certain
of the Manufacturers currently under contract promote only one product offering.
The Company believes that such Manufacturers will support promotions for more
brands on the IPN as they review the sales impact and cost effectiveness of
their current IPN offerings. In addition, the Company seeks to increase
substantially the amount of money committed by
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each Manufacturer per contract period and believes that such increases will
become achievable as its installed base of IPN terminals continues to grow.
INCREASE THE SCALE OF AVERAGE MANUFACTURER UNDER CONTRACT. The Company is
actively pursuing long-term contractual commitments from large, prominent
Manufacturers who control many consumer products brands. The Company believes
that a number of these multi-brand Manufacturers will serve as "charter members"
for its IPN and that their participation in turn will induce other Manufacturers
to participate. The Company intends to pursue these accounts through its direct
sales force and through consulting arrangements with professionals or
organizations who have access to senior management of such companies. See "Sales
and Marketing."
CARDHOLDER PANEL. The Inter(Bullet)Act Cardholder Panel, a consumer
purchasing behavior tracking tool currently under development by the Company,
initially will be offered to Manufacturers as an inducement to enter into long-
term contracts with the Company. Eventually, the Company intends to market ICP
as a sophisticated research and monitoring tool that will be sold for a fee
based on access and usage time. See "Products and Services -- Inter(Bullet)Act
Cardholder Panel."
SELECTIVE BRAND PROMOTIONS BY THE COMPANY. As part of its development
strategy to attract substantial retailer and Manufacturer commitments and to
encourage consumer usage of the IPN, the Company from time to time includes in
the IPN in certain stores a number of product promotions for which the Company
has no contract for transaction fees from the Manufacturer. For such products,
the Company bears the full cost of each redemption and receives no transaction
fee from the Manufacturer. However, the Company believes that this discretionary
investment in the IPN will benefit the Company as it pursues brand contracts
from Manufacturers as they review actual results that demonstrate the potential
for the redemption rate and market share improvements that are possible through
use of the IPN. The Company plans to continue such product promotions on a
selective basis. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Liquidity and Capital Resources."
As of September 10, 1996, 23 Manufacturers representing 63 brand offerings
were participating in the IPN. The chart below sets forth the Manufacturers
currently supporting the IPN.
<TABLE>
<CAPTION>
BRAND PARTICIPATING
MANUFACTURER OFFERINGS SINCE
<S> <C> <C>
James River............................................................... 4 6/94
Kodak..................................................................... 2 6/94
Lever Brothers............................................................ 17 6/94
Nabisco................................................................... 1 10/94
Gillette.................................................................. 1 7/95
Lifesavers................................................................ 4 7/95
J.R. Simplot.............................................................. 2 9/95
Nestle Beverage........................................................... 1 10/95
SP Healthcare............................................................. 6 12/95
Kikkoman International.................................................... 2 1/96
Lawry's Foods............................................................. 2 1/96
Reynolds Metals........................................................... 2 1/96
CPC International......................................................... 2 5/96
Pine Mountain............................................................. 2 5/96
Tetley.................................................................... 1 5/96
CPC -- Entenmann's........................................................ 1 6/96
Stroehmann................................................................ 1 6/96
Tenneco................................................................... 1 6/96
Van Den Bergh Foods....................................................... 1 6/96
Knouse Foods.............................................................. 1 7/96
Disney Publications....................................................... 1 7/96
General Mills............................................................. 6 8/96
Pillsbury................................................................. 2 8/96
63
</TABLE>
30
<PAGE>
CONSUMER STRATEGY
In order to pursue continuous refinement of the overall attractiveness of
the IPN to consumers, the Company intends to promote awareness of the IPN and
its benefits, minimize its time of use and highlight the instant savings
achievable.
PROMOTE AWARENESS. The Company promotes awareness of its IPN and its
benefits in several ways. Upon installation of IPN terminals in a store, the
Company often temporarily provides in-store "greeters" who highlight the IPN's
benefits to shoppers. In addition, the IPN terminals' in-store location and the
design of their marquees are continuously evaluated to ensure maximum impact.
Supermarket retailers are also encouraged by the Company to cross-promote the
use and value of the IPN through the stores' traditional advertising channels.
MINIMIZE TIME OF USE. In order to minimize the time a shopper is required
to spend at an IPN terminal, the Company limits the number of screens through
which a customer scrolls during a session while still maintaining a slate of up
to 40 promotions. In addition, the Company seeks to minimize shopper queuing
that may occur within stores by optimizing the number of installed IPN terminals
based on a store's average foot traffic. Thus, most shoppers can complete an IPN
session in less than one minute.
HIGHLIGHT INSTANT SAVINGS. The Company believes that highlighting the
immediate savings potential of its IPN for consumers is an important element of
initial consumer acceptance and repeat usage of the IPN. The Company
accomplishes this objective in two ways. First, the initial screen displayed for
a shopper illustrates the total dollar savings available based on the promotions
selected by the Company's TES for the individual on a given day. Second, as the
consumer touches each desired product icon, a special cash register graphic
(with sound effects) displays the cumulative total savings of the selected
promotions.
INSOURCE CORE ACTIVITIES/OUTSOURCE NON-CORE ACTIVITIES
The Company believes its primary focus should be in sales and marketing as
well as in the development and operation of its proprietary software and
systems. Accordingly, to the extent possible, the Company intends to outsource
to vendors certain tasks that it does not consider to be among its core business
strengths.
The Company has an agreement with Diebold, Incorporated ("Diebold") to
perform all ongoing maintenance services of its installed base of IPN terminals.
Diebold is one of the nation's largest companies that services and maintains ATM
terminals. Under the maintenance agreement (the "Maintenance Agreement") between
Inter(Bullet)Act and Diebold, Diebold will inspect and maintain
Inter(Bullet)Act's IPN equipment in operating condition through periodic
preventive maintenance and service calls as needed. The Maintenance Agreement is
for a term of one year. The Company presently intends to continue a contractual
relationship with Diebold on a year-to-year basis.
At the present time, substantially all aspects of manufacturing of the IPN
terminals, including purchasing of components, assembly and testing, are
performed by employees of the Company. To allow it to concentrate on its core
business strengths, the Company has held discussions with a potential buyer
regarding the sale of its manufacturing operations and may sell such operations
if management believes the Company will have a source of supply that can meet
its anticipated needs on a timely basis and at a reasonable cost. The Company
intends to remain responsible for installation of the terminals.
PRODUCTS AND SERVICES
INTER(BULLET)ACT PROMOTION NETWORK (IPN)
Inter(Bullet)Act developed its proprietary interactive multimedia system
for use in connection with bar-code scanner technology based on a process patent
granted by the U.S. Patent Office. See "Patents, Proprietary Information and
Trademarks." The following diagram depicts the IPN's basic technical
configuration and process flow in a typical supermarket.
[diagram on following page]
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<PAGE>
A flow chart of Inter(Bullet)Act Promotion Network In-Store Configuration &
Interaction appears here.
A customer can access the IPN by inserting his or her personal shopper
card, as issued under the store's existing card program, into the ATM-like
terminal located near the entrance to the store. The system identifies the
customer and displays full color images of promoted products on the terminal's
touch-sensitive screen based upon that customer's cumulative purchasing history.
The customer selects desired promotions, usually price discounts (brand or
retailer specific) or multiple purchase bonuses, by simply touching the desired
product icon displayed on the screen. When the selection process is complete (in
less than 60 seconds for most shoppers), the IPN terminal can deliver either
individual coupons or a "shopping list" for all selected promotions, identified
by aisle so that the products can be easily located when shopping. After
shopping, the customer's coupons are electronically scanned at checkout, at
which time the system can (i) verify that the promoted items were purchased,
(ii) notify the store register system to give the customer that day's promotion
discounts on the spot and (iii) once the customer's card is electronically
scanned, record all the customer's purchases for use in more accurately
targeting wanted/needed promotions during future visits.
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<PAGE>
The Company intends to introduce its shopping list feature in August 1996
and utilize the list in future installations of the IPN where the retailers'
point-of-sale systems are sufficiently up to date to accept this feature. A
shopping list offers several advantages over paper coupons generated by the
IPN.The list need not be presented at checkout to receive the discounts for
promoted products. Rather, the shopping list serves as a reminder to the shopper
to purchase the promoted products and as an aide in locating them. The customer
will automatically receive the relevant discounts only if his or her personal
shopper card is scanned at checkout to verify the purchase of the promoted
products. This is a more fully automated version of the Company's current
electronic clearing process in which individual coupons can be redeemed
regardless of whether a cashier scans a shopper's card.
TARGET ENGINE SOFTWARE ("TES"). The Company's proprietary Target Engine
Software ("TES") collects and analyzes each shopper's cumulative market basket
of purchases on a rolling 12-month basis. On a daily basis, TES selects for each
potential shopper up to 40 product promotions from the larger universe of
promotions available on the IPN (approximately 300 on a fully loaded system)
based on each consumer's purchasing profile.
For each product category available on the IPN, the TES classifies each
consumer as follows:
<TABLE>
<CAPTION>
CLASSIFICATION
<S> <C> <C>
Brand loyal
"Targeted" Brand switcher
Brand competitive
"Untargeted" Entry level
<CAPTION>
CONSUMER DESCRIPTION
<S> <C>
tends to purchase consistently the Manufacturer's brand within the product category
"Targeted" tends to demonstrate little brand loyalty, buying several different brands over
time within a category
tends to purchase consistently a competitor's brand
"Untargeted" a consumer who has no record of purchasing products within the product
category
</TABLE>
Customers will see different icons with varying targeted incentives
depending on their individual purchasing profiles. For example, a customer
classified as "competitive" can be offered a higher discount coupon than would a
consumer classified as a "switcher", who in turn would receive a higher discount
than would a consumer classified as "loyal". In this way, the TES offers
Manufacturers the ability to execute different promotional strategies for the
same product simultaneously. Manufacturers pay a higher fee to the Company for
targeted promotion redemptions than for entry level promotion redemptions and
have the flexibility to change the relative face values of redemptions for each
targeted category. Until a customer has a purchase history in every product
category on the IPN, he or she may also see a number of entry level promotions,
which are randomly selected by the TES. Some promotions are shown to every
consumer regardless of purchase history.
The Company maintains a computer database in each IPN store and can access
the purchasing data from its headquarters, as well as download each day's
promotion incentive information.
RECIPE PRODUCT. In addition to providing personally targeted product
promotions, the IPN can instantly deliver free recipes prominently featuring the
sponsoring brands as the key ingredients. Recipes offer two distinct benefits
for Manufacturers, whether their overall marketing strategy includes couponing
or not. First, participating Manufacturers may use the recipe feature as an
opportunity to continue reaching shoppers with a seasonal alternative to
discounting. Second, Manufacturers that do not generally offer coupons may
consider using recipes as an integral part of their marketing strategy by
implementing an on-going program of different recipes. The Company plans to
target this program to Manufacturers that do not generally offer coupons but may
elect to use the recipe strategy to test couponing in conjunction with the
recipes offered to measure the incremental sales gained by adding coupons as a
purchase incentive.
PRICING STRUCTURE
PAY FOR PERFORMANCE. Manufacturers pay a transaction fee to the Company
only upon an electronically cleared redemption. The transaction fee is composed
of (i) a redemption fee (for Inter(Bullet)Act), (ii) a processing fee (for the
retailer) and (iii) the incentive fee (the face value of the coupon for the
consumer). Inter(Bullet)Act in turn passes through both the processing fee and
the incentive fee to the retailer, while keeping the redemption fee. The amount
of the redemption fee (Inter(Bullet)Act's net sales) earned by the Company
depends on whether the consumer who redeems the promotion is an "entry-level"
consumer (a shopper for whom the IPN has insufficient data on prior purchasing
activity to determine appropriate targeted promotions) or a "targeted" consumer
(one for whom the Manufacturer is
33
<PAGE>
specifically directing the promotion in order to reward loyalty or to encourage
switching brands). The table below sets forth examples of the breakdown of a
typical transaction fee invoiced to a Manufacturer who has offered a "50(cents)
off" promotion:
<TABLE>
<CAPTION>
AVERAGE AVERAGE TOTAL
INCENTIVE FEE REDEMPTION FEE PROCESSING FEE INVOICED TO
TYPE OF PROMOTION (CONSUMER) (INTER(BULLET)ACT) (RETAILER) MANUFACTURER
<S> <C> <C> <C> <C>
Entry Level (Untargeted).................................. $0.50 $ 0.20 $ 0.08 $ 0.78
Targeted.................................................. 0.50 0.45 0.08 1.03
</TABLE>
RETAILER PROCESSING FEE. Retailers receive revenue based on the amount of
average daily redemptions per store, generally $0.08 per transaction. This
processing fee, when multiplied by (i) the number of redemptions per store, (ii)
the number of stores utilizing the IPN per chain and (iii) the number of days
those stores are open for business can, in the aggregate, produce a substantial
level of high-margin revenue for the retail chain while IPN terminals occupy
only minimal floor space.
BRAND CONTRACTS. The principal elements of the Company's brand contracts
with Manufacturers are brand identity, product category exclusivity, dollar
commitment and the start and end date of the promotion period. The typical
contract duration is for renewable four-to-twelve week periods or until the
total dollar commitment is exhausted. In some cases, contract duration may be
for one year. The Company offers category exclusivity to Manufacturers in the
IPN, E.G., two brands of cola will not simultaneously have promotions in the
IPN. If the dollar commitment is exhausted prior to the contract term, the
Manufacturer can choose to terminate the promotions for the duration of the
period or to increase the dollar commitment. If the contract term expires before
the dollar commitment is exhausted, the contract will terminate unless the
Manufacturer elects to continue the promotion until the original dollar
commitment is exhausted, providing the category has not been contracted by a
competing brand.
RECIPE PRICING. The Company's recipe product generates the Company's
highest margin revenue, although recipes are not projected to comprise a
significant portion of Inter(Bullet)Act revenue. Inter(Bullet)Act charges the
Manufacturer featured in the recipe an impression fee when the recipe is
displayed to the consumer and an execution fee when a customer elects to print
the recipe. No retailer processing fees are paid.
INTER(BULLET)ACT CARDHOLDER PANEL (ICP)
The Company is currently developing a consumer cardholder panel, the
Inter(Bullet)Act Cardholder Panel ("ICP"), which will be marketed to
Manufacturers. The ICP will be composed of electronically gathered and stored
data of consumer transactions collected through the IPN in the Company's
installed base of stores. The ICP will capture store-specific purchasing data,
which will reflect individual consumer purchasing behavior. The ICP is expected
to enable participating Manufacturers to monitor both brand franchise
development over time and the level of incentives required to influence consumer
behavior. In addition, the ICP will be designed to enable participants to
measure the source of changes in sales volume and the change in category share
as well as to learn the effects of other in-store promotional tools (including
consumption of competitors' coupons). The panel will be designed to be
statistically representative of shoppers in Inter(Bullet)Act's store network
through random sampling of participants.
The Company expects the ICP to have the following key advantages over the
largest commercial household panel currently available, A.C. Neilsen (40,000
households):
-- Passive monitoring of natural purchasing behavior (which is not
possible in conventional panels).
-- Recording of all purchase data over an 18-month period, including
products purchased, payment method, price, coupons used, total dollars
spent and dates of visits.
-- Measuring and projecting consumer purchasing behavior by brand, store
and retailer.
Inter(Bullet)Act plans to launch the ICP in two phases. First, the ICP will
be offered as a value-added incentive for Manufacturers to participate in the
IPN pursuant to long-term promotional contracts. Second, the ICP will be offered
as a research and monitoring tool available for a fee based on time and usage.
The Company plans to provide its clients basic services via on-line terminal
access and is negotiating with a unit of International Business Machines
Corporation to provide more advanced analysis. The Company believes that
Manufacturers generally will be willing to pay for the ICP data as it is
expected to provide valuable information on consumer purchasing behavior.
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<PAGE>
BENEFITS OF IPN
Inter(Bullet)Act's IPN provides compelling benefits to its three key
constituencies -- Manufacturers and other brand marketers, retailers and
consumers.
MANUFACTURERS AND OTHER BRAND MARKETERS
STIMULATES INCREMENTAL PRODUCT SALES. As a result of its front-end location
and targeted touch-screen promotional display, management believes that the IPN
directly causes an increase in the sales volume of promoted products. Sales
increases are generally attributable to a promotion motivating consumers to
trade up in volume (e.g., buy two and get a third item free), to try a new brand
due to the value of the offered incentive or to remind consumers to buy a
specified brand due to the on-screen prompt. Substantial sales increases at the
product and category level were attributed to the Company's IPN in an
Information Resources Inc. ("IRI") matched store study (the "IRI Study")
performed for Lever Brothers, Company ("Lever"). The study showed that Lever
products promoted on the IPN enjoyed dramatic product sales increases versus the
same Lever products not promoted on the IPN in comparable stores. Moreover, the
retailer enjoyed a substantial increase in sales for the entire categories of
which the promoted Lever products were a part. The graph set forth below
illustrates the results of the IRI study for two of the three products studied.
A chart appears here with the following plot points:
IPN Sales Impact Study
Source: Information Resources, Inc. January 1996
Incremental Sales Percentage
Brand Sales Lift (product)
in IPN Stores
Bar Soap 25%
Shower Gel 105%
Retailer Sales Lift (category)
in IPN Stores
Bar Soap 23%
Shower Gel 19%
ALLOWS TARGETING OF PROMOTIONS. The Company's proprietary TES offers
Manufacturers the ability to execute different promotional strategies for the
same product simultaneously. See "Products and Services -- Inter(Bullet)Act
Promotion Network -- Target Engine Software." The Company believes that the
offering of personally customized discounts to consumers in the store
immediately prior to shopping results in the current average of approximately
35% redemption rate of IPN's electronically offered coupons (two to five times
higher than that of other in-store vehicles and approximately 18 times higher
than that of FSIs).
PROVIDES LOW COST ALTERNATIVE. The Company believes that the IPN offers
Manufacturers the lowest cost alternative coupon promotional strategy available
as a result of a combination of factors. First, Manufacturers only "pay for
performance" (see below); second, the IPN virtually eliminates coupon fraud (see
below); and third, the Company believes it offers Manufacturers the opportunity
to offer lower face-value incentives than through other in-store competitors due
to the time and place utility of the IPN terminal.
PAY FOR PERFORMANCE. One of the principal differences between the IPN and
most other forms of promotions is that Manufacturers are only charged a fee upon
a redemption/sale and not upon distribution or impression. Therefore, the
Company is positioning itself to Manufacturers as the lowest-cost provider.
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<PAGE>
IPN VIRTUALLY ELIMINATES COUPON FRAUD. Upon checkout, the electronic
scanning of the shopper's coupons or frequent shopping card verifies that items
for which promotions were selected on the IPN were actually purchased. This
electronic clearing system will virtually eliminate the costly problem of
mistaken and fraudulent redemptions associated with the handling of paper
coupons, which is estimated by industry sources to cost Manufacturers
approximately $500 million per year.
The IPN addresses coupon fraud in two ways. First, only the individual
cardholder may redeem the coupon against specific purchases in a particular
store on the day the promotion is offered. Second, unlike other coupon
redemption vehicles that allow a coupon to be redeemed against a different
product manufactured by the same company, the IPN validates a given redemption
only if the promotion and the specified item match.
CATEGORY EXCLUSIVITY. Manufacturers who participate in the IPN enjoy
exclusive representation of their product in a given product category (e.g., a
cola company's promotions are the sole cola promotions shown on the IPN).
Participating Manufacturers therefore effectively preclude competitors from
enjoying the IPN's capabilities and potentially gain competitive advantage.
DEVELOPS MANUFACTURER/RETAILER PARTNERSHIP. The IPN's ability to channel
consumer promotional dollars to the retailer's frequent shoppers creates a
mutually rewarding relationship between Manufacturer and retailer. Conventional
promotions serve to stimulate product demand in a broad geographic area with
coupons redeemable in all stores of all retailers. The IPN, in channeling these
promotions to specific stores and specific cardholders, enhances the retailer's
position with its best shoppers while satisfying the Manufacturers' volume and
targeting requirements.
CREATES DATABASE OF CUMULATIVE PURCHASING HISTORY BY CUSTOMER.
Manufacturers will benefit from access to the extensive consumer behavior
research that is expected to be accessible through the Company's ICP. See
"Products and Services -- Inter(Bullet)Act Cardholder Panel."
RETAILERS
STIMULATES INCREMENTAL PRODUCT SALES. The IPN's location inside the front
entrance of stores and the tendency of consumers, upon viewing product icons on
the IPN screen prior to shopping, to remember products that they may have
otherwise forgotten, are both expected to generate overall incremental sales for
the retailer. The three product categories that were part of the IRI study of
Lever products enjoyed increases between 19% and 26% during the time period of
the study. Moreover, the IPN affords the retailer the opportunity to promote
high-margin perishable foods and private-label products.
STIMULATES INTEREST IN EXISTING MEMBERSHIP CARD MARKETING PROGRAMS. The
IPN, as a card-based system, is intended to help achieve customer loyalty for
retailers by generating interest in frequent shopper card programs and by
allowing retailers to plan promotions that reward frequent and high-spending
shoppers.
INCREASES EFFICIENCY. The IPN obviates the costs and inconvenience to
retailers of handling paper coupons, which typically must be stored and shipped
to a clearing center to qualify for ultimate reimbursement.
PROMOTES CONSUMER/RETAILER COMMUNICATION. The IPN allows the retailer to
communicate with its customers through on-screen offers specifically designed
for the card-carrying customer group. The retailer can also relate new store
developments as well as "Welcome" and "Thank You" messages to shoppers to show
appreciation for their patronage.
GENERATES HIGH-MARGIN REVENUE. Retailers receive a processing fee for each
electronic redemption. Cumulative processing fees can add high margin revenue to
a retailer's traditionally low margin grocery business.
CONSUMERS
SAVES TIME AND INCREASES PURCHASING POWER. The IPN dispenses shopping lists
or coupons for products and allows the consumer to enjoy the savings resulting
from the electronic redemption of the promotion, the average total of which
currently ranges from one to ten dollars per shopping trip. The Company expects
these average savings per shopping trip to increase as it offers a wider array
of product promotions resulting from anticipated increases in the number of
participating Manufacturers. In addition, consumers can obtain these savings by
spending only about 60 seconds at the IPN terminal compared to the
time-consuming task of clipping and sorting individual paper coupons.
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<PAGE>
PROVIDES CONVENIENCE AND INFORMATION. Unlike traditional promotional
methods, the IPN has numerous characteristics that facilitate its consumer
acceptance. First, each IPN terminal is located near the entrance of the grocery
store. Second, each terminal presents touch-screen color icons of promoted
products that offer personalized product discounts while eliminating the burden
of consumers having to locate, clip, save and remember to carry paper coupons
before they enter their local grocery store. Third, the system reminds shoppers
of products they may otherwise have forgotten during a given shopping trip and
informs them of other pertinent in-store events, such as special offerings for
perishable products.
SALES AND MARKETING
DIRECT SALES FORCE. The Company's sales efforts are conducted primarily
through its own direct sales force. Since February 1996 Inter(Bullet)Act has
employed a full-time brand sales force, which currently includes six people, all
of whom are experienced in packaged goods sales and product promotions and
report to the Vice President of Brand Sales. The current sales force replaced an
earlier sales group consisting of five external sales agents who sold a variety
of unrelated products along with the IPN.
The Company also concentrates its marketing and sales resources on
participation in well-recognized and widely attended industry trade shows,
direct mail campaigns to prospective industry accounts and advertising in trade
publications.
The Company's sales professionals are trained in, and directed toward, the
management and renewal of existing business as well as establishing new business
with Manufacturers. Management believes that significant future recurring
revenue will come from the renewal and expansion of business with existing
clients.
MAJOR ACCOUNTS PROGRAM. In addition to its direct sales force, the Company
is implementing an executive sales strategy targeting large, multi-brand
Manufacturers by retaining the services of Lorraine Scarpa, Ph.D., former Senior
Vice President of Kraft Foods, to assist in arranging sales presentations with
prominent executives of major Manufacturers. For similar reasons, the Company
has retained the services of The Source Company, which provides distribution and
administrative services on behalf of both publishing companies and more than
50,000 retail stores nationwide. This strategy, which involves personal
participation from the Company's senior management, is designed to secure
longer-term commitments from these companies to participate on the IPN.
Management believes that the value-added inducement of access to the ICP will
assist in obtaining these accounts' business. Since inception of this sales
strategy, meetings were conducted with senior management of one of the largest
tobacco companies and a number of the largest multi-brand Manufacturers that
control many popular consumer brands, including Borden, from which the Company
has received a written indication of interest to participate in the IPN.
RETAILER PROGRAM. Retailer network development and associated sales efforts
have been based on direct mail campaigns, trade shows and one Company-employed
sales representative, supported by senior management. This sales function
secured contracts and letters of intent with supermarket chains representing
approximately 2,577 stores between April 1, 1996 and September 10, 1996 and the
Company is in various stages of negotiation with numerous other retailers.
OTHER OPPORTUNITIES
In addition to grocery stores, the Company believes the IPN may have
several additional applications for promoting Manufacturers' products. More
specifically, the Company can foresee use of its electronic marketing systems in
retail pharmacy chains and possibly in convenience stores and discount
department stores. Significant opportunities may also exist in pursuing
international expansion of the IPN grocery store application. Although these
alternative applications may be viable for the Company in the future, the
Company's current primary objective is to complete its large-scale installation
of the IPN in retail grocery stores domestically.
COMPETITION
The consumer products advertising and promotional business is intensely
competitive. Many companies and formats compete for the advertising and
promotional dollars that Manufacturers spend to help sell their products. The
Company's promotional services compete against formats such as TV, radio,
newspapers and various point-of-entry technologies, but most directly against
coupon distribution companies. The Company competes with various traditional
coupon delivery methods that are more widely utilized, including FSIs,
in/on-packs, direct mail,
37
<PAGE>
newspapers and magazines, as well as a number of new electronic marketing
products and services such as check-out coupons, electronic shelf markers,
battery-powered coupon dispensers and frequent-shopper programs, among others.
Inter(Bullet)Act competes directly for promotional dollars based on the
efficiency of its network to reach a wide base of the shopping public, its
ability to accurately target potential customers and to influence consumer
buying behavior while enabling Manufacturers to meet their strategic objectives.
Although Inter(Bullet)Act currently does not face direct competition because of
the proprietary nature of its network and its services, there are numerous
companies who compete in the same general market through a different format. In
particular, the Company competes with other companies in the in-store marketing
segment of the consumer products advertising and promotional business. One
competitor, Catalina Marketing Corporation ("Catalina"), provides an electronic
marketing network that delivers coupons to consumers at checkout lanes based on
that day's purchases. Another competitor, ActMedia, is currently the largest of
several companies that provide automatic coupon dispensers in the aisles of
supermarkets. These companies have greater resources and more experience in
in-store marketing than the Company, and there is no assurance that the Company
will be able to compete effectively. Further, supermarket chains may directly
develop their own electronic promotion capabilities through their frequent
shopper card programs or otherwise. To the extent that a direct competitor has
installed its point-of-sale system in a supermarket, it may be substantially
more difficult to convince a Manufacturer to allocate advertising and
promotional dollars away from established in-store marketing systems.
EMPLOYEES
As of September 10, 1996, the Company had a total of 64 full-time
employees. Of these 64 full-time employees, 11 were engaged in sales and
marketing, 18 were engaged in software development and support, 30 were engaged
in field service and retail operations, and five were engaged in finance and
administration.
None of the Company's employees is represented by a labor union. The
Company considers its relations with its employees to be good. The Company's
future success will depend in significant part on the continued service of its
key technical sales and senior management personnel. Competition for such
personnel is intense and there can be no assurance that the Company can retain
its key managerial sales and technical employees. The Company anticipates that
the nationwide commercialization of the IPN will require the hiring of a
substantial number of new employees in connection with the planned expansion of
its business.
PATENTS, PROPRIETARY INFORMATION AND TRADEMARKS
A patent currently used in the Company's in-store consumer product
promotion and couponing business, United States Letters Patent No. 4,554,446
(the "'446 Patent"), is based on the interaction of multiple elements including:
(1) a computer, (2) a device capable of printing a machine-readable code onto a
document, (3) a device capable of reading a machine-readable code, and (4) a
cash register.
The IPN which utilizes the patented invention generally includes the
following: a device (the IPN terminal) issues a document that carries a
machine-readable code which is subsequently read by another device (a checkout
scanner) which feeds the information to a computer (the IPN store server) that
validates the transaction against pre-established criteria (a product purchase)
and finally instructs the cash register accordingly (subtracting the proper
amount of incentive).
The Company is licensee of the '446 Patent, which expires in November 2003,
through separate agreements with the holders of rights in this patent. With
respect to one license agreement under which the Company is assignee, the
Company is required to pay a royalty of 2% of the gross collected revenues of
the Company, to the extent derived from the Company's exploitation of the
patent, with such royalty decreasing to 1% of such revenues after $10 million in
aggregate royalties have been paid to the licensors. This license agreement
requires that certain minimum monthly payments be made to the licensors, and be
exceeded within approximately two years, in order to avoid triggering a
termination right on the part of the licensors. With respect to another license
agreement, the Company is required to pay the licensor a royalty of .8% of the
gross collected revenues of the Company to the extent derived from the Company's
exploitation of the patent, until such time as the licensor has received the
aggregate sum of $600,000 after which no additional royalty payments are
required. This license agreement requires certain minimum monthly payments to
the licensor. Additionally, the Company is required to pay royalties to a former
director of the Company who was an earlier licensee of this patent and assigned
his rights therein, in exchange for certain ongoing payments and other
consideration, to the Company's subsidiary, which in turn has assigned such
rights to the Company. See "Certain Transactions."
38
<PAGE>
The Company also has filed an application for United States Letters Patent
with respect to the Company's Target Engine Software. See "Products and
Services -- Inter(Bullet)Act Promotion Network." In addition, the foregoing
license agreements include two patents that are not presently used in the
Company's business.
The Company has acquired the registered trademark COUPON
XPRESS(Register mark). In addition, the Company has applied to the United States
Patent and Trademark Office to register the following service marks, which
applications are now pending: INTER(Bullet)ACTTM and the Inter(Bullet)Act logo
graphic.
PROPERTIES
The Company is headquartered in Norwalk, Connecticut, where it leases
16,726 square feet of office space. The lease runs through December 21, 1999.
The Company also leases 2,080 square feet of warehouse storage space in
Farmingdale, New York under a lease that expires on November 30, 1996. The IPN
terminals are assembled in a 6,060 square foot facility in Columbia, South
Carolina currently leased by the Company which lease is expected to be assigned
upon sale of the Company's manufacturing operations to Coleman Research. See
" -- Recent Developments." The Company believes that its space is adequate for
its anticipated needs for the foreseeable future.
LEGAL PROCEEDINGS
In February 1996, the Company filed suit against Catalina Marketing
Corporation alleging that Catalina has infringed the '446 Patent under which the
Company is licensee. The Company alleges that Catalina is infringing the patent
by making, using and offering for sale devices and systems that incorporate and
employ inventions covered by the '446 Patent. The Company is seeking an
injunction against Catalina to stop further infringement of the patent and
treble damages and the costs and expenses incurred in connection with the suit.
Catalina has filed a pre-answer motion seeking to require the Company to provide
more detail in the complaint as to the infringing activities of Catalina. The
motion has been fully briefed and is pending in the U.S. District Court for the
District of Connecticut. As with any litigation, the ultimate outcome of the
suit cannot be predicted. However, the Company intends to pursue the action
vigorously.
39
<PAGE>
MANAGEMENT
The following table sets forth certain information about each of the
Company's executive officers and directors. Each director has been elected to
serve until the next annual meeting of shareholders.
<TABLE>
<CAPTION>
NAME AGE POSITION
<S> <C> <C>
Stephen R. Leeolou 40 Chairman of the Board of Directors, Chief Executive Officer and
Treasurer
Aretas E. Stearns 53 President and Chief Operating Officer; Director
William F. Penwell 63 Vice Chairman of the Board of Directors; Secretary
Paul A. Nash 39 Senior Vice President, Product Development and Technology;
Director
Timothy J. W. Simmons 39 Senior Vice President, Sales and Marketing
Richard A. Vinchesi 29 Vice President and Chief Financial Officer
Robert M. DeMichele 51 Director
William P. Emerson, Jr. 43 Director
Haynes G. Griffin 49 Director
Richard P. Ludington 49 Director
L. Richardson Preyer, Jr. 48 Director
Brian A. Rich 35 Director
Stuart S. Richardson 49 Director
Robert A. Silverberg 61 Director
</TABLE>
STEPHEN R. LEEOLOU has been a director of the Company since its inception
in 1993 and Chairman of the Board of Directors and Treasurer of the Company
since 1995. In June 1996, Mr. Leeolou became Chief Executive Officer of the
Company. Mr. Leeolou is a co-founder of Vanguard, one of the largest independent
nonwireline cellular telephone companies in the country, and has served as its
Executive Vice President, Chief Operating Officer, Secretary and a director
since its inception in 1984. From 1983 to 1984, Mr. Leeolou was President of
Caro-Cell Communications, Inc. ("Caro-Cell") and from 1974 until 1983 was a
journalist in the print, radio and television media. Mr. Leeolou also serves as
a director and is past Chairman of the Board of Directors of International
Wireless Communications, Inc., a California-based company involved in wireless
telecommunications licensing, construction and operations primarily in Asia and
Latin America. Since 1994, Mr. Leeolou has been a charter Director of the North
Carolina Electronics and Information Technology Association.
ARETAS E. STEARNS has been President and Chief Operating Officer of the
Company since January 1996 and since June 1996 has served as a director of the
Company. Prior thereto, from 1993 to 1996, Mr. Stearns was Vice
President -- General Manager of the West Virginia Region, Director of the
National Sales Division and Director of the Purchasing Division of Vanguard.
From 1969 to 1992, Mr. Stearns served in various capacities, most recently as
President and Chief Executive Officer of Porteous, Mitchell & Braun Co., a
department store chain located in New England.
WILLIAM F. PENWELL has been Vice Chairman of the Board of Directors of the
Company since 1995 and Secretary since June 1996. Mr. Penwell served as
President and Chief Executive Officer and Director of the Company from 1993 to
1996 and has served as a director of the Company since 1994. Prior to joining
Inter(Bullet)Act in 1993, Mr. Penwell was Chairman of TSS Ltd., a publicly
traded company engaged in the manufacture and deployment of terminals used to
dispense coupons. Prior thereto, Mr. Penwell was Chairman and Chief Executive
Officer of the Sperry & Hutchinson Co., Inc. (issuers of S&H green stamps) and
President and Chief Executive Officer of its Counter Intelligence Division which
operated a frequent shopper and database marketing business (1978 to 1992),
President of Carlson Marketing's incentive and travel operations in Minneapolis,
MN (1970 to 1978) and an employee of Top Value Enterprises in Dayton, OH (1958
to 1970).
PAUL A. NASH has been a director of the Company since its inception and has
been a Vice President of the Company since 1993. From 1994 to January 1996, Mr.
Nash also served as the Company's Chief Operating Officer. Prior thereto, he was
Chairman and Chief Executive Officer for Advanced Technical Services, Inc. (1983
to 1992), a nationwide ATM manufacturing, maintenance and support company, ATM
Project Implementation Manager for Peoples Bank of Connecticut (1978 to 1980),
responsible for ATM and EFT project management, and
40
<PAGE>
Senior Systems Consultant at Docutel Corporation (1980 to 1983) where he served
as the key international ATM systems support person.
TIMOTHY J. W. SIMMONS has been Senior Vice President of Sales and Marketing
of the Company since 1995. Prior thereto, from 1992 to 1995, Mr. Simmons was
Vice President, Sales and Marketing for Advanced Promotion Technologies, an
in-store electronic marketing company. From 1984 to 1992, Mr. Simmons served in
various capacities, most recently as Vice President, Strategic Planning for the
food retailer sector, with A.C. Nielsen, a leading research and information firm
and served in various marketing and management positions with Gillette U.K. from
1977 to 1984.
RICHARD A. VINCHESI was elected Vice President and Chief Financial Officer
in September 1996. Prior thereto, from 1990 to 1996, Mr. Vinchesi served in
various capacities in the Corporate Finance department of Salomon Brothers Inc,
most recently as a Vice President in the Media group.
ROBERT M. DEMICHELE has been a director of the Company since 1995 and has
served as President, Chief Executive Officer and a director of Lexington Global
Asset Managers, Inc., a diversified financial services holding company, since
1995. From 1981 to 1995, Mr. DeMichele was President, Chief Executive Officer
and a director of Piedmont Management Company, Inc., formerly the parent
corporation of Lexington Global Asset Managers, Inc. Prior to 1981, Mr.
DeMichele was in executive management at A. G. Becker (1974 to 1981), an
investment banking company, and Richardson-Vicks, Inc. (1968 to 1974), an
international consumer products company now owned by Proctor & Gamble. Mr.
DeMichele also serves as a director of Vanguard, Chartwell Reinsurance Co. and
the Navigators Group, Inc.
WILLIAM P. EMERSON, JR. has been a director of the Company since its
inception and has served as the President and Chief Executive Officer of all
divisions of Wilmington Shipping Company since 1991. During 1995, Mr. Emerson
served as Chairman of the Company's Board of Directors. Wilmington Shipping
Company services the international trade community through divisions which
include steamship line agents, customs brokers and freight forwarders, a
warehouse and a container maintenance and repair station.
HAYNES G. GRIFFIN has been a director of the Company since its inception
and from 1993 to 1995 Mr. Griffin served as Chairman of the Board of Directors
of the Company. Mr. Griffin is a co-founder of Vanguard and has served as its
President and Chief Executive Officer since its inception in 1983. Mr. Griffin
also serves as Chairman of the Board of Directors of International Wireless
Communications, Inc., a California-based company involved in wireless
telecommunications licensing, construction and operations primarily in Asia and
Latin America. Mr. Griffin also is a member of the Boards of Directors of
Lexington Global Asset Managers, Inc. and Geotek Communication, Inc. and
recently served on the United States Advisory Council on the National
Information Infrastructure. He is a past Chairman of the Cellular
Telecommunications Industry Association.
RICHARD P. LUDINGTON has been a director of the Company since 1993. Since
1993, Mr. Ludington has served as Southeast Regional Director for The
Conservation Fund, a nonprofit organization that creates partnerships with
private and public sector corporations and organizations to help protect
America's outdoor environment. Prior thereto, Mr. Ludington served as a Director
in various capacities for The Nature Conservancy (1982 to 1987) and as the first
Director of the State Lands Division of Florida's Department of Natural
Resources (1979 to 1982).
L. RICHARDSON PREYER, JR. has been a director of the Company since its
inception. Mr. Preyer is a co-founder of Vanguard and has served as its Vice
Chairman of the Board, Executive Vice President and Treasurer since its
inception in 1983. Prior to the formation of Vanguard, Mr. Preyer was Vice
President of Caro-Cell which was engaged in the formation of partnerships to
fund and apply for cellular telephone authorizations. Mr. Preyer also serves as
Administrative Trustee of Piedmont Associates and Southeastern Associates,
investment partnerships.
BRIAN A. RICH has been a director of the Company since June 1996. Mr. Rich
has served as Managing Director and Group Head of Toronto Dominion Capital, the
U.S. merchant bank affiliate of Toronto Dominion Bank, since July 1995. Prior
thereto, since September 1990 Mr. Rich was a managing director of the
Communications Finance Group of Toronto Dominion Bank in New York where he
focused on transactions in the wireless communications, cable and broadcast
industries. Prior to joining Toronto Dominion Bank in September 1990, Mr. Rich
was a principal in a micro computer products distributor based in San Francisco,
which he ultimately sold. Mr. Rich also serves as a director of Teletrac, Inc.
and International Wireless Communications, Inc.
41
<PAGE>
STUART S. RICHARDSON has been a director of the Company since 1995 and has
served as Chairman of Lexington Global Asset Managers, Inc., a diversified
financial services holding company, since 1995. From 1985 to 1995, Mr.
Richardson was an executive of Piedmont Management Company, Inc., formerly the
parent corporation of Lexington Global Asset Managers, Inc., and served as its
Vice Chairman from 1986 to 1995. Mr. Richardson also is the former Chairman of
the Board of Richardson-Vicks, Inc. and serves as Chairman of the Board of
Vanguard and a director of Chartwell Reinsurance Co.
ROBERT A. SILVERBERG has been a director of the Company since June 1996.
Mr. Silverberg has been Executive Vice President and Director of Vectra Bank
since 1995. Form 1981 to 1995, Mr. Silverberg was Chairman of the Board and
President of First Denver Corporation and Chairman of the Board of its
subsidiary, First National Bank of Denver. Mr. Silverberg has also been
President and Chairman of the Board of 181 Realty Company, a commercial real
estate holding company, since 1968 and a director of Vanguard since 1984. Mr.
Silverberg is also a past Chairman of the Anti-Defamation League-Western
Division.
There are no family relationships among the directors and executive
officers of the Company other than between Messrs. Preyer and Richardson who are
cousins.
Directors are elected to serve for one-year terms or until their successors
are duly elected and qualified. All officers serve at the pleasure of the Board
of Directors.
In connection with Vanguard's most recent investment in the Company, an
amendment to the Company's bylaws has been effected to set the maximum number of
directors at 12 and it is anticipated that the holders of a majority of the
Company's Common Stock will enter into an agreement whereby Vanguard will be
entitled to designate six of the 12 directors until such time as the Company has
completed an initial public offering of its Common Stock.
DIRECTOR COMPENSATION
Directors of the Company have received options to purchase Common Stock in
lieu of any cash compensation for serving on the Board of Directors or its
committees. See " -- Executive Compensation -- Stock Options."
COMMITTEES
The Compensation and Stock Option Committee of the Board of Directors
consists of Messrs. Griffin (Chairman), Richardson, Preyer and Emerson. This
Committee recommends employee salaries and incentive compensation to the Board
of Directors and administers the Company's stock option plans.
The Audit Committee of the Board of Directors consists of Messrs.
Silverberg (Chairman), Emerson, Ludington and Penwell. The Audit Committee makes
recommendations to the Board of Directors concerning its review of the Company's
internal controls and accounting system and its review of the annual audit, and
regarding the selection of independent auditors.
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION. The following table sets forth all compensation
received for services rendered to the Company in all capacities for the fiscal
year ended September 30, 1995 by William F. Penwell, who served as the Company's
Chief Executive Officer during such year, and the Company's other executive
officer whose total salary and bonus exceeded $100,000 in such year (together,
the "Named Officers"):
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
AWARDS-
STOCK
ANNUAL COMPENSATION OPTIONS
NAME AND PRINCIPAL POSITION SALARY BONUS (SHARES)
<S> <C> <C> <C>
William F. Penwell,
President and Chief Executive Officer............................................. $104,400 $12,000 16,000
Paul A. Nash
Vice President, Technology........................................................ $140,144 $ 4,000 14,000
</TABLE>
42
<PAGE>
Aretas E. Stearns has been President and Chief Operating Officer of the
Company since January 30, 1996. Until June 1996, Mr. Stearns served in such
capacity under the Company's consulting agreement with Vanguard pursuant to
which Mr. Stearns remained an employee of Vanguard and the Company reimbursed
Vanguard for its costs of providing Mr. Stearns. Effective June 1996, Mr.
Stearns became an employee of the Company and continues to serve as President
and Chief Operating Officer at the pleasure of the Board of Directors. Mr.
Stearns receives an annual salary of $140,000 and a housing allowance of $14,000
per year, plus benefits available generally to all salaried employees.
Effective June 12, 1996, Stephen R. Leeolou was elected Chief Executive
Officer of the Company and serves at the pleasure of the Board of Directors.
While continuing to serve as a salaried executive officer of Vanguard, Mr.
Leeolou receives an annual salary of $50,000 from the Company.
OPTION GRANTS, EXERCISES AND HOLDINGS AND FISCAL YEAR-END OPTION VALUES.
The following table summarizes all option grants during the year ended September
30, 1995 to the Named Officers.
OPTION GRANTS DURING YEAR ENDED SEPTEMBER 30, 1995
<TABLE>
<CAPTION>
% OF
TOTAL POTENTIAL
OPTIONS REALIZABLE VALUE AT
NUMBER OF GRANTED ASSUMED ANNUAL
SHARES TO EXERCISE RATES OF STOCK
UNDERLYING EMPLOYEES OR BASE PRICE APPRECIATION
OPTIONS IN FISCAL PRICE PER EXPIRATION FOR OPTION TERM (2)
NAME GRANTED (1) YEAR 1995 SHARE DATE 5% 10%
<S> <C> <C> <C> <C> <C> <C>
William F. Penwell............................ 16,000 6.9% $5.00 11/11/2004 $50,312 $127,499
Paul A. Nash.................................. 14,000 6.0% $5.00 11/11/2004 44,023 111,562
</TABLE>
(1) Incentive stock options granted on November 11, 1994 under the Company's
1994 Stock Compensation Plan. Each option becomes exercisable in annual
installments over five years from the date of grant.
(2) The compounding assumes a 10-year exercise period for all option grants.
These amounts represent certain assumed rates of appreciation required by
the rules of the Commission. Actual gains, if any, on stock option exercises
are dependent on the future performance of the Common Stock. The amounts
reflected in this table may not necessarily be achieved.
No Named Officers exercised any stock options during the fiscal year ended
September 30, 1995. The following table sets forth information concerning all
option holdings for the fiscal year ended September 30, 1995, with respect to
the Named Officers.
FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
OPTIONS AT IN-THE-MONEY OPTIONS AT
SEPTEMBER 30, 1995 SEPTEMBER 30, 1995 (1)
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
<S> <C> <C> <C> <C>
William F. Penwell............................................... 7,250 34,750 $23,250 $76,250
Paul A. Nash..................................................... 1,000 14,000 $ 500 $ 7,000
</TABLE>
(1) Calculated on the basis of $5.50 per share, the price at which the Company
last privately sold shares of its Common Stock in fiscal 1995, less the
exercise price payable for such shares, multiplied by the number of shares
underlying the option.
STOCK COMPENSATION PLANS. The Company has a 1994 Stock Compensation Plan
that provides for the issuance of shares of Common Stock to key employees,
consultants and directors pursuant to stock options that meet the requirements
of Section 422 of the Internal Revenue Code of 1986, as amended (incentive stock
options), options that do not meet such requirements (nonqualified stock
options) and stock bonuses. All options under the plan must be granted at an
exercise price not less than fair market value. Stock bonuses may be in the form
of grants of restricted stock. The aggregate number of shares of Common Stock
that may be issued pursuant to the plan may not exceed 430,000 shares, subject
to adjustment upon occurence of certain events affecting the Company's
capitalization. An aggregate of 130,900 shares remain available for future
grants under the 1994 Stock Compensation Plan.
The Company also has a 1996 Nonqualified Stock Option Plan that provides
for the issuance of shares of Common Stock to key employees, consultants and
directors pursuant to nonqualified stock options. All options
43
<PAGE>
must be granted at an exercise price not less than $5.50 per share. The
aggregate number of shares of Common Stock that may be issued pursuant to the
plan may not exceed 500,000 shares of Common Stock, subject to adjustment upon
occurence of certain events affecting the Company's capitalization. This plan is
subject to shareholder approval. An aggregate of 29,000 shares remain
available for future grants under the 1996 Nonqualified Stock Option Plan.
The foregoing plans are administered by the Compensation and Stock Option
Committee of the Board of Directors, which is authorized, subject to the
provisions of the Plan, to determine to whom and at what time options and
bonuses may be granted and the other terms and conditions of the grant.
For additional information regarding stock options granted under the
foregoing plans in 1994 and 1995, see Note 8 of the Company's unaudited
Consolidated Financial Statements and Note 9 of the Company's audited
Consolidated Financial Statements. The following table summarizes all options
granted in 1996:
OPTIONS GRANTED IN FISCAL 1996(1)
<TABLE>
<CAPTION>
NUMBER OF SHARES EXERCISE
UNDERLYING OPTION GRANTED PRICE EXPIRATION
NAME EXERCISABLE UNEXERCISABLE(2) PER SHARE DATE
<S> <C> <C> <C> <C>
Stephen R. Leeolou............................................... -- 192,600 $5.50 6/13/2006
Aretas E. Stearns................................................ 5,000 20,000 5.50 1/29/2006
25,000 5.50 6/13/2006
William F. Penwell............................................... -- 20,000 5.50 1/29/2006
-- 4,000 5.50 6/13/2006
Paul A. Nash..................................................... -- 14,000 5.50 6/13/2006
Timothy J. W. Simmons............................................ -- 10,000 5.50 6/13/2006
Richard A. Vinchesi.............................................. -- 48,000 7.50 9/16/2006
All Nonemployee Directors as a Group............................. -- 85,400 5.50 6/13/2006
All Employees and Consultants (other than Executive
Officers and Directors)........................................ -- 20,000 5.50 10/12/2005
-- 140,000 5.50 6/13/2006
-- 10,000 5.50 9/2/2006
-- 10,000 5.50 9/8/2006
</TABLE>
(1) All options expiring on and after June 13, 2006 were granted under the 1996
Nonqualified Stock Option Plan, subject to shareholder approval of the Plan.
The remaining options were granted under the 1994 Stock Compensation Plan
and are incentive stock options except for the options of Mr. Stearns which
are nonqualified. None of the options granted in fiscal 1996 have been
exercised.
(2) Options will become immediately exercisable with respect to an aggregate of
167,000 shares upon shareholder approval of the 1996 Nonqualified Stock
Option Plan consisting of the following: Mr. Leeolou, 42,600 shares; Mr.
Penwell, 4,000 shares; Mr. Nash, 4,000 shares; all nonemployee directors as
a group, 85,400 shares; and all employees and consultants (other than
executive officers and directors), 31,000 shares. Options will become
exercisable with respect to the remaining 432,000 aggregate shares in annual
installments over five years from the date of grant.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Haynes G. Griffin, L. Richardson Preyer, Jr. and Stuart S. Richardson,
members of the Company's Compensation and Stock Option Committee, are each
directors and executive officers of Vanguard. Stephen R. Leeolou, Chief
Executive Officer of the Company, also is a director and executive officer of
Vanguard. Each of the foregoing persons and Vanguard, as well as William P.
Emerson, Jr., who is also a member of the Compensation and Stock Option
Committee, have provided capital to the Company and engaged in related
transactions. In addition, Vanguard has provided and continues to provide
certain services to the Company pursuant to consulting and management services
agreements entered into in 1995 and 1996. See "Certain Transactions."
INDEMNIFICATION MATTERS
The North Carolina Business Corporation Act (the "Business Corporation
Act") provides for mandatory indemnification against reasonable expenses for a
director or officer who is wholly successful in the defense of any proceeding to
which he is a party because he is or was a director or officer of a corporation.
Additionally, as
44
<PAGE>
permitted by the Business Corporation Act, the Company's Bylaws provide for
indemnification of the Company's directors and Indemnified Officers (executive
officers who are also directors and any other officer who is designated by the
Board as an Indemnified Officer) against any and all liability and expenses in
any proceeding, including reasonable attorneys' fees, arising out of their
status or activities as directors and officers, except for liability or
litigation expense incurred on account of activities that at the time taken were
not in good faith or were known or reasonably should have been known by such
director or officer or employee to be clearly in conflict with the best
interests of the Company or that such director or officer had reason to believe
were unlawful.
At present, there is no pending litigation or proceeding involving any
director or officer, employee or agent of the Company where indemnification will
be required or permitted. The Company is not aware of any threatened litigation
or proceeding which may result in a claim for such indemnification.
PRINCIPAL SHAREHOLDERS
The following table sets forth the ownership of the Company's Common Stock
by each person known by the Company to be the owner of 5% or more of the Common
Stock, by each person who is a director or named officer of the Company and by
all directors and executive officers of the Company as a group.
<TABLE>
<CAPTION>
BENEFICIAL OWNERSHIP
NAME SHARES (1)(2) PERCENT (1)(2)
<S> <C> <C>
Vanguard Cellular Systems, Inc................................................................. 2,764,659(3) 32.26%
Piedmont Acorn Investors Limited Partnership................................................... 786,286 10.25%
Clearing Systems, Inc.......................................................................... 816,902(4) 10.65%
Toronto Dominion Investments, Inc.............................................................. 363,636 4.74%
Stephen R. Leeolou............................................................................. 351,562(5) 4.58%
Aretas E. Stearns.............................................................................. 5,000(6) *
William F. Penwell............................................................................. 33,952(7) *
Paul A. Nash................................................................................... 820,702(8) 10.70%
Timothy J.W. Simmons........................................................................... 4,000(9) *
Richard A. Vinchesi............................................................................ 10,000 *
Richard P. Ludington........................................................................... 102,567(10) 1.34%
Robert M. DeMichele............................................................................ 60,000(11) *
William P. Emerson, Jr......................................................................... 338,237(12) 4.40%
Haynes G. Griffin.............................................................................. 437,264(13) 5.70%
L. Richardson Preyer, Jr....................................................................... 351,562(14) 4.58%
Stuart S. Richardson........................................................................... 50,000(15) *
Brian A. Rich.................................................................................. --(16) --
Robert A. Silverberg........................................................................... 20,000 *
All Directors and Officers as a group (13 persons)............................................. 2,534,846(17) 32.72%
</TABLE>
* Owns less than 1% of the total outstanding Common Stock.
(1) The descendants of Lunsford Richardson, Sr., their spouses, trusts, and
corporations in which they have interests and charitable organizations
established by such descendants (collectively referred to as the
"Richardson Family") beneficially own approximately 1,237,848 shares or
16.14% of the Company's Common Stock as of June 19, 1996. Such number of
shares includes 786,286 shares owned by Piedmont Acorn Investors Limited
Partnership, 50,000 shares held by the Smith Richardson Foundation, Inc.,
50,000 shares held by Piedmont Harbor-Piedmont Associates Limited
Partnership, 342,162 shares held directly by L. Richardson Preyer, Jr. and
9,400 shares which he has the right to acquire under presently exercisable
options granted to him under the Company's 1994 Stock Compensation Plan.
The individuals and institutions constituting the Richardson Family have
differing interests and may not necessarily vote their shares in the same
manner. Furthermore, trustees and directors have fiduciary obligations
(either individually or jointly with other fiduciaries) under which they
must act on the basis of fiduciary requirements which may dictate positions
that differ from their personal interests.
45
<PAGE>
(2) Unless otherwise indicated, all share ownership is given as of September
10, 1996 and all shares are owned of record by the persons named and
beneficial ownership consists of sole voting power and sole investment
power.
(3) Includes 900,113 shares that Vanguard has the right to acquire under a
warrant at $23.50 per share. See "Certain Transactions." Excludes 132,027
shares (or 169,741 shares in the event that a Qualifying Initial Public
Offering has not been consummated by September 30, 1997) that Vanguard will
have the right to purchase under the Warrants acquired by Vanguard in this
Offering, which shares can be purchased at an exercise price of $0.01 per
share, subject to certain adjustments.
(4) These shares are owned of record by Clearing Systems, Inc. ("CSI"), Paul A.
Nash, a director and executive officer of the Company, and Michael R.
Jones, a former director of the Company, are principal shareholders of CSI
and may also be deemed to beneficially own such shares.
(5) Includes 9,400 shares that Mr. Leeolou has the right to acquire under
presently exercisable stock options granted to him under the Company's 1994
Stock Compensation Plan.
(6) Includes 5,000 shares that Mr. Stearns has the right to acquire under
presently exercisable stock options granted to him under the Company's 1994
Stock Compensation Plan.
(7) Includes 10,450 shares that Mr. Penwell has the right to acquire under
presently exercisable stock options granted to him under the Company's 1994
Stock Compensation Plan.
(8) Includes 3,800 shares that Mr. Nash has the right to acquire under
presently exercisable stock options granted to him under the Company's 1994
Stock Compensation Plan. Also includes 816,902 shares owned of record by
CSI that may be deemed beneficially owned by Mr. Nash.
(9) Includes 4,000 shares that Mr. Simmons has the right to acquire under
presently exercisable stock options granted to him under the Company's 1994
Stock Compensation Plan.
(10) Includes 7,000 shares that Mr. Ludington has the right to acquire under
presently exercisable stock options granted to him under the Company's 1994
Stock Compensation Plan and 17,113 shares held by a trust for the benefit
of his children.
(11) Includes 50,000 shares held by the Smith Richardson Foundation, of which
Mr. DeMichele serves as one of eight trustees. The shares held by the Smith
Richardson Foundation are also reported as beneficially owned by Stuart S.
Richardson. Mr. DeMichele disclaims beneficial ownership of the shares held
by such foundation.
(12) Includes 20,200 shares that Mr. Emerson has the right to acquire under
presently exercisable options granted to him under the Company's 1994 Stock
Compensation Plan and 50,000 shares held by a partnership of which one of
the general partners is an entity controlled by Mr. Emerson.
(13) Includes 9,400 shares that Mr. Griffin has the right to acquire under
presently exercisable options granted to him under the Company's 1994 Stock
Compensation Plan and 85,702 shares owned by a partnership of which his
brother is general partner.
(14) Includes 9,400 shares that Mr. Preyer has the right to acquire under
presently exercisable options granted to him under the Company's 1994 Stock
Compensation Plan.
(15) Represents 50,000 shares held by the Smith Richardson Foundation, of which
Mr. Richardson serves as one of eight trustees and 6,000 shares that Mr.
Richardson has the right to acquire under presently exercisable stock
options granted to him under the Company's 1994 Stock Compensation Plan.
The shares held by the Smith Richardson Foundation are also reported as
beneficially owned by Robert M. DeMichele. Mr. Richardson disclaims
beneficial ownership of the shares held by such foundation.
(16) Does not include the shares shown as beneficially owned by Toronto Dominion
Investments, Inc., an affiliate of Mr. Rich's employer, Toronto Dominion
Bank.
(17) Includes 78,650 shares that may be purchased under presently exercisable
options granted to directors and officers under the Company's 1994 Stock
Compensation Plan.
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CERTAIN TRANSACTIONS
The Company was incorporated in 1993 and in April of that year purchased
certain technology and other assets and assumed certain liabilities of Clearing
Systems, Inc. ("CSI") in exchange for 816,902 shares of the Company's authorized
Common Stock. CSI is a Delaware corporation founded in 1992 whose principal
shareholders are Paul A. Nash, a director of the Company, and Michael R. Jones,
a former director of the Company. CSI was the shell corporation under which
certain of the Company's technology was first developed and has had no business
operations.
From time to time after such purchase, the Company has obtained capital for
its business by issuing shares of its Common Stock in private transactions and
directors, officers, and principal shareholders of the Company and members of
their immediate families and certain related entities have purchased shares. The
first of these transactions was consummated on April 16, 1993, whereby the
Company issued 1,999,998 shares of its Common Stock at a purchase price of
approximately $1.02 per share to certain individual investors including the
following: Mr. Preyer, 233,434 shares; Mr. Griffin, 233,434 shares; Mr. Leeolou,
233,434 shares; Mr. Emerson, 210,090 shares; and Mr. Ludington, 77,811 shares.
On June 15, 1993, Mr. Jones assigned to the Company his rights as licensee
of certain patent rights, including the patent presently used in the Company's
business. See "Business -- Patents, Proprietary Information and Trademarks."
Pursuant to such assignment, Mr. Jones received royalty payments of $20,000,
$61,000 and $114,000 in fiscal 1993, 1994 and 1995, respectively, and currently
receives a royalty payment in the amount of $10,000 per month, such payment to
continue until the Common Stock of the Company attains a value of $32 per share.
In June 1994, the Board of Directors authorized a partial refund of the
purchase price paid for shares of common stock purchased on April 16, 1993 by
certain investors who were North Carolina residents and purchased such shares in
reliance on the Company's then existing plan to relocate its headquarters to
North Carolina which would make available to such investors a North Carolina
investment tax credit with respect to their investment. The refund was made in
the form of a promissory note in principal amount equal to the investment tax
credit each eligible investor would have received and was issued in
consideration of the release by such investor from any claim relating to the
failure of the Company to maintain the qualification for the investment tax
credit. Recipients of such promissory notes and their respective note principal
amounts included the following: Mr. Emerson, $53,378; Mr. Griffin, $59,309; Mr.
Leeolou, $59,309; Mr. Preyer, $59,309; and Mr. Ludington, $19,770. Principal and
accrued interest on such notes (at the rate of prime plus 2% per annum) would
have been payable in eight equal quarterly installments beginning on July 1,
1997. Effective May 31, 1996, these notes, including accrued interest, were
exchanged for shares of the corporation's common stock at the rate of $5.50 per
share. Shares issued to exchanging noteholders pursuant to such exchange
included the following: Mr. Emerson, 11,169 shares; Mr. Griffin, 12,410 shares;
Mr. Leeolou, 12,410 shares; Mr. Preyer, 12,410 shares; and Mr. Ludington, 4,136
shares.
In connection with their April 1993 purchases of Common Stock, the initial
investors agreed to lend the Company an aggregate of $1.6 million. These loans
were made to the Company in 1994 and included loans made by the following
investors in the amounts indicated: Mr. Preyer, $196,722; Mr. Griffin, $196,722;
Mr. Leeolou, $196,722; Mr. Emerson, $177,050; and Mr. Ludington, $65,574. Also
included were loans made by Alonzo Family Partners, Ltd., a limited partnership
owned by the brother of Haynes G. Griffin and certain members of the brother's
immediate family ($35,886) and Mr. Penwell, who each purchased part of an
initial investor's interest and agreed to fulfill a portion his loan commitment.
The promissory notes issued for such loans, bearing interest with rates from
prime plus 2% to 15%, were exchanged for 8.5% convertible notes in 1995 in the
same principal amount and with a conversion price of $5.00 per share. Effective
February 1, 1996, the holders of the convertible notes converted the principal
thereof into shares of common stock at the conversion price of $5.00 per share
and accepted common stock in lieu of one-half of the accrued interest thereon at
the rate of $5.50 per share. Shares issued to converting noteholders pursuant to
this conversion and interest payment included the following: Mr. Preyer, 40,864
shares; Mr. Griffin, 40,864 shares; Mr. Leeolou, 40,864 shares; Mr. Emerson,
36,778 shares; Mr. Ludington, 13,620 shares; Mr. Penwell, 3,500 shares; and
Alonzo Family Partners, Ltd., 7,350 shares.
In 1994 and 1995, the Company issued additional shares of its Common Stock
in a series of private offerings at a purchase price of $5.00 per share.
Purchasers in these offerings included the following: Mr. Preyer, 10,000 shares;
Mr. Griffin, 10,000 shares; Mr. Leeolou, 10,000 shares; and Mr. Emerson, 10,000
shares. In addition,
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entities affiliated with Piedmont Acorn Investors Limited Partnership, a
principal shareholder of the Company, purchased shares in these offerings,
including Smith Richardson Foundation, Inc., 50,000 shares, and Piedmont
Harbor-Piedmont Associates Limited Partnership, 50,000 shares.
In May 1995, Vanguard, through a subsidiary, purchased 400,000 shares of
Common Stock of the Company at a purchase price of $5.00 per share. In
connection with such investment, Vanguard received a warrant to purchase up to
an additional 10.27% of the Common Stock of the Company at an exercise price
equal to the fair market value of the Common Stock at the time of the exercise
(the "Vanguard Warrant"). The Vanguard Warrant was exercisable at any time prior
to the earlier of an underwritten initial public offering or May 5, 2005. The
Vanguard Warrant was restructured immediately prior to consummation of the
Private Placement to provide that Vanguard has the right to buy 900,113 shares
at any time before May 5, 2005 at $23.50 per share. The restructured Vanguard
Warrant also provides that Vanguard may pay the exercise price either in cash
or, if the fair market value of the Common Stock at the time of exercise is
greater than the exercise price, by surrendering any unexercised portion of the
Vanguard Warrant and receiving the number of shares equal to (i) the excess of
fair market value per share at the time of exercise over the exercise price per
share multiplied by (ii) the number of shares surrendered. Stephen R. Leeolou, a
director and Chief Executive Officer of the Company, and Haynes G. Griffin and
L. Richardson Preyer, Jr., directors of the Company, are each directors,
executive officers and shareholders of Vanguard. In addition, Stuart S.
Richardson is Chairman of the Board and a shareholder of Vanguard and Robert M.
DeMichele and Robert A. Silverberg are directors and shareholders of Vanguard.
On October 13, 1995, the Board of Directors approved a private offering of
Common Stock at a purchase price of $5.50 per share, pursuant to which $18.1
million of Common Stock was sold. Purchasers of Common Stock in this offering
included directors Preyer (45,454 shares), Griffin (45,454 shares), Leeolou
(45,454 shares) and DeMichele (10,000 shares), and Alonzo Family Partners, Ltd.
(36,363 shares) and Shipyard Associates, a general partnership of which Mr.
Emerson's mother and an entity affiliated with Mr. Emerson are general partners.
Other purchasers in the offering included Vanguard (1,454,546 shares), Toronto
Dominion Investments, Inc. ("TDI") (363,636 shares), and Piedmont Acorn
Investors Limited Partnership (786,286 shares). In connection with this
offering, purchasers of $250,000 or more of Common Stock received warrants to
purchase a number of shares of Common Stock equal to 5% of the shares purchased
in the offering and purchasers of $1,000,000 or more of Common Stock received
warrants to purchase a number of shares of Common Stock equal to 10% of the
shares purchased in the offering. Also in connection with this offering,
purchasers of Common Stock in the 1994 and earlier 1995 offerings (excluding
Vanguard) were offered warrants (at a purchase price of $.01 per warrant share).
The exercise price of all warrants issued or sold in connection with this
offering will equal the sales price of the next $2 million of Common Stock sold
in a separate offering. Recipients or purchasers of warrants in this offering
included Mr. Preyer (2,773 shares), Mr. Griffin (2,773 shares), Mr. Leeolou
(2,773 shares), Mr. DeMichele (1,000 shares), Vanguard (45,455 shares), Piedmont
Acorn Investors Limited Partnership (78,629 shares) and TDI (36,364 shares).
Also included were Shipyard Associates (13,750 shares), Smith Richardson
Foundation, Inc. (2,500 shares) and Piedmont Harbor-Piedmont Associates Limited
Partnership (2,500 shares). These warrants expire on December 31, 2000.
On December 28, 1995, the Company issued to CSI a $375,000 note,
convertible into shares of Common Stock at the rate of $5.50 per share and
bearing interest at the rate of 8.5% per annum, in satisfaction of certain
obligations of the Company to CSI for consulting services rendered. At CSI's
request, the convertible note was partitioned and distributed to certain
creditors of CSI, including Mr. Nash ($90,000) and Mr. Jones ($216,000). In
connection with Mr. Nash's agreement to assign his interest in a terminal design
to the Company, Mr. Nash's note was prepaid by the Company in January 1996.
Stock options have been granted under the Company's 1994 Stock Compensation
Plan and 1996 Nonqualified Stock Option Plan to its directors and officers.
Included within such grants were nonqualified stock options granted in fiscal
1994 and fiscal 1995 to certain nonemployee directors in payment for services
rendered to the Company each at an exercise price of $5.00 per share and fully
vested (Mr. Ludington, 7,000 shares; Mr. Preyer, 9,400 shares; Mr. Nash, 1,000
shares; Mr. Penwell, 1,000 shares; Mr. Leeolou, 9,400 shares; Mr. Emerson,
20,200 shares; and Mr. Griffin, 9,400 shares) and incentive stock options
vesting over five years granted to certain employees who are directors (Mr.
Penwell, 25,000 shares at an exercise price of $1.86 per share and 16,000 shares
at an exercise price of $5.00 per share; Mr. Nash, 14,000 shares at an exercise
price of $5.00 per share; and Mr. Simmons, 20,000 shares at an exercise price of
$5.50 per share). See "Management -- Executive Compensation."
As of January 30, 1996, the Company entered into a consulting agreement
with Vanguard pursuant to which Mr. Stearns, an employee of Vanguard, began to
serve as Chief Operating Officer of the Company and Vanguard
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provided other consulting services requested by the Company. Pursuant to the
agreement, the Company reimbursed Vanguard for its costs of providing such
services and expects to pay Vanguard approximately $75,000 during 1996. The
consulting agreement was terminated and replaced by a management services
agreement (the "Management Services Agreement") as of June 17, 1996. The
Management Services Agreement, which has a term of two years, provides that
Vanguard will provide services to the Company from time to time during the term
of the agreement in assisting the Company in developing accounting, human
resources, information management, legal compliance, sales training, research
and development, business development and operation procedures, systems and
programs. For such services the Company will issue Vanguard 10,000 shares of
Common Stock per year and will reimburse Vanguard for its out-of-pocket expenses
incurred in rendering such services.
In connection with their respective investments, Vanguard and TDI each
entered into agreements providing certain rights to have their shares of the
Company's Common Stock registered under the Securities Act. If the Company
proposes to make a registered public offering of any of its securities under the
Securities Act, other than certain specified types of offerings, the Company
will be obligated to give written notice of the proposed registration to
Vanguard and TDI. Upon receipt of such written notice of the proposed
registration, Vanguard and TDI will be entitled to request that all or a portion
of their Common Stock be included in such registration offering (a "Piggyback
Registration") except in certain specified circumstances. The agreements also
provide that, at any time after six months from the date the first registration
statement filed under the Securities Act by the Company becomes effective, the
shareholder is entitled to request registration for sale under the Securities
Act of all or portion of its Common Stock (a "Demand Registration"), provided
that the shareholder shall not be entitled to request any Demand Registration
within the 12-month period immediately following the date of any previous
request for a Demand Registration. These rights to Piggyback and Demand
Registrations expire at such time as the recipient's shares may be sold pursuant
to Rule 144(k) of the Securities Act.
Vanguard purchased 18,000 of the Units sold in the Private Placement.
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DESCRIPTION OF NEW NOTES
The Old Notes were, and the New Notes will be, issued under an indenture
dated as of August 1, 1996 (the "Indenture"), between the Company and Fleet
National Bank, as Trustee (the "Trustee"). The following summaries of certain
provisions of the Indenture do not purport to be complete and are subject, and
are qualified in their entirety by reference, to the provisions of the New Notes
and the Indenture, including the definitions therein of certain terms. Wherever
particular Sections or defined terms of the Indenture are referred to herein,
such Sections or defined terms are incorporated by reference herein. For
purposes of this Description of New Notes, references to the "Company" shall
mean Inter(Bullet)Act Systems, Incorporated, excluding its subsidiaries. Certain
terms used in this Description of New Notes are defined under " -- Certain
Definitions."
GENERAL
The New Notes will mature on August 1, 2003, and will be limited to an
aggregate principal amount at maturity of $142,000,000. Although for Federal
income tax purposes a significant amount of original issue discount, taxable as
ordinary income, will be recognized by a Holder as such discount accrues, no
interest will be payable on the New Notes prior to February 1, 2000. From and
after August 1, 1999, cash interest will accrue at the rate set forth on the
cover page of this Prospectus or from the most recent interest payment date to
which interest has been paid, payable semiannually on February 1 and August 1 of
each year, beginning on February 1, 2000, to the persons who are registered
holders of the New Notes (or any predecessor Notes) at the close of business on
the preceding January 15 or July 15, as the case may be.
Principal of, premium, if any, and interest on the New Notes will be
payable in immediately available funds, and the New Notes will be exchangeable
and transferable, at an office or agency of the Company, one of which will be
maintained for such purpose in The City of New York (which initially will be the
corporate trust office of the Trustee) or such other office or agency permitted
under the Indenture; provided, however, that payment of interest may be made at
the option of the Company by check mailed to the person entitled thereto as
shown on the Security Register. The New Notes will be issued only in fully
registered form without coupons, in denominations of $1,000 or any integral
multiple thereof. No service charge will be made for any registration of
transfer or exchange of New Notes, except for any tax or other governmental
charge that may be imposed in connection therewith.
All payments of principal to the Depositary will be made by the Company in
immediately available funds. The Global Notes are expected to trade in The
Depository Trust Company's Same-Day Funds Settlement System until maturity, and
secondary market trading activity in the Global Notes will therefore settle in
immediately available funds on trading activity in the New Notes.
RANKING
The New Notes will be senior unsecured obligations of the Company, will
rank PARI PASSU in right of payment with all existing and future senior
indebtedness of the Company and will be senior in right of payment to all future
subordinated indebtedness of the Company. As of June 29, 1996, on an as adjusted
basis after giving effect to the Private Placement, the total consolidated
indebtedness of the Company would have been $70.5 million. At such date, the
Company had no indebtedness subordinated to the New Notes.
In addition, all indebtedness and other liabilities of present and future
Subsidiaries of the Company will be effectively senior in right of payment to
the New Notes. At the Issue Date, the Company had one Subsidiary. Although the
Indenture contains limitations on the amount of additional Indebtedness which
the Company and its Restricted Subsidiaries may Incur, the amounts of such
Indebtedness could be substantial and, in any case, all of such Indebtedness of
Subsidiaries will be effectively senior in right of payment to the Notes. See
" -- Certain Covenants" below. Moreover, claims of creditors of the Company's
Subsidiaries, including trade creditors, and holders of Preferred Stock of the
Company's Subsidiaries (if any), will generally have a priority as to the assets
of such Subsidiaries over the claims of the Company.
OPTIONAL REDEMPTION
The New Notes are not redeemable prior to August 1, 2000. At any time on or
after August 1, 2000, the New Notes are redeemable at the option of the Company,
in whole or in part, on not less than 30 nor more than 60 days' notice, at the
following redemption prices (expressed as percentages of Accreted Value), plus
accrued and unpaid interest (if any) to the date of redemption:
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If redeemed during the 12-month period commencing August 1 of the year
indicated:
<TABLE>
<CAPTION>
REDEMPTION
YEAR PRICE
<S> <C>
2000.................................................................................... 107.0 %
2001.................................................................................... 103.5 %
2002 and thereafter..................................................................... 100.0 %
</TABLE>
Notwithstanding the foregoing, at any time and from time to time prior to
August 1, 1999, the Company may redeem in the aggregate up to $30 million of the
principal amount at maturity of the Old and/or New Notes with the proceeds of
one or more Public Equity Offerings, at a redemption price (expressed as a
percentage of Accreted Value) of 114%; PROVIDED, HOWEVER, that at least $112
million aggregate principal amount at maturity of Notes must remain outstanding
after each such redemption.
In the event of redemption of fewer than all the Notes, the Trustee shall
select by lot or in such manner as it shall deem fair and equitable the Notes to
be redeemed. On and after any redemption date, interest will cease to accrete or
accrue on the Notes or portions thereof called for redemption unless the Company
shall fail to redeem any such Notes.
SINKING FUND
There will be no mandatory sinking fund payments for the New Notes.
PURCHASE AT THE OPTION OF HOLDERS UPON A CHANGE OF CONTROL
Upon the occurrence of a Change of Control, each holder of New Notes shall
have the right to require the Company to purchase all or any part (equal to
$1,000 or an integral multiple thereof) of such holder's New Notes pursuant to
the offer described below (the "Change of Control Offer") at a purchase price
equal to 101% of Accreted Value thereof, plus accrued and unpaid interest
thereon, if any, to the purchase date (the "Change of Control Payment").
Within 30 days following any Change of Control, the Company shall (i) cause
a notice of the Change of Control Offer to be sent at least once to the Dow
Jones News Service or similar business news service in the United States and
(ii) mail a notice to each holder of New Notes stating: (1) that a Change of
Control has occurred and a Change of Control Offer is being made pursuant to the
covenant entitled "Purchase at the Option of Holders Upon a Change of Control"
and that all New Notes timely tendered will be accepted for payment; (2) the
purchase price and the purchase date, which shall be, subject to any contrary
requirements of applicable law, no earlier than 30 days nor later than 60 days
from the date such notice is mailed (the "Change of Control Payment Date"); (3)
that any New Note (or portion thereof) accepted for payment (and duly paid on
the Change of Control Payment Date) pursuant to the Change of Control Offer
shall cease to accrete or accrue interest after the Change of Control Payment
Date; (4) that any New Notes (or portions thereof) not tendered will continue to
accrete or accrue interest; (5) a description of the transaction or transactions
constituting the Change of Control; and (6) the procedures that holders of New
Notes must follow in order to tender their New Notes (or portions thereof) for
payment and the procedures that holders of New Notes must follow in order to
withdraw an election to tender New Notes (or portions thereof) for payment.
The Company will comply, to the extent applicable, with the requirements of
Rule 14e-1 under the Exchange Act, and any other securities laws and regulations
thereunder to the extent such laws and regulations are applicable in connection
with the purchase of New Notes in connection with a Change of Control. To the
extent that the provisions of any securities laws or regulations conflict with
the provisions relating to the Change of Control Offer, the Company will comply
with the applicable securities laws and regulations and will not be deemed to
have breached its obligations described above by virtue thereof.
Except as described above with respect to a Change of Control, the
Indenture does not contain any provisions that permit the holders of the New
Notes to require that the Company purchase or redeem the New Notes in the event
of a takeover, recapitalization or similar restructuring.
The Change of Control purchase feature is a result of negotiations between
the Company and the Initial Purchasers. Management has no present intention to
engage in a transaction involving a Change of Control, although it is possible
that the Company would decide to do so in the future. There can be no assurance
that the Company
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will have the financial resources necessary to purchase the New Notes upon a
Change of Control. Subject to the limitations discussed below, the Company
could, in the future, enter into certain transactions, including acquisitions,
refinancings or other recapitalizations, that would not constitute a Change of
Control under the Indenture, but that could increase the amount of Indebtedness
outstanding at such time or otherwise affect the Company's capital structure or
credit ratings. Restrictions on the ability of the Company to Incur additional
Indebtedness are contained in the covenants described under " -- Certain
Covenants -- Limitation on Indebtedness" and " -- Certain
Covenants -- Limitation on Liens." Such restrictions can only be waived with the
consent of the registered holders of a majority in principal amount of the New
and Old Notes then outstanding. Except for the limitations contained in such
covenants, however, the Indenture will not contain any covenants or provisions
that may afford holders of the New Notes protection in the event of a highly
leveraged transaction.
CERTAIN COVENANTS
LIMITATION ON INDEBTEDNESS. The Company shall not, and shall not permit any
Restricted Subsidiary to, directly or indirectly, Incur any Indebtedness, except
that the Company may Incur Indebtedness if, either (a) after giving pro forma
effect to the application of the proceeds thereof, no Default or Event of
Default would occur as a consequence of such Incurrence or be continuing
following such Incurrence and after giving effect to the Incurrence of such
Indebtedness and the receipt and application of the proceeds thereof, the
Consolidated Leverage Ratio of the Company and its Restricted Subsidiaries would
not exceed (i) 7.0 to 1.0 from the Issue Date until August 1, 1999, and (ii) 5.0
to 1.0 after August 1, 1999, or (b) such Indebtedness is Permitted Indebtedness.
Permitted Indebtedness is defined to include any and all of the following:
(i) Indebtedness Incurred for working capital purposes pursuant to a revolving
credit facility in an aggregate principal amount which, when taken together with
the principal amount of all other Indebtedness Incurred pursuant to this clause
(i) and then outstanding, does not exceed $10 million; (ii) Indebtedness
Incurred to finance the purchase and installation (including all associated
capitalized costs) of IPN Terminals, PROVIDED, HOWEVER, that (x) the aggregate
principal amount of such Indebtedness does not exceed 100% of the Fair Market
Value (on the date of such Incurrence) of the IPN Terminals acquired and (y) the
Company had already budgeted as of August 2, 1996 in writing to expend the
proceeds from the Private Placement in the manner described under "Use of
Proceeds;" (iii) Indebtedness of the Company evidenced by the Notes; (iv)
Indebtedness of the Company owing to and held by a Wholly Owned Subsidiary and
Indebtedness of a Wholly Owned Subsidiary owing to and held by the Company or
any Wholly Owned Subsidiary; PROVIDED, HOWEVER, that any event that results in
any such Wholly Owned Subsidiary ceasing to be a Wholly Owned Subsidiary or any
subsequent transfer of any such Indebtedness (except to the Company or a Wholly
Owned Subsidiary) shall be deemed, in each case, to constitute the Incurrence of
such Indebtedness by the issuer thereof; (v) Indebtedness (other than
Indebtedness permitted by the immediately preceding paragraph or elsewhere in
this paragraph) in an aggregate principal amount which does not exceed at any
one time outstanding $10 million; (vi) Indebtedness under Interest Rate
Agreements entered into for the purpose of limiting interest rate risks;
PROVIDED, HOWEVER, that the obligations under such agreements are related to
payment obligations of the Company in respect of Indebtedness otherwise
permitted by the terms of the covenant described hereunder; (vii) Indebtedness
in connection with one or more standby letters of credit or performance bonds
issued in the ordinary course of business or pursuant to self-insurance
obligations and not in connection with the borrowing of money or the obtaining
of advances or credit; (viii) Indebtedness Incurred by the Company and owing to
either Vanguard Cellular Systems, Inc., or any Strategic Equity Investor;
PROVIDED, HOWEVER, that the aggregate principal amount of Indebtedness at any
time outstanding pursuant to this clause (viii) shall not exceed $10 million;
PROVIDED FURTHER, HOWEVER, that such Indebtedness shall (x) not by its terms
provide for the payment of any cash interest thereon or for any payments of
principal thereof (whether pursuant to sinking fund or otherwise) at any time
prior to the first anniversary of the Stated Maturity of the Notes; (y) be
expressly subordinated in right of payment to the Notes; and (z) not have in the
documentation evidencing such Indebtedness any term, covenant, provision or
default or event of default which is materially more favorable to the holder
thereof than the terms, covenants, provisions or defaults or events of default
set forth in the Notes (or in the documentation relating thereto) as in effect
on the Issue Date (it being expressly understood that any such Indebtedness
Incurred under this clause (viii) may have an interest rate and interest terms
different from the Notes); (ix) Indebtedness outstanding on the Issue Date not
otherwise described in clauses (i) through (viii) above; and (x) Permitted
Refinancing Indebtedness Incurred in respect of Indebtedness Incurred pursuant
to clause (a) of the immediately preceding paragraph and clauses (ii), (iii) and
(ix) above.
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LIMITATION ON INDEBTEDNESS AND PREFERRED STOCK OF RESTRICTED SUBSIDIARIES.
The Company shall not permit any Restricted Subsidiary to, directly or
indirectly, Incur any Indebtedness or issue any Preferred Stock, except that a
Restricted Subsidiary may Incur the following Indebtedness:
(i) Indebtedness owing to the Company or a Wholly Owned Subsidiary;
PROVIDED, HOWEVER, that any event that results in any such Wholly Owned
Subsidiary ceasing to be a Wholly Owned Subsidiary or any subsequent
transfer of any such Indebtedness (except to the Company or another Wholly
Owned Subsidiary) shall be deemed to constitute the Incurrence of such
Indebtedness by the issuer thereof;
(ii) Indebtedness outstanding on the Issue Date;
(iii) Indebtedness Incurred and outstanding on or prior to the date on
which such Restricted Subsidiary was acquired by the Company (other than
Indebtedness Incurred in anticipation of, or in connection with, the
transaction or series of related transactions pursuant to which such
Subsidiary became a Restricted Subsidiary or was acquired by the Company);
provided, however, that either (a) such Indebtedness does not exceed at any
one time outstanding $5 million or (b) the Company would be permitted to
Incur $1.00 of Indebtedness pursuant to clause (a) of the first paragraph
of " -- Limitation on Indebtedness";
(iv) Indebtedness under Interest Rate Agreements entered into for the
purpose of limiting interest rate risks, provided that the obligations
under such agreements are related to payment obligations of such Restricted
Subsidiary in respect of Indebtedness otherwise permitted by the terms of
the covenant described hereunder;
(v) Indebtedness in connection with one or more standby letters of
credit or performance bonds issued in the ordinary course of business or
pursuant to self-insurance obligations and not in connection with the
borrowing of money or the obtaining of advances or credit; and
(vi) Permitted Refinancing Indebtedness Incurred in respect of
Indebtedness Incurred pursuant to clauses (ii) and (iii) above.
LIMITATION ON RESTRICTED PAYMENTS. The Company shall not, and shall not
permit any Restricted Subsidiary to, directly or indirectly, make any Restricted
Payment if at the time of, and after giving effect to, such proposed Restricted
Payment, (a) a Default or Event of Default shall have occurred and be
continuing, (b) the Company could not Incur at least $1.00 of additional
Indebtedness pursuant to clause (a) of the first paragraph of " -- Limitation on
Indebtedness" or (c) the aggregate amount of such Restricted Payment and all
other Restricted Payments made since the Issue Date (the amount of any
Restricted Payment, if made other than in cash, to be based upon Fair Market
Value) would exceed an amount equal to the sum of (i) the excess of (A)
Cumulative EBITDA over (B) the product of 1.5 and Cumulative Interest Expense,
(ii) Capital Stock Sale Proceeds, (iii) the amount by which Indebtedness of the
Company or its Restricted Subsidiaries is reduced on the balance sheet of the
Company upon the conversion or exchange (other than by a Subsidiary) subsequent
to the Issue Date of any Indebtedness of the Company or any Restricted
Subsidiary convertible or exchangeable for Capital Stock (other than Redeemable
Stock) of the Company (less the amount of any cash or other Property distributed
by the Company or any Restricted Subsidiary upon conversion or exchange) and
(iv) an amount equal to the net reduction in Investments made by the Company and
its Restricted Subsidiaries subsequent to the Issue Date in any Person resulting
from (A) dividends, repayment of loans or advances, or other transfers or
distributions of Property (but only to the extent the Company excludes such
transfers or distributions from the calculation of Cumulative EBITDA for
purposes of clause (c) (i) above), in each case to the Company or any Restricted
Subsidiary from any Person or (B) the redesignation of any Unrestricted
Subsidiary as a Restricted Subsidiary, not to exceed, in the case of (A) or (B),
the amount of such Investments previously made by the Company and its Restricted
Subsidiaries in such Person which were treated as Restricted Payments.
Notwithstanding the foregoing limitation, the Company may (a) pay dividends
on its Capital Stock within 60 days of the declaration thereof if, on the
declaration date, such dividends could have been paid in compliance with the
Indenture, (b) redeem, repurchase, defease, acquire or retire for value, any
Indebtedness subordinate (whether pursuant to its terms or by operation of law)
in right of payment to the Notes with the proceeds of any Permitted Refinancing
Indebtedness, (c) acquire, redeem or retire Capital Stock of the Company or
Indebtedness subordinate (whether pursuant to its terms or by operation of law)
in right of payment to the Notes in exchange for, or in connection with a
substantially concurrent issuance of, Capital Stock of the Company (other than
Redeemable Stock and other than Capital Stock issued or sold to a Subsidiary or
an employee stock ownership plan or
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other trust established by the Company or any Subsidiary), and (d) make
Investments in Persons the primary businesses of which are Related Businesses
(other than Investments in the Capital Stock of the Company) in an amount at any
time outstanding not to exceed $10 million in the aggregate.
Any payments made pursuant to clauses (b) and (c) of the immediately
preceding paragraph shall be excluded from the calculation of the aggregate
amount of Restricted Payments made after the Issue Date; PROVIDED, HOWEVER, that
the proceeds from the issuance of Capital Stock pursuant to clause (c) of the
immediately preceding paragraph shall not constitute Capital Stock Sale Proceeds
for purposes of clause (c) (ii) of the first paragraph of the covenant described
hereunder.
LIMITATION ON LIENS. The Company shall not, and shall not permit any
Restricted Subsidiary to, directly or indirectly, Incur or suffer to exist, any
Lien (other than Permitted Liens) upon any of its Property, whether now owned or
hereafter acquired, including any Lien on any interest in, or any income or
profits from, its Property, unless effective provision has been or will be made
whereby the Notes will be secured equally and ratably with (or prior to) such
obligation; PROVIDED, HOWEVER, that no Lien may be granted with respect to
Indebtedness of the Company that is subordinated to the Notes.
LIMITATION ON ASSET SALES. The Company shall not, and shall not permit any
Restricted Subsidiary to, directly or indirectly, consummate any Asset Sale
after the Issue Date unless (i) the Company or such Restricted Subsidiary, as
the case may be, receives consideration at the time of such Asset Sale at least
equal to the Fair Market Value of the Property subject to such Asset Sale and
(ii) at least 80% of the consideration paid to the Company or such Restricted
Subsidiary in connection with such Asset Sale is in the form of cash or cash
equivalents.
The Net Available Cash (or any portion thereof) from Asset Sales may be
applied by the Company or a Restricted Subsidiary, to the extent the Company or
such Restricted Subsidiary elects, (A) to prepay, repay or purchase Indebtedness
of a Restricted Subsidiary (excluding Indebtedness owed to the Company or an
Affiliate of the Company); or (B) to reinvest in Additional Assets (including by
means of an Investment in Additional Assets by a Restricted Subsidiary with Net
Available Cash received by the Company or another Restricted Subsidiary).
Any Net Available Cash from an Asset Sale not applied in accordance with
the preceding paragraph within 270 days from the date of such Asset Sale or the
receipt of such Net Available Cash shall constitute "Excess Proceeds." When the
aggregate amount of Excess Proceeds exceeds $10 million (taking into account
income earned on such Excess Proceeds), the Company will be required to make an
offer to purchase (the "Prepayment Offer") the Notes, on a pro rata basis
according to principal amount at maturity, at a purchase price equal to 100% of
the Accreted Value thereof plus accrued and unpaid interest thereon (if any) to
the date of purchase in accordance with the procedures (including prorating in
the event of oversubscription) set forth in the Indenture. If the aggregate
Accreted Value of Notes surrendered for purchase by holders thereof exceeds the
amount of Excess Proceeds, then the Trustee shall select the Notes to be
purchased pro rata according to Accreted Value or by lot with such adjustments
as may be deemed appropriate by the Company so that only Notes having a
principal amount at maturity of $1,000, or integral multiples thereof, shall be
purchased. To the extent that any portion of the amount of Net Available Cash
remains after compliance with the preceding sentence and provided that all
holders of Notes have been given the opportunity to tender their Notes for
purchase as described in the following paragraph in accordance with the
Indenture, the Company or such Restricted Subsidiary may use such remaining
amount for general corporate purposes and the amount of Excess Proceeds will be
reset to zero.
Within five Business Days after the Excess Proceeds exceeds $10 million,
the Company shall send a written notice, by first-class mail, to the holders of
the Notes (the "Prepayment Offer Notice"), accompanied by such information
regarding the Company and its Subsidiaries as the Company in good faith believes
will enable such holders of the Notes to make an informed decision with respect
to the Prepayment Offer. The Prepayment Offer Notice will state, among other
things, (a) that the Company is offering to purchase Notes pursuant to the
provisions of the Indenture described herein under " -- Limitation on Asset
Sales," (b) that any Note (or any portion thereof) accepted for payment (and
duly paid on the Purchase Date) pursuant to the Prepayment Offer shall cease to
accrete original issue discount or accrue interest after the Purchase Date, (c)
the purchase price and purchase date, which shall be, subject to any contrary
requirements of applicable law, no less than 30 days nor more than 60 days from
the date the Prepayment Offer Notice is mailed (the "Purchase Date"), (d) the
aggregate Accreted Value of Notes (or portions thereof) to be purchased and (e)
a description of the procedure which holders of Notes must follow in order to
tender their Notes (or portions thereof) and the procedures that holders of
Notes must follow in order to withdraw an election to tender their Notes (or
portions thereof) for payment.
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The Company will comply, to the extent applicable, with the requirements of
Rule 14e-1 under the Exchange Act and any other securities laws or regulations
thereunder to the extent such laws and regulations are applicable in connection
with the purchase of Notes as described above. To the extent that the provisions
of any securities laws or regulations conflict with the provisions relating to
the Prepayment Offer, the Company will comply with the applicable securities
laws and regulations and will not be deemed to have breached its obligations
described above by virtue thereof.
LIMITATION ON DIVIDENDS AND OTHER PAYMENT RESTRICTIONS AFFECTING RESTRICTED
SUBSIDIARIES. The Company shall not, and shall not permit any of its Restricted
Subsidiaries to, directly or indirectly, create or otherwise cause or suffer to
exist or become effective, or enter into any agreement with any Person that
would cause to become effective, any consensual encumbrance or restriction on
the ability of any Restricted Subsidiary to (a) pay dividends, in cash or
otherwise, or make any other distributions on or in respect of its Capital
Stock, or pay any Indebtedness or other obligation owed, to the Company or any
other Restricted Subsidiary, (b) make any loans or advances to the Company or
any other Restricted Subsidiary or (c) transfer any of its Property to the
Company or any other Restricted Subsidiary. Such limitation will not apply (1)
with respect to clauses (a), (b) and (c), to encumbrances and restrictions (i)
in existence under or by reason of any agreements in effect on the Issue Date,
(ii) relating to Indebtedness of a Restricted Subsidiary and existing at such
Restricted Subsidiary at the time it became a Restricted Subsidiary if such
encumbrance or restriction was not created in connection with or in anticipation
of the transaction or series of related transactions pursuant to which such
Restricted Subsidiary became a Restricted Subsidiary or was acquired by the
Company, or (iii) which result from the renewal, refinancing, extension or
amendment of an agreement referred to in the immediately preceding clauses (1)
(i) and (ii) above and in clauses (2) (i) and (ii) below, provided, such
encumbrance or restriction is no more restrictive to such Restricted Subsidiary
than those under or pursuant to the agreement evidencing the Indebtedness so
extended, renewed, refinanced or replaced, and (2) with respect to clause (c)
only, to (i) any encumbrance or restriction relating to Indebtedness that is
permitted to be Incurred and secured pursuant to the provisions under
" -- Limitation on Indebtedness and Preferred Stock of Restricted Subsidiaries"
and " -- Limitation on Liens" that limits the right of the debtor to dispose of
the assets or Property securing such Indebtedness, (ii) any encumbrance or
restriction in connection with an acquisition of Property, so long as such
encumbrance or restriction relates solely to the Property so acquired and was
not created in connection with or in anticipation of such acquisition, (iii)
customary provisions restricting subletting or assignment of leases and
customary provisions in other agreements that restrict assignment of such
agreements or rights thereunder or (iv) customary restrictions contained in
asset sale agreements limiting the transfer of such assets pending the closing
of such sale.
LIMITATION ON TRANSACTIONS WITH AFFILIATES. The Company shall not, and
shall not permit any Restricted Subsidiary to, directly or indirectly, conduct
any business or enter into or suffer to exist any transaction or series of
transactions (including the purchase, sale, transfer, lease or exchange of any
Property or the rendering of any service) with, or for the benefit of, any
Affiliate of the Company (an "Affiliate Transaction") unless (a) the terms of
such Affiliate Transaction are (i) set forth in writing, (ii) in the best
interest of the Company or such Restricted Subsidiary, as the case may be, and
(iii) no less favorable to the Company or such Restricted Subsidiary, as the
case may be, than those that could be obtained in a comparable arm's-length
transaction with a Person that is not an Affiliate of the Company or such
Restricted Subsidiary, (b) with respect to an Affiliate Transaction involving
aggregate payments or value in excess of $1 million, the Board of Directors of
the Company (including a majority of the disinterested members of the Board of
Directors of the Company) approves such Affiliate Transaction and, in its good
faith judgment, believes that such Affiliate Transaction complies with clauses
(a) (ii) and (iii) of this paragraph as evidenced by a Board Resolution and (c)
with respect to an Affiliate Transaction involving aggregate payments or value
in excess of $10 million, the Company obtains a written opinion from an
independent appraisal firm to the effect that such Affiliate Transaction is fair
from a financial point of view.
Notwithstanding the foregoing limitation, the Company may enter into or
suffer to exist the following: (i) any transaction pursuant to any contract in
existence on the Issue Date; (ii) any transaction or series of transactions
between the Company and one or more of its Restricted Subsidiaries or between
two or more of its Restricted Subsidiaries; (iii) any Restricted Payment
permitted to be made pursuant to " -- Limitation on Restricted Payments;" (iv)
the payment of compensation (including amounts paid pursuant to employee benefit
plans) for the personal services of officers, directors and employees of the
Company or any of its Restricted Subsidiaries, so long as the Board of Directors
of the Company in good faith shall have approved the terms thereof and deemed
the services theretofore or thereafter to be performed for such compensation or
fees to be fair consideration therefor;
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(v) loans and advances to employees made in the ordinary course of business and
consistent with past practice of the Company or such Restricted Subsidiary, as
the case may be, provided, that such loans and advances do not exceed $5 million
at any one time outstanding; (vi) employment arrangements entered into in the
ordinary course of business with officers of the Company approved by a majority
of the disinterested members of the Board of Directors of the Company; and (vii)
the Management Services Agreement.
LIMITATION ON LINES OF BUSINESS. The Company shall not, and shall not
permit any Restricted Subsidiary to, directly or indirectly, engage in any
business other than a Related Business.
MERGER, CONSOLIDATION AND SALE OF ASSETS
The Company will not merge or consolidate with or into any other entity
(other than a merger of a Restricted Subsidiary into the Company) or sell,
transfer, assign, lease, convey or otherwise dispose of all or substantially all
of its Property in any one transaction or series of transactions unless: (a) the
entity formed by or surviving any such consolidation or merger (if the Company
is not the surviving entity) or the Person to which such sale, transfer,
assignment, lease or conveyance is made (the "Surviving Entity") shall be a
corporation organized and existing under the laws of the United States of
America or a State thereof or the District of Columbia and such corporation
expressly assumes, by supplemental indenture in form satisfactory to the
Trustee, executed and delivered to the Trustee by such corporation, the due and
punctual payment of the principal of, premium, if any, and interest on all the
Notes, according to their tenor, and the due and punctual performance and
observance of all the covenants and conditions of the Indenture to be performed
by the Company; (b) in the case of a sale, transfer, assignment, lease,
conveyance or other disposition of all or substantially all the Company's
Property, such Property shall have been transferred as an entirety or virtually
as an entirety to one Person; (c) immediately before and after giving effect to
such transaction or series of transactions, no Default or Event of Default shall
have occurred and be continuing; and (d) immediately after giving effect to such
transaction or series of transactions on a pro forma basis (including any
Indebtedness Incurred or anticipated to be Incurred in connection with such
transaction or series of transactions), the Company or the Surviving Entity, as
the case may be, would be able to Incur at least $1.00 of additional
Indebtedness under clause (a) of the first paragraph of " -- Certain
Covenants -- Limitation on Indebtedness."
In connection with any consolidation, merger or transfer contemplated by
this provision, the Company shall deliver, or cause to be delivered, to the
Trustee, in form and substance reasonably satisfactory to the Trustee, an
Officers' Certificate and an Opinion of Counsel, each stating that such
consolidation, merger or transfer and the supplemental indenture in respect
thereto comply with this provision and that all conditions precedent herein
provided for relating to such transaction or transactions have been complied
with.
SEC REPORTS
Notwithstanding that the Company may not be subject to the reporting
requirements of Section 13 or 15(d) of the Exchange Act, the Company shall file
with the Commission and provide the Trustee and holders of the Notes with such
annual reports and such information, documents and other reports as are
specified in Sections 13 and 15(d) of the Exchange Act and applicable to a U.S.
corporation subject to such Sections, such information, documents and other
reports to be so filed and provided at the times specified for the filing of
such information, documents and reports under such Sections.
EVENTS OF DEFAULT
Events of Default in respect of the New Notes as set forth in the Indenture
include: (i) failure to make the payment of any principal of, or premium, if
any, on any of the Notes when the same becomes due and payable at maturity, upon
acceleration, redemption, optional redemption, required purchase or otherwise;
(ii) failure to make the payment of any interest on the Notes when the same
becomes due and payable, and such failure continues for a period of 30 days;
(iii) failure to comply with any other covenant in the Notes or in the Indenture
and such failure continues for 30 days after written notice from the Trustee or
the registered holders of not less than 25% in aggregate principal amount of the
Notes then outstanding; (iv) a default under any Indebtedness for borrowed money
by the Company or any Restricted Subsidiary which results in acceleration of the
maturity of such Indebtedness, or failure to pay principal on any such
Indebtedness, in an amount greater than $5 million (the "cross acceleration
provisions"); (v) any judgment or judgments for the payment of money in an
uninsured aggregate amount in excess of $5 million shall be rendered against the
Company or any Restricted Subsidiary and shall not be waived, satisfied
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or discharged for any period of 30 consecutive days during which a stay of
enforcement shall not be in effect (the "judgment default provisions"); and (vi)
certain events involving bankruptcy, insolvency or reorganization of the Company
or any Restricted Subsidiary (the "bankruptcy provisions"). The Indenture
provides that the Trustee may withhold notice to the holders of the Notes of any
default (except in payment of principal or premium, if any, or interest) if the
Trustee considers it to be in the best interest of the holders of the Notes to
do so.
The Indenture provides that if an Event of Default with respect to the
Notes (other than an Event of Default resulting from certain events of
bankruptcy, insolvency or reorganization with respect to the Company or any
Restricted Subsidiary) shall have occurred and be continuing, the Trustee or the
registered holders of not less than 25% in aggregate principal amount of the
Notes then outstanding may declare to be immediately due and payable the
principal amount of all the Notes then outstanding, plus accrued but unpaid
interest to the date of acceleration; PROVIDED, HOWEVER, that after such
acceleration but before a judgment or decree based on acceleration is obtained
by the Trustee, the registered holders of a majority in aggregate principal
amount of the Notes then outstanding, may, under certain circumstances, rescind
and annul such acceleration if all Events of Default, other than the nonpayment
of accelerated principal, premium or interest on the Notes, have been cured or
waived as provided in the Indenture. In case an Event of Default resulting from
certain events of bankruptcy, insolvency or reorganization with respect to the
Company or a Restricted Subsidiary shall occur, such amount with respect to all
the Notes shall be due and payable immediately without any declaration or other
act on the part of the Trustee or the holders of the Notes.
The registered holders of a majority in principal amount of the Notes then
outstanding shall have the right to waive any existing Default with respect to
the Notes or compliance with any provision of the Indenture and to direct the
time, method and place of conducting any proceeding for any remedy available to
the Trustee, subject to certain limitations specified in the Indenture.
No holder of the Notes will have any right to institute any proceeding with
respect to the Indenture or for any remedy thereunder, unless such holder shall
have previously given to the Trustee written notice of a continuing Event of
Default and unless also the registered holders of at least 25% in aggregate
principal amount of the Notes then outstanding shall have made written request
and offered reasonable indemnity to the Trustee to institute such proceeding as
a trustee, and unless the Trustee shall not have received from the registered
holders of a majority in aggregate principal amount of the Notes then
outstanding a direction inconsistent with such request and shall have failed to
institute such proceeding within 60 days. However, such limitations do not apply
to a suit instituted by a holder of any Note for enforcement of payment of the
principal of and premium, if any, or interest on such Note on or after the
respective due dates expressed in such Note.
AMENDMENTS AND WAIVERS
The Indenture may be amended with the consent of the registered holders of
a majority in principal amount of the Notes to be affected then outstanding
(including consents obtained in connection with a tender offer or exchange offer
for the Notes) and any past default or compliance with any provisions may also
be waived with the consent of the registered holders of a majority in principal
amount of the Notes to be affected then outstanding. However, without the
consent of each holder of an outstanding Note to be affected, no amendment may,
among other things, (i) reduce the amount of Notes whose holders must consent to
an amendment, (ii) reduce the rate of or extend the time for payment of interest
on any Note, (iii) reduce the principal of or extend the Stated Maturity of any
Note, (iv) make any Note payable in money other than that stated in the Note,
(v) impair the right of any holder of the Notes to receive payment of principal
of and interest on such holder's Notes on or after the due dates therefor or to
institute suit for the enforcement of any payment on or with respect to such
holder's Notes, (vi) subordinate in right of payment, or otherwise subordinate,
the Notes to any other obligation of the Company, (vii) make any change in the
amendment provisions which require each holder's consent or in the waiver
provisions or (viii) reduce the premium payable upon the redemption of any Note
or change the time at which any Note may or shall be redeemed as described under
" -- Optional Redemption."
Without the consent of any holder of the Notes, the Company and the Trustee
may amend the Indenture to cure any ambiguity, omission, defect or
inconsistency, to provide for the assumption by a successor corporation of the
obligations of the Company under the Indenture, to provide for uncertificated
Notes in addition to or in place of certificated Notes (provided that the
uncertificated Notes are issued in registered form for purposes of Section
163(f) of the Internal Revenue Code of 1986, as amended (the "Code"), or in a
manner such that the uncertificated
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Notes are described in Section 163(f)(2)(B) of the Code), to add Guarantees with
respect to the Notes, to secure the Notes, to add to the covenants of the
Company for the benefit of the holders of the Notes or to surrender any right or
power conferred upon the Company, to make any change that does not adversely
affect the rights of any holder of the Notes or to comply with any requirement
of the Commission in connection with the qualification of the Indenture under
the Trust Indenture Act of 1939.
The consent of the holders of the Notes is not necessary under the
Indenture to approve the particular form of any proposed amendment. It is
sufficient if such consent approves the substance of the proposed amendment.
After an amendment under the Indenture becomes effective, the Company is
required to mail to registered holders of the Notes affected a notice briefly
describing such amendment. However, the failure to give such notice to all
holders of the Notes, or any defect therein, will not impair or affect the
validity of the amendment.
DEFEASANCE
The Company at any time may terminate all its obligations under the Notes
and the Indenture ("legal defeasance"), except for certain obligations,
including those respecting the defeasance trust and obligations to register the
transfer or exchange of the Notes, to replace mutilated, destroyed, lost or
stolen Notes and to maintain a registrar and paying agent in respect of the
Notes. The Company at any time may terminate its obligations under the covenants
described under " -- Certain Covenants" (but not the covenant described under
" -- Merger, Consolidation and Sale of Assets"), the operation of the cross
acceleration provisions, the bankruptcy provisions with respect to Restricted
Subsidiaries and the judgment default provisions described under " -- Events of
Default" above and the limitation contained in clause (d) under " -- Merger,
Consolidation and Sale of Assets" above ("covenant defeasance").
The Company may exercise its legal defeasance option notwithstanding its
prior exercise of its covenant defeasance option. If the Company exercises its
legal defeasance option, payment of the Notes may not be accelerated because of
an Event of Default with respect thereto. If the Company exercises its covenant
defeasance option, payment of the Notes may not be accelerated because of an
Event of Default specified in clause (iii) (with respect to the covenants
described under " -- Certain Covenants," but not the covenant described under
" -- Merger, Consolidation and Sale of Assets" above), (iv), (v) or (vi) (with
respect only to Restricted Subsidiaries) under " -- Events of Default" above or
because of the failure of the Company to comply with clause (d) under
" -- Merger, Consolidation and Sale of Assets" above.
In order to exercise either defeasance option, the Company must irrevocably
deposit in trust (the "defeasance trust") with the Trustee money or U.S.
Government Obligations for the payment of principal and interest on the Notes to
maturity or an earlier redemption in accordance with the terms of the Indenture
and must comply with certain other conditions, including delivery to the Trustee
of an Opinion of Counsel to the effect that holders of the Notes will not
recognize income, gain or loss for Federal income tax purposes as a result of
such deposit and defeasance and will be subject to Federal income tax on the
same amount and in the same manner and at the same times as would have been the
case if such deposit and defeasance had not occurred (and, in the case of legal
defeasance only, such Opinion of Counsel must be based on a ruling of the
Internal Revenue Service or other change in applicable Federal income tax law).
EXCHANGE OFFER; REGISTRATION RIGHTS
The Company and the Initial Purchasers entered into the Exchange and
Registration Rights Agreement prior to the Private Placement. Pursuant to the
Exchange and Registration Rights Agreement, the Company agreed to (i) file with
the Commission on or prior to 45 days after the Issue Date a registration
statement on Form S-1 or Form S-4 (the "Exchange Offer Registration Statement")
relating to a registered exchange offer for the Old Notes under the Securities
Act and (ii) use its best efforts to cause the Exchange Offer Registration
Statement to be declared effective under the Securities Act by no later than 120
days after the original issuance of the Old Notes. As soon as practicable after
the effectiveness of the Exchange Offer Registration Statement, the Company
agreed to offer to the holders of Transfer Restricted Securities (as defined
below) who are not prohibited by any law or policy of the Commission from
participating in the Exchange Offer the opportunity to exchange their Transfer
Restricted Securities for an issue of a second series of notes (the "New
Notes"), identical in all material respects to the Old Notes (except that the
New Notes will not contain terms with respect to transfer restrictions), that
would be registered under the Securities Act. The Company agreed to keep the
Exchange Offer open for not less than 30
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days (or longer, if required by applicable law) after the date notice of the
Exchange Offer is mailed to the holders of the Old Notes.
The Company has filed this Registration Statement and will commence the
Exchange Offer pursuant to the Exchange and Registration Rights Agreement. In
the event that applicable interpretations of the staff of the Commission do not
permit the Company to effect the Exchange Offer or do not permit any holder of
the Old Notes (including the Initial Purchasers) to participate in the Exchange
Offer and receive freely transferable New Notes and under certain other
circumstances, the Company agreed to file with the Commission a shelf
registration statement (the "Shelf Registration Statement") to cover resales of
Transfer Restricted Securities by such holders who satisfy certain conditions
relating to, among other things, the provision of information in connection with
the Shelf Registration Statement. For purposes of the foregoing, "Transfer
Restricted Securities" means each Note until (i) the date on which such Transfer
Restricted Security has been exchanged by a person other than a broker-dealer
for a freely transferable New Note in the Exchange Offer, (ii) following the
exchange by a broker-dealer in the Exchange Offer of a Transfer Restricted
Security for an New Note, the date on which such New Note is sold to a purchaser
who receives from such broker-dealer on or prior to the date of such sale a copy
of the prospectus contained in the Exchange Offer Registration Statement, (iii)
the date on which such Transfer Restricted Security has been effectively
registered under the Securities Act and disposed of in accordance with the Shelf
Registration Statement or (iv) the date on which such Transfer Restricted
Security is distributed to the public pursuant to Rule 144 under the Securities
Act or is saleable pursuant to Rule 144(k) under the Securities Act.
The Company agreed to use its best efforts to have the Exchange Offer
Registration Statement and, if applicable, a Shelf Registration Statement (each
a "Registration Statement") declared effective by the Commission as promptly as
practicable after the filing thereof. Unless the Exchange Offer would not be
permitted by a policy of the Commission, the Company agreed to commence the
Exchange Offer and use its best efforts to consummate the Exchange Offer as
promptly as practicable, but in any event within 150 days of the original
issuance of the Old Notes. If applicable, the Company agreed to use its best
efforts to keep the Shelf Registration Statement effective for a period of three
years after the Issue Date. If (i) the applicable Registration Statement had not
been filed with the Commission on or prior to 45 days after the Issue Date, (ii)
unless the Exchange Offer would not have been permitted by a policy of the
Commission, the Registration Statement had not been declared effective within
120 days of the Issue Date, (iii) neither the Exchange Offer is consummated nor
the Shelf Registration Statement is declared effective within 150 days of the
Issue Date, or (iv) after a Registration Statement is declared effective, such
Registration Statement thereafter ceases to be effective or usable (subject to
certain exceptions) in connection with resales of Transfer Restricted Securities
during the periods specified in the Exchange and Registration Rights Agreement
(each such event referred to in clauses (i) through (iv), a "Registration
Default"), additional cash interest will accrue on the Notes at the rate of
0.50% per annum from and including the date on which any such Registration
Default shall occur to but excluding the date on which all Registration Defaults
have been cured, calculated on the Accreted Value of the Notes, as the case may
be, as of the Specified Date on which such interest is payable. Such interest is
payable in addition to any other interest payable on each February 1 and August
1, commencing February 1, 1997.
The Exchange and Registration Rights Agreement also provides that the
Company (i) shall make available for a period of 90 days after the consummation
of the Exchange Offer a prospectus meeting the requirements of the Securities
Act to any broker-dealer for use in connection with any resale of any such New
Notes and (ii) shall pay all expenses incident to the Exchange Offer and the
Shelf Registration Statement (including the expenses of one counsel to the
holders of the Notes) and will indemnify certain holders of the New Notes
(including any broker-dealer) against certain liabilities, including liabilities
under the Securities Act. A broker-dealer which delivers such a prospectus to
purchasers in connection with such resales will be subject to certain of the
civil liability provisions under the Securities Act and will be bound by the
provisions of the Exchange and Registration Rights Agreement (including certain
indemnification rights and obligations).
Each holder of Old Notes who wishes to exchange such Old Notes for New
Notes in the Exchange Offer will be required to make certain representations,
including representations that (i) any New Notes to be received by it will be
acquired in the ordinary course of its business, (ii) it has no arrangement with
any person to participate in the distribution of the New Notes and (iii) it is
not an "affiliate," as defined in Rule 405 of the Securities Act, of the
Company, or if it is an affiliate, it will comply with the registration and
prospectus delivery requirements of the Securities Act to the extent applicable.
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If the holder is not a broker-dealer, it will be required to represent that
it is not engaged in, and does not intend to engage in, the distribution of the
New Notes. If the holder is a broker-dealer that will receive New Notes for its
own account in exchange for Notes that were acquired as a result of
market-making activities or other trading activities, it will be required to
acknowledge that it will deliver a prospectus in connection with any resale of
such New Notes.
Holders of the Old Notes will be required to make certain representations
to the Company (as described above) in order to participate in the Exchange
Offer and will be required to deliver information to be used in connection with
the Shelf Registration Statement in order to have their Old Notes included in
the Shelf Registration Statement. A holder who sells Old Notes pursuant to the
Shelf Registration Statement generally will be required to be named as a selling
securityholder in the related prospectus and to deliver a prospectus to
purchasers, will be subject to certain of the civil liability provisions under
the Securities Act in connection with such sales and will be bound by the
provisions of the Exchange and Registration Rights Agreement which are
applicable to such a Holder (including certain indemnification obligations).
For so long as the Notes are outstanding, the Company will continue to
provide to holders of the Notes and to prospective purchasers of the Notes the
information required by Rule 144A(d)(4) under the Securities Act.
The foregoing description of the Exchange and Registration Rights Agreement
is a summary only, does not purport to be complete and is qualified in its
entirety by reference to all provisions of the Exchange and Registration Rights
Agreement.
BOOK-ENTRY SYSTEM; DELIVERY AND FORM
Each of the Old Notes offered and sold to "qualified institutional buyers"
("QIBs") in reliance on Rule 144A under the Securities Act were issued in the
form of one or more Notes in global form ("Rule 144A Global Notes") and each of
the Notes or Warrants sold to institutional "accredited investors" (as defined
in Rule 501(a)(1), (2), (3) or (7) under the Securities Act) were delivered in
certificated fully registered form only and bear a legend containing
restrictions on transfers. All New Notes issued in the Exchange Offer for Old
Notes represented by Rule 144A Global Notes will be represented by one or more
Notes in global form (the "Global Notes"), which will be deposited with the
Trustee as custodian for the Depositary, and registered in the name of the
Depositary or of a nominee of the Depositary.
Upon issuance of the Global Notes, the Depositary or its nominee will
credit, on its book-entry registration and transfer system, the number of New
Notes represented by such Global Notes to the accounts of institutions that have
accounts with the Depositary or its nominee ("participants"). Ownership of
beneficial interests in the Global Notes will be limited to participants or
persons that may hold interests through participants. Ownership of beneficial
interest in such Global Notes will be shown on, and the transfer of that
ownership will be effected only through, records maintained by the Depositary or
its nominee (with respect to participants' interests) for such Global Notes, or
by participants or persons that hold interests through participants (with
respect to interests of persons other than participants). The laws of some
jurisdictions require that certain purchasers of securities take physical
delivery of such securities in definitive form. Such laws may impair the ability
to transfer beneficial interests in the Global Notes.
So long as DTC is the registered holder of any Global Notes, DTC will be
considered the sole owner and holder of such Notes represented by such Global
Notes for all purposes under the Indenture and the New Notes. No beneficial
owners of an interest in any Global Notes will be able to transfer that interest
except in accordance with DTC's applicable procedures (in addition to those
under the Indenture referred to herein).
Except in the limited circumstances referred to below, owners of beneficial
interests in Global Notes will not be entitled to have such Global Notes
represented thereby registered in their names, will not receive or be entitled
to receive physical delivery of Certificated Securities in exchange therefor and
will not be considered to be the owners or holders of such Global Notes
represented thereby for any purpose under the New Notes or the Indenture.
Upon transfer of Certificated Notes to a QIB, such Certificated Notes may
be transferred to the corresponding Global Notes. Global Notes shall be
exchangeable for corresponding Certificated Notes registered in the name of
persons other than the Depositary or its nominee only if (A) the Depositary (i)
notifies the Company that it is unwilling or unable to continue as Depositary
for any of the Global Notes or (ii) at any time ceases to be a clearing agency
registered under the Exchange Act, (B) there shall have occurred and be
continuing an Event of Default
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(as defined in the Indenture) with respect to the Notes, or (C) and the Company
executes and delivers to the Trustee an order that the Global Notes shall be so
exchangeable. Any Certificated Notes will be issued only in fully registered
form and shall be issued without coupons in denominations of $1,000 and integral
multiples thereof. Any Certificated Notes so issued will be registered in such
names and in such denominations as DTC shall request.
Any payment of principal or interest due on the New Notes on any interest
payment date or at maturity will be made available by the Company to the Trustee
by such date. As soon as possible thereafter, the Trustee will make such
payments to the Depositary or its nominee, as the case may be, as the registered
owner of the Global Notes representing such New Notes in accordance with
existing arrangements between the Trustee and the Depositary. The Company
expects that the Depositary or its nominee, upon receipt of any payment of
principal or interest in respect of the Global Notes, will credit immediately
the accounts of the related participants with payments in amounts proportionate
to their respective beneficial interests in the principal amount of such Global
Note as shown on the records of the Depositary. The Company also expects that
payments by participants to owners of beneficial interests in the Global Notes
held through such participants will be governed by standing instructions and
customary practices, as is now the case with securities held for the accounts of
customers in bearer form or registered in "street name," and will be the
responsibility of such participants. None of the Company, the Trustee, or any
payment agent for the Global Notes will have any responsibility or liability for
any aspect of the records relating to or payments made on account of beneficial
ownership interests in any of the Global Notes or for maintaining, supervising
or reviewing any records relating to such beneficial ownership interests.
Unless and until exchanged in whole or in part for New Notes in definitive
form in accordance with the terms of the New Notes, the Global Notes may not be
transferred except as a whole by the Depositary to a nominee of the Depositary
or by a nominee of the Depositary to the Depositary or another nominee of the
Depositary or by the Depositary of any such nominee to a successor of the
Depositary or a nominee of each successor.
The Depositary has advised the Company as follows: The Depositary is a
limited-purpose trust company organized under the Banking Law of the State of
New York, a member of the Federal Reserve System, a "clearing corporation"
within the meaning of the New York Uniform Commercial Code and a "clearing
agency" registered pursuant to the provisions of section 17A of the Exchange
Act. The Depositary was created to hold securities of its participants and to
facilitate the clearance and settlement of securities transactions among its
participants in such securities through electronic book-entry exchanges in
accounts of the participants, thereby eliminating the need for physical
movements of securities certificates. The Depositary's participants include
securities brokers and dealers, banks, trust companies, clearing corporations
and certain other organizations, some of whom (and/or their representatives) own
the Depositary. Indirect access to the Depositary's book-entry system is also
available to others, such as banks, brokers, dealers and trust companies that
clear through or maintain a custodial relationship with a participant, either
directly or indirectly. The Depositary agrees with and represents to its
participants that it will administer its book-entry system in accordance with
its rules and by-laws and requirements of law.
Investors electing to hold their New Notes through DTC will follow
settlement practices applicable to United States corporate debt obligations. The
securities custody accounts of investors will be credited with their holdings
against payment in same-day funds on the settlement date.
All payments of principal and interest on the New Notes will be made by the
Company in same-day funds. The Global Notes will trade in the Same-Day Funds
Settlement System of the Depositary until maturity. Secondary market trading of
the Notes between DTC participants (other than the depositories) will be settled
in same-day funds using the procedures applicable to United States corporate
debt obligations.
CERTAIN DEFINITIONS
Set forth below is a summary of certain of the defined terms used in the
Indenture. Reference is made to the Indenture for the full definition of all
such terms as well as any other capitalized terms used herein for which no
definition is provided.
"ACCRETED VALUE" means, as of any date (the "Specified Date"), the amount
provided below for each $1,000 principal amount at maturity of Notes:
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(i) if the Specified Date occurs on one of the following dates (each a
"Semi-Annual Accrual Date"), the Accreted Value will equal the amount set forth
below for such Semi-Annual Accrual Date:
<TABLE>
<CAPTION>
SEMI-ANNUAL ACCRUAL DATE ACCRETED VALUE
<S> <C>
February 1, 1997..................................................................... $ 712.98
August 1, 1997....................................................................... $ 762.89
February 1, 1998..................................................................... $ 816.29
August 1, 1998....................................................................... $ 873.44
February 1, 1999..................................................................... $ 934.58
August 1, 1999....................................................................... $ 1,000.00
</TABLE>
(ii) if the Specified Date occurs before the first Semi-Annual Accrual
Date, the Accreted Value will equal the sum of (a) the original issue price and
(b) an amount equal to the product of (1) the Accreted Value for the first
Semi-Annual Accrual Date less the original issue price MULTIPLIED BY (2) a
fraction, the numerator of which is the number of days from the Issue Date to
the Specified Date, using a 360-day year of 12 30-day months, and the
denominator of which is the number of days elapsed from the Issue Date to the
first Semi-Annual Accrual Date, using a 360-day year of 12 30-day months;
(iii) if the Specified Date occurs between two Semi-Annual Accrual Dates,
the Accreted Value will equal the sum of (a) the Accreted Value for the
Semi-Annual Accrual Date immediately preceding such Specified Date and (b) an
amount equal to the product of (1) the Accreted Value for the immediately
following Semi-Annual Accrual Date less the Accreted Value for the immediately
preceding Semi-Annual Accrual Date multiplied by (2) a fraction, the numerator
of which is the number of days from the immediately preceding Semi-Annual
Accrual Date to the Specified Date, using a 360-day year of 12 30-day months,
and the denominator of which is 180; or
(iv) if the Specified Date occurs after the last Semi-Annual Accrual Date,
the Accreted Value will equal $1,000.
"ADDITIONAL ASSETS" means (i) any Property (other than cash, cash
equivalents or securities) to be owned by the Company or a Restricted Subsidiary
and used in a Related Business, (ii) the costs of improving or developing any
Property owned by the Company or a Restricted Subsidiary which is used in a
Related Business and (iii) Investments in any other Person engaged primarily in
a Related Business (including the acquisition from third parties of Capital
Stock of such Person) as a result of which such other Person becomes a Wholly
Owned Subsidiary or is merged or consolidated with or into the Company or any
Wholly Owned Subsidiary.
"AFFILIATE" of any specified Person means (i) any other Person, directly or
indirectly, controlling or controlled by or under direct or indirect common
control with such specified Person or (ii) any other Person who is a director or
executive officer (a) of such specified Person, (b) of any Subsidiary of such
specified Person or (c) of any Person described in clause (i) above. For the
purposes of this definition, "control" when used with respect to any Person
means the power to direct the management and policies of such Person, directly
or indirectly, whether through the ownership of voting securities, by contract
or otherwise; and the terms "controlling" and "controlled" have meanings
correlative to the foregoing. "Affiliate" shall also mean any beneficial owner
of shares representing 10% or more of the total voting power of the Voting Stock
(on a fully diluted basis) of the Company or of rights or warrants to purchase
such Voting Stock (whether or not currently exercisable) and any Person who
would be an Affiliate of any such beneficial owner pursuant to the first
sentence hereof.
"ASSET SALE" means, with respect to any Person, any transfer, conveyance,
sale, lease or other disposition (including, without limitation, dispositions
pursuant to any consolidation or merger or a Sale and Leaseback Transaction) by
such Person or any of its Restricted Subsidiaries in any single transaction or
series of transactions of (a) shares of Capital Stock or other ownership
interests in another Person (including, with respect to the Company and its
Restricted Subsidiaries, Capital Stock of Unrestricted Subsidiaries) or (b) any
other Property of such Person or any of its Restricted Subsidiaries; PROVIDED,
HOWEVER, that the term "Asset Sale" shall not include: (i) the sale or transfer
of Temporary Cash Investments, inventory, accounts receivable or other Property
in the ordinary course of business; (ii) the liquidation of Property received in
settlement of debts owing to such Person or any of its Restricted Subsidiaries
as a result of foreclosure, perfection or enforcement of any Lien or debt, which
debts were owing to such Person or any of its Restricted Subsidiaries in the
ordinary course of business; (iii) when used with respect to the Company, any
asset disposition permitted pursuant to " -- Merger, Consolidation and Sale of
Assets" which constitutes a disposition of all or substantially all of the
Company's Property; (iv) the sale or transfer of any Property by such Person or
any of its Restricted Subsidiaries to such Person or any of its Wholly Owned
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Subsidiaries; (v) a disposition in the form of a Restricted Payment permitted to
be made pursuant to " -- Certain Covenants Limitation on Restricted Payments;"
(vi) the sale of the manufacturing facility for IPN Terminals to Coleman
Resources; or (vii) a disposition with a Fair Market Value and a sale price of
less than $500,000.
"ATTRIBUTABLE INDEBTEDNESS" means Indebtedness deemed to be incurred in
respect of a Sale and Leaseback Transaction and shall be, at the date of
determination, the present value (discounted at the actual rate of interest
implicit in such transaction, compounded annually), of the total obligations of
the lessee for rental payments during the remaining term of the lease included
in such Sale and Leaseback Transaction (including any period for which such
lease has been extended).
"AVERAGE LIFE" means, as of the date of determination, with respect to any
Indebtedness or Preferred Stock, the quotient obtained by dividing (i) the sum
of the products of the numbers of years (rounded to the nearest one-twelfth of
one year) from the date of determination to the dates of each successive
scheduled principal payment of such Indebtedness or redemption or similar
payment with respect to such Preferred Stock multiplied by the amount of such
payment by (ii) the sum of all such payments.
"BOARD RESOLUTION" means a copy of a resolution certified by the Secretary
or an Assistant Secretary of the Company to have been duly adopted by the Board
of Directors, to be in full force and effect on the date of such certification
and delivered to the Trustee.
"CAPITAL LEASE OBLIGATIONS" means Indebtedness represented by obligations
under a lease that is required to be capitalized for financial reporting
purposes in accordance with GAAP and the amount of such Indebtedness shall be
the capitalized amount of such obligations determined in accordance with GAAP.
For purposes of
" -- Certain Covenants -- Limitation on Liens," a Capital Lease Obligation shall
be deemed secured by a Lien on the property being leased.
"CAPITAL STOCK" means, with respect to any Person, any and all shares or
other equivalents (however designated) of corporate stock, partnership interests
or any other participation, right, warrant, option or other interest in the
nature of an equity interest in such Person, but excluding any debt security
convertible or exchangeable into such equity interest.
"CAPITAL STOCK SALE PROCEEDS" means the aggregate Net Cash Proceeds
received by the Company from the issue or sale (other than to a Subsidiary or an
employee stock ownership plan or trust established by the Company or any
Subsidiary) by the Company of any class of its Capital Stock (other than
Redeemable Stock) after the Issue Date.
"CHANGE OF CONTROL" means the occurrence of any of the following events:
(i) any "person" or "group" (within the meaning of Sections 13(d)(3) and
14(d)(2) of the Exchange Act or any successor provision to either of the
foregoing, including any group acting for the purpose of acquiring, holding or
disposing of securities within the meaning of Rule 13d-5(b)(1) under the
Exchange Act) other than one or more of the Permitted Holders is or becomes the
"beneficial owner" (as defined in Rule 13d-3 under the Exchange Act), directly
or indirectly, of 40% or more of the total voting power of the Voting Stock (on
a fully diluted basis) of the Company, (ii) during any period of two consecutive
years, individuals who at the beginning of such period constituted the Board of
Directors of the Company (together with any new directors whose election by the
Board of Directors of the Company or whose nomination for election by the
shareholders of the Company was approved by a vote of 66 2/3% of the directors
of the Company then still in office who were either directors at the beginning
of such period or whose election or nomination for election was previously so
approved) cease for any reason to constitute a majority of the Board of
Directors of the Company then in office, (iii) the Company consolidates or
merges with or into any other Person (other than one or more Permitted Holders)
or any other Person (other than one or more Permitted Holders) consolidates or
merges with or into the Company, in either case, other than (a) a consolidation
or merger with a Wholly Owned Subsidiary in which all of the Voting Stock of the
Company outstanding immediately prior to the effectiveness thereof is changed
into or exchanged for substantially the same consideration or (b) pursuant to a
transaction in which the outstanding Voting Stock of the Company is changed into
or exchanged for cash, securities or other Property with the effect that the
"beneficial owners" (as such term is used in Section 13(d) of the Exchange Act)
of the outstanding Voting Stock of the Company immediately prior to such
transaction, beneficially own, directly or indirectly, more than 50% of the
total voting power of the fully diluted Voting Stock of the surviving
corporation immediately following such transaction in substantially the same
proportions as owned prior to such transaction or (iv) the Company sells,
conveys, transfers or leases, directly or indirectly, all or substantially all
of its assets (other
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than a transfer of such assets as an entirety or virtually as an entirety to a
Wholly Owned Subsidiary or one or more Permitted Holders).
"CONSOLIDATED INTEREST EXPENSE" means, for any Person (or in the case of
the Company, the Company and its Restricted Subsidiaries), for any period, the
amount of interest in respect of Indebtedness (excluding amortization of
original issue discount resulting from the allocation of a portion of the
Indebtedness from the Offering attributable to the Warrants, but including
amortization of original issue discount in all other instances and fees payable
in connection with financings, including commitment, availability and similar
fees, and amortization of debt issuance costs, noncash interest payments on any
Indebtedness and the interest portion of any deferred payment obligation and
after taking into account the effect of elections made under, and the net costs
associated with, any Interest Rate Agreement, however denominated, with respect
to such Indebtedness), the amount of Redeemable Dividends, the amount of
Preferred Stock dividends in respect of all Preferred Stock of Subsidiaries of
such Person held other than by such Person or a Subsidiary of such Person,
commissions, discounts and other fees and charges owed with respect to letters
of credit and bankers' acceptance financing, and the interest component of
rentals in respect of any Capital Lease Obligation or Sale and Leaseback
Transaction paid, accrued or scheduled to be paid or accrued by such Person
during such period, determined on a consolidated basis in accordance with GAAP.
For purposes of this definition, interest on a Capital Lease Obligation or a
Sale and Leaseback Transaction shall be deemed to accrue at an interest rate
reasonably determined by such Person to be the rate of interest implicit in such
Capital Lease Obligation or Sale and Leaseback Transaction in accordance with
GAAP consistently applied.
"CONSOLIDATED LEVERAGE RATIO" is defined as the ratio of (i) the
outstanding Indebtedness of a Person and its Subsidiaries (or in the case of the
Company, its Restricted Subsidiaries) divided by (ii) the Pro Forma EBITDA of
such Person.
"CONSOLIDATED NET INCOME" of a Person means for any period, the net income
(loss) of such Person and its Subsidiaries; PROVIDED, HOWEVER, that there shall
not be included in such Consolidated Net Income (i) with respect to the Company,
any net income (loss) of any Person if such Person is not a Restricted
Subsidiary, except that (a) subject to the limitations contained in clause (iv)
below, the Company's equity in the net income of any such Person for such period
shall be included in such Consolidated Net Income up to the aggregate amount of
cash actually distributed by such Person during such period to the Company or a
Restricted Subsidiary as a dividend or other distribution (subject, in the case
of a dividend or other distribution to a Restricted Subsidiary, to the
limitations contained in clause (iii) below) and (b) the Company's equity in a
net loss of any such Person (other than an Unrestricted Subsidiary) for such
period shall be included in determining such Consolidated Net Income, (ii) any
net income (loss) of any Person acquired by such Person or a Subsidiary of such
Person in a pooling of interests transaction for any period prior to the date of
such acquisition, (iii) with respect to the Company, any net income (loss) of
any Restricted Subsidiary if such Subsidiary is subject to restrictions,
directly or indirectly, on the payment of dividends or the making of
distributions by such Restricted Subsidiary, directly or indirectly, to the
Company, except that (a) subject to the limitations contained in clause (iv)
below, the Company's equity in the net income of any such Restricted Subsidiary
for such period shall be included in such Consolidated Net Income up to the
aggregate amount of cash that could have been distributed by such Restricted
Subsidiary during such period to the Company or another Restricted Subsidiary as
a dividend (subject, in the case of a dividend to another Restricted Subsidiary,
to the limitation contained in this clause) and (b) the Company's equity in a
net loss of any such Restricted Subsidiary for such period shall be included in
determining such Consolidated Net Income, (iv) any gain (but not loss) realized
upon the sale or other disposition of any Property of such Person or its
consolidated Subsid-iaries (including pursuant to any Sale and Leaseback
Transaction) which is not sold or otherwise disposed of in the ordinary course
of business, (v) any extraordinary gain or loss and (vi) the cumulative effect
of a change in accounting principles.
"CUMULATIVE EBITDA" means at any date of determination the cumulative
EBITDA of the Company from and after the last day of the fiscal quarter of the
Company immediately preceding the Issue Date to the end of the fiscal quarter
immediately preceding the date of determination or, if such cumulative EBITDA
for such period is negative, the amount (expressed as a negative number) by
which such cumulative EBITDA is less than zero.
"CUMULATIVE INTEREST EXPENSE" means at any date of determination the
aggregate amount of Consolidated Interest Expense paid, accrued or scheduled to
be paid or accrued by the Company and its Restricted Subsidiaries
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from the last day of the fiscal quarter of the Company immediately preceding the
Issue Date to the end of the fiscal quarter immediately preceding the date of
determination.
"DEFAULT" means any event which is, or after notice or passage of time or
both would be, an Event of Default.
"EBITDA" means, for any Person, for any period, an amount equal to (A) the
sum of (i) Consolidated Net Income for such period, plus, to the extent deducted
in the calculation of Consolidated Net Income, (ii) the provision for taxes for
such period based on income or profits to the extent such income or profits were
included in computing Consolidated Net Income and any provision for taxes
utilized in computing net loss under clause (i) hereof, plus (iii) Consolidated
Interest Expense for such period, plus (iv) depreciation for such period on a
consolidated basis, plus (v) amortization of intangibles for such period on a
consolidated basis, plus (vi) any other non cash items reducing Consolidated Net
Income for such period, minus (B) all non-cash items increasing Consolidated Net
Income for such period, all for such Person and its Subsidiaries determined in
accordance with GAAP consistently applied, except that with respect to the
Company each of the foregoing items shall be determined on a consolidated basis
with respect to the Company and its Restricted Subsidiaries only.
"EVENT OF DEFAULT" has the meaning set forth under " -- Events of Default."
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended.
"FAIR MARKET VALUE" means with respect to any Property, the price which
could be negotiated in an arm's-length free market transaction, for cash,
between a willing seller and a willing buyer, neither of whom is under undue
pressure or compulsion to complete the transaction. Fair Market Value will be
determined, except as otherwise provided, (i) if such property or asset has a
Fair Market Value of less than $5 million, by any Officer of the Company or (ii)
if such property or asset has a Fair Market Value in excess of $5 million, by a
majority of the Board of Directors of the Company and evidenced by a Board
Resolution, dated within 30 days of the relevant transaction.
"GAAP" means United States generally accepted accounting principles as in
effect on the Issue Date, unless stated otherwise.
"GUARANTEE" means any obligation, contingent or otherwise, of any Person
directly or indirectly guaranteeing any Indebtedness of any other Person and any
obligation, direct or indirect, contingent or otherwise, of such Person (i) to
purchase or pay (or advance or supply funds for the purchase or payment of) such
Indebtedness of such other Person (whether arising by virtue of partnership
arrangements, or by agreements to keep-well, to purchase assets, goods,
securities or services, to take-or-pay or to maintain financial statement
conditions or otherwise) or (ii) entered into for the purpose of assuring in any
other manner the obligee against loss in respect thereof (in whole or in part);
provided, however, that the term "Guarantee" shall not include endorsements for
collection or deposit in the ordinary course of business. The term "Guarantee"
used as a verb has a corresponding meaning.
"HEDGING OBLIGATION" of any Person means any obligation of such Person
pursuant to any Interest Rate Agreement, foreign exchange contract, currency
swap agreement, currency option or any other similar agreement or arrangement.
"INCUR" means, with respect to any Indebtedness or other obligation of any
Person, to create, issue, incur (by merger, conversion, exchange or otherwise),
extend, assume, Guarantee or become liable in respect of such Indebtedness or
other obligation or the recording, as required pursuant to GAAP or otherwise, of
any such Indebtedness or obligation on the balance sheet of such Person (and
"Incurrence," "Incurred," "Incurrable" and "Incurring" shall have meanings
correlative to the foregoing); PROVIDED, HOWEVER, that a change in GAAP that
results in an obligation of such Person that exists at such time, and is not
theretofore classified as Indebtedness, becoming Indebtedness shall not be
deemed an Incurrence of such Indebtedness; PROVIDED FURTHER, HOWEVER, that
solely for purposes of determining compliance with " -- Certain
Covenants -- Limitation on Indebtedness," amortization of debt discount shall
not be deemed to be the Incurrence of Indebtedness; PROVIDED that in the case of
Indebtedness sold at a discount, the amount of such Indebtedness Incurred shall
at all times be the aggregate principal amount at Stated Maturity.
"INDEBTEDNESS" means (without duplication), with respect to any Person, any
indebtedness, secured or unsecured, contingent or otherwise, which is for
borrowed money (whether or not the recourse of the lender is to the whole of the
assets of such Person or only to a portion thereof), or evidenced by bonds,
notes, debentures or
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similar instruments or representing the balance deferred and unpaid of the
purchase price of any property (excluding any balances that constitute customer
advance payments and deposits, accounts payable or trade payables, and other
accrued liabilities arising in the ordinary course of business) if and to the
extent any of the foregoing indebtedness would appear as a liability upon a
balance sheet of such Person prepared in accordance with GAAP, and shall also
include, to the extent not otherwise included (i) any Capital Lease Obligations,
(ii) Indebtedness of other Persons secured by a Lien to which the Property owned
or held by such first Person is subject, whether or not the obligation or
obligation secured thereby shall have been assumed (the amount of such
Indebtedness being deemed to be the lesser of the value of such property or
assets or the amount of the Indebtedness so secured), (iii) Guarantees of
Indebtedness of other Persons, (iv) the maximum fixed repurchase price of any
Redeemable Stock (PROVIDED, HOWEVER, that Redeemable Stock of the Company shall
not constitute Indebtedness if such Redeemable Stock may not be redeemed prior
to the first anniversary of the Stated Maturity of the Notes), (v) any
Attributable Indebtedness, (vi) all reimbursement obligations of such Person in
respect of letters of credit, bankers' acceptances or other similar instruments
or credit transactions issued for the account of such Person, (vii) in the case
of the Company, the maximum fixed repurchase price of Preferred Stock of its
Restricted Subsidiaries and (viii) to the extent not otherwise included in
clauses (i) through (vii) of this paragraph, any payment obligations of any such
Person at the time of determination under any Hedging Obligation. For purposes
of this definition, the maximum fixed repurchase price of any Redeemable Stock
or Preferred Stock that does not have a fixed repurchase price shall be
calculated in accordance with the terms of such Redeemable Stock or Preferred
Stock as if such Redeemable Stock or Preferred Stock were repurchased on any
date on which Indebtedness shall be required to be determined pursuant to the
Indenture; PROVIDED, HOWEVER, that if such Redeemable Stock or Preferred Stock
is not then permitted to be repurchased, the repurchase price shall be the book
value of such Redeemable Stock or Preferred Stock. The amount of Indebtedness of
any Person at any date shall be the outstanding balance at such date of all
unconditional obligations as described above and the maximum liability of any
contingent obligations in respect thereof at such date. For purposes of this
definition, the amount of the payment obligation with respect to any Hedging
Obligation shall be an amount equal to (i) zero, if such obligation is an
Interest Rate Obligation permitted pursuant to clause (vi) of the second
paragraph of " -- Certain Covenants -- Limitation on Indebtedness" or (ii) the
notional amount of such Hedging Obligation, if such Hedging Obligation is not an
Interest Rate Agreement so permitted.
"INTEREST RATE AGREEMENT" means, for any Person, any interest rate swap
agreement, interest rate cap agreement, interest rate collar agreement or other
similar agreement.
"INVESTMENT" by any Person means any direct or indirect loan, advance or
other extension of credit or capital contribution (by means of transfers of cash
or other Property to others or payments for Property or services for the account
or use of others, or otherwise) to, or Incurrence of a Guarantee of any
obligation of, or purchase or acquisition of Capital Stock, bonds, notes,
debentures or other securities or evidence of Indebtedness issued by, any other
Person. In determining the amount of any Investment made by transfer of any
Property other than cash, such Property shall be valued at its Fair Market Value
at the time of such Investment.
"INVESTMENT GRADE RATING" means both a rating equal to or higher than Baa3
(or the equivalent) by Moody's Investors Service, Inc. (or any successor to the
rating agency business thereof) and a rating equal to or higher than BBB- (or
the equivalent) by Standard & Poor's Ratings Group (or any successor to the
rating agency business thereof).
"IPN TERMINALS" means the interactive terminals through which the Company's
Inter(Bullet)Act Promotion Network can be accessed in supermarkets and the
supporting network equipment and computer servers for such terminals along with
the component parts thereof.
"ISSUE DATE" means the date on which the Old Notes were initially issued.
"LIEN" means, with respect to any Property of any Person, any mortgage or
deed of trust, pledge, hypothecation, assignment, deposit arrangement, security
interest, lien, charge, easement (other than any easement not materially
impairing usefulness or marketability), encumbrance, preference, priority, or
other security agreement or preferential arrangement of any kind or nature
whatsoever on or with respect to such Property (including any Capital Lease
Obligation, conditional sale or other title retention agreement having
substantially the same economic effect as any of the foregoing or any Sale and
Leaseback Transaction).
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"MANAGEMENT SERVICES AGREEMENT" means the management services agreement
between the Company and Vanguard dated as of June 17, 1996, the material terms
of which are summarized under "Certain Transactions."
"NET AVAILABLE CASH" from an Asset Sale means cash payments received
therefrom (including any cash payments received by way of deferred payment of
principal pursuant to a note or installment receivable or otherwise, but only as
and when received, but excluding any other consideration received in the form of
assumption by the acquiring person of Indebtedness or other obligations relating
to such Properties or assets or received in any other noncash form) in each case
net of all legal, title and recording tax expenses, commissions and other fees
and expenses incurred, and all Federal, state, provincial, foreign and local
taxes required to be accrued as a liability under GAAP, as a consequence of such
Asset Sale, and in each case net of all payments made on any Indebtedness which
is secured by any assets subject to such Asset Sale, in accordance with the
terms of any Lien upon or other security agreement of any kind with respect to
such assets, or which must by its terms, or in order to obtain a necessary
consent to such Asset Sale, or by applicable law be repaid out of the proceeds
from such Asset Sale, and net of all distributions and other payments required
to be made to minority interest holders in Subsidiaries or joint ventures as a
result of such Asset Sale.
"NET CASH PROCEEDS" with respect to any issuance or sale of Capital Stock,
means the cash proceeds of such issuance or sale, net of attorney's fees,
accountants' fees, underwriters' or placement agents' fees, discounts or
commissions and brokerage, consultant and other fees actually incurred in
connection with such issuance or sale and net of taxes paid or payable as a
result thereof.
"OFFICER" means the Chairman of the Board, the Chief Executive Officer, the
President, the Chief Financial Officer or the Treasurer of the Company.
"OFFICERS' CERTIFICATE" means a certificate signed by the Officers of the
Company, at least one of whom shall be the principal executive officer or
principal financial officer of the Company, and delivered to the Trustee.
"OPINION OF COUNSEL" means a written opinion from legal counsel who is
acceptable to the Trustee. The counsel may be counsel to the Company or the
Trustee.
"PERMITTED HOLDERS" means (i) the descendants of Lunsford Richardson, Sr,
their spouses, trusts, and corporations in which they have interests and
charitable organizations established by such descendants, (ii) Vanguard Cellular
Operating Corp. and its controlling Affiliates, and (iii) Stephen R. Leeolou and
Aretas E. Stearns, their estates, spouses, ancestors, and lineal descendants,
the legal representatives of any of the foregoing and the trustee of any bona
fide trust of which the foregoing are the sole beneficiaries or the grantors, or
any Person of which the foregoing "beneficially owns" (as defined in Rules 13d-3
and 13d-5 under the Exchange Act) voting securities representing at least
66-2/3% of the total voting power of all classes of Capital Stock of such Person
(exclusive of any matters as to which class voting rights exist).
"PERMITTED INVESTMENT" means an Investment by the Company or any Restricted
Subsidiary in (i) a Wholly Owned Subsidiary or a Person which will, upon the
making of such Investment, become a Wholly Owned Subsidiary; PROVIDED, HOWEVER,
that such Person's primary business is a Related Business; (ii) another Person
if as a result of such Investment such other Person is merged or consolidated
with or into, or transfers or conveys all or substantially all its assets to,
the Company or a Wholly Owned Subsidiary; PROVIDED, HOWEVER, that such Person's
primary business is a Related Business; (iii) Temporary Cash Investments; (iv)
receivables owing to the Company or any Restricted Subsidiary, if created or
acquired in the ordinary course of business and payable or dischargeable in
accordance with customary trade terms; (v) payroll, travel and similar advances
to cover matters that are expected at the time of such advances ultimately to be
treated as expenses for accounting purposes and that are made in the ordinary
course of business; (vi) loans and advances to employees made in the ordinary
course of business consistent with past practice of the Company or such
Restricted Subsidiary, as the case may be; PROVIDED, HOWEVER, that such loans
and advances do not exceed $5 million at any one time outstanding; and (vii)
stock, obligations or securities received in settlement of debts created in the
ordinary course of business and owing to the Company or any Restricted
Subsidiary or in satisfaction of judgments.
"PERMITTED LIENS" means (i) Liens on the Property of the Company or any
Restricted Subsidiary existing on the Issue Date; (ii) Liens on inventory,
accounts receivable and any IPN Terminals owned, or cash held (other than cash
raised in the Offering), on the Issue Date to secure Indebtedness permitted to
be Incurred under clause (i) of the second paragraph of " -- Certain
Covenants -- Limitation on Indebtedness;" (iii) Liens on IPN Terminals acquired
with the proceeds of Indebtedness permitted to be Incurred under clause (ii) of
the second paragraph of
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" -- Certain Covenants -- Limitation on Indebtedness" to secure such
Indebtedness; (iv) Liens on the Property of the Company or any Restricted
Subsidiary to secure any extension, renewal, refinancing, replacement or
refunding (or successive extensions, renewals, refinancings, replacements or
refundings), in whole or in part, of any Indebtedness secured by Liens referred
to in any of clauses (i), (ii), (iii), (viii) or (xi); PROVIDED, HOWEVER, that
any such Lien will be limited to all or part of the same Property that secured
the original Lien (plus improvements on such Property) and the aggregate
principal amount of Indebtedness that is secured by such Lien will not be
increased to an amount greater than the sum of (A) the outstanding principal
amount, or, if greater, the committed amount, of the Indebtedness secured by
Liens described under clauses (i), (ii), (iii), (viii) or (xi) at the time the
original Lien became a Permitted Lien under the Indenture and (B) an amount
necessary to pay any premiums, fees and other expenses incurred by the Company
in connection with such refinancing, refunding, extension, renewal or
replacement; (v) Liens for taxes, assessments or governmental charges or levies
on the Property of the Company or any Restricted Subsidiary if the same shall
not at the time be delinquent or thereafter can be paid without penalty, or are
being contested in good faith and by appropriate proceedings; (vi) Liens imposed
by law, such as carriers', warehousemen's and mechanics' Liens and other similar
Liens on the Property of the Company or any Restricted Subsidiary arising in the
ordinary course of business and securing payment of obligations which are not
more than 60 days past due or are being contested in good faith and by
appropriate proceedings; (vii) Liens on the Property of the Company or any
Restricted Subsidiary Incurred in the ordinary course of business to secure
performance of obligations with respect to statutory or regulatory requirements,
performance or return-of-money bonds, surety bonds or other obligations of a
like nature and Incurred in a manner consistent with industry practice; (viii)
Liens on Property at the time the Company or any Restricted Subsidiary acquired
such Property, including any acquisition by means of a merger or consolidation
with or into the Company or any Restricted Subsidiary; PROVIDED, HOWEVER, that
such Lien shall not have been Incurred in anticipation of or in connection with
such transaction or series of related transactions pursuant to which such
Property was acquired by the Company or any Restricted Subsidiary; (ix) other
Liens on the Property of the Company or any Restricted Subsidiary incidental to
the conduct of their respective businesses or the ownership of their respective
Properties which were not created in connection with the Incurrence of
Indebtedness or the obtaining of advances or credit and which do not in the
aggregate materially detract from the value of their respective Properties or
materially impair the use thereof in the operation of their respective
businesses; (x) pledges or deposits by the Company or any Restricted Subsidiary
under workmen's compensation laws, unemployment insurance laws or similar
legislation, or good faith deposits in connection with bids, tenders, contracts
(other than for the payment of Indebtedness) or leases to which the Company or
any Restricted Subsidiary is party, or deposits to secure public or statutory
obligations of the Company, or deposits for the payment of rent, in each case
Incurred in the ordinary course of business; (xi) Liens on the Property of a
Person at the time such Person becomes a Restricted Subsidiary; PROVIDED,
HOWEVER, that any such Lien may not extend to any other Property of the Company
or any other Restricted Subsidiary which is not a direct Subsidiary of such
Person; PROVIDED FURTHER, HOWEVER, that any such Lien was not Incurred in
anticipation of or in connection with the transaction or series of related
transactions pursuant to which such Person became a Restricted Subsidiary; (xii)
utility easements, building restrictions and such other encumbrances or charges
against real property as are of a nature generally existing with respect to
properties of a similar character; or (xiii) Liens to secure Interest Rate
Agreements permitted to be incurred under clause (vi) of the second paragraph of
" -- Certain Covenants -- Limitation on Indebtedness."
"PERMITTED REFINANCING INDEBTEDNESS" means any renewals, extensions,
substitutions, refinancings or replacements of any Indebtedness, including any
successive extensions, renewals, substitutions, refinancings or replacements so
long as (i) the aggregate amount of Indebtedness represented thereby is not
increased by such renewal, extension, substitution, refinancing or replacement
(other than to finance fees and expenses associated with such refinancing,
including any premium and defeasance costs), (ii) the Average Life of such
Indebtedness is equal to or greater than the Average Life of the Indebtedness
being refinanced, (iii) the Stated Maturity of such Indebtedness is no earlier
than the Stated Maturity of the Indebtedness being refinanced and (iv) the new
Indebtedness shall not be senior in right of payment to the Indebtedness that is
being extended, renewed, substituted, refinanced or replaced; PROVIDED, HOWEVER,
that Permitted Refinancing Indebtedness shall not include (a) Indebtedness of a
Subsidiary that refinances Indebtedness of the Company or (b) Indebtedness of
the Company or a Restricted Subsidiary that refinances Indebtedness of an
Unrestricted Subsidiary.
"PERSON" means any individual, corporation, company (including any limited
liability company), partnership, joint venture, trust, unincorporated
organization or government or any agency or political subdivision thereof.
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"PREFERRED STOCK" means any Capital Stock of a Person, however designated,
which entitles the holder thereof to a preference with respect to dividends,
distributions or liquidation proceeds of such Person over the holders of other
Capital Stock issued by such Person.
"PRO FORMA EBITDA" means, for any Person at any date of determination, the
EBITDA of such Person for the four most recent full fiscal quarters preceding
such date for which financial statements are available as determined on a
consolidated basis in accordance with GAAP consistently applied after giving
effect to the following: (i) if, during or after such period, such Person or any
of its Subsidiaries shall have made any disposition of any Person or business,
Pro Forma EBITDA of such Person and its Subsidiaries shall be computed so as to
give pro forma effect to such disposition and (ii) if, during or after such
period, such Person or any of its Subsidiaries completes an acquisition of any
Person or business which immediately after such acquisition is a Subsidiary of
such Person or whose assets are held directly by such Person or a Subsidiary of
such Person, Pro Forma EBITDA shall be computed so as to give pro forma effect
to the acquisition of such Person or business; PROVIDED, HOWEVER, that, with
respect to the Company, all the foregoing references to "Subsidiary" or
"Subsidiaries" shall be deemed to refer only to the "Restricted Subsidiaries" of
the Company.
"PROPERTY" means, with respect to any Person, any interest of such Person
in any kind of property or asset, whether real, personal or mixed, or tangible
or intangible, including, without limitation, Capital Stock in, and other
securities of, any other Person (but excluding Capital Stock or other securities
issued by such first mentioned Person).
"PUBLIC EQUITY OFFERING" means an underwritten public offering of common
stock of the Company pursuant to an effective registration statement under the
Securities Act.
"REDEEMABLE DIVIDEND" means, for any dividend with regard to Redeemable
Stock, the quotient of the dividend divided by the difference between one and
the maximum statutory federal income tax rate (expressed as a decimal number
between 1 and 0) then applicable to the issuer of such Redeemable Stock.
"REDEEMABLE STOCK" means, with respect to any Person, any Capital Stock
that by its terms (or by the terms of any security into which it is convertible
or for which it is exchangeable) or otherwise (i) matures or is mandatorily
redeemable pursuant to a sinking fund obligation or otherwise, (ii) is or may
become redeemable or repurchasable at the option of the holder thereof, in whole
or in part, or (iii) is convertible or exchangeable for Indebtedness.
"RELATED BUSINESS" means any business related to the consumer product
promotion business (including any interactive, multi-media and
telecommunications aspects thereof).
"RESTRICTED PAYMENT" means (i) any dividend or distribution (whether made
in cash, Property or securities) declared or paid on or with respect to any
shares of Capital Stock of the Company or Capital Stock of any Restricted
Subsidiary except for any dividend or distribution which is made solely to the
Company or a Restricted Subsidiary (and, if such Restricted Subsidiary is not a
Wholly Owned Subsidiary, to the other shareholders of such Restricted Subsidiary
on a pro rata basis) or dividends or distributions payable solely in shares of
Capital Stock (other than Redeemable Stock) of the Company; (ii) a payment made
by the Company or any Restricted Subsidiary to purchase, redeem, acquire or
retire any Capital Stock of the Company or Capital Stock of any Affiliate of the
Company (other than a Restricted Subsidiary) or any warrants, rights or options
to directly or indirectly purchase or acquire any such Capital Stock or any
securities exchangeable for or convertible into any such Capital Stock; (iii) a
payment made by the Company or any Restricted Subsidiary to redeem, repurchase,
defease or otherwise acquire or retire for value, prior to any scheduled
maturity, scheduled sinking fund or mandatory redemption payment (other than the
purchase, repurchase, or other acquisition of any Indebtedness subordinate in
right of payment to the Notes purchased in anticipation of satisfying a sinking
fund obligation, principal installment or final maturity, in each case due
within one year of the date of acquisition), Indebtedness of the Company which
is subordinate (whether pursuant to its terms or by operation of law) in right
of payment to the Notes; or (iv) an Investment (other than Permitted
Investments) in any Person.
"RESTRICTED SUBSIDIARY" means (i) any Subsidiary of the Company after the
Issue Date unless such Subsidiary shall have been designated an Unrestricted
Subsidiary as permitted or required pursuant to the definition of "Unrestricted
Subsidiary" and (ii) an Unrestricted Subsidiary which is redesignated as a
Restricted Subsidiary as permitted pursuant to the definition of "Unrestricted
Subsidiary."
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"SALE AND LEASEBACK TRANSACTION" means, with respect to any Person, any
direct or indirect arrangement pursuant to which Property is sold or transferred
by such Person or a Subsidiary of such Person and is thereafter leased back from
the purchaser or transferee thereof by such Person or one of its Subsidiaries.
"STATED MATURITY" means, with respect to any security, the date specified
in such security as the fixed date on which the payment of principal of such
security is due and payable, including pursuant to any mandatory redemp-tion
provision (but excluding any provision providing for the repurchase of such
security at the option of the holder thereof upon the happening of any
contingency beyond the control of the issuer unless such contingency has
occurred).
"STRATEGIC EQUITY INVESTOR" means (i) any Person engaged principally in the
consumer products manufacturing business which has an Investment Grade Rating
and (ii) any Person which is wholly owned and controlled by any Person or
Persons referred to in clause (i) of this definition.
"SUBSIDIARY" of any specified Person means any corporation, partnership,
joint venture, association or other business entity, whether now existing or
hereafter organized or acquired, (i) in the case of a corporation, of which at
least 50% of the total voting power of the Voting Stock is held by such
first-named Person or any of its Subsidiaries and such first-named Person or any
of its Subsidiaries has the power to direct the management, policies and affairs
thereof; or (ii) in the case of a partnership, joint venture, association, or
other business entity, with respect to which such first-named Person or any of
its Subsidiaries has the power to direct or cause the direction of the
management and policies of such entity by contract or otherwise if in accordance
with generally accepted accounting principles such entity is consolidated with
the first-named Person for financial statement purposes.
"TEMPORARY CASH INVESTMENTS" means any of the following: (i) Investments in
U.S. Government Obligations maturing within 90 days of the date of acquisition
thereof, (ii) Investments in time deposit accounts, certificates of deposit and
money market deposits maturing within 90 days of the date of acquisition thereof
issued by a bank or trust company which is organized under the laws of the
United States of America or any state thereof having capital, surplus and
undivided profits aggregating in excess of $500,000,000 and whose long-term debt
is rate "A-3" or "A-" or higher according to Moody's Investors Service, Inc. or
Standard & Poor's Ratings Group (or such similar equivalent rating by at least
one "nationally recognized statistical rating organization" (as defined in Rule
436 under the Securities Act)), (iii) repurchase obligations with a term of not
more than 7 days for underlying securities of the types described in clause (i)
entered into with a bank meeting the qualifications described in clause (ii)
above, and (iv) Investments in commercial paper, maturing not more than 90 days
after the date of acquisition, issued by a corporation (other than an Affiliate
of the Company) organized and in existence under the laws of the United States
of America with a rating at the time as of which any Investment therein is made
of "P-1" (or higher) according to Moody's Investors Service, Inc. or "A-1" (or
higher) according to Standard & Poor's Ratings Group (or such similar equivalent
rating by at least one "nationally recognized statistical rating organization"
(as defined in Rule 436 under the Securities Act)).
"UNRESTRICTED SUBSIDIARY" means (a) any Subsidiary of the Company in
existence on the Issue Date that is not a Restricted Subsidiary and (b) any
Subsidiary of an Unrestricted Subsidiary. The Company's Board of Directors may
designate any Subsidiary of the Company or any Restricted Subsidiary to be an
Unrestricted Subsidiary if (i) the Subsidiary to be so designated does not own
any Capital Stock or Indebtedness of, or own or hold any Lien on any Property
of, the Company or any other Restricted Subsidiary, (ii) the Subsidiary to be so
designated is not obligated under any Indebtedness or other obligation that, if
in default, would result (with the passage of time or notice or otherwise) in a
default on any Indebtedness of the Company or any Restricted Subsidiary and
(iii) either (A) the Subsidiary to be so designated has total assets of $1,000
or less or (B) such designation is effective immediately upon such entity
becoming a Subsidiary of the Company or any Restricted Subsidiary. Unless so
designated as an Unrestricted Subsidiary, any Person that becomes a Subsidiary
of the Company or of any Restricted Subsidiary will be classified as a
Restricted Subsidiary; PROVIDED, HOWEVER, that such Subsidiary shall not be
designated a Restricted Subsidiary and shall be automatically classified as an
Unrestricted Subsidiary if the Company would be unable to Incur at least $1.00
of additional Indebtedness pursuant to clause (a) of the first paragraph of
" -- Certain Covenants -- Limitation on Indebtedness." Except as provided in the
second sentence of this paragraph, no Restricted Subsidiary may be redesignated
as an Unrestricted Subsidiary. The Company's Board of Directors may designate
any Unrestricted Subsidiary to be a Restricted Subsidiary if, immediately after
giving pro forma effect to such designation, (x) the Company could Incur at
least $1.00 of additional Indebtedness pursuant to clause (a) of the first
paragraph of " -- Certain Covenants -- Limitation on Indebtedness" and (y) no
Default or Event of Default shall have occurred and be continuing or would
result therefrom. Any such designation by the Company's Board of Directors will
be evidenced to the Trustee by filing with the Trustee a copy of the Board
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Resolution giving effect to such designation and an Officers' Certificate
certifying (i) that such designation complies with the foregoing provisions and
(ii) giving the effective date of such designation, such filing with the Trustee
to occur within 75 days after the end of the fiscal quarter of the Company in
which such designation is made (or in the case of a designation made during the
last fiscal quarter of the Company's fiscal year, within 120 days after the end
of such fiscal year).
"U.S. GOVERNMENT OBLIGATIONS" means direct obligations (or certificates
representing an ownership interest in such obligations) of the United States of
America (including any agency or instrumentality thereof) for the payment of
which the full faith and credit of the United States of America is pledged and
which are not callable or redeemable at the issuer's option.
"VOTING STOCK" of a corporation means all classes of Capital Stock of such
corporation then outstanding and normally entitled to vote in the election of
directors.
"WHOLLY OWNED SUBSIDIARY" means a Restricted Subsidiary all the Capital
Stock of which (other than directors' qualifying shares and shares held by other
Persons to the extent such shares are required by applicable law to be held by a
Person other than the Company or a Restricted Subsidiary) is owned by the
Company or one or more Wholly Owned Subsidiaries.
NOTICES
Notices to holders of Notes will be given by mail to the addresses of such
holders as they may appear in the Security Register.
GOVERNING LAW
The Indenture and the Notes are governed by and construed in accordance
with the internal laws of the State of New York without reference to principles
of conflicts of law.
THE TRUSTEE
Fleet National Bank is the Trustee under the Indenture.
The Indenture provides that, except during the continuance of an Event of
Default, the Trustee will perform only such duties as are specifically set forth
in the Indenture. During the existence of an Event of Default, the Trustee will
exercise such of the rights and powers vested in it under the Indenture and use
the same degree of care and skill in its exercise as a prudent Person would
exercise under the circumstances in the conduct of such Person's own affairs.
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CERTAIN FEDERAL INCOME TAX CONSIDERATIONS
GENERAL
The following is a summary of the anticipated material Federal income tax
consequences of the purchase, ownership and disposition of New Notes. This
summary is based upon the Internal Revenue Code of 1986, as amended (the
"Code"), its legislative history, existing and proposed regulations thereunder,
published rulings and court decisions, all as in effect and existing on the date
hereof and all of which are subject to change at any time (possibly with
retroactive effect) and to different interpretations. The discussion below is
based in part on Treasury regulations promulgated in February 1994 relating to
the Federal income tax treatment of debt instruments having original issue
discount ("OID") (the "OID Regulations").
This summary applies only to those persons who are the initial holders of
the Old Notes and who hold Old Notes as "Capital Assets" within the meaning of
Section 1221 of the Code. As used herein, the term "U.S. Person" means (i) a
citizen or resident of the United States, (ii) a corporation, partnership or
other entity created or organized in or under the laws of the United States or
of any state or political subdivision thereof, or (iii) an estate or trust the
income of which is subject to United States federal income taxation regardless
of its source. As used herein, the term "Foreign Person" means a person other
than a U.S. Person.
This summary does not address the tax consequences to taxpayers who are
subject to special rules (such as financial institutions, tax-exempt
organizations, dealers in securities and insurance companies) or aspects of
Federal income taxation that may be relevant to a prospective investor based
upon such investor's particular tax situation. Holders should note that this
summary is not binding on the Internal Revenue Service (the "Service") and there
can be no assurance that the Service will take a similar view with respect to
the tax consequences described below. No ruling has been or will be requested
from the Service on any tax matters relating to the New Notes.
ALL PROSPECTIVE PURCHASERS (IN PARTICULAR, THOSE WHO ARE NOT U.S. PERSONS)
ARE ADVISED TO CONSULT THEIR OWN TAX ADVISORS REGARDING THE FEDERAL, STATE,
LOCAL AND FOREIGN TAX CONSEQUENCES OF EXCHANGING OLD NOTES FOR NEW NOTES, AND
OWNERSHIP AND DISPOSITION OF NEW NOTES AS WELL AS THE POSSIBLE EFFECTS OF
CHANGES IN FEDERAL AND OTHER TAX LAWS.
TAX CONSEQUENCES TO U.S. PERSONS
THE UNITS. The Old Notes were sold as part of a unit (the "Units") that
also included a warrant (the "Warrants") to purchase common stock. Consequently,
the issue price of a Unit was allocated between the Old Notes and the Warrants
based on their relative fair market values. Under the OID Regulations, the
portion of the issue price of the Units allocated to the Old Notes was the issue
price of the Old Notes. Based on the foregoing, the Company treated each Old
Note as having been issued with an original issue price of $494.31 per $1,000
principal amount, based upon each Warrant having a fair market value of $172.28,
and an initial Holder of each Warrant had an initial tax basis in the same
amount. No assurance can be given, however, that the Service will not challenge
the Company's determination of the issue price of the Old Notes and the fair
market value of the Warrants.
Under the OID Regulations, the Company's allocation of the issue price of
the Units will be binding on a Holder, unless the Holder discloses the use of a
different allocation on the applicable form attached to the Holder's Federal
income tax return for the year of acquisition of such Unit. If a Holder uses an
allocation different from that of the Company, or a Holder acquires a Unit at a
price different from that on which the Company's allocation is based, the Holder
may be treated as having acquired such New Note for a greater or lesser amount
than the New Note's issue price, thereby resulting in "acquisition premium" or
"market discount," as defined below. Holders intending to use an issue price
allocation different from that used by the Company should consult their tax
advisors as to the consequences to them of their particular allocation of the
issue price of the Unit.
ORIGINAL ISSUE DISCOUNT. Because the Old Notes were issued at a discount
from their "stated redemption price at maturity," the Old Notes will have OID
for Federal income tax purposes which will be carried over to the New Notes. For
Federal income tax purposes, OID on a New Note will be the excess of the stated
redemption price at maturity of the New Note over the issue price of the Old
Note (determined as described above under " -- The Units," which will be treated
as the issue price of the New Note). The stated redemption price at maturity of
a New Note will be the sum of all payments to be made on such New Note,
regardless of whether denominated as interest
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or principal. As a result, each New Note will bear OID in an amount equal to the
excess of (i) the sum of its principal amount and all stated interest payments
over (ii) its issue price.
A Holder generally will be required to include OID in income periodically
over the term of a New Note and before receipt of the cash attributable to such
income. In general, a Holder must include in gross income for Federal income tax
purposes the sum of the daily portions of OID with respect to the New Note for
each day during the taxable year or portion of a taxable year on which such
Holder holds the New Note ("Accrued OID"). The daily portion is determined by
allocating to each day of any accrual period within a taxable year a pro rata
portion of an amount equal to the adjusted issue price of the New Note at the
beginning of the accrual period multiplied by the yield to maturity of the New
Note. For purposes of computing OID, the Company will use six-month accrual
periods that end on the days in the calendar year corresponding to the maturity
date of the New Notes and the date six months prior to such maturity date, with
the exception of an initial short accrual period. The adjusted issue price of a
New Note at the beginning of any accrual period is the issue price of the New
Note increased by the Accrued OID for all prior accrual periods and decreased by
any cash payments on the New Notes. Each payment made under a New Note will be
treated first as a payment of OID (which was previously includable in income) to
the extent of OID that has accrued as of the date of payment and has not been
allocated to prior payments and second as a payment of principal.
IN GENERAL, U.S. PERSONS WHO HOLD NEW NOTES WILL HAVE TO INCLUDE IN INCOME
INCREASINGLY GREATER AMOUNTS OF OID OVER THE LIFE OF THE NEW NOTES.
A Change in Control of the Company may cause additional interest to be paid
on the New Notes in the manner described herein. Under the OID Regulations, the
possibility of such additional interest will not affect the accrual of OID or
the yield to maturity on the New Notes unless, based on all the facts and
circumstances as of the issue date, it is more likely than not that such a
payment will occur. The Company does not intend to treat the possibility of
additional interest as affecting the computation of OID or the yield to
maturity.
Under the OID Regulations, a Holder may make an election to include in
gross income all interest that accrues on a New Note (including stated interest,
acquisition discount, OID, DE MINIMIS OID, market discount, DE MINIMIS market
discount, and unstated interest, as adjusted by any amortizable bond premium or
acquisition premium) in accordance with a constant yield method calculated by
treating the New Note as being issued on the Holder's acquisition date at an
issue price equal to the Holder's adjusted basis in the New Note immediately
after its acquisition.
MARKET DISCOUNT. A Holder who purchases a New Note for an amount that is
less than its issue price will be treated as having purchased the New Note at a
"market discount" for Federal income tax purposes, unless such difference is
less than a specified DE MINIMIS amount. Under the market discount rules, a
Holder will be required to treat any principal payment on, or any gain on the
sale, exchange, retirement or other disposition of, a New Note as ordinary
income to the extent of the market discount that accrued on such New Note (but
was not previously included in income) at the time of such payment or
disposition. If such New Note is disposed of in a nontaxable transaction (other
than a nonrecognition transaction described in Section 1276(c) of the Code),
accrued market discount will be includible as ordinary income to the Holder as
if such holder had sold the New Note at its fair market value. In addition, the
Holder may be required to defer, until the maturity of the New Note or its
earlier disposition (including a nontaxable transaction other than a transaction
described in Section 1276(c) of the Code), the deduction of all or a portion of
the interest expense of any indebtedness incurred or continued to purchase or
carry such New Note.
Any market discount will be considered to accrue on a straight-line basis
during the period from the date of acquisition to the maturity date of the New
Note, unless the Holder makes an irrevocable election to accrue on a constant
yield method. A Holder of a New Note may elect to include market discount in
income currently, as it accrues (on either a straight-line or constant yield
basis), in which case the rule described above regarding deferral of interest
deductions will not apply. This election to include market discount in income
currently, once made, applies to all market discount obligations acquired on or
after the first day of the first taxable year to which the election applies, and
may not be revoked without the consent of the IRS.
ACQUISITION PREMIUM. A Holder who purchases a New Note for an amount that
is greater than its issue price but equal to or less than the stated redemption
price at maturity will be considered to have purchased such New Note at an
"acquisition premium." Under the acquisition premium rules, the amount of OID
which such Holder must
73
<PAGE>
include in its gross income with respect to such New Note for any taxable year
will be reduced by the portion of such acquisition premium properly allocable to
such year.
DISPOSITION OF THE NOTES. Generally, any sale or redemption of New Notes
will result in taxable gain or loss equal to the difference between the amount
of cash or fair market value of other property received and the Holder's
adjusted tax basis in the New Note. A Holder's adjusted tax basis for
determining gain or loss on the sale or other disposition of a New Note will
initially equal the cost of the New Note to such Holder and will be increased by
any Accrued OID (as reduced by amortized acquisition premium) and market
discount previously included in such Holder's gross income and decreased by the
amount of any cash payments received by such Holder, regardless of whether such
payments are denominated as principal or interest. For these purposes, the
amount realized does not include any amount attributable to accrued interest on
the New Note. Except as described above under " -- Market Discount," any gain or
loss upon a sale or other disposition of a New Note generally will be capital
gain or loss, and will be long-term capital gain or loss if the New Note will
have been held by the Holder for more than one year at the time of such sale or
other disposition (including any period during which a Holder held the Old
Note).
CERTAIN FEDERAL INCOME TAX CONSEQUENCES TO THE COMPANY AND TO CORPORATE
HOLDERS. The New Notes constitute applicable high yield discount obligations
(AHYDOs). As a result, a portion of the tax deductions that otherwise would be
available to the Company in respect of the New Notes will be deferred and
potentially disallowed, which, in turn, may reduce the after-tax cash flows of
the Company. The New Notes constitute AHYDOs because (i) the yield to maturity
of such New Notes is equal to or greater than the sum of the relevant mid-term
applicable federal rate (the AFR) in the month of issue (which is 6.63%
compounded semi-annually for July 1996, assuming a weighted average maturity of
the New Notes in excess of seven years), plus five percentage points, and (ii)
the New Notes are issued with significant OID. A debt instrument is issued with
significant OID if the aggregate amount includable in income of a Holder in
respect of such instrument before the close of any accrual period ending after
the fifth anniversary of its issuance exceeds the sum of (a) the aggregate
amount of interest to be paid under the instrument before such date and (b) the
product of the issue price of the such instrument and its yield to maturity.
Under the AHYDO rules, the Company will not be entitled to deduct OID that
accrues with respect to the New Notes until amounts attributable to OID are paid
in cash or property (other than stock or debt instruments of the Company or of a
related party). In addition, if the yield to maturity of the New Notes exceeds
the sum of the relevant AFR plus six percentage points (the Excess Yield), the
disqualified portion of the OID accruing on the New Notes will be permanently
nondeductible. In general, the Disqualified portion of OID for any accrual
period will be equal to the product of (i) a percentage determined by dividing
the Excess Yield by the yield to maturity and (ii) the OID for the accrual
period. Subject to otherwise applicable limitations, a corporate Holder
generally will be entitled to a 70% dividends received deduction with respect to
the disqualified portion of the accrued OID if the Company has sufficient
current or accumulated earnings and profits. To the extent that the Company's
earnings and profits are insufficient, any portion of the OID that otherwise
would have been recharacterized as a dividend for purposes of the dividends
received deduction will continue to be treated as interest income. Treatment of
the New Notes as AHYDOs will not disqualify interest or OID with respect to the
New Notes from the portfolio interest exception described below under " -- Tax
Consequences to Foreign Persons," provided the applicable requirements for the
exception are otherwise satisfied.
TAX CONSEQUENCES TO FOREIGN PERSONS
The following discussion is a summary of certain United States Federal
income tax consequences to a Foreign Person that holds a New Note. If the income
or gain on the New Note is effectively connected with the conduct of a trade or
business within the United States then, unless a different result is provided
under an applicable tax treaty between the United States and the country of
which the Foreign Person is a resident, the Foreign Person will be subject to
tax on such income or gain in essentially the same manner as a U.S. person, as
discussed above, and in the case of a foreign corporation, may also be subject
to the branch profits tax. The balance of this discussion assumes that Foreign
Persons holding New Notes are not engaged in a trade or business in the United
States with which income or gain derived from the New Notes would be effectively
connected.
Under the portfolio interest exception to the general rules for the
withholding of tax on payment of interest (including OID) to a Foreign Person, a
Foreign Person will not be subject to United States tax (or to withholding) on
interest or OID on a New Note, provided that (i) the Foreign Person does not
actually or constructively own 10% or more of the total combined voting power of
all classes of stock of the Company entitled to vote, is not a controlled
74
<PAGE>
foreign corporation that is related to the Company through stock ownership and
is not a bank receiving certain types of interest, and (ii) the Company, its
paying agent or the person who would otherwise be required to withhold tax
receives either (A) a statement (an "Owner's Statement") signed under penalties
of perjury by the beneficial owner of the New Note in which the owner certifies
that the owner is a Foreign Person and which provides the owner's name and
address or (B) a statement signed under penalties of perjury by the financial
institution holding the New Note on behalf of the beneficial owner that it has
received such Owner's Statement, together with a copy of the Owner's Statement.
As used herein, the term "financial institution" means a securities clearing
organization, bank or other financial institution that holds customers'
securities in the ordinary course of its trade or business and that holds a New
Note on behalf of the owner of the New Note. A Foreign Person who does not
qualify for the portfolio interest exception generally would be subject to
United States withholding tax at a flat rate of 30% (or a lower applicable
treaty rate) on interest payments and payments (including redemption proceeds)
attributable to OID on the New Notes.
In general, gain recognized by a Foreign Person upon the redemption, sale
or exchange of a New Note will not be subject to United States Federal income
tax unless such Foreign Person is an individual present in the United States for
183 days or more during the taxable year in which the New Note is redeemed, sold
or exchanged, and certain other requirements are met.
A New Note held by an individual who is a Foreign Person at the time of his
death will not be subject to U.S. federal estate tax as a result of such
individual's death, provided that the individual does not own, actually or
constructively, 10 percent or more of the total combined voting power of all
classes of stock of the Company entitled to vote and, at the time of such
individual's death, payments with respect to such New Notes would not have been
effectively connected to the conduct by such individual of a trade or business
in the U.S.
BACKUP WITHHOLDING
A Holder may be subject, under certain circumstances, to backup withholding
at a 31% rate with respect to payments received with respect to the New Notes
and the proceeds from the sale or redemption thereof. This withholding generally
applies only if the Holder (i) fails to furnish his or her social security or
other taxpayer identification number ("TIN"), (ii) furnishes an incorrect TIN,
(iii) is notified by the IRS that he or she has failed to report properly
payments of interest and dividends and the IRS has notified the Company that he
or she is subject to backup withholding, or (iv) fails, under certain
circumstances, to provide a certified statement, signed under penalty of
perjury, that the TIN provided is his or her correct number and that he or she
is not subject to backup withholding. Any amount withheld from a payment to a
Holder under the backup withholding rules is allowable as a credit against such
Holder's Federal income tax liability, provided that the required information is
furnished to the IRS. Certain Holders (including, among others, corporations and
foreign individuals who comply with certain certification requirements described
under " -- Foreign Holders") are not subject to backup withholding. Holders
should consult their tax advisors as to their qualification for exemption from
backup withholding and the procedure the obtaining such an exemption.
THE FOREGOING SUMMARY IS INCLUDED HEREIN FOR GENERAL INFORMATION ONLY.
ACCORDINGLY, EACH HOLDER SHOULD CONSULT WITH ITS OWN TAX ADVISOR AS TO THE
SPECIFIC TAX CONSEQUENCES TO SUCH HOLDER OF THE EXCHANGE OF OLD NOTES FOR NEW
NOTES, AND OWNERSHIP AND DISPOSITION OF NEW NOTES, INCLUDING THE APPLICATION AND
EFFECT OF STATE, LOCAL AND FOREIGN INCOME AND OTHER TAX LAWS.
75
<PAGE>
PLAN OF DISTRIBUTION
Each broker-dealer that receives New Notes for its own account pursuant to
the Exchange Offer must acknowledge that it will deliver a prospectus in
connection with any resale of such New Notes. This Prospectus, as it may be
amended or supplemented from time to time, may be used by a broker-dealer in
connection with resales of New Notes received in exchange for Notes where such
Notes were acquired as a result of market-making activities or other trading
activities. The Company has agreed that, starting on the Expiration Date, and
ending on the close of business 90 days after the Expiration Date, it will make
this Prospectus, as amended or supplemented, available to any broker-dealer for
use in connection with any such resale. In addition, until , 199 ,
all dealers effecting transactions in the New Notes may be required to deliver a
prospectus.
The Company will not receive any proceeds from any sale of New Notes by
broker-dealers. New Notes received by broker -dealers for their own account
pursuant to the Exchange Offer may be sold from time to time in one or more
transactions in the over-the-counter market, in negotiated transactions, through
the writing of options on the New Notes or a combination of such methods of
resale, at market prices prevailing at the time of resale, at prices related to
such prevailing market prices or negotiated prices. Any such resale may be made
directly to purchasers or to or through brokers or dealers who may receive
compensation in the form of commissions or concessions from any such
broker-dealer and/or the purchasers of any such New Notes. Any broker-dealer
that resells New Notes that were received by it for its own account pursuant to
the Exchange Offer and any broker or dealer that participates in a distribution
of such New Notes may be deemed to be an "underwriter" within the meaning of the
Securities Act and any profit of any such resale of New Notes and any
commissions or concessions received by any such persons may be deemed to be
underwriting compensation under the Securities Act. The Letter of Transmittal
states that by acknowledging that it will deliver and by delivering a
prospectus, a broker-dealer will not be deemed to admit that it is an
"underwriter" within the meaning of the Securities Act.
For a period of 90 days after the Expiration Date, the Company will
promptly send additional copies of this Prospectus and any amendment or
supplement to this Prospectus to any broker-dealer that requests such documents
in the Letter of Transmittal. The Company has agreed to pay all expenses
incident to the Exchange Offer (including the expenses of one counsel for the
Holders of the Notes) other than commissions or concessions of any brokers or
dealers and will indemnify the Holders of the Notes (including any
broker-dealers) against certain liabilities, including liabilities under the
Securities Act.
LEGAL OPINIONS
Certain legal matters regarding the New Notes will be passed upon for the
Company by Schell Bray Aycock Abel & Livingston L.L.P., Greensboro, North
Carolina. As of September 10, 1996, certain partners of Schell Bray Aycock Abel
& Livingston L.L.P., beneficially owned an aggregate of 20,000 Shares of the
Company's Common Stock.
INDEPENDENT AUDITORS
The unaudited and audited financial statements included in this Prospectus
have been reviewed and audited, respectively, by Arthur Andersen LLP,
independent public accountants, as indicated in their reports with respect
thereto, and are included herein in reliance upon the authority of said firm as
experts in accounting and auditing in giving said reports.
76
<PAGE>
INTER(Bullet)ACT SYSTEMS, INCORPORATED AND SUBSIDIARY
(A Development Stage Company)
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
<S> <C>
INTERIM FINANCIAL STATEMENTS:
Report of Independent Public Accountants...................................................................... F-2
Consolidated Balance Sheet as of June 29, 1996 (unaudited).................................................... F-3
Consolidated Statements of Operations for the nine-month periods ended June 29, 1996 and July 1, 1995 and for
the period from February 25, 1993 (Date of Inception) to June 29, 1996 (unaudited)......................... F-4
Consolidated Statements of Stockholders' Equity (Deficit) for the period from February 25, 1993 (Date of
Inception) to June 29, 1996 (unaudited).................................................................... F-5
Consolidated Statements of Cash Flows for the nine-month periods ended June 29, 1996 and July 1, 1995 and for
the period from February 25, 1993 (Date of Inception) to June 29, 1996 (unaudited)......................... F-6
Notes to Consolidated Financial Statements.................................................................... F-7-F-14
ANNUAL FINANCIAL STATEMENTS:
Report of Independent Public Accountants...................................................................... F-15
Consolidated Balance Sheets as of September 30, 1995 and 1994................................................. F-16
Consolidated Statements of Operations for the years ended September 30, 1995 and 1994, for the period from
February 25, 1993 (Date of Inception) to September 30, 1993 and for the period from February 25, 1993 (Date
of Inception) to September 30, 1995........................................................................ F-17
Consolidated Statements of Stockholders' Equity (Deficit) for the period from February 25, 1993 (Date of
Inception) to September 30, 1995........................................................................... F-18
Consolidated Statements of Cash Flows for the years ended September 30, 1995 and 1994, for the period from
February 25, 1993 (Date of Inception) to September 30, 1993 and for the period from February 25, 1993 (Date
of Inception) to September 30, 1995........................................................................ F-19
Notes to Consolidated Financial Statements.................................................................... F-20-F-27
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
TO THE BOARD OF DIRECTORS OF
INTER(Bullet)ACT SYSTEMS, INCORPORATED AND SUBSIDIARY:
We have reviewed the accompanying consolidated balance sheet of
Inter(Bullet)Act Systems, Incorporated and Subsidiary (a North Carolina
corporation in the development stage) as of June 29, 1996, and the related
consolidated statements of operations and cash flows for the nine-month periods
ended June 29, 1996 and July 1, 1995 and for the period from February 25, 1993
(Date of Inception) to June 29, 1996 and the related consolidated statements of
stockholders' equity (deficit) for the period from February 25, 1993 (Date of
Inception) to June 29, 1996. These financial statements are the responsibility
of the company's management.
We conducted our review in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical procedures to
financial data and making inquiries of persons responsible for financial and
accounting matters. It is substantially less in scope than an audit conducted in
accordance with generally accepted auditing standards, the objective of which is
the expression of an opinion regarding the financial statements taken as a
whole. Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that
should be made to the financial statements referred to above for them to be in
conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Melville, New York
September 11, 1996
F-2
<PAGE>
INTER(Bullet)ACT SYSTEMS, INCORPORATED AND SUBSIDIARY
(A Development Stage Company)
CONSOLIDATED BALANCE SHEET
(unaudited)
<TABLE>
<CAPTION>
June 29,
1996
<S> <C>
Assets
CURRENT ASSETS:
Cash and cash equivalents.................................................................................. $ 7,416,893
Accounts receivable, net of allowance for doubtful accounts of $3,535...................................... 76,471
Prepaid expenses and other................................................................................. 336,518
Total current assets.................................................................................. 7,829,882
PROPERTY AND EQUIPMENT:
Product equipment.......................................................................................... 5,487,961
Less: Accumulated depreciation............................................................................. (442,795)
Product equipment, net.............................................................................. 5,045,166
Office and computer equipment and leasehold improvements................................................... 995,543
Less: Accumulated depreciation and amortization............................................................ (172,485)
Office and computer equipment and leasehold improvements, net....................................... 823,058
Product equipment in process of manufacturing.............................................................. 2,765,961
Total property and equipment, net..................................................................... 8,634,185
OTHER ASSETS:
Deposits................................................................................................... 35,000
Organization costs (net of accumulated amortization of $26,193)............................................ 13,097
Patents, licenses and trademarks (net of accumulated amortization of $8,448)............................... 82,737
Prepaid debt issuance costs (Note 11)...................................................................... 158,021
Other intangibles (net of accumulated amortization of $4,027).............................................. 30,486
Total other assets, net............................................................................... 319,341
Total assets.......................................................................................... $ 16,783,408
Liabilities and Stockholders' Equity
CURRENT LIABILITIES:
Accounts payable........................................................................................... $ 1,682,495
Accrued expenses........................................................................................... 792,425
Notes payable to stockholders -- current portion........................................................... 66,997
Total current liabilities............................................................................. 2,541,917
NOTES PAYABLE TO STOCKHOLDERS................................................................................ 255,750
OTHER LONG-TERM LIABILITIES.................................................................................. 83,343
COMMITMENTS AND CONTINGENCIES (Note 9)
STOCKHOLDERS' EQUITY:
Common stock, no par value; 20,000,000 shares authorized; 7,668,555 shares issued and outstanding.......... 27,651,071
Deficit accumulated during the development stage........................................................... (13,748,673)
Total stockholders' equity............................................................................ 13,902,398
Total liabilities and stockholders' equity............................................................ $ 16,783,408
</TABLE>
The accompanying notes are an integral part of this consolidated balance sheet.
F-3
<PAGE>
INTER(Bullet)ACT SYSTEMS, INCORPORATED AND SUBSIDIARY
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
<TABLE>
<CAPTION>
For the For the For the Period from
Nine-Month Period Nine-Month Period February 25, 1993
Ended Ended (Date of Inception)
June 29, 1996 July 1, 1995 to June 29, 1996
<S> <C> <C> <C>
Gross sales.................................................... $ 231,102 $ 172,625 $ 502,989
Less: Retailer reimbursements.................................. (126,827) (99,482) (275,114)
Net sales................................................ 104,275 73,143 227,875
Direct operating expenses...................................... 1,287,560 597,295 2,395,323
Gross deficit.................................................. (1,183,285) (524,152) (2,167,448)
Selling, general and administrative expenses................... 4,020,926 2,349,080 10,795,752
Depreciation and amortization.................................. 433,895 141,647 663,788
Loss from operations........................................... (5,638,106) (3,014,879) (13,626,988)
Interest expense............................................... 111,377 120,405 386,434
Other income, net.............................................. 165,094 62,955 264,749
Net loss................................................ $(5,584,389) $(3,072,329) $ (13,748,673)
PER SHARE INFORMATION:
Net loss per share (Note 2)............................. $ (1.02) $ (1.04)
Weighted average common shares
outstanding.......................................... 5,492,577 2,942,197
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-4
<PAGE>
INTER(Bullet)ACT SYSTEMS, INCORPORATED AND SUBSIDIARY
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
From February 25, 1993 (Date of Inception) To June 29, 1996
(unaudited)
<TABLE>
<CAPTION>
Deficit
Accumulated
During Total
Common Stock Development Stockholders'
Shares Amount Stage Equity (Deficit)
<S> <C> <C> <C> <C>
April 1993, the Company issued 816,902 shares of common
stock to Clearing Systems, Inc. for certain technological
information and processes. Consideration for the shares,
after assumption of certain liabilities, was approximately
$.012 per share (Note 6).................................. 816,902 $ 10,000 $ -- $ 10,000
April 1993, the Company issued 1,898,592 shares to various
stockholders in exchange for cash and notes payable to the
Company valued at approximately $1.016 per share.......... 1,898,592 1,929,526 -- 1,929,526
April 1993, the Company issued 101,406 shares to three
stockholders in consideration for investment services and
notes payable to the Company valued at approximately
$1.016 per share.......................................... 101,406 103,059 -- 103,059
Net loss for the period..................................... -- -- (1,295,052) (1,295,052)
BALANCE AT SEPTEMBER 30, 1993............................... 2,816,900 2,042,585 (1,295,052) 747,533
August 1994, return of capital to stockholders............ -- (371,130) -- (371,130)
Issuance of common stock.................................. 100,000 500,000 -- 500,000
Forfeiture of common stock (Note 11)...................... (10,000) -- -- --
Issuance of previously forfeited common stock (Note 11)... 10,000 50,000 -- 50,000
Net loss for the year..................................... -- -- (2,343,510) (2,343,510)
BALANCE AT SEPTEMBER 30, 1994............................... 2,916,900 2,221,455 (3,638,562) (1,417,107)
Issuance of common stock.................................. 632,000 3,172,510 -- 3,172,510
Forfeiture of common stock (Note 11)...................... (18,000) (140,000) -- (140,000)
Issuance of common stock (Note 9)......................... 400,000 2,000,000 -- 2,000,000
Net loss for the year..................................... -- -- (4,525,722) (4,525,722)
BALANCE AT SEPTEMBER 30, 1995............................... 3,930,900 7,253,965 (8,164,284) (910,319)
Issuance of common stock.................................. 3,319,338 18,256,359 -- 18,256,359
Conversion of $1.6 million of debt to common stock (Note
4)..................................................... 319,993 1,599,965 -- 1,599,965
Conversion of accrued interest to common stock (Note 4)... 12,356 67,958 -- 67,958
Conversion of notes payable to stockholders and related
accrued interest to common stock (Note 4).............. 75,968 417,824 -- 417,824
Issuance of common stock in payment of consulting fees
(Note 9)............................................... 10,000 55,000 -- 55,000
Net loss for the nine-month period........................ -- -- (5,584,389) (5,584,389)
BALANCE AT JUNE 29, 1996.................................... 7,668,555 $27,651,071 $(13,748,673) $ 13,902,398
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-5
<PAGE>
INTER(Bullet)ACT SYSTEMS, INCORPORATED AND SUBSIDIARY
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
<TABLE>
<CAPTION>
For the For the For the Period from
Nine-Month Period Nine-Month Period February 25, 1993
Ended Ended (Date of Inception)
June 29, 1996 July 1, 1995 to June 29, 1996
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss....................................................... $(5,584,389) $(3,072,329) $ (13,748,673)
Adjustments to reconcile net loss to net cash used in operating
activities --
Issuance of convertible note payable to related party in
payment of royalties (Note 9).............................. 375,000 -- 375,000
Depreciation and amortization................................ 433,895 141,647 663,788
Loss on asset disposal....................................... 11,155 -- 21,618
Acquired research and development expenses................... -- -- 611,471
Expiration of acquired prepaid expenses...................... -- -- 30,000
Stock issued in payment of investment services fees.......... -- -- 32,582
(Increase) in accounts receivable and accrued interest
receivable................................................. (1,185) (110,560) (76,471)
(Increase) in prepaid expenses and other..................... (197,960) (43,615) (280,779)
(Increase) in other assets................................... (123,075) (101,686) (182,863)
Increase in accounts payable................................. 1,273,710 176,540 1,682,494
Increase in accrued expenses................................. 449,222 245,008 816,873
Increase in other long-term liabilities...................... -- -- 70,247
Net cash used in operating activities...................... (3,363,627) (2,764,995) (9,984,713)
CASH FLOWS FROM INVESTING ACTIVITIES:
Organization costs incurred.................................... -- -- (39,290)
Patents and licensing agreements............................... -- -- (18,700)
Purchases of property and equipment............................ (492,975) (300,194) (1,111,845)
Increase in product equipment in process of
manufacturing................................................ (2,314,191) (444,847) (2,765,961)
Cost of manufacturing of product and test equipment............ (4,482,061) (752,910) (5,395,056)
Net cash used in investing activities...................... (7,289,227) (1,497,951) (9,330,852)
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of convertible notes not converted to equity......... (35) -- (35)
Payment of notes payable....................................... -- -- (4,575)
Repayment of notes payable to related party.................... (200,000) -- (200,000)
Proceeds from notes payable to related party................... -- -- 200,000
Proceeds from notes payable to stockholders.................... -- 148,351 1,060,474
Repayment of convertible note payable to related parties....... (119,250) -- (119,250)
Repayment of notes payable to stockholders..................... (3,477) -- (3,477)
Payment of assumed liabilities................................. -- -- (40,000)
Proceeds from common stock issuance, net of
forfeitures.................................................. 18,256,359 4,895,010 24,717,287
Repayment of notes receivable by stockholders.................. 70,474 -- 70,474
Repayment of accounts receivable from stockholders............. -- -- 1,051,560
Net cash provided by financing activities.................. 18,004,071 5,043,361 26,732,458
NET INCREASE IN CASH AND CASH EQUIVALENTS........................ 7,351,217 780,415 7,416,893
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD................. 65,676 206,165 --
CASH AND CASH EQUIVALENTS AT END OF PERIOD....................... $ 7,416,893 $ 986,580 $ 7,416,893
SUPPLEMENTAL DISCLOSURE OF NON-CASH FINANCING ACTIVITIES:
Conversion of debt to common stock (Note 4).................... $ 1,599,965 $ -- $ 1,599,965
Conversion of accrued interest to common stock
(Note 4)..................................................... $ 67,958 $ -- $ 67,958
Conversion of notes payable to stockholders and related accrued
interest to common stock (Note 4)............................ $ 417,824 $ -- $ 417,824
Issuance of common stock in payment of consulting fees (Note
9)........................................................... $ 55,000 $ -- $ 55,000
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-6
<PAGE>
INTER(Bullet)ACT SYSTEMS, INCORPORATED AND SUBSIDIARY
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 29, 1996
(unaudited)
1. ORGANIZATION
Inter(Bullet)Act Systems, Incorporated (the "Company") develops, owns and
operates proprietary electronic marketing systems that are designed to give
consumer products manufacturers (the "Manufacturers") and retailers the ability
to influence the purchasing behavior of consumers moments before shopping begins
and to track and analyze individual consumer purchasing behavior on an ongoing
basis. The Company's current commercial product offering utilizes interactive
"touch-screen" terminals inside the entrance of retail supermarkets that issue
individually targeted, and immediately usable, coupons and other promotional
incentives based on each consumer's cumulative purchasing history. This
automated process saves consumers time and money while providing Manufacturers
and retailers substantially more control, efficiency and cost effectiveness than
traditional mass advertising and promotion media. The Company receives recurring
revenue from transaction fees paid by Manufacturers for each electronic
redemption of their coupons and other incentives. Since its formation in 1993,
the Company has focused its system development and commercialization efforts
primarily in the retail supermarket industry.
The Company was incorporated on February 25, 1993, and the Company issued
stock to shareholders of CSI (Note 5) on April 14, 1993 and to fifteen
additional stockholders on April 16, 1993. Activities from the date of inception
to June 29, 1996 have been directed primarily to raising capital, developing the
software and cabinetry for placement of interactive terminals and network
equipment in stores, test marketing the service, advertising and promoting the
services offered and performing administrative functions.
From inception through June 29, 1996, the Company has had minimal revenues
and there is no assurance that the product which has been developed will achieve
success in the marketplace. The success of future operations will be dependent
primarily upon the acceptance of the Company's flagship product and its ability
to gain additional financing until such time. Furthermore, if the product gains
market acceptance, there is no assurance that the Company will generate
sufficient revenues to recognize a profit or that other products will not be
developed by other companies that will render the Company's product obsolete.
Since inception, the Company has incurred recurring losses and experienced
negative operating cash flow, and has relied primarily on equity financing to
fund its operations. As of June 29, 1996, the Company had cash and cash
equivalents of $7,416,893. In October 1995, the Company approved an offering of
its common stock at $5.50 per share. In connection with this offering, the
Company issued warrants to the investors in the offering to purchase an
aggregate of 323,217 additional common shares. Investors in this offering have
purchased common shares for net proceeds in the amount of approximately $18.1
million. Holders of convertible notes in the principal amount of approximately
$1,600,000 converted both principal and one-half of accrued interest ($67,958)
to shares of the Company's common stock and the Company has revised the payment
terms of certain commitments (Note 9) and exchanged notes payable to
stockholders (Note 4) and accrued interest thereon for equity in the amount of
$417,824. Subsequent to June 29, 1996, the Company raised an additional $94.6
million in net proceeds from the issuance of notes payable and warrants in a
private placement transaction (Note 11). In the opinion of the Company's
management, the impact of the equity and debt raised and the debt and
commitments restructured will provide the Company with the liquidity and capital
resources to fund its operations through the end of fiscal 1997.
2. SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The financial statements include the consolidated accounts of the Company
and its wholly-owned subsidiary, Network Licensing, Inc. ("NLI"). All
significant intercompany accounts and transactions have been eliminated.
F-7
<PAGE>
INTER(Bullet)ACT SYSTEMS, INCORPORATED AND SUBSIDIARY
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- Continued
2. SIGNIFICANT ACCOUNTING POLICIES -- Continued
Revenue Recognition
The Company recognizes revenue as coupons are redeemed at terminals. Brand
manufacturers pay a fee to the Company for each redemption. The fee is composed
of 1) a retailer processing fee, 2) a redemption fee and 3) the face value of
the coupon. The Company in turn passes through both the retailer processing fee,
which is included in direct operating expenses, and the face value of the coupon
to the retailer, while retaining the redemption fee. The Company records as net
revenue the redemption fee and the retailer processing fee paid by the
manufacturers. Certain manufacturers pay the Company in advance for a portion of
anticipated redemptions, and these amounts are recorded as deferred revenue
until earned through redemptions. Deferred revenue as of June 29, 1996 was
approximately $229,000, and is included in accrued expenses in the accompanying
consolidated balance sheet.
Cash and Cash Equivalents
Cash equivalents are stated at cost, which approximates market value.
Highly liquid investments with maturities of three months or less are considered
cash equivalents for purposes of the balance sheet and statements of cash flows.
Accounts Receivable -- Allowance Method
The Company uses the allowance method to account for uncollectable accounts
receivable. The accounts receivable of the Company at June 29, 1996 consist of
receivables accumulated during the test marketing stage of the enterprise.
Product Equipment in Process of Manufacturing
The Company's product equipment in process of manufacturing consists of
components and spare parts used in the manufacturing of interactive terminals
and network equipment, and the assembly of store servers. Upon installation of
interactive terminals and network equipment, and store servers, accumulated
incurred costs are capitalized as product equipment and depreciated accordingly.
Spare parts are expensed to repairs and maintenance as they are used.
Property and Equipment
Property and equipment is recorded at cost. Depreciation and amortization
are determined using the straight-line method and are based on the estimated
useful lives of assets and improvements of five to ten years for both book and
income tax purposes. Depreciation and amortization expense for the nine-month
periods ended June 29, 1996 and July 1, 1995 was $422,526 and $135,313,
respectively.
Research and Development Costs
Research and development costs incurred by the Company are included in
selling, general and administrative expenses. Such costs for the nine-month
periods ended June 29, 1996 and July 1, 1995 were $537,728 and $438,945,
respectively.
Organization Costs
Organization costs, principally legal fees, have been deferred and are
being amortized over five years using the straight-line method. Amortization for
the nine-month periods ended June 29, 1996 and July 1, 1995 was $5,893 and
$5,393, respectively.
F-8
<PAGE>
INTER(Bullet)ACT SYSTEMS, INCORPORATED AND SUBSIDIARY
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- Continued
2. SIGNIFICANT ACCOUNTING POLICIES -- Continued
Patents, Licenses and Trademarks
Legal fees incurred for the improvement and protection of the Company's
patents, licenses and trademarks have been deferred and are being amortized over
fifteen years using the straight-line method. Amortization for the nine-month
periods ended June 29, 1996 and July 1, 1995 was $5,476 and $941 respectively.
Net Loss Per Share
Net loss per share was computed by dividing net loss by the weighted
average number of common shares outstanding during the respective periods. Fully
diluted net loss per common share has not been presented since the inclusion of
the impact of stock options and warrants outstanding (Notes 1, 7, 8 and 11)
would be antidilutive.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Recently Issued Accounting Standards
During March 1995, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards ("SFAS") No. 121, "Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed
Of." This statement establishes financial accounting and reporting standards for
the impairment of long-lived assets, certain identifiable intangibles and
goodwill related to those assets to be held and used, and for long-lived assets
and certain identifiable intangibles to be disposed of. This statement is
effective for financial statements for fiscal years beginning after December 15,
1995, although earlier application is encouraged. It is the Company's policy to
account for these assets at the lower of amortized cost or fair value. As part
of an ongoing review of the valuation and amortization of such assets,
management assesses the carrying value of such assets on a continuing basis. If
this review indicates that the assets will not be recoverable as determined by a
nondiscounted cash flow analysis over the remaining amortization period, the
carrying value of these assets would be reduced to their estimated fair market
values. The Company does not expect the impact of the adoption of this
pronouncement to be material.
During October 1995, the Financial Accounting Standards Board issued SFAS
No. 123, "Accounting for Stock Based Compensation." This statement establishes
financial accounting and reporting standards for stock-based employee
compensation plans. SFAS No. 123 encourages entities to adopt a fair value based
method of accounting for stock compensation plans. However, SFAS No. 123 also
permits the Company to continue to measure compensation costs under pre-existing
accounting pronouncements. If the fair value based method of accounting is not
adopted, SFAS No. 123 requires pro forma disclosures of net income (loss) and
net income (loss) per common share in the notes to consolidated financial
statements. The accounting requirements of SFAS No. 123 are effective for
transactions entered into in fiscal years that begin after December 15, 1995,
though they may be adopted on issuance. The disclosure requirements of SFAS No.
123 are effective for financial statements for fiscal years beginning after
December 15, 1995, or for an earlier fiscal year for which SFAS No. 123 is
initially adopted for recognizing compensation cost. The Company has not yet
quantified the expected impact of the adoption of this pronouncement.
Reclassifications
Certain prior year financial statement amounts have been reclassified to
conform with the current period's presentation.
F-9
<PAGE>
INTER(Bullet)ACT SYSTEMS, INCORPORATED AND SUBSIDIARY
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- Continued
3. PROPERTY AND EQUIPMENT, NET
Property and equipment consists of the following at June 29, 1996:
<TABLE>
<S> <C>
PRODUCT EQUIPMENT:
Store interactive terminals and network equipment.................................... $3,993,901
Store interactive terminals and network equipment components......................... 1,494,060
5,487,961
Less: Accumulated depreciation....................................................... (442,795)
$5,045,166
OFFICE AND COMPUTER EQUIPMENT AND LEASEHOLD IMPROVEMENTS:
Office equipment..................................................................... $ 62,333
Computer equipment................................................................... 774,430
Furniture and fixtures............................................................... 148,691
Leasehold improvements............................................................... 10,089
995,543
Less: Accumulated depreciation and amortization...................................... (172,485)
$ 823,058
</TABLE>
4. NOTES PAYABLE TO STOCKHOLDERS
<TABLE>
<S> <C>
Notes payable to stockholders consists of the following at June 29, 1996:
Notes payable to stockholders bearing interest at 4.5%, both principal and interest due
on July 15, 1996 (a)................................................................ $ 66,997
Note payable to related parties relating to Agreement with Clearing Systems, Inc. (Note
9).................................................................................. 255,750
322,747
Less: Current portion.................................................................. 66,997
$255,750
</TABLE>
Effective February 1, 1995, the Company executed revised and amended
convertible notes payable to stockholders of $1,600,000 which extended the terms
of notes payable which were due on February 1, 1995 and May 1, 1995,
respectively, to February 1, 1998, with interest at 8.5% to be paid annually
beginning on February 1, 1996. In February 1996, the Company secured agreements
for holders of the convertible notes in the aggregate principal amount of
$1,600,000 (less cash paid in the amount of $35 for notes not converted to
common stock due to fractional shares) to convert their principal balances to
shares of the Company's common stock at $5.00 per share, to convert fifty
percent of the accrued interest thereon ($67,958) to shares of the Company's
common stock at $5.50 per share and to receive the remaining fifty percent of
the accrued interest thereon in cash.
Effective May 31, 1996, notes payable to stockholders with a principal
amount of $371,130 and related accrued interest of $46,694 were exchanged for
75,968 shares of the Company's common stock at $5.50 per share.
(a) These notes were payable to certain stockholders of the Company for amounts
advanced to the Company on behalf of three other stockholders in order for
them to purchase common stock. These notes were repaid in full in July 1996.
F-10
<PAGE>
INTER(Bullet)ACT SYSTEMS, INCORPORATED AND SUBSIDIARY
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- Continued
5. ACQUISITION
On April 14, 1993, Interactive Networks Incorporated ("INI") entered into
an agreement with Clearing Systems, Inc. ("CSI"), a Delaware corporation,
whereby 816,902 shares of INI stock were exchanged for certain assets and
assumption of certain liabilities of CSI. The assets acquired by INI included
the following:
<TABLE>
<S> <C>
Cash................................................................................... $ 449
Deposit on cabinetry for interactive terminals and network equipment................... 14,500
Prepayment of lease on facilities...................................................... 30,000
Communication equipment................................................................ 8,060
Accounts receivable.................................................................... 95
Purchased technology, research and development......................................... 611,471
664,575
Liabilities of CSI that were assumed by INI are as follows:
Demand note payable to members of the Investors Group.................................. 610,000
Accounts payable....................................................................... 40,000
Note payable -- communication equipment................................................ 4,575
654,575
Consideration for the 816,902 shares of common stock issued.............................. $ 10,000
</TABLE>
The market value of the acquired technology, research and development of
$611,471 was expensed during the period ending September 30, 1993. The Company
has incurred additional research and development costs redesigning and refining
the technology and systems acquired from CSI, as indicated in Note 2.
6. INCOME TAXES
The Company accounts for income taxes in accordance with Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes" which
requires the use of the "asset and liability method" of accounting for income
taxes. Accordingly, deferred tax liabilities and assets are determined based on
the difference between the financial statement and tax bases of assets and
liabilities, using enacted tax rates in effect for the year in which the
differences are expected to reverse. Temporary differences relating to
utilization of net operating loss ("NOL") carryforwards of approximately $13.6
million resulted in a deferred tax asset of approximately $4.6 million. The
deferred tax asset has been reduced by an equal, offsetting valuation allowance
of approximately $4.6 million due to both the uncertainty of future income and
limitations on the use of the NOL carryforwards due to change in control
resulting from equity transactions. Accordingly, no net deferred tax asset is
recorded at June 29, 1996. The net operating loss carryforwards, as well as
research and development credits, which can be applied against future taxable
income and income taxes, expire in years through 2011.
7. 1994 STOCK COMPENSATION PLAN
In April 1994, the Company adopted the ]1994 Stock Compensation Plan (the
"Plan"), which authorizes a committee named by the Board of Directors to grant
options to purchase up to 200,000 shares of the Company's common stock to
officers, founders, key employees and directors of the Company at exercise
prices not less than the fair market value of the stock at the date of grant.
During fiscal 1995, the number of shares eligible to be granted was increased to
430,000. Options granted may be either qualified incentive stock options under
the Internal Revenue Code of 1986, as amended, or nonqualified stock options.
The Plan will expire on April 19, 2004. An aggregate of 125,900 shares remain
available for future grant under this plan.
In April 1994, the Company granted qualified options to purchase 25,000
shares of the Company's common stock at an exercise price of $1.86 per share
(which, in the opinion of management, represented the fair market value of such
stock at the date of grant) to an officer of the Company. These options vest
over a five year period
F-11
<PAGE>
INTER(Bullet)ACT SYSTEMS, INCORPORATED AND SUBSIDIARY
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- Continued
7. 1994 STOCK COMPENSATION PLAN -- Continued
beginning with the end of this officer's second year of employment with the
Company (August 1995). At June 29, 1996, none of these options were exercised
and 6,250 were exercisable.
In August 1994, the Company granted nonqualified stock options to purchase
a total of 18,000 shares of common stock at $5.00 per share. Of these options,
16,000 were granted to nonemployee directors of the Company and 2,000 were
granted to employee directors of the Company. At June 29, 1996, none of these
options were exercised and all were exercisable.
During the year ended September 30, 1995, the Company granted qualified
options to purchase a total of 45,000 shares of common stock, of which options
to purchase 15,000 shares were canceled in February 1996 concurrent with the
issuance of 7,500 nonqualified stock options, at $5.00 per share. These options
were granted to certain officers of the Company. At June 29, 1996, none of the
remaining options were exercised and 6,000 were exercisable.
Additionally, during the year ended September 30, 1995, the Company granted
qualified options to purchase a total of 96,000 shares of common stock, of which
options to purchase 28,000 shares were canceled. The exercise price for these
options (net of the 28,000 options canceled) is $5.00 for 33,000 options and
$5.50 for 35,000 options. These options were granted to certain key employees of
the Company. At June 29, 1996, none of these options were exercised and 6,600
were exercisable.
In March 1995, the Company granted nonqualified stock options to purchase a
total of 60,600 shares of common stock at $5.00 per share to certain nonemployee
directors of the Company. At June 29, 1996, none of these options were exercised
and all were exercisable.
In April 1995, the Company granted nonqualified stock options to purchase a
total of 30,000 shares of common stock at $5.00 per share. These options were
granted to certain consultants of the Company. At June 29, 1996, none of these
options were exercised and all were exercisable.
During the nine-month period ended June 29, 1996, the Company granted
qualified options to purchase a total of 65,000 shares of common stock at $5.50
per share. These options were granted to certain employees of the Company, as
well as an employee of Vanguard. At June 29, 1996, none of these options were
exercisable.
1996 Nonqualified Stock Option Plan
On June 14, 1996, the Company adopted the 1996 Nonqualified Stock Option
Plan, which provides for the issuance of shares of common stock to key
employees, consultants and directors pursuant to nonqualified stock options. All
options must be granted at an exercise price not less than $5.50 per share. The
aggregate number of shares of common stock that may be issued pursuant to the
plan may not exceed 500,000 shares of common stock, subject to adjustment on the
occurrence of certain events affecting the Company's capitalization. As of June
29, 1996, 471,000 options had been granted at an exercise price of $5.50 per
share. These options vest annually over five years from the date of grant with
the exception of 107,000 options, which became immediately exercisable.
8. ISSUANCE OF WARRANTS WITH SHARES
In May 1995, the Company issued 400,000 shares of common stock to an
investor at $5 per share. In addition, with the issuance of these shares, the
Company also issued to the same investor a warrant to purchase up to an
additional 400,000 shares of the Company's common stock at the agreed-upon fair
market value of such stock at the time of exercise (the "Vanguard Warrant").
This warrant agreement contains an anti-dilution clause which provides for
adjustments to the number of shares eligible to be purchased to maintain the
number of shares at approximately 10.3% of the Company's outstanding common
stock. The warrant was to expire on the earlier of (i) May 5, 2005 or (ii) the
consummation of an initial public offering by the Company. The terms of the
Vanguard Warrant
F-12
<PAGE>
INTER(Bullet)ACT SYSTEMS, INCORPORATED AND SUBSIDIARY
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- Continued
8. ISSUANCE OF WARRANTS WITH SHARES -- Continued
were restructured immediately prior to the consummation of the private placement
transaction described in Note 11.
The Company has also entered into registration rights agreements with two
significant investors providing for certain registration rights in the event of
a public offering of the Company's securities.
9. COMMITMENTS AND CONTINGENCIES
Agreement with CSI
Pursuant to an agreement with CSI, the Company was required to pay a
consulting fee to CSI of $375,000 in the form of an 8.5% convertible note
payable. Of this amount, the Company has paid $119,250, and $255,750, which is
convertible to common stock at $5.50 per share, is due in installments on June
30, 1996 ($19,250) and December 28, 1998 ($236,500). The June 30, 1996
installment was paid on July 23, 1996. The $375,000 consulting fee is included
in selling, general and administrative expenses for the nine-month period ended
June 29, 1996.
Consulting and Management Services Agreements with Vanguard Cellular Systems,
Inc. ("Vanguard")
The Company entered into a consulting agreement with Vanguard pursuant to
which an employee of Vanguard began to serve as Chief Operating Officer of the
Company and Vanguard provided other consulting services requested by the
Company. Pursuant to the agreement, the Company was to reimburse Vanguard for
its costs of providing such services and had recognized expense of approximately
$52,000 during fiscal 1996 until the consulting agreement was terminated and
replaced by a management services agreement as of June 17, 1996. The management
services agreement, which has a term expiring on June 17, 1998, provides that
Vanguard will be entitled to receive 10,000 shares of common stock annually
during the term of the agreement in return for its other consulting services to
the Company. During the nine-month period ended June 29, 1996, 10,000 shares
were issued to Vanguard pursuant to this agreement and were recorded as a
prepaid expense at the fair market value of $5.50 per share at the date of
issuance.
Commitments for Technology
The Company has commitments for use of technology for which it has agreed
to pay aggregate minimum fees of $23,000 per month as of June 29, 1996. Future
commitments are expected to be paid at least through November 2003 and are
subject to increases based upon the amount of revenue generated from this
technology. Aggregate technology commitments charged to operations in the
nine-month periods ended June 29, 1996 and July 1, 1995 were $207,000 and
$206,465, respectively, and are included in selling, general and administrative
expenses.
Lease Commitments
The Company is also obligated under noncancelable operating leases expiring
through fiscal year 2000, covering premises and equipment with minimum rentals
of:
<TABLE>
<S> <C>
1996..................................................................................... $249,256
1997..................................................................................... 264,644
1998..................................................................................... 274,669
1999..................................................................................... 278,396
2000..................................................................................... 69,401
</TABLE>
Rent expense of $180,941 and $137,816 was recognized for the nine-month
periods ended June 29, 1996 and July 1, 1995, respectively, and is included in
selling, general and administrative expenses.
F-13
<PAGE>
INTER(Bullet)ACT SYSTEMS, INCORPORATED AND SUBSIDIARY
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- Continued
10. FORFEITURE OF SHARES
In September 1994, a stockholder agreed to forfeit 10,000 shares of the
Company's common stock for failure to fulfill an obligation to invest additional
capital in the Company. The forfeiture did not reduce the amount of the
stockholder's financial investment in the Company at that time, but did reduce
the number of shares issued to this individual. These shares were subsequently
reissued to two other individuals at $5.00 per share. In December 1994, the same
stockholder agreed to forfeit an additional 18,000 shares of the Company's
common stock for failure to fulfill an obligation to invest additional capital
in the Company. Upon this forfeiture, the investor's equity in the Company was
reduced in the total amount of $140,000, representing the value of 28,000 shares
of common stock at $5.00 per share.
11. SUBSEQUENT EVENTS
Litigation
The Company has settled a lawsuit which was commenced in July 1996. This
settlement requires the Company to pay an aggregate of $400,000 by January 1997,
$350,000 of which was paid on August 7, 1996. The cost of the settlement will be
charged to operations in the three-month period ending September 30, 1996.
Private Placement
Subsequent to June 29, 1996, the Company issued 142,000 units, each
consisting of a 14% senior discount note due 2003 with a principal amount at
maturity of $1,000 and one warrant to purchase 7.334 shares of common stock of
the Company at $.01 per share. However, if the Company has not completed an
initial public offering by September 30, 1997, each warrant that has not been
exercised will entitle the respective holder to purchase 9.429 shares of the
Company's common stock at $.01 per share.
The proceeds of $94.6 million (before deducting expenses and discounts of
the offering of approximately $3.8 million) generated in this transaction have
been allocated by the Company to the value of the warrants (approximately $24.4
million) and to the discounted notes (approximately $70.2 million).
Restructuring of the Vanguard Warrant
The Vanguard Warrant was restructured immediately prior to consummation of
the private placement described above to provide that Vanguard has the right to
buy 900,113 shares at any time before May 5, 2005 at $23.50 per share. The
restructured Vanguard Warrant also provides that Vanguard may pay the exercise
price either in cash or, if the fair market value of the Common Stock at the
time of exercise is greater than the exercise price, by surrendering any
unexercised portion of the Vanguard Warrant and receiving the number of shares
equal to (i) the excess of fair market value per share at the time of exercise
over the exercise price per share multiplied by (ii) the number of shares
surrendered.
Sale and Outsourcing of Manufacturing Function
On September 9, 1996, the Company sold its manufacturing operations to
Coleman Resources Corporation ("Coleman Resources") for approximately $2.6
million and entered into a supply agreement whereby Coleman Resources is to
fulfill the Company's anticipated requirements for terminals for the next three
years with fixed pricing for the first 5,000 terminals. No material gain or loss
was realized in this transaction.
F-14
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
TO THE BOARD OF DIRECTORS OF
INTER(Bullet)ACT SYSTEMS, INCORPORATED AND SUBSIDIARY:
We have audited the accompanying consolidated balance sheets of
Inter(Bullet)Act Systems, Incorporated (a North Carolina corporation in the
development stage) and Subsidiary as of September 30, 1995 and 1994, and the
related consolidated statements of operations, stockholders' equity (deficit)
and cash flows for the years then ended, for the period from inception (February
25, 1993) to September 30, 1993 and for the period from inception (February 25,
1993) to September 30, 1995. These financial statements are the responsibility
of the Company's management. Our responsibility is to express an opinion on
these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Inter(Bullet)Act Systems,
Incorporated and Subsidiary as of September 30, 1995 and 1994, and the results
of their operations and their cash flows for the years then ended, for the
period from inception (February 25, 1993) to September 30, 1993 and for the
period from inception (February 25, 1993) to September 30, 1995, in conformity
with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Melville, New York
April 15, 1996 (except with respect to
the matters discussed in Note 13,
as to which the date is July 25, 1996)
F-15
<PAGE>
INTER(Bullet)ACT SYSTEMS, INCORPORATED AND SUBSIDIARY
(A Development Stage Company)
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
September 30,
1995 1994
<S> <C> <C>
Assets
CURRENT ASSETS:
Cash and cash equivalents................................................................... $ 65,676 $ 206,165
Accounts receivable, net of allowance for doubtful accounts of $3,550 and $0,
respectively............................................................................. 62,302 9,907
Prepaid expenses and other.................................................................. 82,914 8,071
Notes receivable from stockholders.......................................................... 70,474 --
Accrued interest receivable................................................................. 12,984 6,161
Total current assets................................................................... 294,350 230,304
PROPERTY AND EQUIPMENT:
Product equipment........................................................................... 1,005,898 129,642
Less: Accumulated depreciation.............................................................. (123,795) (11,258)
Product equipment, net............................................................... 882,103 118,384
Office and computer equipment and leasehold improvements.................................... 520,282 159,920
Less: Accumulated depreciation and amortization............................................. (77,243) (13,887)
Office and computer equipment and leasehold improvements, net........................ 443,039 146,033
Product equipment in process of manufacturing............................................... 451,770 --
Total property and equipment, net...................................................... 1,776,912 264,417
OTHER ASSETS:
Deposits.................................................................................... 37,275 --
Notes receivable from stockholders.......................................................... -- 70,474
Organization costs (net of accumulated amortization of $20,300 and $12,442,
respectively)............................................................................ 18,990 26,848
Patents, licenses and trademarks (net of accumulated amortization of $2,972 and $1,558,
respectively)............................................................................ 18,228 17,142
Other intangibles (net of accumulated amortization of $2,301 and $0, respectively).......... 32,212 34,513
Total other assets, net................................................................ 106,705 148,977
Total assets........................................................................... $ 2,177,967 $ 643,698
Liabilities and Stockholders' Equity (Deficit)
CURRENT LIABILITIES:
Accounts payable............................................................................ $ 408,784 $ 38,540
Accrued expenses............................................................................ 367,651 129,023
Notes payable to related party.............................................................. 200,000 --
Notes payable to stockholders -- current portion............................................ 70,474 --
Total current liabilities.............................................................. 1,046,909 167,563
NOTES PAYABLE TO STOCKHOLDERS................................................................. 1,971,130 1,893,242
OTHER LONG-TERM LIABILITIES................................................................... 70,247 --
COMMITMENTS AND CONTINGENCIES (Note 11)
STOCKHOLDERS' EQUITY (DEFICIT):
Common stock, no par value; 10,000,000 shares authorized; 3,930,900 and 2,916,900 shares
issued and outstanding, respectively..................................................... 7,253,965 2,221,455
Deficit accumulated during the development stage............................................ (8,164,284) (3,638,562)
Total stockholders' equity (deficit)................................................... (910,319) (1,417,107)
Total liabilities and stockholders' equity (deficit)................................... $ 2,177,967 $ 643,698
</TABLE>
The accompanying notes are an integral part of these consolidated balance
sheets.
F-16
<PAGE>
INTER(Bullet)ACT SYSTEMS, INCORPORATED AND SUBSIDIARY
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
For the Period For the Period
from from
February 25, 1993 February 25, 1993
(Date of (Date of
For the For the Inception) Inception)
Year Ended Year Ended to to
September 30, 1995 September 30, 1994 September 30, 1993 September 30, 1995
<S> <C> <C> <C> <C>
Gross sales.................................. $ 254,714 $ 6,573 $ 10,600 $ 271,887
Less: Retailer reimbursements................ (144,475) (3,812) -- (148,287)
Net sales............................. 110,239 2,761 10,600 123,600
Direct operating expenses.................... 842,025 262,389 3,349 1,107,763
Gross profit (deficit)....................... (731,786) (259,628) 7,251 (984,163)
Selling, general and administrative
expenses................................... 3,504,751 1,975,313 1,294,762 6,774,826
Depreciation and amortization................ 190,748 31,604 7,541 229,893
Loss from operations......................... (4,427,285) (2,266,545) (1,295,052) (7,988,882)
Interest expense............................. 187,249 87,808 -- 275,057
Other income, net............................ 88,812 10,843 -- 99,655
Net loss.............................. $ (4,525,722) $ (2,343,510) $ (1,295,052) $ (8,164,284)
PER SHARE INFORMATON:
Net loss per shares (Note 2)............... $ (1.27) $ (0.83) $ (0.46)
Weighted average common shares
outstanding............................. 3,555,904 2,830,307 2,793,231
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-17
<PAGE>
INTER(Bullet)ACT SYSTEMS, INCORPORATED AND SUBSIDIARY
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
FROM FEBRUARY 25, 1993 (DATE OF INCEPTION) TO SEPTEMBER 30, 1995
<TABLE>
<CAPTION>
Deficit
Accumulated
During Total
Common Stock Development Stockholders'
Shares Amount Stage Equity (Deficit)
<S> <C> <C> <C> <C>
April 1993, the Company issued 816,902 shares of common stock
to Clearing Systems, Inc. for certain technological
information and processes. Consideration for the shares,
after assumption of certain liabilities, was approximately
$.012 per share (Note 7)..................................... 816,902 $ 10,000 $ -- $ 10,000
April 1993, the Company issued 1,898,592 shares to various
stockholders in exchange for cash and notes payable to the
Company valued at approximately $1.016 per share............. 1,898,592 1,929,526 -- 1,929,526
April 1993, the Company issued 101,406 shares to three
stockholders in consideration for investment services and
notes payable to the Company valued at approximately $1.016
per share.................................................... 101,406 103,059 -- 103,059
Net loss for the period........................................ -- -- (1,295,052) (1,295,052)
BALANCE AT SEPTEMBER 30, 1993.................................. 2,816,900 2,042,585 (1,295,052) 747,533
August 1994, return of capital to stockholders (Note 6(c))... -- (371,130) -- (371,130)
Issuance of common stock..................................... 100,000 500,000 -- 500,000
Forfeiture of common stock (Note 12)......................... (10,000) -- -- --
Issuance of previously forfeited common stock (Note 12)...... 10,000 50,000 -- 50,000
Net loss for the year........................................ -- -- (2,343,510) (2,343,510)
BALANCE AT SEPTEMBER 30, 1994.................................. 2,916,900 2,221,455 (3,638,562) (1,417,107)
Issuance of common stock..................................... 632,000 3,172,510 -- 3,172,510
Forfeiture of common stock (Note 12)......................... (18,000) (140,000) -- (140,000)
Issuance of common stock (Note 10)........................... 400,000 2,000,000 -- 2,000,000
Net loss for the year........................................ -- -- (4,525,722) (4,525,722)
BALANCE AT SEPTEMBER 30, 1995.................................. 3,930,900 $7,253,965 $(8,164,284) $ (910,319)
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-18
<PAGE>
INTER(Bullet)ACT SYSTEMS, INCORPORATED AND SUBSIDIARY
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
For the Period from For the Period from
For the For the February 25, 1993 February 25, 1993
Year Ended Year Ended (Date of Inception) (Date of Inception)
September 30, September 30, to to
1995 1994 September 30, 1993 September 30, 1995
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss............................................... $(4,525,722) $(2,343,510) $(1,295,052) $(8,164,284)
Adjustments to reconcile net loss to net cash used in
operating activities-
Depreciation and amortization....................... 190,748 31,604 7,541 229,893
Loss on asset disposal.............................. 10,463 -- -- 10,463
Acquired research and development
expenses.......................................... -- -- 611,471 611,471
Expiration of acquired prepaid expenses............. -- -- 30,000 30,000
Stock issued in payment of investment
services fees..................................... -- -- 32,582 32,582
(Increase) in accounts receivable and interest
receivable........................................ (59,218) (7,468) (8,600) (75,286)
(Increase) decrease in prepaid expenses and other... (74,843) 32,649 (40,625) (82,819)
(Increase) in other assets.......................... (39,775) (6,886) (13,127) (59,788)
Increase (decrease) in accounts payable............. 370,244 (51,584) 90,124 408,784
Increase in accrued expenses........................ 238,628 78,216 50,807 367,651
Increase in other long-term liabilities............. 70,247 -- -- 70,247
Net cash used in operating activities............. (3,819,228) (2,266,979) (534,879) (6,621,086)
CASH FLOWS FROM INVESTING ACTIVITIES:
Organization costs incurred............................ -- -- (39,290) (39,290)
Patents and licensing agreements....................... -- -- (18,700) (18,700)
Purchases of property and equipment.................... (337,368) (266,893) (14,609) (618,870)
Increase in product equipment in process of
manufacturing....................................... (451,770) -- -- (451,770)
Cost of manufacturing of product and test equipment.... (912,995) -- -- (912,995)
Net cash used in investing activities............. (1,702,133) (266,893) (72,599) (2,041,625)
CASH FLOWS FROM FINANCING ACTIVITIES:
Payment of notes payable............................... -- (3,368) (1,207) (4,575)
Proceeds from notes payable to related
party............................................... 200,000 -- -- 200,000
Proceeds from notes payable to
stockholders........................................ 148,362 912,112 -- 1,060,474
Payment of assumed liabilities......................... -- -- (40,000) (40,000)
Proceeds from common stock issuance, net of
forfeitures......................................... 5,032,510 550,000 878,418 6,460,928
Repayment of accounts receivable from stockholders..... -- 1,051,560 -- 1,051,560
Net cash provided by financing
activities..................................... 5,380,872 2,510,304 837,211 8,728,387
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS..... (140,489) (23,568) 229,733 65,676
CASH AND CASH EQUIVALENTS AT BEGINNING OF
PERIOD................................................. 206,165 229,733 -- --
CASH AND CASH EQUIVALENTS AT END OF
PERIOD................................................. $ 65,676 $ 206,165 $ 229,733 $ 65,676
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-19
<PAGE>
INTER(Bullet)ACT SYSTEMS, INCORPORATED AND SUBSIDIARY
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1995 AND 1994
1. ORGANIZATION
Inter(Bullet)Act Systems, Incorporated (the "Company") develops, owns and
operates proprietary electronic marketing systems that are designed to give
consumer products manufacturers (the "Manufacturers") and retailers the ability
to influence the purchasing behavior of consumers moments before shopping begins
and to track and analyze individual consumer purchasing behavior on an ongoing
basis. The Company's current commercial product offering utilizes interactive
"touch-screen" terminals inside the entrance of retail supermarkets that issue
individually targeted, and immediately usable, coupons and other promotional
incentives based on each consumer's cumulative purchasing history. This
automated process saves consumers time and money while providing Manufacturers
and retailers substantially more control, efficiency and cost effectiveness than
traditional mass advertising and promotion media. The Company receives recurring
revenue from transaction fees paid by Manufacturers for each electronic
redemption of their coupons and other incentives. Since its formation in 1993,
the Company has focused its system development and commercialization efforts
primarily in the retail supermarket industry.
The Company was incorporated on February 25, 1993, and the Company issued
stock to shareholders of CSI (Note 7) on April 14, 1993 and to fifteen
additional stockholders on April 16, 1993. Activities from the date of inception
to September 30, 1995 have been directed primarily to raising capital,
developing the software and cabinetry for placement of interactive terminals and
network equipment in stores, test marketing the service, advertising and
promoting the services offered and performing administrative functions.
From inception through September 30, 1995, the Company has had minimal
revenues and there is no assurance that the product which has been developed
will achieve success in the marketplace. The success of future operations will
be dependent primarily upon the acceptance of the Company's flagship product and
its ability to gain additional financing until such time. Furthermore, if the
product gains market acceptance, there is no assurance that the Company will
generate sufficient revenues to recognize a profit or that other products will
not be developed by other companies that will render the Company's product
obsolete.
Since inception, the Company has incurred recurring losses and experienced
negative operating cash flow, and has relied primarily on equity financing to
fund its operations. As of September 30, 1995 the Company had cash and cash
equivalents of $65,676. Subsequent to September 30, 1995 and prior to April 15,
1996 (Note 13), the Company raised an additional $16,200,000 in equity.
Furthermore, as described in Note 6(a), the Company has, since September 30,
1995, secured agreements from holders of convertible notes in the principal
amount of $1,600,000 to convert both principal and one-half of accrued interest
($67,958) to shares of the Company's common stock, and has revised the payment
terms of certain commitments (Note 11). In the opinion of the Company's
management, the impact of the equity raised and the debt and commitments
restructured will provide the Company with the liquidity and capital resources
to fund its operations through September 30, 1996.
2. SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The financial statements include the consolidated accounts of the Company
and its wholly-owned subsidiary, Network Licensing, Inc. ("NLI"). All
significant intercompany accounts and transactions have been eliminated.
Revenue Recognition
The Company recognizes revenue as coupons are redeemed at terminals. Brand
manufacturers pay a fee to the Company for each redemption. The fee is composed
of 1) a retailer processing fee, 2) a redemption fee and 3) the face value of
the coupon. The Company in turn passes through both the retailer processing fee,
which is included in direct operating expenses, and the face value of the coupon
to the retailer, while retaining the redemption fee. The Company records as net
revenue the redemption fee and the retailer processing fee paid by the
manufacturers. Certain manufacturers pay the Company in advance for a portion of
anticipated redemptions, and
F-20
<PAGE>
INTER(Bullet)ACT SYSTEMS, INCORPORATED AND SUBSIDIARY
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- Continued
2. SIGNIFICANT ACCOUNTING POLICIES -- Continued
these amounts are recorded as deferred revenue until earned through redemptions.
Deferred revenue as of September 30, 1995 and 1994 was approximately $22,000 and
$0, respectively, and is included in accrued liabilities in the accompanying
consolidated balance sheet.
Cash and Cash Equivalents
Cash equivalents are stated at cost, which approximates market value.
Highly liquid investments with maturities of three months or less are considered
cash equivalents for purposes of the balance sheets and statements of cash
flows.
Accounts Receivable -- Allowance Method
The Company uses the allowance method to account for uncollectable accounts
receivable. The accounts receivable of the Company at September 30, 1995 and
1994 consists of receivables accumulated during the test marketing stage of the
enterprise.
Product Equipment in Process of Manufacturing
The Company's product equipment in process of manufacturing consists of
components and spare parts used in the manufacturing of interactive terminals
and network equipment, and the assembly of store servers. Upon installation of
interactive terminals and network equipment, and store servers, accumulated
incurred costs are capitalized as product equipment and depreciated accordingly.
Spare parts are expensed to repairs and maintenance as they are used.
Property and Equipment
Property and equipment is recorded at cost. Depreciation and amortization
are determined using the straight-line method and are based on estimated useful
lives of assets and improvements of five to ten years for both book and income
tax purposes. Depreciation and amortization expense for fiscal years 1995 and
1994 and for the period from February 25, 1993 (Date of Inception) to September
30, 1993 was $179,175, $22,500 and $2,645, respectively.
Research and Development Costs
Research and development costs incurred by the Company are included in
selling, general and administrative expenses. Such costs for fiscal 1995 and
1994 and for the period from February 25, 1993 (Date of Inception) to September
30, 1993 were $622,862, $350,130 and $611,471 (Note 7), respectively.
Organization Costs
Organization costs, principally legal fees, have been deferred and are
being amortized over five years using the straight-line method. Amortization for
fiscal 1995 and 1994 and for the period from February 25, 1993 (Date of
Inception) to September 30, 1993 was $7,858, $7,858 and $4,584, respectively.
Patents, Licenses and Trademarks
Legal fees incurred for the improvement and protection of the Company's
patents, licenses and trademarks have been deferred and are being amortized over
fifteen years using the straight-line method. Amortization for fiscal 1995 and
1994 and for the period from February 25, 1993 (Date of Inception) to September
30, 1993 was $1,414, $1,246 and $312, respectively.
F-21
<PAGE>
INTER(Bullet)ACT SYSTEMS, INCORPORATED AND SUBSIDIARY
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- Continued
2. SIGNIFICANT ACCOUNTING POLICIES -- Continued
Net Loss Per Share
Net loss per share was computed by dividing net loss by the weighted
average number of common shares outstanding during the respective years. Fully
diluted net loss per common share has not been presented since the inclusion of
the impact of stock options and warrants outstanding (Notes 9 and 10) would be
antidilutive.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Reclassifications
Certain prior year financial statement amounts have been reclassified to
conform with the current year's presentation.
3. PROPERTY AND EQUIPMENT, NET
Property and equipment consists of the following:
<TABLE>
<CAPTION>
September 30,
1995 1994
<S> <C> <C>
PRODUCT EQUIPMENT:
Store interactive terminals and network equipment............................................... $ 652,032 $112,342
Store interactive terminals and network equipment components.................................... 353,866 17,300
1,005,898 129,642
Less: Accumulated depreciation.................................................................. (123,795) (11,258)
$ 882,103 $118,384
OFFICE AND COMPUTER EQUIPMENT AND LEASEHOLD IMPROVEMENTS:
Office equipment................................................................................ $ 42,432 $ 56,124
Computer equipment.............................................................................. 352,225 103,796
Furniture and fixtures.......................................................................... 115,536 --
Leasehold improvements.......................................................................... 10,089 --
520,282 159,920
Less: Accumulated depreciation and amortization................................................. (77,243) (13,887)
$ 443,039 $146,033
</TABLE>
4. NOTES RECEIVABLE FROM STOCKHOLDERS
The Company has notes receivable from three stockholders in the amount of
$70,474 which bear interest at 4.5%. Both principal and interest are due in full
on July 15, 1996 and, accordingly, are classified as current assets in the
accompanying consolidated balance sheet at September 30, 1995.
5. NOTES PAYABLE TO RELATED PARTY
The Company had two notes payable to a company which is significantly owned
by stockholders of the Company, each in the amount of $100,000 and bearing
interest at 15%. Both principal and interest were due in full on October 16,
1995 and October 27, 1995, respectively. The first note was paid when due and
the second note was
F-22
<PAGE>
INTER(Bullet)ACT SYSTEMS, INCORPORATED AND SUBSIDIARY
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- Continued
5. NOTES PAYABLE TO RELATED PARTY -- Continued
verbally extended until the Company received a significant portion of the equity
offering described in Note 13, at which time both principal and interest were
paid in full.
6. NOTES PAYABLE TO STOCKHOLDERS
Notes payable to stockholders consists of the following:
<TABLE>
<CAPTION>
September 30,
1995 1994
<S> <C> <C>
Notes payable to stockholders bearing interest at 8.5%, convertible to common stock at
conversion price of $5.00 per share, interest accruing monthly, maturing on February 1, 1998
(a).......................................................................................... $1,600,000 $ --
Notes payable to stockholders bearing interest at prime (7.75% at September 30, 1994) plus 2%,
interest accruing monthly, principal due on February 1,
1995 (a)..................................................................................... -- 754,439
Notes payable to stockholders bearing interest at 15%, interest accruing monthly, principal due
on May 1, 1995 (a)........................................................................... -- 697,199
Notes payable to stockholders bearing interest at 4.5%, both principal and interest due on July
15, 1996 (b)................................................................................. 70,474 70,474
Notes payable to stockholders bearing interest at prime (8.75% at September 30, 1995 and 7.75%
at September 30, 1994) plus 2%, principal and interest due in 8 equal quarterly installments
beginning on July 1, 1997 and due in full on March 1, 1999 (c)............................... 371,130 371,130
2,041,604 1,893,242
Less: Current portion.......................................................................... 70,474 --
$1,971,130 $1,893,242
</TABLE>
(a) Effective February 1, 1995, the Company executed revised and amended
convertible notes payable to stockholders which extended the terms of the
notes payable which were due on February 1, 1995 and May 1, 1995,
respectively, to February 1, 1998, with interest at 8.5% to be paid annually
beginning on February 1, 1996. Accordingly, these notes payable to
stockholders have been reflected as a non-current liability in the Company's
consolidated balance sheets as of September 30, 1995 and 1994. The revised
and amended convertible notes payable may be converted at the option of the
holder into shares of the Company's common stock at a conversion price of $5
per share.
In February 1996, the Company secured agreements for holders of these
convertible notes in the aggregate principal amount of approximately
$1,600,000 to convert their principal balances to shares of the Company's
common stock at $5.00 per share, to convert fifty percent of the accrued
interest thereon ($67,958) to shares of the Company's common stock at $5.50
per share and to receive the remaining fifty percent of the accrued interest
thereon in cash.
(b) These notes are payable to certain stockholders of the Company for amounts
advanced to the Company on behalf of three other stockholders in order for
them to purchase common stock. Related to this transaction are the notes
receivable from the same three stockholders for these amounts advanced on
their behalf to the Company by other stockholders. The terms of the notes
receivable are described in Note 4.
(c) These notes reflect a return of capital to certain stockholders of the
Company for the portion of their investment which was predicated on an
anticipated investment tax credit which the stockholders were not able to
utilize. These stockholders made their initial investment into the Company
with the expectation of utilizing this investment tax credit. When the
investment tax credit was not available, the Company agreed to return to
these stockholders an amount that would approximate the expected investment
tax credit. This return of capital was in the form of notes payable to
stockholders described above.
7. ACQUISITION
On April 14, 1993, Interactive Networks Incorporated ("INI") entered into
an agreement with Clearing Systems, Inc. ("CSI"), a Delaware corporation,
whereby 816,902 shares of INI stock were exchanged for certain assets and
assumption of certain liabilities of CSI. The assets acquired by INI included
the following:
F-23
<PAGE>
INTER(Bullet)ACT SYSTEMS, INCORPORATED AND SUBSIDIARY
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- Continued
7. ACQUISITION -- Continued
<TABLE>
<S> <C>
Cash................................................................................... $ 449
Deposit on cabinetry for interactive terminals and network equipment................... 14,500
Prepayment of lease on facilities...................................................... 30,000
Communication equipment................................................................ 8,060
Accounts receivable.................................................................... 95
Purchased technology, research and development......................................... 611,471
664,575
Liabilities of CSI that were assumed by INI are as follows:
Demand note payable to members of the Investors Group.................................. 610,000
Accounts payable....................................................................... 40,000
Note payable -- communication equipment................................................ 4,575
654,575
Consideration for the 816,902 shares of common stock issued.............................. $ 10,000
</TABLE>
The market value of the acquired technology, research and development of
$611,471 was expensed during the period ending September 30, 1993. The Company
has incurred additional research and development costs redesigning and refining
the technology and systems acquired from CSI, as indicated in Note 2.
8. INCOME TAXES
The Company accounts for income taxes in accordance with Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes" which
requires the use of the "asset and liability method" of accounting for income
taxes. Accordingly, deferred tax liabilities and assets are determined based on
the difference between the financial statement and tax bases of assets and
liabilities, using enacted tax rates in effect for the year in which the
differences are expected to reverse. Temporary differences relating to
utilization of net operating loss ("NOL") carryforwards of approximately $8.3
million resulted in a deferred tax asset of approximately $2.8 million. The
deferred tax asset has been reduced by an equal, offsetting valuation allowance
of approximately $2.8 million due to both the uncertainty of future income and
limitations on the use of the NOL carryforwards due to changes in control
resulting from equity transactions. Accordingly, no net deferred tax asset is
recorded at September 30, 1995 or 1994. The net operating loss carryforwards, as
well as research and development credits, which can be applied against future
taxable income and income taxes, expire in years through 2010.
9. 1994 STOCK COMPENSATION PLAN
In April 1994, the Company adopted the 1994 Stock Compensation Plan (the
"Plan"), which authorizes a committee named by the Board of Directors to grant
options to purchase up to 200,000 shares of the Company's common stock to
officers, founders, key employees and directors of the Company at exercise
prices not less than the fair market value of the stock at the date of grant.
During fiscal 1995, the number of shares eligible to be granted was increased to
430,000. Options granted may be either qualified incentive stock options under
the Internal Revenue Code of 1986, as amended, or nonqualified stock options.
The Plan will expire on April 19, 2004.
In April 1994, the Company granted qualified options to purchase 25,000
shares of the Company's common stock at an exercise price of $1.86 per share
(which, in the opinion of management, represented the fair market value of such
stock at the date of grant) to an officer of the Company. These options vest
over a five year period beginning with the end of this officer's second year of
employment with the Company (August 1995). At September 30, 1995, none of these
options were exercised and 6,250 were exercisable.
F-24
<PAGE>
INTER(Bullet)ACT SYSTEMS, INCORPORATED AND SUBSIDIARY
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- Continued
9. 1994 STOCK COMPENSATION PLAN -- Continued
In August 1994, the Company granted nonqualified stock options to purchase
a total of 18,000 shares of common stock at $5.00 per share. Of these options,
16,000 were granted to nonemployee directors of the Company and 2,000 were
granted to employee directors of the Company. At September 30, 1995 none of
these options were exercised and all were exercisable.
During the year ended September 30, 1995, the Company granted qualified
options to purchase a total of 45,000 shares of common stock, of which options
to purchase 15,000 shares were canceled in February 1996 concurrent with the
issuance of 7,500 nonqualified stock options, at $5.00 per share. These options
were granted to certain officers of the Company. At September 30, 1995, none of
the remaining options were exercisable.
Additionally, during the year ended September 30, 1995, the Company granted
qualified options to purchase a total of 96,000 shares of common stock, of which
options to purchase 8,000 shares were canceled. The exercise price for these
options (net of the 8,000 options canceled) is $5.00 for 53,000 options and
$5.50 for 35,000 options. These options were granted to certain key employees of
the Company. At September 30, 1995, none of these options were exercisable.
In March 1995, the Company granted nonqualified stock options to purchase a
total of 60,000 shares of common stock at $5.00 per share to certain nonemployee
directors of the Company. At September 30, 1995 none of these options were
exercised and all were exercisable.
In April 1995, the Company granted nonqualified stock options to purchase a
total of 30,000 shares of common stock at $5.00 per share. These options were
granted to certain consultants of the Company. At September 30, 1995, none of
these options were exercised and all were exercisable.
Subsequent to September 30, 1995 and prior to April 15, 1996, the Company
granted qualified options to purchase a total of 65,000 shares of common stock
at $5.50 per share. These options were granted to certain employees of the
Company, as well as an employee of Vanguard.
10. ISSUANCE OF WARRANTS WITH SHARES
In May 1995, the Company issued 400,000 shares of common stock to an
investor at $5 per share. In addition, with the issuance of these shares, the
Company also issued to the same investor a warrant to purchase up to an
additional 400,000 shares of the Company's common stock at the agreed-upon fair
market value of such stock at the time of exercise. This warrant agreement
contains an anti-dilution clause which provides for adjustments to the number of
shares eligible to be purchased to maintain the number of shares at
approximately 10.3% of the Company's outstanding common stock. The warrant
expires on the earlier of (i) May 5, 2005 or (ii) the consummation of an initial
public offering by the Company.
On May 8, 1995, the Company entered into a registration rights agreement
with the same investor. This agreement provides certain registration rights to
the investor in the event of a public offering of the Company's securities.
11. COMMITMENTS AND CONTINGENCIES
Agreement with CSI
Pursuant to an agreement with CSI, the Company was required, subsequent to
September 30, 1995, to pay a consulting fee to CSI of $375,000 in the form of an
8.5% convertible note payable. Of this amount, subsequent to September 30, 1995,
the Company has paid $109,250, and $265,750, which is convertible to common
stock at $5.50 per share, is due in installments on June 30, 1996 ($19,250) and
December 28, 1998 ($246,500).
F-25
<PAGE>
INTER(Bullet)ACT SYSTEMS, INCORPORATED AND SUBSIDIARY
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- Continued
11. COMMITMENTS AND CONTINGENCIES -- Continued
Consulting Agreement with Vanguard Cellular Systems, Inc. ("Vanguard")
The Company entered into a consulting agreement with Vanguard pursuant to
which an employee of Vanguard began to serve as Chief Operating Officer of the
Company and Vanguard provided other consulting services requested by the
Company. Pursuant to the agreement, the Company will reimburse Vanguard for its
costs of providing such services in the amount of approximately $13,000 per
month.
Commitments for Technology
The Company has commitments for use of technology for which it has agreed
to pay minimum fees of $20,000 and $16,000 per month as of September 30, 1995
and 1994, respectively. Future commitments are expected to be paid at least
through November 2003 and are subject to increases based upon the amount of
revenue generated from this technology. Aggregate technology commitments charged
to operations for these agreements in the years ended September 30, 1995 and
1994 and for the period from February 25, 1993 (Date of Inception) to September
30, 1993 were $265,465, $200,000 and $100,000, respectively, and are included in
selling, general and administrative expenses.
Lease Commitments
The Company is also obligated under noncancelable operating leases expiring
through fiscal year 2000, covering premises and equipment with minimum rentals
of:
<TABLE>
<S> <C>
1996......................................................................... $249,256
1997......................................................................... 264,644
1998......................................................................... 274,669
1999......................................................................... 278,396
2000......................................................................... 69,401
</TABLE>
Rent expense of $218,243, $93,817 and $40,289 was recognized for the years
ended September 30, 1995 and September 30, 1994 and for the period from February
25, 1993 (Date of Inception) to September 30, 1993, respectively, and is
included in selling, general and administrative expenses.
12. FORFEITURE OF SHARES
In September 1994, a stockholder agreed to forfeit 10,000 shares of the
Company's common stock for failure to fulfill an obligation to invest additional
capital in the Company. The forfeiture did not reduce the amount of the
stockholder's financial investment in the Company at that time, but did reduce
the number of shares issued to this individual. These shares were subsequently
reissued to two other individuals at $5.00 per share. In December 1994, the same
stockholder agreed to forfeit an additional 18,000 shares of the Company's
common stock for failure to fulfill an obligation to invest additional capital
in the Company. Upon this forfeiture, the investor's equity in the Company was
reduced in the total amount of $140,000, representing the value of 28,000 shares
of common stock at $5.00 per share.
13. SUBSEQUENT EVENTS
Private Placement
In October 1995, the Company approved an offering of up to $15,000,000 of
its common stock at $5.50 per share, with agreements for up to $8,000,000 to be
invested by one investor as part of a concurrent offering of up to $7,000,000 to
other accredited investors at the same price per share. In connection with this
offering, the Company will issue warrants to purchase additional common shares
equal to up to 10% of the shares purchased by investors who make certain minimum
investments. The Company's board of directors has since increased the amount of
common stock proposed to be offered to a range from $17 million to $20 million.
Since the effective date of this
F-26
<PAGE>
INTER(Bullet)ACT SYSTEMS, INCORPORATED AND SUBSIDIARY
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- Continued
13. SUBSEQUENT EVENTS -- Continued
agreement, investors have purchased common shares for net proceeds in the amount
of approximately $18,100,000. Furthermore, the Company has entered into
registration rights agreements with two significant investors providing for
certain registration rights in the event of a public offering of the Company's
securities.
Litigation
The Company has settled a lawsuit which was commenced in July 1996. This
settlement requires the Company to pay an aggregate of $400,000 by January 1997,
$350,000 of which is expected to be paid in fiscal 1996.
F-27
<PAGE>
NO DEALER, SALESPERSON OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS, AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT
BE RELIED UPON AS HAVING BEEN AUTHORIZED BY INTER(BULLET)ACT OR ANY OF THE
INITIAL PURCHASERS. NEITHER THE DELIVERY OF THIS PROSPECTUS, NOR ANY SALE MADE
HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS
BEEN NO CHANGE IN THE AFFAIRS OF INTER(BULLET)ACT SINCE THE DATES AS OF WHICH
INFORMATION IS GIVEN IN THIS PROSPECTUS. THIS PROSPECTUS DOES NOT CONSTITUTE AN
OFFER OR SOLICITATION BY ANYONE IN ANY JURISDICTION IN WHICH SUCH OFFER OR
SOLICITATION IS NOT AUTHORIZED OR IN WHICH THE PERSON MAKING SUCH OFFER OR
SOLICITATION IS NOT QUALIFIED TO DO SO OR TO ANY PERSON TO WHOM IT IS UNLAWFUL
TO MAKE SUCH SOLICITATION.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
Risk Factors.......................................... 8
The Exchange Offer.................................... 14
Use of Proceeds....................................... 19
Capitalization........................................ 19
Selected Consolidated Financial Data.................. 20
Management's Discussion and Analysis of Financial
Condition and Results of Operations................. 21
Business.............................................. 25
Management............................................ 40
Principal Shareholders................................ 45
Certain Transactions.................................. 47
Description of New Notes.............................. 50
Certain Federal Income Tax Considerations............. 72
Plan of Distribution.................................. 76
Legal Opinions........................................ 76
Independent Auditors.................................. 76
Index to Financial Statements......................... F-1
</TABLE>
INTER(BULLET)ACT SYSTEMS, INCORPORATED
OFFER TO EXCHANGE ITS 14% SENIOR DISCOUNT NOTES DUE 2003 WHICH HAVE BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, FOR ANY AND ALL 14%
SENIOR DISCOUNT NOTES DUE 2003
PROSPECTUS
, 1996
<PAGE>
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Article VIII of the Company's Bylaws provides:
"ARTICLE VIII
INDEMNIFICATION
1. EXTENT. In addition to the indemnification otherwise provided by law,
the corporation shall indemnify and hold harmless its directors and Indemnified
Officers (as hereinafter defined) against liability and expenses in any
proceeding, including reasonable attorneys' fees, arising out of their status as
directors or officers or their activities in any of such capacities or in any
capacity in which any of them is or was serving, at the corporation's request,
in another corporation, partnership, joint venture, trust or other enterprise,
and the corporation shall indemnify and hold harmless those directors and
officers who are deemed to be fiduciaries of the corporation's present and
future employee pension and welfare benefit plans as defined under the Employee
Retirement Income Security Act of 1974, as amended ("ERISA fiduciaries"),
against liability and expenses in any proceeding including reasonable attorneys'
fees, arising out of their status or activities as ERISA fiduciaries; provided,
however, that the corporation shall not indemnify a director or Indemnified
Officer against liability or litigation expense that he may incur on account of
his activities that at the time taken were not in good faith, were known or
reasonably should have been known by him to be clearly in conflict with the best
interests of the corporation, or that he had reason to believe was unlawful, and
the corporation shall not indemnify an ERISA fiduciary against any liability or
litigation expense that he may incur on account of his activities that at the
time taken were known or reasonably should have been known by him to be clearly
in conflict with the best interests of the employee benefit plan to which the
activities relate. The corporation shall also indemnify the director,
Indemnified Officer or ERISA fiduciary for reasonable costs, expenses and
attorneys' fees in connection with the enforcement of rights to indemnification
granted herein, if it is determined in accordance with Section 2 of this Article
that the director, officer or ERISA fiduciary is entitled to indemnification
hereunder.
2. DETERMINATION. Any indemnification under Section 1 of this Article shall
be paid by the corporation in any specific case only after a determination that
the director, Indemnified Officer or ERISA fiduciary did not act in a manner, at
the time the activities were taken, that was known or reasonably should have
been known by him to be clearly in conflict with the best interests of the
corporation, or the employee benefit plan to which the activities relate, as the
case may be. Such determination shall be made (a) by the affirmative vote of a
majority (but not less than two) of directors who are or were not parties to
such action, suit or proceeding or against whom any such claim is asserted
("disinterested directors") even though less than a quorum, or (b) if a majority
(but not less than two) of disinterested directors so direct, by independent
legal counsel in a written opinion, or (c) by the vote of the shares
representing a majority of the outstanding votes entitled to be cast other than
those owned or controlled by directors or officers who were parties to such
action, suit or proceeding or against whom such claim is asserted, or by a
unanimous vote of all the votes entitled to be cast, or (d) by a court of
competent jurisdiction.
3. ADVANCED EXPENSES. Expenses incurred by a director, Indemnified Officer
or ERISA fiduciary in defending a civil or criminal claim, action, suit or
proceeding may, upon approval of a majority (but not less than two) of the
disinterested directors, even though less than a quorum, or, if there are less
than two disinterested directors, upon unanimous approval of the Board of
Directors, be paid by the corporation in advance of the final disposition of
such claim, action, suit or proceeding upon receipt of an undertaking by or on
behalf of the director, Indemnified Officer or ERISA fiduciary to repay such
amount unless it shall ultimately be determined that he is entitled to be
indemnified against such expenses by the corporation.
4. CORPORATION. For purposes of this Article, references to directors of
the "corporation" shall be deemed to include directors, officers and ERISA
fiduciaries of Inter(Bullet)Act Systems, Incorporated, its subsidiaries, and all
constituent corporations absorbed into Inter(Bullet)Act Systems, Incorporated or
any of its subsidiaries by a consolidation or merger.
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<PAGE>
5. INDEMNIFIED OFFICER. For purposes of the Article, "Indemnified Officer"
shall mean all executive officers of the corporation who are also directors of
the corporation, the Treasurer of the corporation and any other officer who is
designated by the Board of Directors as an Indemnified Officer.
6. RELIANCE AND CONSIDERATION. Any director, Indemnified Officer, or ERISA
fiduciary who at any time after the adoption of this Bylaw serves or has served
in any of the aforesaid capacities for or on behalf of the corporation shall be
deemed to be doing or to have done so in reliance upon, and as consideration
for, the right of indemnification provided herein. Such right shall inure to the
benefit of the legal representatives of any such person and shall not be
exclusive of any other rights to which such person may be entitled apart from
the provision of this Bylaw. No amendment, modification or repeal of this
Article VIII shall adversely affect the right of any director, Indemnified
Officer or ERISA fiduciary to indemnification hereunder with respect to any
activities occurring prior to the time of such amendment, modification or
repeal.
7. INSURANCE. The corporation may purchase and maintain insurance on behalf
of its directors, officers, employees and agents and those persons who were
serving at the request of the corporation as a director, officer, partner,
trustee, employee or agent of, or in some other capacity in, another
corporation, partnership, joint venture, trust, employee benefit plan or other
enterprise against any liability asserted against him and incurred by him in any
such capacity, or arising out of his status as such, whether or not the
corporation would have the power to indemnify him against such liability under
the provisions of this Article or otherwise. Any full or partial payment made by
an insurance company under any insurance policy covering any director, officer,
employee or agent made to or on behalf of a person entitled to indemnification
under this Article shall relieve the corporation of its liability for
indemnification provided for in this Article or otherwise to the extent of such
payment, and no insurer shall have a right of subrogation against the
corporation with respect to such payment."
The North Carolina General Statutes contain provisions prescribing the
extent to which directors and officers shall or may be indemnified. These
statutory provisions are set forth below:
CH. 55 N.C. BUSINESS CORPORATION ACT
PART 5. INDEMNIFICATION.
(SECTION MARK) 55-8-50. POLICY STATEMENT AND DEFINITIONS.
(a) It is the public policy of this State to enable corporations organized
under this Chapter to attract and maintain responsible, qualified directors,
officers, employees and agents, and, to that end, to permit corporations
organized under this Chapter to allocate the risk of personal liability of
directors, officers, employees and agents through indemnification and insurance
as authorized in this Part.
(b) Definitions in this Part:
(1) "Corporation" includes any domestic or foreign predecessor entity
of a corporation in a merger or other transaction in which the
predecessor's existence ceased upon consummation of the transaction.
(2) "Director" means an individual who is or was a director of a
corporation or an individual who, while a director of a corporation, is or
was serving at the corporation's request as a director, officer, partner,
trustee, employee, or agent of another foreign or domestic corporation,
partnership, joint venture, trust, employee benefit plan, or other
enterprise. A director is considered to be serving an employee benefit plan
at the corporation's request if his duties to the corporation also impose
duties on, or otherwise involve services by, him to the plan or to
participants in or beneficiaries of the plan. "Director" includes, unless
the context requires otherwise, the estate or personal representative of a
director.
(3) "Expenses" means expenses of every kind incurred in defending a
proceeding, including counsel fees.
(4) "Liability" means the obligation to pay a judgment, settlement,
penalty, fine (including an excise tax assessed with respect to an employee
benefit plan), or reasonable expenses incurred with respect to a
proceeding.
(5) "Official capacity" means: (i) when used with respect to a
director, the office of director in a corporation; and (ii) when used with
respect to an individual other than a director, as contemplated in G.S.
55-8-56, the office in a corporation held by the officer or the employment
or agency relationship undertaken by the
II-2
<PAGE>
employee or agent on behalf of the corporation. "Official capacity" does
not include service for an other foreign or domestic corporation or any
partnership, joint venture, trust, employee benefit plan, or other
enterprise.
(6) "Party" includes an individual who was, is, or is threatened to be
made a named defendant or respondent in a proceeding.
(7) "Proceeding" means any threatened, pending, or completed action,
suit, or proceeding, whether civil, criminal, administrative, or
investigative and whether formal or informal.
(SECTION MARK) 55-8-51. AUTHORITY TO INDEMNIFY.
(a) Except as provided in subsection (d), a corporation may indemnify an
individual made a party to a proceeding because he is or was a director against
liability incurred in the proceeding if:
(1) He conducted himself in good faith; and
(2) He reasonably believed (i) in the case of conduct in his official
capacity with the corporation, that his conduct was in its best interests;
and (ii) in all other cases, that his conduct was at least not opposed to
its best interests; and
(3) In the case of any criminal proceeding, he had no reasonable cause
to believe his conduct was unlawful.
(b) A director's conduct with respect to an employee benefit plan for a
purpose he reasonably believed to be in the interests of the participants in and
beneficiaries of the plan is conduct that satisfies the requirement of
subsection (a)(2)(ii).
(c) The termination of a proceeding by judgment, order, settlement,
conviction, or upon a plea of no contest or its equivalent is not, of itself,
determinative that the director did not meet the standard of conduct described
in this section.
(d) A corporation may not indemnify a director under this section:
(1) In connection with a proceeding by or in the right of the
corporation in which the director was adjudged liable to the corporation;
or
(2) In connection with any other proceeding charging improper personal
benefit to him, whether or not involving action in his official capacity,
in which he was adjudged liable on the basis that personal benefit was
improperly received by him.
(e) Indemnification permitted under this section in connection with a
proceeding by or in the right of the corporation that is concluded without a
final adjudication on the issue of liability is limited to reasonable expenses
incurred in connection with the proceeding.
(f) The authorization, approval or favorable recommendation by the board of
directors of a corporation of indemnification, as permitted by this section,
shall not be deemed an act or corporate transaction in which a director has a
conflict of interest, and no such indemnification shall be void or voidable on
such ground.
(SECTION MARK) 55-8-52. MANDATORY INDEMNIFICATION.
Unless limited by its articles of incorporation, a corporation shall
indemnify a director who was wholly successful, on the merits or otherwise, in
the defense of any proceeding to which he was a party because he is or was a
director of the corporation against reasonable expenses incurred by him in
connection with the proceeding.
(SECTION MARK) 55-8-53. ADVANCE FOR EXPENSES.
Expenses incurred by a director in defending a proceeding may be paid by
the corporation in advance of the final disposition of such proceeding as
authorized by the board of directors in the specific case or as authorized or
required under any provision in the articles of incorporation or bylaws or by
any applicable resolution or contract upon receipt of an undertaking by or on
behalf of the director to repay such amount unless it shall ultimately be
determined that he is entitled to be indemnified by the corporation against such
expenses.
II-3
<PAGE>
(SECTION MARK) 55-8-54. COURT-ORDERED INDEMNIFICATION.
Unless a corporation's articles of incorporation provide otherwise, a
director of the corporation who is a party to a proceeding may apply for
indemnification to the court conducting the proceeding or to another court of
competent jurisdiction. On receipt of an application, the court after giving any
notice the court considers necessary may order indemnification if it determines:
(1) The director is entitled to mandatory indemnification under G.S.
55-8-52, in which case the court shall also order the corporation to pay the
director's reasonable expenses incurred to obtain court-ordered indemnification;
or
(2) The director is fairly and reasonably entitled to indemnification in
view of all the relevant circumstances, whether or not he met the standard of
conduct set forth in G.S. 55-8-51 or was adjudged liable as described in G.S.
55-8-51(d), but if he was adjudged so liable his indemnification is limited to
reasonable expenses incurred.
(SECTION MARK) 55-8-55. DETERMINATION AND AUTHORIZATION OF INDEMNIFICATION.
(a) A corporation may not indemnify a director under G.S. 55-8-51 unless
authorized in the specific case after a determination has been made that
indemnification of the director is permissible in the circumstances because he
has met the standard of conduct set forth in G.S. 55-8-51.
(b) The determination shall be made:
(1) By the board of directors by majority vote of a quorum consisting
of directors not at the time parties to the proceeding;
(2) If a quorum cannot be obtained under subdivision (1), by majority
vote of a committee duly designated by the board of directors (in which
designation directors who are parties may participate), consisting solely
of two or more directors not at the time parties to the proceeding;
(3) By special legal counsel (i) selected by the board of directors or
its committee in the manner prescribed in subdivision (1) or (2); or (ii)
if a quorum of the board of directors cannot be obtained under subdivision
(1) and a committee cannot be designated under subdivision (2), selected by
majority vote of the full board of directors (in which selection directors
who are parties may participate); or
(4) By the shareholders, but shares owned by or voted under the
control of directors who are at the time parties to the proceeding may not
be voted on the determination.
(c) Authorization of indemnification and evaluation as to reasonableness of
expenses shall be made in the same manner as the determination that
indemnification is permissible, except that if the determination is made by
special legal counsel, authorization of indemnification and evaluation as to
reasonableness of expenses shall be made by those entitled under subsection
(b)(3) to select counsel.
(SECTION MARK) 55-8-56. INDEMNIFICATION OF OFFICERS, EMPLOYEES, AND AGENTS.
Unless a corporation's articles of incorporation provide otherwise:
(1) An officer of the corporation is entitled to mandatory indemnification
under G.S. 55-8-52, and is entitled to apply for court-ordered indemnification
under G.S. 55-8-54, in each case to the same extent as a director.
(2) The corporation may indemnify and advance expenses under this Part to
an officer, employee, or agent of the corporation to the same extent as to a
director; and
(3) A corporation may also indemnify and advance expenses to an officer,
employee, or agent who is not a director to the extent, consistent with public
policy, that may be provided by its articles of incorporation, bylaws, general
or specific action of its board of directors, or contract.
(SECTION MARK) 55-8-57. ADDITIONAL INDEMNIFICATION AND INSURANCE.
(a) In addition to and separate and apart from the indemnification provided
for in G.S. 55-8-51, 55-8-52, 55-8-54, 55-8-55 and 55-8-56, a corporation may in
its articles of incorporation or bylaws or by contract or resolution indemnify
or agree to indemnify any one or more of its directors, officers, employees, or
agents against liability and expenses in any proceeding (including without
limitation a proceeding brought by or on behalf of the corporation itself)
arising out of their status as such or their activities in any of the foregoing
capacities; provided, however,
II-4
<PAGE>
that a corporation may not indemnify or agree to indemnify a person against
liability or expenses he may incur on account of his activities which were at
the time taken known or believed by him to be clearly in conflict with the best
interests of the corporation. A corporation may likewise and to the same extent
indemnify or agree to indemnify any person who, at the request of the
corporation, is or was serving as a director, officer, partner, trustee,
employee, or agent of another foreign or domestic corporation, partnership,
joint venture, trust or other enterprise or as a trustee or administrator under
an employee benefit plan. Any provision in any articles of incorporation, bylaw,
contract, or resolution permitted under this section may include provisions for
recovery from the corporation of reasonable costs, expenses, and attorneys' fees
in connection with the enforcement of rights to indemnification granted therein
and may further include provisions establishing reasonable procedures for
determining and enforcing the rights granted therein.
(b) The authorization, adoption, approval, or favorable recommendation by
the board of directors of a public corporation of any provision in any articles
of incorporation, bylaw, contract or resolution, as permitted in this section,
shall not be deemed an act or corporate transaction in which a director has a
conflict of interest, and no such articles of incorporation or bylaw provision
or contract or resolution shall be void or voidable on such grounds. The
authorization, adoption, approval, or favorable recommendation by the board of
directors of a nonpublic corporation of any provision in any articles of
incorporation, bylaw, contract or resolution, as permitted in this section,
which occurred prior to July 1, 1990, shall not be deemed an act or corporate
transaction in which a director has a conflict of interest, and no such articles
of incorporation, bylaw provision, contract or resolution shall be void or
voidable on such grounds. Except as permitted in G.S. 55-8-31, no such bylaw,
contract, or resolution not adopted, authorized, approved or ratified by
shareholders shall be effective as to claims made or liabilities asserted
against any director prior to its adoption, authorization, or approval by the
board of directors.
(c) A corporation may purchase and maintain insurance on behalf of an
individual who is or was a director, officer, employee, or agent of the
corporation, or who, while a director, officer, employee, or agent of the
corporation, is or was serving at the request of the corporation as a director,
officer, partner, trustee, employee, or agent of another foreign or domestic
corporation, partnership, joint venture, trust, employee benefit plan, or other
enterprise, against liability asserted against or incurred by him in that
capacity or arising from his status as a director, officer, employee, or agent,
whether or not the corporation would have power to indemnify him against the
same liability under any provision of this Chapter.
(SECTION MARK) 55-8-58. APPLICATION OF PART.
(a) If articles of incorporation limit indemnification or advance for
expenses, indemnification and advance for expenses are valid only to the extent
consistent with the articles.
(b) This Part does not limit a corporation's power to pay or reimburse
expenses incurred by a director in connection with his appearance as a witness
in a proceeding at a time when he has not been made a named defendant or
respondent to the proceeding.
(c) This Part shall not affect rights or liabilities arising out of acts or
omissions occurring before July 1, 1990.
II-5
<PAGE>
ITEM 21. EXHIBITS.
The following exhibits are filed as part of the Registration Statement:
<TABLE>
<CAPTION>
SEQUENTIAL
EXHIBIT NO. DESCRIPTION PAGE NO.
<C> <S> <C>
1 Purchase Agreement dated July 30, 1996, between the Company and the Initial Purchasers.
3 (a) Articles of Incorporation of the Company, with amendments, through June 12, 1996.
3 (b) Bylaws of the Company, as amended, through June 12, 1996.
4 (a) Specimen Certificate of the Company's Common Stock.
4 (b) Indenture dated August 1, 1996, between the Company and Fleet National Bank, as trustee, relating to
$142,000,000 in principal amount of 14% Senior Discount Notes due 2003.
*5 Opinion of Schell Bray Aycock Abel & Livingston, L.L.P. as to legality of securities.
*8 Tax Opinion of Schell Bray Aycock Abel & Livingston, L.L.P.
10 (a) Management Services Agreement dated June 17, 1996, between the Company and Vanguard Cellular
Systems, Inc.
10 (b) Consulting Agreement dated January, 1996, between the Company and Vanguard Cellular Systems, Inc.
10 (c) Registration Rights Agreement dated May 5, 1995, between the Company and Vanguard Cellular Systems,
Inc.
10 (d) Amendment No. 1 to Registration Rights Agreement dated October, 1995, between the Company and
Vanguard Cellular Systems, Inc.
10 (e) Registration Rights Agreement dated March, 1996 between the Company and Toronto Dominion
Investments, Inc.
10 (f) Subscription Agreement dated October, 1995, between the Company and Vanguard Cellular Systems, Inc.
10 (g) Company's 1996 Nonqualified Stock Option Plan.
10 (h) Form of Nonqualified Stock Option Agreement.
10 (i) Company's 1994 Stock Compensation Plan.
10 (j) Form of Incentive Stock Option Agreement.
10 (k) Amended and Restated Common Stock Purchase Warrant granted to Vanguard Cellular Operating Corp.
10 (l) Warrant Agreement dated August 1, 1996, between the Company and Fleet National Bank, as Warrant
Agent.
10 (m) Shareholders' Agreement dated April 16, 1993, between the Company and its shareholders.
10 (n) Amendment No. 1 to Shareholders' Agreement dated June 17, 1994, between the Company and its
shareholders.
10 (o) Exchange and Registration Rights Agreement dated July 30, 1996, between the Company and the Initial
Purchasers.
10 (p) Kiosk Agreement dated September 3, 1996 between the Company and Coleman Research Corporation.
12 Calculation of deficiency of earnings available to cover fixed charges.
21 List of Subsidiaries of the Company.
23 (a) Consent of Arthur Andersen LLP.
23 (b) Consent of Schell Bray Aycock Abel & Livingston L.L.P. is contained in its opinion included as
Exhibit 5.
24 Power of Attorney is contained on the signature page of this registration statement.
25 Statement of Eligibility of Trustee.
27 Financial Data Schedule.
99 (a) Form of Letter of Transmittal.
99 (b) Form of Notice of Guaranteed Delivery.
99 (c) Form of Letter to Brokers, Dealers, Commercial Banks, Trust Companies and Other Nominees.
99 (d) Form of Letter to Clients.
</TABLE>
* To be filed by amendment.
II-6
<PAGE>
ITEM 22. UNDERTAKINGS.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the provisions set forth in response to the foregoing
provisions, or otherwise, the Registrant has been advised that in the opinion of
the Securities and Exchange Commission such indemnification is against public
policy as expressed in the Securities Act and is, therefore, unenforceable. In
the event that a claim for indemnification against such liabilities (other than
the payment by the Registrant of expenses incurred or paid by a director,
officer or controlling person of the Registrant in the successful defense of any
action, suit or proceeding) is asserted by such director, officer or controlling
person in connection with the securities being registered, the Registrant will,
unless in the opinion of counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such issue.
The undersigned Registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in this Registration Statement when it became effective.
For purposes of determining any liability under the Securities Act, the
registrant will treat the information omitted from the form of prospectus filed
as part of this registration statement in reliance upon Rule 403A and contained
in a form of prospectus filed by the registrant under rule 424(b)(1), or (4) or
497(h) under the Securities Act ((section mark)(section mark)230.424(b)(1), (4)
or 230.497(h)) as part of this registration statement as of the time the
Commission declared it effective.
For purposes of determining any liability under the Securities Act, treat
each post-effective amendment that contains a form of prospectus as a new
registration statement for the securities offered in the registration statement,
and that offering of the securities at that time as the initial bona fide
offering of those securities.
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<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Norwalk, State of
Connecticut, on September 16, 1996.
INTER(BULLET)ACT SYSTEMS, INCORPORATED
By: /s/ Stephen R. Leeolou
STEPHEN R. LEEOLOU, CHAIRMAN
OF THE BOARD OF DIRECTORS
AND CHIEF EXECUTIVE OFFICER
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below hereby constitutes and appoints Stephen R. Leeolou and Aretas E.
Stearns, and each of them (with full power to each of them to act alone), his or
her true and lawful attorneys-in-fact and agents for him or her and on his or
her behalf and in his or her name, place and stead, in any and all capacities,
to sign any and all amendments (including post-effective amendments) to this
registration statement and any and all registration statements for registering,
pursuant to Rule 462 of the Securities and Exchange Commission, additional
securities included in this registration statement and to file the same, with
exhibits and any and all other documents filed with respect thereto, with the
Securities and Exchange Commission (or any other governmental or regulatory
authority), granting unto said attorneys, and each of them, full power and
authority to do and to perform each and every act and thing requisite and
necessary to be done in and about the premises in order to effectuate the same
as fully to all intents and purposes as he or she might or could do if
personally present, hereby ratifying and confirming all that said
attorneys-in-fact and agents, or any of them, may lawfully do or cause to be
done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
<C> <S> <C>
/s/ Stephen R. Leeolou Chairman of the Board of Directors, September 16, 1996
STEPHEN R. LEEOLOU Chief Executive Officer and Treasurer
(principal accounting and principal
financial officer)
/s/ Aretas E. Stearns
ARETAS E. STEARNS President, Chief Operating Officer and September 16, 1996
Director
/s/ William F. Penwell
WILLIAM F. PENWELL Vice Chairman of the Board of Directors September 16, 1996
/s/ Paul A. Nash
PAUL A. NASH Director September 16, 1996
/s/ Robert M. DeMichele
ROBERT M. DEMICHELE Director September 16, 1996
/s/ William P. Emerson, Jr.
WILLIAM P. EMERSON, JR. Director September 16, 1996
</TABLE>
II-8
<PAGE>
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
<C> <S> <C>
HAYNES G. GRIFFIN Director September , 1996
RICHARD P. LUDINGTON Director September , 1996
/s/ L. Richardson Preyer, Jr.
L. RICHARDSON PREYER, JR. Director September 16, 1996
/s/ Brian A. Rich
BRIAN A. RICH Director September 16, 1996
/s/ Stuart S. Richardson
STUART S. RICHARDSON Director September 16, 1996
/s/ Robert A. Silverberg
ROBERT A. SILVERBERG Director September 16, 1996
</TABLE>
II-9
<PAGE>
Exhibit 1
EXECUTION COPY
Inter(bullet)Act Systems, Incorporated
142,000 Units Consisting of 14%
Senior Discount Notes Due 2003 and Warrants
to Purchase 1,041,428 Shares of Common Stock
PURCHASE AGREEMENT
New York, New York
July 30, 1996
Salomon Brothers Inc
BT Securities Corporation
Toronto Dominion Securities (USA) Inc.
In care of Salomon Brothers Inc
Seven World Trade Center
New York, New York 10048
Dear Sirs:
Inter(bullet)Act Systems, Incorporated, a North Carolina
corporation (the "Company"), proposes to issue and sell to Salomon Brothers Inc,
BT Securities Corporation and Toronto Dominion Securities (USA) Inc. (the
"Initial Purchasers") 142,000 Units (the "Units") each consisting of $1,000 in
aggregate principal amount at maturity of the Company's 14% Senior Discount
Notes due 2003 (the "Notes") and one warrant (the "Warrants") to purchase 7.334
shares of common stock, no par value per share (the "Common Stock"), of the
Company. Shares of Common Stock issuable upon exercise of the Warrants are
referred to herein as the "Warrant Shares". The Notes are to be issued pursuant
to the provisions of an Indenture (the "Indenture") to be dated as of August 1,
1996, by and between the Company and Fleet National Bank, as Trustee (the
"Trustee"). The Warrants are to be issued pursuant to a Warrant Agreement (the
"Warrant Agreement") to be dated as of August 1, 1996, between the Company and
Fleet National Bank, as Warrant Agent (in such capacity, the "Warrant Agent").
The Notes and the Warrants will not be separately transferable until the earlier
of (i) the commencement of the exchange offer (the "Exchange Offer") or the
effectiveness of the shelf registration statement (the "Shelf Registration
Statement") for the Notes as provided in the Exchange and Registration Rights
Agreement of even date
<PAGE>
2
herewith among the Company and the Initial Purchasers, and (ii) such date as the
Initial Purchasers may, in their discretion, deem appropriate (such date, the
"Separation Date"). The Units, the Notes and the Warrants are collectively
referred to herein as the "Securities".
The sale of the Securities to the Initial Purchasers will be
made without registration of the Securities under the Securities Act of 1933, as
amended (the "Act"), in reliance upon the exemption from the registration
requirements of the Act provided by Section 4(2) thereof. The Initial Purchasers
have advised the Company that the Initial Purchasers will offer and sell the
Securities purchased by them hereunder in accordance with Section 4 hereof on
the terms set forth in the Final Memorandum (as defined below), as soon as the
Initial Purchasers deem advisable after this Agreement has been executed and
delivered.
In connection with the sale of the Securities, the Company has
prepared a preliminary offering memorandum, dated June 21, 1996 (including any
and all appendices and exhibits thereto, the "Preliminary Memorandum"), and a
final offering memorandum, dated July 30, 1996 (including any and all appendices
and exhibits thereto, the "Final Memorandum"). Each of the Preliminary
Memorandum and the Final Memorandum sets forth certain information concerning
the Company and the Securities. The Company hereby confirms that it has
authorized the use of the Preliminary Memorandum and the Final Memorandum, and
any amendment or supplement thereto, in connection with the offer and sale by
the Initial Purchasers of the Securities.
Unless stated to the contrary, all references herein to the
Final Memorandum are to the Final Memorandum at the Execution Time (as defined
below) and not meant to include any amendment or supplement subsequent to the
Execution Time.
1. Representations and Warranties. The Company represents and
warrants to, and agrees with, the Initial Purchasers as set forth below in this
Section 1.
(a) Each of the Preliminary Memorandum and the Final
Memorandum as of its date did not, and the Final Memorandum (as the
same may have been amended or supplemented) as of the Closing Date will
not, contain any untrue statement of a material fact or omit to
<PAGE>
3
state any material fact necessary to make the statements therein, in
the light of the circumstances under which they were made, not
misleading; provided, however, that the Company makes no
representations or warranties as to the information contained in or
omitted from the Preliminary Memorandum or the Final Memorandum in
reliance upon and in conformity with information furnished in writing
to the Company by the Initial Purchasers specifically for inclusion in
the Preliminary Memorandum or the Final Memorandum (and any amendment
or supplement thereof or thereto).
(b) Neither the Company nor any affiliate (as defined in Rule
501(b) of Regulation D under the Act ("Regulation D")) of the Company
has directly, or through any agent, (i) sold, offered for sale,
solicited offers to buy or otherwise negotiated in respect of, any
security (as defined in the Act) which is or will be integrated with
the sale of the Securities in a manner that would require the
registration of the Securities under the Act or (ii) engaged in any
form of general solicitation or general advertising (within the meaning
of Regulation D) in connection with the offering of the Securities.
(c) It is not necessary in connection with the offer, sale and
delivery of the Securities in the manner contemplated by this Agreement
and the Final Memorandum to register the Securities under the Act or to
qualify the Indenture under the Trust Indenture Act of 1939, as amended
(the "Trust Indenture Act").
(d) None of the Company, its affiliates or any person acting
on behalf of the Company or its affiliates has engaged in any directed
selling efforts (as that term is defined in Regulation S under the Act
("Regulation S")) with respect to the Securities, and the Company and
its affiliates and any person acting on its or their behalf have
complied with the offering restrictions requirement of Regulation S.
(e) The Securities satisfy the requirements set forth in Rule
144A(d)(3) under the Act. The Company has been advised by the National
Association of Securities Dealers, Inc. PORTAL Market that the
Securities have or will be designated PORTAL eligible securities
<PAGE>
4
in accordance with the rules and regulations of the
National Association of Securities Dealers, Inc.
(f) The Company is not an "investment company" within the
meaning of the Investment Company Act of 1940, as amended (the
"Investment Company Act"), without taking account of any exemption
arising out of the number of holders of the Company's securities.
(g) The Company has full corporate power and authority to
enter into this Agreement and perform the transactions contemplated
hereby. This Agreement has been duly authorized, executed and delivered
by the Company and constitutes a valid and binding obligation of the
Company enforceable in accordance with its terms ((A) subject, as to
enforcement of remedies, to applicable bankruptcy, reorganization,
insolvency, moratorium or other laws affecting creditors' rights
generally from time to time in effect, (B) subject to general
principles of equity, including principles of commercial
reasonableness, good faith and fair dealing, regardless of whether
enforcement is sought in a proceeding at law or in equity and (C)
except as rights to indemnity and contribution hereunder may be limited
by applicable law or public policy);
(h) Except as disclosed in the Final Memorandum, there are no
legal or governmental actions, suits or proceedings pending or, to the
best of the Company's knowledge, threatened to which the Company or any
of its subsidiaries is or is threatened to be made a party or of which
property owned or leased by the Company or any of its subsidiaries is
or is threatened to be made the subject, which actions, suits or
proceedings could, individually or in the aggregate, prevent or
materially adversely affect the transactions contemplated by this
Agreement or result in a material adverse change in the condition
(financial or otherwise), properties, business, results of operations
or prospects of the Company or its subsidiaries; and no labor
disturbance by the employees of the Company or any of its subsidiaries
exists or is imminent which could materially adversely affect such
condition, properties, business, results of operations or prospects.
Neither the Company nor any of its subsidiaries is a party or subject
to the provisions of any injunction, judgment, decree or order of any
court, regulatory body, administrative agency or other governmental
body which
<PAGE>
5
could materially adversely affect the condition (financial or
otherwise), business, results of operations or prospects of the Company
and its subsidiaries, taken as a whole.
(i) Except as disclosed in or specifically contemplated by the
Final Memorandum, the Company and its subsidiaries have sufficient
trademarks, trade names, patent rights, copyrights, licenses, approvals
and governmental authorizations to conduct their businesses as now
conducted.
(j) The Company and its subsidiaries are conducting business
in compliance with all applicable laws, rules and regulations of the
jurisdictions in which they are conducting business, including, without
limitation, all applicable local, state and Federal laws and
regulations, except where the failure to be so in compliance would not
materially adversely affect the condition (financial or otherwise),
business, results of operations or prospects of the Company and its
subsidiaries, taken as a whole.
(k) The Indenture and the Warrant Agreement have been duly
authorized by the Company and, when duly executed and delivered by the
Company in accordance with their terms (assuming the due authorization
execution and delivery thereof by the parties thereto other than the
Company), will be valid and legally binding agreements of the Company,
enforceable against the Company in accordance with their terms
(subject, as to enforcement of remedies, to applicable bankruptcy,
reorganization, insolvency, moratorium or other laws affecting
creditors' rights generally from time to time in effect and subject to
general principles of equity, including principles of commercial
reasonableness, good faith and fair dealing, regardless of whether
enforcement is sought in a proceeding at law or in equity).
(l) The Notes have been duly authorized for issuance and sale
by the Company to the Initial Purchasers and will, when issued, and
authenticated by the Trustee in accordance with the terms of the
Indenture and delivered to or paid for by the Initial Purchasers in
accordance with the terms hereof will be valid and legally binding
obligations of the Company, enforceable against the Company according
to their
<PAGE>
6
terms (subject, as to enforcement of remedies, to applicable
bankruptcy, reorganization, insolvency, moratorium or other laws
affecting creditors' rights generally from time to time in effect and
subject to general principles of equity, including principles of
commercial reasonableness, good faith and fair dealing, regardless of
whether enforcement is sought in a proceeding at law or in equity).
(m) The execution and delivery of this Agreement, the
Indenture and the Warrant Agreement, the issuance and sale of the
Securities and the Warrant Shares, the performance of this Agreement,
the Indenture and the Warrant Agreement and the consummation of the
transactions contemplated by this Agreement, the Indenture and the
Warrant Agreement will not conflict with or constitute a breach or
violation of any of the respective charters or By-laws of the Company
or any of its subsidiaries or any of the terms or provisions of, or
constitute a default or cause an acceleration of any obligation under
or result in the imposition or creation of (or the obligation to create
or impose) any security interest, mortgage, pledge, claim, lien or
encumbrance (each, a "Lien") with respect to, any obligation, bond,
agreement, note, debenture, or other evidence of indebtedness, or any
indenture, mortgage, deed of trust or other agreement, lease or
instrument to which the Company or any of its subsidiaries is a party
or by which it or any of them is bound, or to which any properties of
the Company or any of its subsidiaries is or may be subject, or any
order of any court or governmental agency, body or official having
jurisdiction over the Company or any of its subsidiaries or any of
their properties, or violate or conflict with any statute, rule or
regulation or administrative regulation or decree or court decree
applicable to the Company or any of its subsidiaries or any of their
respective assets or properties.
(n) All of the issued and outstanding shares of capital stock
of, or other ownership interests in, each subsidiary have been duly
authorized and validly issued and, except as disclosed in the Final
Memorandum, all of the shares of capital stock of, or other ownership
interests in, each subsidiary are owned, directly or through
Subsidiaries by the Company. All such shares of capital stock are fully
paid and nonassessable, and are owned free and clear of any Lien. There
are no
<PAGE>
7
outstanding subscriptions, rights, warrants, options, calls,
convertible or exchangeable securities, commitments of sale, or Liens
related to or entitling any person to purchase or otherwise to acquire
any shares of the capital stock of, or other ownership interest in, any
subsidiary, except as disclosed in the Final Memorandum.
(o) Except as set forth in the Warrant Agreement, no holder of
any Warrant Shares has any right to require registration of any
security of the Company. No holder of any security of the Company has
or will have any right to require the registration of such security by
virtue of any transaction contemplated by this Agreement.
(p) The authorized, issued and outstanding capital stock of
the Company is as set forth in the Final Memorandum under
"Capitalization"; all the shares of issued and outstanding Common Stock
have been duly authorized and validly issued and are fully paid,
nonassessable and not subject to any preemptive or similar rights; the
Warrant Shares have been duly authorized and reserved for issuance and
sale upon the exercise of the Warrants, and the Warrant Shares, when
issued and delivered by the Company upon such exercise, will be validly
issued, fully paid and nonassessable and free of any Liens; the capital
stock of the Company, including the Warrant Shares, conforms to all
statements relating thereto in the Final Memorandum and the
Registration Statement; and the issuance of the Warrant Shares by the
Company upon the exercise of the Warrants will not be subject to
preemptive or other similar rights. Except as described in the Final
Memorandum, there are no outstanding options, warrants or other rights
calling for the issuance of, or any commitment, plan or arrangement to
issue, any shares of capital stock of the Company or any security
convertible into or exchangeable or exercisable for capital stock of
the Company.
(q) The Warrants have been duly authorized for issuance and
sale by the Company to the Initial Purchasers and will, when issued,
executed, countersigned by the Warrant Agent and delivered in
accordance with the Warrant Agreement and paid for in accordance with
the terms of this Agreement, constitute legal, valid and binding
obligations of the Company,
<PAGE>
8
enforceable against the Company according to their terms (subject, as
to enforcement of remedies, to applicable bankruptcy, reorganization,
insolvency, moratorium or other laws affecting creditors' rights
generally from time to time in effect and subject to general principles
of equity, including principles of commercial reasonableness, good
faith and fair dealing, regardless of whether enforcement is sought in
a proceeding at law or in equity).
2. Purchase and Sale. Subject to the terms and conditions and
in reliance upon the representations and warranties herein set forth, the
Company agrees to sell to the Initial Purchasers, and the Initial Purchasers
agree to purchase from the Company, the Units in the amounts set forth opposite
their names on Schedule I hereto at a purchase price per Unit of $643.31 (the
"Purchase Price").
3. Delivery and Payment. Delivery of and payment for the Units
shall be made at 10:00 A.M. New York City time, on August 2, 1996, which date
and time may be postponed by agreement between the Initial Purchasers and the
Company (such date and time of delivery and payment for the Securities being
herein called the "Closing Date"). Delivery of the Units shall be made to the
Initial Purchasers against payment by the Initial Purchasers of the purchase
price thereof to or upon the order of the Company payable in immediately
available funds. Delivery of the Units shall be made at such location as the
Initial Purchasers shall reasonably designate at least one business day in
advance of the Closing Date and payment for the Securities shall be made at the
offices of Cravath, Swaine & Moore, 825 Eighth Avenue, New York, New York.
Certificates for the Notes and Warrants shall be registered in such names and in
such denominations as the Initial Purchasers may request not less than one full
business day in advance of the Closing Date.
The Company agrees to have the certificates for the Notes and
Warrants available for inspection, checking and packaging by the Initial
Purchasers in New York, New York, not later than 1:00 P.M. on the business day
prior to the Closing Date.
4. Offering of Securities; Restrictions on Transfer. (a)
The Initial Purchasers represent and warrant to and agree with the Company that
(i) they have not solicited and will not solicit any offer to buy or offer to
sell the Securities by means of any form of general solici-
<PAGE>
9
tation or general advertising (within the meaning of Regulation D) or in any
manner involving a public offering within the meaning of Section 4(2) of the Act
or, with respect to Securities sold in reliance on Regulation S, by means of any
directed selling efforts and (ii) they have solicited and will solicit offers to
buy the Securities only from, and have offered and will offer, sell or deliver
the Securities only to, (A) persons who they reasonably believe to be qualified
institutional buyers (as defined in Rule 144A under the Act) or, if any such
person is buying for one or more institutional accounts for which such person is
acting as fiduciary or agent, only when such person has represented to them that
each such account is a qualified institutional buyer, to whom notice has been
given that such sale or delivery is being made in reliance on Rule 144A, and, in
each case, in transactions under Rule 144A, (B) persons who they reasonably
believe to be institutional "accredited investors" (as defined in Rule
501(a)(1), (2), (3) or (7) of Regulation D), and who provide to them a letter in
the form of Exhibit A hereto or (C) persons to whom, and under circumstances
which, they reasonably believe offers and sales of Securities may be made
without registration of the Securities under the Act in reliance upon Regulation
S thereunder. The Initial Purchasers also represent and warrant and agree that
they have offered and will offer to sell the Securities only to, and have
solicited and will solicit offers to buy the Securities only from, persons that
in purchasing such Securities will be deemed to have represented and agreed as
provided under "Investor Representations and Restrictions on Resale" in Exhibit
B hereto.
(b) The Initial Purchasers represent and warrant that (i) they
have not offered or sold, and will not offer or sell, in the United Kingdom, by
means of any document, any Securities other than to persons whose ordinary
business it is to buy or sell shares or debentures, whether as principal or
agent, or in circumstances which do not constitute an offer to the public within
the meaning of the United Kingdom Companies Act 1985, (ii) they have complied
and will comply with all applicable provisions of the Financial Services Act
1986 of the United Kingdom with respect to anything done by them in relation to
the Securities in, from or otherwise involving the United Kingdom and (iii) they
have only issued or passed on, and will only issue or pass on, in the United
Kingdom any document received by them in connection with the issue of the
Securities to a person who is of the kind described in
<PAGE>
10
Article 9(3) of the Financial Services Act 1986 (Investment Advertisements)
(Exemptions) Order 1988 or is a person to whom the document may otherwise
lawfully be issued or passed on.
5. Agreements. The Company agrees with the
Initial Purchasers as follows:
(a) The Company will furnish to the Initial Purchasers,
without charge, as many copies of the Final Memorandum and any
supplements and amendments thereof or thereto as the Initial Purchasers
may reasonably request. The Company will pay the expenses of printing
or other production of all documents relating to the offering.
(b) The Company will not amend or supplement the Final
Memorandum without prior consent of the Initial Purchasers which
consent will not be unreasonably withheld.
(c) If at any time prior to the completion of the sale of the
Securities by the Initial Purchasers, any event occurs as a result of
which the Final Memorandum as then amended or supplemented would
include any untrue statement of a material fact or omit to state any
material fact necessary to make the statements therein, in the light of
the circumstances under which they were made, not misleading, or if it
shall be necessary to amend or supplement the Final Memorandum to
comply with applicable law, the Company promptly will notify the
Initial Purchasers of the same and, subject to paragraph (b) of this
Section 5, will prepare and provide to the Initial Purchasers pursuant
to paragraph (a) of this Section 5 copies of an amendment or supplement
which will correct such statement or omission or effect such
compliance.
(d) The Company will arrange for the qualification of the
Securities for sale by the Initial Purchasers under the laws of such
jurisdictions as the Initial Purchasers may reasonably designate, will
maintain such qualifications in effect so long as reasonably required
for the sale of the Securities. The Company will promptly advise the
Initial Purchasers of the receipt by the Company of any notification
with respect to the suspension of the qualification of the Securities
for sale in any jurisdiction or the
<PAGE>
11
initiation or threatening of any proceeding for such
purpose.
(e) Neither the Company nor any affiliate (as defined in Rule
501(b) of Regulation D) of the Company will solicit any offer to buy or
offer or sell the Securities by means of any form of general
solicitation or general advertising (within the meaning of Regulation
D).
(f) None of the Company, its affiliates nor any person acting
on behalf of the Company or its affiliates will engage in any directed
selling efforts with respect to the Securities within the meaning of
Regulation S, and the Company, its affiliates and each such person
acting on its or their behalf will comply with the offering
restrictions requirement of Regulation S.
(g) So long as any of the Securities are "restricted
securities" within the meaning of Rule 144(a)(3) under the Act, the
Company will, unless it becomes subject to and complies with Section 13
or 15(d) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), provide to each holder of such restricted securities
and to each prospective purchaser (as designated by such holder) of
such restricted securities, upon the request of such holder or
prospective purchaser, any information required to be provided by Rule
144A(d)(4) under the Securities Act. This covenant is intended to be
for the benefit of the holders, and the prospective purchasers
designated by such holders, from time to time of such restricted
securities.
(h) The Company shall include information substantially in the
form set forth in Exhibit B in each Final Memorandum.
(i) The Company shall use its best efforts in cooperation with
the Initial Purchasers to permit the Securities to be eligible for
clearance and settlement through The Depository Trust Company.
(j) The Company will not, for a period of 90 days following
the Execution Time without prior written consent of the Initial
Purchasers, offer, sell or contract to sell, or otherwise dispose of,
directly or indirectly, or announce the offering of, any debt
<PAGE>
12
securities issued or guaranteed by the Company (other than the
Securities or in connection with the Exchange Offer or the Shelf
Registration Statement).
(k) The Company will apply the net proceeds from the sale of
the Securities sold by it substantially in accordance with its
statements under the caption "Use of Proceeds" in the Final Memorandum.
6. Conditions to the Obligations of the Initial Purchasers.
The obligations of the Initial Purchasers to purchase the Securities shall be
subject to the accuracy of the representations and warranties on the part of the
Company contained herein as of the date and time that this Agreement is executed
and delivered by the parties hereto (the "Execution Time") and the Closing Date,
to the accuracy of the statements of the Company made in any certificates
pursuant to the provisions hereof, to the performance by the Company of its
obligations hereunder and to the following additional conditions:
(a) The Company shall have furnished to the Initial Purchasers
the opinion of Schell Bray Aycock Abel & Livingston L.L.P., counsel for
the Company, dated the Closing Date, to the effect that:
(i) each of the Company and its subsidiaries has been
duly incorporated and is validly existing as a corporation in
good standing under the laws of the jurisdiction in which it
is chartered or organized, with full corporate power and
authority to own its properties and conduct its business as
described in the Final Memorandum, and is, to the knowledge of
such counsel, duly qualified to do business as a foreign
corporation and is in good standing under the laws of each
jurisdiction which requires such qualification wherein it owns
or leases material properties or conducts material business
other than where the failure to be so qualified or in good
standing would not have a material adverse affect on the
Company and its subsidiaries taken as a whole;
(ii) all the outstanding shares of capital stock of the
Company's subsidiaries have been duly and validly authorized
and issued and are fully paid and nonassessable, and all
outstanding shares of capital stock of the Company's
subsidiaries are
<PAGE>
13
owned by the Company directly free and clear of any perfected
security interest and, to such counsel's knowledge, any other
security interests, claims, liens or encumbrances;
(iii) the Company's authorized equity capitalization is
as set forth in the Final Memorandum; and the Securities
conform to the description thereof contained in the Final
Memorandum;
(iv) the Indenture has been duly authorized, executed
and delivered, and constitutes a legal, valid and binding
instrument enforceable against the Company in accordance with
its terms (subject, as to enforcement of remedies, to
applicable bankruptcy, reorganization, insolvency, moratorium
or other laws affecting creditors' rights generally from time
to time in effect and subject to general principles of equity,
including principles of commercial reasonableness, good faith
and fair dealing (regardless of whether enforcement is sought
in a proceeding at law or in equity)); and the Securities have
been duly authorized and, when executed and authenticated in
accordance with the provisions of the Indenture and delivered
to and paid for by the Initial Purchasers pursuant to this
Agreement, will constitute legal, valid and binding
obligations of the Company entitled to the benefits of the
Indenture (subject, as to enforcement of remedies, to
applicable bankruptcy, reorganization, insolvency, moratorium
or other laws affecting creditors' rights generally from time
to time in effect and subject to general principles of equity,
including principles of commercial reasonableness, good faith
and fair dealing, regardless of whether enforcement is sought
in a proceeding at law or in equity);
(v) no consent, approval, authorization or order of any
court or governmental agency or body is required for the
consummation of the transactions contemplated herein, except
such as may be required under the blue sky laws of any
jurisdiction in connection with the purchase and distribution
of the Securities by the Initial Purchasers and such other
approvals (specified in such opinion) as have been obtained;
<PAGE>
14
(vi) neither the issue and sale of the Securities, the
execution and delivery of the Indenture, the consummation of
any other of the transactions herein contemplated nor the
fulfillment of the terms hereof will conflict with, result in
a breach or violation of, or constitute a default under any
law or the charter or bylaws of the Company or the terms of
any indenture or other agreement or instrument known to such
counsel and to which the Company or any of its subsidiaries is
a party or bound or any judgment, order or decree known by
such counsel to be applicable to the Company or any of its
subsidiaries of any court, regulatory body, administrative
agency, governmental body or arbitrator having jurisdiction
over the Company or any of its subsidiaries;
(vii) the Company has full corporate power and authority to
enter into this Agreement and to sell and deliver the
Securities to be sold by it to the Initial Purchasers; this
Agreement has been duly and validly authorized by all
necessary corporate action by the Company, has been duly and
validly executed and delivered by and on behalf of the
Company, and is a valid and binding agreement of the Company
enforceable in accordance with its terms, ((A) subject, as to
enforcement of remedies, to applicable bankruptcy,
reorganization, insolvency, moratorium or other laws affecting
creditors' rights generally from time to time in effect, (B)
subject to general principles of equity, including principles
of commercial reasonableness, good faith and fair dealing,
regardless of whether enforcement is sought in a proceeding at
law or in equity and (C) except as rights to indemnity and
contribution hereunder may be limited by applicable law or
public policy); and, to the knowledge of such counsel, no
approval, authorization, order, consent, registration, filing,
qualification, license or permit of or with any court,
regulatory, administrative or other governmental body is
required for the execution and delivery of this Agreement by
the Company or the consummation of the transactions
contemplated by this Agreement;
<PAGE>
15
(viii) it is not necessary in connection with the
offer, sale and delivery of the Securities in the manner
contemplated by this Agreement to register the Securities
under the Act or to qualify the Indenture under the Trust
Indenture Act;
(ix) to the knowledge of such counsel, except as
disclosed in the Final Offering Memorandum (a) there are no
legal or governmental actions, suits or proceedings pending or
threatened to which the Company or any of its subsidiaries is
or is threatened to be made a party or of which property owned
or leased by the Company or any of its subsidiaries is or is
threatened to be made the subject, which actions, suits or
proceedings could, individually or in the aggregate, prevent
or materially adversely affect the transactions contemplated
by this Agreement or result in a material adverse change in
the condition (financial or otherwise), properties, business,
results of operations or prospects of the Company and its
subsidiaries and (b) neither the Company nor any of its
subsidiaries is a party or subject to the provisions of any
injunction, judgment, decree or order of any court, regulatory
body, administrative agency or other governmental body which
could materially adversely affect the condition (financial or
otherwise), business, results of operations or prospects of
the Company and its subsidiaries, taken as a whole; and
(x) the Company is not, and upon the closing of the
offering contemplated by this Agreement, will not, be an
"investment company" within the meaning of the Investment
Company Act of 1940, as amended.
In rendering such opinion, such counsel may (A) limit such opinions to
matters of the existing laws of the State of North Carolina and the
United States of America; (B) rely as to matters of fact, to the extent
they deem proper, on certificates of responsible officers of the
Company and public officials and (C) exclude all matters relating to
federal patent, trademark and other proprietary information laws.
References to the Final Memorandum in this
<PAGE>
16
paragraph (a) include any amendments or supplements thereof or thereto
at the Closing Date.
Such counsel shall state that it has no reason to believe that
at the Execution Date the Final Memorandum contained any untrue
statement of a material fact or omitted to state any material fact
required to be stated therein or necessary to made the statements
therein not misleading.
(b) The Company shall have furnished to the Representatives
the opinion of Brown Raysman & Millstein LLP, special intellectual
property counsel for the Company, to the effect that:
(i) to such counsel's knowledge, based solely on the
limited matters as to which such counsel has been engaged, the
statements in the Final Memorandum under the heading
"Business--Legal Proceedings" regarding the action against
Catalina Marketing Corp. fairly summarize such matter therein
described; and
(ii) to such counsel's knowledge, based solely on the
limited matters as to which such counsel has been engaged, the
statements set forth under headings "Risk Factors--Patents,
Proprietary Information and Trademarks," and "Business--
Patents, Proprietary Information and Trademarks," in the Final
Memorandum, provide a fair summary of the matters therein
described.
In rendering such opinion, such counsel may rely (A) as to
matters involving the application of laws of any jurisdiction other than the
State of New York or the United States, to the extent they deem proper and
specify in such opinion, upon the opinion of other counsel of good standing whom
they believe to be reliable and who are satisfactory to Counsel for the Initial
Purchasers and (B) as to matters of fact, to the extent they deem proper, on
certificates of responsible officers of the Company and public officials.
References to the Final Memorandum in this paragraph (b) including any
amendments or supplements thereto at the Closing Date.
(c) The Initial Purchasers shall have received from Cravath,
Swaine & Moore, counsel for the Initial Purchasers, such opinion or
opinions, dated the Closing
<PAGE>
17
Date, with respect to the issuance and sale of the Securities, the
Indenture, the Final Memorandum (together with any amendment or
supplement thereof or thereto) and other related matters as the Initial
Purchasers may reasonably require, and the Company shall have furnished
to such counsel such documents as they request for the purpose of
enabling them to pass upon such matters.
(d) The Company shall have furnished to the Initial Purchasers
a certificate of the Company, signed by the Chairman of the Board or
the President and the principal financial or accounting officer of the
Company, dated the Closing Date, to the effect that the signers of such
certificate have carefully examined the Final Memorandum, any amendment
or supplement to the Final Memorandum and this Agreement and that:
(i) the representations and warranties of the Company
in this Agreement are true and correct in all material
respects on and as of the Closing Date with the same effect as
if made on the Closing Date and the Company has complied with
all the agreements and satisfied all the conditions on its
part to be performed or satisfied at or prior to the Closing
Date; and
(ii) since the date of the most recent financial
statements included in the Final Memorandum (exclusive of any
amendment or supplement thereof or thereto), there has been no
material adverse change in the condition (financial or other),
earnings, business or properties of the Company and its
subsidiaries, whether or not arising from transactions in the
ordinary course of business, except as set forth in or
contemplated in the Final Memorandum (exclusive of any
amendment or supplement thereof or thereto).
(e) At the Execution Time and at the Closing Date, Arthur
Andersen LLP shall have furnished to the Initial Purchasers a letter or
letters, dated respectively as of the Execution Time and as of the
Closing Date, in form and substance satisfactory to the Initial
Purchasers, confirming that they are independent certified public
accountants under Rule 101 of the AICPA's Code of Professional Conduct
and its interpretations and rulings and stating in effect that:
<PAGE>
18
(i) in their opinion the audited financial statements
included in the Final Memorandum and reported on by them
comply in form in all material respects with the applicable
accounting requirements of the Exchange Act and the related
published rules and regulations thereunder;
(ii) on the basis of a reading of the latest unaudited
financial statements made available by the Company and its
subsidiaries; their limited review in accordance with the
standards established by the AICPA of the unaudited interim
financial information as indicated in their report included in
the Final Memorandum; carrying out certain specified
procedures (but not an examination in accordance with
generally accepted auditing standards) which would not
necessarily reveal matters of significance with respect to the
comments set forth in such letter; a reading of the minutes of
the meetings of the stockholders, directors and finance
committee of the Company and its subsidiaries; and inquiries
of certain officials of the Company who have responsibility
for financial and accounting matters of the Company and its
subsidiaries as to transactions and events subsequent to
September 30, 1995, nothing came to their attention which
caused them to believe that:
(1) any unaudited financial statements included in
the Final Memorandum do not comply in form in all
material respects with applicable accounting
requirements and with the published rules and
regulations of the Securities and Exchange Commission
with respect to financial statements included or
incorporated in quarterly reports on Form 10- Q under
the Exchange Act; and said unaudited financial
statements are not, in all material respects, in
conformity with generally accepted accounting
principles applied on a basis substantially
consistent with that of the audited financial
statements included in the Final Memorandum; or
(2) with respect to the period subsequent to March
30, 1996, there were any changes, at a specified date
not more than five business
<PAGE>
19
days prior to the date of the letter, in the
long-term debt of the Company and its subsidiaries or
capital stock of the Company or decreases in the
stockholders' equity of the Company or decreases in
working capital of the Company and its subsidiaries
as compared with the amounts shown on the March 30,
1996 consolidated balance sheet included in the Final
Memorandum, or for the period from March 31, 1996, to
such specified date there were any decreases, as
compared with the corresponding period in the
preceding year; in net revenues or income before
income taxes or in total or per share amounts of net
income of the Company and its subsidiaries, except in
all instances for changes or decreases set forth in
such letter, in which case the letter shall be
accompanied by an explanation by the Company as to
the significance thereof unless aid explanation is
not deemed necessary by the Initial Purchasers; and
(iii) they have performed certain other specified
procedures as a result of which they determined that certain
information of an accounting, financial or statistical nature
(which is limited to accounting, financial or statistical
information derived from the general accounting records of the
Company and its subsidiaries) set forth in the Final
Memorandum agrees with the accounting records of the Company
and its subsidiaries, excluding any questions of legal
interpretation.
Arthur Andersen LLP shall have also furnished to the Initial
Purchasers a copy of a management letter issued to the Company stating that
there are no material weaknesses in the Company's system of internal accounting
controls.
References to the Final Memorandum in this paragraph (e)
include any amendment or supplement thereof or thereto at the date of the
letter.
(f) Subsequent to the Execution Time or, if earlier, the dates
as of which information is given in the Final Memorandum (exclusive of
any amendment or supplement thereof or thereto), there shall not have
<PAGE>
20
been (i) any change or decrease specified in the letter or letters
referred to in paragraph (e) of this Section 6 or (ii) any change, or
any development involving a prospective change, in or affecting the
business or properties of the Company and its subsidiaries the effect
of which, in any case referred to in clause (i) or (ii) above, is, in
the judgment of the Initial Purchasers, so material and adverse as to
make it impractical or inadvisable to market the Securities as
contemplated by the Final Memorandum (exclusive of any amendment or
supplement thereof or thereto).
(g) Prior to the Closing Date, the Company shall have
furnished to the Initial Purchasers such further information,
certificates and documents as the Initial Purchasers may reasonably
request.
If any of the conditions specified in this Section 6 shall not
have been fulfilled in all material respects when and as provided in this
Agreement, or if any of the opinions and certificates mentioned above or
elsewhere in this Agreement shall not be in all material respects reasonably
satisfactory in form and substance to the Initial Purchasers and counsel for the
Initial Purchasers, this Agreement and all obligations of the Initial Purchasers
hereunder may be canceled at, or at any time prior to, the Closing Date by the
Initial Purchasers. Notice of such cancellation shall be given to the Company in
writing or telegraph confirmed in writing.
The documents required to be delivered by this Section 6 shall
be delivered at the office of Cravath, Swaine & Moore, counsel for the Initial
Purchasers, at Worldwide Plaza, 825 Eighth Avenue, New York, New York, on the
Closing Date.
7. Reimbursement of Initial Purchasers' Expenses. If the sale
of the Securities provided for herein is not consummated because any condition
to the obligations of the Initial Purchasers set forth in Section 6 hereof is
not satisfied, because of any termination pursuant to Section 9 hereof or
because of any refusal, inability or failure on the part of the Company to
perform any agreement herein or comply with any provision hereof other than by
reason of a default by the Initial Purchasers, the Company will reimburse the
Initial Purchasers upon demand for all out-of-pocket expenses (including
reasonable fees and disbursements
<PAGE>
21
of counsel) that shall have been incurred by it in connection with the proposed
purchase and sale of the Securities.
8. Indemnification and Contribution. (a) The
Company agrees to indemnify and hold harmless the Initial Purchasers, the
directors, officers and employees of the Initial Purchasers and each person who
controls the Initial Purchasers within the meaning of either the Act or the
Exchange Act against any and all losses, claims, damages or liabilities, joint
or several, to which they or any of them may become subject under the Act, the
Exchange Act or other Federal or state statutory law or regulation, at common
law or otherwise, insofar as such losses, claims, damages or liabilities (or
actions in respect thereof) arise out of or are based upon any untrue statement
or alleged untrue statement of a material fact contained in the Preliminary
Memorandum, the Final Memorandum or any information provided by the Company to
any holder or prospective purchaser of Securities pursuant to Section 5(g), or
in any amendment thereof or supplement thereto, or arise out of or are based
upon the omission or alleged omission to state therein a material fact required
to be stated therein or necessary to make the statements therein not misleading,
and agrees to reimburse each such indemnified party, as incurred, for any legal
or other expenses reasonably incurred by them in connection with investigating
or defending any such loss, claim, damage, liability or action; provided,
however, that the Company will not be liable in any such case to the extent that
any such loss, claim, damage or liability arises out of or is based upon any
such untrue statement or alleged untrue statement or omission or alleged
omission made in the Preliminary Memorandum, the Final Memorandum or the
information provided pursuant to Section 5(g), or in any amendment thereof or
supplement thereto, in reliance upon and in conformity with written information
furnished to the Company by or on behalf of the Initial Purchasers specifically
for inclusion therein and provided further with respect to any untrue statement
or omission of a material fact made in any Preliminary Memorandum, the indemnity
agreement contained in this Section 8(a) shall not inure to the benefit of any
Initial Purchaser (or any of the directors, officers and employees of such
Initial Purchaser or any controlling person of such Initial Purchaser) from whom
the person asserting any such loss, claim, damage or liability purchased the
Securities concerned, to the extent that any such loss, claim, damage or
liability of such Initial Purchaser occurs under the circumstances where it
<PAGE>
22
shall have been determined by a court of competent jurisdiction by final and
nonappealable judgement that (x) the Company had previously furnished copies of
the Final Memorandum to the Initial Purchaser, (y) the untrue statement or
omission of a material fact contained in the Preliminary Memorandum was
corrected in the Final Memorandum and (z) there was not sent or given to such
person, at or prior to the written confirmation of the sale of such Securities
to such person, a copy of the Final Memorandum. This indemnity agreement will be
in addition to any liability which the Company may otherwise have.
(b) The Initial Purchasers agree to indemnify and hold
harmless the Company, its directors, its officers, and each person who controls
the Company within the meaning of either the Act or the Exchange Act, to the
same extent as the foregoing indemnity from the Company to the Initial
Purchasers, but only with reference to written information relating to the
Initial Purchasers furnished to the Company by or on behalf of the Initial
Purchasers specifically for inclusion in the Preliminary Memorandum or the Final
Memorandum, or in any amendment thereof or supplement thereto. This indemnity
agreement will be in addition to any liability which the Initial Purchasers may
otherwise have. The Company acknowledges that the statements set forth in the
last paragraph of the cover page and under the heading "Plan of Distribution" in
the Preliminary Memorandum and the Final Memorandum constitute the only
information furnished in writing by or on behalf of the Initial Purchasers for
inclusion in the Preliminary Memorandum or the Final Memorandum.
(c) Promptly after receipt by an indemnified party under this
Section 8 of notice of the commencement of any action, such indemnified party
will, if a claim in respect thereof is to be made against the indemnifying party
under this Section 8, notify the indemnifying party in writing of the
commencement thereof; but the failure so to notify the indemnifying party (i)
will not relieve it from liability under paragraph (a) or (b) above unless and
to the extent it did not otherwise learn of such action and such failure results
in the forfeiture by the indemnifying party of substantial rights and defenses
and (ii) will not, in any event, relieve the indemnifying party from any
obligations to any indemnified party other than the indemnification obligation
provided in paragraph (a) or (b) above. The indemnifying party shall be entitled
to appoint counsel of the indemnifying party's choice at the indemnifying
party's
<PAGE>
23
expense to represent the indemnified party in any action for which
indemnification is sought (in which case the indemnifying party shall not
thereafter be responsible for the fees and expenses of any separate counsel
retained by the indemnified party or parties except as set forth below);
provided, however, that such counsel shall be reasonably satisfactory to the
indemnified party. Notwithstanding the indemnifying party's election to appoint
counsel to represent the indemnified party in an action, the indemnified party
shall have the right to employ separate counsel (including local counsel), and
the indemnifying party shall bear the reasonable fees, costs and expenses of
such separate counsel if (i) the use of counsel chosen by the indemnifying party
to represent the indemnified party would present such counsel with a conflict of
interest, (ii) the actual or potential defendants in, or targets of, any such
action include both the indemnified party and the indemnifying party and the
indemnified party shall have reasonably concluded that there may be legal
defenses available to it and/or other indemnified parties which are different
from or additional to those available to the indemnifying party, (iii) the
indemnifying party shall not have employed counsel reasonably satisfactory to
the indemnified party to represent the indemnified party within a reasonable
time after notice of the institution of such action or (iv) the indemnifying
party shall authorize the indemnified party to employ separate counsel at the
expense of the indemnifying party. An indemnifying party will not, without the
prior written consent of the indemnified parties, settle or compromise or
consent to the entry of any judgment with respect to any pending or threatened
claim, action, suit or proceeding in respect of which indemnification or
contribution may be sought hereunder (whether or not the indemnified parties are
actual or potential parties to such claim or action) unless such settlement,
compromise or consent includes an unconditional release of each indemnified
party from all liability arising out of such claim, action, suit or proceeding.
(d) In the event that the indemnity provided in paragraph (a)
or (b) of this Section 8 is unavailable to or insufficient to hold harmless an
indemnified party for any reason, the Company and the Initial Purchasers agree
to contribute to the aggregate losses, claims, damages and liabilities
(including legal or other expenses reasonably incurred in connection with
investigating or defending same) (collectively "Losses") to which the Company
and the Initial Purchasers may be subject in such proportion as is appro-
<PAGE>
24
priate to reflect the relative benefits received by the Company and by the
Initial Purchasers from the offering of the Securities; provided, however, that
in no case shall the Initial Purchasers be responsible for any amount in excess
of the purchase discount or commission applicable to the Securities purchased by
the Initial Purchasers hereunder. If the allocation provided by the immediately
preceding sentence is unavailable for any reason, the Company and the Initial
Purchasers shall contribute in such proportion as is appropriate to reflect not
only such relative benefits but also the relative fault of the Company and of
the Initial Purchasers in connection with the statements or omissions which
resulted in such Losses as well as any other relevant equitable considerations.
Benefits received by the Company shall be deemed to be equal to the total net
proceeds from the offering (before deducting expenses), and benefits received by
the Initial Purchasers shall be deemed to be equal to the total purchase
discounts and commissions, in each case as set forth on the cover page of the
Final Memorandum. Relative fault shall be determined by reference to whether any
alleged untrue statement or omission relates to information provided by the
Company or the Initial Purchasers. The Company and the Initial Purchasers agree
that it would not be just and equitable if contribution were determined by pro
rata allocation or any other method of allocation which does not take account of
the equitable considerations referred to above. Notwithstanding the provisions
of this paragraph (d), no person guilty of fraudulent misrepresentation (within
the meaning of Section 11(f) of the Act) shall be entitled to contribution from
any person who was not guilty of such fraudulent misrepresentation. For purposes
of this Section 8, each person who controls the Initial Purchasers within the
meaning of either the Act or the Exchange Act and each director, officer and
employee of the Initial Purchasers shall have the same rights to contribution as
such Initial Purchasers, and each person who controls the Company within the
meaning of either the Act or the Exchange Act and each officer and director of
the Company shall have the same rights to contribution as the Company, subject
in each case to the applicable terms and conditions of this paragraph (d).
9. Termination. This Agreement shall be subject to termination
in the absolute discretion of the Initial Purchasers, by notice given to the
Company prior to delivery of and payment for the Securities, if prior to such
time (i) trading in securities generally on the New York Stock
<PAGE>
25
Exchange or the Nasdaq Stock Market's National Market shall have been suspended
or limited or minimum prices shall have been established on either of such
Exchange or Market, (ii) a banking moratorium shall have been declared either by
Federal or New York State authorities or (iii) there shall have occurred any
outbreak or escalation of hostilities, declaration by the United States of a
national emergency or war or other calamity or crisis the effect of which on
financial markets is such as to make it, in the judgment of the Initial
Purchasers, impracticable or inadvisable to proceed with the offering or
delivery of the Securities as contemplated by the Final Memorandum (exclusive of
any amendment or supplement thereof or thereto).
10. Representations and Indemnities to Survive. The respective
agreements, representations, warranties, indemnities and other statements of the
Company or its officers and of the Initial Purchasers set forth in or made
pursuant to this Agreement will remain in full force and effect, regardless of
any investigation made by or on behalf of the Initial Purchasers or the Company
or any of the officers, directors or controlling persons referred to in Section
8 hereof, and will survive delivery of and payment for the Securities. The
provisions of Sections 7 and 8 hereof shall survive the termination or
cancellation of this Agreement.
11. Notices. All communications hereunder will be in writing
and effective only on receipt, and, if sent to the Initial Purchasers, will be
mailed, delivered or telegraphed and confirmed to it, in care of Salomon
Brothers Inc at Seven World Trade Center, New York, New York, 10048; or, if sent
to the Company, will be mailed, delivered or telegraphed and confirmed to it at
14 Westport Avenue, Norwalk, CT 06851, attention of Aretas E. Stearns,
President.
12. Successors. This Agreement will inure to the benefit of and
be binding upon the parties hereto and their respective successors and the
officers and directors and controlling persons referred to in Section 8 hereof,
and no other person will have any right or obligation hereunder.
13. Applicable Law. This Agreement will be governed by and
construed in accordance with the laws of the State of New York.
<PAGE>
26
If the foregoing is in accordance with your understanding of
our agreement, please sign and return to us the enclosed duplicate hereof,
whereupon this letter and your acceptance shall represent a binding agreement
between the Company and the Initial Purchasers.
Very truly yours,
INTER(bullet)ACT SYSTEMS, INC.,
by ______________________________
Name:
Title:
THE FOREGOING AGREEMENT
IS HEREBY CONFIRMED AND
ACCEPTED AS OF THE DATE
FIRST ABOVE WRITTEN:
SALOMON BROTHERS INC,
for itself and on behalf of
the other Initial Purchasers
by _______________________
Name:
Title:
<PAGE>
SCHEDULE I
Purchaser Number of Units
Salomon Brothers Inc.......................................... 92,300
BT Securities Corporation..................................... 24,850
Toronto Dominion Securities (USA) Inc......................... 24,850
-------
Total..................... 142,000
=======
<PAGE>
<PAGE>
Exhibit 3(a)
ARTICLES OF INCORPORATION
OF
INTERACTIVE NETWORKS INCORPORATED
Pursuant to Section 55-2-02 of the General Statutes of North Carolina, the
undersigned person does hereby submit these Articles of Incorporation for the
purpose of establishing a business corporation:
1. The name of the corporation is Interactive Networks Incorporated.
2. The number of shares the corporation is authorized to issue is
5,000,000 shares of Common Stock.
3. The street address and county of the initial registered office of the
corporation are Suite 1500, Renaissance Plaza, 230 North Elm Street,
Greensboro, North Carolina, 27401, Guilford County, and the name of the
registered agent at that address is Doris R. Bray.
The mailing address of the initial registered office of the corporation
is P.O. Box 21847, Greensboro, North Carolina 27420
4. The name and address of the incorporator are Doris R. Bray, Suite 1500,
Renaissance Plaza, 230 North Elm Street, Greensboro, North Carolina
237401
5. These articles will be effective upon filing.
This the 24th day of February, 1993.
Doris R. Bray, Incorporator
<PAGE>
ARTICLES OF AMENDMENT
OF
INTERACTIVE NETWORKS INCORPORATED
The undersigned corporation hereby submits these Articles of Amendment
for the purpose of amending its Articles of Incorporation:
1. The name of the corporation is Interactive Networks
Incorporated.
2. The Articles of Incorporation of the corporation are hereby
amended as follows:
(a) Article 1 of the Articles of Incorporation is hereby
amended in its entirety to read as follows:
1. The name of the corporation is Inter(bullet)Act
Systems, Incorporated.
(b) Article 2 of the Articles of Incorporation is hereby
amended its entirety to read as follows:
2. The number of shares the corporation is
authorized to issue is 10,000,000 shares of Common
Stock.
3. The foregoing amendments were approved on the 26th day of May, 1994
by the shareholders of the corporation as required by the North
Carolina Business Corporation Act.
4. These Articles of Amendment shall be effective on June 8,
1994.
This the 6th day of June, 1994.
INTERACTIVE NETWORKS INCORPORATED
By:
William F. Penwell, President
<PAGE>
ARTICLES OF AMENDMENT
OF
INTER(bullet)ACT SYSTEMS, INCORPORATED
The undersigned corporation hereby submits these articles of amendment
for the purposes of amending its articles of incorporation:
1. The name of the corporation is Inter(bullet)Act Systems,
Incorporated.
2. The Articles of Incorporation of the corporation are hereby
amended as follows:
Article 2 of the Articles of Incorporation is hereby amended
in its entirety to read as follows:
2. The number of shares the corporation is authorized to
issue is 20,000,000 shares of Common Stock.
3. The foregoing amendment was approved on the 12th day of June,
1996 by the shareholders of the corporation as required by the North
Carolina Business Corporation Act.
This the 12th day of June, 1996.
INTER(bullet)ACT SYSTEMS, INCORPORATED
By:
Stephen R. Leeolou, Chairman of the
Board of Directors
<PAGE>
<PAGE>
Exhibit 3(b)
BYLAWS
OF
INTER(bullet)ACT SYSTEMS, INCORPORATED
ARTICLE I
Offices
1. Principal Office. The principal office of the corporation shall be
located at such place as the Board of Directors may determine.
2. Other Offices. The corporation may have offices at such other
places, either within or without the State of North Carolina, as the Board of
Directors may from time to time determine, or as the affairs of the corporation
may require.
ARTICLE II
Meetings of Shareholders
1. Place of Meetings. All meetings of the shareholders shall be held at
the principal office of the corporation, or at such other place, either within
or without the State of North Carolina (but within the continental United
States), as shall be designated in the notice of the meeting or agreed upon by a
majority of the shareholders entitled to vote thereat.
2. Annual Meetings. The annual meeting of shareholders shall be held on
the second Tuesday in March, if not a legal holiday, but if a legal holiday,
then on the next day following not a legal holiday, for the purpose of electing
directors of the corporation and for the transaction of such other business as
may be properly brought before the meeting.
3. Substitute Annual Meetings. If the annual meeting shall not be held
on the day designated by these bylaws, a substitute annual meeting may be called
in accordance with the provisions of Section 4 of this Article. A meeting so
called shall be designated and treated for all purposes as the annual meeting.
4. Special Meetings. Special meetings of the shareholders may be called
at any time by the President, the Secretary or the Chairman of the Board of
Directors of the corporation, or by any shareholder pursuant to the written
request signed by the holders of not less than 10% of all the votes entitled to
be cast at the meeting, describing the purpose or purposes for which it is to be
held, and delivered to the Secretary of the corporation.
5. Notice of Meetings. Written or printed notice stating the time and
place of the meeting shall be delivered no fewer than 10 nor more than 60 days
before the date thereof, either personally
<PAGE>
or by mail, by or at the direction of the President, the Secretary, the Chairman
of the Board or other person calling the meeting, to each shareholder of record
entitled to vote at such meeting and to each nonvoting shareholder entitled to
notice of the meeting. If the corporation is required by law to give notice of
proposed action to nonvoting shareholders and the action is to be taken without
a meeting pursuant to Section 9 of this Article, written notice of such proposed
action shall be delivered to such shareholders not less than 10 days before such
action is taken.
If notice is mailed, such notice shall be effective when deposited in
the United States mail with postage thereon prepaid and correctly addressed to
the shareholder's address shown in the corporation's current record of
shareholders.
In the case of an annual or substitute annual meeting, the notice of
meeting need not specifically state the business to be transacted thereat unless
it is a matter with respect to which specific notice to the shareholders is
expressly required by the provisions of the North Carolina Business Corporation
Act. In the case of a special meeting, the notice of meeting shall specifically
state the purpose or purposes for which the meeting is called.
When a meeting is adjourned for more than 120 days after the date fixed
for the original meeting or if a new record date for the adjourned meeting is
fixed, notice of the adjourned meeting shall be given as in the case of an
original meeting. When a meeting is adjourned for 120 days or less and no new
record date for the adjourned meeting is fixed, it is not necessary to give
notice of the adjourned meeting other than by announcement at the meeting at
which the adjournment is taken.
6. Waiver of Notice. A shareholder may waive any notice required by
law, the Articles of Incorporation, or these bylaws before or after the date and
time stated in the notice. Such waiver must be in writing, be signed by the
shareholder entitled to the notice, and be delivered to the corporation for
inclusion in the minutes or filing with the corporate records. A shareholder's
attendance at a meeting waives objection to lack of notice or defective notice
of the meeting, unless the shareholder at the beginning of the meeting objects
to holding the meeting or transacting business at the meeting. A shareholder's
attendance at a meeting also waives objection to consideration of a particular
matter at the meeting that is not within the purpose or purposes described in
the notice of meeting, unless the shareholder objects to considering the matter
before it is voted upon.
7. Quorum. Shares representing a majority of the outstanding votes
entitled to be cast upon a particular matter represented in person or by proxy
shall constitute a quorum at meetings of shareholders. If there is no quorum at
the opening of a meeting of shareholders, such meeting may be adjourned from
time to time by a vote of a majority of the votes cast on the motion to adjourn;
at any adjourned meeting at which a quorum is present, any business may be
transacted that might have been transacted at the original meeting unless a new
record date is set for the adjourned meeting.
Once a share is represented for any purpose at a meeting, it is deemed
present for quorum purposes for the remainder of the meeting and for any
adjournment of that meeting unless a new record date is set for that adjourned
meeting.
2
<PAGE>
8. Voting of Shares. Except to the extent the Articles of Incorporation
provide for multiple or fractional votes per share for certain classes of
capital stock, each outstanding share having voting rights shall be entitled to
one vote on each matter submitted to a vote at a meeting of the shareholders.
Except in the election of directors, a majority of the votes cast on any matter
at a meeting of shareholders at which a quorum is present shall be the act of
the shareholders on that matter, unless a greater vote is required by law, by
the Articles of Incorporation or by a bylaw adopted by the shareholders of the
corporation.
Absent special circumstances, shares of the corporation are not
entitled to vote if they are owned, directly or indirectly, by another
corporation in the corporation owns, directly or indirectly, a majority of the
shares entitled to vote for directors of the second corporation; provided that
this provision does not limit the power of the corporation to vote its own
shares held by it in a fiduciary capacity.
9. Informal Action by Shareholders. Any action that is required or
permitted to be taken at a meeting of the shareholders may be taken without a
meeting if a consent in writing, setting forth the action so taken, shall be
signed, either before or after the time the action that is the subject of the
shareholder approval is taken, by all of the persons who would be entitled to
vote upon such action at a meeting and delivered to the corporation for
inclusion in the minutes or filing with the corporate records. Unless otherwise
fixed by law or these bylaws, the record date for determining the shareholders
entitled to take action without a meeting shall be the date the first
shareholder signs the consent.
10. Voting Lists. After fixing a record date for a meeting, the
corporation shall prepare an alphabetical list of the names of all the
shareholders entitled to notice of such meeting, with the address of and number
of shares held by each shareholder. Such list shall be available for inspection
by any shareholder, beginning two business days after notice is given of the
meeting for which the list was prepared and continuing through the meeting, at
the corporation's principal office or at a place identified in the meeting
notice in the city where the meeting will be held. A shareholder, or his agent
or attorney, is entitled on written demand to inspect and, subject to the
requirements of North Carolina law, to copy the list, during regular business
hours and at his expense, during the period it is available for inspection. This
list shall also be produced and kept open at the time and place of the meeting
and shall be subject to inspection by any shareholder, or his agent or attorney,
during the whole time of the meeting or any adjournment.
11. Proxies. A shareholder may appoint a proxy to vote or otherwise act
for him by signing an appointment form, either personally or by his attorney in
fact. An appointment form is valid for 11 months from the date of its execution,
unless a different period is expressly provided in the appointment form. An
appointment is revocable by the shareholder unless the appointment form
conspicuously states that it is irrevocable and the appointment is coupled with
an interest.
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12. Shares Held by Nominees. The Board of Directors may establish a
procedure by which the beneficial owner of shares that are registered in the
name of a nominee is recognized by the corporation as a shareholder. The extent
of this recognition may be determined in the procedure.
ARTICLE III
Directors
1. General Powers. Subject to the Articles of Incorporation and valid
shareholders' agreements, all corporate powers shall be exercised by or under
the authority of, and the business and affairs of the corporation be managed
under the direction of, its Board of Directors.
2. Number, Term and Qualifications. The number of directors of the
corporation shall be not less than 7 nor more than 12. The number of directors
may be fixed or changed from time to time, within this range, by the
shareholders or the Board of Directors. The Board of Directors may also increase
or decrease this number, but not by more than 30% during any twelve month
period. The terms of the initial directors expire at the first shareholders'
meeting at which directors are elected. The term of a director expires at the
next annual shareholders' meeting following his election, or when his successor
is elected and qualified. Directors need not be residents of the State of North
Carolina or shareholders of the corporation.
3. Election of Directors. Except as provided in Section 5 of this
Article, the directors shall be elected at the annual meeting of shareholders.
Those persons who receive a plurality of the votes cast by the shares entitled
to vote in the election at a meeting at which a quorum is present shall be
deemed to have been elected.
4. Removal. The shareholders may remove one or more directors with or
without cause. A director may be removed only if the number of votes cast to
remove him exceeds the number of votes cast not to remove him. A director may
not be removed by the shareholders at a meeting unless the notice of the meeting
states that the purpose, or one of the purposes, of the meeting is removal of
the director.
5. Vacancies. Unless the Articles of Incorporation provide otherwise,
if a vacancy occurs on the Board of Directors, including, without limitation, a
vacancy resulting from an increase in the number of directors or from the
failure by the shareholders to elect the full authorized number of directors,
the vacancy may be filled by the shareholders, the Board of Directors, or, if
the directors remaining in office constitute fewer than a quorum of the Board of
Directors, by the affirmative vote of a majority of all the directors, or by the
sole remaining director. A vacancy that will occur at a specific later date may
be filled before the vacancy occurs but the new director may not take office
until the vacancy occurs. A director elected to fill a vacancy shall serve for
the unexpired term of his predecessor in office.
6. Chairman. There may be a Chairman of the Board of Directors
elected by the directors from their number at any meeting of the Board.
The Chairman shall preside at all meetings of the Board of
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Directors and perform such other duties as may be directed by the Board. The
Board of Directors may designate the Chairman of the Board or any Vice Chairman
of the Board as an officer of the corporation.
7. Compensation. The Board of Directors may compensate a director for
his services as such and may provide for the payment of all expenses incurred by
a director in attending regular and special meetings of the Board or in
otherwise fulfilling his duties as a director.
ARTICLE IV
Meetings of Directors
1. Regular Meetings. A regular meeting of the Board of Directors shall
be held immediately after, and at the same place as, the annual meeting of the
shareholders. The Board of Directors may also provide, by resolution, the time
and place, either within or without the State of North Carolina, for the holding
of additional regular meetings.
2. Special Meetings. Special meetings of the Board of Directors may be
called by or at the request of the Chairman of the Board, the President or any
two directors. Such meetings may be held within or without the State of North
Carolina.
3. Notice of Meetings. Regular meetings of the Board of Directors
may be held without notice.
The person or persons calling a special meeting of the Board of
Directors shall, at least 24 hours before the meeting, give notice thereof by
any usual means of communication. Such notice need not specify the purpose for
which the meeting is called.
4. Waiver of Notice. Any director may waive any required notice before
or after the date and time stated in the notice. Attendance at or participation
by a director in a meeting shall constitute a waiver of notice of such meeting,
unless the director at the beginning of the meeting (or promptly upon his
arrival) objects to holding the meeting or transacting any business at the
meeting and does not thereafter vote for or assent to action taken at the
meeting.
A director may also waive notice by filing with the minutes or
corporate records his written and signed consent to the holding of the meeting
or to any specific action so taken.
5. Quorum. A majority of the number of directors prescribed, or, if no
number is prescribed, a majority of the number of directors in office
immediately before the meeting begins, shall constitute a quorum for the
transaction of business at any meeting of the Board of Directors..
6. Manner of Acting. Except when a greater number is required by law,
the Articles of Incorporation or these bylaws, an act of the majority of the
directors then in office (but no fewer than four) shall be the act of the Board
of Directors.
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7. Presumption of Assent. A director of the corporation who is present
at a meeting of the Board of Directors or a committee of the Board of Directors
when corporate action is taken shall be deemed to have assented to the action
taken unless his contrary vote is recorded; he objects at the beginning of the
meeting (or promptly upon his arrival) to holding it or transacting business at
the meeting; his dissent or abstention is entered in the minutes of the meeting;
or he files written notice of dissent or abstention with the presiding officer
of the meeting before its adjournment or with the corporation immediately after
the adjournment of the meeting. The right of dissent or abstention is not
available to a director who voted in favor of such action.
8. Attendance by Telephone. The Board of Directors shall permit any or
all directors to participate in a regular or special meeting by, or conduct the
meeting through the use of, any means of communication by which all directors
participating may simultaneously hear each other during the meeting. A director
participating in a meeting by this means is deemed to be present in person at
the meeting.
9. Informal Action by Directors Action taken by a majority of the
directors without a meeting is nevertheless Board action if written consent to
the action in question, describing the action taken, is signed by all the
directors and filed with the minutes of the proceedings of the Board or filed
with the corporate record, whether done before or after the action so taken.
Such action shall be effective when the last director signs the consent, unless
the consent specifies a different effective date.
10. Loans to Directors. Except as otherwise provided by law, the
corporation shall not directly or indirectly lend money to or guarantee the
obligation of a director of the corporation unless the particular loan or
guarantee is approved by a majority of the votes represented by the outstanding
voting shares of all classes, voting as a single voting group, except the votes
of shares owned by or voted under control of the benefited director, or unless
the corporation's Board of Directors determines that the loan or guarantee
benefits the corporation and either approves the specific loan or guarantee or a
general plan authorizing loans and guarantees. The fact that a loan or guarantee
is made in violation of this Section does not affect the borrower's liability on
the loan.
ARTICLE V
Officers
1. Number. The officers of the corporation shall consist of a
President, a Secretary, a Treasurer, and such Vice Presidents, Assistant Vice
Presidents, Assistant Secretaries, Assistant Treasurers and other officers as
the Board of Directors may from time to time elect. Any two or more offices may
be held by the same person, except the offices of President and Secretary, but
no officer may act in more than one capacity where action of two or more
officers is required. It shall not be necessary for any officer to be a
shareholder of the corporation.
2. Election and Term. Except as hereafter provided, the officers of
the corporation shall be elected by the Board of Directors. Such election may
be held at any regular or special meeting of the
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Board. Unless otherwise determined by the Board of Directors, the Chief
Executive Officer may appoint assistant officers. Each officer and assistant
officer shall hold office until his death, resignation, retirement, removal,
disqualification or until his successor is elected and qualified.
3. Removal. Any officer or agent elected or appointed by the Board of
Directors may be removed by the Board with or without cause. Officers appointed
by the Chief Executive Officer may be removed by him. Any such removal shall be
without prejudice to the contract rights, if any, of the person so removed.
4. Compensation. The compensation of all officers of the corporation
other than assistant officers shall be fixed by the Board of Directors. No
officer shall serve the corporation in any other capacity and receive
compensation therefor unless such additional compensation be authorized by the
Board of Directors. The compensation of all assistant officers shall be fixed by
the Chief Executive Officer of the corporation or his designee.
5. President. The President shall, unless otherwise determined by the
Board of Directors, be the Chief Executive Officer of the corporation and,
subject to the control of the Board of Directors, shall supervise and control
the management of the corporation according to these bylaws. He shall, when
present, unless the Board of Directors determines otherwise, preside at all
meetings of the shareholders. He may sign, with any other proper officer,
certificates for shares of the corporation, and any deeds, mortgages, bonds,
contracts or other instruments that may lawfully be executed on behalf of the
corporation, except where required or permitted by law to be otherwise signed
and executed and except where the signing and execution thereof shall be
delegated by the Board of Directors to some other officer or agent; and, in
general, he shall perform all duties incident to the office of President and
such other duties as may be prescribed by the Board of Directors from time to
time.
6. Vice Presidents. The Vice Presidents shall perform such duties and
shall have such other powers as the Board of Directors or the President shall
prescribe. The Board of Directors may designate one or more Vice Presidents as
Executive or Senior Vice President, or any other title that the Board of
Directors deems appropriate, and may rank the Vice Presidents in order of
authority. The Vice President, or, if more than one, the highest ranking
available Vice President, shall, in the absence or disability of the President,
perform the duties and exercise the powers of that office.
7. Secretary. The Secretary shall keep the minutes of the meetings of
shareholders, of the Board of Directors and of all Executive Committees in one
or more books provided for that purpose; see that all notices are duly given in
accordance with the provisions of the bylaws or as required by law; be custodian
of the corporate records and of the seal of the corporation and see that the
seal of the corporation is affixed to all documents the execution of which on
behalf of the corporation under its seal is duly authorized; keep a register of
the mailing address of each shareholder which shall be furnished to the
Secretary by such shareholder; have general charge of the stock transfer books
of the corporation; keep or cause to be kept in the State of North Carolina at
the corporation's registered office or principal place of business a record of
the corporation's shareholders, giving the names and addresses of all
shareholders and the number and class of shares held by each, and prepare or
cause to
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be prepared voting lists prior to each meeting of shareholders as required by
law; and, in general, perform all duties incident to the office of Secretary and
such other duties as from time to time may be assigned to him by the President
or by the Board of Directors.
8. Treasurer. The Treasurer shall, except to the extent that some other
officer has been delegated this authority by the Board of Directors, have charge
and custody of and be responsible for all funds and securities of the
corporation; receive and give receipts for moneys due and payable to the
corporation from any source whatsoever, and deposit all such moneys in the name
of the corporation in such depositories as shall be selected in accordance with
the provisions of Section 3 of Article VI of these bylaws; prepare, or cause to
be prepared, annual financial statements of the corporation including a balance
sheet as of the end of the fiscal year, an income statement for that year, and a
statement of cash flow for the year, all in reasonable detail, which financial
statements or written notice of their availability shall be mailed to each
shareholder within 120 days after the close of each fiscal year. In general, the
Treasurer shall perform all of the duties incident to the office of Treasurer
and such other duties as from time to time may be assigned to him by the
President or by the Board of Directors.
9. Assistant Officers. The Assistant Vice Presidents, Secretaries and
Treasurers shall, in the absence or disability of their superiors, perform the
duties and exercise the powers of those offices and shall, in general, perform
such other duties as shall be assigned to them by the President or by the
respective officers to whom they report.
10. Executive Officers. The Board of Directors may designate any
officer as Chief Executive Officer, Chief Operating Officer, Chief Financial
Officer or Chief Accounting Officer, which officer shall have such authority as
the Board of Directors may designate.
11. Contract Rights. The appointment of an officer does not itself
create contract rights in the officer.
12. Bonds. The Board of Directors may by resolution require any or all
officers, agents and employees of the corporation to give bond to the
corporation, with sufficient sureties, conditioned on the faithful performance
of the duties of their respective offices or positions, and to comply with such
other conditions as may from time to time be required by the Board of Directors.
ARTICLE VI
Contracts, Checks and Deposits
1. Contracts. The Board of Directors may authorize any officer or
officers, agent or agents, to enter into any contract or execute and deliver any
instrument on behalf of the corporation, and such authority may be general or
confined to specific instances.
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2. Checks and Drafts. All checks, drafts or orders for the payment of
money issued in the name of the corporation shall be signed by such officer or
officers, agent or agents of the corporation and in such manner as shall from
time to time be determined by resolution of the Board of Directors.
3. Deposits. All funds of the corporation not otherwise employed shall
be deposited from time to time to the credit of the corporation in such
depositories as the Board of Directors shall direct.
ARTICLE VII
Certificates for Shares and Transfer Thereof
1. Certificates for Shares. Shares of the corporation may but need not
be represented by certificates. Unless otherwise provided by law, the rights and
obligations of shareholders are identical whether or not their shares are
represented by certificates. If shares represented by certificates are issued,
each certificate shall be signed (either manually or in facsimile) by the
Chairman, the President or any Vice President, and by the Secretary, Assistant
Secretary, Treasurer or Assistant Treasurer. If shares are issued without
certificates, the corporation shall, within a reasonable time after such
issuance, send the shareholder a written statement of the information required
on certificates by law. At a minimum each share certificate or information
statement shall state on its face the following information: the name of the
corporation and that it is organized under the law of North Carolina; the name
of the person to whom issued; the number and class of shares and the designation
of the series, if any, the certificate or information statement represents; if
the corporation is authorized to issue different classes of shares or different
series within a class, a summary of, or alternatively, a conspicuous statement
on the back or front of the certificate or contained in the information
statement that the corporation will furnish in writing and without charge, the
designations, relative rights, preferences, and limitations applicable to each
class and the variations in rights, preferences, and limitations determined for
each series (and the authority of the Board of Directors to determine variations
for future series); and, a conspicuous statement of any restrictions on the
transfer or registration of transfer of the shares.
2. Transfer of Shares. Transfer of shares of the corporation shall be
made only on the stock transfer books of the corporation by the holder of record
thereof or by his legal representative, who shall furnish proper evidence of
authority to transfer, or by his attorney thereunto authorized by power of
attorney duly executed and filed with the Secretary of the corporation. Transfer
of shares evidenced by certificates shall be made only on surrender for
cancellation of the certificate for such shares. Transfer of shares of the
corporation not evidenced by certificates shall be made only on delivery to the
corporation of such documentation as the corporation shall require.
3. Fixing Record Date. For the purpose of determining the shareholders
entitled to notice of a meeting of shareholders, to demand a special meeting, to
vote, to take any other action, or to receive a dividend with respect to their
shares, the Board of Directors may fix in advance a date as the record date for
any such determination of shareholders. Such record date fixed by the Board of
Directors under
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this Section shall not be more than 70 days before the meeting or action
requiring a determination of shareholders.
If no record date is fixed for the determination of shareholders
entitled to notice of or to vote at a meeting of shareholders, or shareholders
entitled to a dividend, the close of the business day before the first notice is
delivered to shareholders or the date on which the Board of Directors authorizes
the dividend, as the case may be, shall be the record date for such
determination of shareholders.
When a determination of shareholders entitled to vote at any meeting of
shareholders has been made as provided in this Section, such determination shall
apply to any adjournment thereof unless the Board of Directors fixes a new
record date, which it must do if the meeting is adjourned to a date more than
120 days after the date fixed for the original meeting.
4. Lost Certificates. If a shareholder claims that a certificated
security has been lost, apparently destroyed or wrongfully taken, the
corporation shall issue a new certificated security or, at the option of the
corporation, an equivalent noncertificated security in place of the original
security, if the shareholder so requests before the corporation has notice that
the security has been acquired by a bona fide purchaser, files with the
corporation a sufficient indemnity bond if so required by the corporation, and
satisfies any other reasonable requirements imposed by the corporation.
5. Holder of Record. The corporation may treat as absolute owner of
shares the person in whose name the shares stand of record on its books just as
if that person had full competency, capacity and authority to exercise all
rights of ownership irrespective of any knowledge or notice to the contrary or
any description indicating a representative, pledge or other fiduciary relation
or any reference to any other instrument or to the rights of any other person
appearing upon its record or upon the share certificates except that any person
furnishing to the corporation proof of his appointment as a fiduciary shall be
treated as if he were a holder of record of its shares.
The corporation may reject a vote, consent, waiver, or proxy
appointment if the Secretary or other officer or agent authorized to tabulate
votes, acting in good faith, has reasonable basis for doubt about the validity
of the signature on it or about the signatory's authority to sign for the
shareholder.
6. Reacquired Shares. The corporation may acquire its own shares and
shares so acquired constitute authorized but unissued shares.
ARTICLE VIII
Indemnification
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1. Extent. In addition to the indemnification otherwise provided by
law, the corporation shall indemnify and hold harmless its directors and
Indemnified Officers (as hereinafter defined) against liability and expenses in
any proceeding, including reasonable attorneys' fees, arising out of their
status as directors or officers or their activities in any of such capacities or
in any capacity in which any of them is or was serving, at the corporation's
request, in another corporation, partnership, joint venture, trust or other
enterprise, and the corporation shall indemnify and hold harmless those
directors and officers who are deemed to be fiduciaries of the corporation's
present and future employee pension and welfare benefit plans as defined under
the Employee Retirement Income Security Act of 1974, as amended, ("ERISA
fiduciaries") against liability and expenses in any proceeding, including
reasonable attorney's fees, arising out of their status or activities as ERISA
fiduciaries; provided, however, that the corporation shall not indemnify a
director or Indemnified Officer against liability or litigation expense that he
may incur on account of his activities that at the time taken were not in good
faith, were known or reasonably should have been known by him to be clearly in
conflict with the best interests of the corporation, or that he had reason to
believe was unlawful, and the corporation shall not indemnify an ERISA fiduciary
against any liability or litigation expense that he may incur on account of his
activities that at the time taken were known or reasonably should have been
known to him to be clearly in conflict with the best interests of the employee
benefit plan to which the activities relate. The corporation shall also
indemnify the director, Indemnified Officer or ERISA fiduciary for reasonable
costs, expenses and attorneys' fees in connection with the enforcement of rights
to indemnification granted herein, if it is determined in accordance with
Section 2 of this Article that the director, Indemnified Officer or ERISA
fiduciary is entitled to indemnification hereunder.
2. Determination. Any indemnification under Section 1 of this Article
shall be paid by the corporation in any specific case only after a determination
that the director, Indemnified Officer or ERISA fiduciary did not act in a
manner, at the time the activities were taken, that was known or reasonably
should have been known by him to be clearly in conflict with the best interests
of the corporation, or the employee benefit plan to which the activities relate,
as the case may be. Such determination shall be made (a) by the affirmative vote
of a majority (but not less than two) of directors who are or were not parties
to such action, suit or proceeding or against whom any such claim is asserted
("disinterested directors") even though less than a quorum, or (b) if a majority
(but not less than two) of disinterested directors so direct, by independent
legal counsel in a written opinion, or (c) by the vote of the shares
representing a majority of the outstanding votes entitled to be cast other than
those owned or controlled by directors or officers who were parties to such
action, suit or proceeding or against whom such claim is asserted, or by a
unanimous vote of all of the votes entitled to be cast, or (d) by a court of
competent jurisdiction.
3. Advanced Expenses. Expenses incurred by a director, Indemnified
Officer or ERISA fiduciary in defending a civil or criminal claim, action, suit
or proceeding may, upon approval of a majority (but not less than two) of the
disinterested directors, even though less than a quorum, or, if there are less
than two disinterested directors, upon unanimous approval of the Board of
Directors, be paid by the corporation in advance of the final disposition of
such claim, action, suit or proceeding upon receipt of an undertaking by or on
behalf of the director, Indemnified Officer or ERISA fiduciary to repay such
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amount unless it shall ultimately be determined that he is entitled to be
indemnified against such expenses by the corporation.
4. Corporation. For purposes of this Article, references to directors
or officers of the "corporation" shall be deemed to include directors, officers
and ERISA fiduciaries of Inter(bullet)Act Systems, Incorporated, its
subsidiaries, and all constituent corporations absorbed into Inter(bullet)Act
Systems, Incorporated or any of its subsidiaries by a consolidation or merger.
5. Indemnified Officer. For purposes of the Article, "Indemnified
Officer" shall mean all executive officers of the corporation who are also
directors of the corporation and any other officer who is designated by the
Board of Directors as an Indemnified Officer.
6. Reliance and Consideration. Any director, Indemnified Officer or
ERISA fiduciary who at any time after the adoption of this Bylaw serves or has
served in any of the aforesaid capacities for or on behalf of the corporation
shall be deemed to be doing or to have done so in reliance upon, and as
consideration for, the right of indemnification provided herein. Such right
shall inure to the benefit of the legal representatives of any such person and
shall not be exclusive of any other rights to which such person may be entitled
apart from the provision of this Bylaw. No amendment, modification or repeal of
this Article VIII shall adversely affect the right of any director, Indemnified
Officer or ERISA fiduciary to indemnification hereunder with respect to any
activities occurring prior to the time of such amendment, modification or
repeal.
7. Insurance. The corporation may purchase and maintain insurance on
behalf of its directors, officers, employees and agents and those persons who
were serving at the request of the corporation as a director, officer, partner,
trustee, employee, or agent of, or in some other capacity in, another
corporation, partnership, joint venture, trust, employee benefit plan, or other
enterprise against any liability asserted against him and incurred by him in any
such capacity, or arising out of his status as such, whether or not the
corporation would have the power to indemnify him against such liability under
the provisions of this Article or otherwise. Any full or partial payment made by
an insurance company under any insurance policy covering any director, officer,
employee or agent made to or on behalf of a person entitled to indemnification
under this Article shall relieve the corporation of its liability for
indemnification provided for in this Article or otherwise to the extent of such
payment, and no insurer shall have a right of subrogation against the
corporation with respect to such payment.
ARTICLE IX
General Provisions
1. Dividends. The Board of Directors may from time to time declare, and
the corporation may pay, dividends on its outstanding shares in such manner and
upon such terms and conditions as are permitted by law and by its Articles of
Incorporation.
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2. Waiver of Notice. Whenever any notice is required to be given to any
shareholder or director under the provisions of the North Carolina Business
Corporation Act or under the provisions of the Articles of Incorporation or
bylaws of the corporation, a waiver thereof in writing signed by the person or
persons entitled to such notice and delivered to the corporation for filing with
the minutes, whether before or after the time stated therein, shall be
equivalent to such notice.
3. Fiscal Year. Unless otherwise ordered by the Board of Directors, the
fiscal year of the corporation shall be from January 1 to December 31.
4. Amendments. Except as otherwise provided herein, by law or in the
Articles of Incorporation, these bylaws may be amended or repealed and new
bylaws may be adopted by the affirmative vote of a majority of the directors
then holding office (but no fewer than four) at any regular or special meeting
of the Board of Directors.
The Board of Directors shall have no power to amend or repeal a bylaw
fixing a greater quorum or voting requirement for the Board of Directors unless
that bylaw was originally adopted by the Board of Directors or such bylaw
provides that it may be amended or repealed by the Board of Directors.
No bylaw hereafter adopted, amended, or repealed by the shareholders
shall be readopted, amended or repealed by the Board of Directors unless
otherwise provided in the Articles of Incorporation or in a bylaw simultaneously
or subsequently adopted by the shareholders of the corporation.
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******************************************************************************
I, William F. Penwell, the duly elected, qualified and acting Secretary
of Inter(bullet)Act Systems, Incorporated, do hereby certify that the foregoing
are the Bylaws of Inter(bullet)Act Systems, Incorporated, adopted by the Board
of Directors by action duly taken as of April 14, 1993, and reflecting all
amendments through June 12, 1996.
IN WITNESS WHEREOF, I have hereunto set my hand this 12th day of June,
1996.
--------------------------------------
William F. Penwell, Secretary
(CORPORATE SEAL)
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<PAGE>
EXHIBIT 4(a)
INCORPORATED UNDER THE LAWS OF
NORTH CAROLINA
NUMBER SHARES
(Eagle Logo)
INTERACToACT SYSTEMS, INCORPORATED
COMMON STOCK
This Certifies that____________________________________________________is the
registered holder of___________________________________________________Shares
of the Common Stock of InteroAct Systems, Incorporated
transferable only on the books of the Corporation by the holder hereof in
person or by Attorney upon surrender of this Certificate properly endorsed
IN WITNESS WHEREOF, the said Corporation has caused this Certificate to be
signed by its duly authorized officers and its Corporate Seal herein affixed
this________________ day of_____________AD 19__
____________________________ _____________________
Secretary (Seal) President
<PAGE>
CERTIFICATE
FOR
SHARES
COMMON STOCK
OF
INTERoACT SYSTEMS
INCORPORATED
____________________
DATED
____________________
(This copy appears rotated along the left side of the copy above)
For Value Received,______________hereby sell, assign and transfer
unto_____________________________________________Shares
represented by the within Certificate, and do hereby
irrevocably constitute and appoint
___________________________________________________ Attorney
to transfer the said Shares on the books of the within named
Corporation, with full power of substitution in the premises.
Dated_________________19__
In presence of
___________________________
_____________________________________________________________
NOTICE THE SIGNATURE OF THIS ASSESSMENT
MUST CORRESPOND WITH THE NAME AS WRITTEN UPON THE
FACE OF THE CERTIFICATE IN EVERY PARTICULAR WITHOUT
ALTERNATION OR ENDORSEMENT OR ANY CHANGE WHATEVER.
<PAGE>
Exhibit 4(b)
EXECUTION COPY
INTER(bullet)ACT SYSTEMS, INCORPORATED
and
FLEET NATIONAL BANK,
Trustee
INDENTURE
Dated as of August 1, 1996
$142,000,000
14% Senior Discount Notes Due 2003
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TABLE OF CONTENTS
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PARTIES.................................................................................................... 1
RECITALS OF THE COMPANY.................................................................................... 1
ARTICLE ONE
DEFINITIONS AND OTHER PROVISIONS
OF GENERAL APPLICATION
SECTION 101. Definitions......................................................................... 2
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SECTION 102. Compliance Certificates and Opinions................................................ 27
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SECTION 103. Form of Documents Delivered to Trustee.............................................. 28
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SECTION 104. Acts of Holders..................................................................... 29
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SECTION 105. Notices, Etc., to Trustee and Company............................................... 30
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SECTION 106. Notice to Holders; Waiver........................................................... 31
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SECTION 107. Effect of Headings and Table of Contents............................................ 31
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SECTION 108. Successors and Assigns.............................................................. 31
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SECTION 109. Separability Clause................................................................. 31
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SECTION 110. Benefits of Indenture............................................................... 32
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SECTION 111. Governing Law....................................................................... 32
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SECTION 112. Legal Holidays...................................................................... 32
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ARTICLE TWO
SECURITY FORMS
SECTION 201. Forms Generally..................................................................... 32
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SECTION 202. Restrictive Legends................................................................. 34
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ARTICLE THREE
THE SECURITIES
SECTION 301. Title and Terms..................................................................... 37
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SECTION 302. Denominations....................................................................... 37
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SECTION 303. Execution, Authentication, Delivery and Dating...................................... 38
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SECTION 304. Temporary Securities................................................................ 39
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SECTION 305. Registration, Registration of Transfer and Exchange................................ 40
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SECTION 306. Book-Entry Provisions for Global Securities......................................... 41
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SECTION 307. Special Transfer Provisions......................................................... 43
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SECTION 308. Mutilated, Destroyed, Lost and Stolen Securities................................... 47
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SECTION 309. Payment of Interest; Interest Rights Preserved...................................... 47
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SECTION 310. Persons Deemed Owners............................................................... 49
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SECTION 311. Cancellation........................................................................ 49
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SECTION 312. Computation of Interest............................................................. 50
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SECTION 313. Wire Transfers...................................................................... 50
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ARTICLE FOUR
SATISFACTION AND DISCHARGE
SECTION 401. Satisfaction and Discharge of Indenture............................................. 50
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SECTION 402. Application of Trust Money.......................................................... 52
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ARTICLE FIVE
REMEDIES
SECTION 501. Events of Default................................................................... 52
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SECTION 502. Acceleration of Maturity; Rescission and Annulment................................. 54
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SECTION 503. Collection of Indebtedness and Suits for Enforcement by Trustee.................... 55
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SECTION 504. Trustee May File Proofs of Claim.................................................... 56
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SECTION 505. Trustee May Enforce Claims Without Possession of Securities........................ 57
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SECTION 506. Application of Money Collected...................................................... 57
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SECTION 507. Limitation on Suits................................................................. 58
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SECTION 508. Unconditional Right of Holders to Receive Principal, Premium and
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Interest ....................................................................... 58
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SECTION 509. Restoration of Rights and Remedies.................................................. 59
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SECTION 510. Rights and Remedies Cumulative...................................................... 59
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SECTION 511. Delay or Omission Not Waiver........................................................ 59
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SECTION 512. Control by Holders.................................................................. 59
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SECTION 513. Waiver of Past Defaults............................................................. 60
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SECTION 514. Waiver of Stay or Extension Laws.................................................... 60
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ARTICLE SIX
THE TRUSTEE
SECTION 601. Notice of Defaults.................................................................. 61
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SECTION 602. Certain Rights of Trustee........................................................... 61
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SECTION 603. Trustee Not Responsible for Recitals or Issuance of Securities..................... 63
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SECTION 604. May Hold Securities................................................................. 63
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SECTION 605. Money Held in Trust................................................................. 63
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SECTION 606. Compensation and Reimbursement...................................................... 63
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SECTION 607. Corporate Trustee Required; Eligibility; Conflicting Interests..................... 64
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SECTION 608. Resignation and Removal; Appointment of Successor.................................. 65
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SECTION 609. Acceptance of Appointment by Successor.............................................. 66
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SECTION 610. Merger, Conversion, Consolidation or Succession to Business........................ 67
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ARTICLE SEVEN
HOLDERS LISTS AND REPORTS BY TRUSTEE
SECTION 701. Disclosure of Names and Addresses of Holders........................................ 67
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SECTION 702. Reports by Trustee.................................................................. 68
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ARTICLE EIGHT
CONSOLIDATION, MERGER, CONVEYANCE,
TRANSFER OR LEASE
SECTION 801. Company May Consolidate, Etc., Only on Certain Terms............................... 68
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SECTION 802. Successor Substituted............................................................... 69
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SECTION 803. Securities To Be Secured in Certain Events.......................................... 69
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ARTICLE NINE
SUPPLEMENTAL INDENTURES
SECTION 901. Supplemental Indentures Without Consent of Holders................................. 70
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SECTION 902. Supplemental Indentures with Consent of Holders..................................... 71
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SECTION 903. Execution of Supplemental Indentures................................................ 72
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SECTION 904. Effect of Supplemental Indentures................................................... 73
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SECTION 905. Conformity with Trust Indenture Act................................................. 73
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SECTION 906. Reference in Securities to Supplemental Indentures................................. 73
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SECTION 907. Notice of Supplemental Indentures................................................... 73
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ARTICLE TEN
COVENANTS
SECTION 1001. Payment of Principal, Premium, if any, and Interest................................ 74
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SECTION 1002. Maintenance of Office or Agency..................................................... 74
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SECTION 1003. Money for Security Payments to Be Held in Trust..................................... 74
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SECTION 1004. Corporate Existence................................................................. 76
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SECTION 1005. Payment of Taxes and Other Claims................................................... 76
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SECTION 1006. [Intentionally Omitted.]............................................................ 77
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SECTION 1007. [Intentionally Omitted.]............................................................ 77
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SECTION 1008. Statement by Officers as to Default................................................. 77
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SECTION 1009. Provision of Reports and Financial Statements....................................... 77
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SECTION 1010. Limitation on Indebtedness.......................................................... 78
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SECTION 1011. Limitation on Indebtedness and Preferred Stock of Restricted
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Subsidiaries................................................................... 78
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SECTION 1012. Limitation on Restricted Payments................................................... 79
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SECTION 1013. [Intentionally Omitted]............................................................. 80
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SECTION 1014. Limitation on Transactions with Affiliates.......................................... 80
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SECTION 1015. Limitation on Liens................................................................. 81
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SECTION 1016. Purchase of Securities upon a Change of Control..................................... 82
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SECTION 1017. Limitation on Assets Sales ......................................................... 83
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SECTION 1018. [Intentionally Omitted]............................................................. 84
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SECTION 1019. Limitation on Lines of Business .................................................... 85
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SECTION 1020. Limitation on Dividends and Other Payment Restrictions Affecting
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Restricted Subsidiaries......................................................... 85
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ARTICLE ELEVEN
REDEMPTION OF SECURITIES
SECTION 1101. Mandatory and Optional Redemption................................................... 86
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SECTION 1102. Applicability of Article............................................................ 86
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SECTION 1103. Notice to Trustee of Redemption..................................................... 87
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SECTION 1104. Selection by Trustee of Securities to Be Redeemed................................... 87
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SECTION 1105. Notice of Redemption................................................................ 87
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SECTION 1106. Deposit of Redemption Price......................................................... 88
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SECTION 1107. Securities Payable on Redemption Date............................................... 89
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SECTION 1108. Securities Redeemed in Part......................................................... 89
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ARTICLE TWELVE
[Reserved]
ARTICLE THIRTEEN
DEFEASANCE AND COVENANT DEFEASANCE
SECTION 1301. Company's Option to Effect Defeasance or Covenant Defeasance....................... 90
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SECTION 1302. Defeasance and Discharge............................................................ 90
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SECTION 1303. Covenant Defeasance................................................................. 91
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SECTION 1304. Conditions to Defeasance or Covenant Defeasance..................................... 91
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SECTION 1305. Deposited Money and U.S. Government Obligations To Be Held in
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Trust; Other Miscellaneous Provisions........................................... 93
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SECTION 1306. Reinstatement....................................................................... 94
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TESTIMONIUM................................................................................................ 96
SIGNATURES AND SEALS....................................................................................... 96
SCHEDULE I Indebtedness Outstanding on the Issue Date
SCHEDULE II Existing Affiliate Transactions
EXHIBIT A Form of Note
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EXHIBIT B Form of Certificate to Be Delivered upon Termination of Restricted
Period
EXHIBIT C Form of Certificate to Be Delivered in Connection with Transfers to
Non-QIB Institutional Accredited Investors
EXHIBIT D Form of Certificate to Be Delivered in Connection with Transfers
Pursuant to Regulation S
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INDENTURE, dated as of August 1 , 1996, between
Inter(bullet)Act Systems, Incorporated, a North Carolina corporation (herein
called the "Company"), and Fleet National Bank, a national banking association,
as Trustee (herein called the "Trustee").
RECITALS OF THE COMPANY
The Company has duly authorized the creation of an issue of
14% Senior Discount Notes due 2003 (herein called the "Initial Securities") and
14% Senior Discount Notes due 2003 (the "Exchange Securities" and, together with
the Initial Securities, the "Securities"), of substantially the tenor and amount
hereinafter set forth, and to provide therefor the Company has duly authorized
the execution and delivery of this Indenture.
Upon the issuance of the Exchange Securities, if any, or the
effectiveness of the Shelf Registration Statement (as defined herein), this
Indenture will be subject to the provisions of the Trust Indenture Act of 1939,
as amended, that are required to be part of this Indenture and shall, to the
extent applicable, be governed by such provisions.
Pursuant to the terms of a Purchase Agreement dated as of July
30, 1996 (the "Purchase Agreement") between the Company and the Initial
Purchasers named therein (the "Initial Purchasers"), the Company has agreed to
issue and sell 142,000 units (the "Units"), each Unit consisting of one $1,000
principal amount of the Securities and one Warrant (collectively, the
"Warrants") entitling the holder thereof to purchase shares of Common Stock, no
par value, of the Company from the Company at an exercise price of $0.01 per
share, subject to adjustment as provided in the Warrant Agreement dated as of
the date hereof (the "Warrant Agreement") between the Company and Fleet National
Bank, as the warrant agent. The Securities and the Warrants will become
separately transferable on the earlier of (i) the commencement of the Exchange
Offer (as defined herein) or the effectiveness of the Shelf Registration
Statement for the Notes and (ii) such date as the Initial Purchasers may, in
their discretion, deem appropriate (the "Separation Date").
All things necessary have been done to make the Securities,
when executed by the Company and authenticated and delivered hereunder and duly
issued by the Company, the valid obligations of the Company and to make this
Indenture a valid agreement of the Company, in accordance with their and its
terms.
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2
NOW, THEREFORE, THIS INDENTURE WITNESSETH:
For and in consideration of the premises and the purchase of
the Securities by the Holders thereof, it is mutually covenanted and agreed, for
the equal and proportionate benefit of all Holders of the Securities, as
follows:
ARTICLE ONE
DEFINITIONS AND OTHER PROVISIONS
OF GENERAL APPLICATION
SECTION 101. Definitions.
For all purposes of this Indenture, except as otherwise
expressly provided or unless the context otherwise requires:
(a) the terms defined in this Article have the meanings
assigned to them in this Article, and include the plural as well as the
singular;
(b) all other terms used herein which are defined in the Trust
Indenture Act, either directly or by reference therein, have the meanings
assigned to them therein;
(c) all accounting terms not otherwise defined herein have the
meanings assigned to them in accordance with generally accepted accounting
principles in the United States; and
(d) the words "herein," "hereof" and "hereunder" and other
words of similar import refer to this Indenture as a whole and not to any
particular Article, Section or other subdivision.
"Accreted Value" means, as of any date ("the Specified Date"),
the amount provided below for each $1,000 principal amount at final maturity of
Securities Outstanding:
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(i) if the Specified Date occurs on one of the following dates
(each a "Semi-annual Accrual Date"), the Accreted Value will equal the
amount set forth below for such Semi-annual Accrual Date:
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SEMI-ANNUAL ACCRUAL DATE ACCRETED VALUE
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February 1, 1997................................................... $712.98
August 1, 1997..................................................... $762.89
February 1, 1998................................................... $816.29
August 1, 1998..................................................... $873.44
February 1, 1999................................................... $934.58
August 1, 1999..................................................... $1,000.00
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(ii) if the Specified Date occurs before the first Semi-annual
Accrual Date, the Accreted Value will equal the sum of (a) the original
issue price and (b) an amount equal to the product of (1) the Accreted
Value for the first Semi-annual Accrual Date less the original issue
price multiplied by (2) a fraction, the numerator of which is the
number of days from the Issue Date to the Specified Date, using a
360-day year of 12 30-day months, and the denominator of which is the
number of days elapsed from the Issue Date to the first Semi-annual
Accrual Date, using a 360-day year of 12 30-day months;
(iii) if the Specified Date occurs between two Semi-annual
Accrual Dates, the Accreted Value will equal the sum of (a) the
Accreted Value for the Semi-annual Accrual Date immediately preceding
such Specified Date and (b) an amount equal to the product of (1) the
Accreted Value for the immediately following Semi-annual Accrual Date
less the Accreted Value for the immediately preceding Semi-annual
Accrual Date multiplied by (2) a fraction, the numerator of which is
the number of days from the immediately preceding Semi-annual Accrual
Date to the Specified Date, using a 360-day year of 12 30-day months,
and the denominator of which is 180; or
(iv) if the Specified Date occurs after the last Semi-annual
Accrual Date, the Accreted Value will equal $1,000.
"Acquired Indebtedness" means Indebtedness of a Person (a)
existing at the time such Person becomes a Restricted Subsidiary or (b) assumed
in connection with the acquisition of assets from such Person. Acquired
Indebtedness shall be deemed to be incurred on the date of the related
acquisition of assets from any Person or the date the acquired Person
becomes a Restricted Subsidiary.
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4
"Act," when used with respect to any Holder, has the meaning
specified in Section 104.
"Additional Assets" means (i) any Property (other than cash,
cash equivalents or securities) to be owned by the Company or a Restricted
Subsidiary and used in a Related Business, (ii) the costs of improving or
developing any Property owned by the Company or a Restricted Subsidiary which is
used in a Related Business and (iii) Investments in any other Person engaged
primarily in a Related Business (including the acquisition from third parties of
Capital Stock of such person) as a result of which such other Person becomes a
Wholly Owned Subsidiary or is merged or consolidated with or into the Company or
any Wholly Owned Subsidiary.
"Affiliate" of any specified Person means (i) any other
Person, directly or indirectly, controlling or controlled by or under direct or
indirect common control with such specified Person or (ii) any other Person who
is a director or executive officer (a) of such Person, (b) of any Subsidiary of
such specified Person or (c) of any person described in clause (i) above. For
the purposes of this definition, "control," when used with respect to any
specified Person, means the power to direct the management and policies of such
Person, directly or indirectly, whether through the ownership of voting
securities, by contract or otherwise; and the terms "controlling" and
"controlled" have meanings correlative to the foregoing. "Affiliate" shall also
mean any beneficial owner of shares representing 10% or more of the total voting
power of the Voting Stock (on a fully diluted basis) of the Company or of rights
or warrants to purchase such Voting Stock (whether or not currently exercisable)
and any Person who would be an Affiliate of any such beneficial owner pursuant
to the first sentence hereof.
"Asset Sale" means, with respect to any Person, any transfer,
conveyance, sale, lease or other disposition (including, without limitation,
dispositions pursuant to any consolidation or merger or a Sale and Leaseback
Transaction) (collectively, a "transfer"), by such Person or any of its
Restricted Subsidiaries in any single transaction or series of transactions of
(a) any shares of Capital Stock or other ownership interests in another Person
(including, with respect to the Company and its Restricted Subsidiaries, Capital
Stock of Unrestricted Subsidiaries) or (b) any other Property of such Person or
any of its Restricted Subsidiaries; PROVIDED, HOWEVER, that the term "Asset
Sale" shall not include: (i) the sale or transfer of Temporary Cash Investments,
inventory, accounts receivable or other Property in the ordinary course of
business; (ii) the liquidation of Property received in settlement of debts owing
to such Person or any of its Restricted Subsidiaries as a result of foreclosure,
perfection or enforcement of any Lien or debt, which debts were owing to such
Person or any of its Restricted Subsidiaries in the ordinary course of business;
(iii) when used with respect to the Company, any asset disposition permitted
pursuant to Article Eight which constitutes
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5
a disposition of all or substantially all of the Company's Property; (iv) the
sale or transfer of any Property by such Person of any of its Restricted
Subsidiaries to such Person or any of its Wholly Owned Subsidiaries; (v) a
disposition in the form of a Restricted Payment permitted to be made pursuant
to Section 1012; (vi) the sale of the manufacturing facility for IPN Terminals
to Coleman Resources Corporation; or (vii) a disposition with a Fair Market
Value and a sale price of less than $500,000.
"Attributable Indebtedness" means indebtedness deemed to be
incurred in respect of a Sale and Leaseback Transaction and shall be, at the
date of determination, the present value (discounted at the actual rate of
interest implicit in such transaction, compounded annually), of the total
obligations of the lessee for rental payments during the remaining term of the
lease included in such Sale and Leaseback Transaction (including any period for
which such lease has been extended).
"Average Life" means, as of the date of determination, with
respect to any Indebtedness or Preferred Stock, the quotient obtained by
dividing (i) the sum of the products of the number of years (rounded to the
nearest one-twelfth of one year) from the date of determination to the date or
dates of each successive scheduled principal payment (including, without
limitation through a mandatory redemption) of such Indebtedness or redemption or
similar payment with respect to such Preferred Stock multiplied by the amount of
such principal payment by (ii) the sum of all such payments.
"Board Resolution" means a copy of a resolution certified by
the Secretary or an Assistant Secretary to have been duly adopted by the Board
of Directors, and to be in full force and effect on the date of such
certification.
"Business Day" means a day other than a Saturday, a Sunday or
a day on which banking institutions in New York City or in the city of the
principal Corporate Trust Office of the Trustee are not required to be open.
"Capital Lease Obligations" means Indebtedness represented by
obligations under a lease that is required to be capitalized for financial
reporting purposes in accordance with GAAP and the amount of such Indebtedness
shall be the capitalized amount of such obligations determined in accordance
with GAAP. For purposes of Section 1015, a Capital Lease Obligation shall be
deemed secured by a Lien on the property being leased.
"Capital Stock" means, with respect to any Person, any and all
shares, interests, partnership interests, participations, rights in or other
equivalents (however designated) of corporate stock, partnership interests or
any other participation, right, warrant, option or other interest in the
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6
nature of an equity interest in such Person, but excluding any debt security
convertible or exchangeable into such equity interest.
"Capital Stock Sale Proceeds" means the aggregate Net Cash
Proceeds received by the Company from the issue or sale (other than to a
Subsidiary or an employee stock ownership plan or trust established by the
Company or any Subsidiary) by the Company of any class of its Capital Stock
(other than Redeemable Stock) after the Issue Date.
"Change of Control" means the occurrence of any of the
following events: (i) any "person" or "group" (as such terms are used in
Sections 13(d)(3) and 14(d)(2) of the Exchange Act or any successor provision to
either of the foregoing, including any group acting for the purpose of
acquiring, holding or disposing of securities within the meaning of Rule
13d-5(b)(1) under the Exchange Act), other than one or more of the Permitted
Holders is or becomes the "beneficial owner" (as defined in Rule 13d-3 under the
Exchange Act), directly or indirectly, of 40% or more of the total voting power
of the Voting Stock (on a fully diluted basis) of the Company; (ii) during any
period of two consecutive years, individuals who at the beginning of such period
constituted the Board of Directors of the Company (together with any new
directors whose election by the Board of Directors of the Company or whose
nomination for election by the shareholders of the Company was approved by a
vote of 66-2/3% of the directors of the Company then still in office who were
either directors at the beginning of such period or whose election or nomination
for election was previously so approved) cease for any reason to constitute a
majority of the Board of Directors of the Company then in office, (iii) the
Company consolidates or merges with or into any other Person (other than one or
more Permitted Holders) or any other Person (other than one or more Permitted
Holders) consolidates or merges with or into the Company, in either case, other
than (a) a consolidation or merger with a Wholly Owned Subsidiary in which all
of the Voting Stock of the Company outstanding immediately prior to the
effectiveness thereof is changed into or exchanged for substantially the same
consideration or (b) pursuant to a transaction in which the outstanding Voting
Stock of the Company is changed into or exchanged for cash, securities or other
Property with the effect that the "beneficial owners" (as such term is used in
Section 13(d) of the Exchange Act) of the outstanding Voting Stock of the
Company immediately prior to such transaction, beneficially own, directly or
indirectly, more than 50% of the total voting power of the fully diluted Voting
Stock of the surviving corporation immediately following such transaction in
substantially the same proportions as owned prior to such transaction or (iv)
the Company sells, conveys, transfers or leases, directly or indirectly, all or
substantially all of its assets (other than a transfer of such assets as an
entirety or virtually as an entirety to a Wholly Owned Subsidiary or one or more
Permitted Holders).
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"Change of Control Offer" has the meaning provided in Section
1016.
"Change of Control Purchase Date" has the meaning provided in
Section 1016.
"Change of Control Purchase Price" has the meaning provided in
Section 1016.
"Commission" means the Securities and Exchange Commission, as
from time to time constituted, or, if at any time after the execution of this
Indenture such Commission is not existing and performing the duties now assigned
to it under the Trust Indenture Act, then the body performing such duties at
such time.
"Company" means the Person named as the "Company" in the
heading of this Indenture, until a successor Person shall have become such
Person pursuant to the applicable provisions of this Indenture, and thereafter
"Company" shall mean such successor Person.
"Company Request" or "Company Order" means a written request
or order signed in the name of the Company by its Chairman, its President, any
Vice President, its Treasurer or an Assistant Treasurer, and delivered to the
Trustee.
"Consolidated Interest Expense" means, for any Person (or in
the case of the Company, the Company and its Restricted Subsidiaries), for any
period, the amount of interest in respect of Indebtedness (excluding
amortization of original issue discount resulting from the allocation of a
portion of the Indebtedness from the offering attributable to the Warrants, but
including amortization of original issue discount in all other instances and
fees payable in connection with financings, including commitment, availability
and similar fees, and amortization of debt issuance costs, noncash interest
payments on any Indebtedness and the interest portion of any deferred payment
obligation and after taking into account the effect of elections made under, and
the net costs associated with, any Interest Rate Agreement, however denominated,
with respect to such Indebtedness), the amount of Redeemable Dividends, the
amount of Preferred Stock dividends in respect of all Preferred Stock
of Subsidiaries of such Person held other than by such Person or a Subsidiary of
such Person, commissions, discounts and other fees and charges owed with respect
to letters of credit and bankers' acceptance financing, and the interest
component of rentals in respect of any Capital Lease Obligation or Sale and
Leaseback Transaction paid, accrued or scheduled to be paid or accrued by such
Person during such period, determined on a consolidated basis in accordance with
GAAP. For purposes of this definition, interest on a Capital Lease Obligation or
a Sale and Leaseback Transaction shall be deemed to accrue at an interest rate
reasonably determined by such Person
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8
to be the rate of interest implicit in such Capital Lease Obligation or Sale
and Leaseback Transaction in accordance with GAAP consistently applied.
"Consolidated Leverage Ratio" is defined as the ratio of (i)
the outstanding Indebtedness of a Person and its Subsidiaries (or in the case of
the Company, its Restricted Subsidiaries) divided by (ii) the Pro Forma EBITDA
of such Person.
"Consolidated Net Income" of a Person means for any period,
the net income (loss) of such Person and its Subsidiaries; PROVIDED, HOWEVER,
that there shall not be included in such Consolidated Net Income (i) with
respect to the Company, any net income (loss) of any Person if such Person is
not a Restricted Subsidiary, except that (a) subject to the limitations
contained in clause (iv) below, the Company's equity in the net income of any
such Person for such period shall be included in such Consolidated Net Income up
to the aggregate amount of cash actually distributed by such Person during such
period to the Company or a Restricted Subsidiary as a dividend or other
distribution (subject, in the case of a dividend or other distribution to a
Restricted Subsidiary, to the limitations contained in clause (iii) below) and
(b) the Company's equity in a net loss of any such Person (other than an
Unrestricted Subsidiary) for such period shall be included in determining such
Consolidated Net Income, (ii) any net income (loss) of any Person acquired by
such Person or a Subsidiary of such Person in a pooling of interests transaction
for any period prior to the date of such acquisition, (iii) with respect to the
Company, any net income (loss) of any Restricted Subsidiary if such Subsidiary
is subject to restrictions, directly or indirectly, on the payment of dividends
or the making of distributions by such Restricted Subsidiary, directly or
indirectly, to the Company, except that (a) subject to the limitations contained
in clause (iv) below, the Company's equity in the net income of any such
Restricted Subsidiary for such period shall be included in such Consolidated Net
Income up to the aggregate amount of cash that could have been distributed by
such Restricted Subsidiary during such period to the Company or another
Restricted Subsidiary as a dividend (subject, in the case of a dividend to
another Restricted Subsidiary, to the limitation contained in this clause) and
(b) the Company's equity in a net loss of any such Restricted Subsidiary for
such period shall be included in determining such Consolidated Net Income,
(iv) any gain (but not loss) realized upon the sale or other disposition of
any Property of such Person or its consolidated Subsidiaries (including
pursuant to any Sale and Leaseback Transaction) which is not sold or otherwise
disposed of in the ordinary course of business, (v) any extraordinary gain or
loss and (vi) the cumulative effect of a change in accounting principles.
"Corporate Trust Office" means the office of the Trustee, at
which at any particular time its corporate trust business shall be principally
administered, which office at the date of execution of this Indenture is located
at 777 Main Street, Hartford, Connecticut.
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"Cumulative EBITDA" means at any date of determination the
cumulative EBITDA of the Company from and after the last day of the fiscal
quarter of the Company immediately preceding the Issue Date to the end of the
fiscal quarter immediately preceding the date of determination or, if such
cumulative EBITDA for such period is negative, the amount (expressed as a
negative number) by which such cumulative EBITDA is less than zero.
"Cumulative Interest Expense" means at any date of
determination the aggregate amount of Consolidated Interest Expense paid,
accrued or scheduled to be paid or accrued by the Company and its Restricted
Subsidiaries from the last day of the fiscal quarter of the Company immediately
preceding the Issue Date to the end of the fiscal quarter immediately preceding
the date of determination.
"Default" means any event which is, or after notice or passage
of time or both would be, an Event of Default.
"Defaulted Interest" has the meaning provided in Section 309.
"Depositary" means, with respect to Securities issued in the
form of one or more Global Securities, The Depository Trust Company or another
Person designated as depositary by the Company, which must be a clearing agency
registered under the Exchange Act.
"Disinterested Director" means, with respect to any
transaction or series of transactions in respect of which the Board of Directors
is required to deliver a resolution of the Board of Directors under this
Indenture, a member of the Board of Directors who does not have any material
direct or indirect financial interest in or with respect to such transaction or
series of transactions.
"EBITDA" means, for any Person, for any period, an amount
equal to (A) the sum of (i) Consolidated Net Income for such period, plus, to
the extent deducted in the calculation of Consolidated Net Income, (ii) the
provision for taxes for such period based on income or profits to the extent
such income or profits were included in computing Consolidated Net Income and
any provision for taxes utilized in computing net loss under clause (i) hereof,
plus (iii) Consolidated Interest Expense for such period, plus (iv) depreciation
for such period on a consolidated basis, plus (v) amortization of intangibles
for such period on a consolidated basis, plus (vi) any other non cash items
reducing Consolidated Net Income for such period, minus (B) all non-cash items
increasing Consolidated Net Income for such period, all for such Person and its
Subsidiaries determined in accordance with GAAP consistently applied, except
that with respect to the Company each of the foregoing items shall be determined
on a consolidated basis with respect to the Company and its Restricted
Subsidiaries only.
<PAGE>
10
"Event of Default" has the meaning provided in Section 501.
"Excess Proceeds" has the meaning provided in Section 1017.
"Exchange Act" means the Securities Exchange Act of 1934,
as amended.
"Exchange Offer" means the exchange offer that may be effected
pursuant to the Registration Rights Agreement.
"Exchange Offer Registration Statement" means the Exchange
Offer Registration Statement as defined in the Registration Rights Agreement.
"Exchange Securities" has the meaning stated in the first
recital of this Indenture and refers to any Exchange Securities containing terms
substantially identical to the Initial Securities (except that such Exchange
Securities shall not contain terms with respect to transfer restrictions) that
are issued and exchanged for the Initial Securities pursuant to the Registration
Rights Agreement and this Indenture.
"Fair Market Value" means, with respect to any asset or
Property, the price which could be negotiated in an arm's-length free market
transaction, for cash, between a willing seller and a willing buyer, neither of
whom is under undue pressure or compulsion to complete the transaction. Fair
Market Value will be determined, except as otherwise provided, (i) if such
property or asset has a Fair Market Value of less than $5 million, by any
Officer of the Company or (ii) if such property or asset has a Fair Market Value
in excess of $5 million, by a majority of the Board of Directors of the
Company and evidenced by a Board Resolution, dated within 30 days of the
relevant transaction.
"Federal Bankruptcy Code" means the Bankruptcy Act of Title 11
of the United States Code, as amended from time to time.
"GAAP" means United States generally accepted accounting
principles as in effect on the Issue Date, unless stated otherwise.
"Global Security" has the meaning provided in Section 201.
"Guarantee" means any obligation, contingent or otherwise, of
any Person directly or indirectly guaranteeing any Indebtedness of any other
Person and any obligation, direct or indirect, contingent or otherwise, of such
Person (i) to purchase or pay (or advance or supply funds for the purchase or
payment of) such Indebtedness of such other Person (whether arising by virtue of
partnership arrangements, or by agreements to keep well, to purchase assets,
goods, securities or services, to take-or-pay or to maintain financial statement
conditions or otherwise)
<PAGE>
11
or (ii) entered into for the purpose of assuring in any other manner the
obligee against loss in respect thereof (in whole or in part); PROVIDED,
HOWEVER, that the term "Guarantee" shall not include endorsements for
collection or deposit in the ordinary course of business. The term "Guarantee"
used as a verb has a corresponding meaning.
"Hedging Obligation" of any Person means any obligation of
such Person pursuant to any Interest Rate Agreement, foreign exchange contract,
currency swap agreement, currency option or any other similar agreement or
arrangement.
"Holder" means a Person in whose name a Security is registered
in the Security Register.
"Incur" means, with respect to any Indebtedness or other
obligation of any Person, to create, issue, incur (by merger, conversion,
exchange or otherwise), extend, assume, Guarantee or become liable in respect of
such Indebtedness or other obligation or the recording, as required pursuant to
GAAP or otherwise, of any such Indebtedness or obligation on the balance sheet
of such Person (and "Incurrence," "Incurred," "Incurrable" and "incurring" shall
have meanings correlative to the foregoing); PROVIDED, HOWEVER, that a change in
GAAP that results in an obligation of such Person that exists at such time, and
is not theretofore classified as Indebtedness, becoming Indebtedness shall not
be deemed an Incurrence of such Indebtedness; PROVIDED FURTHER, HOWEVER, that
solely for purposes of determining compliance with Section 1010 amortization
of debt discount shall not be deemed to be the Incurrence of Indebtedness;
PROVIDED that in the case of Indebtedness sold at a discount, the amount of
such Indebtedness Incurred shall at all times be the aggregate principal
amount at Stated Maturity.
"Indebtedness" means (without duplication), with respect to
any Person, any indebtedness, secured or unsecured, contingent or otherwise,
which is for borrowed money (whether or not the recourse of the lender is to the
whole of the assets of such Person or only to a portion thereof), or evidenced
by bonds, notes, debentures or similar instruments or representing the balance
deferred and unpaid of the purchase price of any property (excluding any
balances that constitute customer advance payments and deposits, accounts
payable or trade payables, and other accrued liabilities arising in the ordinary
course of business) if and to the extent any of the foregoing indebtedness would
appear as a liability upon a balance sheet of such Person prepared in accordance
with GAAP, and shall also include, to the extent not otherwise included (i) any
Capital Lease Obligations, (ii) Indebtedness of other Persons secured by a Lien
to which the Property owned or held by such first Person is subject, whether or
not the obligation or obligation secured thereby shall have been assumed (the
amount of such Indebtedness being deemed to be the lesser of the value of
<PAGE>
12
such property or assets or the amount of the Indebtedness so secured), (iii)
Guarantees of Indebtedness of other Persons, (iv) the maximum fixed repurchase
price of any Redeemable Stock (PROVIDED, HOWEVER, that Redeemable Stock of the
Company shall not constitute Indebtedness if such Redeemable Stock may not be
redeemed prior to the first anniversary of the Stated Maturity of the
Securities), (v) any Attributable Indebtedness, (vi) all reimbursement
obligations of such Person in respect of letters of credit, bankers' acceptances
or other similar instruments or credit transactions issued for the account of
such Person, (vii) in the case of the Company, the maximum fixed repurchase
price of Preferred Stock of its Restricted Subsidiaries and (viii) to the extent
not otherwise included in clauses (i) through (vii) of this paragraph, any
payment obligations of any such Person at the time of determination under any
Hedging Obligation. For purposes of this definition, the maximum fixed
repurchase price of any Redeemable Stock or Preferred Stock that does not have a
fixed repurchase price shall be calculated in accordance with the terms of such
Redeemable Stock or Preferred Stock as if such Redeemable Stock or Preferred
Stock were repurchased on any date on which Indebtedness shall be required to be
determined pursuant to the Indenture; PROVIDED, HOWEVER, that if such Redeemable
Stock or Preferred Stock is not then permitted to be repurchased, the repurchase
price shall be the book value of such Redeemable Stock or Preferred Stock. The
amount of Indebtedness of any Person at any date shall be the outstanding
balance at such date of all unconditional obligations as described above and the
maximum liability of any contingent obligations in respect thereof at such date.
For purposes of this definition, the amount of the payment obligation with
respect to any Hedging Obligation shall be an amount equal to (i) zero, if
such obligation is an Interest Rate Obligation permitted pursuant to clause
(vi) of the second paragraph of Section 1010 or (ii) the notional amount of
such Hedging Obligation, if such Hedging Obligation is not an Interest Rate
Agreement so permitted.
"Indenture" means this instrument as originally executed and
as it may from time to time be supplemented or amended by one or more indentures
supplemental hereto entered into pursuant to the applicable provisions hereof.
"Initial Purchasers" has the meaning provided in the recitals
to this Indenture.
"Initial Securities" has the meaning provided in the recitals
to this Indenture.
"Institutional Accredited Investor" means an institution that
is an "accredited investor" as that term is defined in Rule 501(a)(1), (2), (3)
or (7) under the Securities Act.
<PAGE>
13
"Interest Payment Date" means the date on which an installment
of interest on the Securities is due and payable.
"Interest Rate Agreement" means, for any Person, any interest
rate swap agreement, interest rate cap agreement, interest rate collar agreement
or other similar agreement.
"Investment" by any Person means any direct or indirect loan,
advance or other extension of credit or capital contribution (by means of any
transfer of cash or other Property to others or any payment for Property or
services for the account or use of others, or otherwise) to, or Incurrence of a
Guarantee of any obligation of, or purchase or acquisition or ownership by such
Person of any Capital Stock, bonds, notes, debentures or other securities or
evidence of Indebtedness issued or owned by, any other Person. In determining
the amount of any Investment made by transfer of any Property other than cash,
such Property shall be valued at its Fair Market Value at the time of such
Investment.
"Investment Grade Rating" means both a rating equal to or
higher than Baa3 (or the equivalent) by Moody's and a rating equal to or higher
than BBB- (or the equivalent) by S & P.
"IPN Terminals" means the interactive terminals through which
the Company's Inter(bullet)Act Promotion Network can be accessed in supermarkets
and the supporting network equipment and computer servers for such terminals
along with the component parts thereof.
"Issue Date" means the date on which the Initial Securities
are initially issued.
"Lien" means, with respect to any Property of any Person, any
mortgage or deed of trust, pledge, hypothecation, assignment, deposit
arrangement, security interest, lien, charge, easement (other than any easement
not materially impairing usefulness or marketability), encumbrances, preference,
priority, or other security agreement or preferential arrangement of any kind or
nature whatsoever on or with respect to such Property (including any Capital
Lease Obligation, conditional sale or other title retention agreement having
substantially the same economic effect as any of the foregoing or any Sale and
Leaseback Transaction).
"Management Services Agreement" means the management services
agreement between the Company and Vanguard Cellular Systems, Inc. dated as of
June 17, 1996, the material terms of which are summarized in the Offering
Memorandum under "Certain Transactions."
"Maturity Date" means, with respect to any Security, the date
on which any principal of such Security becomes due and payable as
<PAGE>
14
therein or herein provided, whether at the Stated Maturity with respect to
such principal or by declaration of acceleration, call for redemption or
purchase or otherwise.
"Moody's" means Moody's Investors Service, Inc. or any
successor to the rating agency business thereof.
"Net Available Cash" from an Asset Sale means cash payments
received therefrom (including any cash payments received by way of deferred
payment of principal pursuant to a note or installment receivable or otherwise,
but only as and when received, but excluding any other consideration received in
the form of assumption by the acquiring person of Indebtedness or other
obligations relating to such Properties or assets or received in any other
noncash form) in each case net of all legal, title and recording tax expenses,
commissions and other fees and expenses incurred, and all Federal, state,
provincial, foreign and local taxes required to be accrued as a liability under
GAAP, as a consequence of such Asset Sale, and in each case net of all payments
made on any Indebtedness which is secured by any assets subject to such Asset
Sale, in accordance with the terms of any Lien upon or other security
agreement of any kind with respect to such assets, or which must by its
terms, or in order to obtain a necessary consent to such Asset Sale, or by
applicable law be repaid out of the proceeds from such Asset Sale, and net of
all distributions and other payments required to be made to minority interest
holders in Subsidiaries or joint ventures as a result of such Asset Sale.
"Net Cash Proceeds" with respect to any issuance or sale of
Capital Stock, means the cash proceeds of such issuance or sale, net of
attorney's fees, accountants' fees, underwriters' or placement agents' fees,
discounts or commissions and brokerage, consultant and other fees actually
incurred in connection with such issuance or sale and net of taxes paid or
payable as a result thereof.
"Non-U.S. Person" means a Person that is not a "U.S. person"
as defined in Regulation S.
"Offering Memorandum" means the Company's final Offering
Memorandum dated July 30, 1996, pursuant to which the Units were offered for
sale.
"Officer" means the Chairman of the Board, the Chief Executive
Officer, the President, the Chief Financial Officer or the Treasurer of the
Company.
"Officers' Certificate" means a certificate signed by two
Officers of the Company, at least one of whom shall be the principal executive
officer or principal financial officer of the Company.
<PAGE>
15
"Offshore Global Security" has the meaning provided in Section
201.
"Offshore Physical Security" has the meaning provided in
Section 201.
"Opinion of Counsel" means a written opinion from legal
counsel who is acceptable to the Trustee. The counsel may be counsel to the
Company or the Trustee.
"Outstanding," when used with respect to Securities, means, as
of the date of determination, all Securities theretofore authenticated and
delivered under this Indenture, except:
(i) Securities theretofore cancelled by the Trustee or
delivered to the Trustee for cancellation;
(ii) Securities, or portions thereof, for whose payment or
redemption money in the necessary amount has been theretofore deposited
with the Trustee or any Paying Agent (other than the Company) in
trust or set aside and segregated in trust by the Company (if the
Company shall act as its own Paying Agent) for the Holders of such
Securities; PROVIDED that, if such Securities are to be redeemed,
notice of such redemption has been duly given pursuant to this
Indenture or provision therefor satisfactory to the Trustee has been
made;
(iii) Securities, except to the extent provided in Sections
1302 and 1303, with respect to which the Company has effected
defeasance and/or covenant defeasance as provided in Article Thirteen;
and
(iv) Securities which have been paid pursuant to Section 308
or in exchange for or in lieu of which other Securities have been
authenticated and delivered pursuant to this Indenture, other than any
such Securities in respect of which there shall have been presented to
the Trustee proof satisfactory to it that such Securities are held by a
bona fide purchaser in whose hands the Securities are valid obligations
of the Company; PROVIDED, HOWEVER, that in determining whether the
Holders of the requisite principal amount of Outstanding Securities
have given any request, demand, authorization, direction, consent,
notice or waiver hereunder, and for the purpose of making the
calculations required by TIA Section 316, Securities owned by the
Company or any other obligor upon the Securities or any Affiliate of
the Company or such other obligor shall be disregarded and deemed not
to be Outstanding, except that, in determining whether the Trustee
shall be protected in making such calculation or in relying upon any
such request, demand, authorization, direction, notice,
<PAGE>
16
consent or waiver, only Securities which the Trustee knows to be so owned
shall be so disregarded. Securities so owned which have been pledged in good
faith may be regarded as Outstanding if the pledgee establishes to the
satisfaction of the Trustee the pledgee's right so to act with respect to
such Securities and that the pledgee is not the Company or any other obligor
upon the Securities or any Affiliate of the Company or such other obligor.
"Paying Agent" means any Person (including the Company acting
as Paying Agent) authorized by the Company to pay the principal of (and premium,
if any) or interest on any Securities on behalf of the Company.
"Permitted Holders" means (i) the descendants of Lunsford
Richardson, Sr., their spouses, trusts, and corporations in which they have
interests and charitable organizations established by such descendants, (ii)
Vanguard Cellular Operating Corp. and its controlling Affiliates, and (iii)
Stephen R. Leeolou and Aretas E. Stearns, their estates, spouses, ancestors,
and lineal descendants, the legal representatives of any of the foregoing and
the trustee of any bona fide trust of which the foregoing are the sole
beneficiaries or the grantors, or any Person of which the foregoing
"beneficially owns" (as defined in Rules 13d-3 and 13d-5 under the Exchange
Act) voting securities representing at least 66-2/3% of the total voting power
of all classes of Capital Stock of such Person (exclusive of any matters as to
which class voting rights exist).
"Permitted Indebtedness" is defined to include any and all of
the following: (i) Indebtedness Incurred for working capital purposes pursuant
to a revolving credit facility in an aggregate principal amount which, when
taken together with the principal amount of all other Indebtedness Incurred
pursuant to this clause (i) and then outstanding, does not exceed $10 million;
(ii) Indebtedness Incurred to finance the purchase and installation (including
all associated capitalized costs) of IPN Terminals, PROVIDED, HOWEVER, that (x)
the aggregate principal amount of such Indebtedness does not exceed 100% of the
Fair Market Value (on the date of such Incurrence) of the IPN Terminals acquired
and (y) the Company has already budgeted in writing to expend the proceeds from
the Offering in the manner described in the Offering Memorandum under "Use of
Proceeds"; (iii) Indebtedness of the Company evidenced by the Securities; (iv)
Indebtedness of the Company owing to and held by a Wholly Owned Subsidiary and
Indebtedness of a Wholly Owned Subsidiary owing to and held by the Company or
any Wholly Owned Subsidiary; PROVIDED, HOWEVER, that any event that results in
any such Wholly Owned Subsidiary ceasing to be a Wholly Owned Subsidiary or any
subsequent transfer of any such Indebtedness (except to the Company or a Wholly
Owned Subsidiary) shall be deemed, in each case, to constitute the Incurrence of
such Indebtedness by the issuer thereof; (v) Indebtedness
<PAGE>
17
(other than Indebtedness permitted by Section 1010 hereof or elsewhere in this
definition) in an aggregate principal amount which does not exceed at any one
time outstanding $10 million; (vi) Indebtedness under Interest Rate Agreements
entered into for the purpose of limiting interest rate risks; PROVIDED, HOWEVER,
that the obligations under such agreements are related to payment obligations of
the Company in respect of Indebtedness otherwise permitted by the terms of the
covenant described hereunder; (vii) Indebtedness in connection with one or more
standby letters of credit or performance bonds issued in the ordinary course of
business or pursuant to self-insurance obligations and not in connection with
the borrowing of money or the obtaining of advances or credit; (viii)
Indebtedness Incurred by the Company and owing to either Vanguard Cellular
Systems, Inc., or any Strategic Equity Investor; PROVIDED, HOWEVER, that the
aggregate principal amount of Indebtedness at any time outstanding pursuant to
this clause (viii) shall not exceed $10 million; PROVIDED FURTHER, HOWEVER, that
such Indebtedness shall (x) not by its terms provide for the payment of any cash
interest thereon or for any payments of principal thereof (whether pursuant
to sinking fund or otherwise) at any time prior to the first anniversary
of the Stated Maturity of the Securities; (y) be expressly subordinated
in right of payment to the Securities; and (z) not have in the documentation
evidencing such Indebtedness any term, covenant, provision or default or
event of default which is materially more favorable to the holder thereof
than the terms, covenants, provisions or defaults or events of default
set forth in the Securities (or in the documentation relating thereto) as in
effect on the Issue Date (it being expressly understood that any such
Indebtedness Incurred under this clause (viii) may have an interest rate and
interest terms different from the Securities); (ix) Indebtedness outstanding on
the Issue Date not otherwise described in clauses (i) through (viii) above and
listed on Schedule I; and (x) Permitted Refinancing Indebtedness Incurred in
respect of Indebtedness Incurred pursuant to clause (a) of the immediately
preceding paragraph and clauses (ii), (iii) and (ix) above.
"Permitted Investment" means an Investment by the Company or
any Restricted Subsidiary in (i) a Wholly Owned Subsidiary or a Person which
will, upon the making of such Investment, become a Wholly Owned Subsidiary;
PROVIDED, HOWEVER, that such Person's primary business is a Related Business;
(ii) another Person if as a result of such Investment such other Person is
merged or consolidated with or into, or transfers or conveys all or
substantially all its assets to, the Company or a Wholly Owned Subsidiary;
PROVIDED, HOWEVER, that such Person's primary business is a Related Business;
(iii) Temporary Cash Investments; (iv) receivables owing to the Company or any
Restricted Subsidiary, if created or acquired in the ordinary course of business
and payable or dischargeable in accordance with customary trade terms; (v)
payroll, travel and similar advances to cover matters that are expected at the
time of such advances ultimately to be treated as expenses for accounting
<PAGE>
18
purposes and that are made in the ordinary course of business; (vi) loans and
advances to employees made in the ordinary course of business consistent with
past practice of the Company or such Restricted Subsidiary, as the case may be;
PROVIDED, HOWEVER, that such loans and advances do not exceed $5 million at any
one time outstanding; and (vii) stock, obligations or securities received in
settlement of debts created in the ordinary course of business and owing to the
Company or any Restricted Subsidiary or in satisfaction of judgments.
"Permitted Liens" means (i) Liens on the Property of the
Company or any Restricted Subsidiary existing on the Issue Date; (ii) Liens on
inventory, accounts receivable and any IPN Terminals owned, or cash held (other
than cash raised in the Offering) on the Issue Date to secure Indebtedness
permitted to be incurred under clause (i) of the definition of "Permitted
Indebtedness"; (iii) Liens on IPN Terminals acquired with the proceeds of
Indebtedness permitted to be Incurred under clause (ii) of "Permitted
Indebtedness"; (iv) Liens on the Property of the Company or any Restricted
Subsidiary to secure any extension, renewal, refinancing, replacement
or refunding (or successive extensions, renewals, refinancings, replacements or
refundings), in whole or in part, of any Indebtedness secured by Liens referred
to in any of clauses (i), (ii), (iii), (viii) or (xi); PROVIDED, HOWEVER, that
any such Lien will be limited to all or part of the same Property that secured
the original Lien (plus improvements on such Property) and the aggregate
principal amount of Indebtedness that is secured by such Lien will not be
increased to an amount greater than the sum of (A) the outstanding principal
amount, or, if greater, the committed amount, of the Indebtedness secured by
Liens described under clauses (i), (ii), (iii), (viii) or (xi) at the time the
original Lien became a Permitted Lien under the Indenture and (B) an amount
necessary to pay any premiums, fees and other expenses incurred by the Company
in connection with such refinancing, refunding, extension, renewal or
replacement; (v) Liens for taxes, assessments or governmental charges or levies
on the Property of the Company or any Restricted Subsidiary if the same shall
not at the time be delinquent or thereafter can be paid without penalty, or are
being contested in good faith and by appropriate proceedings; (vi) Liens imposed
by law, such as carriers', warehousemen's and mechanics' Liens and other similar
Liens on the Property of the Company or any Restricted Subsidiary arising in the
ordinary course of business and securing payment of obligations which are not
more than 60 days past due or are being contested in good faith and by
appropriate proceedings; (vii) Liens on the Property of the Company or any
Restricted Subsidiary Incurred in the ordinary course of business to secure
performance of obligations with respect to statutory or regulatory requirements,
performance or return-of-money bonds, surety bonds or other obligations of a
like nature and Incurred in a manner consistent with industry practice; (viii)
Liens on Property at the time the Company or any Restricted Subsidiary acquired
such Property, including any acquisition by means of a merger or consolidation
with or into the Company or any
<PAGE>
19
Restricted Subsidiary; PROVIDED, HOWEVER, that such Lien shall not have been
Incurred in anticipation of or in connection with such transaction or series
of related transactions pursuant to which such Property was acquired by the
Company or any Restricted Subsidiary; (ix) other Liens on the Property of the
Company or any Restricted Subsidiary incidental to the conduct of their
respective businesses or the ownership of their respective Properties which
were not created in connection with the Incurrence of Indebtedness or the
obtaining of advances or credit and which do not in the aggregate materially
detract from the value of their respective Properties or materially impair
the use thereof in the operation of their respective businesses; (x) pledges
or deposits by the Company or any Restricted Subsidiary under workmen's
compensation laws, unemployment insurance laws or similar legislation, or
good faith deposits in connection with bids, tenders, contracts (other than
for the payment of Indebtedness) or leases to which the Company or any
Restricted Subsidiary is party, or deposits to secure public or statutory
obligations of the Company, or deposits for the payment of rent, in each
case Incurred in the ordinary course of business; (xi) Liens on the Property of
a Person at the time such Person becomes a Restricted Subsidiary; PROVIDED,
HOWEVER, that any such Lien may not extend to any other Property of the Company
or any other Restricted Subsidiary which is not a direct Subsidiary of such
Person; PROVIDED FURTHER, HOWEVER, that any such Lien was not Incurred in
anticipation of or in connection with the transaction or series of related
transactions pursuant to which such Person became a Restricted Subsidiary; (xii)
utility easements, building restrictions and such other encumbrances or charges
against real property as are of a nature generally existing with respect to
properties of a similar character; or (xiii) Liens to secure Interest Rate
Agreements permitted to be incurred under clause (vi) of the definition of
"Permitted Indebtedness".
"Permitted Refinancing Indebtedness" means any renewals,
extensions, substitutions, refinancings or replacements of any Indebtedness,
including any successive extensions, renewals, substitutions, refinancings or
replacements so long as (i) the aggregate amount of Indebtedness represented
thereby is not increased by such renewal, extension, substitution, refinancing
or replacement (other than to finance fees and expenses associated with such
refinancing, including any premium and defeasance costs), (ii) the Average Life
of such Indebtedness is equal to or greater than the Average Life of the
Indebtedness being refinanced, (iii) the Stated Maturity of such Indebtedness is
no earlier than the Stated Maturity of the Indebtedness being refinanced and
(iv) the new Indebtedness shall not be senior in right of payment to the
Indebtedness that is being extended, renewed, substituted, refinanced or
replaced; PROVIDED, HOWEVER, that Permitted Refinancing Indebtedness shall not
include (a) Indebtedness of a Subsidiary that refinances Indebtedness of
<PAGE>
20
the Company or (b) Indebtedness of the Company or a Restricted Subsidiary that
refinances Indebtedness of an Unrestricted Subsidiary.
"Person" means any individual, corporation, company
(including any limited liability company), partnership, joint venture, trust,
unincorporated organization or government or any agency or political subdivision
thereof.
"Physical Security" has the meaning provided in Section 201.
"Predecessor Security" of any particular Security means every
previous Security evidencing all or a portion of the same debt as that evidenced
by such particular Security; and, for the purposes of this definition, any
Security authenticated and delivered under Section 308 in exchange for a
mutilated security or in lieu of a lost, destroyed or stolen Security shall be
deemed to evidence the same debt as the mutilated, lost, destroyed or stolen
Security.
"Preferred Stock" means any Capital Stock of a Person, however
designated, which entitles the holder thereof to a preference with respect to
dividends, distributions or liquidation proceeds of such Person over the holders
of other Capital Stock issued by such Person.
"Prepayment Offer" has the meaning provided in Section 1017.
"Prepayment Offer Notice" has the meaning provided in Section
1017.
"Private Placement Legend" has the meaning provided in Section
202.
"Pro Forma EBITDA" means, for any Person at any date of
determination, the EBITDA of such Person for the four most recent full fiscal
quarters preceding such date for which financial statements are available as
determined on a consolidated basis in accordance with GAAP consistently applied
after giving effect to the following: (i) if, during or after such period, such
Person or any of its Subsidiaries shall have made any disposition of any Person
or business, Pro Forma EBITDA of such Person and its Subsidiaries shall be
computed so as to give pro forma effect to such disposition and (ii) if, during
or after such period, such Person or any of its Subsidiaries completes an
acquisition of any Person or business which immediately after such acquisition
is a Subsidiary of such Person or whose assets are held directly by such Person
or a Subsidiary of such Person, Pro Forma EBITDA shall be computed so as to give
pro forma effect to the acquisition of such Person or business; PROVIDED,
HOWEVER, that, with respect to the Company, all of the foregoing references to
"Subsidiary" or "Subsidiaries" shall be deemed to refer only to the "Restricted
Subsidiaries" of the Company.
<PAGE>
21
"Property" means, with respect to any Person, any interest of
such Person in any kind of property or asset, whether real, personal or mixed,
or tangible or intangible, including, without limitation, Capital Stock in, and
other securities of, any other Person (but excluding Capital Stock or other
securities issued by such first mentioned Person).
"Public Equity Offering" means an underwritten public offering
of common stock of the Company pursuant to an effective registration statement
under the Securities Act.
"Purchase Agreement" has the meaning provided in the recitals
to this Indenture.
"Purchase Date" has the meaning provided in Section 1017.
"Qualified Institutional Buyer" or "QIB" shall have the
meaning specified in Rule 144A.
"Redeemable Dividend" means, for any dividend with regard to
Redeemable Stock, the quotient of the dividend divided by the difference between
one and the maximum statutory Federal income tax rate (expressed as a decimal
number between 1 and 0) then applicable to the issuer of such Redeemable Stock.
"Redeemable Stock" means, with respect to any person, any
Capital Stock that by its terms (or by the terms of any security into which it
is convertible or for which it is exchangeable) or otherwise (i) matures or is
mandatorily redeemable pursuant to a sinking fund obligation or otherwise, (ii)
is or may become redeemable or repurchasable at the option of the holder
thereof, in whole or in part, or (iii) is convertible or exchangeable for
Indebtedness.
"Redemption Date," when used with respect to any Security to
be redeemed, in whole or in part, means the date fixed for such redemption by or
pursuant to this Indenture.
"Redemption Price," when used with respect to any Security to
be redeemed, means the price at which it is to be redeemed pursuant to this
Indenture.
"Registration Rights Agreement" means the Exchange and
Registration Rights Agreement between the Company and the Initial Purchasers
named therein, dated as of July __, 1996, relating to the Securities.
"Registration Statement" means the Registration Statement as
defined in the Registration Rights Agreement.
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22
"Regular Record Date" for the interest payable on any Interest
Payment Date means the January 15 or July 15 (whether or not a Business Day), as
the case may be, next preceding such Interest Payment Date.
"Regulation S" means Regulation S under the Securities Act.
"Related Business" means any business related to the consumer
product promotion business (including any interactive, multi-media and
telecommunications aspects thereof).
"Responsible Officer," when used with respect to the Trustee,
means any officer of the Trustee employed within the corporate trust
administration department, including any vice president, any assistant vice
president, any assistant secretary, any assistant treasurer, any trust officer
or assistant trust officer or any other officer of the Trustee customarily
performing functions similar to those performed by any of the above-designated
officers, and also means, with respect to a particular corporate trust matter,
any other officer to whom such matter is referred because of his knowledge of
and familiarity with the particular subject.
"Restricted Payment" means (i) any dividend or distribution
(whether made in cash, Property or securities) declared or paid on or with
respect to any shares of Capital Stock of the Company or Capital Stock of any
Restricted Subsidiary except for any dividend or distribution which is made
solely to the Company or a Restricted Subsidiary (and, if such Restricted
Subsidiary is not a Wholly Owned Subsidiary, to the other shareholders of such
Restricted Subsidiary on a pro rata basis) or dividends or distributions payable
solely in shares of Capital Stock (other than Redeemable Stock) of the Company;
(ii) a payment made by the Company or any Restricted Subsidiary to purchase,
redeem, acquire or retire any Capital Stock of the Company of Capital Stock of
any Affiliate of the Company (other than a Restricted Subsidiary) of any
warrants, rights or options to directly or indirectly purchase or acquire any
such Capital Stock or any securities exchangeable for or convertible into any
such Capital Stock; (iii) a payment made by the Company or any Restricted
Subsidiary to redeem, repurchase, defease or otherwise acquire or retire for
value, prior to any scheduled maturity, scheduled sinking fund or mandatory
redemption payment (other than the purchase, repurchase, or other acquisition of
any Indebtedness subordinate in right of payment to the Securities purchased in
anticipation of satisfying a sinking fund obligation, principal installment or
final maturity, in each case due within one year of the date of acquisition),
Indebtedness of the Company which is subordinate (whether pursuant to its terms
or by operation of law) in right of payment to the Securities; or (iv) an
Investment (other than Permitted Investments) in any Person.
"Restricted Subsidiary" means (i) any Subsidiary of the
Company as of and after the Issue Date unless such Subsidiary shall have
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23
been designated an Unrestricted Subsidiary as permitted or required pursuant
to the definition of "Unrestricted Subsidiary" and (ii) an Unrestricted
Subsidiary which is redesignated as a Restricted Subsidiary as permitted
pursuant to the definition of "Unrestricted Subsidiary."
"Rule 144A" means Rule 144A under the Securities Act.
"Sale and Leaseback Transaction" means with respect to any
Person, any direct or indirect arrangement pursuant to which Property is sold or
transferred by such Person or a Subsidiary of such Person and is thereafter
leased back from the purchaser or transferee thereof by such Person or one of
its Subsidiaries.
"S&P" means Standard and Poor's Ratings Group, or any
successor to the rating agency business thereof.
"Secured Indebtedness" means Indebtedness of the Company
secured by property or assets of the Company or any Restricted Subsidiary.
"Securities" has the meaning stated in the first recital of
this Indenture and more particularly means any Securities authenticated and
delivered under this Indenture.
"Securities Act" means the Securities Act of 1933, as amended.
"Security Register" and "Security Registrar" have the
respective meanings specified in Section 305.
"Separation Date" has the meaning provided in the recitals to
this Indenture, and the Company shall notify the Trustee in writing of the
occurrence of the Separation Date.
"Shelf Registration Statement" means the Shelf Registration
Statement as defined in the Registration Rights Agreement.
"Special Record Date" for the payment of any Defaulted
Interest means a date fixed by the Trustee pursuant to Section 309.
"Stated Maturity" means, with respect to any Indebtedness, the
date specified in such Indebtedness as the fixed date on which the principal of
such Indebtedness is due and payable, including pursuant to any mandatory
redemption provision (but excluding any provision providing for the repurchase
of such Indebtedness at the option of the holder thereof upon the happening of
any contingency beyond the control of the issuer unless such contingency has
occurred).
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24
"Strategic Equity Investor" means (i) any Person engaged
principally in the consumer products manufacturing business which has an
Investment Grade Rating and (ii) any Person which is wholly owned and controlled
by any Person or Persons referred to in clause (i) of this definition.
"Subordinated Indebtedness" means Indebtedness of the Company
that is expressly subordinated in right of payment to the Securities.
"Subsidiary" of any specified Person means any corporation,
partnership, joint venture, association or other business entity, whether now
existing or hereafter organized or acquired, (i) in the case of a corporation,
of which at least 50% of the total voting power of the Voting Stock is held by
such first-named Person or any of its Subsidiaries and such first-named Person
or any of its Subsidiaries has the power to direct the management, policies and
affairs thereof; or (ii) in the case of a partnership, joint venture,
association, or other business entity, with respect to which such first-named
Person or any of its Subsidiaries has the power to direct or cause the direction
of the management and policies of such entity by contract or otherwise if in
accordance with generally accepted accounting principles such entity is
consolidated with the first-named Person for financial statement purposes.
"Temporary Cash Investments" means any of the following: (i)
Investments in U.S. Government Obligations maturing within 90 days of the date
of acquisition thereof, (ii) Investments in time deposit accounts, certificates
of deposit and money market deposits maturing within 90 days of the date of
acquisition thereof issued by a bank or trust company which is organized under
the laws of the United States of America or any state thereof having capital,
surplus and undivided profits aggregating in excess of $500,000,000 and whose
long-term debt is rate "A-3" or "A-" or higher according to Moody's or S & P (or
such similar equivalent rating by at least one "nationally recognized
statistical rating organization" (as defined in Rule 436 under the Securities
Act)), (iii) repurchase obligations with a note of not more than 7 days for
underlying securities of the types described in clause (i) entered into with a
bank meeting the qualifications described in clause (ii) above, and (iv)
Investments in commercial paper, maturing not more than 90 days after the date
of acquisition, issued by a corporation (other than an Affiliate of the Company)
organized and in existence under the laws of the United States of America with a
rating at the time as of which any Investment therein is made of "P-1" (or
higher) according to Moody's or "A-1" (or higher) according to S & P (or such
similar equivalent rating by at least one "nationally recognized statistical
rating organization" (as defined in Rule 436 under the Securities Act)).
"Trust Indenture Act" or "TIA" (except as provided in Section
905) means the Trust Indenture Act of 1939 as in force at the date as of
<PAGE>
25
which this Indenture is executed and, to the extent required by law, as amended.
"Trustee" means the Person named as the "Trustee" in the
heading of this Indenture until a successor Trustee shall have become such
pursuant to the applicable provisions of this Indenture, and thereafter
"Trustee" shall mean such successor Trustee.
"Units" has the meaning provided in the recitals to this
Indenture.
"Unrestricted Subsidiary" means (a) any Subsidiary of the
Company in existence on the Issue Date that is not a Restricted Subsidiary and
(b) any Subsidiary of an Unrestricted Subsidiary. The Board of Directors of the
Company may designate any Subsidiary or any Restricted Subsidiary (including any
newly acquired or newly formed Subsidiary) to be an Unrestricted Subsidiary so
long as (i) the Subsidiary to be so designated does not own any Capital Stock or
Indebtedness of, or own or hold any Lien on any Property of the Company or any
other Restricted Subsidiary, (ii) the Subsidiary to be so designated is not
obligated under any Indebtedness or other obligation that, if in default, would
result (with the passage of time or notice or otherwise) in a default on any
Indebtedness of the Company or any Restricted Subsidiary and (iii) either (A)
the Subsidiary to be so designated has total assets of $1,000 or less or (B)
such designation is effective immediately upon such entity becoming a Subsidiary
of the Company or any Restricted Subsidiary. Unless so designated as an
Unrestricted Subsidiary, any Person that becomes a Subsidiary of the Company or
of any Restricted Subsidiary will be classified as a Restricted Subsidiary;
PROVIDED, HOWEVER, that such Subsidiary shall not be designated a Restricted
Subsidiary and shall be automatically classified as an Unrestricted Subsidiary
if the Company would be unable to Incur at least $1.00 of additional
Indebtedness pursuant to clause (a) of Section 1010. Except as provided in the
second sentence of this paragraph, no Restricted Subsidiary may be redesignated
as an Unrestricted Subsidiary. The Company's Board of Directors may designate
any Unrestricted Subsidiary to be a Restricted Subsidiary if, immediately after
giving pro forma effect to such designation, (x) the Company could incur at
least $1.00 of additional Indebtedness pursuant to clause (a) of Section 1010
and (y) no Default or Event of Default shall have occurred and be continuing or
would result therefrom. Any such designation by the Company's Board of Directors
will be evidenced to the Trustee by filing with the Trustee a copy of the Board
Resolution giving effect to such designation and an Officers' Certificate
certifying (i) that such designation complies with the foregoing provisions and
(ii) giving the effective date of such designation, such filing with the Trustee
to occur within 75 days after the end of the fiscal quarter of the Company in
which such designation is made (or in the case of a designation made during the
<PAGE>
26
last fiscal quarter of the Company's fiscal year, within 120 days after the end
of such fiscal year).
"U.S. Global Security" has the meaning provided in Section
201.
"U.S. Government Obligations" means direct obligations (or
certificates representing an ownership interest in such obligations) of the
United States of America (including any agency or instrumentality thereof) for
the payment of which the full faith and credit of the United States of America
is pledged and which are not callable or redeemable.
"U.S. Person" has the meaning provided in Regulation S.
"U.S. Physical Security" has the meaning provided in Section
201.
"Vice President," when used with respect to the Company or the
Trustee, means any vice president, whether or not designated by a number or a
word or words added before or after the title "vice president."
"Voting Stock" means all classes of Capital Stock of such
Corporation then outstanding and normally entitled to vote in the election of
directors.
"Warrant Agreement" has the meaning provided in the recitals
to this Indenture.
"Warrants" have the meaning provided in the recitals to this
Indenture.
"Wholly Owned Subsidiary" means a Restricted Subsidiary, all
the Capital Stock of which (other than directors' qualifying shares and shares
held by other Persons to the extent such shares are required by applicable law
to be held by a Person other than the Company or a Restricted Subsidiary) is
owned by the Company or one or more Wholly Owned Subsidiaries.
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27
SECTION 102. Compliance Certificates and Opinions.
Upon any application or request by the Company to the Trustee
to take any action under any provision of this Indenture, the Company shall
furnish to the Trustee an Officers' Certificate stating that all conditions
precedent, if any, provided for in this Indenture (including any covenant
compliance with which constitutes a condition precedent) relating to the
proposed action have been complied with and an Opinion of Counsel stating that
in the opinion of such counsel all such conditions precedent, if any, have been
complied with, except that in the case of any such application or request as
to which the furnishing of such documents is specifically required by any
provision of this Indenture relating to such particular application or
request, no additional certificate or opinion need be furnished.
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28
Every certificate or opinion with respect to compliance with a
condition or covenant provided for in this Indenture (other than pursuant to
Section 1008(a)) shall include:
(1) a statement that each individual signing such certificate
or opinion has read such covenant or condition and the definitions
herein relating thereto;
(2) a brief statement as to the nature and scope of the
examination or investigation upon which the statements or opinions
contained in such certificate or opinion are based;
(3) a statement that, in the opinion of each such individual,
he has made such examination or investigation as is necessary to enable
him to express an informed opinion as to whether or not such covenant
or condition has been complied with; and
(4) a statement as to whether, in the opinion of each such
individual, such condition or covenant has been complied with.
SECTION 103. Form of Documents Delivered to Trustee.
In any case where several matters are required to be certified
by, or covered by an opinion of, any specified Person, it is not necessary that
all such matters be certified by, or covered by the opinion of, only one such
Person, or that they be so certified or covered by only one document, but one
such Person may certify or give an opinion with respect to some matters and one
or more other such Persons as to other matters, and any such Person may certify
or give an opinion as to such matters in one or several documents.
Any certificate or opinion of an officer of the Company may be
based, insofar as it relates to legal matters, upon a certificate or opinion of,
or representations by, counsel, unless such officer knows, or in the exercise of
reasonable care should know, that the certificate or opinion or representations
with respect to the matters upon which his certificate or opinion is based are
erroneous. Any such certificate or Opinion of Counsel may be based, insofar as
it relates to factual matters, upon a certificate or opinion of, or
representations by, an officer or officers of the Company stating that the
information with respect to such factual matters is in the possession of the
Company, unless such counsel knows, or in the exercise of reasonable care should
know, that the certificate or opinion or representations with respect to such
matters are erroneous.
<PAGE>
29
Where any Person is required to make, give or execute two or
more applications, requests, consents, certificates, statements, opinions or
other instruments under this Indenture, they may, but need not, be consolidated
and form one instrument.
SECTION 104. Acts of Holders.
(a) Any request, demand, authorization, direction, notice,
consent, waiver or other action provided by this Indenture to be given or taken
by Holders may be embodied in and evidenced by one or more instruments of
substantially similar tenor signed by such Holders in person or by agents duly
appointed in writing; and, except as herein otherwise expressly provided, such
action shall become effective when such instrument or instruments are delivered
to the Trustee and, where it is hereby expressly required, to the Company. Such
instrument or instruments (and the action embodied therein and evidenced
thereby) are herein sometimes referred to as the "Act" of the Holders signing
such instrument or instruments. Proof of execution of any such instrument or of
a writing appointing any such agent shall be sufficient for any purpose of this
Indenture and conclusive in favor of the Trustee and the Company, if made in the
manner provided in this Section.
(b) The fact and date of the execution by any Person of any
such instrument or writing may be proved by the affidavit of a witness of such
execution or by a certificate of a notary public or other officer authorized by
law to take acknowledgments of deeds, certifying that the individual signing
such instrument or writing acknowledged to him the execution thereof. Where such
execution is by a signer acting in a capacity other than his individual
capacity, such certificate or affidavit shall also constitute sufficient proof
of authority. The fact and date of the execution of any such instrument or
writing, or the authority of the Person executing the same, may also be proved
in any other manner that the Trustee deems sufficient.
(c) The principal amount and serial numbers of Securities held
by any Person, and the date of holding the same, shall be proved by the Security
Register.
(d) If the Company shall solicit from the Holders of
Securities any request, demand, authorization, direction, notice, consent,
waiver or other Act, the Company may, at its option, by or pursuant to a Board
Resolution, fix in advance a record date for the determination of Holders
entitled to give such request, demand, authorization, direction, notice,
consent, waiver or other Act, but the Company shall have no obligation to do so.
Such record date shall be the record date specified in or pursuant to such Board
Resolution, which shall be a date not earlier than the date 30 days prior to the
first solicitation of Holders generally in connection therewith and not
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30
later than the date such solicitation is completed. If such a record date is
fixed, such request, demand, authorization, direction, notice, consent, waiver
or other Act may be given before or after such record date, but only the Holders
of record at the close of business on such record date shall be deemed to be
Holders for the purposes of determining whether Holders of the requisite
proportion of Outstanding Securities have authorized or agreed or consented to
such request, demand, authorization, direction, notice, consent, waiver or other
Act, and for that purpose the Outstanding Securities shall be computed as of
such record date; PROVIDED that no such authorization, agreement or consent by
the Holders on such record date shall be deemed effective unless it shall become
effective pursuant to the provisions of this Indenture not later than 120 days
after the record date.
(e) Any request, demand, authorization, direction, notice,
consent, waiver or other Act of the Holder of any Security shall bind every
future Holder of the same Security and the Holder of every Security issued upon
the registration of transfer thereof or in exchange therefor or in lieu thereof
in respect of anything done, omitted or suffered to be done by the Trustee or
the Company in reliance thereon, whether or not notation of such action is made
upon such Security.
SECTION 105. Notices, Etc., to Trustee and Company.
Any request, demand, authorization, direction, notice,
consent, waiver or Act of Holders or other document provided or permitted by
this Indenture to be made upon, given or furnished to, or filed with,
(1) the Trustee by any Holder or by the Company shall be
sufficient for every purpose hereunder if made, given, furnished or
filed in writing to or with the Trustee at its Corporate Trust Office,
Attention: Corporate Trust Administration, or
(2) the Company by the Trustee or by any Holder shall be
sufficient for every purpose hereunder (unless otherwise herein
expressly provided) if in writing and mailed, first-class postage
prepaid, to the Company addressed to it at the address of its principal
office specified in the heading of this Indenture, or at any other
address previously furnished in writing to the Trustee by the Company.
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31
SECTION 106. Notice to Holders; Waiver.
Where this Indenture provides for notice of any event to
Holders by the Company or the Trustee, such notice shall be sufficiently given
(unless otherwise herein expressly provided) if in writing and mailed,
first-class postage prepaid, to each Holder affected by such event, at his
address as it appears in the Security Register, not later than the latest date,
and not earlier than the earliest date, prescribed for the giving of such
notice. In any case where notice to Holders is given by mail, neither the
failure to mail such notice, nor any defect in any notice so mailed, to any
particular Holder shall affect the sufficiency of such notice with respect to
other Holders. Any notice mailed to a Holder in the manner herein prescribed
shall be conclusively deemed to have been received by such Holder, whether or
not such Holder actually receives such notice. Where this Indenture provides for
notice in any manner, such notice may be waived in writing by the Person
entitled to receive such notice, either before or after the event, and such
waiver shall be the equivalent of such notice. Waivers of notice by Holders
shall be filed with the Trustee, but such filing shall not be a condition
precedent to the validity of any action taken in reliance upon such waiver.
In case by reason of the suspension of or irregularities in
regular mail service or by reason of any other cause, it shall be impracticable
to mail notice of any event to Holders when such notice is required to be given
pursuant to any provision of this Indenture, then any manner of giving such
notice as shall be satisfactory to the Trustee shall be deemed to be a
sufficient giving of such notice for every purpose hereunder.
SECTION 107. Effect of Headings and Table of Contents.
The Article and Section headings herein and the Table of
Contents are for convenience only and shall not affect the construction hereof.
SECTION 108. Successors and Assigns.
All covenants and agreements in this Indenture by the Company
shall bind its successors and assigns, whether so expressed or not.
SECTION 109. Separability Clause.
In case any provision in this Indenture or in the Securities
shall be invalid, illegal or unenforceable, the validity, legality and
enforceability of the remaining provisions shall not in any way be affected or
impaired thereby.
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32
SECTION 110. Benefits of Indenture.
Nothing in this Indenture or in the Securities, express or
implied, shall give to any Person, other than the parties hereto, any Paying
Agent, any Securities Registrar and their successors hereunder and the Holders,
any benefit or any legal or equitable right, remedy or claim under this
Indenture.
SECTION 111. Governing Law.
This Indenture and the Securities shall be governed by and
construed in accordance with the law of the State of New York. Upon the issuance
of the Exchange Securities or the effectiveness of the Shelf Registration
Statement, this Indenture shall be subject to the provisions of the Trust
Indenture Act that are required to be part of this Indenture and shall, to the
extent applicable, be governed by such provisions; and, if and to the extent
that any provision of this Indenture limits, qualifies or conflicts with another
provision included in this Indenture which is required to be included in this
Indenture by any of Sections 310 to 318, inclusive, of the Trust Indenture Act,
such required provision shall control.
SECTION 112. Legal Holidays.
In any case where any Interest Payment Date, Redemption Date,
or Maturity Date of any Security shall not be a Business Day, then
(notwithstanding any other provision of this Indenture or of the Securities)
payment of principal (or premium, if any) or interest need not be made on such
date, but may be made on the next succeeding Business Day with the same force
and effect as if made on the Interest Payment Date, Redemption Date, or at the
Stated Maturity or Maturity; PROVIDED that no interest shall accrue for the
period from and after such Interest Payment Date, Redemption Date or Maturity
Date, as the case may be.
ARTICLE TWO
SECURITY FORMS
SECTION 201. Forms Generally.
The definitive Securities shall be typed, printed,
lithographed or engraved or produced by any combination of these methods or may
be produced in any other manner permitted by the rules of any securities
exchange on which the
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33
Securities may be listed, all as determined by the officers executing such
Securities, as evidenced by their execution of such Securities.
The Securities and the Trustee's certificate of authentication
shall be substantially in the form annexed hereto as Exhibit A. The Securities
may have such appropriate insertions, omissions, substitutions and other
variations as are required or permitted by this Indenture and may have such
letters, notations, numbers or other marks of identification and such legends or
endorsements placed thereon as the Company may deem appropriate (and as are not
prohibited by the terms of this Indenture) or as may be required or appropriate
to comply with any law or with any rules made pursuant thereto or with any rules
of any securities exchange on which such Securities may be listed, or to conform
to general usage, or as may, consistently herewith, be determined by the
officers executing such Securities, as evidenced by their execution of such
Securities. Any portion of the text of any Security may be set forth on the
reverse thereof, with an appropriate reference thereto on the face of the
Security. The Company shall approve the form of the Securities and any notation,
legend or endorsement on the Securities. Each Security shall be dated the date
of its authentication.
The terms and provisions contained in the form of the
Securities annexed hereto as Exhibit A shall constitute, and are hereby
expressly made, a part of this Indenture. Each of the Company and the Trustee,
by its execution and delivery of this Indenture, expressly agrees to the terms
and provisions of the Securities applicable to it and to be bound thereby.
Initial Securities offered and sold in reliance on Rule 144A
shall be issued in the form of a single permanent global Security in registered
form, substantially in the form set forth in Exhibit A (the "U.S. Global
Security"), deposited with the Trustee, as custodian for the Depositary, duly
executed by the Company and authenticated by the Trustee as hereinafter
provided. The aggregate principal amount at maturity of the U.S. Global Security
may from time to time be increased or decreased by adjustments made on the
records of the Trustee, as custodian for the Depositary or its nominee, as
hereinafter provided.
Initial Securities offered and sold in offshore transactions
in reliance on Regulation S shall be issued in the form of a single global
Security, initially in temporary form and after the Private Placement Legend is
no longer required pursuant to Section 202, in permanent global form, in each
case in registered form substantially in the form set forth in Exhibit A (the
"Offshore Global Security") deposited with the Trustee, as custodian for the
Depositary, duly executed by the Company and authenticated by the Trustee as
hereinafter provided. The aggregate
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34
principal amount at maturity of the Offshore Global Security may from time to
time be increased or decreased by adjustments made in the records of the
Trustee, as custodian for the Depositary or its nominee, as herein provided.
Initial Securities which are offered and sold to Institutional
Accredited Investors which are not QIBs (excluding Non-U.S. Persons) shall be
issued in the form of permanent certificated Securities in registered form in
substantially the form set forth in Exhibit A (the "U.S. Physical Securities").
Securities issued pursuant to Section 306 in exchange for interests in the U.S.
Global Security or the Offshore Global Security shall be in the form of U.S.
Physical Securities or in the form of permanent certificated Securities in
registered form substantially in the form set forth in Exhibit A (the "Offshore
Physical Securities"), respectively.
The Offshore Physical Securities and U.S. Physical Securities
are sometimes collectively herein referred to as the "Physical Securities." The
U.S. Global Security and the Offshore Global Security are sometimes collectively
referred to as the "Global Securities."
SECTION 202. Restrictive Legends.
Unless and until (i) an Initial Security is sold under an
effective Registration Statement or (ii) an Initial Security is exchanged for an
Exchange Security in connection with an effective Registration Statement, in
each case pursuant to the Registration Rights Agreement, (A) each U.S. Global
Security and each U.S. Physical Security shall bear the following legend set
forth below (the "Private Placement Legend") on the face thereof and (B) the
Offshore Physical Securities and the Offshore Global Security shall bear the
legend set forth below on the face thereof until at least 1 year after the Issue
Date if the Separation Date has not yet occurred, or if the Separation Date
occurs prior to 41 days from the Issue Date, until at least 41 days after such
Issue Date and receipt by the Company and the Trustee of a certificate
substantially in the form of Exhibit B hereto.
THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933,
AS AMENDED (THE "SECURITIES ACT"), OR ANY STATE SECURITIES LAWS.
NEITHER THIS SECURITY NOR ANY INTEREST OR PARTICIPATION HEREIN MAY BE
REOFFERED, SOLD, ASSIGNED, TRANSFERRED, PLEDGED, ENCUMBERED OR
OTHERWISE DISPOSED OF IN ABSENCE OF SUCH REGISTRATION OR UNLESS SUCH
TRANSACTION IS EXEMPT FROM, OR NOT SUBJECT TO, REGISTRATION. THE HOLDER
OF THIS SECURITY BY ITS ACCEPTANCE HEREOF AGREES TO OFFER, SELL, OR
OTHERWISE
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35
TRANSFER SUCH SECURITY, PRIOR TO THE DATE WHICH IS THREE YEARS AFTER
THE LATER OF THE ORIGINAL ISSUE DATE HEREOF AND THE LAST DATE ON WHICH
THE COMPANY, OR ANY AFFILIATE OF THE COMPANY, WAS THE OWNER OF THIS
SECURITY (OR ANY PREDECESSOR OF THIS SECURITY) ONLY (A) TO THE COMPANY,
(B) PURSUANT TO A REGISTRATION STATEMENT WHICH HAS BEEN DECLARED
EFFECTIVE UNDER THE SECURITIES ACT, (C) FOR SO LONG AS THIS SECURITY IS
ELIGIBLE FOR RESALE PURSUANT TO RULE 144A UNDER THE SECURITIES ACT
("RULE 144A"), TO A PERSON IT REASONABLY BELIEVES IS A "QUALIFIED
INSTITUTIONAL BUYER" AS DEFINED IN RULE 144A THAT PURCHASES FOR ITS OWN
ACCOUNT OR FOR THE ACCOUNT OF A QUALIFIED INSTITUTIONAL BUYER TO WHOM
NOTICE IS GIVEN THAT THE TRANSFER IS BEING MADE IN RELIANCE ON RULE
144A, (D) PURSUANT TO OFFERS AND SALES TO NON-U.S. PERSONS THAT OCCUR
OUTSIDE THE UNITED STATES WITHIN THE MEANING OF REGULATION S UNDER THE
SECURITIES ACT, (E) TO AN INSTITUTIONAL, "ACCREDITED INVESTOR" WITHIN
THE MEANING OF SUBPARAGRAPH (A)(1), (2), (3) OR (7) OF RULE 501 UNDER
THE SECURITIES ACT THAT IS ACQUIRING THIS SECURITY FOR ITS OWN ACCOUNT,
OR FOR THE ACCOUNT OF SUCH AN INSTITUTIONAL "ACCREDITED INVESTOR", FOR
INVESTMENT PURPOSES AND NOT WITH A VIEW TO, OR FOR OFFER OR SALE IN
CONNECTION WITH, ANY DISTRIBUTION IN VIOLATION OF THE SECURITIES ACT,
OR (F) PURSUANT TO ANOTHER AVAILABLE EXEMPTION FROM THE REGISTRATION
REQUIREMENTS OF THE SECURITIES ACT, SUBJECT TO THE COMPANY'S AND THE
TRUSTEE'S RIGHT PRIOR TO ANY SUCH OFFER, SALE OR TRANSFER (i) PURSUANT
TO CLAUSE (D), (E) OR (F) TO REQUIRE THE DELIVERY OF AN OPINION OF
COUNSEL, CERTIFICATION AND/OR OTHER INFORMATION SATISFACTORY TO EACH OF
THEM, AND (ii) IN EACH OF THE FOREGOING CASES, TO REQUIRE THAT A
CERTIFICATE OF TRANSFER IN THE FORM APPEARING ON THE OTHER SIDE OF THIS
SECURITY IS COMPLETED AND DELIVERED BY THE TRANSFEROR TO THE TRUSTEE.
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36
Each Global Security, whether or not an Initial Security,
shall also bear the following legend on the face thereof:
UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF
THE DEPOSITORY TRUST COMPANY TO THE COMPANY OR ITS AGENT FOR
REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT, AND ANY CERTIFICATE
ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR TO SUCH OTHER ENTITY
AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST
COMPANY OR SUCH OTHER REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY OR
SUCH OTHER NAME AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF THE
DEPOSITORY TRUST COMPANY (AND ANY PAYMENT HEREON IS MADE TO CEDE &
CO.), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE
BY OR TO ANY PERSON IS WRONGFUL SINCE THE REGISTERED OWNER HEREOF, CEDE
& CO., HAS AN INTEREST HEREIN.
TRANSFERS OF THIS GLOBAL SECURITY SHALL BE LIMITED TO TRANSFERS IN
WHOLE, BUT NOT IN PART, TO DTC OR NOMINEES OF DTC OR TO A SUCCESSOR OF
DTC OR SUCH SUCCESSOR'S NOMINEE AND TRANSFERS OF PORTIONS OF THIS
GLOBAL SECURITY SHALL BE LIMITED TO TRANSFERS MADE IN ACCORDANCE WITH
THE RESTRICTIONS SET FORTH IN SECTIONS 306 AND 307 OF THE INDENTURE.
Prior to the Separation Date, each Security shall bear the
following legend on the face of thereof:
THIS NOTE IS INITIALLY ISSUED AS PART OF AN ISSUANCE OF UNITS (THE
"UNITS"), EACH OF WHICH CONSISTS OF $1,000 PRINCIPAL AMOUNT OF 14%
SENIOR DISCOUNT NOTES DUE 2003 (THE "SECURITIES") OF INTER(bullet)ACT
SYSTEMS, INCORPORATED (THE "ISSUER") AND A WARRANT (COLLECTIVELY, THE
"WARRANTS") ENTITLING THE HOLDER THEREOF TO PURCHASE SHARES OF COMMON
STOCK, NO PAR VALUE PER SHARE, OF THE ISSUER. PRIOR TO THE CLOSE OF
BUSINESS ON THE EARLIER OF (1) THE COMMENCEMENT OF AN EXCHANGE OFFER OR
THE EFFECTIVENESS OF A SHELF REGISTRATION STATEMENT FOR THE NOTES, AND
(2) SUCH DATE AS THE INITIAL PURCHASERS MAY,
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37
IN THEIR DISCRETION, DEEM APPROPRIATE. THIS NOTE MAY NOT
BE TRANSFERRED OR EXCHANGED SEPARATELY FROM, BUT MAY
BE TRANSFERRED OR EXCHANGED ONLY TOGETHER WITH, THE
WARRANTS.
ARTICLE THREE
THE SECURITIES
SECTION 301. Title and Terms.
The aggregate principal amount at final maturity of Securities
which may be authenticated and delivered under this Indenture is limited to
$142,000,000 except for Securities authenticated and delivered upon registration
of transfer of, or in exchange for, or in lieu of, other Securities pursuant to
Section 304, 305, 308, 906, 1016, 1017 or 1108.
The Initial Securities shall be known and designated as the
"14% Senior Discount Notes due 2003" and the Exchange Securities shall be known
and designated as the "14% Senior Discount Notes due 2003," in each case of the
Company. Their Stated Maturity shall be August 1, 2003 and, except as may be
otherwise provided for in the Securities, they shall bear interest at the rate
of 14% per annum from August 1, 1999, or from the most recent Interest Payment
Date to which interest has been paid or duly provided for, payable on February
1, 2000 and semi-annually thereafter on August 1 and February 1 in each year and
at said Stated Maturity, until the principal thereof is paid or duly provided
for.
The principal of (and premium, if any) and interest on the
Securities shall be payable at the office or agency of the Company maintained
for such purpose in The City of New York, or at such other office or agency of
the Company as may be maintained for such purpose; PROVIDED, HOWEVER, that, at
the option of the Company, interest may be paid by check mailed to addresses of
the Persons entitled thereto as such addresses shall appear on the Security
Register.
The Securities shall be redeemable as provided in Article
Eleven.
SECTION 302. Denominations.
The Securities shall be issuable only in registered form
without coupons and only in denominations of $1,000 and any integral multiple
thereof.
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38
SECTION 303. Execution, Authentication, Delivery and Dating.
The Securities shall be executed on behalf of the Company by
its Chairman, its President or a Vice President, under its corporate seal
reproduced thereon. The signature of any of these officers on the Securities may
be manual or facsimile signatures of the present or any future such authorized
officer and may be imprinted or otherwise reproduced on the Securities. The seal
of the Company, if any, may be in the form of a facsimile thereof and may be
impressed, affixed, imprinted or otherwise reproduced on the Securities.
Securities bearing the manual or facsimile signatures of
individuals who were at any time the proper officers of the Company shall bind
the Company, notwithstanding that such individuals or any of them have ceased to
hold such offices prior to the authentication and delivery of such Securities or
did not hold such offices at the date of such Securities. In addition, any
Security may be signed on behalf of the Company by such Persons as, at the
actual date of the execution of such Security, shall be the proper officers of
the Company, although at the date of such Security or of the execution of this
Indenture any such Person was not such officer.
At any time and from time to time after the execution and
delivery of this Indenture, the Company may deliver Securities executed by the
Company to the Trustee for authentication, together with a Company Order for the
authentication and delivery of such Securities, and the Trustee in accordance
with such Company Order shall authenticate and deliver such Securities.
Each Security shall be dated the date of its authentication.
No Security shall be entitled to any benefit under this
Indenture or be valid or obligatory for any purpose unless there appears on such
Security a certificate of authentication substantially in the form provided for
herein duly executed by the Trustee by manual signature of an authorized
signatory, and such certificate upon any Security shall be conclusive evidence,
and the only evidence, that such Security has been duly authenticated and
delivered hereunder and is entitled to the benefits of this Indenture.
In case the Company, pursuant to Article Eight, shall be
consolidated or merged with or into any other Person or shall convey, transfer,
lease or otherwise dispose of its properties and assets substantially as an
entirety to any Person, and the successor Person resulting from such
consolidation, or surviving such merger, or into which the Company shall have
been merged, or the Person which shall have received a conveyance, transfer,
lease or other disposition as aforesaid, shall have executed an
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39
indenture supplemental hereto with the Trustee pursuant to Article Eight, any of
the Securities authenticated or delivered prior to such consolidation, merger,
conveyance, transfer, lease or other disposition may, from time to time, at the
request of the successor Person, be exchanged for other Securities executed in
the name of the successor Person with such changes in phraseology and form as
may be appropriate, but otherwise in substance of like tenor as the Securities
surrendered for such exchange and of like principal amount at maturity; and the
Trustee, upon Company Request of the successor Person, shall authenticate and
deliver Securities as specified in such Request for the purpose of such
exchange. If Securities shall at any time be authenticated and delivered in the
name of a successor Person pursuant to this Section in exchange or substitution
for or upon registration of transfer of any Securities, such successor Person,
at the option of the Holders but without expense to them, shall provide for the
exchange of all Securities at the time Outstanding for Securities authenticated
and delivered in such name.
SECTION 304. Temporary Securities.
Pending the preparation of definitive Securities, the Company
may execute, and upon Company Order the Trustee shall authenticate and deliver,
temporary Securities which are printed, lithographed, typewritten, mimeographed
or otherwise produced, in any authorized denomination, substantially of the
tenor of the definitive Securities in lieu of which they are issued and with
such appropriate insertions, omissions, substitutions and other variations as
the officers executing such Securities may determine, as conclusively evidenced
by their execution of such Securities.
If temporary Securities are issued, the Company will cause
definitive Securities to be prepared without unreasonable delay. After the
preparation of definitive Securities, the temporary Securities shall be
exchangeable for definitive Securities upon surrender of the temporary
Securities at the office or agency of the Company designated for such purpose
pursuant to Section 1002, without charge to the Holder (except as provided in
Section 305). Upon surrender for cancellation of any one or more temporary
Securities, the Company shall execute and the Trustee shall authenticate and
deliver in exchange therefor a like principal amount at maturity of definitive
Securities of authorized denominations. Until so exchanged, the temporary
Securities shall in all respects be entitled to the same benefits under this
Indenture as definitive Securities.
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40
SECTION 305. Registration, Registration of Transfer and
Exchange.
The Company shall keep or cause to be kept at the Corporate
Trust Office of the Trustee a register (the register maintained in such office
and in any other office or agency designated pursuant to Section 1002 being
herein sometimes referred to as the "Security Register") in which, subject to
such reasonable regulations as it may prescribe, the Company shall provide for
the registration of Securities and of transfers and exchanges of Securities. The
Security Register shall be in written form or any other form capable of being
converted into written form within a reasonable time. At all reasonable times,
the Security Register shall be open to inspection by the Trustee. The Trustee is
hereby initially appointed as security registrar (the "Security Registrar") for
the purpose of registering Securities and transfers and exchanges of Securities
as herein provided.
Upon surrender for registration of transfer of any Security at
the Corporate Trust Office of the Trustee or the office or agency of the Company
designated pursuant to Section 1002, the Company shall execute, and the Trustee
shall authenticate and deliver, in the name of the designated transferee or
transferees, one or more new Securities of any authorized denomination or
denominations of a like aggregate principal amount at maturity.
At the option of the Holder, Securities may be exchanged for
other Securities of any authorized denomination and of a like aggregate
principal amount at maturity, upon surrender of the Securities to be exchanged
at the Corporate Trust Office of the Trustee or such office or agency. Whenever
any Securities are so surrendered for exchange, the Company shall execute, and
the Trustee shall authenticate and deliver, the Securities which the Holder
making the exchange is entitled to receive; PROVIDED that no exchange of Initial
Securities for Exchange Securities shall occur until an Exchange Offer
Registration Statement shall have been declared effective by the Commission and
that the Initial Securities to be exchanged for the Exchange Securities shall be
cancelled by the Trustee.
All Securities issued upon any registration of transfer or
exchange of Securities shall be the valid obligations of the Company, evidencing
the same debt, and entitled to the same benefits under this Indenture, as the
Securities surrendered upon such registration of transfer or exchange.
Every Security presented or surrendered for registration of
transfer or for exchange shall (if so required by the Company) be duly endorsed,
or be accompanied by a written instrument of transfer, in form satisfactory to
the Company
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41
and the Security Registrar, duly executed by the Holder thereof or his attorney
duly authorized in writing.
No service charge shall be payable by the Holders for any
registration of transfer or exchange or redemption of Securities, but the
Company may require payment of a sum sufficient to cover any tax or other
governmental charge that may be imposed in connection with any registration of
transfer or exchange of Securities, other than transfer taxes and similar
charges with respect to exchanges pursuant to Section 304, 906, 1016, 1017 or
1108 not involving any transfer.
The Company shall not be required (i) to issue or register the
transfer of or exchange any Security during a period beginning at the opening of
business 15 days before the selection of Securities to be redeemed under Section
1104 and ending at the close of business on the day of mailing of the relevant
notice of redemption, or (ii) to register the transfer of or exchange any
Security so selected for redemption in whole or in part, except the unredeemed
portion of any Security being redeemed in part.
Prior to the time that the Company has notified the Security
Registrar that the Separation Date has occurred, the Security Registrar shall
notify the Trustee and the warrant agent under the Warrant Agreement of any
transfer of any Security and the identify of any transferees thereof. Prior to
the Separation Date, no transfer of any Security shall be permitted without
transfer of the Warrant with which such Security comprises a Unit. The Company
shall give the Trustee immediate notice of any Separation Date.
SECTION 306. Book-Entry Provisions for Global Securities. (a)
The U.S. Global Security and Offshore Global Security initially shall (i) be
registered in the name of the Depositary for such Global Securities or the
nominee of such Depositary, (ii) be delivered to the Trustee as custodian for
such Depositary and (iii) bear legends as set forth in Section 202.
Members of, or participants in, the Depositary ("Agent
Members") shall have no rights under this Indenture with respect to any Global
Security held on their behalf by the Depositary, or the Trustee as its
custodian, or under any Global Security, and the Depositary may be treated by
the Company, the Trustee and any agent of the Company or the Trustee as the
absolute owner of such Global Security for all purposes whatsoever.
Notwithstanding the foregoing, nothing herein shall prevent the Company, the
Trustee or any agent of the Company or the Trustee from giving effect to any
written certification, proxy or other authorization furnished by the Depositary
or impair, as between the Depositary and its Agent Members, the
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42
operation of customary practices governing the exercise of the rights of a
beneficial ownership of any Security.
(b) Transfers of a Global Security shall be limited to
transfers of such Global Security in whole, but not in part, to the Depositary,
its successors or their respective nominees. Interests of beneficial owners in a
Global Security may be transferred in accordance with the applicable rules and
procedures of the Depositary and the provisions of Section 307. In addition,
U.S. Physical Securities or Offshore Physical Securities shall be transferred to
all beneficial owners in exchange for their beneficial interests in the U.S.
Global Security or the Offshore Global Security, respectively, if (i) the
Depositary notifies the Company that it is unwilling or unable to continue as
Depositary for the U.S. Global Security or the Offshore Global Security, as the
case may be, or the Depositary ceases to be a "Clearing Agency" registered under
the Exchange Act and a successor depositary is not appointed by the Company
within 90 days or (ii) an Event of Default has occurred and Holders of more than
25% in aggregate principal amount of the Securities at the time outstanding
represented by the Global Securities advise the Trustee through the Depositary
in writing that the continuation of a book-entry system through the Depositary
with respect to the Global Securities is no longer required.
(c) Any beneficial interest in one of the Global Securities
that is transferred to a person who takes delivery in the form of an interest in
the other Global Security will, upon transfer, cease to be an interest in such
Global Security and become an interest in the other Global Security and,
accordingly, will thereafter be subject to all transfer restrictions, if any,
and other procedures applicable to beneficial interests in such other Global
Security for as long as it remains such an interest.
(d) In connection with any transfer pursuant to paragraph (b)
of this Section of a portion of the beneficial interests in the U.S. Global
Security to beneficial owners who are required to hold U.S. Physical Securities,
the Registrar shall reflect on its books and records the date and a decrease in
the principal amount at maturity of the U.S. Global Security in an amount equal
to the principal amount at maturity of the beneficial interest in the U.S.
Global Security to be transferred, and the Company shall execute, and the
Trustee shall authenticate and deliver, one or more U.S. Physical Securities of
like tenor and amount.
(e) In connection with the transfer of the entire U.S. Global
Security or Offshore Global Security to beneficial owners pursuant to paragraph
(b) of this Section, the U.S. Global Security or Offshore Global Security, as
the case may be, shall be deemed to be surrendered to the Trustee for
cancellation, and the Company
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43
shall execute, and the Trustee shall authenticate and deliver, to each
beneficial owner identified by the Depositary in exchange for its beneficial
interest in the U.S. Global Security or Offshore Global Security, as the case
may be, an equal aggregate principal amount at maturity of U.S. Physical
Securities or Offshore Physical Securities, as the case may be, of authorized
denominations.
(f) Any U.S. Physical Security delivered in exchange for an
interest in the U.S. Global Security pursuant to paragraph (b) or (d) of this
Section shall, except as otherwise provided by paragraph (a)(i)(x) or paragraph
(e) of Section 307, bear the legend regarding transfer restrictions applicable
to the U.S. Physical Security set forth in Section 202.
(g) The registered holder of a Global Security may grant
proxies and otherwise authorize any person, including Agent Members and persons
that may hold interests through Agent Members, to take any action which a Holder
is entitled to take under this Indenture or the Securities.
(h) Beneficial owners of interests in a Global Security may
receive Physical Securities (which shall bear the Private Placement Legend if
required by Section 202) in accordance with the procedures of the Depositary. In
connection with the execution, authentication and delivery of such Physical
Securities, the Registrar shall reflect on its books and records a decrease in
the principal amount at maturity of the relevant Global Security equal to the
principal amount at maturity of such Physical Securities and the Company shall
execute and the Trustee shall authenticate and deliver one or more Physical
Securities having an equal aggregate principal amount at maturity.
SECTION 307. Special Transfer Provisions. Unless and until (i)
an Initial Security is sold under an effective Registration Statement (as
certified to the Trustee by the Company), or (ii) an Initial Security is
exchanged for an Exchange Security in connection with an effective Registration
Statement, in each case pursuant to the Registration Rights Agreement, the
following provisions shall apply:
(a) Transfers to Non-QIB Institutional Accredited Investors.
The following provisions shall apply with respect to the registration
of any proposed transfer of an Initial Security to any Institutional
Accredited Investor which is not a QIB (excluding Non-U.S. Persons):
(i) The Registrar shall register the transfer of any
Security, whether or not such Security bears the Private
Placement Legend, if (x) the requested transfer is at least
three years after the original issue
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44
date of the Initial Securities or (y) the proposed transferee
has delivered to the Registrar a certificate substantially in
the form of Exhibit C hereto.
(ii) If the proposed transferor is an Agent Member
holding a beneficial interest in the U.S. Global Security,
upon receipt by the Registrar of (x) the documents, if any,
required by paragraph (i), and (y) instructions given in
accordance with the Depositary's and the Registrar's
procedures therefor, the Registrar shall reflect on its books
and records the date and a decrease in the principal amount of
the U.S. Global Security in an amount equal to the principal
amount of the beneficial interest in the U.S. Global Security
to be transferred, and the Company shall execute, and the
Trustee shall authenticate and deliver, one or more U.S.
Physical Securities of like tenor and amount.
(b) Transfers to QIBs. The following provisions shall apply
with respect to the registration of any proposed transfer of a U.S.
Physical Security or an interest in the U.S. Global Security to a QIB
(excluding Non-U.S.
Persons):
(i) If the Security to be transferred consists of (x)
U.S. Physical Securities, the Security Registrar shall
register the transfer if such transfer is being made by a
proposed transferor who has checked the box provided for on
the form of Initial Security stating, or has otherwise advised
the Company and the Security Registrar in writing, that the
sale has been made in compliance with the provisions of Rule
144A to a transferee who has signed the certification provided
for on the form of Initial Security stating, or has otherwise
advised the Company and the Security Registrar in writing,
that it is purchasing the Initial Security for its own account
or an account with respect to which it exercises sole
investment discretion and that it and any such account is a
QIB within the meaning of Rule 144A, and is aware that the
sale to it is being made in reliance on Rule 144A and
acknowledges that it has received such information regarding
the Company as it has requested pursuant to Rule 144A or has
determined not to request such information and that it is
aware that the transferor is relying upon its foregoing
representations in order to claim the exemption from
registration provided by Rule 144A or (y) an interest in the
U.S. Global Security, the transfer of such interest may be
effected only through the book-entry system maintained by the
Depositary.
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45
(ii) If the proposed transferee is an Agent Member, and the
Security to be transferred consists of U.S. Physical Securities, upon
receipt by the Security Registrar of the documents referred to in
clause (i) and instructions given in accordance with the Depositary's
and the Security Registrar's procedures, the Security Registrar shall
reflect on its books and records the date and an increase in the
principal amount at maturity of the U.S. Global Security in an amount
equal to the principal amount at maturity of the U.S. Physical
Securities to be transferred, and the Trustee shall cancel the Physical
Securities so transferred.
(c) Transfers of Interests in the Offshore Global Security or
Offshore Physical Securities to U.S. Persons. The following provisions shall
apply with respect to any transfer of interests in the Offshore Global Security
or Offshore Physical Securities to U.S. Persons:
(i) prior to the removal of the Private Placement Legend from
the Offshore Global Security or Offshore Physical Securities pursuant
to Section 202, the Security Registrar shall refuse to register such
transfer; and
(ii) after such removal, the Security Registrar shall register
the transfer of any such Security without requiring any additional
certification.
(d) Transfers to Non-U.S. Persons at Any Time. The following
provisions shall apply with respect to any transfer of an Initial Security to a
Non-U.S.
Person:
(i) The Security Registrar shall register any proposed
transfer to any Non-U.S. Person if the Security to be transferred is a
U.S. Physical Security or an interest in the U.S. Global Security only
upon receipt of a certificate substantially in the form of Exhibit D
from the proposed transferor.
(ii) (x) If the proposed transferee is an Agent Member holding
a beneficial interest in the U.S. Global Security, upon receipt by the
Security Registrar of (1) the documents required by paragraph (i) and
(2) instructions in accordance with the Depositary's and the Security
Registrar's procedures, the Security Registrar shall reflect on its
books and records the date and a decrease in the principal amount at
maturity of the U.S. Global Security in an amount equal to the
principal amount at maturity of the beneficial interest in the U.S.
Global Security to be transferred, and (y) if the proposed transferee
is an Agent Member, upon receipt by the Security Registrar of
instructions given in accordance with the Depositary's and the Security
Registrar's procedures,
<PAGE>
46
the Security Registrar shall reflect on its books and records the date
and an increase in the principal amount at maturity of the Offshore
Global Security in an amount equal to the principal amount at maturity
of the U.S. Physical Security or the U.S. Global Security, as the case
may be, to be transferred, and the Trustee shall cancel the Physical
Security, if any, so transferred or decrease the amount of the U.S.
Global Security.
(e) Private Placement Legend. Upon the transfer, exchange or
replacement of Securities not bearing the Private Placement Legend, the Security
Registrar shall deliver Securities that do not bear the Private Placement
Legend. Upon the transfer, exchange or replacement of Securities bearing the
Private Placement Legend, the Security Registrar shall deliver only Securities
that bear the Private Placement Legend unless either (i) the Private Placement
Legend is no longer required by Section 202 or (ii) there is delivered to the
Security Registrar an Opinion of Counsel reasonably satisfactory to the Company
and the Trustee to the effect that neither such Legend nor the related
restrictions on transfer are required in order to maintain compliance with the
provisions of the Securities Act.
(f) General. By its acceptance of any Security bearing the
Private Placement Legend, each Holder of, or beneficial owner of an interest in,
such Security acknowledges the restrictions on transfer of such Security set
forth in this Indenture and in the Private Placement Legend and agrees that it
will transfer such Security only as provided in this Indenture. The Security
Registrar shall not register a transfer of any Security unless such transfer
complies with the requirements of this Section 307. In connection with any
transfer of Securities to an Institutional Accredited Investor, each such Holder
or beneficial owner agrees by its acceptance of the Securities to furnish the
Security Registrar or the Company such certifications, legal opinions or other
information as such Person may reasonably require to confirm that such transfer
is being made pursuant to an exemption from, or a transaction not subject to,
the registration requirements of the Securities Act; PROVIDED that the Security
Registrar shall not be required to determine (but may rely on a determination
made by the Company with respect to) the sufficiency of any such certifications,
legal opinions or other information. The Security Registrar's only obligation to
enforce the transfer restrictions of this Indenture shall be to require the
certifications and opinions specifically required by this Section 307 as a
condition to transfer.
Every replacement Security is an additional obligation of the
Company and shall be entitled to the benefits of this Indenture.
<PAGE>
47
SECTION 308. Mutilated, Destroyed, Lost and Stolen
Securities.
If (i) any mutilated Security is surrendered to the Trustee,
or (ii) the Company and the Trustee receive evidence to their satisfaction of
the destruction, loss or theft of any Security, and there is delivered to the
Company and the Trustee such security or indemnity as may be required by them to
save each of them harmless, then, in the absence of notice to the Company or the
Trustee that such Security has been acquired by a bona fide purchaser, the
Company shall execute and upon Company Order the Trustee shall authenticate and
deliver, in exchange for any such mutilated Security or in lieu of any such
destroyed, lost or stolen Security, a new Security of like tenor, form, terms
and principal amount, bearing a number not contemporaneously Outstanding.
In case any such mutilated, destroyed, lost or stolen Security
has become or is about to become due and payable, the Company in its discretion
may, instead of issuing a new Security, pay or authorize the payment of such
Security.
Upon the issuance of any new Security under this Section, the
Company may require the payment of a sum sufficient to cover any tax or other
governmental charge that may be imposed in relation thereto and any other
expenses (including the fees and expenses of the Trustee) connected therewith.
Every new Security issued pursuant to this Section in lieu of
any mutilated, destroyed, lost or stolen Security shall constitute an original
additional contractual obligation of the Company, whether or not the mutilated,
destroyed, lost or stolen Security shall be at any time enforceable by anyone,
and shall be entitled to all benefits of this Indenture equally and
proportionately with any and all other Securities duly issued hereunder.
All Securities shall be held and owned upon the express
condition that the foregoing provisions of this Section are exclusive with
respect to the replacement or payment of mutilated, destroyed, lost or stolen
Securities and shall preclude any and all other rights or remedies,
notwithstanding any law or statute existing or hereinafter enacted to the
contrary with respect to the replacement or payment of negotiable instruments or
other securities without their surrender.
SECTION 309. Payment of Interest; Interest Rights Preserved.
Interest on any Security which is payable, and is punctually
paid or duly provided for, on any Interest Payment Date shall be paid to the
Person in whose name such Security (or one or more Predecessor Securities) is
registered at the close
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48
of business on the Regular Record Date for such interest at the office or agency
of the Company maintained for such purpose pursuant to Section 1002; PROVIDED,
HOWEVER, that each installment of interest may at the Company's option be paid
by (i) mailing a check for such interest, payable to or upon the written order
of the Person entitled thereto pursuant to Section 310, to the address of such
Person as it appears in the Security Register at the close of business on the
Regular Record Date for such interest payment or (ii) transfer to an account
located in the United States maintained by the payee the details of which
account are notified to the Security Registrar prior to the close of business on
the Record Date for such interest payment.
Any interest on any Security which is payable, but is not
punctually paid or duly provided for, on any Interest Payment Date shall
forthwith cease to be payable to the Holder on the Regular Record Date by virtue
of having been such Holder, and such defaulted interest and (to the extent
lawful) interest on such defaulted interest at the rate borne by the Securities
(such defaulted interest and interest thereon herein collectively called
"Defaulted Interest") may be paid by the Company, at its election in each case,
as provided in clause (1) or (2) below:
(1) The Company may elect to make payment of any Defaulted
Interest to the Persons in whose names the Securities (or their
respective Predecessor Securities) are registered at the close of
business on a Special Record Date for the payment of such Defaulted
Interest, which shall be fixed in the following manner. The Company
shall notify the Trustee in writing of the amount of Defaulted Interest
proposed to be paid on each Security and the date of the proposed
payment, and at the same time the Company shall deposit with the
Trustee an amount of money equal to the aggregate amount proposed to be
paid in respect of such Defaulted Interest or shall make arrangements
satisfactory to the Trustee for such deposit prior to the date of the
proposed payment, such money when deposited to be held in trust for the
benefit of the Persons entitled to such Defaulted Interest as in this
clause provided. Thereupon the Trustee shall fix a Special Record Date
for the payment of such Defaulted Interest which shall be not more than
15 days and not less than 10 days prior to the date of the proposed
payment and not less than 10 days after the receipt by the Trustee of
the notice of the proposed payment. The Trustee shall promptly notify
the Company of such Special Record Date, and in the name and at the
expense of the Company, shall cause notice of the proposed payment of
such Defaulted Interest and the Special Record Date therefor to be
given in the manner provided for in Section 106, not less than 10 days
prior to such Special Record Date. Notice of the proposed payment of
such Defaulted Interest and the Special Record Date therefor having
been so given, such Defaulted Interest shall be paid to the Persons in
whose names the Securities
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49
(or their respective Predecessor Securities) are registered at the
close of business on such Special Record Date and shall no longer be
payable pursuant to the following clause (2).
(2) The Company may make payment of any Defaulted Interest in
any other lawful manner not inconsistent with the requirements of any
securities exchange on which the Securities may be listed, and upon
such notice as may be required by such exchange, if, after notice given
by the Company to the Trustee of the proposed payment pursuant to this
clause, such manner of payment shall be deemed practicable by the
Trustee.
Subject to the foregoing provisions of this Section, each
Security delivered under this Indenture upon registration of transfer of or in
exchange for or in lieu of any other Security shall carry the rights to interest
accrued and unpaid, and to accrue, which were carried by such other Security.
SECTION 310. Persons Deemed Owners.
Prior to the due presentment of a Security for registration of
transfer, the Company, the Trustee and any agent of the Company or the Trustee
may treat the Person in whose name such Security is registered as the owner of
such Security for the purpose of receiving payment of principal of (and premium,
if any) and (subject to Sections 305 and 309) interest on such Security and for
all other purposes whatsoever, whether or not such Security be overdue, and none
of the Company, the Trustee or any agent of the Company or the Trustee shall be
affected by notice to the contrary.
SECTION 311. Cancellation.
All Securities surrendered for payment, redemption,
registration of transfer or exchange shall, if surrendered to any Person other
than the Trustee, be delivered to the Trustee and shall be promptly cancelled by
it. The Company may at any time deliver to the Trustee for cancellation any
Securities previously authenticated and delivered hereunder which the Company
may have acquired in any manner whatsoever, and may deliver to the Trustee (or
to any other Person for delivery to the Trustee) for cancellation any Securities
previously authenticated hereunder which the Company has not issued and sold,
and all Securities so delivered shall be promptly cancelled by the Trustee. If
the Company shall so acquire any of the Securities, however, such acquisition
shall not operate as a redemption or satisfaction of the indebtedness
represented by such Securities unless and until the same are surrendered to the
Trustee for cancellation. No Securities shall be authenticated in lieu of or in
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50
exchange for any Securities cancelled as provided in this Section, except as
expressly permitted by this Indenture. All cancelled Securities held by the
Trustee shall be disposed of by the Trustee in accordance with its customary
procedures and certification of their disposal delivered to the Company unless
by Company Order the Company shall direct that cancelled Securities be returned
to it.
SECTION 312. Computation of Interest.
Interest on the Securities shall be computed on the basis of a
360-day year of 12 30-day months.
SECTION 313. Wire Transfers.
Notwithstanding any other provision to the contrary in this
Indenture, the Company may make any payment of monies required to be deposited
with the Trustee on account of principal of, or premium, if any, or interest on,
the Securities (whether pursuant to optional or mandatory redemption payments,
interest payments or otherwise) by wire transfer in immediately available funds
to an account designated by the Trustee on or before 10:00 a.m. (New York City
time) the date such moneys are to be paid to the Holders of the Securities in
accordance with the terms hereof.
ARTICLE FOUR
SATISFACTION AND DISCHARGE
SECTION 401. Satisfaction and Discharge of Indenture.
This Indenture shall upon Company Request cease to be of
further effect (except as to surviving rights and obligations of the Trustee
expressly provided for in this Indenture and the surviving rights of
registration of transfer or exchange of Securities expressly provided for herein
or pursuant hereto) and the Trustee, at the direction and expense of the
Company, shall execute proper instruments acknowledging satisfaction and
discharge of this Indenture when
(1) either
(a) all Securities theretofore authenticated and
delivered (other than (i) Securities which have been destroyed, lost or
stolen and which have been replaced or paid as provided in Section 308
and (ii) Securities for whose payment money has theretofore been
deposited in trust with the Trustee or any
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51
Paying Agent or segregated and held in trust by the Company and
thereafter repaid to the Company or discharged from such trust, as
provided in Section 1003) have been delivered to the Trustee for
cancellation; or
(b) all such Securities not theretofore delivered to the
Trustee for cancellation
(i) have become due and payable, or
(ii) will become due and payable at their
Stated Maturity within one year, or
(iii) are to be called for redemption within
one year under arrangements satisfactory to the Trustee for
the giving of notice of redemption by the Trustee in the name,
and at the expense, of the Company,
and the Company, in the case of (i), (ii) or (iii) above, has
irrevocably deposited or caused to be deposited with the Trustee as
trust funds in trust for such purpose an amount sufficient to pay and
discharge the entire indebtedness on such Securities not theretofore
delivered to the Trustee for cancellation, for principal of (and
premium, if any) and interest to the date of such deposit (in the case
of Securities which have become due and payable) or to the Stated
Maturity or Redemption Date, as the case may be;
(2) the Company has paid or caused to be paid all other sums
payable hereunder by the Company; and
(3) the Company has delivered to the Trustee an Officers'
Certificate and an Opinion of Counsel, each stating that all conditions
precedent herein provided for relating to the satisfaction and
discharge of this Indenture have been complied with.
Notwithstanding the satisfaction and discharge of this
Indenture, the obligations of the Company to the Trustee under Section 606 and,
if money shall have been deposited with the Trustee pursuant to subclause (B) of
clause (1) of this Section, the obligations of the Trustee under Section 402 and
the last paragraph of Section 1003 shall survive.
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52
SECTION 402. Application of Trust Money.
Subject to the provisions of the last paragraph of Section
1003, all money deposited with the Trustee pursuant to Section 401 shall be held
in trust and applied by it, in accordance with the provisions of the Securities
and this Indenture, to the payment, either directly or through any Paying Agent
(including the Company acting as its own Paying Agent) as the Trustee may
determine, to the Persons entitled thereto, of the principal (and premium, if
any) and interest for whose payment such money has been deposited with the
Trustee; but such money need not be segregated from other funds except to the
extent required by law. So long as no Event of Default shall have occurred and
be continuing, all interest allowed on any such moneys shall be paid from time
to time to the Company upon a Company Order.
ARTICLE FIVE
REMEDIES
SECTION 501. Events of Default.
"Event of Default," wherever used herein, means any one of the
following events (whatever the reason for such Event of Default and whether it
shall be voluntary or involuntary or be effected by operation of law or pursuant
to any judgment, decree or order of any court or any order, rule or regulation
of any administrative or governmental body):
(1) failure to make the payment of any principal of or
premium, if any, on any Security at its Maturity Date (upon
acceleration, optional redemption, required purchase or otherwise); or
(2) failure to make the payment of any interest on any
Security when it becomes due and payable, and any such failure
continues for a period of 30 days; or
(3) [intentionally omitted]; or
(4) failure to comply with any covenant or warranty of the
Company in this Indenture (other than a covenant or warranty that is
specifically dealt with in clause (1) or (2) above), which failure
continues for a period of 30 days after written notice of such failure
requiring the Company to remedy the same shall have been given to the
Company by the Trustee or to the Company
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53
and the Trustee by the Holders of at least 25% in principal amount of
the Outstanding Securities; or
(5) (A) Indebtedness of the Company or any Restricted
Subsidiary in an amount greater than $5,000,000 shall have been
accelerated or otherwise declared due and payable, or required to be
prepaid or repurchased (other than by regularly scheduled required
prepayment prior to the stated maturity thereof) or (B) there shall
have occurred a default by the Company or any Restricted Subsidiary in
the payment of the principal on Indebtedness of the Company or any
Restricted Subsidiary in an amount greater than $5,000,000, when the
same becomes due and payable at the stated maturity thereof, and such
default shall have continued after any applicable grace period and
shall not have been cured or waived ; or
(6) [intentionally omitted]; or
(7) one or more final judgments or orders rendered against the
Company or any Restricted Subsidiary for the payment of money in an
uninsured aggregate amount in excess of $5,000,000 shall not be waived,
satisfied or discharged for any period of 30 consecutive days during
which a stay of enforcement of such judgment or order was not in
effect; or
(8) the entry of a decree or order by a court having
jurisdiction in the premises adjudging the Company or any Subsidiary a
bankrupt or insolvent, or approving as properly filed a petition
seeking reorganization, arrangement, adjustment or composition of or in
respect of the Company or any Subsidiary under the Federal Bankruptcy
Code or any other applicable federal or state law, or appointing a
receiver, liquidator, assignee, trustee, sequestrator (or other similar
official) of the Company or any Subsidiary or of any substantial part
of its property, or ordering the winding up or liquidation of its
affairs, and the continuance of any such decree or order unstayed and
in effect for a period of 60 consecutive days; or
(9) the institution by the Company or any Subsidiary of
proceedings to be adjudicated a bankrupt or insolvent, or the consent
by it to the institution of bankruptcy or insolvency proceedings
against it, or the filing by it of a petition or answer or consent
seeking reorganization or relief under the Federal Bankruptcy Code or
any other applicable federal or state law, or the consent by it to the
filing of any such petition or to the appointment of a receiver,
liquidator, assignee, trustee, sequestrator (or other similar official)
of the Company or any Subsidiary or of any substantial part of its
property, or the
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54
making by it of an assignment for the benefit of creditors, or the
admission by it in writing of its inability to pay its debts generally
as they become due.
SECTION 502. Acceleration of Maturity; Rescission and
Annulment.
If an Event of Default (other than an Event of Default
specified in Section 501(8) or (9)) occurs and is continuing, then and in every
such case the Trustee or the Holders of not less than 25% in principal amount of
the Securities Outstanding may declare the principal of all the Securities to be
due and payable immediately in an amount equal to (i) the Accreted Value of the
Securities as of the date on which the Securities first become due and payable,
if such date occurs prior to August 1, 1999, or (ii) the Accreted Value of the
Securities as of the date on which the Securities first become due and payable
plus accrued and unpaid interest, if any, to such date, if such date occurs on
or after August 1, 1999, by a notice in writing to the Company (and to the
Trustee if given by Holders), and upon any such declaration such principal shall
become immediately due and payable. If an Event of Default specified in Section
501(8) or (9) occurs and is continuing, then the principal of all the Securities
shall IPSO FACTO become and be immediately due and payable without any
declaration or other act on the part of the Trustee or any Holder in an amount
equal to (i) the Accreted Value of the Securities as of the date on which the
Securities first become due and payable, if such date occurs prior to August 1,
1999, or (ii) the Accreted Value of the Securities as of the date on which the
Securities first become due and payable plus accrued and unpaid interest, if
any, to such date, if such date occurs on or after August 1, 1999.
At any time after a declaration of acceleration has been made
and before a judgment or decree for payment of the money due has been obtained
by the Trustee as hereinafter provided in this Article, the Holders of a
majority in principal amount of the Securities Outstanding, by written notice to
the Company and the Trustee, may rescind and annul such declaration and its
consequences if
(1) the Company has paid or deposited with the Trustee a sum
sufficient to pay,
(A) all overdue interest on all Outstanding
Securities,
(B) all unpaid principal of and premium, if any, on
any Outstanding Securities which has become due otherwise than
by such declaration of acceleration, and interest on such
unpaid principal at the rate borne by the Securities,
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55
(C) to the extent that payment of such interest is
lawful, interest on overdue interest and overdue principal at
the rate borne by the Securities, and
(D) all sums paid or advanced by the Trustee
hereunder and the reasonable compensation, expenses,
disbursements and advances of the Trustee, its agents and
counsel; and
(2) all Events of Default, other than the nonpayment of
amounts of principal of or premium, if any, on or interest on
Securities which have become due solely by such declaration of
acceleration, have been cured or waived as provided in Section 513.
No such rescission shall affect any subsequent default or impair any right
consequent thereon.
SECTION 503. Collection of Indebtedness and Suits for
Enforcement by Trustee.
The Company covenants that if
(a) default is made in the payment of any installment of
interest on any Security when such interest becomes due and payable and
such default continues for a period of 30 days, or
(b) default is made in the payment of the principal of or
premium, if any, on any Security at the Maturity thereof,
the Company will, upon demand of the Trustee, pay to the Trustee for the benefit
of the Holders of such Securities, the whole amount then due and payable on such
Securities for principal (and premium, if any) and interest, and interest on any
overdue principal (and premium, if any) and, to the extent that payment of such
interest shall be legally enforceable, upon any overdue installment of interest,
at the rate borne by the Securities, and, in addition thereto, such further
amount as shall be sufficient to cover the costs and expenses of collection,
including the reasonable compensation, expenses, disbursements and advances of
the Trustee, its agents and counsel.
If the Company fails to pay such amounts forthwith upon such
demand, the Trustee, in its own name as trustee of an express trust, may
institute a judicial proceeding for the collection of the sums so due and
unpaid, may prosecute such
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56
proceeding to judgment or final decree and may enforce the same against the
Company or any other obligor upon the Securities and collect the moneys adjudged
or decreed to be payable in the manner provided by law out of the property of
the Company or any other obligor upon the Securities, wherever situated.
If an Event of Default occurs and is continuing, the Trustee
may in its discretion proceed to protect and enforce its rights and the rights
of the Holders by such appropriate judicial proceedings as the Trustee shall
deem most effectual to protect and enforce any such rights, whether for the
specific enforcement of any covenant or agreement in this Indenture or in aid of
the exercise of any power granted herein, or to enforce any other proper remedy.
SECTION 504. Trustee May File Proofs of Claim.
In case of the pendency of any receivership, insolvency,
liquidation, bankruptcy, reorganization, arrangement, adjustment, composition or
other judicial proceeding relative to the Company or any other obligor upon the
Securities or the property of the Company or of such other obligor or their
creditors, the Trustee (irrespective of whether the principal of the Securities
shall then be due and payable as therein expressed or by declaration or
otherwise and irrespective of whether the Trustee shall have made any demand on
the Company for the payment of overdue principal, premium, if any, or interest)
shall be entitled and empowered, by intervention in such proceeding or
otherwise,
(i) to file and prove a claim for the whole amount of
principal (and premium, if any) and interest owing and unpaid in
respect of the Securities and to file such other papers or documents as
may be necessary or advisable in order to have the claims of the
Trustee (including any claim for the reasonable compensation, expenses,
disbursements and advances of the Trustee, its agents and counsel) and
of the Holders allowed in such judicial proceeding, and
(ii) collect and receive any moneys or other property payable
or deliverable on any such claims and to distribute the same;
and any custodian, receiver, assignee, trustee, liquidator, sequestrator or
similar official in any such judicial proceeding is hereby authorized by each
Holder to make such payments to the Trustee and, in the event that the Trustee
shall consent to the making of such payments directly to the Holders, to pay the
Trustee any amount due it for the reasonable compensation, expenses,
disbursements and advances of the Trustee, its agents and counsel, and any other
amounts due the Trustee under Section 606.
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57
Nothing herein contained shall be deemed to authorize the
Trustee to authorize or consent to or accept or adopt on behalf of any Holder
any plan of reorganization, arrangement, adjustment or composition affecting the
Securities or the rights of any Holder thereof, or to authorize the Trustee to
vote in respect of the claim of any Holder in any such proceeding.
SECTION 505. Trustee May Enforce Claims Without Possession of
Securities.
All rights of action and claims under this Indenture or the
Securities may be prosecuted and enforced by the Trustee without the possession
of any of the Securities or the production thereof in any proceeding relating
thereto, and any such proceeding instituted by the Trustee shall be brought in
its own name and as trustee of an express trust, and any recovery of judgment
shall, after provision for the payment of the reasonable compensation, expenses,
disbursements and advances of the Trustee, its agents and counsel, be for the
ratable benefit of the Holders of the Securities in respect of which such
judgment has been recovered.
SECTION 506. Application of Money Collected.
Any money collected by the Trustee pursuant to this Article
shall be applied in the following order, at the date or dates fixed by the
Trustee and, in case of the distribution of such money on account of principal
(or premium, if any) or interest, upon presentation of the Securities and the
notation thereon of the payment, if only partially paid, and upon surrender
thereof if fully paid:
FIRST: To the payment of all amounts due the Trustee under
Section 606;
SECOND: To the payment of the amounts then due and unpaid for
principal of (and premium, if any) and interest on the Securities in
respect of which or for the benefit of which such money has been
collected, ratably, without preference or priority of any kind,
according to the amounts due and payable on such Securities for
principal (and premium, if any) and interest, respectively; and
THIRD: The balance, if any, to the Company, its successors or
assigns, or to any other Person or Persons lawfully entitled thereto.
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58
SECTION 507. Limitation on Suits.
No Holder of any Securities shall have any right to institute
any proceeding, judicial or otherwise, with respect to this Indenture, or for
the appointment of a receiver or trustee, or for any other remedy hereunder,
unless
(1) such Holder has previously given written notice to the
Trustee of a continuing Event of Default;
(2) the Holders of not less than 25% in principal amount of
the Outstanding Securities shall have made written request to the
Trustee to institute proceedings in respect of such Event of Default in
its own name as Trustee hereunder;
(3) such Holder or Holders have offered to the Trustee
reasonable indemnity against the costs, expenses and liabilities to be
incurred in compliance with such request;
(4) the Trustee for 60 days after its receipt of such notice,
request and offer of indemnity has failed to institute any such action
or proceeding; and
(5) no direction inconsistent with such written request has
been given to the Trustee during such 60-day period by the Holders of a
majority or more in principal amount of the Outstanding Securities;
it being understood and intended, and being expressly covenanted by the Holder
of every Security with every other Holder and the Trustee, that no one or more
Holders shall have any right in any manner whatever by virtue of, or by availing
of, any provision of this Indenture to affect, disturb or prejudice the rights
of any other Holders, or to obtain or to seek to obtain priority or preference
over any other Holders or to enforce any right under this Indenture, except in
the manner herein provided and for the equal and ratable benefit of all the
Holders.
SECTION 508. Unconditional Right of Holders to Receive
Principal, Premium and Interest.
Notwithstanding any other provision in this Indenture, the
Holder of any Security shall have the right, which is absolute and
unconditional, to receive payment, as provided herein (including, if applicable,
Article Thirteen) and in such Security of the principal of (and premium, if any)
and (subject to Section 309) interest on such Security on the respective Stated
Maturities expressed in such Security (or, in
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59
the case of redemption, on the Redemption Date) and to institute suit for the
enforcement of any such payment on or after such respective dates, and such
rights shall not be impaired without the consent of such Holder.
SECTION 509. Restoration of Rights and Remedies.
If the Trustee or any Holder has instituted any proceeding to
enforce any right or remedy under this Indenture and such proceeding has been
discontinued or abandoned for any reason, or has been determined adversely to
the Trustee or to such Holder, then and in every such case, subject to any
determination in such proceeding, the Company, the Trustee and the Holders shall
be restored severally and respectively to their former positions hereunder and
thereafter all rights and remedies of the Trustee and the Holders shall continue
as though no such proceeding had been instituted.
SECTION 510. Rights and Remedies Cumulative.
Except as otherwise provided with respect to the replacement
or payment of mutilated, destroyed, lost or stolen Securities in the last
paragraph of Section 308, no right or remedy herein conferred upon or reserved
to the Trustee or to the Holders is intended to be exclusive of any other right
or remedy, and every right and remedy shall, to the extent permitted by law, be
cumulative and in addition to every other right and remedy given hereunder or
now, or hereafter existing at law or in equity or otherwise. The assertion or
employment of any right or remedy hereunder, or otherwise, shall not prevent the
concurrent assertion or employment of any other appropriate right or remedy.
SECTION 511. Delay or Omission Not Waiver.
No delay or omission of the Trustee or of any Holder of any
Security to exercise any right or remedy accruing upon any Event of Default
shall impair any such right or remedy or constitute a waiver of any such Event
of Default or an acquiescence therein. Every right and remedy given by this
Article or by law to the Trustee or to the Holders may be exercised from time to
time, and as often as may be deemed expedient, by the Trustee or by the Holders,
as the case may be.
SECTION 512. Control by Holders.
Subject to the provisions of Section 602(5), the Holders of
not less than a majority in principal amount of the Outstanding Securities shall
have the right to direct the time, method and place of conducting any proceeding
for any remedy
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60
available to the Trustee, or exercising any trust or power conferred on the
Trustee, PROVIDED that
(1) such direction shall not be in conflict with any rule of
law or with this Indenture,
(2) the Trustee may take any other action deemed proper by the
Trustee which is not inconsistent with such direction, and
(3) the Trustee need not take any action which might involve
it in personal liability or be unjustly prejudicial to the Holders not
consenting.
SECTION 513. Waiver of Past Defaults.
The Holders of not less than a majority in principal amount of
the Outstanding Securities may, on behalf of the Holders of all the Securities,
waive any past Default hereunder and its consequences, except a Default
(1) in respect of the payment of the principal of (or premium,
if any) or interest on any Security, or
(2) in respect of a covenant or provision hereof which under
Article Nine cannot be modified or amended without the consent of the
Holder of each Outstanding Security affected.
Upon any such waiver, such Default shall cease to exist, and
any Event of Default arising therefrom shall be deemed to have been cured, for
every purpose of this Indenture; but no such waiver shall extend to any
subsequent or other Default or Event of Default or impair any right consequent
thereon.
SECTION 514. Waiver of Stay or Extension Laws.
The Company covenants (to the extent that it may lawfully do
so) that it will not at any time insist upon, or plead, or in any manner
whatsoever claim or take the benefit or advantage of, any stay or extension law
wherever enacted, now or at any time hereafter in force, which may affect the
covenants or the performance of this Indenture; and the Company (to the extent
that it may lawfully do so) hereby expressly waives all benefit or advantage of
any such law and covenants that it will not hinder, delay or impede the
execution of any power herein granted to the Trustee, but will suffer and permit
the execution of every such power as though no such law had been enacted.
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ARTICLE SIX
THE TRUSTEE
SECTION 601. Notice of Defaults.
Within 30 days after the occurrence of any Default hereunder,
the Trustee shall transmit in the manner and to the extent provided in TIA
Section 313(c), notice of such Default hereunder known to the Trustee, unless
such Default shall have been cured or waived; PROVIDED, HOWEVER, that, except in
the case of a Default in the payment of the principal of (or premium, if any) or
interest on any Security, the Trustee shall be protected in withholding such
notice if and so long as a trust committee of directors and/or Responsible
Officers of the Trustee in good faith determines that the withholding of such
notice is in the interest of the Holders; and PROVIDED FURTHER that in the case
of any Default of the character specified in Section 501(4) no such notice to
Holders shall be given until at least 30 days after the occurrence thereof.
SECTION 602. Certain Rights of Trustee.
Subject to the provisions of TIA Sections 315(a) through
315(d):
(1) the Trustee may rely and shall be protected in acting or
refraining from acting upon any resolution, certificate, statement,
instrument, opinion, report, notice, request, direction, consent,
order, bond, debenture, note, other evidence of indebtedness or other
paper or document believed by it to be genuine and to have been signed
or presented by the proper party or parties;
(2) any request or direction of the Company mentioned herein
shall be sufficiently evidenced by a Company Request or Company Order
(unless other evidence in respect thereof is herein specifically
prescribed) and any resolution of the Board of Directors may be
sufficiently evidenced by a Board Resolution;
(3) whenever in the administration of this Indenture the
Trustee shall deem it desirable that a matter be proved or established
prior to taking, suffering or omitting any action hereunder, the
Trustee (unless other evidence is herein specifically prescribed) may,
in the absence of bad faith on its part, rely upon an Officers'
Certificate;
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(4) the Trustee may consult with counsel and the written
advice of such counsel or any Opinion of Counsel shall be full and
complete authorization and protection in respect of any action taken,
suffered or omitted by it hereunder in good faith and in reliance
thereon;
(5) the Trustee shall be under no obligation to exercise any
of the rights or powers vested in it by this Indenture at the request
or direction of any of the Holders pursuant to this Indenture, unless
such Holders shall have offered to the Trustee reasonable security or
indemnity against the costs, expenses and liabilities which might be
incurred by it in compliance with such request or direction;
(6) prior to the occurrence of an Event of Default and after
the curing of all Events of Default which may have occurred, the
Trustee shall not be bound to make any investigation into the facts or
matters stated in any resolution, certificate, statement, instrument,
opinion, report, notice, request, direction, consent, order, bond,
debenture, note, other evidence of indebtedness or other paper or
document, but the Trustee, in its discretion, may make such further
inquiry or investigation into such facts or matters as it may see fit,
and, if the Trustee shall determine to make such further inquiry or
investigation, it shall be entitled to examine the books, records and
premises of the Company, personally or by agent or attorney;
(7) the Trustee may execute any of the trusts or powers
hereunder or perform any duties hereunder either directly or by or
through agents or attorneys and the Trustee shall not be responsible
for any misconduct or negligence on the part of any agent or attorney
appointed with due care by it hereunder; and
(8) the Trustee shall not be liable for any action taken,
suffered or omitted by it in good faith and believed by it to be
authorized or within the discretion or rights or powers conferred upon
it by this Indenture.
The Trustee shall not be required to expend or risk its own
funds or otherwise incur any financial liability in the performance of any of
its duties hereunder, or in the exercise of any of its rights or powers if it
shall have reasonable grounds for believing that repayment of such funds or
adequate indemnity against such risk or liability is not reasonably assured to
it.
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63
SECTION 603. Trustee Not Responsible for Recitals or Issuance
of Securities.
The recitals contained herein and in the Securities, except
for the Trustee's certificates of authentication, shall be taken as the
statements of the Company, and the Trustee assumes no responsibility for their
correctness. The Trustee makes no representations as to the validity or
sufficiency of this Indenture or of the Securities, except that the Trustee
represents that it is duly authorized to execute and deliver this Indenture,
authenticate the Securities and perform its obligations hereunder and that the
statements made by it in any Statement of Eligibility on Form T-1 supplied to
the Company will be true and accurate when made, subject to the qualifications
set forth therein. The Trustee shall not be accountable for the use or
application by the Company of Securities or the proceeds thereof.
SECTION 604. May Hold Securities.
The Trustee, any Paying Agent, any Security Registrar or any
other agent of the Company or of the Trustee, in its individual or any other
capacity, may become the owner or pledgee of Securities and, subject to the
Trust Indenture Act, may otherwise deal with the Company with the same rights it
would have if it were not Trustee, Paying Agent, Security Registrar or such
other agent.
SECTION 605. Money Held in Trust.
Subject to the provisions of Section 506, all moneys received
by the Trustee shall, until used or applied as herein provided, be held in trust
for the purposes for which they were received, but need not be segregated from
other funds except to the extent required by law. The Trustee shall be under no
liability for interest on any money received by it hereunder except as otherwise
agreed with the Company.
SECTION 606. Compensation and Reimbursement.
The Company agrees:
(1) to pay to the Trustee from time to time such compensation
as the Company and the Trustee shall agree for all services rendered by
it hereunder (which compensation shall not be limited by any provision
of law in regard to the compensation of a trustee of an express trust);
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(2) to reimburse the Trustee upon its request for all
reasonable expenses, disbursements and advances incurred or made by the
Trustee in accordance with any provision of this Indenture (including
the reasonable compensation and the expenses and disbursements of its
agents and counsel), except any such expense, disbursement or advance
as may be attributable to its negligence or bad faith; and
(3) to indemnify the Trustee for, and to hold it harmless
against, any loss, liability or expense incurred without negligence or
bad faith on its part, arising out of or in connection with the
acceptance or administration of this trust, including the costs and
expenses (including the reasonable compensation and the expenses and
disbursements of its agents and counsel) of investigating or defending
itself against any claim or liability in connection with the exercise
or performance of any of its powers or duties hereunder.
The obligations of the Company under this Section to
compensate the Trustee, to pay or reimburse the Trustee for expenses,
disbursements and advances and to indemnify and hold harmless the Trustee shall
constitute additional indebtedness hereunder and shall survive the resignation
or removal of the Trustee and/or the satisfaction and discharge of this
Indenture. As security for the performance of such obligations of the Company,
the Trustee shall have a claim prior to the Securities upon all property and
funds held or collected by the Trustee as such, except funds held in trust for
the payment of principal of (and premium, if any) or interest on particular
Securities.
When the Trustee incurs expenses or renders services in
connection with an Event of Default specified in Section 501(8) or (9), the
expenses (including the reasonable charges and expenses of its counsel) of and
the compensation for such services are intended to constitute expenses of
administration under any applicable federal or state bankruptcy, insolvency or
other similar law.
The provisions of this Section shall survive the termination
of this Indenture.
SECTION 607. Corporate Trustee Required; Eligibility;
Conflicting Interests.
There shall be at all times a Trustee hereunder which shall be
eligible to act as Trustee under TIA Section 310(a)(1) and 310(a)(5) and shall
have a combined capital and surplus of at least $50,000,000. If such corporation
publishes reports of condition at least annually, pursuant to law or to the
requirements of
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federal, state, territorial or District of Columbia supervising or examining
authority, then for the purposes of this Section, the combined capital and
surplus of such corporation shall be deemed to be its combined capital and
surplus as set forth in its most recent report of condition so published. If at
any time the Trustee shall cease to be eligible in accordance with the
provisions of this Section, it shall resign immediately in the manner and with
the effect hereinafter specified in this Article.
SECTION 608. Resignation and Removal; Appointment of
Successor.
(a) No resignation or removal of the Trustee and no
appointment of a successor Trustee pursuant to this Article shall become
effective until the acceptance of appointment by the successor Trustee in
accordance with the applicable requirements of Section 609.
(b) The Trustee may resign at any time by giving written
notice thereof to the Company. If the instrument of acceptance by a successor
Trustee required by Section 609 shall not have been delivered to the Trustee
within 30 days after the giving of such notice of resignation, the resigning
Trustee may petition any court of competent jurisdiction for the appointment of
a successor Trustee.
(c) The Trustee may be removed at any time by Act of the
Holders of not less than a majority in principal amount of the Outstanding
Securities, delivered to the Trustee and to the Company.
(d) If at any time:
(1) the Trustee shall fail to comply with the provisions of
TIA Section 310(b) after written request therefor by the Company or by
any Holder who has been a bona fide Holder of a Security for at least
six months, or
(2) the Trustee shall cease to be eligible under Section 607
and shall fail to resign after written request therefor by the Company
or by any Holder who has been a bona fide Holder of a Security for at
least six months, or
(3) the Trustee shall become incapable of acting or shall be
adjudged a bankrupt or insolvent or a receiver of the Trustee or of its
property shall be appointed or any public officer shall take charge or
control of the Trustee or of its property or affairs for the purpose of
rehabilitation, conservation or liquidation,
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then, in any such case, (i) the Company, by a Board Resolution, may remove the
Trustee, or (ii) Subject to TIA Section 315(e), any Holder who has been a bona
fide Holder of a Security for at least six months may, on behalf of himself and
all others similarly situated, petition any court of competent jurisdiction for
the removal of the Trustee and the appointment of a successor Trustee.
(e) If the Trustee shall resign, be removed or become
incapable of acting, or if a vacancy shall occur in the office of Trustee for
any cause, the Company, by a Board Resolution, shall promptly appoint a
successor Trustee. If, within one year after such resignation, removal or
incapability, or the occurrence of such vacancy, a successor Trustee shall be
appointed by Act of the Holders of a majority in principal amount of the
Outstanding Securities delivered to the Company and the retiring Trustee, the
successor Trustee so appointed shall, forthwith upon its acceptance of such
appointment, become the successor Trustee and supersede the successor Trustee
appointed by the Company. If no successor Trustee shall have been so appointed
by the Company or the Holders and accepted appointment in the manner hereinafter
provided, any Holder who has been a bona fide Holder of a Security for at least
six months may, on behalf of himself and all others similarly situated, and the
Trustee may, petition any court of competent jurisdiction for the appointment of
a successor Trustee.
(f) The Company shall give notice of each resignation and each
removal of the Trustee and each appointment of a successor Trustee to the
Holders of Securities in the manner provided for in Section 106. Each notice
shall include the name of the successor Trustee and the address of its Corporate
Trust Office.
SECTION 609. Acceptance of Appointment by Successor.
Every successor Trustee appointed hereunder shall execute,
acknowledge and deliver to the Company and to the retiring Trustee an instrument
accepting such appointment, and thereupon the resignation or removal of the
retiring Trustee shall become effective and such successor Trustee, without any
further act, deed or conveyance, shall become vested with all the rights,
powers, trusts and duties of the retiring Trustee; but, on request of the
Company or the successor Trustee, such retiring Trustee shall, upon payment of
its charges, execute and deliver an instrument transferring to such successor
Trustee all the rights, powers and trusts of the retiring Trustee and shall duly
assign, transfer and deliver to such successor Trustee all property and money
held by such retiring Trustee hereunder. Upon request of any such successor
Trustee, the Company shall execute any and all instruments for more fully and
certainly vesting in and confirming to such successor Trustee all such rights,
powers and trusts.
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No successor Trustee shall accept its appointment unless at
the time of such acceptance such successor Trustee shall be qualified under the
TIA and eligible under this Article.
SECTION 610. Merger, Conversion, Consolidation or Succession
to Business.
Any corporation into which the Trustee may be merged or
converted or with which it may be consolidated, or any corporation resulting
from any merger, conversion or consolidation to which the Trustee shall be a
party, or any corporation succeeding to all or substantially all of the
corporate trust business of the Trustee, shall be the successor of the Trustee
hereunder, provided such corporation shall be otherwise qualified and eligible
under this Article, without the execution or filing of any paper or any further
act on the part of any of the parties hereto. In case any Securities shall have
been authenticated, but not delivered, by the Trustee then in office, any
successor by merger, conversion or consolidation to such authenticating trustee
may adopt such authentication and deliver the Securities so authenticated with
the same effect as if such successor Trustee had itself authenticated such
Securities. In case at that time any of the Securities shall not have been
authenticated, any successor Trustee may authenticate such Securities either in
the name of any predecessor hereunder or in the name of the successor Trustee.
In all such cases such certificates shall have the full force and effect which
this Indenture provides for the certificate of authentication of the Trustee
shall have; PROVIDED, HOWEVER, that the right to adopt the certificate of
authentication of any predecessor Trustee or to authenticate Securities in the
name of any predecessor Trustee shall apply only to its successor or successors
by merger, conversion or consolidation.
ARTICLE SEVEN
HOLDERS LISTS AND REPORTS BY TRUSTEE
SECTION 701. Disclosure of Names and Addresses of Holders.
Every Holder of Securities, by receiving and holding the same,
agrees with the Company and the Trustee that none of the Company or the Trustee
or any agent of either of them shall be held accountable by reason of the
disclosure of any information as to the names and addresses of the Holders in
accordance with TIA Section 312, regardless of the source from which such
information was derived, and that the Trustee shall not be held accountable by
reason of mailing any material pursuant to a request made under TIA Section
312(b).
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SECTION 702. Reports by Trustee.
Within 60 days after May 15 of each year commencing with the
first May 15 after the first issuance of Securities, the Trustee shall transmit
to the Holders, in the manner and to the extent provided in TIA Section 313(c),
a brief report dated as of such May 15 if required by TIA Section 313(a).
ARTICLE EIGHT
CONSOLIDATION, MERGER, CONVEYANCE,
TRANSFER OR LEASE
SECTION 801. Company May Consolidate, Etc., Only on Certain
Terms.
(a) The Company shall not merge or consolidate with or into
any other entity (other than a merger of a Restricted Subsidiary into
the Company) or sell, transfer, assign, lease, convey or otherwise
dispose of all or substantially all of its Property in any one
transaction or series of transactions unless:
(1) the entity formed by or surviving any such
consolidation or merger (if the Company is not the surviving
entity) or the Person to which such sale, transfer,
assignment, lease or conveyance is made (the "Surviving
Entity") shall be a corporation organized and existing under
the laws of the United States of America or a State thereof or
the District of Columbia and such corporation expressly
assumes, by supplemental indenture in form satisfactory to the
Trustee, executed and delivered to the Trustee by such
corporation, the due and punctual payment of the principal of,
premium, if any, and interest on all the Securities, according
to their tenor, and the due and punctual performance and
observance of all the covenants and conditions of the
Indenture to be performed by the Company;
(2) in the case of a sale, transfer, assignment,
lease, conveyance or other disposition of all or substantially
all the Company's Property, such Property shall have been
transferred as an entirety or virtually as an entirety to one
Person;
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(3) immediately before and after giving effect to
such transaction or series of transactions, no Default or
Event of Default shall have occurred and be continuing; and
(4) immediately after giving effect to such
transaction or series of transactions on a pro forma basis
(including any Indebtedness Incurred or anticipated to be
Incurred in connection with such transaction or series of
transactions), the Company or the Surviving Entity, as the
case may be, would be able to Incur at least $1.00 of
additional Indebtedness under clause (a) Section 1010.
(b) In connection with any consolidation, merger or transfer
contemplated by this Section 801, the Company shall deliver, or cause
to be delivered, to the Trustee, in form and substance reasonably
satisfactory to the Trustee, an Officer's Certificate and an Opinion of
Counsel, each stating that such consolidation, merger or transfer and
the supplemental indenture in respect thereto comply with this
provision and that all conditions precedent herein provided for
relating to such transaction or transactions have been complied with.
SECTION 802. Successor Substituted.
Upon any merger or consolidation or any sale, transfer,
assignment, lease, conveyance or other disposition of all or substantially all
of the properties and assets of the Company in accordance with Section 801 in
which the Company is not the continuing obligor under this Indenture, the
Surviving Entity shall succeed to, and be substituted for, and may exercise
every right and power of, the Company under this Indenture with the same effect
as if such successor had been named as the Company herein and, in the event of
any such conveyance or transfer, the Company (which term shall for this purpose
mean the Person named as the "Company" in the first paragraph of this Indenture
or any successor Person which shall theretofore become such in the manner
described in Section 801), except in the case of a transfer by lease, shall be
discharged of all obligations and covenants under this Indenture and the
Securities and may be dissolved and liquidated.
SECTION 803. Securities To Be Secured in Certain Events.
If, upon any such consolidation of the Company with or merger
of the Company into any other corporation, or upon any sale, assignment,
conveyance, lease, transfer or disposition of all or substantially all of the
properties and assets of the Company substantially as an entirety to any other
Person or Persons, any property
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or assets of the Company would thereupon become subject to any Lien, then,
unless such Lien could be created pursuant to Section 1015 without equally and
ratably securing the Securities, the Company, prior to or simultaneously with
such consolidation, merger, conveyance, lease or transfer, will, as to such
property or assets, secure the Securities Outstanding (together with, if the
Company shall so determine any other Indebtedness of the Company now existing or
hereinafter created which is not subordinate in right of payment to the
Securities) equally and ratably with (or prior to) the Indebtedness which upon
such consolidation, merger, conveyance, lease or transfer is to become secured
as to such property or assets by such Lien, or will cause such Securities to be
so secured.
ARTICLE NINE
SUPPLEMENTAL INDENTURES
SECTION 901. Supplemental Indentures Without Consent of
Holders.
Without the consent of any Holders, the Company, when
authorized by a Board Resolution, and the Trustee, at any time and from time to
time, may enter into one or more indentures supplemental hereto, in form
satisfactory to the Trustee, for any of the following purposes:
(1) to evidence the succession of another Person to the
Company or any other obligor on the Securities and the assumption by
any such successor of the covenants of the Company or such obligor
contained herein and in the Securities in accordance with Article
Eight; or
(2) to add to the covenants of the Company or any other
obligor on the Securities for the benefit of the Holders or to
surrender any right or power herein conferred upon the Company or any
other obligor on the Securities; or
(3) to add any additional Events of Default; or
(4) to evidence and provide for the acceptance of appointment
hereunder by a successor Trustee pursuant to the requirements of
Section 609; or
(5) to cure any ambiguity, to correct or supplement any
provision herein which may be defective or inconsistent with any other
provision herein, or to make any other provisions or changes with
respect to matters or
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questions arising under this Indenture; PROVIDED that such action shall
not adversely affect the interests of the Holders in any material
respect; or
(6) to comply with the requirements of the Commission in order
to effect or maintain the qualification of this Indenture under the
Trust Indenture Act; or
(7) to add a guarantor of the Securities; or
(8) to mortgage, pledge, hypothecate or grant a security
interest in favor of the Trustee for the benefit of the Holders of the
Securities as additional security for the payment and performance of
the Company's and any guarantor's obligations under this Indenture in
any property or assets, including any of which are required to be
mortgaged, pledged or hypothecated, or in which a security interest is
required to be granted to the Trustee pursuant to Section 803 or 1015
or otherwise.
SECTION 902. Supplemental Indentures with Consent of Holders.
With the consent of the Holders of not less than a majority in
principal amount of the Outstanding Securities, by Act of said Holders delivered
to the Company and the Trustee, the Company, when authorized by a Board
Resolution, and the Trustee may enter into an indenture or indentures
supplemental hereto for the purpose of adding any provisions to or changing in
any manner or eliminating any of the provisions of this Indenture or of
modifying in any manner the rights of the Holders under this Indenture;
PROVIDED, HOWEVER, that no such supplemental indenture shall, without the
consent of the Holder of each Outstanding Security affected thereby:
(1) change the Stated Maturity of the principal of, or any
installment of interest on, any Security, or reduce the principal
amount thereof (or premium, if any) or the rate of interest thereon or
reduce the amount of the principal of the Securities that would be due
and payable upon a declaration of acceleration of the Maturity Date
thereof pursuant to Section 502 or the amount thereof provable in
bankruptcy pursuant to Section 504, or change the coin or currency in
which any Security or any premium or the interest thereon is payable,
or impair the right to institute suit for the enforcement of any such
payment after the Stated Maturity thereof (or, in the case of
redemption, on or after the Redemption Date), or
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(2) amend, change or modify in any material respect the
obligation of the Company to make and consummate a Prepayment Offer
with respect to any Asset Sale in accordance with Section 1017 or the
obligation of the Company to make and consummate a Change of Control
Offer in the event of a Change of Control in accordance with Section
1016, including, in each case, amending, changing or modifying in any
material respect any definition relating thereto, or
(3) reduce the percentage in principal amount of the
Outstanding Securities the consent of the Holders of which Outstanding
Securities is required for any such supplemental indenture, or the
consent of the Holders of which Outstanding Securities is required for
any waiver of compliance with certain provisions of this Indenture or
certain defaults hereunder and their consequences provided for in this
Indenture, or
(4) modify any of the provisions of this Section or Section
513, except to increase any such percentage or to provide that certain
other provisions of this Indenture cannot be modified or waived without
the consent of the Holder of each Outstanding Security affected
thereby, or
(5) except as otherwise provided by Article Eight, consent to
the assignment or transfer by the Company of any of its obligations
under this Indenture.
It shall not be necessary for any Act of Holders under this
Section to approve the particular form of any proposed supplemental indenture,
but it shall be sufficient if such Act shall approve the substance thereof.
SECTION 903. Execution of Supplemental Indentures.
In executing, or accepting the additional trusts created by,
any supplemental indenture permitted by this Article or the modifications
thereby of the trusts created by this Indenture, the Trustee shall be entitled
to receive, and shall be fully protected in relying upon, an Opinion of Counsel
stating that the execution of such supplemental indenture is authorized or
permitted by this Indenture. The Trustee may, but shall not be obligated to,
enter into any such supplemental indenture which adversely affects the Trustee's
own rights, duties or immunities under this Indenture or otherwise.
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SECTION 904. Effect of Supplemental Indentures.
Upon the execution of any supplemental indenture under this
Article, this Indenture shall be modified in accordance therewith, and such
supplemental indenture shall form a part of this Indenture for all purposes; and
every Holder of Securities theretofore or thereafter authenticated and delivered
hereunder shall be bound thereby.
SECTION 905. Conformity with Trust Indenture Act.
Every supplemental indenture executed pursuant to this Article
shall conform to the requirements of the Trust Indenture Act as then in effect.
SECTION 906. Reference in Securities to Supplemental
Indentures.
Securities authenticated and delivered after the execution of
any supplemental indenture pursuant to this Article may, and shall if required
by the Trustee, bear a notation in form approved by the Trustee as to any matter
provided for in such supplemental indenture. If the Company shall so determine,
new Securities so modified as to conform, in the opinion of the Trustee and the
Company, to any such supplemental indenture may be prepared and executed by the
Company and authenticated and delivered by the Trustee in exchange for
Outstanding Securities. Failure to make the appropriate notation or to issue a
new Security shall not affect the validity of such amendment.
SECTION 907. Notice of Supplemental Indentures.
Promptly after the execution by the Company and the Trustee of
any supplemental indenture pursuant to the provisions of Section 902, the
Company shall give notice thereof to the Holders of each Outstanding Security
affected, in the manner provided for in Section 106, setting forth in general
terms the substance of such supplemental indenture. Failure to provide such
notice shall not affect the validity of such amendment.
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ARTICLE TEN
COVENANTS
SECTION 1001. Payment of Principal, Premium, if any, and
Interest.
The Company covenants and agrees for the benefit of the
Holders that it will duly and punctually pay or cause to be paid the principal
of (and premium, if any) and interest on the Securities in accordance with the
terms of the Securities and this Indenture.
SECTION 1002. Maintenance of Office or Agency.
The Company will maintain in The City of New York, an office
or agency where Securities may be presented or surrendered for payment, where
Securities may be surrendered for registration of transfer or exchange and where
notices and demands to or upon the Company in respect of the Securities and this
Indenture may be served. The Trustee's agency at Shawmut Trust Company, 14 Wall
Street, 8th Floor, Window No. 2, New York, New York 10005, shall be such office
or agency of the Company, unless the Company shall designate and maintain some
other office or agency for one or more of such purposes. The Company will give
prompt written notice to the Trustee of any change in the location of any such
office or agency. If at any time the Company shall fail to maintain any such
required office or agency or shall fail to furnish the Trustee with the address
thereof, such presentations, surrenders, notices and demands may be made or
served at the Corporate Trust Office of the Trustee, and the Company hereby
appoints the Trustee as its agent to receive all such presentations, surrenders,
notices and demands.
The Company may also from time to time designate one or more
other offices or agencies (in or outside of The City of New York) where the
Securities may be presented or surrendered for any or all such purposes and may
from time to time rescind any such designation; PROVIDED, HOWEVER, that no such
designation or rescission shall in any manner relieve the Company of its
obligation to maintain an office or agency in The City of New York for such
purposes. The Company will give prompt written notice to the Trustee of any such
designation or rescission and any change in the location of any such other
office or agency.
SECTION 1003. Money for Security Payments to Be Held in
Trust.
If the Company shall at any time act as its own Paying Agent,
it will, on or before each due date of the principal of (or premium, if any) or
interest on any
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of the Securities, segregate and hold in trust for the benefit of the Persons
entitled thereto a sum sufficient to pay the principal of (or premium, if any)
or interest so becoming due until such sums shall be paid to such Persons or
otherwise disposed of as herein provided and will promptly notify the Trustee of
its action or failure so to act.
Whenever the Company shall have one or more Paying Agents for
the Securities, it will, on or before 10:00 a.m. on each due date of the
principal of (or premium, if any) or interest on any Securities, deposit with a
Paying Agent a sum sufficient to pay the principal (and premium, if any) or
interest so becoming due, such sum to be held in trust for the benefit of the
Persons entitled to such principal, premium or interest, and (unless such Paying
Agent is the Trustee) the Company will promptly notify the Trustee of such
action or any failure so to act.
The Company will cause each Paying Agent (other than the
Trustee) to execute and deliver to the Trustee an instrument in which such
Paying Agent shall agree with the Trustee, subject to the provisions of this
Section, that such Paying Agent will:
(1) hold all sums held by it for the payment of the principal
of (and premium, if any) or interest on Securities in trust for the
benefit of the Persons entitled thereto until such sums shall be paid
to such Persons or otherwise disposed of as herein provided;
(2) give the Trustee notice of any default by the Company (or
any other obligor upon the Securities) in the making of any payment of
principal (and premium, if any) or interest; and
(3) at any time during the continuance of any such default,
upon the written request of the Trustee, forthwith pay to the Trustee
all sums so held in trust by such Paying Agent.
Notwithstanding anything in this Section 1003 to the contrary,
the Company may at any time, for the purpose of obtaining the satisfaction and
discharge of this Indenture or for any other purpose pay, or by Company Order
direct any Paying Agent to pay, to the Trustee all sums held in trust by the
Company or such Paying Agent, such sums to be held by the Trustee upon the same
trusts as those upon which such sums were held by the Company or such Paying
Agent; and, upon such payment by any Paying Agent to the Trustee, such Paying
Agent shall be released from all further liability with respect to such sums.
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Any money deposited with the Trustee or any Paying Agent, or
then held by the Company, in trust for the payment of the principal of (or
premium, if any) or interest on any Security and remaining unclaimed for two
years after such principal, premium or interest has become due and payable
shall, subject to applicable escheat laws, be paid to the Company on Company
Request, or (if then held by the Company) shall be discharged from such trust;
and the Holder of such Security shall thereafter, as an unsecured general
creditor, look only to the Company for payment thereof, and all liability of the
Trustee or such Paying Agent with respect to such trust money, and all liability
of the Company as trustee thereof, shall thereupon cease; PROVIDED, HOWEVER,
that the Trustee or such Paying Agent, before being required to make any such
repayment, may at the expense of the Company cause to be published once, in a
newspaper published in the English language, customarily published on each
Business Day and of general circulation in the Borough of Manhattan, The City of
New York, notice that such money remains unclaimed and that, after a date
specified therein, which shall not be less than 30 days from the date of such
publication, any unclaimed balance of such money then remaining will be repaid
to the Company.
SECTION 1004. Corporate Existence.
Subject to Article Eight, the Company will do or cause to be
done all things necessary to preserve and keep in full force and effect the
corporate existence, rights (charter and statutory) and franchises of the
Company and each Subsidiary; PROVIDED, HOWEVER, that the Company shall not be
required to preserve any such right or franchise if the Board of Directors shall
determine that the preservation thereof is no longer desirable in the conduct of
the business of the Company and its Subsidiaries as a whole and that the loss
thereof is not disadvantageous in any material respect to the Holders.
SECTION 1005. Payment of Taxes and Other Claims.
The Company will pay or discharge or cause to be paid or
discharged, before the same shall become delinquent, (a) all material taxes,
assessments and governmental charges levied or imposed upon the Company or any
Subsidiary or upon the income, profits or property of the Company or any
Subsidiary and (b) all lawful claims for labor, materials and supplies, which,
if unpaid, might by law become a material lien upon the property of the Company
or any Subsidiary; PROVIDED, HOWEVER, that the Company shall not be required to
pay or discharge or cause to be paid or discharged any such tax, assessment,
charge or claim the amount, applicability or validity of which is being
contested in good faith by appropriate proceedings.
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SECTION 1006. [Intentionally Omitted.]
SECTION 1007. [Intentionally Omitted.]
SECTION 1008. Statement by Officers as to Default.
(a) The Company will deliver to the Trustee, within 120 days
after the end of each fiscal year, a brief certificate from the principal
executive officer, principal financial officer or principal accounting officer
as to his or her knowledge of the Company's compliance with all conditions and
covenants under this Indenture. For purposes of this Section 1008(a), such
compliance shall be determined without regard to any period of grace or
requirement of notice under this Indenture.
(b) When any Default has occurred and is continuing under this
Indenture, or if the trustee for or the holder of any other evidence of
Indebtedness of the Company or any Subsidiary gives any notice or takes any
other action with respect to a claimed default (other than with respect to
Indebtedness in the principal amount of less than $5,000,000), the Company shall
deliver to the Trustee by registered or certified mail or by telegram, telex or
facsimile transmission an Officers' Certificate specifying such event, notice or
other action within five Business Days of its occurrence.
SECTION 1009. Provision of Reports and Financial Statements.
(a) The Company shall file with the Trustee and provide the
Holders of Securities, within 15 days after it files them with the Commission,
copies of its annual and quarterly reports and other information, documents and
other reports (or copies of such portions of any of the foregoing as the
Commission may by rules and regulations prescribe) which the Company is required
to file with the Commission pursuant to Section 13 or 15(d) of the Exchange Act.
(b) Notwithstanding that the Company may not be subject to the
reporting requirements of Section 13 or 15(d) of the Exchange at, the Company
shall, for all periods ending after the date of this Indenture, file with the
Commission and provide the Trustee and holders of the Notes with such annual
reports and such information, documents and other reports as are specified in
Sections 13 and 15(d) of the Exchange Act and applicable to a U.S. corporation
subject to Sections, such information, documents and other reports to be so
filed and provided at the times
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specified for the filing of such information, documents and reports under such
Sections.
SECTION 1010. Limitation on Indebtedness.
The Company shall not, and shall not permit any Restricted
Subsidiary to, directly or indirectly, Incur any Indebtedness, except that the
Company may Incur Indebtedness, if either (a) after giving pro forma effect to
the application of the proceeds thereof, no Default or Event of Default would
occur as a consequence of such Incurrence or be continuing following such
Incurrence and, after giving effect to the Incurrence of such Indebtedness and
the receipt and application of the proceeds thereof, the Consolidated Leverage
Ratio of the Company and its Restricted Subsidiaries would not exceed (i) 7.0 to
1.0 from the Issue Date until August 1, 1999, and (ii) 5.0 to 1.0 after August
1, 1999, or (b) such Indebtedness is Permitted Indebtedness.
SECTION 1011. Limitation on Indebtedness and Preferred Stock
of Restricted Subsidiaries.
The Company shall not permit any Restricted Subsidiary to,
directly or indirectly, Incur any Indebtedness or issue any Preferred Stock,
except that a Restricted Subsidiary may Incur the following Indebtedness:
(i) Indebtedness owing to the Company or a Wholly Owned
Subsidiary; PROVIDED, HOWEVER, that any event that
results in any such Wholly Owned Subsidiary ceasing
to be a Wholly Owned Subsidiary or any subsequent
transfer of any such Indebtedness (except to the
Company or another Wholly Owned Subsidiary) shall be
deemed to constitute the Incurrence of such
Indebtedness by the issuer thereof;
(ii) Indebtedness outstanding on the Issue Date and listed
on Schedule I;
(iii) Indebtedness Incurred and outstanding on or prior to
the date on which such Restricted Subsidiary was
acquired by the Company (other than Indebtedness
Incurred in anticipation of, or in connection with,
the transaction or series of related transactions
pursuant to which such Subsidiary became a Restricted
Subsidiary or was acquired by the Company); PROVIDED,
HOWEVER, that either (a) such Indebtedness does not
exceed at
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any one time outstanding $5,000,000 or (b) the
Company would be permitted to Incur $1.00 of
Indebtedness pursuant to clause (a) of Section 1010;
(iv) Indebtedness under Interest Rate Agreements entered
into for the purpose of limiting interest rate risks,
provided that the obligations under such agreements
are related to payment obligations of such Restricted
Subsidiary in respect of Indebtedness otherwise
permitted by the terms of this Section 1011;
(v) Indebtedness in connection with one or more standby
letters of credit or performance bonds issued in the
ordinary course of business or pursuant to
self-insurance obligations and not in connection with
the borrowing of money or the obtaining of advances
or credit; and
(vi) Permitted Refinancing Indebtedness Incurred in
respect of Indebtedness Incurred pursuant to clauses
(ii) and (iii) above.
SECTION 1012. Limitation on Restricted Payments.
The Company shall not, and shall not permit any Restricted
Subsidiary to, directly or indirectly, make any Restricted Payment if at the
time of, and after giving effect to, such proposed Restricted Payment, (a) a
Default or Event of Default shall have occurred and be continuing, (b) the
Company could not Incur at least $1.00 of additional Indebtedness pursuant to
clause (a) of Section 1010 or (c) the aggregate amount of such Restricted
Payment and all other Restricted Payments made since the Issue Date (the amount
of any Restricted Payment, if made other than in cash, to be based upon Fair
Market Value) would exceed an amount equal to the sum of (i) the excess of (A)
Cumulative EBITDA over (B) the product of 1.5 and Cumulative Interest Expense,
(ii) Capital Stock Sale Proceeds, (iii) the amount by which Indebtedness of the
Company or its Restricted Subsidiaries is reduced on the balance sheet of the
Company upon the conversion or exchange (other than by a Subsidiary) subsequent
to the Issue Date of any Indebtedness of the Company or any Restricted
Subsidiary convertible or exchangeable for Capital Stock (other than Redeemable
Stock) of the Company (less the amount of any cash or other Property distributed
by the Company or any Restricted Subsidiary upon conversion or exchange) and
(iv) an amount equal to the net reduction in Investments made by the Company and
its Restricted Subsidiaries subsequent to the Issue Date in any Person resulting
from (A) dividends, repayment of loans or advances, or other transfers or
distributions of
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Property (but only to the extent the Company excludes such transfers or
distributions from the calculation of Cumulative EBITDA for purposes of clause
(c)(i) above), in each case to the Company or any Restricted Subsidiary from any
Person or (B) the redesignation of any Unrestricted Subsidiary as a Restricted
Subsidiary, not to exceed, in the case of (A) or (B), the amount of such
Investments previously made by the Company and its Restricted Subsidiaries in
such Person which were treated as Restricted Payments.
Notwithstanding the foregoing limitation, the Company may (a)
pay dividends on its Capital Stock within 60 days of the declaration thereof if,
on the declaration date, such dividends could have been paid in compliance
herewith, (b) redeem, repurchase, defease, acquire or retire for value, any
Indebtedness subordinate (whether pursuant to its terms or by operation of law)
in right of payment to the Securities with the proceeds of any Permitted
Refinancing Indebtedness, (c) acquire, redeem or retire Capital Stock of the
Company or Indebtedness subordinate (whether pursuant to its terms or by
operation of law) in right of payment to the Securities in exchange for or in
connection with a substantially concurrent issuance of, Capital Stock of the
Company (other than Redeemable Stock and other than Capital Stock issued or sold
to a Subsidiary or an employee stock ownership plan or other trust established
by the Company or any Subsidiary), and (d) make Investments in Persons the
primary businesses of which are Related Businesses (other than Investments in
the Capital Stock of the Company) in an amount at any time outstanding not to
exceed $10,000,000 in the aggregate.
Any payments made pursuant to clauses (b) and (c) of the
immediately preceding paragraph shall be excluded from the calculation of the
aggregate amount of Restricted Payments made after the Issue Date; PROVIDED,
HOWEVER, that the proceeds from the issuance of Capital Stock pursuant to clause
(c) of the immediately preceding paragraph shall not constitute Capital Stock
Sale Proceeds for purposes of clause (c)(ii) of the first paragraph of this
Section.
SECTION 1013. [Intentionally Omitted.]
SECTION 1014. Limitation on Transactions with Affiliates.
The Company shall not, and shall not permit any Restricted
Subsidiary to, directly or indirectly, conduct any business or enter into or
suffer to exist any transaction or series of transactions (including the
purchase, sale, transfer, lease or exchange of any Property or the rendering of
any service) with, or for the benefit of, any Affiliate of the Company (an
"Affiliate Transaction") unless (a) the terms of such Affiliate Transaction are
(i) set forth in writing, (ii) in the best interest of the
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81
Company or such Restricted Subsidiary, as the case may be, and (iii) no less
favorable to the Company or such Restricted Subsidiary, as the case may be, than
those that could be obtained in a comparable arm's-length transaction with a
Person that is not an Affiliate of the Company or such Restricted Subsidiary,
(b) with respect to an Affiliate Transaction involving aggregate payments or
value in excess of $1,000,000, the Board of Directors of the Company (including
a majority of the Disinterested Directors of the Company) approves such
Affiliate Transaction and, in its good faith judgment, believes that such
Affiliate Transaction complies with clauses (a)(ii) and (iii) of this paragraph
as evidenced by a Board Resolution and (c) with respect to an Affiliate
Transaction involving aggregate payments or value in excess of $10,000,000, the
Company obtains a written opinion from an independent appraisal firm to the
effect that such Affiliate Transaction is fair from a financial point of view.
Notwithstanding the foregoing limitation, the Company may
enter into or suffer to exist the following: (i) any transaction pursuant to any
contract in existence on the Issue Date and listed on Schedule II; (ii) any
transaction or series of transactions between the Company and one or more of its
Restricted Subsidiaries or between two or more of its Restricted Subsidiaries;
(iii) any Restricted Payment permitted to be made pursuant to Section 1012; (iv)
the payment of compensation (including amounts paid pursuant to employee benefit
plans) for the personal services of officers, directors and employees of the
Company or any of its Restricted Subsidiaries, so long as the Board of Directors
of the Company in good faith shall have approved the terms thereof and deemed
the services theretofore or thereafter to be performed for such compensation or
fees to be fair consideration therefor; (v) loans and advances to employees made
in the ordinary course of business and consistent with past practice of the
Company or such Restricted Subsidiary, as the case may be, provided, that such
loans and advances do not exceed $5,000,000 at any one time outstanding; (vi)
employment arrangements entered into in the ordinary course of business with
officers of the Company approved by a majority of the Disinterested Directors of
the Company; and (vii) the Management Services Agreement.
SECTION 1015. Limitation on Liens.
The Company shall not, and shall not permit any Restricted
Subsidiary to, directly or indirectly, Incur or suffer to exist, any Lien (other
than Permitted Liens) upon any of its Property, whether now owned or hereafter
acquired, including any Lien on any interest in, or any income or profits from,
its Property, unless effective provision has been or will be made whereby the
Securities will be secured equally and ratably with (or prior to) such
obligation; PROVIDED, HOWEVER, that no Lien
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may be granted with respect to Indebtedness of the Company that is subordinated
to the Securities.
SECTION 1016. Purchase of Securities upon a Change of
Control.
(a) If a Change of Control shall occur at any time, then each
Holder of Securities shall have the right to require that the Company purchase
such Holder's Securities, in whole or in part in integral multiples of $1,000
principal amount, at a purchase price (the "Change of Control Purchase Price")
in cash in an amount equal to 101% of the Accreted Value thereof plus accrued
and unpaid interest, if any, to the date of purchase (the "Change of Control
Purchase Date"), in accordance with the procedures set forth in paragraphs (b)
and (c) of this Section (the "Change of Control Offer").
(b) Within 30 days following any Change of Control, the
Company shall (x) cause a notice of the Change of Control Offer to be sent at
least once to the Dow Jones News Service or similar business news service in the
United States and (y) notify the Trustee thereof and give written notice of such
Change of Control to each Holder of Securities in the manner provided in Section
106, stating:
(1) that a Change of Control has occurred and a Change of
Control Offer is being made pursuant to this Section 1016 and that all
Securities timely tendered will be accepted for payment;
(2) the Change of Control Purchase Price and the Change of
Control Purchase Date, which shall be, subject to any contrary
requirements of applicable law, no earlier than 30 days nor later than
60 days from the date such notice is mailed;
(3) that any Security (or portion thereof) accepted for
payment (and duly paid on the Change of Control Purchase Date) pursuant
to the Change of Control Offer shall cease to accrete or accrue
interest after the Change of Control Purchase Date;
(4) that any Securities (or portions thereof) not tendered
will continue to accrete or accrue interest;
(5) a description of the transaction or transactions
constituting the Change of Control; and
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(6) the procedures that Holders of Securities must follow in
order to tender their Securities (or portions thereof) for payment and
the procedures that Holders of Securities must follow in order to
withdraw an election to tender Securities (or portions thereof) for
payment.
(c) The Company will comply, to the extent applicable, with
the requirements of Rule 14e-1 under the Exchange Act, and any other securities
laws and regulations thereunder to the extent such laws and regulations are
applicable in connection with the purchase of Securities in connection with a
Change of Control. To the extent that the provisions of any securities laws or
regulations conflict with the provisions relating to the Change of Control
Offer, the Company will comply with the applicable securities laws and
regulations and will not be deemed to have breached its obligations described
above by virtue thereof.
SECTION 1017. Limitation on Assets Sales.
(a) The Company shall not, and shall not permit any Restricted
Subsidiary to, directly or indirectly, consummate any Asset Sale after the Issue
Date unless (i) the Company or such Restricted Subsidiary, as the case may be,
receives consideration at the time of such Asset Sale at least equal to the Fair
Market Value of the Property subject to such Asset Sale and (ii) at least 80% of
the consideration paid to the Company or such Restricted Subsidiary in
connection with such Asset Sale is in the form of cash or cash equivalents.
(b) The Net Available Cash (or any portion thereof) from Asset
Sales may be applied by the Company or a Restricted Subsidiary, to the extent
the Company or such Restricted Subsidiary elects, (A) to prepay, repay or
purchase Indebtedness of a Restricted Subsidiary (excluding Indebtedness owed to
the Company or an Affiliate of the Company); or (B) to reinvest in Additional
Assets (including by means of an Investment in Additional Assets by a Restricted
Subsidiary with Net Available Cash received by the Company or another Restricted
Subsidiary).
(c) Any Net Available Cash from an Asset Sale is not applied
in accordance with the preceding paragraph within 270 days from the date of such
Asset Sale or the receipt of such Net Available Cash shall constitute "Excess
Proceeds". When the aggregate amount of Excess Proceeds exceeds $10,000,000
(taking into account income earned on such Excess Proceeds), the Company will be
required to make an offer to purchase (the "Prepayment Offer") the Securities,
on a pro rata basis according to principal amount at maturity, at a purchase
price equal to 100% of the Accreted Value thereof plus accrued and unpaid
interest thereon (if any) to the date of purchase in accordance with the
procedures (including prorating in the event of
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84
oversubscription) set forth herein. If the aggregate Accreted Value of
Securities surrendered for purchase by Holders thereof exceeds the amount of
Excess Proceeds, then the Trustee shall select the Securities to be purchased
pro rata according to Accreted Value of the Securities tendered in response to
the Prepayment Offer or by lot with such adjustments as may be deemed
appropriate by the Company so that only Securities having a principal amount of
maturity of $1,000, or integral multiples thereof, shall be purchased. To the
extent that any portion of the amount of Net Available Cash remains after
compliance with the preceding sentence and provided that all Holders of
Securities have been given the opportunity to tender their Securities for
purchase as described in the following paragraph, the Company or such Restricted
Subsidiary may use such remaining amount for general corporate purposes and the
amount of Excess Proceeds will be reset to zero.
(d) Within five Business Days after the Excess Proceeds
exceeds $10,000,000, the Company shall send a written notice, by first-class
mail, to the Holders (the "Prepayment Offer Notice"), accompanied by such
information regarding the Company and its Subsidiaries as the Company in good
faith believes will enable such Holders to make an informed decision with
respect to the Prepayment Offer. The Prepayment Offer Notice will state, among
other things, (1) that the Company is offering to purchase Securities pursuant
to the provisions of this Section 1017, (2) the purchase price and purchase
date, which shall be, subject to any contrary requirements of applicable law, no
less than 30 days not more than 60 days from the date the Prepayment Offer
Notice is mailed (the "Purchase Date"), (3) that any Security (or any portion
thereof) accepted for payment (and duly paid on the Purchase Date) pursuant to
the Prepayment Offer shall cease to accrete original issue discount or accrue
interest after the Purchase Date, (4) the aggregate Accreted Value of Securities
(or portion thereof) to be purchased and (5) a description of the procedure that
Holders must follow in order to tender their Securities (or portions thereof)
and the procedure that Holders must follow in order to withdraw an election to
tender their Securities (or portions thereof) for payment.
(e) The Company will comply, to the extent applicable with
Rule 14e-1 under the Exchange Act and any other securities laws or regulations
thereunder to the extent such laws and regulations are applicable in connection
with the purchase of Securities pursuant to this Section. To the extent that the
provisions of any securities laws or regulations conflict with the provisions
relating to the Prepayment Offer, the Company will comply with the applicable
securities laws and regulations and will not be deemed to have breached its
obligations described in this Section by virtue thereof.
SECTION 1018. [Intentionally Omitted.]
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SECTION 1019. Limitation on Lines of Business.
The Company shall not, and shall not permit any Restricted
Subsidiary to, directly or indirectly, engage in any business other than a
Related Business.
SECTION 1020. Limitation on Dividends and Other Payment
Restrictions Affecting Restricted Subsidiaries.
The Company shall not, and shall not permit any of its
Restricted Subsidiaries to, directly or indirectly, create or otherwise cause or
suffer to exist or become effective, or enter into any agreement with any Person
that would cause to become effective, any consensual encumbrance or restriction
on the ability of any Restricted Subsidiary to (a) pay dividends, in cash or
otherwise, or make any other distributions on or in respect of its Capital
Stock, or pay any Indebtedness or other obligation owed, to the Company or any
other Restricted Subsidiary, (b) make any loans or advances to the Company or
any other Restricted Subsidiary or (c) transfer any of its Property to the
Company or any other Restricted Subsidiary. Such limitation will not apply (1)
with respect to clauses (a), (b) and (c), to encumbrances and restrictions (i)
in existence under or by reason of any agreements in effect on the Issue Date,
(ii) relating to Indebtedness of a Restricted Subsidiary and existing at such
Restricted Subsidiary at the time it became a Restricted Subsidiary if such
encumbrance or restriction was not created in connection with or in anticipation
of the transaction or series of related transactions pursuant to which such
Restricted Subsidiary became a Restricted Subsidiary or was acquired by the
Company, or (iii) which result from the renewal, refinancing, extension or
amendment of an agreement referred to in the immediately preceding clauses (1)
(i) and (ii) above an in clauses (2) (i) and (ii) below, provided, such
encumbrance or restriction is no more restrictive to such Restricted Subsidiary
than those under or pursuant to the agreement evidencing the Indebtedness so
extended, renewed, refinanced or replaced, and (2) with respect to clause (c)
only, to (i) any encumbrance or restriction relating to Indebtedness that is
permitted to be Incurred and secured pursuant to the provisions under Section
1011 and Section 1015 that limits the right of the debtor to dispose of the
assets or Property securing such Indebtedness, (ii) any encumbrance or
restriction in connection with an acquisition of Property, so long as such
encumbrance or restriction relates solely to the Property so acquired and was
not created in connection with or in anticipation of such acquisition, (iii)
customary provisions restricting subletting or assignment of leases and
customary provisions in other agreements that restrict assignment of such
agreements or rights thereunder or (iv) customary restrictions contained in
asset sale agreements limiting the transfer of such assets pending the closing
of such sale.
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ARTICLE ELEVEN
REDEMPTION OF SECURITIES
SECTION 1101. Mandatory and Optional Redemption.
(a) The Company shall redeem all of the Outstanding Securities
on August 1, 2003 at 100% of the principal amount thereof, together with accrued
and unpaid interest to the redemption date, from the Holders of the Securities.
(b) The Securities are not redeemable prior to August 1, 2000.
At any time on or after August 1, 2000, the Notes are redeemable at the option
of the Company, in whole or in part, on not less than 30 nor more than 60 days'
notice, at the following redemption prices (expressed as percentages of Accreted
Value), plus accrued and unpaid interest (if any) to the date of redemption:
If redeemed during the 12-month period commencing August 1 of
the year indicated:
REDEMPTION
YEAR PRICE
2000............................................................... 107.0%
2001............................................................... 103.5%
2002 and thereafter................................................ 100%
Notwithstanding the foregoing, at any time and from time to
time prior to August 1, 1999, the Company may redeem in the aggregate up to $
30,000,000 of the principal amount at maturity of the Securities with the
proceeds of one or more Public Equity Offerings, at a redemption price
(expressed as a percentage of Accreted Value) of 114%, PROVIDED, HOWEVER, that
at least $ 112,000,000 aggregate principal amount at maturity of Securities must
remain outstanding after each such redemption.
SECTION 1102. Applicability of Article.
Redemption of Securities at the election of the Company or
otherwise, as permitted or required by any provision of this Indenture, shall be
made in accordance with such provision and this Article.
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SECTION 1103. Notice to Trustee of Redemption.
The election of the Company to redeem any Securities pursuant
to paragraph (b) of Section 1101 shall be evidenced by a Board Resolution. In
case of any redemption at the election of the Company, the Company shall, at
least 60 days prior to the Redemption Date fixed by the Company (unless a
shorter notice shall be satisfactory to the Trustee), notify the Trustee of such
Redemption Date and of the principal amount of Securities to be redeemed and
shall deliver to the Trustee such documentation and records as shall enable the
Trustee to select the Securities to be redeemed pursuant to Section 1104.
SECTION 1104. Selection by Trustee of Securities to Be
Redeemed.
If less than all the Securities are to be redeemed, the
particular Securities to be redeemed shall be selected not more than 60 days
prior to the Redemption Date by the Trustee, from the Outstanding Securities not
previously called for redemption, by such method as the Trustee shall deem fair
and appropriate and which may provide for the selection for redemption of
portions of the principal of Securities; PROVIDED, HOWEVER, that no such partial
redemption shall reduce the portion of the principal amount of a Security not
redeemed to less than $1,000.
The Trustee shall promptly notify the Company in writing of
the Securities selected for redemption and, in the case of any Securities
selected for partial redemption, the principal amount thereof to be redeemed.
For all purposes of this Indenture, unless the context
otherwise requires, all provisions relating to redemption of Securities shall
relate, in the case of any Security redeemed or to be redeemed only in part, to
the portion of the principal amount of such Security which has been or is to be
redeemed.
SECTION 1105. Notice of Redemption.
Notice of redemption shall be given in the manner provided for
in Section 106 not less than 30 nor more than 60 days prior to the Redemption
Date, to each Holder of Securities to be redeemed. The notice if given in the
manner herein provided shall be conclusively presumed to have been duly given,
whether or not the Holder receives such notice. In any case, failure to give
such notice or any defect in the notice to the Holder of any Security designated
for redemption as a whole or in part shall not affect the validity of the
proceedings for the redemption of any other Security.
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All notices of redemption shall state:
(1) the Redemption Date,
(2) the Redemption Price and the amount of accrued interest to
the Redemption Date payable as provided in Section 1107, if any,
(3) if less than all Outstanding Securities are to be
redeemed, the identification (and, in the case of a partial redemption,
the principal amounts) of the particular Securities to be redeemed,
(4) in case any Security is to be redeemed in part only, the
notice which relates to such Security shall state that on and after the
Redemption Date, upon surrender of such Security, the Holder will
receive, without charge, a new Security or Securities of authorized
denominations for the principal amount thereof remaining unredeemed,
(5) that on the Redemption Date the Redemption Price (and
accrued interest, if any, to the Redemption Date payable as provided in
Section 1107) will become due and payable upon each such Security, or
the portion thereof, to be redeemed, and that interest thereon will
cease to accrue on and after said date, and
(6) the place or places where such Securities are to be
surrendered for payment of the Redemption Price and accrued interest,
if any.
Notice of redemption of Securities to be redeemed shall be
given by the Company or, at the Company's request, by the Trustee in the name
and at the expense of the Company.
SECTION 1106. Deposit of Redemption Price.
On or prior to 10:00 a.m. (New York City time) on any
Redemption Date, the Company shall deposit with the Trustee or with a Paying
Agent (or, if the Company is acting as its own Paying Agent, segregate and hold
in trust as provided in Section 1003) an amount of money sufficient to pay the
Redemption Price of, and accrued interest on, all the Securities which are to be
redeemed on that date.
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SECTION 1107. Securities Payable on Redemption Date.
Notice of redemption having been given as aforesaid, the
Securities so to be redeemed shall, on the Redemption Date, become due and
payable at the Redemption Price therein specified (together with accrued
interest, if any, to the Redemption Date), and from and after such date (unless
the Company shall default in the payment of the Redemption Price and accrued
interest) such Securities shall cease to accrete in value or bear interest. Upon
surrender of any such Security for redemption in accordance with said notice,
such Security shall be paid by the Company at the Redemption Price, together
with accrued interest, if any, to the Redemption Date; PROVIDED, HOWEVER, that
installments of interest payable on any Interest Payment Date on or prior to the
Redemption Date shall be payable to the Holders of such Securities, or one or
more Predecessor Securities, registered as such at the close of business on the
relevant Record Dates according to their terms and the provisions of Section
309.
If any Security called for redemption shall not be so paid
upon surrender thereof for redemption, the principal (and premium, if any)
shall, until paid, bear interest, or the Security shall accrete in value, as the
case may be, from the Redemption Date at the rate borne by the Securities.
SECTION 1108. Securities Redeemed in Part.
Any Security which is to be redeemed only in part shall be
surrendered at the Corporate Trust Office of the Trustee or at the office or
agency of the Company maintained for such purpose pursuant to Section 1002
(with, if the Company or the Trustee so requires, due endorsement by, or a
written instrument of transfer in form satisfactory to the Company and the
Trustee duly executed by, the Holder thereof or such Holder's attorney duly
authorized in writing), and the Company shall execute, and the Trustee shall
authenticate and deliver to the Holder of such Security without service charge,
a new Security or Securities of like tenor and form, of any authorized
denomination as requested by such Holder, in aggregate principal amount equal to
and in exchange for the unredeemed portion of the principal of the Security so
surrendered.
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ARTICLE TWELVE
[RESERVED]
ARTICLE THIRTEEN
DEFEASANCE AND COVENANT DEFEASANCE
SECTION 1301. Company's Option to Effect Defeasance or
Covenant Defeasance.
The Company may, at its option by Board Resolution, at any
time, with respect to the Securities, elect to have Section 1302 or Section 1303
be applied to all Outstanding Securities upon compliance with the conditions set
forth below in this Article Thirteen.
SECTION 1302. Defeasance and Discharge.
Upon the Company's exercise under Section 1301 of the option
applicable to this Section 1302, the Company shall be deemed to have been
discharged from its obligations with respect to all Outstanding Securities on
the date the conditions set forth in Section 1304 are satisfied (hereinafter,
"legal defeasance"). For this purpose, such legal defeasance means that the
Company shall be deemed to have paid and discharged the entire indebtedness
represented by the Outstanding Securities, which shall thereafter be deemed to
be "Outstanding" only for the purposes of Section 1305 and the other Sections of
this Indenture referred to in (A) and (B) below, and to have satisfied all its
other obligations under such Securities and this Indenture insofar as such
Securities are concerned (and the Trustee, at the expense of the Company, shall
execute proper instruments acknowledging the same), except for the following,
which shall survive until otherwise terminated or discharged hereunder: (A) the
rights of Holders of Outstanding Securities to receive, solely from the trust
fund described in Section 1304 and as more fully set forth in such Section,
payments in respect of the principal of (and premium, if any, on) and interest
on such Securities when such payments are due, (B) the Company's obligations
with respect to such Securities under Sections 304, 305, 308, 1002 and 1003, (C)
the rights, powers, trusts, duties and immunities of the Trustee hereunder and
(D) this Article Thirteen. Subject to compliance with this Article Thirteen, the
Company may exercise its option under this Section 1302 notwithstanding the
prior exercise of its option under Section 1303 with respect to the Securities.
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SECTION 1303. Covenant Defeasance.
Upon the Company's exercise under Section 1301 of the option
applicable to this Section 1303, the Company shall be released from its
obligations under any covenant contained in Sections 1005, 1009 through Section
1015 and in Sections 1017 through 1020 inclusive, the operation of Sections
501(5), Section 501(7), 501(8) (with respect to Restricted Subsidiaries only),
501(9) (with respect to Restricted Subsidiaries only) and the limitation
contained in Section 801(4) with respect to the Outstanding Securities on and
after the date the conditions set forth below are satisfied (hereinafter,
"covenant defeasance"), and the Securities shall thereafter be deemed not to be
"Outstanding" for the purposes of any direction, waiver, consent or declaration
or Act of Holders (and the consequences of any thereof) in connection with such
covenants, but shall continue to be deemed "Outstanding" for all other purposes
hereunder. For this purpose, such covenant defeasance means that, with respect
to the Outstanding Securities, the Company may omit to comply with and shall
have no liability in respect of any term, condition or limitation set forth in
any such covenant, whether directly or indirectly, by reason of any reference
elsewhere herein to any such covenant or by reason of any reference in any such
covenant to any other provision herein or in any other document and such
omission to comply shall not constitute a Default or an Event of Default under
Section 501(4), but, except as specified above, the remainder of this Indenture
and such Securities shall be unaffected thereby.
SECTION 1304. Conditions to Defeasance or Covenant Defeasance.
The following shall be the conditions to application of either
Section 1302 or Section 1303 to the Outstanding Securities:
(1) The Company shall irrevocably have deposited or caused to
be deposited with the Trustee (or another trustee satisfying the
requirements of Section 607 who shall agree to comply with the
provisions of this Article Thirteen applicable to it) as trust funds in
trust for the purpose of making the following payments, specifically
pledged as security for, and dedicated solely to, the benefit of the
Holders of such Securities, (A) cash in United States dollars, or (B)
U.S. Government Obligations which through the scheduled payment of
principal and interest in respect thereof in accordance with their
terms will provide, not later than one day before the due date of any
payment, money in an amount, or (C) a combination thereof, sufficient,
in the opinion of a nationally recognized firm of independent public
accountants expressed in a written certification thereof delivered to
the Trustee, to pay and discharge, and which shall be applied by the
Trustee (or other qualifying trustee) to pay
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and discharge, (i) the principal of (and premium, if any) and interest
on the Outstanding Securities on the Stated Maturity (or Redemption
Date, if applicable) of such principal (and premium, if any) or
installment of interest and (ii) any mandatory redemption or analogous
payments applicable to the Outstanding Securities on the day on which
such payments are due and payable in accordance with the terms of this
Indenture and of such Securities; PROVIDED that the Trustee shall have
been irrevocably instructed to apply such cash in United States dollars
or the proceeds of such U.S. Government Obligations to said payments
with respect to the Securities. Before such a deposit, the Company may
give to the Trustee, in accordance with Section 1103 hereof, a notice
of its election to redeem all of the Outstanding Securities at a future
date in accordance with Article Eleven hereof, which notice shall be
irrevocable. Such irrevocable redemption notice, if given, shall be
given effect in applying the foregoing.
(2) No (a) Default in the payment of principal of or premium,
if any, or interest on any Security or a Default resulting from the
occurrence of an Event of Default specified in Section 501(8) or (9)
(without regard to any passage of time specified therein) or (b) Event
of Default with respect to the Securities (other than as a result of a
breach of the provisions of Article Eight arising from a merger or
consolidation occurring contemporaneously with such defeasance) shall
have occurred and be continuing on the date of, or immediately after,
such deposit or, insofar as paragraphs (8) and (9) of Section 501
hereof are concerned, at any time during the period ending on the 91st
day after the date of such deposit (it being understood that this
condition shall not be deemed satisfied until the expiration of such
period).
(3) Such legal defeasance or covenant defeasance shall not
result in a breach or violation of, or constitute a default under, any
material agreement or instrument to which the Company is a party or by
which it is bound.
(4) In the case of an election under Section 1302, the Company
shall have delivered to the Trustee an Opinion of Counsel stating that
(x) the Company has received from, or there has been published by, the
Internal Revenue Service a ruling, or (y) since the Issue Date, there
has been a change in the applicable federal income tax law, in either
case to the effect that, and based thereon such opinion shall confirm
that, the Holders of the Outstanding Securities will not recognize
income, gain or loss for federal income tax purposes as a result of
such defeasance and will be subject to federal income tax on the same
amounts, in the same manner and at the same times as would have been
the case if such defeasance had not occurred.
<PAGE>
93
(5) In the case of an election under Section 1303, the Company
shall have delivered to the Trustee an Opinion of Counsel to the effect
that the Holders of the Outstanding Securities will not recognize
income, gain or loss for federal income tax purposes as a result of
such covenant defeasance and will be subject to federal income tax on
the same amounts, in the same manner and at the same times as would
have been the case if such covenant defeasance had not occurred.
(6) The Company shall have delivered to the Trustee an
Officers' Certificate and an Opinion of Counsel, each stating that all
conditions precedent provided for relating to either the legal
defeasance under Section 1302 or the covenant defeasance under Section
1303 (as the case may be) have been complied with.
SECTION 1305. Deposited Money and U.S. Government Obligations
To Be Held in Trust; Other Miscellaneous Provisions.
Subject to the provisions of the last paragraph of Section
1003, all money and U.S. Government Obligations (including the proceeds thereof)
deposited with the Trustee (or other qualifying trustee, collectively for
purposes of this Section 1305, the "Trustee") pursuant to Section 1304 in
respect of the Outstanding Securities shall be held in trust and applied by the
Trustee, in accordance with the provisions of such Securities and this
Indenture, to the payment, either directly or through any Paying Agent
(including the Company acting as its own Paying Agent) as the Trustee may
determine, to the Holders of such Securities of all sums due and to become due
thereon in respect of principal (and premium, if any) and interest, but such
money need not be segregated from other funds except to the extent required by
law.
The Company shall pay and indemnify the Trustee against any
tax, fee or other charge imposed on or assessed against the U.S. Governmental
Obligations deposited pursuant to Section 1304 or the principal and interest
received in respect thereof other than any such tax, fee or other charge which
by law is for the account of the Holders of the Outstanding Securities.
Anything in this Article Thirteen to the contrary
notwithstanding, the Trustee shall deliver or pay to the Company from time to
time upon Company Request any money or U.S. Government Obligations held by it as
provided in Section 1304 which, in the opinion of a nationally recognized firm
of independent public accountants expressed in a written certification thereof
delivered to the Trustee, are in excess of the amount thereof which would then
be required to be deposited to effect
<PAGE>
94
all equivalent defeasance or covenant defeasance, as applicable, in accordance
with this Article.
SECTION 1306. Reinstatement.
If the Trustee or any Paying Agent is unable to apply any
money in accordance with Section 1305 by reason of any order or judgment of any
court or governmental authority enjoining, restraining or otherwise prohibiting
such application, then the Company's obligations under this Indenture and the
Securities shall be revived and reinstated as though no deposit had occurred
pursuant to Section 1302 or 1303, as the case may be (until such time as the
Trustee or Paying Agent is permitted to apply all such money), in accordance
with Section 1305; PROVIDED, HOWEVER, that if the Company makes any payment of
principal of (or premium, if any) or interest on any Security following the
reinstatement of its obligations, the Company shall be subrogated to the rights
of the Holders of such Securities to receive such payment front the money held
by the Trustee or Paying Agent.
<PAGE>
95
[THIS PAGE INTENTIONALLY BLANK. SIGNATURE PAGE IS NEXT PAGE.]
<PAGE>
96
This Indenture may be signed in any number of counterparts
each of which so executed shall be deemed to be an original, but all such
counterparts shall together constitute but one and the same Indenture.
IN WITNESS WHEREOF, the parties hereto have caused this
Indenture to be duly executed, and their respective corporate seals to be
hereunto affixed and attested, all as of the day and year first above written.
INTER(bullet)ACT SYSTEMS, INCORPORATED
By_______________________________
Name:
Title:
[Corporate Seal]
Attest:
________________________
FLEET NATIONAL BANK
By_______________________________
Name:
Title:
<PAGE>
STATE OF NEW YORK )
) SS.:
COUNTY OF NEW YORK )
On the ___ day of ____________, 1996, before me personally
came _________________, to me known, who, being by me duly sworn, did depose and
say that he is _____________________ of Inter(bullet)Act Systems, Incorporated,
one of the corporations described in and which executed the foregoing
instrument; that he knows the seal of said corporation; that the seal affixed
to said instrument is such corporate seal; that it was so affixed by authority
of the Board of Directors of said corporation,and that he signed his name
thereto by like authority.
_____________________________
Notary Public
State of
My commission expires / /
[Seal]
<PAGE>
STATE OF NEW YORK )
) SS.:
COUNTY OF NEW YORK )
On the ___ day of ____________, 1996, before me personally
came _________________, to me known, who, being by me duly sworn, did depose and
say that he is _____________________ of Fleet National Bank, one of the
corporations described in and which executed the foregoing instrument; and that
he signed his name thereto by authority of the Board of Directors of said
Corporation.
_____________________________
Notary Public
State of
My commission expires / /
[Seal]
<PAGE>
Exhibit A
[FACE OF NOTE]
INTER(bullet)ACT SYSTEMS, INCORPORATED
Senior Discount Note Due 2003
CUSIP [ ]
No. _______ US$__________
INTER(bullet)ACT SYSTEMS, INCORPORATED, a corporation existing
under the laws of the State of North Carolina (the "Company," which term
includes any successor under the Indenture hereinafter referred to), for value
received, promises to pay to _____________, or its registered assigns, the
principal sum of ______________ dollars ($_________) on August 1, 2003
Initial Interest Rate: 14% per annum.**
Interest Rate: 14% per annum.*
Interest Payment Dates: February 1 and August 1,
commencing February 1, 2000.
Regular Record Dates: January 15 and July 15
Reference is hereby made to the further provisions of this
Note set forth on the reverse hereof, which further provisions shall for all
purposes have the same effect as if set forth at this place.
_________________
* Include only for Exchange Securities.
** Include only for Initial Securities.
<PAGE>
A-2
IN WITNESS WHEREOF, the Company has caused this Note to be
signed manually or by facsimile by its duly authorized officers.
Date: ____________ INTER(bullet)ACT SYSTEMS, INCORPORATED
By: ___________________________
Name:
Title:
Attest: _________________________
Name:
Title:
<PAGE>
A-3
(Form of Trustee's Certificate of Authentication)
This is one of the Senior Discount Notes due 2003 described in the
within-mentioned Indenture.
FLEET NATIONAL BANK
as Trustee
By:___________________________
Authorized Signatory
<PAGE>
A-4
[REVERSE SIDE OF NOTE]
INTER(bullet)ACT SYSTEMS, INCORPORATED
Senior Discount Note due 2003
1. Principal and Interest.
The Company will pay the principal of this Note on August 1,
2003.
The Company promises to pay interest on the principal amount
of this Note on each Interest Payment Date, as set forth below, [at the rate of
14% per annum (subject to adjustment as provided below)]** [at the rate of 14%
per annum, except that interest accrued on this Note (or the predecessor Note
hereto) pursuant to the second succeeding paragraph of this Section 1 for
periods prior to the applicable Exchange Date (as such term is defined in the
Registration Rights Agreement referred to below) will accrue at the rate or
rates borne by the predecessor Note hereto from time to time during such periods
pursuant to the Registration Rights Agreement as set forth below].*
Interest will be payable semiannually (to the holders of
record of the Notes (or any predecessor Notes) at the close of business on the
January 15 or July 15 immediately preceding the Interest Payment Date) on each
Interest Payment Date, commencing February 1, 2000; provided that no interest
shall accrue on the principal amount of this Note prior to August 1, 1999 and no
interest shall be paid on this Note prior to February 1, 2000 except as provided
in the next paragraph.
The Holder of this Note is entitled to the benefits of the
Exchange and Registration Rights Agreement, dated July 30, 1996, between the
Company and the Initial Purchasers named therein (the "Registration Rights
Agreement"). In the event that either (a) the Exchange Offer Registration
Statement (as such term is defined in the Registration Rights Agreement) is not
filed with the Securities and Exchange Commission on or prior to the 45th
calendar day following the date of original issue of the Notes, (b) the Exchange
Offer Registration Statement has not been declared effective on or prior to the
120 calendar days following the date of original issue of the Notes; (c) either
* Include only for Exchange Securities.
** Include only for Initial Securities.
<PAGE>
A-5
the Exchange Offer (as such term is defined in the Registration Rights
Agreement) is not consummated or the Shelf Registration Statement (as such term
is defined in the Registration Rights Agreement) is not declared effective
within 150 calendar days following the date of original issue of the Notes, or
(d) the Exchange Offer Registration Statement or the Shelf Registration
Statement is declared effective, but thereafter ceases to be effective or usable
(each such event referred to in clause (a) through (d) above, a "Registration
Default") interest (in addition to the accrual of original issue discount during
the period ending August 1, 1999, and in addition to the interest otherwise due
on the Notes after such date) will accrue on this Note at a rate of one-half of
one percent per annum of the Accreted Value on the immediately preceding
semi-annual accrual date (for purposes of this paragraph, "semi-annual accrual
date" means each February 1 or August 1 of each year (or, if such immediately
preceding February 1 or August 1 occurs before February 1, 1997, at a rate of
one-half of one percent of the Accreted Value of this Note on August 1, 1996))
with respect to the first 90-day period following such Registration Default, and
the amount of such additional interest will increase by an additional one-half
of one percent per annum for each subsequent 90-day period until such
Registration Default has been cured, payable in cash semi-annually, in arrears,
on February 1 and August 1 of each year; PROVIDED, HOWEVER, that in no event
shall the rate of such additional interest be more than one and one-half of one
percent. Upon the cure of all applicable Registration Defaults, such additional
interest shall cease to accrue.
Any and all payments made by the Company under this Note will
be made free and clear of and without deduction for or on account of any and all
present or future taxes, levies, imposts, deductions, charges or withholdings
and all liabilities with respect thereto imposed by the United States excluding
any taxes, levies, imposts, deductions, charges or withholdings and all
liability with respect thereto (i) resulting from the Holder having some
connection with the United States other than the mere holding of or enforcement
of or receipt of any payment with respect to such Note, (ii) the payment of
which may be avoided by the Holder complying with any certification, declaration
or other reporting requirement concerning the nationality, residence, identity
or connection with any taxing authority of such Holder as the beneficial owner
of such Note, (iii) that would not have been imposed but for the presentation
(where presentation is required) of such Note for payment more than 30 days
after the date such payment became due and payable or was duly provided for,
whichever occurs later, (iv) in the nature of estate, inheritance, gift, sale,
transfer, personal property or similar taxes or (v) imposed on or with respect
to any payment by the Company to the Holder if such Holder is a fiduciary or
partnership or person other than the sole beneficial owner of such payment to
the extent such tax, levy, impost, deduction, charge or withholding would not
have been imposed on a beneficiary or settlor with respect to such fiduciary,
member of such partnership or
<PAGE>
A-6
the beneficial owner of such payment had such beneficiary, settlor, member or
beneficial owner been the Holder of such Note (all such non-excluded taxes,
levies, imposts, deductions, charges, withholdings and liabilities being
referred to collectively or individually as "U.S. Withholding Taxes"). If the
Company is required by law to deduct any U.S. Withholding Taxes from or in
respect of any sum payable under this Note, the sum payable hereunder shall be
increased by the amount necessary so that after making all required deductions
the Holder will receive an amount equal to the sum it would have received had no
such deductions been made.
From and after August 1, 1999, interest on this Note will
accrue from the most recent date to which interest has been paid [on this Note
or the Note surrendered in Exchange herefor]* or, if no interest has been paid,
from August 1, 1999; provided that, if there is no existing default in the
payment of interest and if this Note is authenticated between a Regular Record
Date referred to on the face hereof and the next succeeding Interest Payment
Date, interest shall accrue from such Interest Payment Date. Interest will be
computed on the basis of a 360-day year of twelve 30-day months.
The Company shall pay interest on overdue principal and
premium, if any, and interest on overdue installments of interest, to the extent
lawful, at a rate per annum equal to the rate of interest applicable to the
Notes.
2. Method of Payment.
The Company will pay interest (except Defaulted Interest) on
the principal amount of the Notes on each February 1 and August 1 to the persons
who are Holders (as reflected in the Security Register at the close of business
on the January 15 and July 15 immediately preceding the Interest Payment Date),
in each case, even if the Note is cancelled on registration of transfer or
registration of exchange after such record date; provided that, with respect to
the payment of principal, the Company will make payment to the Holder that
surrenders this Note to any Paying Agent on or after August 1, 2003.
_________________
* Include only for Exchange Securities.
The Company will pay principal, premium, if any, and interest
in money of the United States that at the time of payment is legal tender for
payment of
<PAGE>
A-7
public and private debts. However, the Company may pay principal, premium, if
any, and interest by its check payable in such money. The Company may mail an
interest check to a Holder's registered address (as reflected in the Security
Register). The Company may also make any payment of monies required to be
deposited with the Trustee on account of principal of, or premium, if any, or
interest on, this Note by wire transfer in immediately available funds to an
account designated by the Trustee on or before the date such monies are to be
paid to the Holder. If a payment date is a date other than a Business Day,
payment may be made on the next succeeding day that is a Business Day and no
interest shall accrue for the intervening period.
3. Intentionally Omitted.
4. Paying Agent and Registrar.
Initially, the Trustee will act as authenticating agent,
Paying Agent and Registrar. The Company may change any authenticating agent,
Paying Agent or Registrar upon written notice thereto. The Company, any
Subsidiary or any Affiliate of any of them may act as Paying Agent, Registrar or
co-registrar.
5. Indenture; Limitations.
The Company issued the Notes under an Indenture dated as of
August 1, 1996 (the "Indenture"), between the Company and Fleet National Bank as
trustee (the "Trustee"). Capitalized terms herein are used as defined in the
Indenture unless otherwise indicated. The terms of the Notes include those
stated in the Indenture and those made part of the Indenture by reference to the
Trust Indenture Act. The Notes are subject to all such terms, and Holders are
referred to the Indenture and the Trust Indenture Act for a statement of all
such terms. To the extent permitted by applicable law, in the event of any
inconsistency between the terms of this Note and the terms of the Indenture, the
terms of the Indenture shall control.
The Notes are general unsecured obligations of the Company.
The Indenture limits the aggregate principal amount of the Notes to
$142,000,000.
6. Redemption.
Mandatory Redemption. The Company will redeem 100% of the
principal amount, together with accrued and unpaid interest to the redemption
date from the Holders of the Notes at the close of business on August 1, 2003.
<PAGE>
A-8
Optional Redemption. The Notes are not redeemable prior to
August 1, 2000. At any time on or after August 1, 2000, the Notes are redeemable
at the option of the Company, in whole or in part, on not less than 30 nor more
than 60 days' notice, at the following redemption prices (expressed as
percentages of Accreted Value), plus accrued and unpaid interest (if any) to the
date of redemption:
If redeemed during the 12-month period commencing August 1 of
the year indicated:
REDEMPTION
YEAR PRICE
2000................................................................. 107.0%
2001................................................................. 103.5%
2002 and thereafter.................................................. 100.0%
Notwithstanding the foregoing, at any time and from time to
time prior to August 1, 1999, the Company may redeem in the aggregate up to
$30,000,000 of the principal amount at maturity of the Notes with the proceeds
of one or more Public Equity Offerings, at a redemption price (expressed as a
percentage of Accreted Value) of 114%, PROVIDED, HOWEVER, that at least
$112,000,000 aggregate principal amount at maturity of Notes must remain
outstanding after each such redemption.
On and after any redemption date, interest will cease to
accrete or accrue on the Notes or portions thereof called for redemption unless
the Company shall fail to redeem any such Notes.
7. Repurchase upon a Change of Control.
Upon the occurrence of a Change in Control, each Holder shall
have the right to require that the Company repurchase such Holder's Notes, in
whole or in part, in integral multiples of $1,000 principal amount at final
Maturity, at a purchase price in cash in an amount equal to 101% of the Accreted
Value thereof, plus accrued interest (if any) to the date of purchase (the
"Change of Control Purchase Price").
A notice of each Change in Control will be mailed within 15
days after such Change of Control occurs to each Holder at his last address as
it appears in the Security Register. On and after the Change of Control Payment
Date, interest ceases to accrue on Notes or portions of Notes surrendered for
purchase by the Company, unless the Company defaults in the payment of the
Change of Control Purchase Price.
8. Denominations; Transfer; Exchange.
<PAGE>
A-9
The Notes are in registered form without coupons, in
denominations of $1,000 principal amount at maturity and multiples of $1,000 in
excess thereof. A Holder may register the transfer or exchange of Notes in
accordance with the Indenture. The Registrar may require a Holder, among other
things, to furnish appropriate endorsements and transfer documents and to pay
any taxes and fees required by law or permitted by the Indenture. The Registrar
need not register the transfer or exchange of any Notes selected for redemption
(except the unredeemed portion of any Note being redeemed in part). Also, it
need not register the transfer or exchange of any Notes for a period of 15 days
before a selection of Notes to be redeemed is made.
9. Persons Deemed Owners.
A Holder may be treated as the owner of a Note for all
purposes.
10. Unclaimed Money.
If money for the payment of principal, premium, if any, or
interest remains unclaimed for two years, the Trustee and the Paying Agent will,
subject to escheat law, pay the money back to the Company at its request. After
that, Holders entitled to the money must look to the Company for payment, unless
an abandoned property law designates another Person, and all liability of the
Trustee and such Paying Agent with respect to such money shall cease.
11. Amendment; Supplement; Waiver.
Subject to certain exceptions, the Indenture or the Notes may
be amended or supplemented with the consent of the Holders of at least a
majority in aggregate principal amount at final Maturity of the Notes then
outstanding, and any existing default or compliance with any provision may be
waived with the consent of the Holders of a majority in aggregate principal
amount at final Maturity of the Notes then outstanding. Without notice to or the
consent of any Holder, the parties thereto may amend or supplement the Indenture
or the Notes to, among other things, cure any ambiguity, or inconsistency
provided such change does not materially adversely affect the rights of any
Holder.
12. Restrictive Covenants.
The Indenture imposes certain limitations on the ability of
the Company and its Subsidiaries, among other things, to incur additional
Indebtedness, grant Liens, make Restricted Payments, use the proceeds from Asset
Sales, engage in
<PAGE>
A-10
transactions with Affiliates, engage in other businesses, restrict payments from
Restricted Subsidiaries or merge, consolidate or transfer substantially all of
its assets. At the end of each fiscal year, the Company must report to the
Trustee on compliance with such limitations.
13. Successor Persons.
When a successor person or other entity assumes all the
obligations of its predecessor under the Notes and the Indenture, the
predecessor person will be released from those obligations.
14. Defaults and Remedies.
The following events constitute "Events of Default" under the
Indenture: (a) failure to make the payment of any principal of or premium, if
any, on any Note at its Maturity Date (upon acceleration, optional redemption,
required purchase or otherwise); (b) failure to make the payment of any interest
on any Note when it becomes due and payable and any such failure continues for a
period of 30 days; (c) failure to comply with any covenant or warranty of the
Company contained in the Indenture (other than a covenant or warranty that is
specifically dealt with in clauses (a) or (b) above) which failure continues for
a period of 30 days after written notice shall have been given to the Company by
the Trustee or to the Company and the Trustee by the holders of at least 25% in
aggregate principal amount of the Notes then outstanding; (d) (i) Indebtedness
of the Company or any Restricted Subsidiary in an amount greater than $5,000,000
shall have been accelerated or otherwise declared due and payable, or required
to be prepaid or repurchased (other than by regularly scheduled required
prepayment prior to the stated maturity thereof) or (ii) a default by the
Company or any Restricted Subsidiary in the payment of principal on Indebtedness
of the Company or any Restricted Subsidiary in an amount greater than
$5,000,000, when the same becomes due and payable at the stated maturity
thereof, and such default shall have continued after any applicable grace period
and shall not have been cured or waived; (e) one or more final judgments or
orders shall be rendered against the Company or any Restricted Subsidiary for
the payment of money in an uninsured aggregate amount, in excess of $5,000,000
shall not be waived, satisfied or discharged for any period of 30 consecutive
days during which a stay of enforcement of such judgment or order was not in
effect; or (f) the occurrence of certain events of bankruptcy, insolvency or
reorganization with respect to the Company or any Subsidiary.
If an Event of Default, as defined in the Indenture, occurs
and is continuing, the Trustee or the Holders of at least 25% in aggregate
principal amount
<PAGE>
A-11
at final Maturity of the Notes then outstanding may declare all the Notes to be
immediately due and payable. If a bankruptcy or insolvency Event of Default with
respect to the Company or any of its Subsidiaries occurs and is continuing, the
Notes automatically become immediately due and payable. Holders may not enforce
the Indenture or the Notes except as provided in the Indenture. The Trustee may
require indemnity satisfactory to it before it enforces the Indenture or the
Notes. Subject to certain limitations, Holders of at least a majority in
aggregate principal amount at final Maturity of the Notes then outstanding may
direct the Trustee in its exercise of any trust or power.
15. Trustee Dealings with Company.
The Trustee under the Indenture, in its individual or any
other capacity, may become the owner or pledgee of Notes and may make loans to,
accept deposits from, perform services for, and otherwise deal with, the Company
and its Affiliates as if it were not the Trustee.
16. Authentication.
This Note shall not be valid until the Trustee or
authenticating agent signs the certificate of authentication on the other side
of this Note.
17. Abbreviations.
Customary abbreviations may be used in the name of a Holder or
an assignee, such as: TEN COM (= tenants in common), TEN ENT (= tenants by the
entireties), JT TEN (= joint tenants with right of survivorship and not as
tenants in common), CUST (= Custodian) and U/G/M/A (= Uniform Gifts to Minors
Act).
18. Defeasance.
The Indenture contains provisions for defeasance, at any time,
of the Indebtedness represented by this Note or the covenants governing the
Indebtedness represented by this Note, upon compliance by the Company with
certain conditions set forth in the Indenture.
The Company will furnish to any Holder upon written request
and without charge a copy of the Indenture. Requests may be made to
Inter(bullet)Act Systems, Incorporated, 14 Westport Avenue, Norwalk, CT 06851.
<PAGE>
A-12
[FORM OF TRANSFER NOTICE]
FOR VALUE RECEIVED the undersigned registered holder hereby
sell(s), assign(s) and transfer(s) unto
Insert Taxpayer Identification No.
___________________________________________
___________________________________________
(Please print or typewrite name and address including zip code of assignee)
__________________________________________
the within Note and all rights thereunder, hereby irrevocably constituting and
appointing
___________________________________________
attorney to transfer such Note on the books of the Company with full power of
substitution in the premises.
[THE FOLLOWING PROVISION TO BE INCLUDED
ON ALL CERTIFICATES
EXCEPT PERMANENT OFFSHORE PHYSICAL
CERTIFICATES]
In connection with any transfer of this Note occurring prior
to the date which is the earlier of the date of an effective Registration
Statement or July 30, 1999, the undersigned confirms that without utilizing any
general solicitation or general advertising that:
[Check One]
[ ](a) this Note is being transferred in compliance with the
exemption from registration under the Securities Act of 1933,
as amended, provided by Rule 144A thereunder.
or
<PAGE>
A-13
[ ](b) this Note is being transferred other than in accordance with
(a) above and documents are being furnished which comply with
the conditions of transfer set forth in this Note and the
Indenture.
If none of the foregoing boxes is checked, the Trustee or other Registrar shall
not be obligated to register this Note in the name of any Person other than the
Holder hereof unless and until the conditions to any such transfer of
registration set forth herein and in Section 307 of the Indenture shall have
been satisfied.
Date: __________________________________
__________________________________
NOTICE: The signature to this
assignment must correspond with the
name as written upon the face of the
within-mentioned instrument in every
particular, without alteration or
any change whatsoever.
Signature Guarantee:1 _________________________________________________________
(signature must be guaranteed)
TO BE COMPLETED BY PURCHASER IF (a) ABOVE IS CHECKED.
The undersigned represents and warrants that it is purchasing
this Note for its own account or an account with respect to which it exercises
sole investment discretion and that it and any such account is a "qualified
institutional buyer" within the meaning of Rule 144A under the Securities Act of
1933, as amended, and is aware that the sale to it is being made in reliance on
Rule 144A and acknowledges that it has received such information regarding the
Company as the undersigned has requested pursuant to Rule 144A or has determined
not to request such information and that it is aware that the transferor is
relying upon the undersigned's foregoing
<PAGE>
A-14
representations in order to claim the exemption from registration provided by
Rule 144A.
Dated: _______________________________ ____________________________________
NOTICE: To be executed by an
executive officer
______________________________________
1 Guarantor must be a member of the Securities Transfer Agents Medallion
Program ("STAMP"), the New York Stock Exchange Medallion Signature
Program ("MSP") or the Stock Exchange Medallion Program ("SEMP").
<PAGE>
A-15
OPTION OF HOLDER TO ELECT PURCHASE
If you wish to have this Note purchased by the Company
pursuant to Section 1016 or Section 1017 of the Indenture, check the Box: [ ].
If you wish to have a portion of this Note purchased by the
Company pursuant to Section 1016 or Section 1017 of the Indenture, state the
amount in original principal amount (must be an integral multiple of $1,000)
below:
$___________
Date: ____________________
Your Signature: _______________________________
(Sign exactly as your name appears on the other side of this Note)
Signature Guarantee:1 ______________________________________________
(signature must be guaranteed)
_______________
1 Guarantor must be a member of the Securities Transfer Agents Medallion
Program ("STAMP"), the New York Stock Exchange Medallion Signature
Program ("MSP") or the Stock Exchange Medallion Program ("SEMP").
<PAGE>
Exhibit B
Form of Certificate
to Be Delivered upon
Termination of Restricted Period
On or after , 1996
Fleet National Bank
777 Main Street
Hartford, CT 06115
Attention: Corporate Trust Administration
Re: Inter(bullet)Act Systems, Incorporated (the "Company")
_____% Senior Discount Notes due 2003 (the "Securities")
_____
Ladies and Gentlemen:
This letter relates to U.S. $_____________________ principal
amount of Securities represented by the temporary global note certificate (the
"Temporary Certificate"). Pursuant to Section 202 of the Indenture dated as of
______________________, 1996 relating to the Securities (the "Indenture"), we
hereby certify that (1) we are the beneficial owner of such principal amount of
Securities represented by the Temporary Certificate and (2) we are a person
outside the United States to whom the Securities could be transferred in
accordance with Rule 904 of Regulation S promulgated under the U.S. Securities
Act of 1933, as amended. Accordingly, you are hereby requested to issue a
Certificated Security representing the undersigned's interest in the principal
amount of Securities represented by the Temporary Certificate, all in the manner
provided by the Indenture.
You and the Company are entitled to rely upon this letter and
are irrevocably authorized to produce this letter or a copy hereof to any
interested party in any administrative or legal proceedings or official inquiry
with respect to the matters covered hereby. Terms used in this certificate have
the meanings set forth in Regulation S.
Very truly yours,
[Name of Holder]
By: _______________________________
Authorized Signature
<PAGE>
Exhibit C
Form of Certificate to Be
Delivered in Connection with
Transfers to Non-QIB Institutional Accredited Investors
________________________, ____
Inter(bullet)Act Systems, Incorporated
14 Westport Avenue
Norwalk, CT 06851
c/o
Fleet National Bank
777 Main Street
Hartford, CT 06115
Attention: Corporate Trust Administration
Re: Inter(bullet)Act Systems, Incorporated (the "Company") ____%
Senior Discount Notes due 2003 (the "Securities")
Ladies and Gentlemen:
In connection with our proposed purchase of $ _______________
aggregate principal amount of the Securities:
1. We understand that the Securities have not been registered
under the Securities Act of 1933, as amended (the "Securities Act"),
and may not be sold except as permitted in the following sentence. We
agree on our own behalf and on behalf of any investor account for which
we are purchasing the Securities to offer, sell or otherwise transfer
such Securities prior to the date which is three years after the later
of the date of original issue and the last date on which the Company or
any affiliate of the Company was the owner of such Securities, or any
predecessor thereto (the "Resale Restriction Termination Date") only
(a) to the Company, (b) pursuant to a registration statement which has
been declared effective under the Securities Act, (c) for so long as
the Securities are eligible for resale pursuant to Rule 144A under the
Securities Act, to a person we reasonably believe is a qualified
institutional buyer under Rule 144A (a "QIB") that purchases for its
own account or for the account of a QIB to whom notice is given that
the transfer is being made in reliance on Rule 144A, (d) pursuant to
offers and sales to non-U.S. Persons that occur outside the United
States within the meaning of Regulation S under the Securities Act, (e)
to an institutional "accredited investor" within the meaning of
subparagraph (a)(1), (2), (3) or (7) of Rule 501 under the Securities
Act that is acquiring the Securities for its own account or for the
<PAGE>
C-2
account of such an institutional "accredited investor" for investment
purposes and not with a view to, or for offer or sale in connection
with, any distribution thereof in violation of the Securities Act or
(f) pursuant to any other available exemption from the registration
requirements of the Securities Act, subject in each of the foregoing
cases to any requirement of law that the disposition of our property
and the property of such investor account or accounts be at all times
within our or their control and to compliance with any applicable state
securities laws. The foregoing restrictions on resale will not apply
subsequent to the Resale Restriction Termination Date. If any resale or
other transfer of the Securities is proposed to be made pursuant to
clause (e) above prior to the Resale Restriction Termination Date, the
transferor shall deliver a letter from the transferee substantially in
the form of this letter to the Trustee, which shall provide, among
other things, that the transferee is an institutional "accredited
investor" within the meaning of subparagraph (a)(1), (2), (3) or (7) or
Rule 501 under the Securities Act and that it is acquiring such
Securities for investment purposes and not for distribution in
violation of the Securities Act. We acknowledge that the Company and
the Trustee reserve the right prior to any offer, sale or other
transfer prior to the Resale Restriction Termination Date of the
Securities pursuant to clauses (d), (e) and (f) above to require the
delivery of an opinion of counsel, certifications and/or other
information satisfactory to the Company and the Trustee.
2. We are an institutional "accredited investor" (as defined
in Rule 501(a)(1), (2), (3) or (7) of Regulation D under the Securities
Act) purchasing for our own account or for the account of such an
institutional "accredited investor," and we are acquiring the
Securities for investment purposes and not with a view to, or for offer
or sale in connection with, any distribution in violation of the
Securities Act and we have such knowledge and experience in financial
and business matters as to be capable of evaluating the merits and
risks of our investment in the Securities, and we and any accounts for
which we are acting are each able to bear the economic risk of our or
its investment.
3. We are acquiring the Securities purchased by us for our own
account or for one or more accounts as to each of which we exercise
sole investment discretion.
<PAGE>
C-3
4. You are entitled to rely upon this letter and you are
irrevocably authorized to produce this letter or a copy hereof to any
interested party in any administrative or legal proceeding or official
inquiry with respect to the matters covered hereby.
Very truly yours,
By:________________________________
(NAME OF PURCHASER)
Date:_______________________________
Upon transfer, the Securities should be registered in the name
of the new beneficial owner as follows:
Name: ______________________________________________________________
Address: ________________________________________________________________
Taxpayer ID Number: _____________________________________________________
<PAGE>
Exhibit D
Form of Certificate to Be Delivered
in Connection with Transfers
Pursuant to Regulation S
__________________, ____
Fleet National Bank
777 Main Street
Hartford, CT 06115
Attention: Corporate Trust Administration
Re: Inter(bullet)Act Systems, Incorporated (the "Company") ____%
Senior Discount Notes due 2003 (the "Securities")
Ladies and Gentlemen:
In connection with our proposed sale of $ aggregate principal
amount of the Securities, we confirm that such sale has been effected pursuant
to and in accordance with Regulation S under the Securities Act of 1933, as
amended ("Regulation S"; capitalized terms used but not defined herein shall
have the meanings given the in Regulation S, and, accordingly, we represent
that:
1. the offer of the Securities was not made to or for the
account or benefit of a United States Person or to a person in the
United States;
2. either (a) at the time the buy order was originated, the
transferee was outside the United States or we and any person acting on
our behalf reasonably believed that the transferee was outside the
United States or (b) the transaction was executed in, on or through the
facilities of a designated off-shore securities market and neither we
nor any person acting on our behalf knows that the transaction has been
pre-arranged with a buyer in the United States;
3. no direct selling efforts have been made in the United
States in contravention of the requirements of Rule 903(b) or Rule
904(b) of Regulation S, as applicable; and
4. the transaction is not part of a plan or scheme to evade
the registration requirements of the U.S. Securities Act of 1933, as
amended.
<PAGE>
D-2
We acknowledge and agree that, if the sale is made during a
restricted period and the provisions of Rule 903(c)(3) or Rule 904(c)(1) of
Regulation S are applicable thereto, we confirm that such sale has been made in
accordance with the applicable provisions of Rule 903(c)(3) or Rule 904(c)(1),
as the case may be.
You and the Company are entitled to rely upon this letter and
are irrevocably authorized to produce this letter or a copy hereof to any
interested party in any administrative or legal proceedings or official inquiry
with respect to the matters covered hereby. Terms used in this certificate have
the meanings set forth in Regulation S.
Very truly yours,
[Name of Transferor]
By: ____________________________
Authorized Signature
<PAGE>
<PAGE>
Exhibit 10(a)
MANAGEMENT SERVICES AGREEMENT
THIS MANAGEMENT SERVICES AGREEMENT (the "Agreement") made and entered
into as of the 17th day of June, 1996, by and between Vanguard Cellular
Financial Corp., a North Carolina corporation (the "Consultant") and wholly
owned subsidiary of Vanguard Cellular Systems, Inc., a North Carolina
corporation ("Vanguard"), and Inter(bullet)Act Systems, Incorporated, a North
Carolina corporation (the "Company"). Vanguard is also a party in this Agreement
for purposes of terminating the existing Consulting Agreement (as defined
below).
W I T N E S S E T H:
WHEREAS, the Company and Vanguard have entered into a Consulting
Agreement dated as of January 30, 1996 pursuant to which the Company engaged
Vanguard to provide certain consulting services thereunder; and
WHEREAS, the Company is desirous of engaging the Consultant to provide
certain management and consulting services to the Company under the terms and
conditions set forth herein and the Consultant is desirous of providing such
services;
NOW, THEREFORE, in consideration of the mutual covenants and agreements
contained herein, the parties hereby agree as follows:
1. Termination of Existing Agreement. Effective upon the execution
hereof, the Consulting Agreement between the Company and Vanguard dated as of
January 30, 1996 (the "Existing Consultant Agreement") is hereby terminated in
its entirety, subject, however, to the Company making all payments due to the
Consultant thereunder.
2. Engagement as Consultant. The Company hereby engages the
Consultant to perform management and consulting services to the Company and the
Consultant hereby accepts such engagement and agrees to provide such services in
accordance with the terms of this Agreement.
3. Duties of Consultant. The Consultant agrees to provide one or more
of its executive or other employees to render services to the Company from time
to time under this Agreement, as reasonably requested from time to time by the
Company, in assisting the Company in developing accounting, human resources,
information management, legal compliance, sales training, research and
development, business development and operations procedures, systems and
programs. Such services may be performed at the offices or facilities of the
Company or of the Consultant.
4. Term. This Agreement shall commence as of the date hereof
and shall continue for a period of two years.
5. Consulting Fee. For services rendered hereunder, the Company will
issue to the Consultant, or to one of its wholly owned subsidiaries if directed
by the Consultant, 10,000 shares of its common stock, no par value per share, on
the date hereof and 10,000 shares of its common stock, no par value per share,
on or before June 17, 1997. It is understood and agreed that such shares shall
be subject to the Registration Rights Agreement dated as of May 8, 1995, as
amended, between the
<PAGE>
Company and Vanguard. In addition, the Company will reimburse to the Consultant
all normal out-of-pocket business expenses, including travel, meals, lodging and
similar expenses incurred by employees of the Consultant in performing its
duties hereunder. It is expressly understood and agreed that all employees of
the Consultant performing services on behalf of the Consultant hereunder shall
remain the employees of the Consultant and shall not be deemed to be employees
of the Company for any purpose. Notwithstanding any provision herein, this
Agreement shall not cover Stephen R. Leeolou and Aretas E. Stearns.
6. Disclosure of Information. Consultant shall not for any reason or at
any time, whether during or after the term of this Agreement, disclose to any
person (except to the extent that the proper performance of this Agreement may
require disclosure to employees of the Company or its subsidiaries) any secret
or confidential information obtained by the Consultant in the course of, or as a
result of, performance of this Agreement, which secret or confidential
information relates to the Company or any subsidiary corporation, unless so
authorized by the Board of Directors of the Company. Any information that (a)
was known prior to receipt from the Company free of any obligation to keep such
information confidential, or (b) is disclosed to third parties by the Company
without any requirement of confidentiality or which becomes publicly available
other than by unauthorized disclosures, or (c) is independently developed by
Consultant without reliance on any secret or confidential information as
evidenced by its or his records, or (d) is disclosed as compelled by law, shall
not be deemed to be secret or confidential for purposes of this Agreement. In
the event of a breach or threatened breach by the Consultant of the provisions
of this paragraph, the Company shall be entitled to an injunction restraining
the Consultant from disclosing, in whole or in part, any such secret or
confidential information; provided, however, that nothing herein shall be
construed as prohibiting the Company from pursuing any other remedies available
for any such breach or threatened breach, including the recovery of damages from
the Consultant.
7. Rights to Materials. All records, files, memoranda, reports, price
lists, customer lists, plans, drawing, sketches, documents and the like
(together with all copies thereof) relating to the business of the Company that
the Consultant shall use or prepare or come into contact with in the course or,
or as a result of, the performance of this Agreement (except those in existence
prior to date of this Agreement and owned by the Consultant) shall remain the
sole property of the Company. Upon termination of this Agreement or upon the
prior demand of the Company, the Consultant shall immediately return all such
materials to the Company.
8. Rights to Inventions. Any and all methods, inventions, patents,
trademarks, and other materials developed by the Consultant in performing its
duties under this Agreement shall be and at all times remain the sole and
absolute property of the Company. The Consultant agrees to file such patents,
trademarks and copyrights and to take such other action as shall be reasonably
requested by the Company to perfect its ownership rights in such properties, all
at the expense of the Company.
9. Indemnification. The Company agrees to indemnify and hold harmless
the Consultant and its officers, directors and employees for all acts or
decisions made by any of them in good faith while performing services for the
Company pursuant to this Agreement, other than for acts or decisions
constituting gross negligence or willful misconduct. The Company shall pay all
expenses, including reasonable attorneys fees, actually and necessarily incurred
by the Consultant or its officers,
2
<PAGE>
directors and employees in connection with the investigation or defense of any
claim or proceeding against them, including the cost of court settlements
arising out of such acts or decisions.
10. Miscellaneous Provisions.
(a) All notices required or permitted to be given hereunder shall be
given in writing and either personally delivered, or delivered by confirmed fax
or overnight mail. If notices are given to the Company, they shall be addressed
to:
Inter(bullet)Act Systems, Incorporated
14 Westport Avenue
Norwalk, Connecticut 06851
Attention: President
If notices are to the Consultant, they shall be addressed to:
Vanguard Cellular Financial Corp.
2002 Pisgah Church Road, Suite 300
Greensboro, North Carolina 27455
Attention: President
(b) This Agreement contains the entire agreement of the parties with
respect to the subject matter hereof and may not be modified or amended except
in writing signed by the party against whom such modification or agreement is
sought to be enforced.
(c) This Agreement shall be governed and construed in accordance with
the laws of the State of North Carolina, without regard to principles of
conflicts of laws.
(d) This Agreement shall enure to the benefit of and shall be binding
upon the parties and their respective heirs, successors and their assigns;
provided, however, that the Consultant may not assign this Agreement, other than
to Vanguard or one or more of its wholly owned subsidiaries, without the prior
written consent of the Company.
[continued on following page]
3
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
day and year first above written.
INTER(bullet)ACT SYSTEMS, INCORPORATED
By:
President
VANGUARD CELLULAR FINANCIAL CORP.
By:
President
For Purposes of Section 1 hereof:
VANGUARD CELLULAR SYSTEMS, INC.
By:
President
4
<PAGE>
<PAGE>
Exhibit 10(b)
CONSULTING AGREEMENT
THIS CONSULTING AGREEMENT (the "Agreement") made and entered into as of
the ___ day of January, 1996, by and between Vanguard Cellular Systems, Inc., a
North Carolina corporation (the "Consultant"), and Inter(bullet)Act Systems,
Incorporated, a North Carolina corporation (the "Company").
W I T N E S S E T H:
WHEREAS, the Company is desirous of engaging the Consultant to provide
certain consulting services to the Company and the Consultant is desirous of
accepting such engagement;
NOW, THEREFORE, in consideration of the mutual covenants and agreements
contained herein, the parties hereby agree as follows:
1. Engagement as Consultant. The Company hereby engages the
Consultant to perform consulting services to the Company and the Consultant
hereby accepts such engagement and agrees to provide consulting services in
accordance with the terms of this Agreement.
2. Duties of Consultant. The Consultant agrees to provide one of its
executive employees to serve in the role of Chief Operating Officer (the "COO")
of the Company, and to perform such other consulting services as may be
requested by the Company's Board of Directors. The person named to the position
of the COO shall at all times be satisfactory to the Company's Board of
Directors. The COO shall be elected by the Board as President and Chief
Operating Officer, and he shall have all authority that those offices imply. The
Consultant will make the person named as COO available on a full-time basis to
perform the aforedescribed services on behalf of the Consultant throughout the
term of the Agreement unless replaced by the Consultant. The Consultant may
provide other personnel to render services to the Company under this Agreement
from time to time, subject to approval by the Company's Board of Directors. The
person initially delegated by the Consultant to serve as COO is Aretas E.
Stearns ("Stearns"), who the Company acknowledges is satisfactory to its Board
of Directors.
3. Term. This Agreement shall commence as of the date hereof and shall
continue in effect unless written notice of termination is given by either party
to the other, which notice shall operate to terminate this Agreement effective
as of the end of the calendar month following the month in which such notice is
given.
4. Consulting Fee. For services rendered hereunder, the Company will
pay to the Consultant an amount equal to the Consultant's expenses incurred in
connection with providing consulting services to the Company, including without
limitation, the entire compensation expense paid by the Consultant to or behalf
of the COO, including without limitation salary, bonuses, and fringe benefits,
and, with respect to any other employees of the Consultant assigned to perform
services hereunder, similar out-of-pocket expenses paid by the Consultant,
prorated based on the amount of time of such employee devoted to the performance
of consulting services thereunder. In addition, the Company will reimburse to
the COO and any other person designated by the Consultant to perform services
<PAGE>
hereunder for all normal out-of-pocket business expenses, including travel,
meals, lodging and similar expenses and all expenses related to his relocation
in Connecticut. It is expressly understood and agreed that all employees of the
Consultant performing services on behalf of the Consultant hereunder shall
remain the employees of the Consultant and shall not be deemed to be employees
of the Company for any purpose.
5. Disclosure of Information. Consultant shall not for any reason or at
any time, whether during or after the term of this Agreement, disclose to any
person (except to the extent that the proper performance of this Agreement may
require disclosure to employees of the Company or its subsidiaries) any secret
or confidential information obtained by the Consultant in the course of, or as a
result of, performance of this Agreement, which secret or confidential
information relates to the Company or any subsidiary corporation, unless so
authorized by the Board of Directors of the Company. Any information that (a)
was known prior to receipt from the Company free of any obligation to keep such
information confidential, or (b) is disclosed to third parties by the Company
without any requirement of confidentiality or which becomes publicly available
other than by unauthorized disclosures, or (c) is independently developed by
Consultant or Stearns without reliance on any secret or confidential information
as evidenced by its or his records, or (d) is disclosed as compelled by law,
shall not be deemed to be secret or confidential for purposes of this Agreement.
In the event of a breach or threatened breach by the Consultant of the
provisions of this paragraph, the Company shall be entitled to an injunction
restraining the Consultant from disclosing, in whole or in part, any such secret
or confidential information; provided, however, that nothing herein shall be
construed as prohibiting the Company from pursuing any other remedies available
for any such breach or threatened breach, including the recovery of damages from
the Consultant.
6. Rights to Materials. All records, files, memoranda, reports, price
lists, customer lists, plans, drawing, sketches, documents and the like
(together with all copies thereof) relating to the business of the Company that
the Consultant shall use or prepare or come into contact with in the course or,
or as a result of, the performance of this Agreement (except those in existence
prior to date of this Agreement and owned by the Consultant) shall remain the
sole property of the Company. Upon termination of this Agreement or upon the
prior demand of the Company, the Consultant shall immediately return all such
materials to the Company.
7. Rights to Inventions. Any and all methods, inventions, patents,
trademarks, and other materials developed by the Consultant in performing its
duties under this Agreement shall be and at all times remain the sole and
absolute property of the Company. The Consultant agrees to file such patents,
trademarks and copyrights and to take such other action as shall be reasonably
requested by the Company to perfect its ownership rights in such properties, all
at the expense of the Company.
8. Indemnification. The Company agrees to indemnify and hold harmless
the Consultant and the COO for all acts or decisions made by either of them in
good faith while performing services for the Company pursuant to this Agreement,
other than for acts or decisions constituting gross negligence or willful
misconduct. The Company shall pay all expenses, including reasonable attorneys
fees, actually and necessarily incurred by the Consultant or the COO in
connection with the investigation
2
<PAGE>
or defense of any claim or proceeding against them, including the cost of court
settlements arising out of such acts or decisions.
9. Miscellaneous Provisions.
(a) All notices required or permitted to be given hereunder shall be
given in writing and either personally delivered, or delivered by confirmed fax
or overnight mail. If notices are given to the Company, they shall be addressed
to:
Inter(bullet)Act Systems, Incorporated
14 Westport Avenue
Norwalk, Connecticut 06851
Attention: Vice Chairman
If notices are to the Consultant, they shall be addressed to:
Vanguard Cellular Systems, Inc.
2002 Pisgah Church Road, Suite 300
Greensboro, North Carolina 27455
Attention: President
(b) This Agreement contains the entire agreement of the parties with
respect to the subject matter hereof and may not be modified or amended except
in writing signed by the party against whom such modification or agreement is
sought to be enforced.
(c) This Agreement shall be governed and construed in accordance with
the laws of the State of North Carolina, without regard to principles of
conflicts of laws..
(d) This Agreement shall enure to the benefit of and shall be binding
upon the parties and their respective heirs, successors and their assigns;
provided, however, that the Consultant may not assign this Agreement without the
prior written consent of the Company.
3
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
day and year first above written.
INTER(bullet)ACT SYSTEMS, INCORPORATED
By:
President
VANGUARD CELLULAR SYSTEMS, INC.
By:
President
4
<PAGE>
<PAGE>
Exhibit 10(c)
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT (this "Agreement") is made and
entered into as of May 5, 1995 by and between INTER(Bullet)ACT SYSTEMS,
INCORPORATED, a North Carolina corporation (the "Company"), and VANGUARD
CELLULAR SYSTEMS, INC., a North Carolina corporation (together with its
successors and permitted assigns, the "Investor")
WHEREAS, the Company and the Investor have entered into an agreement
(the "Subscription Agreement") relating to the purchase by the Investor of
certain shares of the Company's common stock, no par value per share ("Common
Stock"), and a warrant to purchase additional shares of Common Stock (the
"Warrant"); and
WHEREAS, as a further condition to the Investor's purchase of the
shares of Common Stock and Warrant pursuant to the Subscription Agreement, the
Company has agreed to provide certain rights to Investor as hereinafter set
forth to have the Common Stock acquired by Investor pursuant to the Subscription
Agreement and the Warrant or otherwise, registered under the Securities Act of
1933, as amended (the "Securities Act"), and the securities laws of certain
other jurisdictions;
NOW, THEREFORE, in consideration of the foregoing, the Company and the
Investor hereby agree as follows:
SECTION 1. Definitions. Capitalized terms appearing herein and not
otherwise defined herein shall have the meanings ascribed thereto in the
Subscription Agreement. Additionally, the following terms shall have the
following meanings for the purpose of this Agreement:
(a) "Blackout Period" has the meaning assigned to such
term in Section 2(a) hereof.
(b) "Closing" and "Closing Date" are defined as the sale and
issuance of the shares and Warrant and the date of sale and issuance of
the shares and Warrant, respectively, pursuant to defined in the
Subscription Agreement.
(c) "Common Stock" is defined in the preamble to this
Agreement.
(d) "Decline Notice" has the meaning assigned to that
term in Section 2(b) hereof.
(e) "Demand Registration" has the meaning assigned to
that term in Section 2(a) hereof.
<PAGE>
(f) "Exchange Act" means the Securities Exchange Act of
1934, as amended.
(g) "Person" means any individual, corporation, limited
liability company, partnership, association, trust or other entity or
organization.
(h) "Piggyback Registration" has the meaning assigned to
that term in Section 3 hereof.
(i) "Register," "Registered," and "Registration" refer to a
registration effected by preparing and filing a registration statement
or similar document in compliance with the Securities Act, or the
securities laws of any jurisdiction other than the United States, and
the declaration or ordering of effectiveness of such registration
statement or document, or similar action in such other jurisdiction.
(j) "Registrable Securities" means (i) the shares of Common
Stock issued or issuable pursuant to the Subscription Agreement or the
Warrant or issued as a dividend or other distribution with respect to,
or in exchange for or in replacement of such Common Stock (whether
through stock dividends, stock splits, reclassifications, mergers,
consolidations, recapitalizations or otherwise) and (ii) any other
shares of Common Stock acquired by the Investor including shares issued
as a dividend or other distribution with respect to, or in exchange for
and in replacement of such acquired Common Stock (whether through stock
dividends, stock splits, reclassifications, mergers, consolidations,
recapitalizations or otherwise).
(k) "Registration Expenses" has the meaning assigned to that
term in Section 6(a) hereof.
(1) "Registration Rights" means the rights to Demand
Registration and Piggyback Registration of Investor pursuant to this
Agreement and any other similar rights of any other Person that are in
existence as of the date hereof.
(m) "SEC" means the Securities and Exchange Commission.
(n) "Secondary Securities" has the meaning assigned to
that term in Section 7 hereof.
(o) "Securities Act" is defined in the preamble to this
Agreement.
-2-
<PAGE>
(p) "Subscription Agreement" is defined in the preamble
to this Agreement.
(q) "Warrant" is defined in the preamble to this
Agreement.
(r) "Violation" has the meaning assigned to that term in
Section 9(a) hereof.
SECTION 2. Registration Upon Demand. (a) At any time after six months
from the date the first registration statement filed by the Company under the
Securities Act becomes effective, upon the written request of the Investor
requesting that the Company effect the registration under the Securities Act of
its Registrable Securities (which request shall specify the intended method of
distribution thereof), the Company shall use its best efforts to register under
the Securities Act (a "Demand Registration") as expeditiously as may be
practicable, the Registrable Securities which the Company has been requested to
register.
(b) The Company may, at any one time during the term of this Agreement,
decline a Demand Registration request of the Investor by notifying Investor in
writing within fifteen (15) days of the receipt of such request (a "Decline
Notice") if, in the Company's judgment, such Demand Registration would not be in
the Company's best interest. The Decline Notice shall be effective for a
three-month period commencing on the date thereof (the "Blackout Period") and
shall operate as a bar to any additional Demand Registration requests of
Investor for the remainder of the Blackout Period.
SECTION 3. "Piggyback" Registrations. If, at any time during the term
of this Agreement, the Company proposes to register any securities under the
Securities Act in connection with any offering of its securities, whether or not
for its own account (other than a registration statement filed with respect to
the issuance of Common Stock, or securities convertible into or exchangeable for
Common Stock, or rights to acquire Common Stock, on Form S-4 or otherwise in
connection with an acquisition, merger or other transaction or on Form S-8 with
respect to shares issuable pursuant to options granted or to be granted to
employees of the Company), the Company shall furnish prompt written notice to
the Investor of its intention to effect such registration and the intended
method of distribution in connection therewith. On each such occasion, upon the
written request of the Investor made to the Company within 30 days after the
receipt of such a notice by the Company, the Company shall include in such
registration such amount of the Registrable Securities as the Investor shall
notify to the Company in writing (a "Piggyback Registration"), subject to
Section 7 hereof.
-3-
<PAGE>
SECTION 4. Obligations of the Company. Whenever the Company is required
under this Agreement to effect the registration of any Registrable Securities,
the Company shall, as expeditiously as may be practicable:
(a) Prepare and file with the SEC a registration statement
with respect to such Registrable Securities and use its best efforts to
cause such registration statement to become effective, and keep such
registration statement effective for up to 60 days.
(b) Prepare and file with the SEC such amendments and
supplements to such registration statement and the prospectus used in
connection with such registration statement as may be necessary to
comply with the provisions of applicable law with respect to the
disposition of all securities covered by such registration statement.
(c) Furnish to the Investor such numbers of copies of a
prospectus, including a preliminary prospectus, in conformity with the
requirements of applicable law, and such other documents as it may
reasonably request in order to facilitate the disposition of
Registrable Securities owned by it.
(d) Use its best efforts to register and qualify the
securities covered by such registration statement under such other
securities laws of such jurisdictions in which the securities are being
registered as shall be reasonably requested by the Investor; provided,
however, that the Company shall not be required in connection therewith
or as a condition thereto to qualify to do business or to file a
general consent to service of process in any such jurisdictions.
(e) In the event of any underwritten public offering, enter
into and perform its obligations under an underwriting agreement, in
usual and customary form, with the managing underwriter of such
offering. The Investor shall also enter into and perform its
obligations under such an agreement.
(f) Notify the Investor, at any time when a prospectus
relating thereto is required to be delivered under applicable law, of
the happening of any event as a result of which the prospectus included
in such registration statement, as then in effect, includes an untrue
statement of a material fact or omits to state a material fact required
to be stated therein or necessary to make the statements therein not
misleading in light of circumstances then existing.
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<PAGE>
SECTION 5. Furnish Information. It shall be a condition precedent to
the obligation of the Company to take any action pursuant to this Agreement that
the Investor shall furnish to the Company such information regarding itself, the
Registrable Securities held by it and the intended method of disposition of such
securities as shall be reasonably required to effect the registration of the
Registrable Securities.
SECTION 6. Expenses of Registration. (a) With respect to a Demand
Registration, the Company shall bear and pay all out-of-pocket expenses incurred
in connection with the registrations, filings or qualifications of Registrable
Securities, with respect to the registrations made pursuant to Sections 2 and 4,
including, without limitation, all registration, filing, and qualification fees,
printers' and accounting fees, fees and disbursements of counsel for the Company
and counsel for the Investor (the "Registration Expenses"), but excluding
underwriting discounts and commissions relating to Registrable Securities.
(b) With respect to a Piggyback Registration, the Investor shall pay a
portion of the Registration Expenses incurred by or on behalf of the Investor
for its benefit pro rata based on the percentage of the aggregate number of
shares registered pursuant to such registration which are represented by the
Registrable Securities of Investor; provided, however, the Investor may elect to
be responsible for the payment of only those expenses it would bear had it
exercised its right to its Demand Registration at the Company's expense if not
previously exercised (in which case, the Investor would be obligated to pay a
portion of the Registration Expenses incurred by or on behalf of the Investor
for its benefit in connection with any Demand Registration); and provided,
further, that if the Company should agree to bear the Registration Expenses of
any other stockholder in any Piggyback Registration for any other stockholder of
Company on terms more favorable than those applicable to the Investor, the
Company will bear the expenses of the Investor in the Piggyback Registration
without requiring the payment of such expenses in connection with a Demand
Registration available to the Investor or provide the more favorable terms to
the Investor, as the case may be.
SECTION 7. Underwriting Requirements. In connection with any offering
involving an underwriting of shares of the Company's capital stock, the Company
shall not be required under Section 3 to include any of the Registrable
Securities of the Investor in the registration of the securities to be included
in such underwriting, or in such underwriting itself, unless the Investor
accepts the terms of the underwriting as agreed upon between the Company and the
underwriters selected by it, and then only in such quantity as the underwriters
determine in their sole discretion will not jeopardize the success of the
offering by the Company. If the total amount of
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<PAGE>
securities, including Registrable Securities, requested by shareholders to be
included in such offering, whether upon exercise of Registration Rights or
otherwise (collectively, "Secondary Securities"), exceeds the number of
Secondary Securities that the underwriters determine in their sole discretion is
compatible with the success of the offering, then the Company shall be required
to include in the offering only such number of Secondary Securities, including
Registrable Securities, as the underwriters determine in their sole discretion
will not jeopardize the success of the offering. The Secondary Securities so
included shall be apportioned first among the Investor and such other selling
shareholders having exercised Registration Rights, pro rata in proportion to the
total number of Secondary Securities, including Registrable Securities, owned by
the Investor and such other selling shareholders, respectively, before any
Secondary Shares shall be included on behalf of any other shareholder, or in
such other proportion as may be agreed to by all such shareholders and the
Investor.
SECTION 8. Delay of Registration. The Investor shall not have any right
to obtain or seek an injunction restraining or otherwise delaying any
registration as the result of any controversy that might arise with respect to
the interpretation or implementation of this Agreement.
SECTION 9. Indemnification. In the event any Registrable Securities
are included in a registration statement under this Agreement:
(a) To the extent permitted by law, the Company will indemnify
and hold harmless the Investor, any underwriter (as defined in the
Securities Act or other applicable law) for the Investor and each
Person, if any, who controls the Investor or underwriter within the
meaning of the Securities Act, the Exchange Act or other applicable
law, against any losses, claims, damages, or liabilities (joint or
several) to which they may become subject under the Securities Act or
other applicable law, insofar as such losses, claims, damages, or
liabilities (or actions in respect thereof) arise out of or are based
upon any of the following statements, omissions or violations
(collectively a "Violation"): (i) any untrue statement or alleged
untrue statement of a material fact contained in such registration
statement, including any preliminary prospectus or final prospectus
contained therein or any amendments or supplements thereto, (ii) the
omission or alleged omission to state therein a material fact required
to be stated therein, or necessary to make the statements therein not
misleading, or (iii) any violation or alleged violation by the Company
of the Securities Act or other applicable law, or any rule or
regulation promulgated under the Securities Act or other applicable
law; and the Company will pay to the Investor, underwriter or
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<PAGE>
controlling Person any reasonable legal or other expenses incurred by
it in connection with investigating or defending any such loss, claim,
damage, liability, or action; provided, however, that the indemnity
agreement contained in this Section 9(a) shall not apply to amounts
paid in settlement of any such loss, claim, damage, liability, or
action if such settlement is effected without the consent of the
Company (which consent shall not be unreasonably withheld), nor shall
the Company be liable in any such case for any such loss, claim,
damage, liability, or action to the extent that it arises out of or is
based upon a Violation which occurs in reliance upon and in conformity
with written information furnished expressly for use in connection with
such registration by the Investor or such underwriter or controlling
Person.
(b) To the extent permitted by law, the Investor will
indemnify and hold harmless the Company, each of its directors, each of
its officers who has signed the registration statement, each Person, if
any, who controls the Company within the meaning of the Securities Act
or other applicable law, any underwriter, and any controlling Person of
any such underwriter, against any losses, claims, damages, or
liabilities (joint or several) to which any of the foregoing Persons
may become subject, under the Securities Act or other applicable law,
insofar as such losses, claims, damages, or liabilities (or actions in
respect thereto) arise out of or are based upon any Violation, in each
case to the extent (and only to the extent) that such Violation occurs
in reliance upon and in conformity with written information furnished
by the Investor expressly for use in connection with such registration;
and the Investor will pay any reasonable legal or other expenses
incurred by any Person to be indemnified pursuant to this Section 9(b),
in connection with investigating or defending any such loss, claim,
damage, liability, or action; provided, however, that the indemnity
agreement contained in this Section 9(b) shall not apply to amounts
paid in settlement of any such loss, claim, damage, liability or action
if such settlement is effected without the consent of the Investor,
which consent shall not be unreasonably withheld; and provided further,
however, that in no event shall any indemnity under this Section 9(b)
exceed the gross proceeds from the offering received by the Investor.
(c) Promptly after receipt by an indemnified party under this Section 9
of notice of the commencement of any action (including any governmental
action), such indemnified party will, if a claim in respect thereof is
to be made against any indemnifying party under this Section 9, deliver
to the indemnifying party a written notice of the commencement thereof,
and the indemnifying party shall have the right to participate in, and,
to the extent the
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<PAGE>
indemnifying party so desires, to assume the defense thereof with
counsel mutually satisfactory to the parties; provided, however, that
an indemnified party (together with all other indemnified parties which
may be represented without conflict by one counsel) shall have the
right to retain one separate counsel, with the fees and expenses to be
paid by the indemnifying party, if representation of such indemnified
party by the counsel retained by the indemnifying party would be
inappropriate due to actual or potential differing interests between
such indemnified party and any other party represented by such counsel
in such proceeding. The failure to deliver written notice to the
indemnifying party within a reasonable time of the commencement of any
such action, if prejudicial to its ability to defend such action, shall
relieve such indemnifying party of any liability to the indemnified
party under this Section 9, but the omission so to deliver written
notice to the indemnifying party will not relieve it of any liability
that it may have to any indemnified party otherwise than under this
Section 9.
(d) The obligations of the Company and Investor under this Section 9
shall survive the completion of any offering of Registrable Securities
under a registration statement pursuant to this Agreement, and
otherwise.
SECTION 10. Reports. With a view to making available to the Investor
the benefits of Rules 144 and 144A under the Securities Act and any other
applicable rule or regulation in each other jurisdiction where the Company's
securities are registered that may at any time permit the Investor to sell
securities of the Company to the public without registration, the Company agrees
to do the following from the date of effectiveness of the Company's first
registration statement filed under the Securities Act until the end of the term
of this Agreement pursuant to Section 12 hereof:
(a) make and keep public information available, as those
terms are understood and defined in Rule 144 or other applicable law,
at all times;
(b) file with the SEC and the applicable authority in each
other jurisdiction where the Company's securities are registered in a
timely manner all reports and other documents required of the Company
under the Securities Act and the Exchange Act, and the similar laws of
each such other jurisdiction; and
(c) furnish to the Investor forthwith upon request, (i) a copy
of the most recent annual or quarterly report of the Company and such
other reports and documents filed by the Company with governmental
authorities (including the SEC), and (it) such other information as may
be
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<PAGE>
reasonably requested in availing the Investor of any rule or regulation
of the SEC or similar authorities in any jurisdiction where the
Company's securities are registered, which permits the selling of any
such securities without registration.
SECTION 11. "Market Stand-Off" Agreement. The Investor hereby agrees
that, during the duration of the period specified by the Company and an
underwriter of Common Stock or other securities of the Company following the
effective date of a registration statement of the Company under the Securities
Act (but no longer than six months), it shall not, to the extent requested by
the Company and such underwriter, directly or indirectly sell, offer to sell,
contract to sell (including, without limitation, any short sale), grant any
option to purchase or otherwise transfer or dispose of any securities of the
Company held by the Investor at any time during such period except Common Stock
included in such registration and except in a private transaction in which the
transferee of Investor agrees to abide by the agreement of Investor pursuant to
this Section 11 for the remaining duration of the period specified to the
Investor by the Company and the underwriter. In order to enforce the foregoing
covenant, the Company may impose stop-transfer instructions, consistent with the
provisions of this Section 11, with respect to the Registrable Securities of the
Investor (and the shares or securities of every other Person subject to the
foregoing restriction) until the end of such period.
SECTION 12. Termination. Except for the right to indemnification
provided herein, the Investor shall not be entitled to exercise any right
provided for in this Agreement after the earlier of (i) five years following the
date of effectiveness of the Company's first registration statement filed under
the Securities Act or (ii) the date all of the Registrable Securities then owned
by Investor may be immediately resold pursuant to Rule 144.
SECTION 13. Limitation on Registration Rights. Except to the extent
that the Company is presently obligated to provide by written contract any of
the following rights, the Company shall not grant, without the prior written
consent of the Investor, to any Person the right to request the Company to
register, whether by demand or "piggy-back", any securities of the Company in
any Demand Registration filed pursuant to Section 2 hereof unless such rights
provide that, in connection with any such Demand Registration involving an
underwriting of any of the Investor's Registrable Securities, the securities of
the Company sought to be included in such Demand Registration by such Person or
in the underwriting thereunder, shall be excluded unless such Person accepts the
terms of the underwriting as agreed upon between the Investor and the
underwriters selected by it, and then only in such quantity as the underwriters
determine in their sole discretion will not
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<PAGE>
jeopardize the success of the offering by the Investor. If the total amount of
securities requested by all such Persons to be included in such offering upon
exercise of registration rights exceeds the number of securities that the
underwriters determine in their sole discretion is compatible with the success
of the offering by Investor, then the Investor shall be required to include in
the offering only such number of other securities as the underwriters determine
in their sole discretion will not jeopardize the success of the offering. The
other securities so included shall be apportioned among such other Persons pro
rata in proportion to the total number of securities owned by them,
respectively, or in such other proportion as may be agreed to by such Persons.
SECTION 14. Notices. All notices hereunder shall be in writing or by
telex or telecopy and shall be sufficiently given to the Investor and the
Company if addressed or delivered to them at the following addresses:
If to the Company: Inter(bullet)Act Systems, Incorporated
14 Westport Avenue
Norwalk, Connecticut 06851
Attn: President
If to the Investor: Vanguard Cellular Systems, Inc.
2002 Pisgah Church Road, Suite 300
Greensboro, North Carolina 27455
Attn: President
or at such other address as any party may designate to any other party by
written notice.
All such notices and communications shall be deemed to have been duly
given: at the time delivered by hand, if personally delivered; when received if
deposited in the mail, postage prepaid, if mailed; when answered back, if
telexed; when transmission is verified, if telecopied; and on the next Business
Day, if timely delivered to an air courier guaranteeing overnight delivery.
SECTION 15. Successors and Assigns. All the covenants and provisions of
this Agreement by or for the benefit of the Company or the Investor shall bind
and inure to the benefit of their respective successors and assigns, including
those by operation of law, merger or consolidation. In the event the Registrable
Securities are assigned to more than one Person, a Demand Registration pursuant
to Section 2 may be requested only upon the written request of the holders of
50% or more of the Registrable Securities, a Piggyback Registration pursuant to
Section 3 may be requested only upon the written request of the holders of 25%
or more of the Registrable Securities and all other actions pursuant to this
Agreement, including without limitation amendments to this Agreement, may be
taken only upon the affirmative vote of the holders of 50% or more of the
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<PAGE>
Registrable Securities, which vote shall be binding upon all holders of
Registrable Securities.
SECTION 16. Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of North Carolina without
taking into account conflict of law provisions.
SECTION 17. Benefits of this Agreement. Nothing in this Agreement shall
be construed to give to any Person other than the Company and the Investor and
their respective successors and assigns any legal or equitable right, remedy or
claim under this Agreement; but this Agreement shall be for the sole and
exclusive benefit of the Company and the Investor and their respective
successors and assigns.
SECTION 18. Counterparts. This Agreement may be executed in any number
of counterparts and each such counterpart shall for all purposes be deemed to be
an original, and all such counterparts shall together constitute one and the
same instrument.
SECTION 19. Amendments: Waiver. No provision of this Agreement may be
amended or waived except by an instrument in writing signed by the party sought
to be bound. No failure or delay by any party in exercising any right or remedy
hereunder shall operate as a waiver thereof, nor shall a waiver of a particular
right or remedy on one occasion be deemed a waiver of any other right or remedy
or a waiver of the same right or remedy on any subsequent occasion.
SECTION 20. Specific Performance. The Company recognizes that the
rights of the Investor under this Agreement are unique and, accordingly, the
Investor shall, in addition to such other remedies as may be available to it at
law or in equity, have the right to enforce its rights hereunder by actions for
injunctive relief and specific performance to the extent permitted by law,
except as otherwise provided in this Agreement. The Company agrees that monetary
damages would not be adequate compensation for any loss incurred by reason of a
breach by it of the provisions of this Agreement and hereby agrees to waive in
any action for specific performance the defense that a remedy at law would be
adequate. This Agreement is not intended to limit or abridge any rights of the
Investor which may exist apart from this Agreement.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their respective officers thereunto
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<PAGE>
duly authorized and their respective corporate seals affixed hereto as of the
day and year first above written.
INTER(bullet)ACT SYSTEMS, INCORPORATED
ATTEST: By:
President
Secretary
[Corporate Seal]
VANGUARD CELLULAR SYSTEMS, INC.
ATTEST: By:
President
Secretary
[Corporate Seal]
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<PAGE>
<PAGE>
Exhibit 10(d)
AMENDMENT NO. 1 TO REGISTRATION RIGHTS AGREEMENT
THIS AMENDMENT NO. 1 TO REGISTRATION RIGHTS AGREEMENT (this
"Amendment") is made and entered into as of October , 1995 by and between
INTER(bullet)ACT SYSTEMS, INCORPORATED, a North Carolina corporation (the
"Company"), and VANGUARD CELLULAR OPERATING CORP., a Delaware corporation
(together with its successors and permitted assigns, the "Investor");
WHEREAS, the Company and Vanguard Cellular Systems, Inc., a North
Carolina corporation and parent corporation of the Investor (the "Parent"),
entered into a Registration Rights Agreement as of May 8, 1995 (the
"Registration Rights Agreement") pursuant to which the Parent and its successors
and permitted assigns were granted certain rights, including rights to have the
Company register under the Securities Act (as defined in the Registration Rights
Agreement) the Registrable Securities (as defined in the Registration Rights
Agreement); and
WHEREAS, by Assignment dated as of August 8, 1995, the Parent assigned
all of its right, title and interest in and to the Registration Rights Agreement
to the Investor; and
WHEREAS, the Investor has agreed to purchase a substantial number of
additional shares of common stock of the Company, no par value per share (the
"Common Stock"), conditioned upon the Company's granting to the Investor certain
additional rights with respect to all shares of Common Stock owned by the
Investor;
NOW, THEREFORE, in consideration of the foregoing and for other valuable
consideration, and intending to be legally bound hereby, the parties agree as
follows:
1. Amendments. The Registration Rights Agreement is hereby amended
as follows:
(a) The Investor shall be substituted for the Parent as the
Investor under the Registration Rights Agreement.
(b) Section 2(a) of the Registration Agreement is hereby
amended in its entirety to read as follows:
At any time during the term of this Agreement and after six
months from the date that the first registration statement filed
by the Company under the Securities Act becomes effective, upon
the written request of the Investor requesting that the Company
effect the registration under the Securities Act of its
Registrable Securities (which request shall specify the intended
method of distribution thereof),
<PAGE>
the Company shall use its best efforts to register under the
Securities Act (a "Demand Registration") as expeditiously as may
be practicable, the Registrable Securities that the Company has
been requested to register provided, however, that the Investor
shall not be entitled to request any Demand Registration within
the twelve-month period immediately following the date of any
previous request for a Demand Registration hereunder.
2. Registration Rights Agreement in Effect. The Registration
Rights Agreement, as amended hereby, shall remain in full force and
effect and is hereby confirmed by the parties hereto.
3. Counterparts. This Amendment may be executed in any number of
counterparts and each such counterpart shall for all purposes be deemed
to be an original, and all such counterparts shall together constitute
one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by the respective officers duly authorized and their respective
corporate seals affixed hereto as the day and year first above written.
INTER(bullet)ACT SYSTEMS, INCORPORATED
ATTEST:
By:
President
Secretary
[Corporate Seal]
VANGUARD CELLULAR OPERATING CORP.
ATTEST:
By:
President
Secretary
[Corporate Seal]
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<PAGE>
<PAGE>
Exhibit 10(e)
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT (this "Agreement") is made and
entered into as of March __, 1996 by and between INTER(bullet)ACT SYSTEMS,
INCORPORATED, a North Carolina corporation (the "Company"), and TORONTO DOMINION
INVESTMENTS, INC., a Delaware corporation (together with its successors and
permitted assigns, the "Investor");
WHEREAS, the Company and the Investor have entered into an agreement
(the "Subscription Agreement") relating to the purchase by the Investor of
certain shares of the Company's common stock, no par value per share ("Common
Stock"), and a warrant to purchase additional shares of Common Stock (the
"Warrant"); and
WHEREAS, as a further condition to the Investor's purchase of the
shares of Common Stock and Warrant pursuant to the Subscription Agreement, the
Company has agreed to provide certain rights to Investor as hereinafter set
forth to have the Common Stock acquired by Investor pursuant to the Subscription
Agreement and the Warrant or otherwise, registered under the Securities Act of
1933, as amended (the "Securities Act"), and the securities laws of certain
other jurisdictions;
NOW, THEREFORE, in consideration of the foregoing, the Company and the
Investor hereby agree as follows:
SECTION 1. Definitions. Capitalized terms appearing herein and not
otherwise defined herein shall have the meanings ascribed thereto in the
Subscription Agreement. Additionally, the following terms shall have the
following meanings for the purpose of this Agreement:
(a) "Blackout Period" has the meaning assigned to such term in
Section 2(a) hereof.
(b) "Closing" and "Closing Date" are defined as the sale and
issuance of the shares and Warrant and the date of sale and issuance of
the shares and Warrant, respectively, pursuant to the Subscription
Agreement.
(c) "Common Stock" is defined in the preamble to this
Agreement.
(d) "Decline Notice" has the meaning assigned to that term in
Section 2(b) hereof.
(e) "Demand Registration" has the meaning assigned to that
term in Section 2(a) hereof.
(f) "Exchange Act" means the Securities Exchange Act of 1934,
as amended.
<PAGE>
(g) "Person" means any individual, corporation, limited
liability company, partnership, association, trust or other entity or
organization.
(h) "Piggyback Registration" has the meaning assigned to that
term in Section 3 hereof.
(i) Register," "Registered," and "Registration" refer to a
registration effected by preparing and filing a registration statement
or similar document in compliance with the Securities Act, or the
securities laws of any jurisdiction other than the United States, and
the declaration or ordering of effectiveness of such registration
statement or document, or similar action in such other jurisdiction.
(j) "Registrable Securities" means (i) the shares of Common
Stock issued or issuable pursuant to the Subscription Agreement or the
Warrant or issued as a dividend or other distribution with respect to,
or in exchange for or in replacement of such Common Stock (whether
through stock dividends, stock splits, reclassifications, mergers,
consolidations, recapitalizations or otherwise) and (ii) any other
shares of Common Stock acquired by the Investor including shares issued
as a dividend or other distribution with respect to, or in exchange for
and in replacement of such acquired Common Stock (whether through stock
dividends, stock splits, reclassifications, mergers, consolidations,
recapitalizations or otherwise).
(k) "Registration Expenses" has the meaning assigned to that
term in Section 6(a) hereof.
(1) "Registration Rights" means the rights to Demand
Registration and Piggyback Registration of Investor pursuant to this
Agreement and any other similar rights of any other Person that are in
existence as of the date hereof.
(m) "SEC" means the Securities and Exchange Commission.
(n) "Secondary Securities" has the meaning assigned to that
term in Section 7 hereof.
(o) "Securities Act" is defined in the preamble to this
Agreement.
(p) "Subscription Agreement" is defined in the preamble to
this Agreement.
(q) "Warrant" is defined in the preamble to this Agreement.
(r) "Violation" has the meaning assigned to that term in
Section 9(a) hereof.
SECTION 2. Registration Upon Demand. (a) At any time during the term of
this Agreement and after six months from the date that the first registration
statement filed by the Company under the Securities Act becomes effective, upon
the written request of the Investor requesting that the Company
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<PAGE>
effect the registration under the Securities Act of its Registrable Securities
(which request shall specify the intended method of distribution thereof), the
Company shall use its best efforts to register under the Securities Act (a
"Demand Registration"), as expeditiously as may be practicable, the Registrable
Securities that the Company has been requested to register; provided, however,
that the Investor shall not be entitled to request any Demand Registration
within the twelve-month period immediately following the date of any previous
request for a Demand Registration hereunder.
(b) The Company may, at any one time during the term of this Agreement,
decline a Demand Registration request of the Investor by notifying Investor in
writing within fifteen (15) days of the receipt of such request (a "Decline
Notice") if, in the Company's judgment, such Demand Registration would not be in
the Company's best interest. The Decline Notice shall be effective for a
three-month period commencing on the date thereof (the "Blackout Period") and
shall operate as a bar to any additional Demand Registration requests of
Investor for the remainder of the Blackout Period.
SECTION 3. "Piggyback" Registrations. If, at any time during the term
of this Agreement, the Company proposes to register any securities under the
Securities Act in connection with any offering of its securities, whether or not
for its own account (other than a registration statement filed with respect to
the issuance of Common Stock, or securities convertible into or exchangeable for
Common Stock, or rights to acquire Common Stock, on Form S-4 or otherwise in
connection with an acquisition, merger or other transaction or on Form S-8 with
respect to shares issuable pursuant to options granted or to be granted to
employees of the Company), the Company shall furnish prompt written notice to
the Investor of its intention to effect such registration and the intended
method of distribution in connection therewith. On each such occasion, upon the
written request of the Investor made to the Company within 30 days after the
receipt of such a notice by the Company, the Company shall include in such
registration such amount of the Registrable Securities as the Investor shall
notify to the Company in writing (a "Piggyback Registration"), subject to
Section 7 hereof.
SECTION 4. Obligations of the Company. Whenever the Company is required
under this Agreement to effect the registration of any Registrable Securities,
the Company shall, as expeditiously as may be practicable:
(a) Prepare and file with the SEC a registration statement
with respect to such Registrable Securities and use its best efforts to
cause such registration statement to become effective, and keep such
registration statement effective for up to 60 days.
(b) Prepare and file with the SEC such amendments and
supplements to such registration statement and the prospectus used in
connection with such registration statement as may be necessary to
comply with the provisions of applicable law with respect to the
disposition of all securities covered by such registration statement.
(c) Furnish to the Investor such numbers of copies of a
prospectus, including a preliminary prospectus, in conformity with the
requirements of applicable law, and such other documents as it may
reasonably request in order to facilitate the disposition of
Registrable Securities owned by it.
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<PAGE>
(d) Use its best efforts to register and qualify the
securities covered by such registration statement under such other
securities laws of such jurisdictions in which the securities are being
registered as shall be reasonably requested by the Investor; provided,
however, that the Company shall not be required in connection therewith
or as a condition thereto to qualify to do business or to file a
general consent to service of process in any such jurisdictions.
(e) In the event of any underwritten public offering, enter
into and perform its obligations under an underwriting agreement, in
usual and customary form, with the managing underwriter of such
offering. The Investor shall also enter into and perform its
obligations under such an agreement.
(f) Notify the Investor, at any time when a prospectus
relating thereto is required to be delivered under applicable law, of
the happening of any event as a result of which the prospectus included
in such registration statement, as then in effect, includes an untrue
statement of a material fact or omits to state a material fact required
to be stated therein or necessary to make the statements therein not
misleading in light of circumstances then existing.
SECTION 5. Furnish Information. It shall be a condition precedent to
the obligation of the Company to take any action pursuant to this Agreement that
the Investor shall furnish to the Company such information regarding itself, the
Registrable Securities held by it and the intended method of disposition of such
securities as shall be reasonably required to effect the registration of the
Registrable Securities.
SECTION 6. Expenses of Registration. (a) With respect to a Demand
Registration, the Company shall bear and pay all out-of-pocket expenses incurred
in connection with the registrations, filings or qualifications of Registrable
Securities, with respect to the registrations made pursuant to Sections 2 and 4,
including, without limitation, all registration, filing, and qualification fees,
printers' and accounting fees, fees and disbursements of counsel for the Company
and counsel for the Investor (the "Registration Expenses"), but excluding
underwriting discounts and commissions relating to Registrable Securities.
(b) With respect to a Piggyback Registration, the Investor shall pay a
portion of the Registration Expenses incurred by or on behalf of the Investor
for its benefit pro rata based on the percentage of the aggregate number of
shares registered pursuant to such registration which are represented by the
Registrable Securities of Investor; provided, however, the Investor may elect to
be responsible for the payment of only those expenses it would bear had it
exercised its right to its Demand Registration at the Company's expense if not
previously exercised (in which case, the Investor would be obligated to pay a
portion of the Registration Expenses incurred by or on behalf of the Investor
for its benefit in connection with any Demand Registration); and provided,
further, that if the Company should agree to bear the Registration Expenses of
any other stockholder in any Piggyback Registration for any other stockholder of
Company on terms more favorable than those applicable to the Investor, the
Company will bear the expenses of the Investor in the Piggyback Registration
without requiring the payment of such expenses in connection with a Demand
Registration available to the
4
<PAGE>
Investor or provide the more favorable terms to the Investor, as the case may
be.
SECTION 7. Underwriting Requirements. In connection with any offering
involving an underwriting of shares of the Company's capital stock, the Company
shall not be required under Section 3 to include any of the Registrable
Securities of the Investor in the registration of the securities to be included
in such underwriting, or in such underwriting itself, unless the Investor
accepts the terms of the underwriting as agreed upon between the Company and the
underwriters selected by it, and then only in such quantity as the underwriters
determine in their sole discretion will not jeopardize the success of the
offering by the Company. If the total amount of securities, including
Registrable Securities, requested by shareholders to be included in such
offering, whether upon exercise of Registration Rights or otherwise
(collectively, "Secondary Securities"), exceeds the number of Secondary
Securities that the underwriters determine in their sole discretion is
compatible with the success of the offering, then the Company shall be required
to include in the offering only such number of Secondary Securities, including
Registrable Securities, as the underwriters determine in their sole discretion
will not jeopardize the success of the offering. The Secondary Securities so
included shall be apportioned first among the Investor and such other selling
shareholders having exercised Registration Rights, pro rata in proportion to the
total number of Secondary Securities, including Registrable Securities, owned by
the Investor and such other selling shareholders, respectively, before any
Secondary Shares shall be included on behalf of any other shareholder, or in
such other proportion as may be agreed to by all such shareholders and the
Investor.
SECTION 8. Delay of Registration. The Investor shall not have any right
to obtain or seek an injunction restraining or otherwise delaying any
registration as the result of any controversy that might arise with respect to
the interpretation or implementation of this Agreement.
SECTION 9. Indemnification. In the event any Registrable Securities are
included in a registration statement under this Agreement:
(a) To the extent permitted by law, the Company will indemnify
and hold harmless the Investor, any underwriter (as defined in the
Securities Act or other applicable law) for the Investor and each
Person, if any, who controls the Investor or underwriter within the
meaning of the Securities Act, the Exchange Act or other applicable
law, against any losses, claims, damages, or liabilities (joint or
several) to which they may become subject under the Securities Act or
other applicable law, insofar as such losses, claims, damages, or
liabilities (or actions in respect thereof) arise out of or are based
upon any of the following statements, omissions or violations
(collectively a "Violation"): (i) any untrue statement or alleged
untrue statement of a material fact contained in such registration
statement, including any preliminary prospectus or final prospectus
contained therein or any amendments or supplements thereto, (ii) the
omission or alleged omission to state therein a material fact required
to be stated therein, or necessary to make the statements therein not
misleading, or (iii) any violation or alleged violation by the Company
of the Securities Act or other applicable law, or any rule or
regulation promulgated under the Securities Act or other applicable
law; and the Company will pay to the Investor, underwriter or
controlling Person any reasonable legal or other expenses incurred by
it in connection with investigating or defending any such loss, claim,
damage, liability, or action; provided, however, that the
5
<PAGE>
indemnity agreement contained in this Section 9(a) shall not apply to
amounts paid in settlement of any such loss, claim, damage, liability,
or action if such settlement is effected without the consent of the
Company (which consent shall not be unreasonably withheld), nor shall
the Company be liable in any such case for any such loss, claim,
damage, liability, or action to the extent that it arises out of or is
based upon a Violation which occurs in reliance upon and in conformity
with written information furnished expressly for use in connection with
such registration by the Investor or such underwriter or controlling
Person.
(b) To the extent permitted by law, the Investor will
indemnify and hold harmless the Company, each of its directors, each of
its officers who has signed the registration statement, each Person, if
any, who controls the Company within the meaning of the Securities Act
or other applicable law, any underwriter, and any controlling Person of
any such underwriter, against any losses, claims, damages, or
liabilities (joint or several) to which any of the foregoing Persons
may become subject, under the Securities Act or other applicable law,
insofar as such losses, claims, damages, or liabilities (or actions in
respect thereto) arise out of or are based upon any Violation, in each
case to the extent (and only to the extent) that such Violation occurs
in reliance upon and in conformity with written information furnished
by the Investor expressly for use in connection with such registration;
and the Investor will pay any reasonable legal or other expenses
incurred by any Person to be indemnified pursuant to this Section 9(b),
in connection with investigating or defending any such loss, claim,
damage, liability, or action; provided, however, that the indemnity
agreement contained in this Section 9(b) shall not apply to amounts
paid in settlement of any such loss, claim, damage, liability or action
if such settlement is effected without the consent of the Investor,
which consent shall not be unreasonably withheld; and provided further,
however, that in no event shall any indemnity under this Section 9(b)
exceed the gross proceeds from the offering received by the Investor.
(c) Promptly after receipt by an indemnified party under this
Section 9 of notice of the commencement of any action (including any
governmental action), such indemnified party will, if a claim in
respect thereof is to be made against any indemnifying party under this
Section 9, deliver to the indemnifying party a written notice of the
commencement thereof, and the indemnifying party shall have the right
to participate in, and, to the extent the indemnifying party so
desires, to assume the defense thereof with counsel mutually
satisfactory to the parties; provided, however, that an indemnified
party (together with all other indemnified parties which may be
represented without conflict by one counsel) shall have the right to
retain one separate counsel, with the fees and expenses to be paid by
the indemnifying party, if representation of such indemnified party by
the counsel retained by the indemnifying party would be inappropriate
due to actual or potential differing interests between such indemnified
party and any other party represented by such counsel in such
proceeding. The failure to deliver written notice to the indemnifying
party within a reasonable time of the commencement of any such action,
if prejudicial to its ability to defend such action, shall relieve such
indemnifying party of any liability to the indemnified party under this
Section 9, but the omission so to deliver written notice to the
indemnifying party will not relieve it of any liability that it may
have to any indemnified party otherwise than
6
<PAGE>
under this Section 9.
(d) The obligations of the Company and Investor under this
Section 9 shall survive the completion of any offering of Registrable
Securities under a registration statement pursuant to this Agreement,
and otherwise.
SECTION 10. Reports. With a view to making available to the Investor
the benefits of Rules 144 and 144A under the Securities Act and any other
applicable rule or regulation in each other jurisdiction where the Company's
securities are registered that may at any time permit the Investor to sell
securities of the Company to the public without registration, the Company agrees
to do the following from the date of effectiveness of the Company's first
registration statement filed under the Securities Act until the end of the term
of this Agreement pursuant to Section 12 hereof:
(a) make and keep public information available, as those terms
are understood and defined in Rule 144 or other applicable law, at all
times;
(b) file with the SEC and the applicable authority in each
other jurisdiction where the Company's securities are registered in a
timely manner all reports and other documents required of the Company
under the Securities Act and the Exchange Act, and the similar laws of
each such other jurisdiction; and
(c) furnish to the Investor forthwith upon request, (i) a copy
of the most recent annual or quarterly report of the Company and such
other reports and documents filed by the Company with governmental
authorities (including the SEC), and (it) such other information as may
be reasonably requested in availing the Investor of any rule or
regulation of the SEC or similar authorities in any jurisdiction where
the Company's securities are registered, which permits the selling of
any such securities without registration.
SECTION 11. "Market Stand-Off" Agreement. The Investor hereby agrees
that, during the duration of the period specified by the Company and an
underwriter of Common Stock or other securities of the Company following the
effective date of a registration statement of the Company under the Securities
Act (but no longer than six months), it shall not, to the extent requested by
the Company and such underwriter, directly or indirectly sell, offer to sell,
contract to sell (including, without limitation, any short sale), grant any
option to purchase or otherwise transfer or dispose of any securities of the
Company held by the Investor at any time during such period except Common Stock
included in such registration and except in a private transaction in which the
transferee of Investor agrees to abide by the agreement of Investor pursuant to
this Section 11 for the remaining duration of the period specified to the
Investor by the Company and the underwriter. In order to enforce the foregoing
covenant, the Company may impose stop-transfer instructions, consistent with the
provisions of this Section 11, with respect to the Registrable Securities of the
Investor (and the shares or securities of every other Person subject to the
foregoing restriction) until the end of such period.
SECTION 12. Termination. Except for the right to indemnification
provided herein, the Investor shall not be entitled to exercise any right
provided for in this Agreement after the earlier of (i) five years following the
date of effectiveness of the Company's first registration statement
7
<PAGE>
filed under the Securities Act or (ii) the date all of the Registrable
Securities then owned by Investor may be immediately resold pursuant to Rule
144.
SECTION 13. Limitation on Registration Rights. Except to the extent
that the Company is presently obligated to provide by written contract any of
the following rights, the Company shall not grant, without the prior written
consent of the Investor, to any Person the right to request the Company to
register, whether by demand or "piggy-back", any securities of the Company in
any Demand Registration filed pursuant to Section 2 hereof unless such rights
provide that, in connection with any such Demand Registration involving an
underwriting of any of the Investor's Registrable Securities, the securities of
the Company sought to be included in such Demand Registration by such Person or
in the underwriting thereunder, shall be excluded unless such Person accepts the
terms of the underwriting as agreed upon between the Investor and the
underwriters selected by it, and then only in such quantity as the underwriters
determine in their sole discretion will not jeopardize the success of the
offering by the Investor. If the total amount of securities requested by all
such Persons to be included in such offering upon exercise of registration
rights exceeds the number of securities that the underwriters determine in their
sole discretion is compatible with the success of the offering by Investor, then
the Investor shall be required to include in the offering only such number of
other securities as the underwriters determine in their sole discretion will not
jeopardize the success of the offering. The other securities so included shall
be apportioned among such other Persons pro rata in proportion to the total
number of securities owned by them, respectively, or in such other proportion as
may be agreed to by such Persons.
SECTION 14. Notices. All notices hereunder shall be in writing or by
telex or telecopy and shall be sufficiently given to the Investor and the
Company if addressed or delivered to them at the following addresses:
If to the Company: Inter(bullet)Act Systems, Incorporated
14 Westport Avenue
Norwalk, Connecticut 06851
Attn: President
with copies to: Schell Bray Aycock Abel & Livingston L.L.P.
Suite 1500 Renaissance Plaza
230 North Elm Street
Greensboro, North Carolina 27404
Attention: Doris R. Bray
If to TDI: Toronto Dominion Capital
31 West 52nd Street, 20th Floor
New York, New York 10019
Attn: Eric D. Rindahl
8
<PAGE>
Telecopier: 212/974-8429
with a copy to: Toronto Dominion Investments, Inc.
909 Fannin Street
Houston, Texas 77010
Attn: Martha Gariepy
Telecopier: 713/951-9921
or at such other address as any party may designate to any other party by
written notice.
All such notices and communications shall be deemed to have been duly
given: at the time delivered by hand, if personally delivered; when received if
deposited in the mail, postage prepaid, if mailed; when answered back, if
telexed; when transmission is verified, if telecopied; and on the next Business
Day, if timely delivered to an air courier guaranteeing overnight delivery.
SECTION 15. Successors and Assigns. All the covenants and provisions of
this Agreement by or for the benefit of the Company or the Investor shall bind
and inure to the benefit of their respective successors and assigns, including
those by operation of law, merger or consolidation. In the event the Registrable
Securities are assigned to more than one Person, a Demand Registration pursuant
to Section 2 may be requested only upon the written request of the holders of
50% or more of the Registrable Securities, a Piggyback Registration pursuant to
Section 3 may be requested only upon the written request of the holders of 25%
or more of the Registrable Securities and all other actions pursuant to this
Agreement, including without limitation amendments to this Agreement, may be
taken only upon the affirmative vote of the holders of 50% or more of the
Registrable Securities, which vote shall be binding upon all holders of
Registrable Securities.
SECTION 16. Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of North Carolina without
taking into account conflict of law provisions.
SECTION 17. Benefits of this Agreement. Nothing in this Agreement shall
be construed to give to any Person other than the Company and the Investor and
their respective successors and assigns any legal or equitable right, remedy or
claim under this Agreement; but this Agreement shall be for the sole and
exclusive benefit of the Company and the Investor and their respective
successors and assigns.
SECTION 18. Counterparts. This Agreement may be executed in any number
of counterparts and each such counterpart shall for all purposes be deemed to be
an original, and all such counterparts shall together constitute one and the
same instrument.
SECTION 19. Amendments: Waiver. No provision of this Agreement may be
amended or waived except by an instrument in writing signed by the party sought
to be bound. No failure or delay by any party in exercising any right or remedy
hereunder shall operate as a waiver thereof, nor shall a waiver of a particular
right or remedy on one occasion be deemed a waiver of any other right or remedy
or a waiver of the same right or remedy on any subsequent occasion.
9
<PAGE>
SECTION 20. Specific Performance. The Company recognizes that the
rights of the Investor under this Agreement are unique and, accordingly, the
Investor shall, in addition to such other remedies as may be available to it at
law or in equity, have the right to enforce its rights hereunder by actions for
injunctive relief and specific performance to the extent permitted by law,
except as otherwise provided in this Agreement. The Company agrees that monetary
damages would not be adequate compensation for any loss incurred by reason of a
breach by it of the provisions of this Agreement and hereby agrees to waive in
any action for specific performance the defense that a remedy at law would be
adequate. This Agreement is not intended to limit or abridge any rights of the
Investor which may exist apart from this Agreement.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their respective officers thereunto duly authorized and their
respective corporate seals affixed hereto as of the day and year first above
written.
INTER(bullet)ACT SYSTEMS, INCORPORATED
ATTEST: By:
Title:
Secretary
[Corporate Seal]
TORONTO DOMINION INVESTMENTS, INC.
ATTEST: By:
Title:
Secretary
[Corporate Seal]
10
<PAGE>
<PAGE>
Exhibit 10(f)
INTER(bullet)ACT SYSTEMS, INCORPORATED
SUBSCRIPTION AGREEMENT
THIS SUBSCRIPTION AGREEMENT (the "Agreement") by and between
Inter(bullet)Act Systems, Incorporated, a corporation organized and existing
under the laws of the State of North Carolina (the "Company") and Vanguard
Cellular Operating Corp., a Delaware corporation (the "Subscriber");
W I T N E S S E T H
WHEREAS, the Company has offered the Subscriber an opportunity to
purchase shares pursuant to a private offering (the "Offering") of up to
$15,000,000 of the Company's common stock (the "Common Stock"); and
WHEREAS, the Subscriber desires to purchase certain of the shares being
offered on the terms and conditions set forth herein;
NOW, THEREFORE, the parties hereby agree as follows:
1. The Subscriber hereby subscribes and agrees to purchase, subject to
the terms and conditions of this Agreement, up to an aggregate of $8,000,003 of
the Common Stock offered in the Offering, representing up to 1,454,546 shares
(the "Shares"), at a purchase price of $5.50 per share, such purchases to be
made in staged investments contingent on additional shares being sold in the
Offering as follows:
Stage 1 Upon acceptance of this subscription, 181,819 shares of
Common Stock for an aggregate purchase price of $1,000,004.50.
Stage 2 Upon the Company receiving aggregate subscriptions of
$2,000,003.50 from other subscribers in the Offering, 363,637 shares of
Common Stock for an aggregate purchase price of $2,000,003.50.
Stage 3 Upon the Company receiving additional aggregate
subscriptions of $1,999,998.00 of from other subscribers in the
Offering, 363,636 shares of the Common Stock for an aggregate purchase
price of $1,999,998.00.
Stage 4 Upon the Company having first received an aggregate
proceeds in the Offering of $9,000,007.50 ($5,000,006 from the
Subscriber in the first three stages of its investment and $4,000,001.50
from other subscribers in the Offering), up to an additional 545,454
shares, for an aggregate purchase price of up to $2,999,997.00, on a
share-for-share basis, for every additional share of Common Stock sold
in the Offering to other subscribers.
2. The Subscriber's agreement is subject to the Company (i) issuing
the Subscriber warrants
<PAGE>
to purchase a number of shares of common stock of the Company equivalent to 10%
of the Shares purchased by the Subscriber pursuant to this Agreement and (ii)
granting the Subscriber demand registration rights with respect to all shares of
common stock of the Company owned by the Subscriber. The Subscriber's commitment
to purchase shares in Stage 3 and Stage 4 is contingent upon the Subscriber's
receipt of approval or appropriate waiver from its lenders under the
Subscriber's $675,000 credit facility. This Agreement, subject to the terms
hereof, shall become a contract for the sale of the Shares upon the acceptance
thereof by the Company.
3. The subscription will not become effective unless and until accepted
by the Company. The Company reserves the unrestricted right to withdraw this
offer and reject the subscription in whole or in part at any time or for any
reason.
4. If the Company accepts this subscription, the Subscriber hereby
specifically accepts, adopts and agrees to execute a Joinder Agreement pursuant
to which the Subscriber becomes a party to each and every provision of that
certain Shareholders' Agreement dated as of April 16, 1993 among the Company and
all of its shareholders, as amended by Amendment No. 1 to Shareholders'
Agreement dated as of June 17, 1994.
5. If the Company accepts this subscription, the Subscriber agrees to
promptly deliver good funds to the Company, either by wire transfer or check, in
accordance with its committment set forth in Section 1 hereof.
6. The Subscriber hereby makes the representations and warranties set
forth below with the express intention that they be relied upon by the Company
in determining the suitability of the Subscriber to purchase shares:
(a) The Subscriber is fully aware that the Shares have not been
registered under the Securities Act of 1933, as amended (the "Act"), or
under any applicable state securities law. The Subscriber further
understands that the Shares are being sold in reliance on the exemptions
from the registration requirements of the Act provided by Section 4(2)
thereof, and in reliance on exemptions from the registration
requirements of the applicable state law, on the ground that the
Offering involved has been limited to accredited investors described in
the Representation of Accredited Investor of even date herewith.
(b) The Subscriber is acquiring the Shares for the Subscriber's
own account as principal for the Subscriber's investment and not with a
view to resale or distribution.
(c) The Subscriber has been furnished and has carefully reviewed
the Confidential Prospectus concerning the Company and the Offering, and
has been given the opportunity to ask questions of, and receive answers
from, the Company concerning the business of the Company and the terms
and conditions of the Offering and to obtain such additional information
that the Company possesses or can acquire without unreasonable effort or
expense necessary to verify the accuracy of the information contained
therein or information that has been otherwise provided by the Company.
<PAGE>
(d) The Subscriber fully understands and agrees that the
Subscriber must bear the economic risk of investment in the Shares for
an indefinite period of time because, among other reasons, the Shares
have not been registered under the Act, or under any applicable state
securities laws and, therefore, cannot be sold, pledged, assigned or
otherwise disposed of unless they are subsequently registered under any
applicable securities laws or an exemption from such registration is
available. The Subscriber further understands and agrees that the
Company will not honor any attempt by the Subscriber to sell, pledge,
transfer or otherwise dispose of any Shares in the absence of an
effective registration statement for such Shares or an opinion of
counsel satisfactory to the Company that an exemption from any
applicable registration requirements is available. The Subscriber
further understands that the Company is under no obligation to register
the Shares or make an exemption from registration available and that the
Company has not represented that it will make any attempt so to register
the Shares or to make such an exemption thereto available.
(e) The Subscriber has sought such accounting, legal and tax
advice as the Subscriber has considered necessary to make an informed
investment decision.
(f) The Subscriber is aware that no federal or state agency has
made any finding or determination as to the fairness of an investment in
the Shares, nor any recommendation or endorsement of any such
investment.
(g) The Subscriber recognizes that investing in the Company is
speculative and involves a high degree of risk, and the Subscriber has
taken full cognizance of and understands all the risk factors related to
the purchase of the Shares. The Subscriber has read and understands the
"Risk Factors" set forth in the Confidential Prospectus and that such
list is not an exclusive list of all risk factors related to the
purchase of the Shares.
(h) The Subscriber has delivered herewith a Representation of
Accredited Investor, and the Subscriber represents that such
Representation contains true and accurate information as of the date
hereof. The Subscriber agrees to advise the Company if any of the
information contained in the Representation materially changes prior to
acceptance of this subscription.
7. The Subscriber fully understands and acknowledges that the Company's
anticipated rollout of kiosks in grocery stores with the funds from various
levels of proceeds from the Offering (assuming no additional debt financing) is
as follows:
Gross Proceeds Stores
$ 5,000,000 90
$ 9,000,000 200
$15,000,000 400
and that the Company anticipates being in a position to complete a rollout of
500 stores with access to asset-based, equipment lease or other financing
possible from the improved financial condition and momentum from a fully
subscribed Offering. The Subscriber fully understands and
<PAGE>
acknowledges that the Subscriber's subscription may be accepted by the Company
at a gross proceeds level that is not sufficient to fund the Company's rollout
goals, and that there can be no assurances that the rollout goals described
above can be achieved.
8. The subscription herein shall survive the death or disability of any
individual Subscriber and the dissolution or termination of any subscribing
entity, and this Agreement shall be binding upon the heirs, executors,
administrators, successors and assigns of any such Subscriber. All pronouns and
any variations thereof used herein shall be deemed neuter, singular or plural as
the identity of the Subscriber may require.
IN WITNESS WHEREOF, the undersigned has executed or cause to be executed
under seal this Agreement as of the day of October, 1995.
VANGUARD CELLULAR OPERATING CORP.
By:
President
<PAGE>
ACCEPTANCE OF SUBSCRIPTION
The foregoing Subscription Agreement is ACCEPTED by the Company on this
_____ day of October, 1995.
INTER(bullet)ACT SYSTEMS, INCORPORATED
By:
President
<PAGE>
Exhibit 10(g)
INTERoACT SYSTEMS, INCORPORATED
1996 NONQUALIFIED STOCK OPTION PLAN
1. Purpose. The 1996 Nonqualified Stock Option Plan (the "Plan")
of InteroAct Systems, Incorporated, a North Carolina corporation (the
"Company"), is intended to allow certain key employees, officers and
directors, and certain consultants and advisers and independent
contractors who have rendered or will render bona fide services to or on
behalf of the Company and its subsidiaries to have an opportunity to
acquire an ownership interest in the Company as an additional incentive
to attract and retain such persons and to encourage them to promote the
Company's business.
2. Administration. The Plan shall be administered by the Board
of Directors of the Company or, upon determination by the Board of
Directors, a committee (the "Committee"), which shall consist of not
less than three nonemployee directors of the Company. No member of the
Board of Directors of the Company or of the Committee shall be liable
for any action or determination made in good faith with respect to the
Plan or to any option granted thereunder. In addition, directors,
including Committee members, shall be eligible for indemnification from
the Company, pursuant to the Company's bylaws, for any expenses,
judgments or other costs incurred as a result of a lawsuit filed against
them or any of them claiming any rights or remedies due to their
participation in the administration of the Plan.
3. Authority of Board of Directors and Committee.
(a) Subject to the other provisions of this Plan, the Board
of Directors of the Company or the Committee shall have sole
authority in its absolute discretion: to grant options under the
Plan; to determine the number of shares subject to any option under
the Plan; to fix the option price and the duration of each option;
to establish any other terms and conditions of options; to
accelerate the time at which any outstanding option may be
exercised; and to terminate the Plan.
(b) Subject to the other provisions of this Plan, and with a
view to effecting its purpose, the Board of Directors or the
Committee shall have sole authority in its absolute discretion: to
construe and interpret the Plan; to define the terms used herein;
to prescribe, amend, and rescind rules and regulations relating to
the Plan; to make any other determinations; and to do everything
necessary or advisable to administer the Plan.
(c) All decisions, determinations, and interpretations made
by the Board of Directors or the Committee shall be binding and
conclusive on all participants in the Plan and on their legal
representatives, heirs and beneficiaries.
4. Shares Subject to the Plan. The maximum aggregate number of
shares of Common Stock available pursuant to the Plan, subject to
adjustment as provided in Section 8 of this Plan, shall be 500,000
shares of the Company's common stock, no par value (the "Common Stock").
If any option granted pursuant to the Plan expires or terminates for any
reason before it has been exercised in full, the unpurchased shares
subject to that option shall again be available
<PAGE>
for the purposes of the Plan. The Company, during the term of this
Plan, will at all times reserve and keep available such number of shares
of its Common Stock as shall be sufficient to satisfy the requirements
of the Plan. Authorized but unissued shares of the Company shall also
be subject to issuance under the Plan.
5. Terms and Conditions of Options. Stock options granted under
the Plan shall be evidenced by agreements in such form as the Board of
Directors or the Committee may from time to time approve, which
agreements shall comply with and be subject to the following terms and
conditions:
(a) Number of Shares. Each option shall state the number of
shares to which it pertains.
(b) Option Price. Each option shall state the option price,
which may be less than the fair market value (as hereinafter
defined) per share of the Common Stock at the time the option is
granted, provided, however, that no option may be granted at an
exercise price of less than $5.50 per share (as the same may be
adjusted from time to time pursuant to Section 8 of this Plan).
(c) Exercise of Options. Except as otherwise provided in
this Plan or in the applicable option agreement, each option shall
be exercisable in installments as follows:
(i) up to 20% of the total shares subject to the option
at any time after one year from the date of grant and prior to
termination of the option;
(ii) up to 40% of the total shares subject to the option
(less any shares previously purchased pursuant to the option)
at any time after two years from the date of grant and prior
to termination of the option;
(iii) up to 60% of the total shares subject to the
option (less any shares previously purchased pursuant to the
option) at any time after three years from the date of grant
and prior to termination of the option; and
(iv) up to 80% of the total shares subject to the option
(less any shares previously purchased pursuant to the option)
at any time after four years from the date of grant and prior
to termination of the option; and
(v) in full at any time after five years from the date
of grant and prior to termination of the option.
Not less than 100 shares may be purchased at any one time unless
the number purchased is the total number that may be purchased under the
option at that time. No option may be exercised for any fraction of a
share of Common Stock.
2
<PAGE>
(d) Written Notice and Payment Required. An option granted
pursuant to the terms of this Plan shall be exercised when written
notice of that exercise has been received by the Company at its
principal office from the person entitled to exercise the option
and full payment for the shares with respect to which the option is
exercised has been received by the Company. The purchase price of
any shares purchased shall be paid in full in cash or by certified
or cashier's check payable to the order of the Company or, unless
prohibited by the applicable option agreement, by shares of Common
Stock or by a combination of cash, check, and (unless prohibited by
the applicable option agreement) shares of Common Stock. If any
portion of the purchase price is paid in shares of Common Stock,
those shares shall be tendered at their then fair market value as
determined by the Board of Directors on the basis of such factors
as it deems appropriate; provided, however, that fair market value
shall be determined without regard to any restriction other than a
restriction which, by its terms, will never lapse, and further
provided that if at the time the determination of fair market value
is made, the Common Stock is admitted to trading on a national
securities exchange for which sales prices are regularly reported,
fair market value shall not be less than the mean of the high and
low asked or closing sales prices reported for the Common Stock on
that exchange on the day (or most recent trading day preceding the
day on which the option is exercised). For purposes of this Plan,
the term "national securities exchange" shall include the National
Association of Securities Dealers Automated Quotation System and
the over-the-counter market.
(e) Compliance With Securities Laws. The options granted
under the Plan and the shares issuable pursuant to the Plan may, at
the option of the Company, be registered under applicable federal
and state securities laws, but the Company shall have no obligation
to undertake any such registrations. Shares of Common Stock shall
not be issued with respect to any option granted under the Plan
unless the exercise of that option and the issuance and delivery of
those shares pursuant to that exercise shall comply with all
relevant provisions of state and federal law including, without
limitation, the Securities Act of 1933, as amended, the rules and
regulations promulgated thereunder, and the requirements of any
stock exchange upon which the shares may then be listed, and shall
be further subject to the approval of counsel for the Company with
respect to such compliance. The Board of Directors may also
require an optionee to furnish evidence satisfactory to the
Company, including a written and signed representation letter and
consent to be bound by any transfer restriction imposed by law,
legend, condition, or otherwise, that the shares are being
purchased only for investment and without any present intention to
sell or distribute the shares in violation of any state or federal
law, rule, or regulation. Further, each optionee shall consent to
the imposition of a legend on the shares of Common Stock subject to
his or her option restricting their transferability as required by
law or by this Plan.
(f) Transferability of Options. Options granted pursuant to
this Plan may not be
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sold, assigned, or transferred in any manner otherwise than by will
or the laws of descent or distribution except for immediate family
transfers. For purposes of this paragraph (f), "immediate family
transfers" shall mean transfers, without consideration, to (i) a
member of the Optionee's immediate family, (ii) a trust the
beneficiaries of which consist solely of the Optionee and/or
members of his immediate family, or (iii) a partnership, limited
liability company or similar entity all of the members, partners
and beneficiaries of which consist solely of the Optionee and/or
members of his immediate family. For purposes of this paragraph
(f), members of the Optionee's immediate family include his or her
spouse, children, parents and siblings, and the spouses and lineal
descendants of such persons. Immediate family transfers may be
limited by the provisions of the applicable option agreement.
(g) Duration of Options. Each option and all rights
thereunder granted pursuant to the terms of this Plan shall expire
on the date specified in the applicable option agreement, but in no
event shall any option expire later than 10 years from the date on
which the option is granted.
(h) Termination of Employment, Disability or Death.
(i) Unless otherwise provided in the applicable option
agreement, if an optionee ceases to be employed by the
Company, its parent, or any of its subsidiaries (or a
corporation or a parent or subsidiary of such corporation
issuing or assuming a stock option in a transaction to which
Section 424(a) of the Code applies), for any reason other than
disability or death, his or her option may be exercised at any
time up to three months after the date of termination of
employment.
(ii) Unless otherwise provided in the applicable option
agreement, if an optionee becomes disabled within the meaning
of Section 22(e)(3) of the Code while employed by the Company,
or any parent or subsidiary corporation (or a corporation or a
parent or subsidiary of such corporation issuing or assuming a
stock option in a transaction to which Section 424(a) of the
Code applies), the option may be exercised at any time within
three months after the date of termination of employment due
to disability.
(iii) Unless otherwise provided in the applicable option
agreement, if an optionee dies while employed by the Company,
its parent or any of its subsidiaries, (or a corporation or a
parent or subsidiary of such corporation issuing or assuming a
stock option in a transaction to which Section 424(a) of the
Code applies), his or her option shall expire one year after
the date of death. During this period, the option may be
exercised, except as otherwise provided in the applicable
option agreement, by the person or persons to whom the
optionee's rights under the option shall pass by will or by
the laws of descent and
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distribution.
(iv) Any option that may be exercised for a period
following termination of the optionee's employment may be
exercised only to the extent it was exercisable immediately
before such termination and in no event after the option would
expire by its terms without regard to such termination.
(i) Option Agreements. The option agreements authorized
under the Plan may differ from one another and shall contain such
other provisions not inconsistent with the Plan as the Board of
Directors or the Committee may in its discretion deem advisable
from time to time, including, without limitation, conditions
precedent to the exercise of the option covered by any agreement,
which conditions may include the satisfaction of specified
performance criteria by the Company or the optionee.
6. Tax Withholding. The exercise of any option granted under the
Plan is subject to the condition that if at any time the Company shall
determine, in its discretion, that the satisfaction of withholding tax
or other withholding liabilities under any state or federal law is
necessary or desirable as a condition of, or in any connection with,
such exercise or the delivery or purchase of shares pursuant thereto,
then in such event, the exercise of the option shall not be effective
unless such withholding tax or other withholding liabilities shall have
been satisfied in a manner acceptable to the Company.
7. Employment. Nothing in the Plan or in any option shall confer
upon any eligible employee, director, advisor or consultant any right to
continued employment by, or relationship with the Company, as the case
may be, or by its parent or subsidiary corporations, or limit in any way
the right of the Company or its parent or subsidiary corporation at any
time to terminate or alter the terms of that employment or relationship.
8. Adjustments.
(a) If the shares of Common Stock of the Company are
increased, decreased, changed into, or exchanged for a different
number or kind of shares or securities through merger,
consolidation, combination, exchange of shares, other
reorganization, recapitalization, reclassification, stock dividend,
stock split or reverse stock split in which the Company is the
surviving entity, the Board of Directors shall make an appropriate
and proportionate adjustment in the maximum number and kind of
shares as to which options and stock bonuses may be granted under
this Plan. A corresponding adjustment changing the number or kind
of shares allocated to unexercised options that shall have been
granted prior to any such change, shall likewise be made. Any such
adjustment in outstanding options shall be made without change in
the aggregate purchase price applicable to the unexercised portion
of the option, but with a corresponding adjustment in the price for
each share or other unit of any security covered by the option. In
making any adjustment pursuant to this Section 8(a), any fractional
shares shall be disregarded.
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(b) In the event of a consolidation or a merger in which the
Company is not the surviving corporation, or any other merger in
which the shareholders of the Company exchange their shares of
stock in the Company for stock of another corporation, or in the
event of complete liquidation of the Company, or in the case of a
tender offer approved by the Board of Directors, all outstanding
options, unless the applicable option agreement provides otherwise,
shall become exercisable in full immediately prior to the effective
date of any such transaction, regardless of the exercise schedule.
9. Effective Date of Plan. The Plan shall be effective June 14,
1996, the date of adoption of the Plan by the Board of Directors of the
Company, subject to approval of the Plan by the shareholders of the
Company by either (a) the vote of the holders of no less than the
majority of the Company's Common Stock present or represented at a
meeting of shareholders duly called and held, or (b) unanimous written
consent, in either case prior to June 14, 1997.
10. Termination and Amendment of Plan. The Plan may be terminated
at any time by the Board of Directors. Unless sooner terminated, the
Plan shall terminate June 13, 2006. No options shall be granted under
the Plan after the Plan is terminated. Subject to the limitation
contained in Section 11, the Board of Directors may at any time amend or
revise the terms of the Plan, including the form and substance of the
option agreements to be used hereunder; provided that no amendment or
revision shall (a) increase the maximum aggregate number of shares
subject to this Plan, except as permitted under Section 8; (b) change
the minimum purchase price for shares subject to options granted under
the Plan; (c) extend the maximum term established under the Plan for any
option; or (d) permit the granting of an option to anyone other than as
provided in the Plan.
11. Prior Rights and Obligations. No amendment, suspension, or
termination of the Plan shall, without the consent of the person who has
received an option, alter or impair any of that person's rights or
obligations under any option granted under the Plan prior to such
amendment, suspension, or termination.
12. Tax Reimbursement. In view of the federal and state income
savings expected to be realized by the Company by reason of exercise of
a nonqualified option granted pursuant to this Plan, the Board of
Directors or the Committee may, in its discretion, grant nonqualified
options the terms of which provide that, upon exercise, the Company will
make a cash compensation payment to the optionee (or his personal
representatives or heirs). The basis for determining the amount of such
cash payment shall be specified in the applicable option agreement. No
person subject to the operation of Section 16(b) of the Securities
Exchange Act of 1934, as amended, shall be entitled to the payment
authorized by this Section 12, except with respect to options that are
exercised during the period beginning on the third business day and
ending on the twelfth business day following release of quarterly or
annual summary statements of sales and earnings of the Company or any
successor of the Company which assumes the obligations of the Company
hereunder.
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13. Termination of Nonemployee Relationships with the Company. If
a nonemployee optionee ceases to serve the Company in the capacity which
made the optionee eligible to receive options pursuant to this Plan,
then the optionee's rights upon such termination shall be governed in
the manner of an optionee's rights upon termination of employment as set
forth in this Plan.
IN WITNESS WHEREOF, this InteroAct Systems, Incorporated 1996
Nonqualified Stock Option Plan is executed on behalf of the Company as
of August 26, 1996 and reflects all amendments effective through such
date.
INTERoACT SYSTEMS, INCORPORATED
By:______________________________________
President
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<PAGE>
Exhibit 10(h)
INTER(bullet)ACT SYSTEMS, INCORPORATED
NONQUALIFIED STOCK OPTION AGREEMENT
THIS NONQUALIFIED STOCK OPTION AGREEMENT (the "Option Agreement") dated
as of the __ day of ____, 199_, by and between Inter(bullet)Act Systems,
Incorporated, a North Carolina corporation (the "Company"), and
_____________, a ________ of the Company (the "Optionee"):
W I T N E S S E T H:
WHEREAS, the Company desires to compensate the Optionee for services
rendered to the Company by granting to the Optionee a nonqualified stock option
under the Inter(bullet)Act Systems, Incorporated Stock Compensation Plan (the
"Plan"), a copy of which is attached hereto and incorporated by reference, and
the Optionee desires to accept such option in accordance with the terms and
conditions set forth herein;
NOW, THEREFORE, in consideration of the premises and the mutual
covenants contained herein, and intending to be legally bound hereby, the
parties agree as follows:
1. Grant of Option. Subject to the terms and conditions of this
Agreement, the Company hereby grants to the Optionee an option (the "Option") to
purchase all or any portion of (____) shares of the Company's Common Stock (the
"Common Stock") at an exercise price of ____ Dollars ($____) per share (the
"Exercise Price"). This Option is a "Nonqualified Option" granted under Article
III of the Plan and is not intended to be an incentive stock option as defined
in Section 422 of the Internal Revenue Code of 1986, as amended (the "Code").
2. Term of Option. The Option shall terminate and be no longer
exercisable after ten (10) years from the date hereof. Subject to the further
limitations and restrictions as provided in the Plan and this Agreement, the
Option shall be immediately exercisable and may be exercised from time to time
in whole or in part; provided, however, that not less than 1,000 shares may be
purchased at any one time pursuant to any exercise of this Option unless the
number of shares purchased is the total number that may be purchased under this
Option at that time or unless the Company shall otherwise consent. No fractional
shares of Common Stock shall be issued upon any exercise of this Option.
3. Transfer of Option. The Option is not transferable by the Optionee
during the Optionee's lifetime but may be transferred only upon the death of the
Optionee by will or by the laws of descent and distribution.
4. Adjustments. The aggregate number of shares of Common Stock subject
to the Option and the Option exercise price shall be appropriately and equitably
adjusted to reflect any stock dividend, stock split, share combination or
recapitalization occurring subsequent to the date hereof, as further described
in Section 10 of Article I of the Plan.
5. Method of Exercise. The Option shall be exercised by the tender of
payment and delivery
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to the Company at its principal place of business of a written notice, at least
five (5) days prior to the proposed date of exercise, which notice shall:
(a) State the election to exercise the Option, the number of
shares of Common Stock with respect to which the Option is being
exercised, and the name, address, and social security number of the
person in whose name the stock certificate or certificates for such
shares of Common Stock is to be registered.
(b) Contain any such representations and agreements as to
Optionee's investment interest with respect to such shares of Common
Stock as shall be satisfactory to the Board or Committee.
(c) Be signed by the person entitled to exercise the Option, and
if the Option is being exercised by any person or persons other than the
Optionee, be accompanied by proof, satisfactory to the Committee, of the
right of such person or persons to exercise the Option.
Payment of the exercise price may be made in cash or by certified,
cashiers or official bank check or, at the option of the Company, by personal
check. Payment may also be made by surrendering shares of Common Stock
(including any shares of Common Stock received upon a prior or simultaneous
exercise of the Option) at the then fair market value of such shares, as
determined in accordance with Section 7(b) of Article I of the Plan. Payment may
also be made by combining cash or check and shares of Common Stock.
After receipt of such notice in a form satisfactory to the Committee and
the acceptance of payment, the Company shall deliver to the Optionee a
certificate or certificates representing the shares purchased hereunder;
provided, however, that if any law or regulation requires the Company to take
any action with respect to the shares specified in such notice before the
issuance thereof, the date of delivery of such shares shall be extended for the
period necessary to take such action.
6. Tax Withholding. The exercise of the Option granted hereunder is
subject to the condition that, if the Company shall determine, in its
discretion, that the satisfaction of withholding tax or other withholding
liabilities under any state or federal law is necessary or desirable as a
condition of, or in any connection with, such exercise or the delivery or
purchase of shares pursuant thereto, the Optionee will pay, or make arrangements
to pay, to the Company an amount equal to such tax or liabilities that the
Company is required to withhold as a result of the exercise of the Option. If
for any reason such payment or arrangement to pay is not made, the Company shall
be entitled to withhold, from other sums payable to the Optionee, the amount of
such withholding and other liabilities.
7. Adjustments. If the shares of Common Stock of the Company are
increased, decreased, changed into or exchanged for a different number or kind
of shares or securities through merger, consolidation, combination, exchange of
shares, other reorganization, recapitalization, reclassification, stock
dividend, stock split or reverse stock split, an appropriate and proportionate
adjustment shall be made, as provided in Section 10(a) of Article I of the Plan,
in the number or kind
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<PAGE>
of shares allocated to the unexercised portion of the Option and in the
Exercise Price thereof.
8. Rights of a Shareholder. The Optionee shall not be deemed for any
purpose to be a shareholder of the Company with respect to any shares covered by
this Option unless this Option shall have been exercised and the Exercise Price
paid in the manner provided herein. No adjustment will be made for dividends or
other rights where the record date is prior to the date of exercise and payment.
Upon the exercise of the Option and the issuance of the certificate or
certificates evidencing the shares of Common Stock received, except as otherwise
provided herein, the Optionee shall have all the rights of a stockholder of the
Company including the rights to receive all dividends or other distributions
paid or made with respect to such shares.
9. Compliance with Securities Laws. The Option granted hereunder and the
shares issuable upon the exercise of the Option have not been registered under
applicable federal and state securities laws and the Company has no obligation
to undertake any such registrations. This Option may not be exercised unless the
issuance and delivery of those shares of Common Stock pursuant to such exercise
shall comply with all relevant of federal and state securities laws including,
without limitation, the Securities Act of 1933, as amended, the rules and
regulations promulgated thereunder, and the requirements of any stock exchange
upon which such shares may then be listed, and shall be further subject to the
approval of counsel for the Company with respect to such compliance. If required
by the Board of Directors, the Optionee agrees to furnish evidence satisfactory
to the Company, including a written and signed representation letter and consent
to be bound by any transfer restrictions imposed by law, legend, condition, or
otherwise, that the shares are being purchased only for investment and without
any present intention to sell or distribute the shares in violation of any
federal or state law, rule, or regulation.
10. General Transfer Restrictions on Option Shares. The shares of Common
Stock issuable upon exercise of this Option shall be subject to certain
restrictions on transfer contained herein and in any shareholders' agreement
among the Company and all its shareholders as may be in effect at the time of
exercise of this Option. Except as otherwise expressly provided herein or
without the prior written consent of the Company, the Optionee shall not sell,
transfer, assign, convey, pledge, encumber or in any manner dispose of (all such
acts hereinafter referred to as "transfer") the shares of Common Stock received
upon the exercise of the Option, either voluntarily or involuntarily, unless as
a condition to any such transfer, the transferee agrees in writing that he, his
heirs, successors and assigns shall be subject to and bound by the provisions of
this Agreement as if such transferee were the Optionee hereunder. Any purported
transfer in violation of this Agreement shall be void and shall not transfer any
interest or title to the purported transferee. The Company shall not be required
to transfer on its books any shares of Common Stock sold or transferred in
violation of any of the provisions set forth in this Agreement or to treat as
owner of such shares, or to pay dividends to, any transferee to whom any of the
shares of Common Stock shall have been transferred.
11. Shareholders' Agreement. The Optionee understands and agrees that
the shares of Common Stock issuable upon exercise of this Option shall also be
subject to the restrictions on transfer and other provisions of the
shareholders' agreement, if any, that may be in effect among the Company and
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<PAGE>
all its shareholders as of the date of any exercise of this Option (the
"Shareholders' Agreement"). As a condition to the exercise of this Option, the
Optionee agrees that he will become a party to the Shareholders' Agreement by
executing a joinder agreement or other appropriate document.
12. Legends. The certificate or certificates evidencing all or any of
the shares of Common Stock issued upon exercise of this Option shall bear
substantially the following legend:
"The shares evidenced by this certificate have not been registered under
the Securities Act of 1933, as amended, or under the securities laws of
any state. The shares may not be sold, transferred, pledged or
hypothecated in the absence of an effective registration statement under
the Securities Act of 1933, as amended, and such registration or
qualification as may be necessary under the securities laws of any
state, or an opinion of counsel satisfactory to the Company that such
registration or qualification is not required.
The shares evidenced by this certificate are also subject to certain
restrictions on transfer and rights of the Company set forth in a
Nonqualified Stock Option Agreement dated as of ____, 199__ by and
between ______ and the Company, a copy of which is on file with the
Company."
and shall also bear any legend required by the Shareholders' Agreement.
13. Termination of Certain Rights and Obligations. The provisions of
Sections 10 and 11 hereof shall terminate upon the consummation of the Company's
sale of its Common Stock in a bona fide underwriting pursuant to a registration
statement on Form S-1 under the Securities Act of 1933, as amended (or any
equivalent successor form).
14. Specific Performance. The Optionee agrees that in the event of any
violation of this Agreement, an action may be commenced by the Company for any
such preliminary and permanent injunctive relief and other equitable relief in
any court of competent jurisdiction in the State of North Carolina or in any
other court of competent jurisdiction. The Optionee hereby waives any objections
on the grounds of improper jurisdiction or venue to the commencement of an
action in the State of North Carolina and agrees that effective service of
process may be made upon him by mail under the notice provisions contained in
Section 15 hereof.
15. Construction. Whenever the word "Optionee" is used in any provision
of this Agreement under circumstances where the provision should logically be
construed to apply to (i) the estate, personal representative, or beneficiary to
whom this Option may be transferred by will or by the laws of descent and
distribution or (ii) the guardian or legal representative of the Optionee acting
pursuant to a valid power of attorney or the decree of a court of competent
jurisdiction, then the term "Optionee" shall be construed to include such
estate, personal representative, beneficiary, guardian or legal representative.
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<PAGE>
16. Severability. The provisions of this Agreement shall be severable
and the invalidity or unenforceability of any provision shall not affect the
validity or enforceability of the other provisions hereto.
17. Successor and Assigns. The terms of this Agreement shall be binding
upon and shall enure to the benefit of any successors or assigns of the Company
and of the Optionee and of the Common Stock issued or issuable upon the exercise
hereof.
18. Notices. Notices under this Agreement shall be in writing and shall
be deemed to have been duly given (i) when personally delivered, (ii) when
forwarded by Federal Express, Airborne, or another private carrier which
maintains records showing delivery information, (iii) when sent via facsimile
but only if a written facsimile acknowledgement of receipt is received by the
sending party, or (iv) when placed in the United States Mail and forwarded by
registered or certified mail, return receipt requested, postage prepaid,
addressed to the party to whom such notice is being given.
19. Modification. This Agreement is the entire agreement and
understanding of the parties hereto with respect to the Option granted herein
and supersedes any and all prior and contemporaneous negotiations,
understandings and agreements with regard to the Option and the matters set
forth herein, whether oral or written. No representation, inducement, agreement,
promise or understanding altering, modifying, taking from or adding to the terms
and conditions hereof shall have any force or effect unless the same is in
writing and validity executed by the parties hereto.
20. Governing Law. This Agreement shall be governed in accordance with
the laws of the State of North Carolina.
21. Multiple Counterparts. This Agreement may be signed in one or more
counterparts, each of which shall be deemed to be an original.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement
effective as of the day and year first above written.
INTER(bullet)ACT SYSTEMS, INCORPORATED
ATTEST: By:
President
Secretary
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[Corporate Seal]
WITNESS: OPTIONEE:
[SEAL]
Name:
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<PAGE>
Exhibit 10(i)
INTERoACT SYSTEMS, INCORPORATED
1994 STOCK COMPENSATION PLAN
ARTICLE I
GENERAL PROVISIONS
1. Purpose. The 1994 Stock Compensation Plan (the "Plan") of
InteroAct Systems, Incorporated, a North Carolina corporation (the
"Company"), is intended to allow certain key employees, officers and
directors of the Company and its subsidiaries and certain consultants,
advisers and independent contractors who have rendered bona fide
services to or on behalf of the Company and its subsidiaries to have an
opportunity to acquire an ownership interest in the Company as an
additional incentive to attract and retain such persons and to encourage
them to promote the Company's business.
2. Elements of the Plan. Options granted under the Plan shall
be granted pursuant to either Article II or Article III of the Plan.
Options granted pursuant to Article II are intended to qualify as
incentive stock options ("Incentive Stock Options") under Section 422 of
the Internal Revenue Code of 1986, as amended (the "Code"). Options
granted pursuant to Article III of the Plan are not intended to qualify
as Incentive Stock Options ("Nonqualified Options"). Stock bonus awards
granted pursuant to Article IV of the Plan will be subject to Section 83
of the Code.
3. Administration. The Plan shall be administered by the Board
of Directors of the Company or, upon determination by the Board of
Directors, a committee (the "Committee") which shall consist of not less
than three nonemployee directors of the Company. No member of the Board
of Directors of the Company or of the Committee shall be liable for any
action or determination made in good faith with respect to the Plan or
to any option granted thereunder. In addition, directors, including
Committee members, shall be eligible for indemnification from the
Company, pursuant to the Company's bylaws, for any expenses, judgments
or other costs incurred as a result of a lawsuit filed against them or
any of them claiming any rights or remedies due to their participation
in the administration of the Plan.
4. Authority of Board of Directors and Committee.
(a) Subject to the other provisions of this Plan, the
Board of Directors of the Company or the Committee shall have sole
authority in its absolute discretion: to grant options and stock
bonuses under the Plan; to determine the number of shares subject to any
option or stock bonus under the Plan; to fix the option price and the
duration of each option and stock bonus; to establish any other terms
and conditions of options and stock bonuses; to accelerate the time at
which any outstanding option may be exercised or the time when
restrictions and conditions on stock bonus shares will lapse; and to
terminate the Plan.
(b) Subject to the other provisions of this Plan, and with
a view to effecting its purpose, the Board of Directors or the Committee
shall have sole authority in its absolute
<PAGE>
discretion: to construe and interpret the Plan; to define the terms used
herein; to prescribe, amend, and rescind rules and regulations relating
to the Plan; to make any other determinations; and to do everything
necessary or advisable to administer the Plan.
(c) All decisions, determinations, and interpretations
made by the Board of Directors or the Committee shall be binding and
conclusive on all participants in the Plan and on their legal
representatives, heirs and beneficiaries.
5. Shares Subject to the Plan. The maximum aggregate number of
shares of Common Stock available pursuant to the Plan, subject to
adjustment as provided in Section 10 of this Article I, shall be 430,000
shares of the Company's common stock (the "Common Stock"). If any
option granted pursuant to the Plan expires or terminates for any reason
before it has been exercised in full, the unpurchased shares subject to
that option shall again be available for the purposes of the Plan,
regardless of whether the option was granted pursuant to Article II or
Article III of the Plan. If any shares issued pursuant to a stock bonus
are forfeited, they shall again be available under the Plan. The
Company, during the term of this Plan, will at all times reserve and
keep available such number of shares of its Common Stock as shall be
sufficient to satisfy the requirements of the Plan. Authorized but
unissued shares of the Company shall also be subject to issuance under
the Plan.
6. Eligibility.
(a) Incentive Stock Options and Stock Bonus Awards.
Incentive Stock Options and stock bonus awards may be granted only to
key employees of the Company or any of its subsidiaries (including
directors and officers who are key employees).
(b) Nonqualified Options. Nonqualified Options may be
granted to officers, directors and key employees of the Company or any
of its subsidiaries and to consultants, advisers and independent
contractors to the Company or any of its subsidiaries for bona fide
services rendered to or on behalf of the Company or any of its
subsidiaries.
(c) Maximum Number of Shares. Notwithstanding any other
provision of the Plan, no eligible person may receive grants of shares
or options to purchase shares under the Plan exceeding in the aggregate
250,000 shares of Common Stock, subject to adjustment as provided in
Section 10 of this Article I.
(d) Number of Options and Bonuses. More than one option
and more than one stock bonus may be granted to the same person, if the
person otherwise is an eligible recipient under this Plan.
7. Terms and Conditions of Options. Stock options granted
under the Plan shall be evidenced by agreements in such form as the
Board of Directors or the Committee may from time to time approve, which
agreements shall comply with and be subject to the following terms and
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conditions, in addition to the provisions of Article II or Article III,
as applicable:
(a) Number of Shares; Designation. Each option shall
state the number of shares to which it pertains and whether it is an
Incentive Stock Option granted under Article II of the Plan or a
Nonqualified Option granted under Article III of the Plan.
(b) Option Price. Each option shall state the option
price, which shall not be less than the fair market value (as
hereinafter defined) per share of the Common Stock at the time the
option is granted (except that for Incentive Stock Options granted to
any employee who owns more than 10% of the combined voting power of all
classes of stock of the Company, or of its parent or subsidiary, the
option price shall not be less than 110% of fair market value). Fair
market value shall be determined by the Board of Directors on the basis
of such factors as it deems appropriate; provided, however, that fair
market value shall be determined without regard to any restriction other
than a restriction which, by its terms, will never lapse, and further
provided that if at the time the determination of fair market value is
made, the Common Stock is admitted to trading on a national securities
exchange for which sales prices are regularly reported, fair market
value shall not be less than the mean of the high and low asked or
closing sales prices reported for the Common Stock on that exchange on
the day (or most recent trading day preceding the day on which the
option is granted). For purposes of this Plan, the term "national
securities exchange" shall include the National Association of
Securities Dealers Automated Quotation System and the over-the-counter
market.
(c) Exercise of Options. Except as otherwise provided in
this Plan or in the applicable option agreement, each option shall be
exercisable in installments as follows:
(i) up to 20% of the total shares subject to the
option at any time after one year from the date of grant and prior to
termination of the option;
(ii) up to 40% of the total shares subject to the
option (less any shares previously purchased pursuant to the option) at
any time after two years from the date of grant and prior to termination
of the option;
(iii) up to 60% of the total shares subject to the
option (less any shares previously purchased pursuant to the option) at
any time after three years from the date of grant and prior to
termination of the option; and
(iv) up to 80% of the total shares subject to the
option (less any shares previously purchased pursuant to the option) at
any time after four years from the date of grant and prior to
termination of the option; and
(v) in full at any time after five years from the
date of grant and prior to termination of the option.
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<PAGE>
Not less than 1,000 shares may be purchased at any one time
unless the number purchased is the total number that may be purchased
under the option at that time. No option may be exercised for any
fraction of a share of Common Stock.
(d) Written Notice and Payment Required. An option granted
pursuant to the terms of this Plan shall be exercised when written
notice of that exercise has been received by the Company at its
principal office from the person entitled to exercise the option and
full payment for the shares with respect to which the option is
exercised has been received by the Company. The purchase price of any
shares purchased shall be paid in full in cash or by certified or
cashier's check payable to the order of the Company or, unless
prohibited by the applicable option agreement, by shares of Common Stock
or by a combination of cash, check, and (unless prohibited by the
applicable option agreement) shares of Common Stock. If any portion of
the purchase price is paid in shares of Common Stock, those shares shall
be tendered at their then fair market value as determined in accordance
with Section 7(b) of this Article I.
(e) Compliance With Securities Laws. The options granted under
the Plan and the shares issuable pursuant to the Plan may, at the option
of the Company, be registered under applicable federal and state
securities laws, but the Company shall have no obligation to undertake
any such registrations. Shares of Common Stock shall not be issued with
respect to any option granted under the Plan unless the exercise of that
option and the issuance and delivery of those shares pursuant to that
exercise shall comply with all relevant provisions of state and federal
law including, without limitation, the Securities Act of 1933, as
amended, the rules and regulations promulgated thereunder, and the
requirements of any stock exchange upon which the shares may then be
listed, and shall be further subject to the approval of counsel for the
Company with respect to such compliance. The Board of Directors may
also require an optionee to furnish evidence satisfactory to the
Company, including a written and signed representation letter and
consent to be bound by any transfer restriction imposed by law, legend,
condition, or otherwise, that the shares are being purchased only for
investment and without any present intention to sell or distribute the
shares in violation of any state or federal law, rule, or regulation.
Further, each optionee shall consent to the imposition of a legend on
the shares of Common Stock subject to his or her option restricting
their transferability as required by law or by this Plan.
(f) Options Not Transferable. Options granted pursuant to this
Plan may not be sold, pledged, assigned, or transferred in any manner
otherwise than by will or the laws of descent or distribution and may be
exercised during the lifetime of an optionee only by that optionee.
(g) Duration of Options. Each option and all rights thereunder
granted pursuant to the terms of this Plan shall expire on the date
specified in the applicable option agreement, but in no event shall any
option expire later than 10 years from the date on which the option is
granted. Moreover, any Incentive Stock Option granted to an employee
who owns more than 10% of the combined voting power of all classes of
stock of the Company, or of its parent or subsidiary, must
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<PAGE>
expire within five years from the date of grant. In addition, each
option shall be subject to early termination as provided in the Plan or
applicable option agreement.
(h) Termination of Employment, Disability or Death.
(i) Except as otherwise provided in the applicable
option agreement, if an optionee ceases to be employed by the Company,
its parent, or any of its subsidiaries (or a corporation or a parent or
subsidiary of such corporation issuing or assuming a stock option in a
transaction to which Section 424(a) of the Code applies), for any reason
other than disability or death, his or her option may be exercised at
any time up to three months after the date of termination of
employment.
(ii) Except as otherwise provided in the applicable
option agreement, if an optionee becomes disabled within the meaning of
Section 22(e)(3) of the Code while employed by the Company, or any
parent or subsidiary corporation (or a corporation or a parent or
subsidiary of such corporation issuing or assuming a stock option in a
transaction to which Section 424(a) of the Code applies), the option may
be exercised at any time within three months after the date of
termination of employment due to disability.
(iii) Except as otherwise provided in the applicable
option agreement, if an optionee dies while employed by the Company, its
parent or any of its subsidiaries, (or a corporation or a parent or
subsidiary of such corporation issuing or assuming a stock option in a
transaction to which Section 424(a) of the Code applies), his or her
option shall expire one year after the date of death. During this
period, the option may be exercised, except as otherwise provided in the
applicable option agreement, by the person or persons to whom the
optionee's rights under the option shall pass by will or by the laws of
descent and distribution.
(iv) Any option that may be exercised for a period
following termination of the optionee's employment may be exercised only
to the extent it was exercisable immediately before such termination and
in no event after the option would expire by its terms without regard to
such termination.
(i) Option Agreements. The option agreements authorized under
the Plan may differ from one another and shall contain such other
provisions not inconsistent with the Plan and Article II or Article III
as applicable as the Board of Directors or the Committee may in its
discretion deem advisable from time to time, including, without
limitation, conditions precedent to the exercise of the option covered
by any agreement, which conditions may include the satisfaction of
specified performance criteria by the Company or the optionee.
8. Tax Withholding. The exercise of any option granted under
the Plan is subject to the condition that if at any time the Company
shall determine, in its discretion, that the satisfaction of withholding
tax or other withholding liabilities under any state or federal law is
necessary or
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<PAGE>
desirable as a condition of, or in any connection with, such exercise or
the delivery or purchase of shares pursuant thereto, then in such event,
the exercise of the option shall not be effective unless such
withholding tax or other withholding liabilities shall have been
satisfied in a manner acceptable to the Company.
9. Employment. Nothing in the Plan or in any option or stock
bonus award shall confer upon any eligible employee any right to
continued employment by the Company, or by its parent or subsidiary
corporations, or limit in any way the right of the Company or its parent
or subsidiary corporation at any time to terminate or alter the terms of
that employment.
10. Adjustments.
(a) If the shares of Common Stock of the Company are
increased, decreased, changed into, or exchanged for a different number
or kind of shares or securities through merger, consolidation,
combination, exchange of shares, other reorganization, recapitalization,
reclassification, stock dividend, stock split or reverse stock split in
which the Company is the surviving entity, the Board of Directors shall
make an appropriate and proportionate adjustment in the maximum number
and kind of shares as to which options and stock bonuses may be granted
under this Plan. A corresponding adjustment changing the number or kind
of shares allocated to unexercised options that shall have been granted
prior to any such change, shall likewise be made. Any such adjustment in
outstanding options shall be made without change in the aggregate
purchase price applicable to the unexercised portion of the option, but
with a corresponding adjustment in the price for each share or other
unit of any security covered by the option. In making any adjustment
pursuant to this Section 10(a), any fractional shares shall be
disregarded.
(b) In the event of a consolidation or a merger in which
the Company is not the surviving corporation, or any other merger in
which the shareholders of the Company exchange their shares of stock in
the Company for stock of another corporation, or in the event of
complete liquidation of the Company, or in the case of a tender offer
approved by the Board of Directors, all outstanding options, unless the
applicable option agreement provides otherwise, shall become exercisable
in full immediately prior to the effective date of any such transaction,
regardless of the exercise schedule.
11. Effective Date of Plan. The Plan shall be effective April
19, 1994, the date of adoption of the Plan by the Board of Directors of
the Company, subject to approval of the Plan by the shareholders of the
Company by either (a) the vote of the holders of no less than the
majority of the Company's Common Stock present or represented at a
meeting of shareholders duly called and held, or (b) unanimous written
consent, in either case prior to December 31, 1994.
12. Termination and Amendment of Plan. The Plan may be
terminated at any time by the Board of Directors. Unless sooner
terminated the Plan shall terminate April 19, 2004. No options or stock
bonuses shall be granted under the Plan after the Plan is terminated.
Subject to the limitation contained in Section 13 of this Article I, the
Board of Directors may at any time
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<PAGE>
amend or revise the terms of the Plan, including the form and substance
of the option agreements and stock bonus awards to be used hereunder;
provided that no amendment or revision shall (a) increase the maximum
aggregate number of shares subject to this Plan, except as permitted
under Section 10 of this Article I; (b) change the minimum purchase
price for shares subject to options granted under the Plan; (c) extend
the maximum term established under the Plan for any option or stock
bonus award; or (d) permit the granting of an option or stock bonus
award to anyone other than as provided in the Plan.
13. Prior Rights and Obligations. No amendment, suspension, or
termination of the Plan shall, without the consent of the person who has
received an option or stock bonus award, alter or impair any of that
person's rights or obligations under any option or stock bonus award,
granted under the Plan prior to such amendment, suspension, or
termination.
14. Construction. The provisions set forth in Article II, III
and IV shall not apply to any other of those Articles.
ARTICLE II
INCENTIVE STOCK OPTIONS
Options granted pursuant to this Article II of the Plan shall
constitute Incentive Stock Options under Section 422 of the Code and
shall be designated as such at the time of grant. Incentive Stock
Options granted pursuant to this Article II shall be subject to the
terms, conditions and limitations set forth in Article I above and to
the following:
1. Maximum Amount of Incentive Stock Options. The maximum
aggregate fair market value of Common Stock, determined as of the time
the Incentive Stock Option is granted, for which any employee may be
granted Incentive Stock Options (as defined in Section 422(b) of the
Code) exercisable for the first time during any calendar year under all
incentive stock option plans of the Company and any parent, subsidiary,
and predecessor corporations held by such employee shall not exceed
$100,000. Any option in excess of the foregoing limitation shall be
granted pursuant to Article III of this Plan and shall be clearly and
specifically designated as not being an Incentive Stock Option.
2. Compliance with Section 422 of the Code. This Plan is
intended to comply in every respect with Section 422 of the Code and the
regulations promulgated thereunder with regard to the grant of Incentive
Stock Options and the purchase and delivery of shares of Common Stock
upon the exercise thereof. In the event any future statute or
regulation shall modify Section 422, this Plan shall be deemed to
incorporate by reference such modification for purposes of granting
Incentive Stock Options or the purchase and delivery of any shares of
Common Stock upon the exercise thereof. Any option agreement relating
to an Incentive Stock Option granted pursuant
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<PAGE>
to this Plan that is outstanding and unexercised at the time any
modifying statute or regulation becomes effective shall also be deemed
to incorporate by reference such modification, and no notice of such
modification need be given to the optionee. If any provision of this
Plan is determined to disqualify the shares purchasable pursuant to
Incentive Stock Options granted under this Plan from the special tax
treatment provided by Section 422, such provision shall be deemed to
incorporate by reference for purposes of the Incentive Stock Options the
modification required to qualify the shares for said tax treatment.
ARTICLE III
NONQUALIFIED STOCK OPTIONS
Options granted pursuant to this Article III shall constitute
Nonqualified Options and shall be designated as not being Incentive
Stock Options under Section 422 of the Code. Nonqualified Options shall
be subject to the terms, conditions and limitations set forth in Article
I above and to the following:
1. Tax Reimbursement. In view of the federal and state income
savings expected to be realized by the Company by reason of exercise of
a Nonqualified Option granted pursuant to this Article III, the Board of
Directors or the Committee may, in its discretion, grant Nonqualified
Options the terms of which provide that, upon exercise, the Company will
make a cash compensation payment to the optionee (or his personal
representatives or heirs). The basis for determining the amount of such
cash payment shall be specified in the applicable option agreement. No
person subject to the operation of Section 16(b) of the Securities
Exchange Act of 1934, as amended, shall be entitled to the payment
authorized by this Section 1, except with respect to Nonqualified
Options that are exercised during the period beginning on the third
business day and ending on the twelfth business day following release of
quarterly or annual summary statements of sales and earnings of the
Company or any successor of the Company which assumes the obligations of
the Company hereunder.
2. Termination of Nonemployee Relationships with the Company.
If a nonemployee optionee ceases to serve the Company in the capacity
which made the optionee eligible to receive Nonqualified Options
pursuant to Article III of this Plan, then the optionee's rights upon
such termination shall be governed in the manner of an optionee's rights
upon termination of employment as set forth in Article I of this Plan.
ARTICLE IV
STOCK BONUS AWARDS
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<PAGE>
Stock bonus awards granted pursuant to this Article IV shall be
subject to those terms, conditions and limitations set forth in Article
I above that are applicable to stock bonus awards and to the following
additional terms:
1. Agreement. Each stock bonus award shall be evidenced by an
agreement in such form and containing such provisions not inconsistent
with the Plan as the Board of Directors may from time to time approve.
Each award shall be effective as of the date so stated in the resolution
of the Board making the award.
2. Restrictions and Conditions. Shares of Common Stock awarded
under this Article IV shall be subject to such restrictions and
conditions (if any) as may be imposed by the Board of Directors or the
Committee at the time of making the award. Such restrictions and
conditions may include, without limitation, the satisfaction of
specified performance criteria by the Company or by the grantee of the
stock bonus award; provided, however, that no award shall require any
payment of cash consideration by the recipient. Restrictions and
conditions imposed on shares of Common Stock awarded under this Article
IV may differ from one award to another as the Board of Directors or the
Committee shall, in its discretion, determine. Any restrictions and
conditions shall lapse, in whole or in part, as provided in the
agreement evidencing the stock bonus award, but in no event later than
ten years from the date of the award.
Shares with respect to which no restrictions or conditions are
imposed and shares with respect to which the restrictions and conditions
imposed thereon have lapsed are hereinafter referred to as "Unrestricted
Shares." Shares with respect to which the restrictions and conditions
imposed thereon have not lapsed are hereinafter referred to as
"Restricted Shares."
3. Rights as a Shareholder. A holder of Unrestricted Shares
shall have all of the rights of a shareholder of the Company with
respect thereto and shall be entitled to receive a stock certificate
evidencing such Unrestricted Shares.
A holder of Restricted Shares shall be the owner thereof and
shall, subject to the restrictions and conditions, have all of the
rights of a shareholder with respect thereto, including, but not limited
to, the right to receive all dividends paid on the Common Stock
(ordinary or extraordinary, whether in cash, securities or other
property) and the right to vote the Restricted Shares; provided,
however, that each stock certificate evidencing Restricted Shares shall
bear a conspicuous legend stating that the shares evidenced thereby are
subject to forfeiture and shall be deposited by the holder with the
Company or its designee together with a stock power endorsed in blank.
4. Forfeiture. Except as provided in this Section 4 with
respect to a grantee's death or retirement from the employ of the
Company or any of its subsidiaries, upon termination of the grantee's
employment with the Company or any of its subsidiaries for any reason
whatsoever (voluntarily or involuntarily, with or without cause), all
Restricted Shares then owned by him shall automatically and without any
action on his part be forfeited and transferred to the Corporation.
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<PAGE>
If a grantee shall retire in good standing from the employ of
the Company or any of its subsidiaries under the then established
retirement policies of the Company or if his employment with the Company
or any of its subsidiaries is terminated by reason of his death, then,
in either such event, all restrictions and conditions on his Restricted
Shares shall thereupon lapse and such Restricted Shares shall
automatically and without any action on his part be converted into
Unrestricted Shares.
5. Transferability. Restricted Shares held by a grantee shall
not be subject to alienation, sale, transfer, assignment, pledge,
attachment or encumbrances of any kind, and any attempt to alienate,
sell, transfer, assign, pledge or otherwise encumber any Restricted
Shares shall be void. In addition, the Company may impose such
additional restrictions on the issuance of Common Stock and on the
transfer of Unrestricted Shares as it deems necessary or desirable to
ensure compliance with all applicable federal and state securities laws.
6. Adjustments. If there is a change in the Common Stock of
the Company by reason of any stock dividend, stock split, merger,
consolidation, recapitalization, exchange of shares, or otherwise, any
stock or other securities or other property issued with respect to
Restricted Shares shall be subject to the same restrictions and
conditions as the Restricted Shares, and the certificates or other
evidence of such stock, securities or other property, together with an
appropriate power of attorney, shall be delivered to the Company or its
successor or designee and held until such time as the restrictions and
conditions applicable thereto lapse or until the stock, securities or
other property is forfeited in accordance with the provisions of Article
IV of the Plan.
7. Tax Reimbursement. In view of the federal and state income
tax savings expected to be realized by the Company upon the award of
Unrestricted Shares or upon the lapse of restrictions and conditions
applicable to Restricted Shares, the Board of Directors or the Committee
may, in its discretion, grant stock bonus awards the terms of which
provide that, upon the grantee's receipt of Unrestricted Shares, the
Company will pay to the grantee (or his personal representatives or
heirs) an amount in cash equal to the amount of tax benefit realized or
expected to be realized by the Company through the utilization of
deductions claimed for income tax purposes as a result of the grantee's
receipt of Unrestricted Shares. The tax reimbursement payment provided
for herein shall be made on or before the last day of the calendar year
in which taxable income is recognized by a grantee under Section 83 of
the Code.
8. Withholding for Taxes. No grantee shall be entitled to
issuance of a stock certificate evidencing Unrestricted Shares until he
has paid, or made arrangements for payment, to the Company of an amount
equal to the income and other taxes that the Company is required to
withhold from the grantee as a result of his receipt of Unrestricted
Shares. In addition, such amounts as the Company is required to
withhold by reason of any tax reimbursement payments made pursuant to
Section 7 of this Article IV shall be deducted from such payments.
IN WITNESS WHEREOF, this InteroAct Systems, Incorporated 1994
Stock Compensation
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<PAGE>
Plan is executed on behalf of the Company as of August 26, 1996 and
reflects amendments effective through such date.
INTERoACT SYSTEMS, INCORPORATED
(Corporate Seal) By:________________________________
President
ATTEST:
______________________________
Secretary
<PAGE>
<PAGE>
Exhibit 10(j)
INTER(bullet)ACT SYSTEMS, INCORPORATED
INCENTIVE STOCK OPTION AGREEMENT
THIS INCENTIVE STOCK OPTION AGREEMENT (the "Option Agreement") dated
the ____ day of ____ 1996, by and between Inter(bullet)Act Systems,
Incorporated, a North Carolina corporation (the "Company"), and ___________, a
key employee of the Company (the "Optionee"):
W I T N E S S E T H:
WHEREAS, the Company desires to provide the Optionee with an incentive
to accept employment with the Company and an opportunity to acquire common stock
of the Company so that the Optionee may have a proprietary interest in the
success of the Company; and
WHEREAS, the Company desires to grant the Optionee an incentive stock
option under the Inter(bullet)Act Systems, Incorporated 1994 Stock Compensation
Plan (the "Plan"), a copy of which is attached hereto and incorporated by
reference, and the Optionee desires to accept such option in accordance with the
terms and conditions set forth herein;
NOW, THEREFORE, in consideration of the premises and the mutual
covenants contained herein, and intending to be legally bound hereby, the
parties agree as follows:
1. Grant of Option. Subject to the terms and conditions of this
Agreement, the Company hereby grants to the Optionee an option (the "Option") to
purchase all or any portion of ________________ (______) shares of the Company's
Common Stock (the "Common Stock") at an exercise price of
$____________________per share (the "Exercise Price"). This Option is intended
to be an incentive stock option as defined in section 422 of the Internal
Revenue Code of 1986, as amended (the "Code").
2. Term of Option. Subject to the further limitations and restrictions
as provided in the Plan and this Agreement, the Option shall become exercisable
in installments, with the Optionee having the right to purchase from the Company
the following number of shares of Common Stock of the Company subject to this
Option, on and after the following dates, in cumulative fashion:
(a) At any time after ____________, 19__, and prior to
termination of this Option, up to ______ percent (___%) of the total
number of shares subject to this Option;
(b) At any time after ____________, 19__, and prior to
termination of this Option, up to ______ percent (___%) of the total
number of shares subject to this Option (less any shares previously
purchased pursuant to this Option);
(c) At any time after ____________, 19__, and prior to
termination of this Option, up to ______ percent (___%) of the total
number of shares subject to this Option (less any shares previously
purchased pursuant to this Option);
(d) At any time after ____________, 20__, and prior to
termination of this Option, up
<PAGE>
to ______ percent (__%) of the total number of shares subject to this
Option (less any shares previously purchased pursuant to this Option);
and
(e) At any time after ___________, 20__, and prior to the
termination of this Option, this Option shall be exercisable in full.
Not less than _______________ shares may be purchased at any one time pursuant
to any exercise of this Option unless the number of shares purchased is the
total number that may be purchased under this Option at that time or unless the
Company shall otherwise consent. No fractional shares of Common Stock shall be
issued upon any exercise of this Option.
3. Transfer of Option. The Option is not transferable by the Optionee
during the Optionee's lifetime but may be transferred only upon the death of the
Optionee by will or by the laws of descent and distribution.
4. Adjustments. The aggregate number of shares of Common Stock subject
to the Option and the Option exercise price shall be appropriately and equitably
adjusted to reflect any stock dividend, stock split, share combination or
recapitalization occurring subsequent to the date hereof, as further described
in Section 10 of Article I of the Plan.
5. Termination of Option. The Option shall terminate and be no longer
exercisable after _____ (___) years from the date hereof; provided, however,
that the Option shall sooner terminate as follows:
(a) If the Optionee's employment with the Company, its parent, or
any of its subsidiaries, or a corporation of a parent or
subsidiary of such corporation issuing or assuming the Option in
a transaction to which Section 424(a) of the Code applies (for
purposes of this Section 5, the Company, its parent, subsidiary
or such other corporation collectively referred to as the
"Company") is terminated for any reason other than disability or
death, then the Option or unexercised portion thereof shall
terminate on the date which is three (3) months from the
effective date of the Optionee's termination of employment.
(b) If the Optionee's employment with the Company is terminated
because of his disability (within the meaning of Section
22(e)(3) of the Code), then the Option or unexercised portion
thereof shall terminate on the date which is three (3) months
from the effective date of the Optionee's termination of
employment due to disability.
(c) If the Optionee's employment with the Company is terminated by
reason of death, then the Option or unexercised portion thereof
shall terminate which is one year after the date of the
Optionee's death. During this period, the Option may be
exercised by the person or persons to whom the Optionee's rights
under this Agreement shall pass by will or by the laws of
descent and distribution.
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<PAGE>
Any Option that may be exercised for a period following termination of
the Optionee's employment may be exercised only to the extent it was exercisable
immediately before such termination and in no event after the Option would
expire by its terms without regard to such termination.
6. Method of Exercise. The Option shall be exercised by the tender of
payment and delivery to the Company at its principal place of business of a
written notice, at least five (5) days prior to the proposed date of exercise,
which notice shall:
(a) State the election to exercise the Option, the number of
shares of Common Stock with respect to which the Option is being
exercised, and the name, address, and social security number of the
person in whose name the stock certificate or certificates for such
shares of Common Stock is to be registered.
(b) Contain any such representations and agreements as to
Optionee's investment interest with respect to such shares of Common
Stock as shall be satisfactory to the Board or Committee.
(c) Be signed by the person entitled to exercise the Option, and
if the Option is being exercised by any person or persons other than the
Optionee, be accompanied by proof, satisfactory to the Committee, of the
right of such person or persons to exercise the Option.
Payment of the exercise price may be made in cash or by certified,
cashiers or official check or, at the option of the Company, by personal check.
Payment may also be made by surrendering shares of Common Stock (including any
shares of Common Stock received upon a prior or simultaneous exercise of the
Option) at the then fair market value of such shares, as determined in
accordance with Section 7(b) of Article I of the Plan. Payment may also be made
by combining cash or check and shares of Common Stock.
After receipt of such notice in a form satisfactory to the Committee and
the acceptance of payment, the Company shall deliver to the Optionee a
certificate or certificates representing the shares purchased hereunder,
provided, that if any law or regulation requires the Company to take any action
with respect to the shares specified in such notice before the issuance thereof,
the date of delivery of such shares shall be extended for the period necessary
to take such action.
7. Rights of a Shareholder. The Optionee shall not be deemed for any
purpose to be a shareholder of the Company with respect to any shares covered by
this Option unless this Option shall have been exercised and the Exercise Price
paid in the manner provided herein. No adjustment will be made for dividends or
other rights where the record date is prior to the date of exercise and payment.
Upon the exercise of the Option and the issuance of the certificate or
certificates evidencing the shares of Common Stock received, except as otherwise
provided herein, the Optionee shall have all the rights of a stockholder of the
Company including the rights to receive all dividends or other distributions
paid or made with respect to such shares.
3
<PAGE>
8. Compliance with Securities Laws. The Option granted hereunder and the
shares issuable upon the exercise of the Option have not been registered under
applicable federal and state securities laws and the Company has no obligation
to undertake any such registrations. This Option may not be exercised unless the
issuance and delivery of those shares of Common Stock pursuant to such exercise
shall comply with all relevant of federal and state securities laws including,
without limitation, the Securities Act of 1933, as amended, the rules and
regulations promulgated thereunder, and the requirements of any stock exchange
upon which such shares may then be listed, and shall be further subject to the
approval of counsel for the Company with respect to such compliance. If required
by the Board of Directors, the Optionee agrees to furnish evidence satisfactory
to the Company, including a written and signed representation letter and consent
to be bound by any transfer restrictions imposed by law, legend, condition, or
otherwise, that the shares are being purchased only for investment and without
any present intention to sell or distribute the shares in violation of any
federal or state law, rule, or regulation.
9. General Transfer Restrictions on Option Shares. The shares of Common
Stock issuable upon exercise of this Option shall be subject to certain
restrictions on transfer contained herein and in any shareholders' agreement
among the Company and all its shareholders as may be in effect at the time of
exercise of this Option. Except as otherwise expressly provided herein or
without the prior written consent of the Company, the Optionee shall not sell,
transfer, assign, convey, pledge, encumber or in any manner dispose of (all such
acts hereinafter referred to as "transfer"). The shares of Common Stock received
upon the exercise of the Option, either voluntarily or involuntarily, unless as
a condition to any such transfer, the transferee agrees in writing that he, his
heirs, successors and assigns shall be subject to and bound by the provisions of
this Agreement as if such transferee were the Optionee hereunder. Any purported
transfer in violation of this Agreement shall be void and shall not transfer any
interest or title to the purported transferee. The Company shall not be required
to transfer on its books any shares of Common Stock sold or transferred in
violation of any of the provisions set forth in this Agreement or to treat as
owner of such shares, or to pay dividends to, any transferee to whom any of the
shares of Common Stock shall have been transferred.
10. Shareholders' Agreement. The Optionee understands and agrees that
the shares of Common Stock issuable upon exercise of this Option shall also be
subject to the restrictions on transfer and other provisions of the
shareholders' agreement, if any, that may be in effect among the Company and all
its shareholders as of the date of any exercise of this Option (the
"Shareholders' Agreement"). As a condition to the exercise of this Option, the
Optionee agrees that he will become a party to the Shareholders' Agreement by
executing a joinder agreement or other appropriate document.
11. Legends. The certificate or certificates evidencing all or any of
the shares of Common Stock issued upon exercise of this Option shall bear
substantially the following legend:
"The shares evidenced by this certificate have not been
registered under the Securities Act of 1933, as amended, or
under the securities laws of any state. The shares may not be
sold, transferred, pledged or
4
<PAGE>
hypothecated in the absence of an effective registration
statement under the Securities Act of 1933, as amended, and such
registration or qualification as may be necessary under the
securities laws of any state, or an opinion of counsel
satisfactory to the Company that such registration or
qualification is not required.
The shares evidenced by this certificate are also subject to
certain restrictions on transfer and rights of the Company set
forth in an Incentive Stock Option Agreement dated as of January
30, 1996 by and between William F. Penwell and the Company, a
copy of which is on file with the Company."
and shall also bear any legend required by the Shareholders' Agreement.
12. Right of First Refusal to Company. At all times the shares of Common
Stock received pursuant to the exercise of this Option are owned by the
Optionee, the Company shall have the right of first refusal to purchase any such
shares proposed to be transferred by the Optionee (whether or not the Optionee
is still employed by the Company) to a bona fide third party purchaser upon the
same price and terms as those offered by such third party purchaser. Upon
receipt of a bona fide offer to purchase any such shares of Common Stock from a
prospective third party purchaser, the Optionee shall notify the Company in
writing of the offer, all terms thereof and the name and address of the
prospective purchaser. The Company shall have thirty (30) days after receipt of
such notice in which to exercise its right of first refusal with respect to all,
but not less than all, of the shares of Common Stock proposed to be transferred
to the third party purchaser by payment of the applicable purchase price to the
Optionee on the terms contained in the written notice. If the Company does not
exercise its right of first refusal within such thirty-day period, the Optionee
may transfer the shares of the Common Stock to the third party upon the terms
set forth in the notice to the Company. Upon such transfer, the third party
shall take such shares of Common Stock subject to the provisions and
restrictions of this Agreement other than those contained in subsection 13(a)
below.
13. Purchase Right of Company Upon Certain Events. Upon the occurrence
of any of the following events, the Company shall have an immediate and
automatic right, without any action having to be taken on the part of the
Optionee, to purchase from the Optionee, all or any portion of the shares of
Common Stock then owned by the Optionee at a price equal to the fair market
value of such shares, as determined in Section 7(b) of Article I of the Plan:
(a) Termination of the Optionee's employment with the Company
for any reason, including without limitation, termination by death,
disability, retirement, for cause, without cause, voluntary or
involuntary;
(b) Any of the following: (i) an adjudication or order for
relief by a state or federal court that the Optionee is bankrupt or
insolvent or is subject to Chapter 11 or any reorganization proceeding;
(ii) filing by the Optionee of a voluntary petition in any state or
federal court to be adjudicated a bankrupt or to subject the Optionee to
Chapter 11 or any
5
<PAGE>
reorganization proceeding; (iii) the filing by a third party of an
involuntary petition in any state or federal court to have the Optionee
adjudicated bankrupt or insolvent, or for an order for relief, or to
subject the Optionee to the provisions of Chapter 11 or any
reorganization proceeding or to obtain the appointment of a receiver
which is not dismissed within one hundred twenty (120) days of the date
of the filing; or (iv) the making by the Optionee of a general
assignment for the benefit of creditors;
(c) An order or adjudication by any court that the spouse of the
Optionee has acquired any right in any shares of the Common Stock as a
result of equitable distribution rights under any applicable law or
statute, including, without limitation, North Carolina General Statutes
Sections 50-21 and 52-22 or a similar statute of another state; or
(d) Any other transfer, proceeding or other action by or which
the Optionee may be deprived or diverted of any right, title or interest
in or to his shares of Common Stock, including but not limited to
seizure under levy of attachment or execution and foreclosure upon a
pledge, and which is not otherwise provided for in this Agreement.
The Company may exercise its right pursuant to this Section 13 by giving the
Optionee notice of its election within ninety (90) days of the date on which an
event described in subsection (a) through (d) of this Section 13 occurs. The
notice shall include a closing date, which date shall be within thirty (30) days
of the date the notice is given. The closing shall be at the principal office of
the Company at which the Optionee shall deliver to the Company stock
certificate(s) evidencing the shares of the Common Stock to be purchased,
properly endorsed in blank with all transfer and excise taxes paid (and, where
appropriate, the stamps affixed thereto). In the event of death of the Optionee,
the Optionee's legal representative shall also deliver copies of his letters
testamentary or authority to act on behalf of the estate, a certified copy of
the Optionee's will, if any, and a release or tax letter from the appropriate
tax authorities that the Common Stock transferred is not subject to taxes. In
addition, at the closing the Optionee, shall warrant that the Common Stock
transferred is free and clear of all liens, encumbrances and claims. At the
closing, the Company shall pay the full amount for the Common Stock in cash or
by company check.
14. Termination of Certain Rights and Obligations. The provisions of
Sections 9, 10, 12 and 13 hereof shall terminate upon the consummation of the
Company's sale of its Common Stock in a bona fide underwriting pursuant to a
registration statement on Form S-1 under the Securities Act of 1933, as amended
(or any equivalent successor form).
15. Specific Performance. The Optionee agrees that in the event of any
violation of this Agreement, an action may be commenced by the Company for any
such preliminary and permanent injunctive relief and other equitable relief in
any court of competent jurisdiction in the State of North Carolina or in any
other court of competent jurisdiction. The Optionee hereby waives any objections
on the grounds of improper jurisdiction or venue to the commencement of an
action in the State of North Carolina and agrees that effective service of
process may be made upon him by mail under the notice provisions contained in
Section 19 hereof.
6
<PAGE>
16. Construction. Whenever the word "Optionee" is used in any provision
of this Agreement under circumstances where the provision should logically be
construed to apply to (i) the estate, personal representative, or beneficiary to
whom this Option may be transferred by will or by the laws of descent and
distribution or (ii) the guardian or legal representative of the Optionee acting
pursuant to a valid power of attorney or the decree of a court of competent
jurisdiction, then the term "Optionee" shall be construed to include such
estate, personal representative, beneficiary, guardian or legal representative.
17. Severability. The provisions of this Agreement shall be severable
and the invalidity or unenforceability of any provision shall not affect the
validity or enforceability of the other provisions hereto.
18. Successor and Assigns. The terms of this Agreement shall be binding
upon and shall enure to the benefit of any successors or assigns of the Company
and of the Optionee and of the Common Stock issued or issuable upon the exercise
hereof.
19. Notices. Notices under this Agreement shall be in writing and shall
be deemed to have been duly given (i) when personally delivered, (ii) when
forwarded by Federal Express, Airborne, or another private carrier which
maintains records showing delivery information, (iii) when sent via facsimile
but only if a written facsimile acknowledgement of receipt is received by the
sending party, or (iv) when placed in the United States Mail and forwarded by
registered or certified mail, return receipt requested, postage prepaid,
addressed to the party to whom such notice is being given.
20. Modification. This Agreement is the entire agreement and
understanding of the parties hereto with respect to the Option granted herein
and supersedes any and all prior and contemporaneous negotiations,
understandings and agreements with regard to the Option and the matters set
forth herein, whether oral or written. No representation, inducement, agreement,
promise or understanding altering, modifying, taking from or adding to the terms
and conditions hereof shall have any force or effect unless the same is in
writing and validity executed by the parties hereto.
21. Governing Law. This Agreement shall be governed in accordance with
the laws of the State of North Carolina.
22. Multiple Counterparts. This Agreement may be signed in one or more
counterparts, each of which shall be deemed to be an original.
7
<PAGE>
IN WITNESS WHEREOF, the Optionee has executed this Agreement and the
Company has caused this Agreement to be executed on its behalf by its duly
authorized Chairman of the Board of Directors effective as of the day and year
first above written.
INTER(bullet)ACT SYSTEMS, INCORPORATED
ATTEST: By:
_________________, Chairman
Secretary
(Corporate Seal)
WITNESS: OPTIONEE:
(SEAL)
Name: Name:
8
<PAGE>
<PAGE>
Exhibit 10(k)
NEITHER THIS WARRANT NOR THE SHARES OF COMMON STOCK ISSUABLE UPON THE EXERCISE
HEREOF HAVE BEEN REGISTERED UNDER ANY FEDERAL OR STATE SECURITIES LAWS. THIS
WARRANT HAS BEEN ISSUED UNDER EXEMPTIONS THAT DEPEND, IN PART, ON THE INTENT OF
THE HOLDER HEREOF NOT TO SELL OR TRANSFER THIS WARRANT OR SUCH SHARES IN ANY
MANNER NOT PERMITTED BY SUCH LAWS. THIS WARRANT AND SUCH SHARES THEREFORE MAY
NOT BE SOLD OR TRANSFERRED EXCEPT IN ACCORDANCE WITH THE RESTRICTIONS SET FORTH
HEREIN.
INTER(bullet)ACT SYSTEMS, INCORPORATED
AMENDED AND RESTATED
COMMON STOCK PURCHASE WARRANT
FOR VALUE RECEIVED, including the sum of $10.00, Inter(bullet)Act
Systems, Incorporated, a North Carolina corporation (the "Company"), hereby
grants Vanguard Cellular Operating Corp., a North Carolina corporation, or its
registered assigns, the right to purchase Nine Hundred Thousand One Hundred
Thirteen (900,113) shares (such number of shares being subject to adjustment as
provided hereinafter) of the validly authorized and issued, fully paid and
nonassessable shares of common stock of the Company, no par value per share (the
"Common Stock"), at a price per share equal to the Exercise Price, as defined in
Section 2 below, upon compliance with and subject to the following terms and
conditions:
1. Exercise of Warrant. This Warrant may be exercised in whole at any
time, or in part from time to time, on or before the expiration date set forth
in Section 3 below by surrendering this Warrant, or the applicable portion
hereof, with a subscription form substantially in the form attached hereto duly
executed, at the offices of the Company in Norwalk, Connecticut, and by paying
in full the Exercise Price, in immediately available funds or as otherwise
hereinafter provided, for the number of shares of Common Stock as to which this
Warrant or applicable portion hereof is exercised. No fractional shares shall be
issued upon the exercise of this Warrant and, instead, any fractional shares
created by exercise hereunder shall be purchased by the Company at the rate of
the Exercise Price per share then in effect. In lieu of payment of the Exercise
Price, the registered holder may surrender all or any portion of the unexercised
Warrant and receive from the Company in exchange therefor that number of shares
of Common Stock equal to the (i) excess of (A) the Fair Market Value of one (1)
share of Common Stock at the time of exercise over (B) the Exercise Price per
share, multiplied by (ii) the number of shares of Common Stock with respect to
which the Warrant is being surrendered. For purposes of this Section, "Fair
Market Value" shall mean as of a given date, the average of the closing sales
prices per share of the Company's Common Stock, as reported on the national
securities exchange on which the Common Stock is principally traded for the ten
business days immediately preceding the day on which the
<PAGE>
Common Stock is to be valued. For purposes of this section, the term "national
securities exchange" shall include the National Association of Securities
Dealers Automated Quotation System. If at the time the determination of Fair
Market Value is made the Common Stock is not admitted to trading on a national
securities exchange for which sales prices are regularly reported, Fair Market
Value shall be determined by agreement between the Company and the registered
holder, acting through their independent directors or independent authorized
persons. In the event that the Company and the registered holder cannot agree on
the Fair Market Value, such value shall be determined by a national or regional
investment banking firm mutually selected by the Company and the registered
holder. In the event that the Company and the registered holder cannot mutually
agree on one investment banking firm, or if the firm so appointed declines or
fails to serve, then the registered holder and the Company shall each choose one
such investment banking firm and the respective firms so chosen shall appoint
another national or regional investment banking firm. The investment banking
firm so selected shall determine Fair Market Value. The fees and expenses of the
investment banking firm or firms shall be paid by the Company. The Company and
the registered holder agree to be bound by the determination of the investment
banking firm as to Fair Market Value; provided, however, that nothing herein
shall prevent the registered holder, in its sole discretion, from withdrawing
its exercise of the Warrant if the registered holder and the Company cannot
mutually agree on the Fair Market Value or if the registered holder does not
agree with the Fair Market Value determination of the investment banking firm
(in which event one-half of the fees and expenses of the investment banking firm
shall be paid by the registered holder).
2. Exercise Price. The Exercise Price shall be Twenty-Three and 50/100
Dollars ($23.50), subject to adjustment as provided in Section 4 below.
3. Expiration of Warrant. This Warrant shall expire and all rights
hereunder shall cease on May 5, 2005.
4. Adjustment of Number of Shares. The number of shares of Common Stock
for which this Warrant may be exercised and the Exercise Price per share shall
be adjusted in amount and number in accordance with the following:
(a) If the Company shall declare and pay on shares of Common
Stock a dividend payable in shares of Common Stock or shall split the
then outstanding shares of Common Stock into a greater number of
shares, the number of shares of Common Stock for which this Warrant may
be exercised, as in effect at the time of taking of a record for such
dividend or at the time of such stock split, shall be proportionately
increased and the Exercise Price per share shall be proportionately
decreased. Conversely, if at any time the Company shall contract or
reduce the number of outstanding shares of Common Stock by combining
such shares into a smaller number of shares, the number of shares of
Common Stock for which this Warrant may be
2
<PAGE>
exercised at the time of such action shall be proportionately decreased
as of such time and the Exercise Price per share shall be
proportionately increased.
(b) In the case of (i) any reclassification or changes of the
Common Stock other than as provided above, or (ii) a consolidation,
merger, share exchange or combination involving the Company or a sale
or conveyance to another corporation of the property and assets of the
Company as an entirety or substantially as an entirety, in each case as
a result of which holders of Common Stock shall be entitled to receive
stock, securities or other property assets (including cash) with
respect to or in exchange for such Common Stock, the registered holder
of this Warrant will be entitled thereafter to receive, upon exercise
thereof, the kind and amount of shares of stock, other securities or
other property or assets which such registered holder would have owned
or been entitled to receive upon such reclassification, change,
consolidation, merger, share exchange, combination, sale or conveyance
had this Warrant been exercised immediately prior thereto.
5. Notice of Adjustments. Within five (5) days after any adjustment in
the number of shares of Common Stock purchasable upon the exercise of this
Warrant or in the Exercise Price pursuant to Section 4 above, the Company shall
give written notice thereof to the registered holder. Such notice shall state
the increased or decreased number of shares purchasable upon the exercise of
this Warrant and the new Exercise Price, setting forth in detail the method of
calculation.
6. Partial Exercise of Warrant. In the event of any partial exercise of
this Warrant, the Company shall return to the registered holder this Warrant,
which shall have noted thereon the date of partial exercise and the number of
shares of Common Stock issued upon the partial exercise thereof. After a partial
exercise of this Warrant, the number of shares of Common Stock for which the
remaining portion of this Warrant may be exercised shall be equal to the
Applicable Percentage less the number of shares (as adjusted if necessary to be
consistent with Section 4 above) previously issued upon partial exercises of
this Warrant.
7. Reservation of Shares. The Company shall at all times reserve and
keep available a number of its authorized but unissued shares of its Common
Stock sufficient to permit the exercise in full of this Warrant.
8. Sale of Warrant or Shares. Neither this Warrant nor the shares of
Common Stock issuable upon exercise hereof have been registered under the
Securities Act of 1933, as amended, or under the securities laws of any state.
Neither this Warrant nor such shares, when issued, may be sold, transferred,
pledged or hypothecated in the absence of an effective registration statement
for this Warrant, or the shares of Common Stock, as the case may be, under the
Securities Act of 1933, as amended, and such registration or qualification as
may be necessary under the securities laws of any state, or an opinion of
counsel satisfactory to the Company that such registration or qualification is
not required.
3
<PAGE>
9. Shareholders' Agreement. The holder understands and agrees that the
shares of Common Stock issuable upon exercise of this Warrant shall also be
subject to the restrictions on transfer and other provisions of that certain
Shareholders' Agreement dated as of April 16, 1993 among the Company and all its
shareholders, as amended by Amendment No. 1 to Shareholders' Agreement dated as
of June 17, 1994 (as amended and as may be further amended with the consent of
the registered holder, the "Shareholders' Agreement") if in effect at the time
of exercise. As a condition to the exercise of this Warrant, the holder agrees
that the holder will become a party to the Shareholders' Agreement by executing
a Joinder Agreement or other appropriate document.
10. Legends. The certificate or certificates evidencing all or any of
the shares of Common Stock issued upon exercise of this Warrant shall bear the
following legend:
"The Shares evidenced by this certificate have not been registered
under the Securities Act of 1933, as amended, or under the securities
laws of any state. The shares may not be sold, transferred, pledged or
hypothecated in the absence of an effective registration statement
under the Securities Act of 1933, as amended, and such registration or
qualification as may be necessary under the securities laws of any
state, or any opinion of counsel satisfactory to the Company that such
registration or qualification is not required."
Such certificate or certificates shall also bear any legend required by
the Shareholders' Agreement.
11. Successor and Assigns. The terms of this Warrant shall be binding
upon and shall enure to the benefit of any successors or assigns of the Company
and of the holder or holders hereof and of the Common Stock issued or issuable
upon the exercise hereof.
12. Transfer of Warrant. This Warrant shall be registered on the books
of the Company, which shall be kept by it at its principal office for that
purpose and shall be transferable only on said books by the registered holder
hereof in person or by such holder's duly authorized attorney upon surrender of
this Warrant properly endorsed, and only in compliance with the foregoing
provisions of this Warrant. Except as otherwise provided herein, and subject to
applicable securities laws, this Warrant and all rights hereunder are
transferrable in whole or in part by the registered holder hereof in person or
by the registered holder's duly authorized attorney on the books of the Company
upon surrender of this Warrant, or the applicable portion hereof, with a
transfer form substantially in the form attached hereto duly executed, at the
offices of the Company in Norwalk, Connecticut. The Company may deem and treat
the registered holder of this Warrant at any time as the absolute owner hereof
for all purposes and shall not be affected by any notices to the contrary.
13. Notices. Notices under this Warrant shall be in writing and shall be
deemed to have been duly given (i) when personally delivered, (ii) when
forwarded by Federal Express,
4
<PAGE>
Airborne, or another private carrier which maintains records showing delivery
information, (iii) when sent via facsimile but only if a written or facsimile
acknowledgment of receipt is received by the sending party, or (iv) when placed
in the United States Mail and forwarded by registered or certified mail, return
receipt requested, postage prepaid, addressed to the party to whom such notice
is being given and, with respect to the Company, addressed to the Company's
principal office, and with respect to the registered holder of the Warrant,
addressed to the address of such holder as maintained on the records of the
Company, or to such other address as may be furnished in writing to the parties.
14. Governing Law. This Warrant shall be governed in accordance with the
laws of the State of North Carolina without taking into account conflict of law
provisions.
IN WITNESS WHEREOF, the Company has caused this Warrant to be issued
and executed in its corporate name by its President and its corporate seal to be
affixed hereto and attested by its Secretary or Assistant Secretary.
DATED: August 2, 1996 INTER(bullet)ACT SYSTEMS, INCORPORATED
ATTEST:
By:
Secretary President
(Corporate Seal)
NOTE: This Warrant has been issued as an amendment and restatement of that
certain common stock purchase warrant dated August 28, 1995 initially
exercisable for 401,027 shares, as adjusted from time to time as stated therein.
5
<PAGE>
Exercise Form for
Common Stock Purchase Warrant
INTER(bullet)ACT SYSTEMS, INCORPORATED
The undersigned hereby irrevocably subscribes for the shares of Common
Stock of Inter(bullet)Act Systems, Incorporated indicated below, upon the terms
and conditions of the attached Warrant.
No. of Shares: ________________________________
Exercise Price per share:
$______________________________________________
Subscriber's Name and Address:
(Please print) ________________________________
_______________________________________________
_______________________________________________
Subscriber's Telephone Number: ( )
___________________________________
Subscriber's Signature: ___________________________________________
(if individual)
Subscriber's Signature: ___________________________________________
(if entity) (Name of Entity)
By: ________________________________________________
(Signature of Authorized Person)
________________________________________________
(Title of Authorized Person)
6
<PAGE>
Transfer Form for
Common Stock Purchase Warrant
INTER(bullet)ACT SYSTEMS, INCORPORATED
The undersigned registered holder of the attached Warrant hereby
irrevocable transfers the following portion of the Warrant to purchase shares of
Common Stock of Inter(bullet)Act Systems, Incorporated, which transfer is
subject to the terms and conditions described in the Warrant.
Date of Transfer: _____________________________________________________
Number of Shares Exercisable under
Warrant as of Date of Transfer ___________________________________
Portion of Warrant Transferred:
Expressed as fraction or percentage ________________________________
Expressed as number of shares ______________________________________
Transferee's Name and Address: _______________________________________
(Please Print) _______________________________________
_______________________________________
_______________________________________
Transferee's Telephone Number: ( )
______________________________________
Transferor's Signature: _____________________________________________
(if individual)
Transferor's Signature: _____________________________________________
(if entity) (Name of Entity)
By: ________________________________
(Signature of Authorized Person)
________________________________
(Title of Authorized Person)
7
<PAGE>
<PAGE>
Exhibit 10(l)
WARRANT AGREEMENT
Dated as of
August 1, 1996
between
INTER(bullet)ACT SYSTEMS, INCORPORATED
and
FLEET NATIONAL BANK,
as the Warrant Agent
---------------------------------------------
Warrants for
Common Stock of
Inter(bullet)Act Systems, Incorporated
---------------------------------------------
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
ARTICLE I
Definitions
<S> <C> <C>
SECTION 1.01. Definitions....................................................... 1
SECTION 1.02. Other Definitions................................................. 5
SECTION 1.03. Rules of Construction............................................. 6
ARTICLE II
Warrant Certificates
SECTION 2.01. Form of Warrant Certificates...................................... 6
SECTION 2.02. Legends........................................................... 7
SECTION 2.03. Execution and Delivery of
Warrant Certificates............................................ 8
SECTION 2.04. Loss or Mutilation................................................ 10
ARTICLE III
Exercise Terms
SECTION 3.01. Exercise Price.................................................... 11
SECTION 3.02. Exercise Periods.................................................. 11
SECTION 3.03. Expiration........................................................ 11
SECTION 3.04. Manner of Exercise................................................ 12
SECTION 3.05. Issuance of Warrant Shares........................................ 12
SECTION 3.06. Fractional Warrant Shares......................................... 13
SECTION 3.07. Reservation of Warrant Shares..................................... 13
SECTION 3.08. Compliance with Law............................................... 14
ARTICLE IV
Antidilution Provisions
SECTION 4.01. Changes in Common Stock........................................... 14
SECTION 4.02. Cash Dividends and Other
Distributions................................................... 15
SECTION 4.03. Rights Issue...................................................... 16
SECTION 4.04. Combination; Liquidation.......................................... 17
SECTION 4.05. Other Events...................................................... 18
<PAGE>
2
SECTION 4.06. Superseding Adjustment............................................ 18
SECTION 4.07. Minimum Adjustment................................................ 18
SECTION 4.08. Notice of Adjustment.............................................. 19
SECTION 4.09. Notice of Certain Transactions.................................... 20
SECTION 4.10. Adjustment to Warrant
Certificate..................................................... 21
SECTION 4.11. Issuance of Due Bills............................................. 21
ARTICLE V
Transferability
SECTION 5.01. Transfer and Exchange............................................. 21
SECTION 5.02. Registration, Registration of
Transfer and Exchange......................................... 22
SECTION 5.03. Book-Entry Provisions for the
Rule 144A Global Warrant
and Regulation S Global
Warrant....................................................... 23
SECTION 5.04. Special Transfer Provisions....................................... 25
SECTION 5.05. Surrender of Warrant Certificates................................. 29
ARTICLE VI
Registration and Repurchase Rights
SECTION 6.01. Demand Registration............................................... 29
SECTION 6.02. Incidental Registration Rights.................................... 30
SECTION 6.03. Preparation and Filing............................................ 31
SECTION 6.04. Indemnification................................................... 35
SECTION 6.05. Repurchase of Warrants............................................ 39
ARTICLE VII
Warrant Agent
SECTION 7.01. Appointment of Warrant Agent...................................... 41
SECTION 7.02. Rights and Duties of
Warrant Agent................................................... 41
SECTION 7.03. Individual Rights of
Warrant Agent................................................... 42
SECTION 7.04. Warrant Agent's Disclaimer........................................ 42
SECTION 7.05. Compensation and Indemnity........................................ 43
SECTION 7.06. Successor Warrant Agent........................................... 43
<PAGE>
3
ARTICLE VIII
Miscellaneous
SECTION 8.01. Company Resales................................................... 45
SECTION 8.02. SEC Reports and Other Information................................. 45
SECTION 8.03. Rule 144A......................................................... 46
SECTION 8.04. Persons Benefitting............................................... 46
SECTION 8.05. Rights of Holders................................................. 46
SECTION 8.06. Amendment......................................................... 46
SECTION 8.07. Notices........................................................... 47
SECTION 8.08. Governing Law..................................................... 48
SECTION 8.09. Successors........................................................ 48
SECTION 8.10. Multiple Originals................................................ 48
SECTION 8.11. Table of Contents................................................. 48
SECTION 8.12. Severability...................................................... 48
EXHIBIT A Form of Face of Warrant Certificate
EXHIBIT B Certificate To Be Delivered upon
Exchange or Registration of
Transfer of Warrants
EXHIBIT C Form of Investor Letter To Be
Delivered in Connection with
Transfers to Non-QIB Institutional
Accredited Investors
</TABLE>
<PAGE>
WARRANT AGREEMENT dated as of August 1,
1996, between INTER(bullet)ACT SYSTEMS, INCORPORATED, a
North Carolina corporation (the "Company"), and FLEET
NATIONAL BANK, as Warrant Agent (the "Warrant
Agent").
The Company desires to issue the warrants (the "Warrants")
described herein. The Warrants will initially entitle the holders thereof (the
"Holders") to purchase in the aggregate 1,041,428 shares of Common Stock, no par
value (the "Common Stock"), of the Company in connection with an offering by the
Company (the "Offering") of 142,000 units (the "Units"). Each Unit will consist
of (i) one of the Company's 14% Senior Discount Notes Due 2003 of the Company,
with a principal amount at maturity of $1,000 (collectively, the "Notes") and
(ii) one Warrant. Each Warrant will entitle the Holder to purchase 7.334 shares
of Common Stock, subject to adjustment as provided herein.
The Warrants will not trade separately from the Notes until
the earliest date (the "Separation Date") to occur of: (i) the commencement of a
registered exchange offer for the Notes or the effective date of a registration
statement relating to a shelf registration statement for the resale of the
Notes; and (ii) such earlier date as may be determined by the Initial Purchasers
(as defined herein).
The Company further desires the Warrant Agent to act on behalf
of the Company in connection with the issuance of the Warrants as provided
herein and the Warrant Agent is willing to so act.
Each party agrees as follows for the benefit of the other
party and for the equal and ratable benefit of the holders of Warrants:
ARTICLE I
Definitions
SECTION 1.01. Definitions. "Affiliate" of any specified Person
means (i) any other Person which, directly or indirectly, is controlling or
controlled by or under direct or indirect common control with such specified
Person, or (ii) any other Person who is a director or executive officer (A) of
such Person, (B) of any subsidiary
<PAGE>
2
of such specified Person or (C) of any Person described in clause (i) above. For
purposes of this definition, "control", when used with respect to any specified
Person, means the power to direct the management and policies of such Person,
directly or indirectly, whether through the ownership of voting securities, by
contract or otherwise; and the terms "controlling" and "controlled" have
meanings correlative to the foregoing. Affiliate shall also mean any beneficial
owner of shares representing 10% or more of the total voting power of the Voting
Stock (on a fully diluted basis) of the Company or warrants to purchase such
Voting Stock (whether or not currently exercisable) and any Person who would be
an Affiliate of any such beneficial owner pursuant to the first sentence hereof.
"Board" means the Board of Directors of the Company or any
committee thereof duly authorized to act on behalf of such Board of Directors.
"Business Day" means each day that is not a Saturday, a Sunday
or a day on which banking institutions are not required to be open in New York
City or in the city where the Warrant Agent's principal corporate trust office
is located.
"Certificated Warrants" means certificated Warrants in fully
registered definitive form.
"Combination" means an event in which the Company consolidates
with, merges with or into, or sells all or substantially all its property and
assets to another Person.
"Common Stock" has the meaning ascribed thereto in the
preamble to this Agreement.
"DTC" means The Depository Trust Company.
"Exchange Act" means the Securities Exchange Act of 1934, as
amended.
"Exchange Offer Registration Statement" means the Exchange
Offer Registration Statement as defined in the Registration Rights Agreement.
"Extraordinary Cash Dividend" means that portion, if any, of
the aggregate amount of all dividends paid by the Company on its Common Stock in
any fiscal year that exceeds $10 million.
<PAGE>
3
"Fair Market Value" means, with respect to any asset or
Property, the price which could be negotiated in an arm's-length free market
transaction, for cash, between a willing seller and a willing buyer, neither of
whom is under undue pressure or compulsion to complete the transaction. Fair
Market Value will be determined, except as otherwise provided, (i) if such
property or asset has a Fair Market Value of less than $5 million, by any
Officer of the Company or (ii) if such property or asset has a Fair Market Value
in excess of $5 million, by a majority of the Board of Directors of the Company
and evidenced by a Board Resolution, dated within 30 days of the relevant
transaction.
"Initial Public Offering" means the initial underwritten
public offering of Common Stock (not constituting Redeemable Stock) pursuant to
a registration statement filed with the SEC in accordance with the Securities
Act.
"Initial Purchasers" means Salomon Brothers Inc, BT Securities
Corporation and Toronto Dominion Securities (USA) Inc.
"Issue Date" means the date on which Warrants are initially
issued.
"Market Price" means, in respect of one share of the Common
Stock of the Company (i) the average closing price per share for such Common
Stock for the thirty consecutive trading days immediately prior to the
Triggering Date on the New York Stock Exchange or such other United States
national securities exchange on which such Common Stock is listed and
principally traded or, if such securities are not listed on any national
securities exchange, as reported by the Nasdaq Stock Market, Inc. or, if not so
reported by the Nasdaq Stock Market, Inc., the average of the high bid and low
asked quotations for one share of such Common Stock as reported by the National
Quotations Bureau Incorporated or similar organization or (ii) if the closing
price for such Common Stock cannot be calculated in the manner specified in
clause (i) at the relevant time, the Fair Market Value of one share of such
Common Stock (without giving effect to any discount for lack of liquidity or to
the fact that shares of such Common Stock may not be registered under the
Exchange Act) as of the Business Day immediately preceding the Triggering Date
as determined in an opinion letter delivered and addressed to
<PAGE>
4
the Warrant Agent by an independent appraisal firm appointed by the Company (or
by a majority of the holders of the Warrants or related Warrant Shares, as the
case may be, if the Company fails to appoint one) reasonably acceptable to the
Warrant Agent.
"Non-U.S. Person" means a person who is not a U.S. person, as
defined in Regulation S.
"Officer" means the Chairman of the Board, the Chief Executive
Officer, the President, the Chief Financial Officer or the Treasurer of the
Company.
"Parent" means any Person who beneficially owns, directly or
indirectly, all the Voting Stock of the Company.
"Person" means any individual, corporation, company (including
any limited liability company), partnership, joint venture, trust,
unincorporated organization, government or any agency or political subdivision
thereof.
"Public Equity Offering" means an underwritten public offering
of common stock of the Company pursuant to an effective registration statement
under the Securities Act.
"Public Market" means, in respect of the Common Stock of the
Company, a time when (x) a Public Equity Offering has been consummated in
respect of at least 10% of the total issued and outstanding shares of such
Common Stock and (y) such Common Stock is registered under Section 13(a) or
15(d)(A) of the Exchange Act and the Company is current in its reporting
thereunder.
"Qualifying Initial Public Offering" means an Initial Public
Offering that yields gross proceeds of at least $50 million.
"QIB" means a "qualified institutional buyer" as defined in
Rule 144A.
"Redeemable Stock" means, with respect to any Person, any
capital stock that by its terms (or by the terms of any security into which it
is convertible or exchangeable) or otherwise (i) matures or is mandatorily
redeemable pursuant to a sinking fund obligation or otherwise, (ii) is or may
become redeemable or repurchasable
<PAGE>
5
at the option of the holder thereof, in whole or in part, or (iii) is
convertible or exchangeable for indebtedness.
"Registration Rights Agreement" means the Exchange and
Registration Rights Agreement between the Company and the Initial Purchasers
named therein, dated as of July 30, 1996, relating to the Securities.
"Regulation S" means Regulation S under the Securities Act.
"Repurchase Price" means (a) in respect of a Warrant, the
Market Price of the Company's Common Stock multiplied by the number of Warrant
Shares that would be obtained if such Warrant were exercised on the date of
repurchase and (b) in respect of a Warrant Share, the Market Price for the
Common Stock of the Company.
"Restricted Warrant" means a Rule 144A Global Warrant or a
Restricted Certificated Warrant.
"Rule 144A" means Rule 144A under the Securities Act.
"SEC" means the Securities and Exchange Commission.
"Securities Act" means the Securities Act of 1933.
"Voting Stock" means all classes of capital stock of such
corporation then outstanding and normally entitled to vote in the election of
directors.
"Warrant Shares" means the Common Stock (and other securities)
issuable upon the exercise of the Warrants.
SECTION 1.02. Other Definitions.
Defined in
Term Section
"Company"............................................... Recitals
"Exercise Price"........................................ 3.01
"Expiration Date"....................................... 3.02
"Global Warrants"....................................... 2.03
"Holders"............................................... Recitals
"Offering".............................................. Recitals
"Regulation S Global Warrant"........................... 2.03
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6
"Restricted Certificated Warrant................................ 2.03
"Rule 144A Global Warrant"...................................... 2.03
"Separation Date"............................................... Recitals
"Successor Company"............................................. 4.04(a)
"Transfer Agent"................................................ 5.02
"Triggering Date"............................................... 6.05
"Units"......................................................... Recitals
"Warrants"...................................................... Recitals
"Warrant Agent"................................................. Recitals
"Warrant Certificates".......................................... 2.01
SECTION 1.03. Rules of Construction. Unless the text otherwise
requires:
(i) a term has the meaning assigned to it;
(ii) an accounting term not otherwise defined has the meaning
assigned to it in accordance with generally accepted accounting
principles as in effect from time to time;
(iii) "or" is not exclusive;
(iv) "including" means including, without limitation; and
(v) words in the singular include the plural and words in the
plural include the singular.
ARTICLE II
Warrant Certificates
SECTION 2.01. Form of Warrant Certificates. Certificates
representing the Warrants (the "Warrant Certificates") shall be in registered
form only and substantially in the form attached hereto as Exhibit A. The
Warrant Certificates shall be dated the date on which countersigned by the
Warrant Agent and shall have such insertions as are appropriate or required or
permitted by this Agreement and may have such letters, numbers or other marks of
identification and such legends and endorsements typed, stamped, printed,
lithographed or engraved thereon as the Company may deem appropriate and as are
not inconsistent with the provisions of this Agreement, or as may be required to
comply with any law or with any rule or regulation pursuant thereto, or to
conform to usage. The Company shall
<PAGE>
7
approve the form of the Warrant Certificates and any notation, legend or
endorsement on them.
The terms and provisions contained in the forms of the Warrant
Certificates annexed hereto as Exhibit A shall constitute, and are hereby
expressly made, a part of this Agreement.
The definitive Warrant Certificates shall be typed, printed,
lithographed or engraved or produced by any combination of these methods, all as
determined by the officer of the Company executing such Warrant Certificates, as
evidenced by such officer's execution of such Warrant Certificates.
Pending the preparation of definitive Warrant Certificates,
temporary Warrant Certificates may be issued, which may be printed,
lithographed, typewritten, mimeographed or otherwise produced, and which will be
substantially of the tenor of the definitive Warrant Certificates in lieu of
which they are issued.
If temporary Warrant Certificates are issued, the Company will
cause definitive Warrant Certificates to be prepared without unreasonable delay.
After the preparation of definitive Warrant Certificates, the temporary Warrant
Certificates shall be exchangeable for definitive Warrant Certificates upon
surrender of the temporary Warrant Certificates to the Warrant Agent, without
charge to the Holder. Until so exchanged the temporary Warrant Certificates
shall in all respects be entitled to the same benefits under this Agreement as
definitive Warrant Certificates.
SECTION 2.02. Legends. Unless and until a Warrant or Warrant
Share is sold under an effective registration statement and except for Warrant
Certificates delivered pursuant to Section 5.04(c)(ii) of this Agreement, each
Warrant Certificate evidencing the Global Warrants and the Certificated Warrants
(and all Warrant Certificates issued in exchange therefor or substitution
thereof) and each certificate representing the Warrant Shares shall bear a
legend in substantially the following form (with any appropriate modification
for the Warrant Shares):
"THE WARRANTS AND THE WARRANT SHARES (THE
"SECURITIES") HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933 (THE "SECURITIES ACT"), OR
<PAGE>
8
ANY STATE SECURITIES LAWS. NEITHER THIS SECURITY NOR ANY
INTEREST OR PARTICIPATION HEREIN MAY BE REOFFERED, SOLD,
ASSIGNED, TRANSFERRED, PLEDGED, ENCUMBERED OR OTHERWISE
DISPOSED OF IN THE ABSENCE OF SUCH REGISTRATION OR UNLESS SUCH
TRANSACTION IS EXEMPT FROM, OR NOT SUBJECT TO, REGISTRATION
AND SUBJECT TO COMPLIANCE WITH OTHER APPLICABLE LAWS. THE
HOLDER HEREOF, BY ITS ACCEPTANCE HEREOF, AGREES TO OFFER, SELL
OR OTHERWISE TRANSFER SUCH SECURITY, UNLESS PREVIOUSLY
REGISTERED UNDER THE SECURITIES ACT, ONLY (A) TO THE COMPANY;
(B) PURSUANT TO AN EXEMPTION FROM REGISTRATION UNDER THE
SECURITIES ACT PROVIDED BY RULE 144 THEREUNDER (IF
APPLICABLE); (C) TO A PERSON IT REASONABLY BELIEVES IS A
"QUALIFIED INSTITUTIONAL BUYER" AS DEFINED IN RULE 144A UNDER
THE SECURITIES ACT THAT PURCHASES FOR ITS OWN ACCOUNT OR FOR
THE ACCOUNT OF A QUALIFIED INSTITUTIONAL BUYER TO WHOM NOTICE
IS GIVEN THAT THE TRANSFER IS BEING MADE IN RELIANCE ON RULE
144A; OR (D) PURSUANT TO AN OFFSHORE TRANSACTION COMPLYING
WITH RULE 904 OF REGULATION S UNDER THE SECURITIES ACT."
SECTION 2.03. Execution and Delivery of Warrant Certificates.
Warrant Certificates evidencing Warrants to purchase initially an aggregate of
up to 1,041,428 Warrant Shares may be executed, on or after the Issue Date, by
the Company and delivered to the Warrant Agent for countersignature, and the
Warrant Agent shall thereupon countersign and deliver such Warrant Certificates
upon the order and at the direction of the Company to the purchasers thereof on
the date of issuance. The Warrant Agent is hereby authorized to countersign and
deliver Warrant Certificates as required by this Section 2.03 or by Section
2.04, 3.04, 5.03 or 5.04.
The Warrant Certificates shall be executed on behalf of the
Company by its President or any Vice President, either manually or by facsimile
signature printed thereon. The Warrant Certificates shall be countersigned
manually by the Warrant Agent and shall not be valid for any purpose unless so
countersigned. In case any officer of the Company whose signature shall have
been placed upon any of the Warrant Certificates shall cease to be such officer
of the Company before countersignature by the Warrant Agent and issuance and
delivery thereof, such Warrant Certificates may, nevertheless, be countersigned
by the Warrant Agent and
<PAGE>
9
issued and delivered with the same force and effect as though such person had
not ceased to be such officer of the Company.
Warrants offered and sold in reliance on Rule 144A shall be
issued initially in the form of a single, permanent global Warrant Certificate
in definitive, fully registered form, substantially in the form set forth in
Exhibit A (the "Rule 144A Global Warrant"), deposited with the Warrant Agent, as
custodian for DTC, duly executed by the Company and countersigned by the Warrant
Agent. The aggregate number of Warrants represented by the Rule 144A Global
Warrant may from time to time be increased or decreased by adjustments made on
the records of the Warrant Agent, as custodian for DTC, or its nominee, as
hereinafter provided.
Warrants offered and sold in offshore transactions in reliance
on Regulation S shall be issued initially in the form of a single, permanent
global Warrant Certificate in definitive, fully registered form, substantially
in the form set forth in Exhibit A (the "Regulation S Global Warrant"),
deposited with the Warrant Agent. The aggregate number of Warrants represented
by the Regulation S Global Warrant may from time to time be increased or
decreased by adjustments made on the records of the Warrant Agent, as custodian
for DTC, or its nominee, as hereinafter provided. The Rule 144A Global Warrant
and the Regulation S Global Warrant are sometimes collectively referred to
herein as the "Global Warrants".
Warrants offered and sold in their initial distribution to a
limited number of institutions that are accredited investors (which are not
QIBs) within the meaning of Rule 501(a)(1), (2), (3) or (7) under the Securities
Act (and institutions in which all the equity owners are such accredited
investors) (together referred to as "Institutional Accredited Investors") in
transactions exempt from registration under the Securities Act will be delivered
in certificated fully registered form (a "Restricted Certificated Warrant")
substantially in the form set forth in Exhibit A. Such Warrants shall be
delivered to such Institutional Accredited Investors only upon the execution and
delivery to the Company and the Initial Purchasers of an institutional
accredited investor transferee compliance letter (an "Investor Letter")
substantially in the form of Exhibit C hereto. Restricted Certificated Warrants
may not be transferred or exchanged for interests in Global Warrants
<PAGE>
10
or another Restricted Certificated Warrant except as provided in Sections 5.03
and 5.04 hereof.
Warrants issued pursuant to Section 5.03(b) in exchange for
interests in the Regulation S Global Warrant shall be issued in the form of
permanent Warrant Certificates in registered form in substantially the form set
forth in Exhibit A (the "Offshore Certificated Warrants"). The Offshore
Certificated Warrants and the Restricted Certificated Warrants are sometimes
collectively herein referred to as the "Certificated Warrants".
SECTION 2.04. Loss or Mutilation. Upon receipt by the Company
and the Warrant Agent of evidence satisfactory to them of the ownership and the
loss, theft, destruction or mutilation of any Warrant Certificate and of
indemnity satisfactory to them and (in the case of mutilation) upon surrender
and cancellation thereof, then, in the absence of notice to the Company or the
Warrant Agent that the Warrants represented thereby have been acquired by a bona
fide purchaser, the Company shall execute and the Warrant Agent shall
countersign and deliver to the registered Holder of the lost, stolen, destroyed
or mutilated Warrant Certificate, in exchange for or in lieu thereof, a new
Warrant Certificate of the same tenor and for a like aggregate number of
Warrants. Upon the issuance of any new Warrant Certificate under this Section
2.04, the Company may require the payment of a sum sufficient to cover any tax
or other governmental charge that may be imposed in relation thereto and other
expenses (including the reasonable fees and expenses of the Warrant Agent and of
counsel to the Company) in connection therewith. Every new Warrant Certificate
executed and delivered pursuant to this Section 2.04 in lieu of any lost, stolen
or destroyed Warrant Certificate shall constitute a contractual obligation of
the Company, whether or not the allegedly lost, stolen or destroyed Warrant
Certificates shall be at any time enforceable under applicable law, and shall be
entitled to the benefits of this Agreement equally and proportionately with any
and all other Warrant Certificates duly executed and delivered hereunder. The
provisions of this Section 2.04 are exclusive and shall preclude (to the extent
lawful) all other rights or remedies with respect to the replacement of
mutilated, lost, stolen or destroyed Warrant Certificates.
<PAGE>
11
ARTICLE III
Exercise Terms
SECTION 3.01. Exercise Price. Each Warrant shall initially
entitle the Holder thereof, subject to adjustment pursuant to the terms of this
Agreement, to purchase 7.334 shares of Common Stock for a per share exercise
price (the "Exercise Price") of $0.01; provided, however, that if by September
30, 1997, the Company has not completed a Qualifying Initial Public Offering,
each Warrant that has not theretofore been exercised will thereafter entitle the
holder thereof to purchase 9.429 shares of Common Stock. The Exercise Price with
respect to all of the shares of Common Stock purchasable under the Warrants
(including those shares purchasable in the event that a Qualifying Initial
Public Offering has not occurred by September 30, 1997) will be paid as part of
the purchase price of the Units. In the event that the Qualifying Initial Public
Offering is completed by September 30, 1997, the Company will refund to the
Holders the exercise price paid for the incremental shares of Common Stock no
longer purchasable under the Warrants.
SECTION 3.02. Exercise Periods. (a) Subject to the terms and
conditions set forth herein, the Warrants shall be exercisable at any time or
from time to time on any Business Day on or after the earliest to occur of (i)
August 1, 2000, and (ii)(a) the occurrence of a Change of Control, (b)(1) 90
days after an Initial Public Offering or (2) upon the closing of an Initial
Public Offering by the Company but only in respect of Warrants required to be
exercised in order to permit the holder thereof to sell shares in such Initial
Public Offering as permitted under Section 6.02, (c) a consolidation, merger or
purchase of assets involving the Company or any of its subsidiaries that results
in the Common Stock becoming subject to registration under the Exchange Act, (d)
an Extraordinary Cash Dividend, or (e) the voluntary or involuntary dissolution,
liquidation or winding up of the affairs of the Company. The earliest to occur
of the dates described in the foregoing clauses (i) and (ii) shall be referred
to herein as the "Exercisability Date." The Company shall notify the Warrant
Agent of the occurrence of the Exercisability Date.
(b) No Warrant shall be exercisable after August 1, 2003 (the
"Expiration Date").
<PAGE>
12
SECTION 3.03. Expiration. A Warrant shall terminate and become
void as of the earlier of (i) the close of business on the Expiration Date or
(ii) the date such Warrant is exercised. The Company shall give notice not less
than 90, and not more than 120, days prior to the Expiration Date to the Holders
of all then outstanding Warrants to the effect that the Warrants will terminate
and become void as of the close of business on the Expiration Date; provided,
however, that notwithstanding that the Company may fail to give notice as
provided in this Section 3.03, the Warrants will terminate and become void on
the Expiration Date.
SECTION 3.04. Manner of Exercise. Warrants may be exercised
upon surrender to the Warrant Agent of the Warrant Certificates, together with
the form of election to purchase Common Stock on the reverse thereof duly filled
in and signed by the Holder thereof. Subject to Section 3.02, the rights
represented by the Warrants shall be exercisable at the election of the Holders
thereof either in full at any time or from time to time in part and in the event
that a Warrant Certificate is surrendered for exercise in respect of less than
all the Warrant Shares purchasable on such exercise at any time prior to the
expiration of the Exercise Period a new Warrant Certificate exercisable for the
remaining Warrant Shares will be issued. The Warrant Agent shall countersign and
deliver the required new Warrant Certificates, and the Company, at the Warrant
Agent's request, shall supply the Warrant Agent with Warrant Certificates duly
signed on behalf of the Company for such purpose.
SECTION 3.05. Issuance of Warrant Shares. Upon the surrender
of Warrant Certificates, as set forth in Section 3.04, the Company shall issue
and cause the Warrant Agent or, if appointed, a transfer agent for the Common
Stock ("Stock Transfer Agent") to countersign and deliver to or upon the written
order of the Holder and in such name or names as the Holder may designate, a
certificate or certificates for the number of full Warrant Shares so purchased
upon the exercise of such Warrants or other securities or property to which it
is entitled, registered or otherwise, to the Person or Persons entitled to
receive the same, together with cash as provided in Section 3.06 in respect of
any fractional Warrant Shares otherwise issuable upon such exercise. Such
certificate or certificates shall be deemed to have been issued and any Person
so designated to be named therein shall be deemed to have become a holder
<PAGE>
13
of record of such Warrant Shares as of the date of the surrender of such Warrant
Certificates and payment of the per share Exercise Price, as aforesaid;
provided, however, that if, at such date, the transfer books for the Warrant
Shares shall be closed, the certificates for the Warrant Shares in respect of
which such Warrants are then exercised shall be issuable as of the date on which
such books shall next be opened and until such date the Company shall be under
no duty to deliver any certificates for such Warrant Shares; provided further,
however, that such transfer books, unless otherwise required by law, shall not
be closed at any one time for a period longer than 20 calendar days.
SECTION 3.06. Fractional Warrant Shares. The Company shall
not be required to issue fractional Warrant Shares on the exercise of Warrants.
If more than one Warrant shall be exercised in full at the same time by the same
Holder, the number of full Warrant Shares which shall be issuable upon such
exercise shall be computed on the basis of the aggregate number of Warrant
Shares purchasable pursuant thereto. If any fraction of a Warrant Share would,
except for the provisions of this Section 3.06, be issuable on the exercise of
any Warrant (or specified portion thereof), the Company shall pay an amount in
cash equal to the Market Price for one Warrant Share on the trading day
immediately preceding the date the Warrant is exercised, multiplied by such
fraction, computed to the nearest whole cent.
SECTION 3.07. Reservation of Warrant Shares. The Company
shall at all times keep reserved out of its authorized shares of Common Stock, a
number of shares of Common Stock sufficient to provide for the exercise of all
outstanding Warrants. The registrar for the Common Stock (the "Registrar") shall
at all times until the expiration of the Exercise Period reserve such number of
authorized shares as shall be required for such purpose. The Company will keep a
copy of this Agreement on file with the Stock Transfer Agent. The Company will
supply such Stock Transfer Agent with duly executed stock certificates for such
purpose and will itself provide or otherwise make available any cash which may
be payable as provided in Section 3.06. The Company will furnish to such Stock
Transfer Agent a copy of all notices of adjustments and certificates related
thereto transmitted to each Holder.
Before taking any action which would cause an adjustment
pursuant to Article IV to reduce the Exercise
<PAGE>
14
Price below the then par value (if any) of the Common Stock, the Company shall
take any and all corporate action which may, in the opinion of its counsel, be
necessary in order that the Company may validly and legally issue fully paid and
nonassessable shares of Common Stock at the Exercise Price as so adjusted.
The Company covenants that all shares of Common Stock which
may be issued upon exercise of Warrants will, upon issue, be fully paid,
nonassessable, free of preemptive rights, free from all taxes and free from all
liens, charges and security interests, created by or through the Company, with
respect to the issue thereof.
SECTION 3.08. Compliance with Law. (a) Notwithstanding
anything in this Agreement to the contrary, in no event shall a Holder be
entitled to exercise a Warrant unless (i) a registration statement filed under
the Securities Act in respect of the issuance of the Warrant Shares is then
effective or (ii) in the opinion of counsel to the Company addressed to the
Warrant Agent an exemption from the registration requirements is available under
the Securities Act for the issuance of the Warrant Shares (and the delivery of
any other securities for which the Warrants may at the time be exercisable) at
the time of such exercise.
(b) If any shares of Common Stock required to be reserved for
purposes of exercise of Warrants require, under any other Federal or state law
or applicable governing rule or regulation of any national securities exchange,
registration with or approval of any governmental authority, or listing on any
such national securities exchange before such shares may be issued upon
exercise, the Company will in good faith and as expeditiously as possible
endeavor also to cause such shares to be duly registered or approved by such
governmental authority or listed on the relevant national securities exchange,
as the case may be.
ARTICLE IV
Antidilution Provisions
SECTION 4.01. Changes in Common Stock. In the event that at
any time or from time to time the Company shall (i) pay a dividend or make a
distribution on its Common Stock in shares of its Common Stock or other shares
<PAGE>
15
of capital stock, (ii) subdivide its outstanding shares of Common Stock into a
larger number of shares of Common Stock, (iii) combine its outstanding shares of
Common Stock into a smaller number of shares of Common Stock or (iv) increase or
decrease the number of shares of Common Stock outstanding by reclassification of
its Common Stock, then the number of shares of Common Stock purchasable upon
exercise of each Warrant immediately prior to the happening of such event shall
be adjusted so that, after giving effect to such adjustment, the holder of each
Warrant shall be entitled to receive the number of shares of Common Stock upon
exercise of such Warrant that such holder would have owned or have been entitled
to receive had such Warrants been exercised immediately prior to the happening
of the events described above (or, in the case of a dividend or distribution of
Common Stock, immediately prior to the record date therefor). An adjustment made
pursuant to this Section 4.01 shall become effective immediately after the
effective date, retroactive to the record date therefor in the case of a
dividend or distribution in shares of Common Stock, and shall become effective
immediately after the effective date in the case of a subdivision, combination
or reclassification.
SECTION 4.02. Cash Dividends and Other Distributions. In case
at any time or from time to time the Company shall distribute to holders of
Common Stock (i) any dividend or other distribution (including any dividend or
distribution made in connection with a consolidation or merger in which the
Company is the continuing corporation) of cash, evidences of its indebtedness,
shares of its capital stock or any other properties or securities or (ii) any
options, warrants or other rights to subscribe for or purchase any of the
foregoing (other than, in the case of clause, (i) and (ii) above, (x) any
dividend or distribution described in Section 4.01, (y) any rights, options,
warrants or securities described in Section 4.03 and (z) any cash dividends or
distributions from current or retained earnings other than Extraordinary Cash
Dividends), then the number of shares of Common Stock purchasable upon the
exercise of each Warrant immediately after the record date for the determination
of stockholders entitled to receive such dividend or distribution shall be
increased to a number determined by multiplying the number of shares of Common
Stock purchasable upon the exercise of such Warrant immediately prior to such
record date for any such dividend or distribution by a fraction, the numerator
of which shall be the Market Price per share of Common Stock as of the
<PAGE>
16
record date for such distribution plus the fair market value (as determined by
the Board of Directors of the Company acting in good faith, whose determination
shall be evidenced by a board resolution) as of such record date of such
Extraordinary Cash Dividend, the evidences of indebtedness, shares of capital
stock or other assets, properties or securities, or any options, warrants or
rights to subscribe for or purchase any of the foregoing, to be dividended or
distributed in respect of one share of Common Stock, and the denominator of
which shall be such Market Price per share of Common Stock as of such record
date; and the Exercise Price shall be adjusted to a number determined by
dividing the Exercise Price immediately prior to such record date by the above
fraction. Such adjustments shall be made, and shall only become effective,
whenever any dividend or distribution is made; provided, however, that the
Company is not required to make an adjustment pursuant to this Section 4.02 if
at the time of such distribution the Company makes the same distribution to
Holders of Warrants as it makes to holders of Common Stock pro rata based on the
number of shares of Common Stock for which such Warrants are exercisable
(whether or not currently exercisable). No adjustment shall be made pursuant to
this Section 4.02 which shall have the effect of decreasing the number of shares
of Common Stock purchasable upon exercise of each Warrant or increasing the
Exercise Price.
SECTION 4.03. Rights Issue. In the event that at any time or
from time to time the Company shall issue rights, options or warrants to
acquire, or securities convertible or exchangeable into, Common Stock to all
holders of Common Stock without any charge, entitling such holders to subscribe
for or purchase shares of Common Stock at a price per share that is less than
the Market Price per share of Common Stock as of the record date for the
determination of stockholders entitled to receive such rights, options, warrants
or securities, the number of shares of Common Stock purchasable upon the
exercise of each Warrant immediately after such record date shall be determined
by multiplying the number of shares of Common Stock purchasable upon exercise of
each Warrant immediately prior to such record date by a fraction, the numerator
of which shall be the number of shares of Common Stock outstanding as of the
close of business on the record date for the issuance of such rights, options,
warrants or securities plus the number of additional shares of Common Stock
offered for subscription or purchase or into which such securities are
convertible or exchangeable, and the
<PAGE>
17
denominator of which shall be the number of shares of Common Stock outstanding
as of the close of business on the record date for the issuance of such rights,
options, warrants or securities plus the total number of shares of Common Stock
which the aggregate consideration expected to be received by the Company upon
the exercise, conversion or exchange of such rights, options, warrants or
securities (as determined by the Board of Directors of the Company acting in
good faith, whose determination shall be evidenced by a board resolution) would
purchase at the Market Price per share of Common Stock as of the record date. In
the event of any such adjustment, the Exercise Price shall be adjusted to a
number determined by dividing the Exercise Price immediately prior to such date
of issuance by the aforementioned fraction. Such adjustment shall be made, and
shall only become effective, whenever such rights, options, warrants or
securities are issued. No adjustment shall be made pursuant to this Section 4.03
which shall have the effect of decreasing the number of shares of Common Stock
purchasable upon exercise of each Warrant or of increasing the Exercise Price.
SECTION 4.04. Combination; Liquidation. (a) Except as provided
in Section 4.04(b), in the event of a Combination, the Holders shall have the
right to receive upon exercise of the Warrants such number of shares of capital
stock or other securities or property which such Holder would have been entitled
to receive upon or as a result of such Combination had such Warrant been
exercised immediately prior to such event. Unless paragraph (b) is applicable to
a Combination, the Company shall provide that the surviving or acquiring Person
(the "Successor Company") in such Combination will enter into an agreement with
the Warrant Agent confirming the Holders' rights pursuant to this Section
4.04(a) and providing for adjustments, which shall be as nearly equivalent as
may be practicable to the adjustments provided for in this Article IV. The
provisions of this Section 4.04(a) shall similarly apply to successive
Combinations involving any Successor Company.
(b) In the event of (i) a Combination where consideration to
the holders of Common Stock in exchange for their shares is payable solely in
cash, or (ii) the dissolution, liquidation or winding-up of the Company, then
the holders of the Warrants will be entitled to receive distributions on an
equal basis with the holders of Common Stock or other securities issuable upon
exercise of the
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18
Warrants, as if the Warrants had been exercised immediately prior to such event.
In case of any Combination described in this Section 4.04(b),
the surviving or acquiring Person and, in the event of any dissolution,
liquidation or winding-up of the Company, the Company shall deposit promptly
with the Warrant Agent the funds, if any, necessary to pay to the holders of the
Warrants the amounts to which they are entitled as described above. After such
funds and the surrendered Warrant Certificates are received, the Warrant Agent
shall make payment to the Holders by delivering a check in such amount as is
appropriate (or, in the case of consideration other than cash, such other
consideration as is appropriate) to such Person or Persons as it may be directed
in writing by the holders surrendering such Warrants.
SECTION 4.05. Other Events. If any event occurs as to which
the foregoing provisions of this Article IV are not strictly applicable or, if
strictly applicable, would not, in the good faith judgment of the Board, fairly
and adequately protect the purchase rights of the Warrants in accordance with
the essential intent and principles of such provisions, then such Board shall
make such adjustments in the application of such provisions, in accordance with
such essential intent and principles, as shall be reasonably necessary, in the
good faith opinion of such Board, to protect such purchase rights as aforesaid,
but in no event shall any such adjustment have the effect of increasing the
Exercise Price or decreasing the number of shares of Common Stock subject to
purchase upon exercise of this Warrant.
SECTION 4.06. Superseding Adjustment. Upon the expiration of
any rights, options, warrants or conversion or exchange privileges which
resulted in the adjustments pursuant to this Article IV, if any thereof shall
not have been exercised, the number of Warrant Shares purchasable upon the
exercise of each Warrant shall be readjusted as if (A) the only shares of Common
Stock issuable upon exercise of such rights, options, warrants, conversion or
exchange privileges were the shares of Common Stock, if any, actually issued
upon the exercise of such rights, options, warrants or conversion or exchange
privileges and (B) shares of Common Stock actually issued, if any, were issuable
for the consideration actually received by the Company upon such exercise plus
the aggregate consideration, if any, actually received by the Company for the
issuance, sale or grant of
<PAGE>
19
all such rights, options, warrants or conversion or exchange privileges whether
or not exercised and the Exercise Price shall be readjusted inversely; provided,
however, that no such readjustment shall (except by reason of an intervening
adjustment under Section 4.01) have the effect of decreasing the number of
Warrant Shares purchasable upon the exercise of each Warrant or increasing the
Exercise Price by an amount in excess of the amount of the adjustment initially
made in respect of the issuance, sale or grant of such rights, options, warrants
or conversion or exchange privileges.
SECTION 4.07. Minimum Adjustment. The adjustments required by
the preceding Sections of this Article IV shall be made whenever and as often as
any specified event requiring an adjustment shall occur, except that no
adjustment of the Exercise Price or the number of shares of Common Stock
purchasable upon exercise of Warrants that would otherwise be required shall be
made (except in the case of a subdivision or combination of shares of Common
Stock, as provided for in Section 4.01) unless and until such adjustment either
by itself or with other adjustments not previously made increases or decreases
by at least 1% of the number of shares of Common Stock purchasable upon exercise
of Warrants immediately prior to the making of such adjustment; provided,
however, that any adjustment pursuant to this Article IV (including those that
require an increase or decrease in the Exercise Price or the number of shares of
Common Stock purchasable upon exercise of Warrants of less than 1%) shall be
made no later than the earlier of three years from the date of the transaction
that mandates such adjustment and the Expiration Date. Any adjustment
representing a change of less than such minimum amount shall be carried forward
and made as soon as such adjustment, together with other adjustments required by
this Article IV and not previously made, would result in a minimum adjustment.
For the purpose of any adjustment, any specified event shall be deemed to have
occurred at the close of business on the date of its occurrence. In computing
adjustments under this Article IV, fractional interests in Common Stock shall be
taken into account to the nearest one-hundredth of a share.
SECTION 4.08. Notice of Adjustment. Whenever the Exercise
Price or the number of shares of Common Stock and other property, if any,
purchasable upon exercise of Warrants is adjusted, as herein provided, the
Company shall deliver to the Warrant Agent a certificate of a firm of
<PAGE>
20
independent accountants selected by the Board (who may be the regular
accountants employed by the Company) setting forth, in reasonable detail, the
event requiring the adjustment and the method by which such adjustment was
calculated (including a description of the basis on which the Board of Directors
of the Company determined the fair market value of any evidences of
indebtedness, other securities or property or warrants or other subscription or
purchase rights), and specifying the Exercise Price and the number of shares of
Common Stock purchasable upon exercise of Warrants after giving effect to such
adjustment. The Company shall promptly cause the Warrant Agent to mail a copy of
such certificate to each Holder in accordance with Section 7.06. The Warrant
Agent shall be entitled to rely on such certificate and shall be under no duty
or responsibility with respect to any such certificate, except to exhibit the
same from time to time, to any Holder desiring an inspection thereof during
reasonable business hours. The Warrant Agent shall not at any time be under any
duty or responsibility to any Holder to determine whether any facts exist which
may require any adjustment of the Exercise Price or the number of shares of
Common Stock or other stock or property, purchasable on exercise of the
Warrants, or with respect to the nature or extent of any such adjustment when
made, or with respect to the method employed in making such adjustment or the
validity or value of any shares of Common Stock.
SECTION 4.09. Notice of Certain Transactions. In the event
that the Company shall propose (a) to pay any dividend payable in securities of
any class to the holders of its Common Stock or to make any other distribution
to the holders of its Common Stock, (b) to offer the holders of its Common Stock
rights to subscribe for or to purchase any securities convertible into shares of
Common Stock or shares of stock of any class or any other securities, rights or
options, (c) to effect any capital reorganization, consolidation or merger or
(d) to effect the voluntary or involuntary dissolution, liquidation or
winding-up of the Company, the Company shall within 5 days send to the Warrant
Agent and the Warrant Agent shall within 5 days send the Holders a notice (in
such form as shall be furnished to the Warrant Agent by the Company) of such
proposed action or offer, such notice to be mailed by the Warrant Agent to the
Holders at their addresses as they appear in the Certificate Register, which
shall specify the record date for the purposes of such dividend, distribution or
rights, or the date such issuance or event is to take place and the date of
<PAGE>
21
participation therein by the holders of Common Stock, if any such date is to be
fixed, and shall briefly indicate the effect of such action on the Common Stock
and on the number and kind of any other shares of stock and on other property,
if any, and the number of shares of Common Stock and other property, if any,
purchasable upon exercise of each Warrant and the Exercise Price after giving
effect to any adjustment which will be required as a result of such action. Such
notice shall be given as promptly as possible and, in the case of any action
covered by clause (a) or (b) above, at least 10 days prior to the record date
for determining holders of the Common Stock for purposes of such action and, in
the case of any other such action, at least 20 days prior to the date of the
taking of such proposed action or the date of participation therein by the
holders of Common Stock, whichever shall be the earlier.
SECTION 4.10. Adjustment to Warrant Certificate. The form of
Warrant Certificate need not be changed because of any adjustment made pursuant
to this Article IV, and Warrant Certificates issued after such adjustment may
state the same Exercise Price and the same number of shares of Common Stock as
are stated in the Warrant Certificates initially issued pursuant to this
Agreement. The Company, however, may at any time in its sole discretion make any
change in the form of Warrant Certificate that it may deem appropriate to give
effect to such adjustments and that does not affect the substance of the Warrant
Certificate, and any Warrant Certificate thereafter issued or countersigned,
whether in exchange or substitution for an outstanding Warrant Certificate or
otherwise, may be in the form as so changed.
SECTION 4.11. Issuance of Due Bills. In any case in which this
Article IV shall require that adjustment in the Exercise Price be made as of the
record date for a specified event, (x) the Company may elect to defer until the
occurrence of such event the issuance to the holder of any Warrant exercised
after such record date the shares of Common Stock and other capital stock of the
Company, if any, issuable upon such exercise over and above the shares of Common
Stock and other capital stock of the Company, if any, issuable upon such
exercise upon the basis of the Exercise Price in effect prior to such
adjustment; provided, however, that the Company shall deliver to such holder a
due bill or other appropriate instrument evidencing such holder's right to
receive such additional shares upon the effectiveness of the event requiring
such adjustment and (y) the Common Stock
<PAGE>
22
transfer books of the Company shall be deemed to have been opened immediately
prior to such record date, whether or not such transfer books were in fact open.
ARTICLE V
Transferability
SECTION 5.01. Transfer and Exchange. The Warrant Certificates
shall be issued in registered form only. The Company shall cause to be kept at
the office of the Warrant Agent a register in which, subject to such reasonable
regulations as it may prescribe, the Company shall provide for the registration
of Warrant Certificates and transfers or exchanges of Warrant Certificates as
herein provided. All Warrant Certificates issued upon any registration of
transfer or exchange of Warrant Certificates shall be the valid obligations of
the Company, evidencing the same obligations, and entitled to the same benefit
under this Agreement, as the Warrant Certificates surrendered for such
registration of transfer or exchange.
A Holder may transfer its Warrants only by complying with the
terms of this Agreement. No such transfer shall be effected until, and such
transferee shall succeed to the rights of a Holder only upon, final acceptance
and registration of the transfer by the Warrant Agent in the register. Prior to
the registration of any transfer of Warrants by a Holder as provided herein, the
Company, the Warrant Agent, any agent of the Company or the Warrant Agent may
treat the Person in whose name the Warrants are registered as the owner thereof
for all purposes and as the Person entitled to exercise the rights represented
thereby, any notice to the contrary notwithstanding. Furthermore, any Holder of
a Global Warrant, shall, by acceptance of such Global Warrant, agree that
transfers of beneficial interests in such Global Warrant may be effected only
through a book-entry system maintained by the Holder of such Global Warrant (or
its agent), and that ownership of a beneficial interest in the Warrants
represented thereby shall be required to be reflected in a book entry. When
Warrant Certificates are presented to the Warrant Agent with a request to
register the transfer or to exchange them for an equal amount of Warrants of
other authorized denominations, the Warrant Agent shall register the transfer or
make the exchange in accordance with the provisions hereof.
<PAGE>
23
SECTION 5.02. Registration, Registration of Transfer and
Exchange. Each Warrant shall initially be issued as part of a Unit consisting of
$1,000 principal amount at maturity of Notes and one Warrant. Prior to the
Separation Date, the Warrants may not be transferred or exchanged separately
from, but may be transferred or exchanged only together with, the Notes attached
to such Warrants. Prior to the Separation Date, the Trustee under the Indenture
shall act as transfer agent ("Transfer Agent") for both the Warrants and the
Notes. Any request for transfer of a Warrant prior to the Separation Date to the
Transfer Agent shall be accompanied by the Note attached thereto and the
Transfer Agent will not execute any such transfer without such Note attached
thereto. Such Note will be duly endorsed and accompanied by a written instrument
of transfer in form satisfactory to the Company, duly executed by the Holder
thereof or the Holder's attorneys duly authorized in writing. The Company shall
provide notice to the Transfer Agent and the Warrant Agent of the Separation
Date five Business Days prior to such date and the Transfer Agent will notify
DTC of such date.
When Certificated Warrants are presented to the Warrant Agent
with a request from the Holder of such Warrants to register the transfer or to
exchange them for an equal number of Warrants of other authorized denominations,
the Warrant Agent shall register the transfer or make the exchange as requested;
provided, however, that every Warrant presented and surrendered for registration
of transfer or exchange shall be duly endorsed and be accompanied by a written
instrument of transfer in form satisfactory to the Company, duly executed by the
Holder thereof or the Holder's attorneys duly authorizing in writing.
To permit registrations of transfer and exchanges, the Company
shall make available to the Warrant Agent a sufficient number of executed
Warrant Certificates to effect such registrations of transfers and exchanges. No
service charge shall be made to the Holder for any registration of transfer or
exchange of Warrants, but the Company may require from the transferring or
exchanging Holder payment of a sum sufficient to cover any transfer tax or
similar governmental charge payable upon exchanges pursuant to Section 2.04 and
exchanges in respect of portions of Warrants not exercised and the Company may
deduct such taxes from any payment of money to be made and such transfer or
exchange shall not be consummated (if such taxes are not deducted in full)
unless or until the Holder shall have paid
<PAGE>
24
to the Company the amount of such tax or shall have established to the
satisfaction of the Company and the Warrant Agent that such tax has been paid.
SECTION 5.03. Book-Entry Provisions for the Rule 144A Global
Warrant and Regulation S Global Warrant. (a) The Rule 144A Global Warrant and
Regulation S Global Warrant initially shall (i) be registered in the name of DTC
or the nominee of DTC, (ii) be delivered to the Warrant Agent as custodian for
DTC and (iii) bear legends as set forth in Section 2.02 hereof. Members of, or
participants in, DTC ("Agent Members") shall have no rights under this Agreement
with respect to the Rule 144A Global Warrant or Regulation S Global Warrant, as
the case may be, held on their behalf by DTC or the Warrant Agent as its
custodian, and DTC may be treated by the Company, the Warrant Agent and any
agent of the Company or the Warrant Agent as the absolute owner of such Rule
144A Global Warrant or Regulation S Global Warrant, as the case may be, for all
purposes whatsoever. Notwithstanding the foregoing, nothing herein shall prevent
the Company, the Warrant Agent or any agent of the Company or the Warrant Agent
from giving effect to any written certification, proxy or other authorization
furnished by DTC or impair, as between DTC and its Agent Members, the operation
of customary practices governing the exercise of the right of a beneficial owner
of any Warrants.
(b) Transfers of the Rule 144A Global Warrant and the
Regulation S Global Warrant shall be limited to transfers of such Rule 144A
Global Warrant or Regulation S Global Warrant in whole, but not in part, to DTC,
its successors or their respective nominees. Interests of beneficial owners in
the Rule 144A Global Warrant and the Regulation S Global Warrant may be
transferred in accordance with the rules and procedures of DTC and the
provisions of Section 5.04 hereof. Restricted Certificated Warrants and Offshore
Certificated Warrants shall be transferred to all beneficial owners in exchange
for their beneficial interests in the Rule 144A Global Warrant or the Regulation
S Global Warrant, respectively, if DTC notifies the Company that it is unwilling
or unable to continue as Depositary for the Rule 144A Global Warrant or the
Regulation S Global Warrant, as the case may be, or DTC ceases to be a "Clearing
Agency" registered under the Exchange Act and a successor depositary is not
appointed by the Company within 90 days.
(c) Any beneficial interest in one of the Global
Warrants that is transferred to a Person who takes delivery
<PAGE>
25
in the form of an interest in the other Global Warrant will, upon transfer,
cease to be an interest in such Global Warrant and become an interest in the
other Global Warrant and, accordingly, will thereafter be subject to all
transfer restrictions, if any, and other procedures applicable to beneficial
interests in such other Global Warrant for as long as it remains such in
interest.
(d) In connection with any transfer pursuant to paragraph (b)
of this Section of a portion of the beneficial interests in the Rule 144A Global
Warrant to beneficial owners who are required to hold Restricted Certificated
Warrants, the Warrant Agent shall reflect on its books and records the date and
a decrease in the number of shares of Common Stock represented by the Rule 144A
Global Warrant in an amount equal to the number of shares of Common Stock
represented by the beneficial interest in the Rule 144A Global Warrant to be
transferred, and the Company shall execute, and the Warrant Agent shall
countersign and deliver, one or more Restricted Certificated Warrants of like
tenor and amount.
(e) In connection with the transfer of the entire Rule 144A
Global Warrant or Regulation S Global Warrant to beneficial owners pursuant to
paragraph (b) of this Section, the Rule 144A Global Warrant or the Regulation S
Global Warrant, as the case may be, shall be deemed to be surrendered to the
Warrant Agent for cancellation, and the Company shall execute, and the Warrant
Agent shall countersign and deliver, to each beneficial owner identified by DTC
in exchange for its beneficial interest in the Rule 144A Global Warrant or the
Regulation S Global Warrant, as the case may be, Restricted Certificated
Warrants or Offshore Certificated Warrants, as the case may be, of authorized
denominations representing, in the aggregate, the number of Warrants theretofore
represented by the Rule 144A Global Warrant or the Regulation S Global Warrant.
(f) Any Restricted Certificated Warrant delivered in exchange
for an interest in a Global Warrant pursuant to paragraph (b) or (d) of this
Section shall, except as otherwise provided by paragraph (c) of Section 5.04
hereof, bear the legend regarding transfer restrictions set forth in Section
2.02.
(g) The registered holder of the Rule 144A Global Warrant and
the Regulation S Global Warrant may grant proxies and otherwise authorize any
Person, including Agent
<PAGE>
26
Members and persons that may hold interests through Agent Members, to take any
action which a Holder is entitled to take under this Agreement or the Warrants.
SECTION 5.04. Special Transfer Provisions. Unless and until an
Initial Public Offering registration statement is declared effective that
includes all outstanding Warrants and Warrant Shares to the extent provided in
Section 6.01 (as certified to the Warrant Agent by the Company), the following
provisions shall apply:
(a) Transfers to Non-QIB Institutional Accredited Investors.
The following provisions shall apply with respect to the registration of any
proposed transfer of Warrants to any Institutional Accredited Investor which is
not a QIB (excluding Non-U.S. Persons):
(i) The Warrant Agent, and prior to the Separation Date the
Transfer Agent, shall register the transfer of any Warrant Certificate,
if (x)(A) the requested transfer is at least three years after the
Issue Date or (B) the proposed transferee has delivered to the Warrant
Agent certificates substantially in the forms of Exhibits B and C
hereto and (y) if requested by the Warrant Agent or the Company, the
proposed transferee has delivered to the Warrant Agent or the Company,
an opinion of counsel acceptable to the Warrant Agent or the Company
that such transfer is in compliance with the Securities Act.
(ii) If the proposed transferor is an Agent Member holding a
beneficial interest in the Rule 144A Global Warrant, upon receipt by
the Warrant Agent of (x) the documents, if any, required by paragraph
(i) and (y) instructions given in accordance with DTC's and the Warrant
Agent's procedures, the Warrant Agent shall reflect on its books and
records the date and a decrease in the number of Warrants represented
by the Rule 144A Global Warrant in an amount equal to the number of
Warrants represented by the Rule 144A Global Warrant to be transferred,
and the Company shall execute, and the Warrant Agent shall countersign
and deliver, one or more Restricted Certificated Warrants of like tenor
and amount.
<PAGE>
27
(b) Transfers to QIBs. The following provisions shall apply
with respect to the registration of any proposed transfer of Warrants to a QIB
(excluding Non-U.S. Persons):
(i) If the Warrants to be transferred are represented by (x)
Restricted Certificated Warrants, the Warrant Agent shall register the
transfer if it has received from such transferor a certificate
substantially in the form of Exhibit B that the sale has been made in
compliance with the provisions of Rule 144A to a transferee who has
signed the certification provided for on the form of Warrant
Certificate stating, or has otherwise advised the Company and the
Warrant Agent in writing, that it is purchasing the Warrants for its
own account or an account with respect to which it exercises sole
investment discretion and that it and any such account is a QIB within
the meaning of Rule 144A, and is aware that the sale to it is being
made in reliance on Rule 144A and acknowledges that it has received
such information regarding the Company as it has requested pursuant to
Rule 144A or has determined not to request such information and that it
is aware that the transferor is relying upon its foregoing
representations in order to claim the exemption from registration
provided by Rule 144A or (y) an interest in the Rule 144A Global
Warrant, the transfer of such interest may be effected only through the
book-entry system maintained by DTC.
(ii) If the proposed transferee is an Agent Member, and the
Warrants to be transferred are represented by Restricted Certificated
Warrants, upon receipt by the Warrant Agent of the documents referred
to in clause (i) above and instructions given in accordance with DTC's
and the Warrant Agent's procedures, the Warrant Agent shall reflect on
its books and records the date and an increase in the number of
Warrants represented by the Rule 144A Global Warrant in an amount equal
to the number of Warrants represented by the Restricted Certificated
Warrants, and the Warrant Agent shall cancel the Restricted
Certificated Warrant.
(c) Transfers of Interest in the Regulation S Global Warrant
or Offshore Certificated Warrants to U.S. Persons. With respect to any transfer
of interests in the
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28
Regulation S Global Warrant or Offshore Certificated Warrants to U.S. Persons:
(i) on or prior to the date that is 40 calendar days after the
Issue Date, the Warrant Agent shall refuse to register such transfer;
and
(ii) after such date, the Warrant Agent shall register such
transfer without requiring additional certification and shall deliver
Warrant Certificates that do not bear the legend in Section 2.02.
(d) Transfers to Non-U.S. Persons at Any Time. The following
provisions shall apply with respect to any transfer of Warrants to a Non-U.S.
Person:
(i) the Warrant Agent shall register any proposed transfer of
Warrants to a Non-U.S. Person only upon receipt of a certificate
substantially in the form of Exhibit B from the proposed transferor.
(ii) (x) If the proposed transferor is an Agent Member holding a
beneficial interest in the Rule 144A Global Warrant, upon receipt by
the Warrant Agent of (A) the documents required by paragraph (i) and
(B) instructions in accordance with DTC's and the Warrant Agent's
procedures, the Warrant Agent shall reflect on its books and records
the date and a decrease in the number of Warrants represented by the
Rule 144A Global Warrant to be transferred, and (y) if the proposed
transferee is an Agent Member, upon receipt by the Warrant Agent of
instructions given in accordance with DTC's and the Warrant Agent's
procedures, the Warrant Agent shall reflect on its books and records
the date and an increase in the number of Warrants represented by the
Regulation S Global Warrant in an amount equal to the number of
Warrants represented by the Restricted Certificated Warrants or the
Rule 144A Global Warrant, as the case may be, to be transferred, and
the Warrant Agent shall cancel the Certificated Warrant, if any, so
transferred or decrease the number of Warrants represented by the Rule
144A Global Warrant.
(e) General. By its acceptance of any Warrants represented by
a Warrant Certificate bearing the legend in Section 2.02, each Holder of such
Warrants acknowledges the restrictions on transfer of such Warrants set forth in
this
<PAGE>
29
Agreement and in the legend and agrees that it will transfer such Warrants only
as provided in this Agreement. The Warrant Agent shall not register a transfer
of any Warrants unless such transfer complies with the requirements of this
Section 5.04. In connection with any transfer of Warrants, each Holder agrees by
its acceptance of Warrants to furnish the Warrant Agent or the Company such
certifications, legal opinions or other information as either of them may
reasonably require to confirm that such transfer is being made pursuant to an
exemption from, or a transaction not subject to, the registration requirements
of the Securities Act; provided, however, that the Warrant Agent shall not be
required to determine (but may rely on a determination made by the Company with
respect to) the sufficiency of any such certifications, legal opinions or other
information. The Warrant Agent's only obligation to enforce the transfer
restrictions of this Agreement shall be to require the certifications and
opinions specifically required by this Section 5.04 as a condition to a
transfer.
(f) Records. The Warrant Agent shall retain copies of all
letters, notices and other written communications received pursuant to Section
5.03 hereof or this Section 5.04. The Company shall have the right to inspect
and make copies of all such letters, notices or other written communications at
any reasonable time upon the giving of reasonable written notice to the Warrant
Agent.
SECTION 5.05. Surrender of Warrant Certificates. Any Warrant
Certificate surrendered for registration of transfer, exchange, exercise or
repurchase of the Warrants represented thereby shall, if surrendered to the
Company, be delivered to the Warrant Agent, and all Warrant Certificates
surrendered or so delivered to the Warrant Agent shall be promptly canceled by
the Warrant Agent and shall not be reissued by the Company and, except as
provided in this Article V in case of an exchange or in Article III hereof in
case of the exercise or repurchase of less than all the Warrants represented
thereby or in case of a mutilated Warrant Certificate, no Warrant Certificate
shall be issued hereunder in lieu thereof. The Warrant Agent shall deliver to
the Company from time to time or otherwise dispose of such canceled Warrant
Certificates as the Company may direct in writing.
<PAGE>
30
ARTICLE VI
Registration and Repurchase Rights
SECTION 6.01. Demand Registration. (a) Upon receipt of a
written request from the holders of Warrants and Warrant Shares representing not
less than 25% of all the outstanding Warrants and Warrant Shares, taken
together, for registration of all or a part of such Holders' Warrant Shares
under this Section 6.01, which request is delivered at any time after the
completion of an Initial Public Offering, the Company shall be required on one
occasion only to cause a registration statement to be filed, as expeditiously as
practicable and in any event not more than 60 days after its receipt of such
request, and shall use its good faith best efforts to cause it to be promptly
declared effective by the SEC and to remain effective until the earlier of three
years from the Issue Date or until all of the Warrant Shares so requested to be
registered are sold.
(b) The holders shall be permitted to make only one request
that the Company file a registration statement pursuant to the provisions of
paragraph (a) hereof, provided that no request will be counted against this
limit unless, with respect to such request (i) the Company has complied in all
material respects with all the applicable conditions specified in Section 6.03
(without regard to the 90-day period referred to in subsection (ii) of Section
6.03(a), and with respect to subsections (iv) and (xii) of Section 6.03(a),
without regard to any "best efforts" or similar qualification if the failure to
comply with either of such subsections materially interfered with the proposed
offering) and (ii) a registration statement of the Company filed pursuant to
such request has become effective and has remained effective for a period of not
less than 30 consecutive days. A registration that is undertaken by the Company
in response to a valid request made by holders pursuant to this Section 6.01
shall be referred to herein as a "Demand Registration."
(c) All registration expenses (other than customary
underwriting and broker commissions) shall be paid by the Company, including the
reasonable fees and disbursements of one (but only one) legal firm or counsel to
represent all of the holders in the case of the Demand Registration.
<PAGE>
31
SECTION 6.02. Incidental Registration Rights. If the Company
proposes to sell shares of Common Stock in a Public Equity Offering, then the
Company shall in each case give written notice, at least 30 days prior to the
filing of a registration statement related to such Public Equity Offering, of
such proposed Public Equity Offering to the holders of Warrants and Warrant
Shares and such notice shall offer to the holders the opportunity to include in
such Public Equity Offering such number of Warrant Shares as such holders may
request. Within 20 days after receipt of such notice, the holders of Warrants
and Warrant Shares (the "Requesting Holders") shall, subject to the following
sentence, have the right by notifying the Company in writing to require the
Company to include in the registration statement relating to such Public Equity
Offering such number of Warrant Shares as such holder may request.
Notwithstanding the foregoing, (x) if at any time the managing underwriter or
underwriters of such Public Equity Offering (the "Managing Underwriter") shall
advise the Company in writing (and shall deliver a copy thereof to the Warrant
Agent) that, in its opinion, the total number of shares proposed to be sold
exceeds the maximum number of shares which the Managing Underwriter believes may
be sold without materially adversely affecting the price, timing or distribution
of the Public Equity Offering, then the Company will be required to include only
that number of shares which the Managing Underwriter believes may be sold
without causing such adverse effect in the following order: (i) all the shares
that the Company proposes to sell in such Public Equity Offering, (ii) all the
shares that are proposed to be sold by any holder of Common Stock of the Company
who is exercising a demand registration right existing on the date of issuance
of the Warrants, if such Public Equity Offering is being made pursuant to such
demand and (iii) shares of the Requesting Holders and all other shares that are
proposed to be sold by any holder of Common Stock of the Company on a pro rata
basis in an aggregate number which is equal to the difference between the
maximum number of shares that may be distributed in such Public Equity Offering
as determined by the Managing Underwriter and the number of shares to be sold in
such Public Equity Offering pursuant to clauses (i) and (ii) above. The Company
will have the right to postpone or withdraw any registration statement relating
to a Public Equity Offering described under this Section 6.02 prior to the
effective date without obligation to any Requesting Holder. All registration
expenses shall be paid by the Company in the case of any and all registrations
governed by this Section 6.02.
<PAGE>
32
SECTION 6.03. Preparation and Filing. (a) Whenever the Company
is required to, or is to use its best efforts to, effect the registration of any
Warrant Shares pursuant to Section 6.01 or 6.02 in connection with an offer and
sale thereof, the Company will as expeditiously as possible:
(i) prepare and file with the SEC a registration statement
with respect to such Warrant Shares and use its best efforts to cause
such registration statement to promptly become and remain effective for
the period set forth in subsection (ii) below and promptly notify the
holders (x) when such registration statement becomes effective, (y)
when any amendment to such registration statement becomes effective and
(z) of any request by the Commission for any amendment or supplement to
such registration statement or any prospectus relating thereto or for
additional information;
(ii) prepare and file with the SEC such amendments and
supplements to such registration statement and the prospectus used in
connection therewith as may be necessary to keep such registration
statement effective and to comply with the provisions of the Securities
Act with respect to the sale or other disposition of all securities
covered by such registration statement for a period of not less than 90
days after the effective date of such registration statement (or such
shorter period to the extent necessary to permit the completion of the
sale or distribution of such securities within such period);
(iii) furnish to such holders, prior to filing a registration
statement, copies of such registration statement as proposed to be
filed and thereafter, such number of copies of such registration
statement, each amendment and supplement thereto, the prospectus
included in such registration statement (including each preliminary
prospectus), reports on Forms 10-K and 10-Q (or their equivalents)
which the Company shall have filed with the Commission and financial
statements, reports and proxy statements mailed to shareholders of the
Company as such holders may reasonably request in order to facilitate
the disposition of the Warrant Shares being sold;
<PAGE>
33
(iv) use its best efforts to register or qualify, not later than
the effective date of any filed registration statement, the Warrant
Shares covered by such registration statement under the securities or
"blue sky" laws of such jurisdictions as such holders reasonably
request; provided that the Company will not be required to (A) qualify
to do business as a foreign corporation or as a dealer in any
jurisdiction where it is not so qualified, (B) subject itself to
taxation in any jurisdiction where it is not subject to taxation, (C)
consent to general service of process in any jurisdiction where it is
not subject to general service of process or (D) take any action that
would subject it to service of process in suits other than those
arising out of the offer or sale of the Warrant Shares covered by the
registration statement;
(v) make available, upon reasonable notice and during business
hours, for inspection by the managing underwriter or underwriters for
the Warrant Shares (and their counsel) (collectively, the
"Inspectors"), all financial and other records, pertinent corporate
documents, agreements and properties of the Company (collectively, the
"Records") as shall be reasonably necessary to enable them to exercise
their due diligence responsibilities and cause the Company's officers,
directors and employees to supply all information reasonably requested
by any such Inspector in connection with the registration statement;
(vi) obtain a comfort letter from the Company's independent
public accountants dated within five business days prior to the
effective date of the registration statement (and as of such other
dates as the managing underwriter or underwriters for the Warrant
Shares may reasonably request) in customary form and covering such
matters of the type customarily covered by such comfort letters as such
managing underwriter or underwriters reasonably request;
(vii) obtain an opinion of counsel dated the effective date of the
registration statement (and as of such other dates as the managing
underwriter or underwriters for the Warrant Shares may reasonably
request) in customary form and covering such matters of the type
customarily covered by such opinions as counsel designated by such
managing underwriter or underwriters reasonably request;
<PAGE>
34
(viii) during the period when the registration statement is
required to be effective, notify such holders of the happening of any
event as a result of which the prospectus included in the registration
statement contains an untrue statement of a material fact or omits to
state any material fact required to be stated therein or necessary to
make the statements therein not misleading, and the Company will
forthwith prepare a supplement or amendment to such prospectus so that,
as thereafter delivered to the purchasers of such Registrable Shares,
such prospectus will not contain an untrue statement of a material fact
or omit to state any material fact required to be stated therein or
necessary to make the statements therein not misleading;
(ix) in the case of an underwritten offering, enter into an
underwriting agreement containing customary terms, including such
indemnity and contribution provisions as the managing underwriter or
underwriters customarily require or may reasonably require;
(x) cause such Warrant Shares to be traded on each securities
exchange on which similar securities issued by the Company are then
traded, provided that the Company is eligible to do so under applicable
listing requirements;
(xi) in the case of any registration pursuant to Section 6.01
hereof, refrain from filing any registration statement (other than
registration statements on Form F-4, S-4 or S-8 or other similar forms)
to register capital stock of the Company for its own account or for the
account of any other securityholder during the period commencing with
the receipt of the written request from the holders to file a
registration statement and ending 90 days after such registration
statement is declared effective by the Commission, except for any such
registration statement which shall already be under active preparation
by the Company at the time of receipt of such request; and
(xii) otherwise use its best efforts to comply with all
applicable rules and regulations of the Commission, and make available
to its securityholders, as soon as reasonably practicable, an earnings
statement covering a period of 12 months, beginning within three months
after the effective date of the registration statement,
<PAGE>
35
which earnings statement shall satisfy the provisions of Section 11(a)
of the Securities Act.
(b) The holders participating in such offering shall timely
furnish to the Company such information regarding the distribution of such
Warrant Shares as the Company may from time to time reasonably request.
(c) The holders agree that upon the receipt of any notice from
the Company of the happening of any event of the kind described in paragraph
(a)(viii) above, they will forthwith discontinue disposition of Warrant Shares
pursuant to the registration statement covering such Warrant Shares until the
holders' receipt of the copies of the supplemented or amended prospectus
contemplated by paragraph (a)(viii) above. If the Company gives any such notice,
the Company shall keep any such registration statement pursuant to a Demand
Registration effective for that number of additional days equal to the number of
days during the period from and including the date of the giving of such notice
pursuant to paragraph (a)(viii) above to and including the date on which copies
of such supplemented or amended prospectus are made available to the holders.
SECTION 6.04. Indemnification. (a) In connection with any
registration statement, the Company agrees to indemnify and hold harmless each
holder of securities covered thereby, the directors, officers, employees and
agents of each such Holder and each person who controls any such holder within
the meaning of either the Securities Act or the Exchange Act against any and all
losses, claims, damages or liabilities, joint or several, to which they or any
of them may become subject under the Securities Act, the Exchange Act or other
Federal or state statutory law or regulation, at common law or otherwise,
insofar as such losses, claims, damages or liabilities (or actions in respect
thereof) arise out of or are based upon any untrue statement or alleged untrue
statement of a material fact contained in the registration statement as
originally filed or in any amendment thereof, or in any preliminary prospectus
or prospectuses contained therein, or in any amendment thereof or supplement
thereto, or arise out of or are based upon the omission or alleged omission to
state therein a material fact required to be stated therein or necessary to make
the statements therein not misleading, and agrees to reimburse each such
indemnified party, as incurred, for any legal or other expenses reasonably
incurred by them in connection with investigating or
<PAGE>
36
defending any such loss, claim, damage, liability or action; provided, however,
that (i) the Company will not be liable in any case to the extent that any such
loss, claim, damage or liability arises out of or is based upon any such untrue
statement or alleged untrue statement or omission or alleged omission made
therein in reliance upon and in conformity with written information furnished to
the Company by or on behalf of any such holder or the underwriter specifically
for inclusion therein, and (ii) the Company will not be liable to any
indemnified party under these provisions with respect to any registration
statement or prospectus to the extent that any such loss, claim, damage or
liability of such indemnified party results from the use of the prospectus
during a period when the use of the prospectus has been suspended in accordance
with Section 6.03(a)(viii), hereof; provided, in each case, that holders
received prior notice of such suspension. This indemnity agreement will be in
addition to any liability which the Company may otherwise have.
The Company also agrees to indemnify or contribute to Losses,
as provided in Section 6.04(d), of any underwriters of Warrant Shares registered
under a registration statement, their officers and directors and each person who
controls such underwriters on substantially the same basis as that of the
indemnification of the selling holders provided in this Section 6.04(a) and
shall, if requested by any holder, enter into an underwriting agreement
containing customary terms and conditions, including those related to
indemnification.
(b) Each holder of securities covered by a registration
statement severally agrees to indemnify and hold harmless (i) the Company, (ii)
each of its directors, (iii) each of its officers who signs such registration
statement and (iv) each person who controls the Company within the meaning of
either the Securities Act or the Exchange Act to the same extent as the
foregoing indemnity from the Company to each such holder, but only with
reference to written information relating to such holder furnished to the
Company by or on behalf of such holder specifically for inclusion in the
documents referred to in the foregoing indemnity. This indemnity agreement will
be in addition to any liability which any such holder may otherwise have.
(c) Promptly after receipt by an indemnified party under this
Section 6.04 of notice of the commencement
<PAGE>
37
of any action, such indemnified party will, if a claim in respect thereof is to
be made against the indemnifying party under this Section 6.04, notify the
indemnifying party in writing of the commencement thereof; but the failure so to
notify the indemnifying party (i) will not relieve it from liability under
paragraph (a) or (b) above unless and to the extent it did not otherwise learn
of such action and such failure results in the forfeiture by the indemnifying
party of substantial rights and defenses and (ii) will not, in any event,
relieve the indemnifying party from any obligations to any indemnified party
other than the indemnification obligation provided in paragraph (a) or (b)
above. The indemnifying party shall be entitled to appoint counsel of the
indemnifying party's choice at the indemnifying party's expense to represent the
indemnified party in any action for which indemnification is sought (in which
case the indemnifying party shall not thereafter be responsible for the fees and
expenses of any separate counsel retained by the indemnified party or parties
except as set forth below); provided, however, that such counsel shall be
reasonably satisfactory to the indemnified party. Notwithstanding the
indemnifying party's election to appoint counsel to represent the indemnified
party in an action, the indemnified party shall have the right to employ
separate counsel (including local counsel), and the indemnifying party shall
bear the reasonable fees, costs and expenses of such separate counsel (and local
counsel) if (i) the use of counsel chosen by the indemnifying party to represent
the indemnified party would present such counsel with a conflict of interest,
(ii) the actual or potential defendants in, or targets of, any such action
include both the indemnified party and the indemnifying party and the
indemnified party shall have reasonably concluded that there may be legal
defenses available to it or other indemnified parties which are different from
or additional to those available to the indemnifying party, (iii) the
indemnifying party shall not have employed counsel satisfactory to the
indemnified party to represent the indemnified party within a reasonable time
after notice of the institution of such action or (iv) the indemnifying party
shall authorize the indemnified party to employ separate counsel at the expense
of the indemnifying party; provided, however, that the indemnifying party shall
be obligated to pay for only one such separate counsel for all indemnified
parties in each action or related group of actions. An indemnifying party will
not, without the prior written consent of the indemnified parties, settle or
compromise or consent to the entry of any judgment with respect to any pending
or threatened claim, action, suit or
<PAGE>
38
proceeding in respect of which indemnification or contribution may be sought
hereunder (whether or not the indemnified parties are actual or potential
parties to such claim or action) unless such settlement, compromise or consent
includes an unconditional release of each indemnified party from all liability
arising out of such claim, action, suit or proceeding.
(d) In the event that the indemnity provided in paragraph (a)
or (b) of this Section 6.04 is unavailable to or insufficient to hold harmless
an indemnified party for any reason, then each applicable indemnifying party, in
lieu of indemnifying such indemnified party, shall have a joint and several
obligation to contribute to the aggregate losses, claims, damages and
liabilities (including legal or other expenses reasonably incurred in connection
with investigating or defending same) (collectively "Losses") to which such
indemnified party may be subject in such proportion as is appropriate to reflect
the relative benefits received by such indemnifying party, on the one hand, and
such indemnified party, on the other hand, from the registration statement which
resulted in such Losses; provided, however, that in no case shall any subsequent
holder of any Warrant Share be responsible, in the aggregate, for any amount in
excess of the dollar amount of the proceeds received by the holder of any
Warrant Share from the sale of such holder's Warrant Shares. If the allocation
provided by the immediately preceding sentence is unavailable for any reason,
the indemnifying party and the indemnified party shall contribute in such
proportion as is appropriate to reflect not only such relative benefits but also
the relative fault of such indemnifying party, on the one hand, and such
indemnified party, on the other hand, in connection with the statements or
omissions which resulted in such Losses as well as any other relevant equitable
considerations. Relative fault shall be determined by reference to whether any
alleged untrue statement or omission relates to information provided by the
indemnifying party, on the one hand, or by the indemnified party, on the other
hand. The parties agree that it would not be just and equitable if contribution
were determined by pro rata allocation or any other method of allocation which
does not take account of the equitable considerations referred to above.
Notwithstanding the provisions of this paragraph (d), no person guilty of
fraudulent misrepresentation (within the meaning of Section 11(f) of the
Securities Act) shall be entitled to contribution from any person who was not
guilty of such fraudulent
<PAGE>
39
misrepresentation. For purposes of this Section 6.04, each person who controls a
holder within the meaning of either the Securities Act or the Exchange Act and
each director, officer, employee and agent of such holder shall have the same
rights to contribution as such holder, and each person who controls the Company
within the meaning of either the Securities Act or the Exchange Act, each
officer of the Company who shall have signed such registration statement and
each director of the Company shall have the same rights to contribution as the
Company, subject in each case to the applicable terms and conditions of this
paragraph (d).
(e) The provisions of this Section 6.04 will remain in full
force and effect, regardless of any investigation made by or on behalf of any
holder or the Company or any of the officers, directors or controlling persons
referred to in this Section 6.04 hereof, and will survive the sale by a holder
of securities covered by a registration statement.
SECTION 6.05. Repurchase of Warrants. (a) In the event that
a Public Market does not exist for the Common Stock of the Company on August 1,
2001 (the "Triggering Date"), the Company will be required, at its option, to
(i) make an offer to purchase (the "Warrant Repurchase") all outstanding
Warrants and Warrant Shares issued by it in cash at the Repurchase Price on such
date or (ii) to take all necessary action at its own expense to cause all the
Warrant Shares issued or issuable by it to be registered with the SEC pursuant
to an effective registration statement under the Securities Act (including the
filing and making available to holders of Warrant Shares and their designees a
prospectus meeting the requirements of Section 10(a)(3) thereunder) and in
accordance with applicable state securities no later than 120 days after the
Triggering Date. In connection with such a registration statement, the Company
shall comply with the procedures and conditions specified in Section 6.03 and
the indemnification provisions of Section 6.04 shall apply.
(b) If a Public Equity Offering relating to the Company occurs
at any time between the Triggering Date and 90 days after the expiration date
for a Warrant Repurchase pursuant to the preceding paragraph, the Company will
pay to each holder of Warrants or Warrant Shares that were purchased in such
Warrant Repurchase an amount in cash equal to the sum of (i) the number of
Warrants purchased by the Company multiplied by the excess, if any, of (A) the
value,
<PAGE>
40
as determined pursuant to the terms of such Public Equity Offering (net of
applicable underwriting discounts and placement fees) of the number of shares of
Warrant Shares issuable upon the exercise of one Warrant over (B) the Repurchase
Price paid by the Company for each Warrant in such Warrant Repurchase and (ii)
the number of shares of Warrant Shares purchased by the Company multiplied by
the excess, if any, of (A) the value, determined as aforesaid, of the Warrant
Shares over (B) the Repurchase Price paid by the Company for each share of
Warrant Shares in such offer.
(c) Notice of Warrant Repurchase. As promptly as practicable
following the Triggering Date, the Company shall give notice of the terms of the
Warrant Repurchase (a "Repurchase Notice") to each Holder, as of the Triggering
Date, of then outstanding Warrants and Warrant Shares. Each Repurchase Notice:
(i) shall be given by the Company directly to all Holders of the Warrants and
Warrant Shares, with a copy to the Warrant Agent and (ii) shall be given within
five Business Days after the Triggering Date and shall specify (A) the manner in
which Warrants and Warrant Shares may be surrendered to the Warrant Agent for
repurchase by the Company, (B) the Repurchase Price at which the Warrants and
Warrant Shares will be repurchased by the Company, (C) the name of the
independent appraisal firm, if any, whose valuation of the Common Stock was
utilized in connection with determining such Repurchase Price and (D) that
payment of the Repurchase Price will be made by the Warrant Agent.
(d) Payment for Warrants. (i) To receive payment for any
unexercised Warrants and any Warrant Shares pursuant to this Section 6.05, each
Holder thereof shall, except as otherwise provided herein, surrender to the
Warrant Agent the Warrant Certificates evidencing such Holder's Warrants and the
Warrant Shares.
(ii) As promptly as practicable following the Triggering Date,
the Company shall deposit with the Warrant Agent funds sufficient to make
payment for all unexercised Warrants and all Warrant Shares. After receipt of
such deposit from the Company, the Warrant Agent shall make payment to each
holder, by delivering a check in an amount equal to the Repurchase Price for
each Warrant and each Warrant Share surrendered by such holder in accordance
with this Section 6.05, to such Person or Persons as it may be directed in
writing by any holder surrendering Warrant Certificates or Warrant Shares, net
of any transfer taxes
<PAGE>
41
required to be paid in the event that the check is to be delivered to a Person
other than the holder. Any funds not used to pay for Warrants or Warrant Shares
within 180 days after the Triggering Date shall be promptly returned to the
Company.
(e) Compliance with Laws. Notwithstanding anything contained
in this Section 6.05, if the Company is required to comply with laws or
regulations in connection with making the Warrant Repurchase, such laws or
regulations shall govern the making of such Warrant Repurchase. The Company
shall immediately notify the Warrant Agent in writing if any such laws or
regulations shall require the Company to supplement or amend this Agreement or
to modify or amend the procedures or manner of such repurchase or any other
provisions set forth herein and the Warrant Agent shall not be responsible or
liable for making any such determination, complying with any such laws or
regulations or for the failure of the Company to so notify the Warrant Agent.
ARTICLE VII
Warrant Agent
SECTION 7.01. Appointment of Warrant Agent. The Company hereby
appoints the Warrant Agent to act as agent for the Company in accordance with
provisions of this Agreement and the Warrant Agent hereby accepts such
appointment.
SECTION 7.02. Rights and Duties of Warrant Agent. (a) Agent
for the Company. In acting under this Warrant Agreement and in connection with
the Warrant Certificates, the Warrant Agent is acting solely as agent of the
Company and does not assume any obligation or relationship or agency or trust
for or with any of the holders of Warrant Certificates or beneficial owners of
Warrants.
(b) Counsel. The Warrant Agent may consult with counsel
satisfactory to it, and the advice of such counsel shall be full and complete
authorization and protection in respect of any action taken, suffered or omitted
by it hereunder in good faith and in accordance with the advice of such counsel.
<PAGE>
42
(c) Documents. The Warrant Agent shall be protected and shall
incur no liability for or in respect of any action taken or thing suffered by it
in reliance upon any Warrant Certificate, notice, direction, consent,
certificate, affidavit, statement or other paper or document reasonably believed
by it to be genuine and to have been presented or signed by the proper parties.
(d) No Implied Obligations. The Warrant Agent shall be
obligated to perform only such duties as are herein and in the Warrant
Certificates specifically set forth and no implied duties or obligations shall
be read into this Agreement or the Warrant Certificates against the Warrant
Agent. The Warrant Agent shall not be under any obligation to take any action
hereunder which may tend to involve it in any expense or liability for which it
does not receive indemnity if such indemnity is reasonably requested. The
Warrant Agent shall not be accountable or under any duty or responsibility for
the use by the Company of any of the Warrant Certificates countersigned by the
Warrant Agent and delivered by it to the Holders or on behalf of the Holders
pursuant to this Agreement or for the application by the Company of the proceeds
of the Warrants. The Warrant Agent shall have no duty or responsibility in case
of any default by the Company in the performance of its covenants or agreements
contained herein or in the Warrant Certificates or in the case of the receipt of
any written demand from a Holder with respect to such default, including any
duty or responsibility to initiate or attempt to initiate any proceedings at law
or otherwise.
(e) Not Responsible for Adjustments or Validity of Stock. The
Warrant Agent shall not at any time be under any duty or responsibility to any
Holder to determine whether any facts exist that may require an adjustment of
the number of shares of Common Stock purchasable upon exercise of each Warrant
or the Exercise Price, or with respect to the nature or extent of any adjustment
when made, or with respect to the method employed, or herein or in any
supplemental agreement provided to be employed, in making the same. The Warrant
Agent shall not be accountable with respect to the validity or value of any
shares of Common Stock or of any securities or property which may at any time be
issued or delivered upon the exercise of any Warrant or upon any adjustment
pursuant to Article IV, and it makes no representation with respect thereto. The
Warrant Agent shall not be responsible for any failure of the Company to make
any cash payment or to issue, transfer or deliver any
<PAGE>
43
shares of Common Stock or stock certificates upon the surrender of any Warrant
Certificate for the purpose of exercise or upon any adjustment pursuant to
Article IV, or to comply with any of the covenants of the Company contained in
Article IV.
SECTION 7.03. Individual Rights of Warrant Agent. The Warrant
Agent and any stockholder, director, officer or employee of the Warrant Agent
may buy, sell or deal in any of the Warrants or other securities of the Company
or its affiliates or become pecuniarily interested in transactions in which the
Company or its affiliates may be interested, or contract with or lend money to
the Company or its affiliates or otherwise act as fully and freely as though it
were not the Warrant Agent under this Agreement. Nothing herein shall preclude
the Warrant Agent from acting in any other capacity for the Company or for any
other legal entity.
SECTION 7.04. Warrant Agent's Disclaimer. The Warrant Agent
shall not be responsible for and makes no representation as to the validity or
adequacy of this Agreement or the Warrant Certificates and it shall not be
responsible for any statement in this Agreement or the Warrant Certificates
other than its countersignature thereon.
SECTION 7.05. Compensation and Indemnity. The Company agrees
to pay the Warrant Agent from time to time reasonable compensation for its
services and to reimburse the Warrant Agent upon request for all reasonable
out-of- pocket expenses incurred by it, including the reasonable compensation
and expenses of the Warrant Agent's agents and counsel. The Company shall
indemnify the Warrant Agent against any loss, liability or expense (including
reasonable agents' and attorneys' fees and expenses) incurred by it without
negligence or bad faith on its part arising out of or in connection with the
acceptance or performance of its duties under this Agreement. The Warrant Agent
shall notify the Company promptly of any claim for which it may seek indemnity.
The Company need not reimburse any expense or indemnify against any loss or
liability incurred by the Warrant Agent through wilful misconduct, negligence or
bad faith. The Company's payment obligations pursuant to this Section 7.05 shall
survive the termination of this Agreement.
To secure the Company' payment obligations under this
Agreement, the Warrant Agent shall have a lien prior to
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44
the Warrant Holders on all money or property held or collected by the Warrant
Agent.
SECTION 7.06. Successor Warrant Agent. (a) The Company To
Provide Warrant Agent. The Company agrees for the benefit of the Holders that
there shall at all times be a Warrant Agent hereunder until all the Warrants
have been exercised or are no longer exercisable.
(b) Resignation and Removal. The Warrant Agent may at any time
resign by giving written notice to the Company of such intention on its part,
specifying the date on which its desired resignation shall become effective;
provided, however, that such date shall not be less than 60 days after the date
on which such notice is given unless the Company otherwise agrees. The Warrant
Agent hereunder may be removed at any time by the filing with it of an
instrument in writing signed by or on behalf of the Company and specifying such
removal and the date when it shall become effective, which date shall not be
less than 60 days after such notice is given unless the Warrant Agent otherwise
agrees. Any removal under this Section 7.06 shall take effect upon the
appointment by the Company as hereinafter provided of a successor Warrant Agent
(which shall be a bank or trust company authorized under the laws of the
jurisdiction of its organization to exercise corporate trust powers) and the
acceptance of such appointment by such successor Warrant Agent.
(c) The Company To Appoint Successor. In case at any time the
Warrant Agent shall resign, or shall be removed, or shall become incapable of
acting, or shall be adjudged a bankrupt or insolvent, or shall commence a
voluntary case under the Federal bankruptcy laws, as now or hereafter
constituted, or under any other applicable Federal or state bankruptcy,
insolvency or similar law or shall consent to the appointment of or taking
possession by a receiver, custodian, liquidator, assignee, trustee, seques-
trator (or other similar official) of the Warrant Agent or its property or
affairs, or shall make an assignment for the benefit of creditors, or shall
admit in writing its inability to pay its debts generally as they become due, or
shall take corporate action in furtherance of any such action, or a decree or
order for relief by a court having jurisdiction in the premises shall have been
entered in respect of the Warrant Agent in an involuntary case under the Federal
bankruptcy laws, as now or hereafter constituted, or any other applicable
Federal or State bankruptcy, insolvency or
<PAGE>
45
similar law; or a decree order by a court having jurisdiction in the premises
shall have been entered for the appointment of a receiver, custodian,
liquidator, assignee, trustee, sequestrator (or similar official) of the Warrant
Agent or of its property or affairs, or any public officer shall take charge or
control of the Warrant Agent or of its property or affairs for the purpose of
rehabilitation, conservation, winding up of or liquidation, a successor Warrant
Agent, qualified as aforesaid, shall be appointed by the Company by an
instrument in writing, filed with the successor Warrant Agent. Upon the
appointment as aforesaid of a successor Warrant Agent and acceptance by the
successor Warrant Agent of such appointment, the Warrant Agent shall cease to be
Warrant Agent hereunder; provided, however, that in the event of the resignation
of the Warrant Agent under this subsection (c), such resignation shall be
effective on the earlier of (i) the date specified in the Warrant Agent's notice
of resignation and (ii) the appointment and acceptance of a successor Warrant
Agent hereunder.
(d) Successor To Expressly Assume Duties. Any successor
Warrant Agent appointed hereunder shall execute, acknowledge and deliver to its
predecessor and to the Company an instrument accepting such appointment
hereunder, and thereupon such successor Warrant Agent, without any further act,
deed or conveyance, shall become vested with all the rights and obligations of
such predecessor with like effect as if originally named as Warrant Agent
hereunder, and such predecessor, upon payment of its charges and disbursements
then unpaid, shall thereupon become obligated to transfer, deliver and pay over,
and such successor Warrant Agent shall be entitled to receive, all monies,
securities and other property on deposit with or held by such predecessor, as
Warrant Agent hereunder.
(e) Successor by Merger. Any corporation into which the
Warrant Agent hereunder may be merged or consolidated, or any corporation
resulting from any merger or consolidation to which the Warrant Agent shall be a
party, or any corporation to which the Warrant Agent shall sell or otherwise
transfer all or substantially all of its corporate trust business; provided that
it shall be qualified as aforesaid, shall be the successor Warrant Agent under
this Agreement without the execution or filing of any paper or any further act
on the part of any of the parties hereto.
<PAGE>
46
ARTICLE VIII
Miscellaneous
SECTION 8.01. Company Resales. The Company hereby agrees with
each Holder, that the Company shall not resell any Warrants or Warrant Shares it
acquires, by purchase or otherwise, except pursuant to an effective registration
statement.
SECTION 8.02. SEC Reports and Other Information.
Notwithstanding that the Company may not be subject to the reporting
requirements of Section 13 or 15(d) of the Exchange Act, the Company shall, for
all periods ending after the date of this Warrant Agreement, file with the SEC
and thereupon provide the Warrant Agent and Holders with such annual reports and
such information, documents and other reports are as specified in Sections 13
and 15(d) of the Exchange Act and applicable to a U.S. corporation subject to
such Sections, such information, documents and other reports to be so filed and
provided at the times specified for the filing of such information, documents
and reports under such Sections. In addition, for as long as any of the Warrants
are outstanding, the Company will make available to any prospective purchaser of
the Warrants or Warrant Shares or beneficial owner thereof in connection with
any sales thereof the information required by Rule 144A(d)(4) under the
Securities Act.
SECTION 8.03. Rule 144A. The Company hereby agrees with each
Holder, for so long as any Warrants or Warrant Shares remain outstanding and
during any period in which the Company is not subject to Section 13 or 15(d) of
the Exchange Act, to make available, upon request of any Holder, to any Holder
or beneficial owner of Warrants or Warrant Shares in connection with any sale
thereof and any prospective purchaser of such Warrants or Warrant Shares from
such Holder or beneficial owner, the information required by Rule 144A(d)(4)
under the Securities Act in order to permit resales of such Warrants or Warrant
Shares pursuant to Rule 144A.
SECTION 8.04. Persons Benefitting. Nothing in this Agreement
is intended or shall be construed to confer upon any Person other than the
Company, the Warrant Agent and the Holders any right, remedy or claim under or
by reason of this agreement or any part hereof.
<PAGE>
47
SECTION 8.05. Rights of Holders. Except as expressly
contemplated herein, holders of unexercised Warrants are not entitled (i) to
receive dividends or other distributions (ii) to receive notice of or vote at
any meeting of the stockholders, (iii) to consent to any action of the
stockholders, (iv) to receive notice of any other proceedings of the Company or
(v) to exercise any other rights as stockholders of the Company.
SECTION 8.06. Amendment. This Agreement may be amended by the
parties hereto without the consent of any Holder for the purpose of curing any
ambiguity, or of curing, correcting or supplementing any defective provision
contained herein or making any other provisions with respect to matters or
questions arising under this Agreement as the Company and the Warrant Agent may
deem necessary or desirable; provided, however, that the Company determines, and
the Warrant Agent may rely on such determination, that such action shall not
affect adversely the rights of the Holders. Any amendment or supplement to this
Agreement that has an adverse effect on the interests of the Holders shall
require the written consent of the Holders of majority of the then outstanding
Warrants. The consent of each Holder affected shall be required for any
amendment pursuant to which the Exercise Price would be increased or the number
of Warrant Shares purchasable upon exercise of Warrants would be decreased
(other than pursuant to adjustments provided in Article IV as of the Issue Date
of the Warrants). In determining whether the Holders of the required number of
Warrants have concurred in any direction, waiver or consent, Warrants owned by
the Company or by any Person directly or indirectly controlling or controlled by
or under direct or indirect common control with the Company shall be disregarded
and deemed not to be outstanding, except that, for the purpose of determining
whether the Warrant Agent shall be protected in relying on any such direction,
waiver or consent, only Warrants which the Warrant Agent knows are so owned
shall be so disregarded. Also, subject to the foregoing, only Warrants
outstanding at the time shall be considered in any such determination.
<PAGE>
48
SECTION 8.07. Notices. Any notice or communication shall be in
writing and delivered in Person or mailed by first-class mail addressed as
follows:
if to the Company:
Inter(bullet)Act Systems, Incorporated
14 Westport Avenue
Norwalk, Connecticut 06851
Attention: President & Chief Operating
Officer
with a copy to:
Schell Bray Aycock Abel & Livingston L.L.P.
Suite 1500
Renaissance Plaza
230 North Elm Street
Greensboro, North Carolina 27401
Attention: Kenneth N. Shelton
if to the Warrant Agent:
Fleet National Bank
777 Main Street
Hartford, Connecticut 06115
Attention: Corporate Trust Administration
The Company or the Warrant Agent by notice to the other may
designate additional or different addresses for subsequent notices or
communications.
Any notice or communication mailed to a Holder shall be mailed
to the Holder at the Holder's address as it appears on the register in which the
Company shall provide for the registration of Warrants and Warrant Shares and of
transfers and exchanges of Warrants and Warrant Shares and shall be sufficiently
given if so mailed within the time prescribed.
Failure to mail a notice or communication to a Holder or any
defect in it shall not affect its sufficiency with respect to other Holders. If
a notice or communication is mailed in the manner provided above, it is duly
given, whether or not the addressee receives it.
<PAGE>
49
SECTION 8.08. Governing Law. The laws of the State of New York
shall govern this Agreement and the Warrant Certificates.
SECTION 8.09. Successors. All agreements of the Company in
this Agreement and the Warrant Certificates shall bind its successors. All
agreements of the Warrant Agent in this Agreement shall bind its successors.
SECTION 8.10. Multiple Originals. The parties may sign any
number of copies of this Agreement. Each signed copy shall be an original, but
all of them together represent the same agreement. One signed copy is enough to
prove this Agreement.
SECTION 8.11. Table of Contents. The table of contents and
headings of the Articles and Sections of this Agreement have been inserted for
convenience of reference only, are not intended to be considered a part hereof
and shall not modify or restrict any of the terms or provisions hereof.
SECTION 8.12. Severability. The provisions of this Agreement
are severable, and if any clause or provision shall be held invalid, illegal or
unenforceable in whole or in part in any jurisdiction, then such invalidity or
unenforceability shall affect in that jurisdiction only such clause or
provision, or part thereof, and shall not in any manner affect such clause or
provision in any other jurisdiction or any other clause or provision of this
Agreement in any jurisdiction.
<PAGE>
50
IN WITNESS WHEREOF, the parties have caused this Agreement to
be duly executed as of the date first written above.
INTER(bullet)ACT SYSTEMS,
INCORPORATED,
by ________________________
Name:
Title:
FLEET NATIONAL BANK, as
Warrant Agent,
by ________________________
Name:
Title:
<PAGE>
EXHIBIT A
[FORM OF FACE OF WARRANT CERTIFICATE]
THE WARRANTS AND THE WARRANT SHARES (THE "SECURITIES") HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933 (THE "SECURITIES ACT"), OR ANY STATE SECURITIES
LAWS. NEITHER THIS SECURITY NOR ANY INTEREST OR PARTICIPATION HEREIN MAY BE
REOFFERED, SOLD, ASSIGNED, TRANSFERRED, PLEDGED, ENCUMBERED OR OTHERWISE
DISPOSED OF IN THE ABSENCE OF SUCH REGISTRATION OR UNLESS SUCH TRANSACTION IS
EXEMPT FROM, OR NOT SUBJECT TO, REGISTRATION AND SUBJECT TO COMPLIANCE WITH
OTHER APPLICABLE LAWS. THE HOLDER HEREOF, BY ITS ACCEPTANCE HEREOF, AGREES TO
OFFER, SELL OR OTHERWISE TRANSFER SUCH SECURITY, UNLESS PREVIOUSLY REGISTERED
UNDER THE SECURITIES ACT, ONLY (A) TO THE COMPANY; (B) PURSUANT TO AN EXEMPTION
FROM REGISTRATION UNDER THE SECURITIES ACT PROVIDED BY RULE 144 THERE- UNDER (IF
AVAILABLE); (C) TO A PERSON IT REASONABLY BELIEVES IS A "QUALIFIED INSTITUTIONAL
BUYER" AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT THAT PURCHASES FOR ITS
OWN ACCOUNT OR FOR THE ACCOUNT OF A QUALIFIED INSTITUTIONAL BUYER TO WHOM NOTICE
IS GIVEN THAT THE TRANSFER IS BEING MADE IN RELIANCE ON RULE 144A; OR (D)
PURSUANT TO AN OFFSHORE TRANSACTION COMPLYING WITH RULE 904 OF REGULATION S
UNDER THE SECURITIES ACT.
[Unless and until it is exchanged in whole or in part for
Warrants in definitive form, this Warrant may not be transferred except as a
whole by the depository to a nominee of the depository or by a nominee of the
depository to the depository or another nominee of the depository or by the
depository or any such nominee to a successor depository or a nominee of such
successor depository. The Depository Trust Company ("DTC") (55 Water Street, New
York, New York) shall act as the depository until a successor shall be appointed
by the Company and the Warrant Agent. Unless this certificate is presented by an
authorized representative of DTC to the issuer or its agent for registration of
transfer, exchange or payment, and any certificate issued is registered in the
name of Cede & Co. or such other name as requested by an authorized
representative of DTC (and any payment is made to Cede & Co. or such other
entity as is requested by an authorized representative of DTC), ANY TRANSFER,
PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS
WRONGFUL inasmuch as the registered owner hereof, Cede & Co., has an interest
herein.]1/
No. [ ] Certificate for ______ Warrants
WARRANTS TO PURCHASE COMMON STOCK OF
INTER(bullet)ACT SYSTEMS INCORPORATED
THIS CERTIFIES THAT, [ ], or its registered assigns, is the
registered holder of the number of Warrants set forth above (the "Warrants").
Each Warrant entitles the holder thereof (the "Holder"), at its option and
subject to the provisions contained herein and in the Warrant Agreement referred
to below, to purchase from Inter(bullet)Act Systems, Incorporated, a North
Carolina corporation ("the Company"), 7.334 shares of Common Stock, no par
value, of the Company (the "Common Stock") at the per share exercise price of
$0.01 (the "Exercise Price"); provided, however, that if by September 30, 1997,
the Company has not contemplated a Qualifying
- --------
1/ To be included only if the Warrant is in global form.
<PAGE>
2
Initial Public Offering, each Warrant that has not theretofore been exercised
will thereafter entitle the holder thereof to purchase 9.429 shares of Common
Stock. This Warrant Certificate shall terminate and become void as of the close
of business on August 1, 2003 (the "Expiration Date") or upon the exercise
hereof as to all the shares of Common Stock subject hereto. The number of shares
purchasable upon exercise of the Warrants and the Exercise Price per share shall
be subject to adjustment from time to time as set forth in the Warrant
Agreement.
This Warrant Certificate is issued under and in accordance
with a Warrant Agreement dated as of August 1, 1996 (the "Warrant Agreement"),
between the Company and Fleet National Bank (the "Warrant Agent", which term
includes any successor Warrant Agent under the Warrant Agreement), and is
subject to the terms and provisions contained in the Warrant Agreement, to all
of which terms and provisions the Holder of this Warrant Certificate consents by
acceptance hereof. The Warrant Agreement is hereby incorporated herein by
reference and made a part hereof. Reference is hereby made to the Warrant
Agreement for a full statement of the respective rights, limitations of rights,
duties and obligations of the Company, the Warrant Agent and the Holders of the
Warrants. Capitalized terms used but not defined herein shall have the meanings
ascribed thereto in the Warrant Agreement. A copy of the Warrant Agreement may
be obtained for inspection by the Holder hereof upon written request to the
Warrant Agent at 777 Main Street, Hartford, Connecticut 06115, attention of
Corporate Trust Administration.
Subject to the terms of the Warrant Agreement, the Warrants
may be exercised in whole or in part by presentation of this Warrant
Certificate.
As provided in the Warrant Agreement and subject to the terms
and conditions therein set forth, the Warrants shall be exercisable at any time
or from time to time on any Business Day on or after the earliest to occur of
(i) August 1, 2000, and (ii)(a) the occurrence of a Change of Control, (b)(1) 90
days after an Initial Public Offering or (2) upon the closing of an Initial
Public Offering by the Company but only in respect of Warrants required to be
exercised in order to permit the holder thereof to sell shares in such Initial
Public Offering as permitted under Section 6.02, (c) a consolidation, merger or
purchase of assets involving the Company or any of its subsidiaries that results
in the Common Stock becoming subject to registration under the Exchange Act, (d)
an Extraordinary Cash Dividend, or (e) the voluntary or involuntary dissolution,
liquidation or winding up of the affairs of the Company; provided, however, that
no Warrant shall be exercisable after August 1, 2003.
In the event the Company enters into a Combination, the Holder
hereof will be entitled to receive the shares of capital stock or other
securities or other property of such surviving entity as the Holder would have
received had the Holder exercised its Warrants immediately prior to such
Combination; provided, however, that in the event that, in connection with such
Combination, consideration to holders of Common Stock in exchange for their
shares is payable solely in cash or in the event of the dissolution, liquidation
or winding-up of the Company, the Holder hereof will be entitled to receive cash
distributions as the Holder would have received had the Holder exercised its
Warrants immediately prior to such Combination.
<PAGE>
3
The Company may require payment of a sum sufficient to pay all
taxes, assessments or other governmental charges in connection with the transfer
or exchange of the Warrant Certificates pursuant to Section 5.02 of the Warrant
Agreement but not for any exchange or original issuance (not involving a
transfer) with respect to temporary Warrant Certificates, the exercise of the
Warrants or the Warrant Shares.
Upon any partial exercise of the Warrants, there shall be
countersigned and issued to the Holder hereof a new Warrant Certificate in
respect of the shares of Common Stock as to which the Warrants shall not have
been exercised. This Warrant Certificate may be exchanged at the office of the
Warrant Agent by presenting this Warrant Certificate properly endorsed with a
request to exchange this Warrant Certificate for other Warrant Certificates
evidencing an equal number of Warrants. No fractional Warrant Shares will be
issued upon the exercise of the Warrants, but the Company shall pay an amount in
cash equal to the Market Price for one Warrant Share on the trading day
immediately preceding the date the Warrant is exercised, multiplied by the
fraction of a Warrant Share that would be issuable on the exercise of any
Warrant.
All shares of Common Stock issuable by the Company upon the
exercise of the Warrants shall, upon such issue, be duly and validly issued and
fully paid and nonassessable.
The Holder in whose name the Warrant Certificate is registered
may be deemed and treated by the Company and the Warrant Agent as the absolute
owner of the Warrant Certificate for all purposes whatsoever and neither the
Company nor the Warrant Agent shall be affected by notice to the contrary.
<PAGE>
4
The Warrants do not entitle any holder hereof to any of the
rights of a shareholder of the Company.
This Warrant Certificate shall not be valid or obligatory for
any purpose until it shall have been countersigned by the Warrant Agent.
INTER(bullet)ACT SYSTEMS, INCORPORATED,
by
__________________________________
[SEAL]
Attest:
_____________________________
Secretary
DATED:
Countersigned:
FLEET NATIONAL BANK,
as Warrant Agent,
by
_______________________________
Authorized Signatory
<PAGE>
5
SCHEDULE OF EXCHANGES OF CERTIFICATED WARRANTS 2/
The following exchanges of a part of this Global Warrant for definitive Warrants
have been made:
Amount of Number of
increase in Warrants in
Number of this Global Signature of
Warrants in Warrant authorized
Date of this Global following officer of
Exchange Warrant such increase Warrant Agent
- --------
2/ To be included only if the Warrant is in global form.
<PAGE>
EXHIBIT B
CERTIFICATE TO BE DELIVERED UPON EXCHANGE OR
REGISTRATION OF TRANSFER OF WARRANTS
Re: Warrants to Purchase Common Stock (the "Warrants") of
Inter(bullet)Act Systems, Incorporated (the "Company")
This Certificate relates to Warrants held in definitive form
by _______________ (the "Transferor").
The Transferor has requested the Warrant Agent by written
order to exchange or register the transfer of a Warrant or Warrants. In
connection with such request and in respect of each such Warrant, the Transferor
does hereby certify that the Transferor is familiar with the Warrant Agreement
relating to the above captioned Warrants and that the transfer of this Warrant
does not require registration under the Securities Act of 1933 (the "Securities
Act") because */:
[_] Such Warrant is being acquired for the Transferor's own
account without transfer.
[_] Such Warrant is being transferred to the Company.
[_] Such Warrant is being transferred pursuant to an effective
registration statement pursuant to the Securities Act.
[_] Such Warrant is being transferred to a qualified institutional
buyer (as defined in Rule 144A under the Securities Act), in reliance on Rule
144A.
[_] Such Warrant is being transferred pursuant to an offshore
transaction in accordance with Rule 904 under the Securities Act.
[_] Such Warrant is being transferred in a transaction meeting
the requirements of Rule 144 under the Securities Act.
If such transfer is being made pursuant to an offshore
transaction in accordance with Rule 904 under the Securities Act, the Transferor
further certifies that:
(i) the offer of the Warrants was not made to a Person in the
United States;
(ii) at the time the buy order was originated, the transferee
was outside the United States or we and any Person acting on our behalf
reasonably believed that the transferee was outside the United States;
(iii) no directed selling efforts have been made by us in the
United States in contravention of the requirements of Rule 903(b) or
Rule 904(b) of Regulation S under the Securities Act, as applicable;
(iv) the transaction is not part of a plan or scheme by us to
evade the registration requirements of the Securities Act; and
(v) if applicable, the transfer has been made in accordance
with Rule 903(c)(3) or Rule 904(c)(1), as the case may be.
- --------
*/ Please check applicable box.
<PAGE>
2
Terms used in this paragraph have the meanings set forth in Regulation S.
The Warrant Agent and the Company are entitled to rely upon
this Certificate and are irrevocably authorized to produce this Certificate or a
copy hereof to any interested party in any administrative or legal proceedings
or official inquiry with respect to the matters covered hereby.
__________________________,
[INSERT NAME OF TRANSFEROR]
by
Date: _____________________________ __________________________
<PAGE>
EXHIBIT C
Form of Investor Letter To Be Delivered
in Connection with Transfers
to Non-QIB Institutional Accredited Investors
Inter(bullet)Act Systems, Incorporated
14 Westport Avenue
Norwalk, Connecticut 06851
c/o
Fleet Bank
777 Main Street
Hartford, Connecticut 06115
Attention: Corporate Trust Administration
Ladies and Gentlemen:
In connection with our proposed purchase of Warrants To
Purchase Shares of Common Stock (the "Warrants") of Inter(bullet)Act Systems,
Incorporated (the "Company"), we confirm that:
1. We understand that the Warrants have not been registered
under the Securities Act of 1933 (the "Securities Act"), and may not be sold
except as permitted in the following sentence. We agree on our own behalf and on
behalf of any investor account for which we are purchasing the Warrants to
offer, sell or otherwise transfer such Warrants prior to the date which is three
years after the later of the date of original issue and the last date on which
the Company or any affiliate of the Company was the owner of such Warrants, or
any predecessor thereto (the "Resale Restriction Termination Date") only (a) to
the Company, (b) pursuant to a registration statement which has been declared
effective under the Securities Act, (c) for so long as the Warrants are eligible
for resale pursuant to Rule 144A under the Securities Act, to a person we
reasonably believe is a qualified institutional buyer under Rule 144A (a "QIB")
that purchases for its own account or for the account of a QIB to whom notice is
given that the transfer is being made in reliance on Rule 144A, (d) pursuant to
offers and sales to non-U.S. Persons that occur outside the United States within
the meaning of Regulation S under the Securities Act, (e) to an institutional
"accredited investor" within the meaning of subparagraph (a)(1), (2), (3) or (7)
of Rule 501 under the Securities Act that is acquiring the Warrants for its own
account or for the account of such an institutional "accredited investor" for
investment purposes and not with a view to, or for offer or sale in connection
with, any distribution thereof in violation of the Securities Act or (f)
pursuant to any other available exemption from the registration requirements of
the Securities Act, subject in each of the foregoing cases to any requirement of
law that the disposition of our property and the property of such investor
account or accounts be at all times within our or their control and to
compliance with any applicable state securities laws. The foregoing restrictions
on resale will not apply subsequent to the Resale Restriction Termination Date.
If any resale or other transfer of the Warrants is proposed to be made pursuant
to clause (e) above prior to the Resale Restriction Termination Date, the
transferor shall deliver a letter from the transferee substantially in the form
of this letter to the Warrant Agent, which shall provide, among other things,
that the
<PAGE>
2
transferee is an institutional "accredited investor" within the meaning of
subparagraph (a)(1), (2), (3) or (7) or Rule 501 under the Securities Act and
that it is acquiring such Warrants for investment purposes and not for
distribution in violation of the Securities Act. We acknowledge that the Company
and the Warrant Agent reserve the right prior to any offer, sale or other
transfer prior to the Resale Restriction Termination Date of the Warrants
pursuant to clauses (d), (e) and (f) above to require the delivery of an opinion
of counsel, certifications or other information satisfactory to the Company and
the Warrant Agent.
2. We are an institutional "accredited investor" (as defined
in Rule 501(a)(1), (2) (3) or (7) of Regulation D under the Securities Act)
purchasing for our own account or for the account of such an institutional
"accredited investor", and we are acquiring the Warrants for investment purposes
and not with a view to, or for offer or sale in connection with, any
distribution in violation of the Securities Act and we have such knowledge and
experience in financial and business matters as to be capable of evaluating the
merits and risks of our investment in the Warrants, and we and any accounts for
which we are acting are each able to bear the economic risk of our or its
investment.
3. We are acquiring the Warrants purchased by us for our own
account or for one or more accounts as to each of which we exercise sole
investment discretion.
4. You are entitled to rely upon this letter and you are
irrevocably authorized to produce this letter or a copy hereof to any interested
party in any administrative or legal proceeding or official inquiry with respect
to the matters covered hereby.
Very truly yours,
(Name of Purchaser),
by
_______________________
Date:
Upon transfer, the Warrants would be registered in the name of
the new beneficial owner as follows:
Name: _____________________
Address:
Taxpayer ID Number:
<PAGE>
<PAGE>
Exhibit 10(m)
INTERACTIVE NETWORKS INCORPORATED
SHAREHOLDERS' AGREEMENT
This Agreement, dated as of April 16, 1993, by and among Interactive
Networks Incorporated, a North Carolina corporation (the "Corporation"), and all
of the undersigned shareholders of the Corporation (collectively referred to as
the "Shareholders").
BACKGROUND STATEMENT
All of the issued and outstanding shares of the Corporation are owned
and held of record by the Shareholders.
The parties hereto desire to promote their mutual interests and the
interests of the Corporation by restricting transfer of the shares of the
Corporation and by imposing certain rights and obligations upon the parties with
respect to the Corporation and said shares.
STATEMENT OF AGREEMENT
In consideration of the premises and of the mutual covenants and
conditions herein contained, the parties agree for themselves, their successors
and assigns as follows:
1. Definitions. When used in this Agreement, the following
terms shall have the following meanings:
(a) "Collateral Shares" means all of the Shares securing an
Investor Group Note which, in the aggregate, equal 1,560,131 Shares.
(b) "Defaulted Note" means an Investor Group Note with respect
to which a Note Default has occurred.
(c) "Defaulting Investor Group Shareholder" means the Investor
Group Shareholder who executed the Defaulted Note.
(d) "Default Shares" means 78% of the Collateral Shares of
each Investor Group Shareholder.
(e) "Fair Market Value" of any noncash consideration offered
for Shares means the sum of (i) the fair market value of such noncash
consideration in the usual sense of that term, plus (ii) the value of
any special benefits to the Offeror of such noncash consideration to
the extent such benefits can be reasonably identified and valued, plus
(iii) the amount of any additional expense or cost (including
additional taxes) incurred by the Offeror in accepting cash instead of
such noncash consideration in each case based upon a realistic
appraisal of noncash consideration, special benefits, expenses, or
costs agreed
<PAGE>
upon by the Offeror and the Corporation or by three independent
qualified appraisers selected, respectively, by the Offeror, the
Corporation, and the other two so selected.
(f) "Future Investment" means that loan to the Corporation in
the aggregate amount of $1,600,000 to be made by the Investor Group
Shareholders in the amounts set forth opposite each Investor Group
Shareholder's name on Schedule A attached hereto.
(g) "Investor Group Note" means a Nonrecourse Promissory Note
of even date herewith executed by an Investor Group Shareholder in
favor of the Corporation.
(h) "Investor Group Shareholders" means all of the
Shareholders as of the date hereof except Clearing Systems, Inc., a
Delaware corporation.
(i) "Issue" means all issue, whether natural, adopted, or in
the process of adoption.
(j) "Note Default" means a default in the payment of any
amount due to the Corporation under an Investor Group Note by July 22,
1993 or immediately following successful installation of the
Corporation's "GNS" System in four locations, whichever is later.
(k) "Offeror" means any Shareholder who offers to sell Shares
to any other Shareholder or the Corporation pursuant to Section 4
hereof.
(l) "Purchase Value" means the book value per share of the
Corporation as of the end of the calendar month immediately preceding
the date the Shares are purported to be transferred involuntarily, as
determined in accordance with generally accepted accounting principles
consistently followed by the Corporation for prior periods.
(m) "Related Party" means a spouse, Issue, spouse of Issue, or
ancestor, except that any spouse living separate and apart from the
other spouse with the intention by either to cease their matrimonial
cohabitation is not a Related Party; a trust for the sole benefit of
one or more persons thus defined as a Related Party; or, with respect
to any corporate Shareholders, any shareholder of such corporate
Shareholder on the date of this Agreement.
(n) "Shares" means the issued and outstanding shares of the
common stock of the Corporation together with all shares of the common
stock of the Corporation hereafter issued by the Corporation and any
shares distributed with respect to any Shares in a share split, share
dividend, or other recapitalization.
(o) "Shareholder" means each of the undersigned shareholders
and any other person who shall at any time become a holder of Shares.
2
<PAGE>
Throughout this Agreement the masculine gender shall be deemed to include the
neutral and the feminine, the singular the plural, and the plural the singular.
Section headings are for the convenience of reference only and shall not be
considered terms of the Agreement.
2. General Restrictions on Transfer.
(a) Each Shareholder agrees that, without the prior written
consent of the other Shareholders, which consent may be withheld in the
sole discretion of the other Shareholders, none of the Shares owned by
him may be transferred, sold, assigned, pledged, hypothecated,
encumbered, donated or otherwise disposed of except in strict
compliance with the terms and provisions of this Agreement.
(b) The Corporation, by its execution of this Agreement,
agrees that it will not cause or permit the transfer of any of the
Shares to be made on its books except in accordance with this
Agreement. The Corporation further agrees not to issue any additional
Shares from the Corporation's authorized but unissued Shares, unless
the person or entity to whom such additional Shares are issued agrees
in writing that he or it, his heirs, and its successors and assigns,
and such additional Shares, shall be subject to and bound by this
Agreement.
3. Transfer to Related Party. Each Shareholder's Shares may be
transferred, during such Shareholder's lifetime to any Related Party of such
Shareholder or by testamentary or intestate transfer if the transferee agrees to
join in and be bound by this Agreement. No further transfer of such Shares shall
be made by such transferee except to the Shareholder who originally owned them
or to a Related Party of such Shareholder who originally owned them, or except
in accordance with the provisions of Section 4 or 5 hereof.
4. Transfer to Outsiders. No Shares shall be transferred voluntarily
except as permitted under Section 3, 6 or 7 hereof or in accordance with the
following provisions:
(a) Any Shareholder intending to transfer any Shares, except
as permitted under Section 3, 6 or 7 hereof, shall first submit to the
Corporation a written offer to sell such shares to the Corporation at
the same price per share and upon the same terms of payment for which
the intended transfer is to be made. Every written offer submitted to
the Corporation in accordance with the provisions of this Section 4(a)
shall continue to be a binding offer to sell until expressly accepted
or rejected by an officer or director of the Corporation acting
pursuant to a resolution adopted by the holders of a majority of the
outstanding Shares entitled to vote on the acceptance or rejection of
such offer or until the expiration of a period of thirty (30) days
after the delivery of such offer to the Corporation and the other
Shareholders, whichever is earlier. Upon delivery to the Corporation
and the other Shareholders of any written offer submitted in accordance
with the provisions of this Section 4(a), any officer or director of
the Corporation, acting before the termination of the offer and
pursuant to a resolution adopted by the holders of a majority
3
<PAGE>
of the outstanding Shares entitled to vote or acceptance or rejection
of such an offer may bind the Corporation to purchase all or any part
of the Shares so offered.
(b) Upon termination of the offer referred to in subsection
(a) above, the Offeror shall then submit to all of the other
Shareholders written offers to sell, at the same price per share and
upon the same terms of payment previously offered to the Corporation,
any of the offered Shares not purchased by the Corporation, such Shares
to be allocated among such holders pro rata in accordance with the
percentage of Shares then owned by them. Each such offer shall continue
to be a binding offer to sell until expressly accepted or rejected by
the offeree (which acceptance or rejection shall be by notice in
writing to the Offeror and to each of the other Shareholders) or until
the expiration of ten (10) days after its delivery to the offeree,
whichever time is earlier. If any such offeree does not elect to
purchase all of the Shares offered to him, any other such offeree may
purchase all or any part of the unpurchased shares by giving to the
Offeror written notice of his election so to purchase not later than
ten (10) days after the termination of the original offer to the
offeree who did not elect to purchase all such Shares. If more than one
offeree together elect to purchase more than the unpurchased Shares
available, such Shares shall be allocated to such offerees pro rata in
accordance with their then respective holdings of Shares.
(c) Every written offer submitted in accordance with the
provisions of this Section 4 shall specifically name the person or
persons to whom the Offeror intends to transfer the Shares, the number
of Shares that he intends so to transfer to each person, and the price
per share and other terms upon which each intended transfer is to be
made.
(d) If the Corporation and the other Shareholders do not elect
to purchase all of the Shares of the Offeror pursuant to Sections 4(a)
and 4(b) above, no elections to purchase a portion of such shares shall
be effective, and the Offeror shall, for a period of thirty (30) days
thereafter, be free to transfer the offered Shares to the person or
persons named in the offer to sell submitted to the Corporation and the
other Shareholders at a price no less than the price per share and upon
the other terms so named in the written offer.
(e) If any consideration to be received by the Offeror for the
Shares offered is property other than cash, then the price per share
shall be measured to that extent by the Fair Market Value of such
noncash consideration.
(f) The closing of the purchase of Shares of the Offeror
pursuant to this Section 4 shall be held on a date selected by the
Offeror and the purchasers or purchasers of such shares, but no later
than sixty (60) days after the offer to sell submitted pursuant to
Section 4(a) above has been delivered to the Corporation and the other
Shareholders.
4
<PAGE>
5. Involuntary Transfer. The Corporation shall have the option to
purchase, at the Purchase Value, any Shares that are purported to be transferred
involuntarily, including, without limitation, any Purported transfer by or
pursuant to bankruptcy, attachment, divorce, equitable distribution, or
operation of law, but excluding a transfer upon death. An officer or director of
the Corporation acting pursuant to a resolution adopted by the Board of
Directors may exercise this option by giving written notice to the Shareholders
and to the purported transferee at any time within three (3) months after the
Corporation receives written notice of such purported transfer. The purchase
price shall be paid in full in cash to the Shareholder no later than the date
six (6) months after the date the Corporation exercises the option.
6. Note Default. Upon the occurrence of a Note Default, the Defaulting
Investor Group Shareholder shall submit to all of the other Investor Group
Shareholders written offers to assign the Defaulted Note and convey all or a
portion of the Collateral Shares to the other Investor Group Shareholders in
exchange for the assumption of all or a portion of the obligations of the
Defaulting Investor Group Shareholder under the Defaulted Note, the assignment
of the Defaulted Note and the conveyance of the Collateral Shares to be
allocated among the other Investor Group Shareholders on the basis of the
percentage of Shares then owned by them. Each such offer shall continue to be a
binding offer to assign the Defaulted Note and convey all of the Collateral
Shares until expressly accepted or rejected by the offeree (which acceptance or
rejection shall be by notice in writing to the Defaulting Investor Group
Shareholder and to each of the other Investor Group Shareholders) or until the
expiration of twenty (20) days after its delivery to the offeree, whichever time
is earlier. If any such offeree does not elect to assume the obligations of the
Defaulting Investor Group Shareholder under the Defaulted Note offered to him,
any other offeree may assume all or any part of such unassumed obligations under
the Defaulted Note by giving to the Defaulting Investor Group Shareholder
written notice of his election so to assume not later than ten (10) days after
the termination of the original offer to the offeree who did not elect to assume
all such obligations offered to him. If such offerees elect to assume more of
the obligations of the Defaulting Investor Group Shareholder under the Defaulted
Note than are available, such Defaulted Note (and Collateral Shares) shall be
allocated to such offerees in accordance with the allocation agreed upon by such
offerees or, in the absence of such agreement, in proportion to their then
respective holdings of Shares. Every written offer submitted in accordance with
the provisions of this Section 7 shall specifically name the amount of the
obligation of the Defaulting Investor Group Shareholder under the Defaulted Note
and the number of Collateral Shares. Alternatively, at the option of the
Defaulting Investor Group Shareholder and with the consent of a majority in
interest of the Investor Group Shareholders, the Defaulting Investor Group
Shareholder may direct the Corporation to sell such portion of his Collateral
Shares as shall be necessary to satisfy his Note to an identified third party or
parties, and, upon completion of the sales, the remaining Collateral Shares
shall be released by the Corporation to the Defaulting Investor Group
Shareholder; provided, that no sale of Collateral Shares may be made except in
compliance with applicable federal and state securities laws. it is the
intention of the Investor Group Shareholders that they will cooperate with each
other in such sales so as to sell Shares pro rata in accordance with their
respective shareholdings.
5
<PAGE>
7. Future Investment. Each Investor Group Shareholder shall be
obligated on October 22, 1993 or three months following the profitable (in
accordance with generally accepted accounting principles) installation of the
Corporation's "GNS" System in four locations, whichever is later; either (i) to
make his portion of the Future Investment in the form of a loan to the
Corporation (in the amount set forth on Schedule A) or (ii) to arrange for
another person or entity to acquire Shares as contemplated by this Section
and/or to lend to the Corporation a sum equal to or greater than said Investor
Group Shareholder's portion of the Future Investment. An Investor Group
Shareholder may, with the consent of the majority in interest of the other
Investor Group Shareholders (based upon their holdings of Shares), surrender any
or all of his Shares to the Corporation for sale to any other person or entity,
regardless of whether or not such person or entity is a Shareholder at the time
of such transfer, in connection with such Shareholder's making or arranging for
said other person's or entity's making his portion of the Future Investment, in
which case the price received by the Corporation for such Shares will be deemed
to be a portion of the Shareholder's Future Investment; provided, that no sale
of Collateral Shares may be made except in compliance with applicable federal
and state securities laws. It is contemplated that the Investor Group
Shareholders will cooperate with each other in raising additional funds for the
Corporation to the extent they elect not to lend funds to the Corporation
themselves and that their shareholdings will be diluted on a pro rata basis with
respect to any sales of Shares in connection with such efforts without dilution
of the percentage shareholdings of Clearing Systems, Inc. If any Investor Group
Shareholder does not lend or obtain his or her loan for the Corporation, he or
she will forfeit to the Corporation such percentage of the Default Shares as
shall equal the percentage of his or her loan not provided, whereupon such
Investor Group Shareholder's obligations under this section shall terminate.
8. Pledge as Collateral. The provisions of Section 4 shall not apply to
the bona fide, good faith pledge of any Shares as collateral for a loan, but the
provisions of Section 5 shall apply to any attempted sale or other disposition
of Shares under any such pledge (whether by foreclosure, consent, public or
private sale, or otherwise) otherwise than in accordance with this Agreement.
9. Transferees. Every transferee of Shares that are transferred in
accordance with the provisions of this Agreement shall be deemed a Shareholder
and all such transferees shall be bound by all of the provisions of this
Agreement. Any purported or attempted transfer of Shares that does not comply
with the provisions of this Agreement shall be null and void and the purported
transferee shall not be deemed to be a Shareholder of the Corporation and shall
not be entitled to vote the Shares or to receive a stock certificate or any
dividends or other distributions on or with respect to such Shares. For the
purposes of this Agreement, a purported transfer of Shares that causes such
shares to be subject to an option under Section 4 shall be deemed to comply with
the provisions of this Agreement only after the expiration of such option.
10. Management of the Corporation. So long as he owns Shares, each
Shareholder agrees to vote his Shares to require that, in order to be effective,
any action by the Board of Directors of the Corporation, including, without
limitation, any amendment of the Bylaws of the
6
<PAGE>
Corporation, must receive the approval of the greater of (i) a majority of the
directors then constituting the Board of Directors of the Corporation or (ii)
four of the directors of the Corporation.
11. Share Certificates. Every certificate representing Shares of the
Corporation shall bear the following legend prominently displayed:
"The shares represented by this certificate, and the transfer thereof,
are subject to the provisions of that certain Shareholders' Agreement,
dated as of April 16, 1993, a copy of which is on file in, and may be
examined at, the principal office of the Corporation."
12. Cumulative Voting For Directors. During the term of this Agreement,
the parties hereto agree that each shareholder entitled to vote at an election
of directors shall have the right to cast the number of votes he is entitled to
cast for as many persons as there are directors to be elected, or to cumulate
his votes by giving one candidate as many votes as the number of directors to be
elected multiplied by the number of his votes shall equal, or by distributing
such votes on the same principle among any number of such candidates. This right
of cumulative voting shall not be exercised unless (a) the meeting notice or
proxy statement accompanying the notice states conspicuously that shareholders
are entitled to cumulate their votes, or (b) each shareholder or proxy who has
the right to cumulate his votes announces in open meeting, before the voting for
the directors starts, his intention to vote cumulatively; and if such
announcement is made, the chair shall declare that all shares entitled to vote
have the right to vote cumulatively and shall announce the number of votes
represented in person and by proxy and shall thereupon grant a recess of a
reasonably sufficient period of time in order to allow all shareholders to vote
cumulatively. This right of cumulative voting further shall not be effective
after termination of this Shareholders' Agreement. The parties further agree
that the first sentence of Article III, Section 2 of the Bylaws of the
Corporation will not be amended without the consent of eighty percent (80%) of
the Shareholders during the term of this Agreement.
13. Issuance of Additional Shares. The parties hereto agree that the
Corporation shall not issue any additional Shares, or any other securities
convertible into Shares, if more than one director of the Corporation votes
against such issuance unless (a) a majority of the directors of the Corporation
approve the issuance of such additional Shares or securities, and (b) such
shares are first offered by the Corporation to the existing shareholders pro
rata in accordance with the percentage of Shares then owned by them at the same
price and on the same terms as the Shares or securities are otherwise proposed
to be issued. This Section 13 shall not apply to any issuance of shares in
connection with Sections 6 and 7 hereof.
14. Shareholders' Meetings. During the term of this Agreement, all
meetings of shareholders of the Corporation shall be held within the states of
Connecticut, New York and North Carolina unless each holder of record of more
than 5% of the then outstanding shares of the Company shall consent to some
other location.
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<PAGE>
15. Validity and Enforceability. Each Shareholder agrees that each and
every provision of this Agreement is reasonably necessary for the protection of
the rights and interests of each Shareholder and his heirs, successors or
assigns and that monetary damages may not be an adequate remedy for a breach of
this Agreement. Accordingly, and without limiting the generality of the
foregoing statement, should any dispute arise concerning the sale or other
disposition or transfer of any of the Shares by him, each Shareholder consents
and agrees that an injunction may be issued to restrain any such sale or
disposition pending the determination of such controversy. In the event of any
controversy concerning the right of any Shareholder or the Corporation to
purchase any Shares subject to this Agreement, such right to purchase shall be
enforceable in a court of competent jurisdiction by a decree of specific
performance. Notwithstanding the entitlement of any Shareholder or the
Corporation to the remedy of specific performance, such remedy shall be in
addition to, and not in limitation of, any other rights and remedies at law or
in equity that any Shareholder or the Corporation may have.
16. Notices. All notices, offers, acceptances, requests and other
communications hereunder shall be in writing and shall be deemed to have been
duly given if delivered in person or if mailed by prepaid certified or
registered mail, return receipt requested, to the Corporation (Attention: Board
of Directors) at its principal office or such other address of which the
Corporation shall notify the Shareholders pursuant to this Section 15, and to
each Shareholder at his most recent address appearing in the records of the
Corporation or such other address of which he shall notify the Corporation
pursuant to this Section 16.
17. Binding Effect. The terms of this Agreement shall be binding upon
the parties hereto and their respective personal representatives,
administrators, executors, legatees, heirs, successors and assigns. No party may
assign any of his rights or obligations under this Agreement without the written
consent of the Corporation and each person who is then an owner of any Shares.
This Agreement shall be binding upon any person to whom any of the Shares
subject hereto are transferred in violation of the provisions of this Agreement,
and the personal representatives, administrators, executors, legatees, heirs,
successors and assigns of such person.
18. Amendment, Modification and Termination. This Agreement may be
amended or modified at any time or times by the mutual written agreement of the
Corporation and Shareholders holding not less than eighty percent (80%) of the
outstanding Shares; provided, however, that the mutual written agreement of the
Corporation and all of the Shareholders shall be required to amend or modify
Section 6 hereof. No such amendment or modification, however, shall affect the
right of any party to receive, or the obligation of any party to pay, upon the
terms and conditions of this Agreement, the purchase price for Shares sold
pursuant to this Agreement prior to such amendment or modification. This
Agreement shall terminate automatically and without any further action by any
party upon the earliest of: (i) the effective date of a registration statement
filed under the Securities Act of 1933, as amended, pursuant to which a public
offering of capital stock of the Corporation is to be made; (ii) a sale of all
of the outstanding Shares or substantially all of the assets of the Corporation;
(iii) a vote to terminate this Agreement by
8
<PAGE>
Shareholders holding not less than eighty percent (80%) of the outstanding
Shares; or (iv) 10 years from the date of this Agreement.
19. Dispute Resolution. Before a Shareholder commences a legal action
arising out of or relating to this Agreement, he shall notify the other
Shareholders and the Board of Directors of the Corporation in writing of his
intention to commence an action and of the basis for the action and, except as
hereinafter provided, shall not commence an action for at least 30 days after
such written notification. During such 30-day period, the Shareholders shall
make reasonable and good faith efforts to resolve the dispute that is the
subject of the threatened action, by means of nonbinding arbitration or a
similar nonbinding procedure. Notwithstanding the foregoing, either Shareholder
may commence an action during the aforesaid 30-day period for the purpose of
obtaining a preliminary injunction to preserve the status quo during the 30-day
period.
20. Entire Agreement. This Agreement constitutes the entire agreement
among the parties pertaining to the matters addressed herein and supersedes all
prior agreements and understandings, oral and written, if any there be, with
respect thereto.
21. Severability. If any provision of this Agreement is declared to be
invalid for any reason or to have ceased to be binding on the parties hereto,
such provision shall be severed, and all other provisions herein shall continue
to be effective and binding.
22. Governing Law. This Agreement may be executed in counterparts and
shall be subject to and governed by the laws of the State of North Carolina.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement
under seal as of the date hereof.
INTERACTIVE NETWORKS INCORPORATED
[Corporate Seal] By:
Title:
Attest:
Secretary
[Corporate Seal] SHAREHOLDERS:
CLEARING SYSTEMS, INC.
ATTEST:
By:
Title:
Secretary
9
<PAGE>
(SEAL)
L. Richardson Preyer, Jr.
(SEAL)
Haynes G. Griffin
(SEAL)
Stephen R. Leeolou
(SEAL)
William R. Emerson, Jr.
(SEAL)
Peter B. Ruffin, Jr.
(SEAL)
Thomas B. Hubbard, III
(SEAL)
Richard P. Ludington
(SEAL)
Henry Sloan
(SEAL)
Edward N. Boehm
(SEAL)
Steve Carlson
(SEAL)
William H. Blount
10
<PAGE>
(SEAL)
Theodore H. Koenig
(SEAL)
Robert F. Hutchens
(SEAL)
Charles Lowe
(SEAL)
Chris Lowe
SIGNATURE PAGE TO SHAREHOLDERS' AGREEMENT DATED APRIL 16, 1993
11
<PAGE>
SCHEDULE A
Shareholder Amount of Loan
L. Richardson Preyer, Jr. $186,747
Haynes G. Griffin 186,747
Stephen R. Leelou 186,747
William P. Emerson, Jr. 168,072
Peter B. Ruffin, Jr. 168,072
T. R. Hubbard III 186,747
Olivia M. Ludington 62,249
Edward N. Boehm 87,149
Steve Carlson 62,249
William H. Blount 62,249
Marilyn M. Koenig 62,249
Robert F. Hutchens 37,349
Charles Lowe 60,420
Chris Lowe 53,659
Henry Sloan 29,296
SHA
12
<PAGE>
<PAGE>
Exhibit 10(n)
AMENDMENT NO. 1 TO SHAREHOLDERS' AGREEMENT
THIS AMENDMENT NO. 1 TO SHAREHOLDERS' AGREEMENT (the "Amendment") dated
as of June 17, 1994 by and among INTER(bullet)ACT SYSTEMS, INCORPORATED
(formerly "Interactive Networks Incorporated"), a North Carolina corporation
(the "Corporation"), and the undersigned shareholders of the Corporation
(collectively, the "Shareholders");
W I T N E S S E T H:
WHEREAS, the Corporation, the undersigned Shareholders and the other
shareholders of the Corporation are parties to a shareholders' agreement dated
as of April 16, 1993 (the "Shareholders' Agreement") pursuant to which, inter
alia, the Corporation and its shareholders agreed to impose certain rights and
restrictions with respect to the transfer of shares of the Corporation's common
stock (the "Shares"); and
WHEREAS, the parties hereto desire to amend the Shareholders' Agreement
and the Shareholders' Agreement provides that it may be amended or modified by
mutual written agreement of the Corporation and holders of not less than eighty
percent (80%) of the outstanding Shares; and
WHEREAS, the undersigned Shareholders hold in excess of eighty percent
(80%) of the outstanding Shares;
NOW, THEREFORE, in consideration of the mutual promises and covenants
herein contained, and intending to be legally bound hereby, the parties hereto
agree as follows:
1. Amendment to Section 1. Section 1 of the Shareholders' Agreement is
hereby amended by removing subsections (i) and (m), the definitions of "Issue"
and "Related Party," and relettering the other subsections accordingly.
2. Amendment to Section 3. Section 3 of the Shareholders' Agreement is
hereby amended in its entirety to read as follows:
3. Transfers Upon Death or by Gift. Each Shareholder's Shares
may be transferred upon death of the Shareholder by testamentary or
intestate transfer if the transferee agrees to join in and be bound by
this Agreement. Each Shareholder's Shares may be transferred during
such Shareholder's lifetime by gift if: (i) the transfer is by bona
fide gift for which the Shareholder receives no consideration; (ii) the
transfer is in compliance with applicable federal and state securities
laws; (iii) documentation satisfactory to the Corporation and its
counsel is received with respect to the bona fide gift nature of the
transfer and the ownership intent of the transferee; and (iv) the
transferee agrees to join in and be bound by this Agreement.
3. Amendment to Section 4. Section 4 of the Shareholders' Agreement is
hereby amended in its entirety to read as follows:
<PAGE>
4. Transfers to Outsiders. Shares may be transferred voluntarily by a
Shareholder to any person or entity other than by lifetime gift or testamentary
or intestate transfer if: (i) the transferee is an Accredited Investor (as
defined in Regulation D of the Rules and Regulations of the Securities and
Exchange Commission) and, if requested by the Corporation, submits such
representations and certifications as to the transferee's investment intent and
Accredited Investor status as the Corporation and its counsel may require; (ii)
the transfer is made in compliance with the applicable federal and state
securities laws; and (iii) the transferee agrees to join in and be bound by this
Agreement.
4. Amendment to Section 7. Section 7 of the Shareholders' Agreement is
hereby amended in its entirety to read as follows:
7. Future Investment. Each Investor Group Shareholder shall be
obligated on or before July 15, 1994 to make his portion of the Future
Investment in the form of a loan to the Corporation in the amount set
forth on Schedule A. In the event the Investor Group Shareholder is not
able to make a loan to the Corporation in an amount equal to his entire
Future Investment obligation, such Investor Group Shareholder may, with
the approval of the Board of Directors of the Corporation, arrange for
another person or entity (without regard to whether such person or
entity is a Shareholder at such time) to acquire Shares and/or make a
loan to the Corporation to satisfy all or a portion of such Investor
Group Shareholder's Future Investment obligation. Such arrangement may
include either (x) a direct sale by the Investor Group Shareholder to
such other person or entity with the proceeds thereof used by the
Investor Group Shareholder to satisfy all or a portion of his Future
Investment obligation, or (y) a surrender by the Investor Group
Shareholder of all or a portion of his Shares to the Corporation for
sale to such other person or entity in which case the price received by
the Corporation for such Shares, together with any amounts loaned to
the Corporation by such person or entity, will be deemed to be partial
or full satisfaction, as appropriate, of the Investor Group
Shareholder's Future Investment obligation; Provided, however, in
either event that no sale of Shares may be made except in compliance
with applicable federal and state securities laws, that such other
person or entity must be an Accredited Investor (as defined in
Regulation D of the Rules and Regulations of the Securities and
Exchange Commission) and that, upon request of the Corporation, such
other person or entity will submit such representations and
certifications as to his or its investment intent and Accredited
Investor status as the Corporation and its counsel may require. if any
Investor Group Shareholder does not satisfy his Future Investment
obligation by making a loan to the Corporation and/or arranging for
another person or entity to make a loan to the Corporation and/or
purchase Shares as contemplated by clause (y) above, such Investor
Group Shareholder will forfeit to the Corporation such percentage of
the Default Shares as shall equal the percentage of his Future
Investment obligation not satisfied, whereupon such Investor Group
Shareholder's obligations under this section shall terminate.
2
<PAGE>
5. Addition of Section 23. The Shareholders' Agreement is hereby
amended by adding thereto a new Section 23 to read as follows:
23. Lock-up Agreement. Each Shareholder hereby agrees that he
shall not, for a period of at least 180 days following the effective
date of the initial distribution of the Shares in an underwritten
public offering to the general public pursuant to a registration
statement filed with the Securities and Exchange Commission, or such
longer period as may be requested by the managing underwriter of such
offering, directly or indirectly, sale, offer to sell or otherwise
dispose of any of his Shares other than any Shares which are included
in such initial distribution and that he will enter into an agreement
to that effect with the underwriters. The agreement of each Shareholder
under this Section 23 shall survive a termination of the Agreement
under clause (i) of Section 18 hereof.
6. Governing Law. This Amendment shall be governed by and construed in
accordance with the laws of the State of North Carolina.
7. Entire Agreement. This Amendment, together with the Shareholders'
Agreement, constitutes the entire integrated agreement among the parties
pertaining to the matters addressed herein and supersedes all prior agreements
and understandings, oral and written, with respect thereto.
8. Counterparts. This Amendment may be executed in any number of
counterparts, any one of which need not contain the signatures of more than one
party, but all of which when taken together shall constitute one and the same
Amendment.
IN WITNESS WHEREOF, the parties hereto have executed this Amendment or
caused this Amendment to be executed by their duly authorized officers under
seal as of the day and year written above.
CORPORATION:
ATTEST: INTER(bullet)ACT SYSTEMS, INCORPORATED
By:
Secretary President
(Corporate Seal) SHAREHOLDERS:
ALONZO FAMILY PARTNERS, LTD.
By: (SEAL)
General Partner
3
<PAGE>
(SEAL)
William H. Blount
(SEAL)
Edward N. Boehm
(SEAL)
Helen R. Boehm II
(SEAL)
Edward N. Boehm, Jr.
(SEAL)
Edward N. Boehm, Custodian for
David H. Boehm
ATTEST: CLEARING SYSTEMS, INC.
By:
Secretary President
(Corporate Seal)
(SEAL)
William P. Emerson, Jr.
(SEAL)
Haynes G. Griffin
(SEAL)
Thomas B. Hubbard, III
4
<PAGE>
(SEAL)
Thomas B. Hubbard, III, Custodian for
Thomas B. Hubbard, IV, Carl U. Hubbard,
Joseph Y. Hubbard and William M.R.
Hubbard
(SEAL)
Robert F. Hutchens
(SEAL)
Theodore H. Koenig
(SEAL)
Stephen R. Leeolou
(SEAL)
Charles M. Lowe, Jr.
(SEAL)
Charles C. Lowe
(SEAL)
Richard P. Ludington
WILLIAM AND MAXWELL LUDINGTON
TRUST
(SEAL)
Trustee
(SEAL)
William F. Penwell
(SEAL)
L. Richardson Preyer, Jr.
5
<PAGE>
(SEAL)
Peter B. Ruffin, Jr.
(SEAL)
Henry L. Sloan, III
6
Exhibit 10(o)
EXECUTION COPY
INTER(bullet)ACT SYSTEMS, INCORPORATED
$142,000,000 14% SENIOR DISCOUNT NOTES DUE 2003
EXCHANGE AND REGISTRATION RIGHTS AGREEMENT
New York, New York
July 30, 1996
Salomon Brothers Inc
BT Securities Corporation
Toronto Dominion Securities (USA) Inc.
As Representatives of the Initial Purchasers
In care of Salomon Brothers Inc
Seven World Trade Center
New York, New York 10048
Ladies and Gentlemen:
Intero Act Systems, Incorporated, a North Carolina corporation
(the "Company"), proposes to issue and sell (the "Initial Placement") to the
Initial Purchasers, upon the terms set forth in a Purchase Agreement of even
date herewith (the "Purchase Agreement") among the Initial Purchasers and the
Company, its 14% Senior Discount Notes due 2003 (the "Securities"). As an
inducement to the Initial Purchasers to enter into the Purchase Agreement and in
satisfaction of a condition to your obligations thereunder, the Company agrees
with you, (i) for your benefit and the benefit of the other Purchasers and (ii)
for the benefit of the holders from time to time of the Transfer Restricted
Securities (as defined herein) (including you and the other Purchasers) (each of
the foregoing a "Holder" and together the "Holders"), as follows:
1. Definitions. Capitalized terms used herein without
definition shall have their respective meanings set forth in the Purchase
Agreement. As used in this Agreement, the following capitalized defined terms
shall have the following meanings:
"Act" means the Securities Act of 1933, as amended, and the
rules and regulations of the Commission promulgated thereunder.
<PAGE>
2
"Affiliate" of any specified person means any other person
which, directly or indirectly, is in control of, is controlled by, or is under
common control with, such specified person. For purposes of this definition,
control of a person means the power, direct or indirect, to direct or cause the
direction of the management and policies of such person whether by contract or
otherwise; and the terms "controlling" and "controlled" have meanings
correlative to the foregoing.
"Closing Date" has the meaning set forth in the Purchase
Agreement.
"Commission" means the Securities and Exchange Commission.
"Exchange Act" means the Securities Exchange Act of 1934, as
amended, and the rules and regulations of the Commission promulgated thereunder.
"Exchange Offer Registration Period" means the 90 day period
following the consummation of the Registered Exchange Offer, exclusive of any
period during which any stop order shall be in effect suspending the
effectiveness of the Exchange Offer Registration Statement.
"Exchange Offer Registration Statement" means a registration
statement of the Company on an appropriate form under the Act with respect to
the Registered Exchange Offer, all amendments and supplements to such
registration statement, including post-effective amendments, in each case
including the Prospectus contained therein, all exhibits thereto and all
material incorporated by reference therein.
"Exchanging Dealer" means any Holder (which may include the
Purchasers) which is a broker-dealer, electing to exchange Securities acquired
for its own account as a result of market-making activities or other trading
activities, for New Securities.
"Final Memorandum" has the meaning set forth in the Purchase
Agreement.
"Holder" has the meaning set forth in the preamble hereto.
"Indenture" means the Indenture relating to the Securities
dated as of August 1, 1996, between the Company
<PAGE>
3
and Fleet National Bank, as trustee, as the same may be amended from time to
time in accordance with the terms thereof.
"Initial Placement" has the meaning set forth in the preamble
hereto.
"Majority Holders" means the Holders of a majority of the
aggregate principal amount of securities registered under a Registration
Statement.
"Managing Underwriters" means the investment banker or
investment bankers and manager or managers that shall administer an underwritten
offering.
"New Securities" means debt securities of the Company
identical in all material respects to the Securities (except that the cash
interest and interest rate step-up provisions and the transfer restrictions will
be modified or eliminated, as appropriate), to be issued under the Indenture or
the New Securities Indenture.
"New Securities Indenture" means an indenture between the
Company and the New Securities Trustee, identical in all material respects with
the Indenture (except that the cash interest and interest rate step-up
provisions will be modified or eliminated, as appropriate).
"New Securities Trustee" means a bank or trust company
reasonably satisfactory to the Initial Purchasers, as trustee with respect to
the New Securities under the New Securities Indenture.
"Prospectus" means the prospectus included in any Registration
Statement (including, without limitation, a prospectus that discloses
information previously omitted from a prospectus filed as part of an effective
registration statement in reliance upon Rule 430A under the Act), as amended or
supplemented by any prospectus supplement, with respect to the terms of the
offering of any portion of the Securities or the New Securities, covered by such
Registration Statement, and all amendments and supplements to the Prospectus,
including post-effective amendments.
"Registered Exchange Offer" means the proposed offer to the
Holders to issue and deliver to such Holders, in exchange for the Securities, a
like principal amount of the New Securities.
<PAGE>
4
"Registration Statement" means any Exchange Offer Registration
Statement or Shelf Registration Statement that covers any of the Securities or
the New Securities pursuant to the provisions of this Agreement, amendments and
supplements to such registration statement, including post-effective amendments,
in each case including the Prospectus contained therein, all exhibits thereto
and all material incorporated by reference therein.
"Securities" has the meaning set forth in the preamble hereto.
"Shelf Registration" means a registration effected pursuant to
Section 3 hereof.
"Shelf Registration Period" has the meaning set forth in
Section 3(b) hereof.
"Shelf Registration Statement" means a "shelf" registration
statement of the Company pursuant to the provisions of Section 3 hereof which
covers some or all of the Securities or New Securities, as applicable, on an
appropriate form under Rule 415 under the Act, or any similar rule that may be
adopted by the Commission, amendments and supplements to such registration
statement, including post-effective amendments, in each case including the
Prospectus contained therein, all exhibits thereto and all material incorporated
by reference therein.
"Transfer Restricted Security" means each Security or New
Security until (i) the date on which such Transfer Restricted Security has been
exchanged by a person other than a broker-dealer for a New Security in the
Registered Exchange Offer that is freely transferable under the Act, (ii)
following the exchange by a broker-dealer in the Registered Exchange Offer of a
Transfer Restricted Security for a New Security, the date on which such New
Security is sold to a purchaser who receives from such broker-dealer on or prior
to the date of such sale a copy of the prospectus contained in the Exchange
Offer Registration Statement, (iii) the date on which such Transfer Restricted
Security has been effectively registered under the Act and disposed of in
accordance with the Shelf Registration Statement or (iv) the date on which such
Transfer Restricted Security is distributed to the public pursuant to Rule 144
under the Act or is saleable pursuant to Rule 144(k) under the Act.
<PAGE>
5
"Trustee" means the trustee with respect to the Securities
under the Indenture.
"Underwriter" means any underwriter of Securities in
connection with an offering thereof under a Shelf Registration Statement.
2. Registered Exchange Offer; Resales of New Securities by
Exchanging Dealers; Private Exchange. (a) The Company shall prepare and, not
later than 45 days following the Closing Date, shall file with the Commission
the Exchange Offer Registration Statement with respect to the Registered
Exchange Offer. The Company shall use its best efforts to cause the Exchange
Offer Registration Statement to become effective under the Act within 120 days
of the Closing Date.
(b) Upon the effectiveness of the Exchange Offer Registration
Statement, the Company shall promptly commence the Registered Exchange Offer, it
being the objective of such Registered Exchange Offer to enable each Holder
electing to exchange Securities for New Securities (assuming that such Holder is
not an affiliate of the Company within the meaning of the Act, acquires the New
Securities in the ordinary course of such Holder's business and has no
arrangements with any person to participate in the distribution of the New
Securities) to trade such New Securities from and after their receipt without
any limitations or restrictions under the Act and without material restrictions
under the securities laws of a substantial proportion of the several states of
the United States.
(c) In connection with the Registered Exchange Offer, the
Company shall:
(i) mail to each Holder a copy of the Prospectus forming part
of the Exchange Offer Registration Statement, together with an
appropriate letter of transmittal and related documents;
(ii) keep the Registered Exchange Offer open for not less than
30 days and not more than 60 days after the date notice thereof is
mailed to the Holders (or longer if required by applicable law);
<PAGE>
6
(iii) utilize the services of a depositary for the Registered
Exchange Offer with an address in the Borough of Manhattan, The City of
New York; and
(iv) comply in all respects with all applicable
laws.
(d) As soon as practicable after the close of the Registered
Exchange Offer, the Company shall:
(i) accept for exchange all Securities tendered
and not validly withdrawn pursuant to the Registered
Exchange Offer;
(ii) deliver to the Trustee for cancellation all
Securities so accepted for exchange; and
(iii) cause the Trustee or the New Securities Trustee, as the case
may be, promptly to authenticate and deliver to each Holder of
Securities New Securities equal in principal amount to the Securities
of such Holder so accepted for exchange.
(e) The Initial Purchasers and the Company acknowledge that,
pursuant to interpretations by the Commission's staff of Section 5 of the Act,
and in the absence of an applicable exemption therefrom, each Exchanging Dealer
is required to deliver a Prospectus in connection with a sale of any New
Securities received by such Exchanging Dealer pursuant to the Registered
Exchange Offer in exchange for Securities acquired for its own account as a
result of market-making activities or other trading activities. Accordingly, the
Company shall:
(i) include the information set forth in Annex A hereto on the
cover of the Exchange Offer Registration Statement, in Annex B hereto
in the forepart of the Exchange Offer Registration Statement in a
section setting forth details of the Exchange Offer, and in Annex C
hereto in the underwriting or plan of distribution section of the
Prospectus forming a part of the Exchange Offer Registration Statement,
and include the information set forth in Annex D hereto in the Letter
of Transmittal delivered pursuant to the Registered Exchange Offer; and
(ii) use its best efforts to keep the Exchange Offer
Registration Statement continuously effective
<PAGE>
7
under the Act during the Exchange Offer Registration Period for
delivery by Exchanging Dealers in connection with sales of New
Securities received pursuant to the Registered Exchange Offer, as
contemplated by Section 4(h) below. The Company shall be deemed not to
have used its best efforts to keep the Exchange Offer Registration
Statement effective during the requisite period if it voluntarily takes
any action that would result in Holders of Transfer Restricted
Securities covered thereby not being able to offer and sell such
securities during that period, unless (i) such action is required by
applicable law, or (ii) such action is taken by the Company in good
faith and for valid business reasons (not including avoidance of the
Company's obligations hereunder), including the acquisition or
divestiture of assets, so long as the Company promptly thereafter
complies with the requirements of Section 4(k), if applicable.
3. Shelf Registration. If, (i) because of any change in law or
applicable interpretations thereof by the Commission's staff, the Company
determines upon advice of its outside counsel that it is not permitted to effect
the Registered Exchange Offer as contemplated by Section 2 hereof, or (ii) if
for any other reason the Exchange Offer Registration Statement is not declared
effective within 120 days of the date hereof, or (iii) if any Initial Purchaser
so requests with respect to Securities held by it following consummation of the
Registered Exchange Offer, or (iv) if any Holder (other than an Initial
Purchaser) is not eligible to participate in the Registered Exchange Offer
because of any change in law or applicable interpretations of the staff of the
Commission or otherwise or (v) in the case of any Initial Purchaser that
participates in the Registered Exchange Offer, such Initial Purchaser does not
receive New Securities that are freely tradeable under the Act in exchange for
Securities constituting any portion of an unsold allotment (it being understood
that, for purposes of this Section 3, (x) the requirement that an Initial
Purchaser deliver a Prospectus containing the information required by Items 507
and/or 508 of Regulation S-K under the Act in connection with sales of New
Securities acquired in exchange for such Securities shall result in such New
Securities being not "freely tradeable" but (y) the requirement that an
Exchanging Dealer deliver a Prospectus in connection with sales of New
Securities acquired in the Registered Exchange Offer in exchange for Securities
acquired as a result of market-making activities or other
<PAGE>
8
trading activities shall not result in such New Securities being not "freely
tradeable"), the following provisions shall apply:
(a) The Company shall as promptly as practicable (but in no
event more than 30 days after so required or requested pursuant to this Section
3), file with the Commission and thereafter shall use its best efforts to cause
to be declared effective under the Act by the 150th day after the original
issuance of the Securities a Shelf Registration Statement relating to the offer
and sale of the Securities or the New Securities, as applicable, by the Holders
from time to time in accordance with the methods of distribution elected by such
Holders and set forth in such Shelf Registration Statement; provided, that with
respect to New Securities received by an Initial Purchaser in exchange for
Securities constituting any portion of an unsold allotment, the Company may, if
permitted by current interpretations by the Commission's staff, file a
post-effective amendment to the Exchange Offer Registration Statement containing
the information required by Regulation S-K Items 507 and/or 508, as applicable,
in satisfaction of its obligations under this paragraph (a) with respect
thereto, and any such Exchange Offer Registration Statement, as so amended,
shall be referred to herein as, and governed by the provisions herein applicable
to, a Shelf Registration Statement.
(b) The Company shall use its best efforts to keep the Shelf
Registration Statement continuously effective in order to permit the Prospectus
forming part thereof to be usable by Holders for a period of three years from
the date the Shelf Registration Statement is declared effective by the
Commission or until one year after such effective date if such Shelf
Registration Statement is filed at the request of an Initial Purchaser (in any
such case, such period being called the "Shelf Registration Period"). The
Company shall be deemed not to have used its best efforts to keep the Shelf
Registration Statement effective during the requisite period if it voluntarily
takes any action that would result in Holders of securities covered thereby not
being able to offer and sell such securities during that period, unless (i) such
action is required by applicable law, or (ii) such action is taken by the
Company in good faith and for valid business reasons (not including avoidance of
the Company's obligations hereunder), including the acquisition or divestiture
of assets, so long as the Company promptly
<PAGE>
9
thereafter complies with the requirements of Section 4(k) hereof, if applicable.
4. Registration Procedures. In connection with any Shelf
Registration Statement and, to the extent applicable, any Exchange Offer
Registration Statement, the following provisions shall apply:
(a) The Company shall furnish to you and to each Holder, prior
to the filing thereof with the Commission, a copy of any Shelf
Registration Statement and any Exchange Offer Registration Statement,
and each amendment thereof and each amendment or supplement, if any, to
the Prospectus included therein and shall use its best efforts to
reflect in each such document, when so filed with the Commission, such
comments as you or any Holder may propose and to which the Company does
not unreasonably object.
(b) The Company shall ensure that (i) any Registration
Statement and any amendment thereto and any Prospectus forming part
thereof and any amendment or supplement thereto complies in all
material respects with the Act and the rules and regulations
thereunder, (ii) any Registration Statement and any amendment thereto
does not, when it becomes effective, contain an untrue statement of a
material fact or omit to state a material fact required to be stated
therein or necessary to make the statements therein not misleading and
(iii) any Prospectus forming part of any Registration Statement, and
any amendment or supplement to such Prospectus, does not include an
untrue statement of a material fact or omit to state a material fact
necessary in order to make the statements, in the light of the
circumstances under which they were made, not misleading.
(c) (1) The Company shall advise you and, in the case of a
Shelf Registration Statement, the Holders of securities covered
thereby, and, if requested by you or any such Holder, confirm such
advice in writing:
(i) when a Registration Statement and any amendment
thereto has been filed with the Commission and when the
Registration Statement or any post-effective amendment thereto
has become effective; and
<PAGE>
10
(ii) of any request by the Commission for amendments or
supplements to the Registration Statement or the Prospectus
included therein or for additional information.
(2) The Company shall advise you and, in the case of a Shelf
Registration Statement, the Holders of securities covered thereby, and,
in the case of an Exchange Offer Registration Statement, any Exchanging
Dealer which has provided in writing to the Company a telephone or
facsimile number and address for notices, and, if requested by you or
any such Holder or Exchanging Dealer, confirm such advice in writing:
(i) of the issuance by the Commission of any
stop order suspending the effectiveness of the
Registration Statement or the initiation of any
proceedings for that purpose;
(ii) of the receipt by the Company of any notification
with respect to the suspension of the qualification of the
securities included therein for sale in any jurisdiction or
the initiation or threatening of any proceeding for such
purpose; and
(iii) of the happening of any event that requires the
making of any changes in the Registration Statement or the
Prospectus so that, as of such date, the statements therein
are not misleading and do not omit to state a material fact
required to be stated therein or necessary to make the
statements therein (in the case of the Prospectus, in light of
the circumstances under which they were made) not misleading
(which advice shall be accompanied by an instruction to
suspend the use of the Prospectus until the requisite changes
have been made).
(d) The Company shall use its best efforts to obtain the
withdrawal of any order suspending the effectiveness of any
Registration Statement at the earliest possible time.
(e) The Company shall furnish to each Holder of securities
included within the coverage of any Shelf Registration Statement,
without charge, at least one copy of such Shelf Registration Statement
and any
<PAGE>
11
post-effective amendment thereto, including financial statements and
schedules, and, if the Holder so requests in writing, all exhibits
(including those incorporated by reference).
(f) The Company shall, during the Shelf Registration Period,
deliver to each Holder of securities included within the coverage of
any Shelf Registration Statement, without charge, as many copies of the
Prospectus (including each preliminary Prospectus) included in such
Shelf Registration Statement and any amendment or supplement thereto as
such Holder may reasonably request; and the Company consents to the use
of the Prospectus or any amendment or supplement thereto by each of the
selling Holders of securities in connection with the offering and sale
of the securities covered by the Prospectus or any amendment or
supplement thereto.
(g) The Company shall furnish to each Exchanging Dealer which
so requests, without charge, at least one copy of the Exchange Offer
Registration Statement and any post-effective amendment thereto,
including financial statements and schedules, any documents
incorporated by reference therein, and, if the Exchanging Dealer so
requests in writing, all exhibits (including those incorporated by
reference).
(h) The Company shall, during the Exchange Offer Registration
Period, promptly deliver to each Exchanging Dealer, without charge, as
many copies of the Prospectus included in such Exchange Offer
Registration Statement and any amendment or supplement thereto as such
Exchanging Dealer may reasonably request for delivery by such
Exchanging Dealer in connection with a sale of New Securities received
by it pursuant to the Registered Exchange Offer; and the Company
consents to the use of the Prospectus or any amendment or supplement
thereto by any such Exchanging Dealer, as aforesaid.
(i) Prior to the Registered Exchange Offer or any other
offering of securities pursuant to any Registration Statement, the
Company shall register or qualify or cooperate with the Holders of
securities included therein and their respective counsel in connection
with the registration or qualification of such securities for offer and
sale under the securities
<PAGE>
12
or blue sky laws of such jurisdictions as any such Holders reasonably
request in writing and do any and all other acts or things necessary or
advisable to enable the offer and sale in such jurisdictions of the
securities covered by such Registration Statement; provided, however,
that the Company will not be required to qualify generally to do
business in any jurisdiction where it is not then so qualified or to
take any action which would subject it to general service of process or
to taxation in any such jurisdiction where it is not then so subject.
(j) The Company shall cooperate with the Holders of Securities
to facilitate the timely preparation and delivery of certificates
representing Securities to be sold pursuant to any Registration
Statement free of any restrictive legends and in such denominations and
registered in such names as Holders may request prior to sales of
securities pursuant to such Registration Statement.
(k) Upon the occurrence of any event contemplated by paragraph
(c)(2)(iii) above, the Company shall promptly prepare a post-effective
amendment to any Registration Statement or an amendment or supplement
to the related Prospectus or file any other required document so that,
as thereafter delivered to purchasers of the securities included
therein, the Prospectus will not include an untrue statement of a
material fact or omit to state any material fact necessary to make the
statements therein, in the light of the circumstances under which they
were made, not misleading; provided that the Company may postpone the
preparation and filing of any such document if and for so long as it
determines in good faith that premature disclosure of any such
information would be contrary to the best interests of the Company,
including its prospects of consummating any pending acquisition,
disposition, merger, sale or other transaction.
(l) Not later than the effective date of any such Registration
Statement hereunder, the Company shall provide a CUSIP number for the
Securities or New Securities, as the case may be, registered under such
Registration Statement, and provide the applicable trustee with printed
certificates for such Securities or New Securities, in a form eligible
for deposit with The Depository Trust Company.
<PAGE>
13
(m) The Company shall use its best efforts to comply with all
applicable rules and regulations of the Commission and shall make
generally available to its security holders as soon as practicable
after the effective date of the applicable Registration Statement an
earnings statement satisfying the provisions of Section 11(a) of the
Act.
(n) The Company shall cause the Indenture or the New
Securities Indenture, as the case may be, to be qualified under the
Trust Indenture Act in a timely manner.
(o) The Company may require each Holder of securities to be
sold pursuant to any Shelf Registration Statement to furnish to the
Company such information regarding the holder and the distribution of
such securities as the Company may from time to time reasonably require
for inclusion in such Registration Statement and, if any Holder who has
received a request by the Company to furnish such information does not
provide such information in a timely manner, the Company may exclude
the securities of such Holder from the Shelf Registration Statement.
(p) The Company shall, if requested, promptly incorporate in a
Prospectus supplement or post-effective amendment to a Shelf
Registration Statement, such information as the Managing Underwriters
and Majority Holders agree should be included therein and to which the
Company does not unreasonably object and shall make all required
filings of such Prospectus supplement or post-effective amendment as
soon as notified of the matters to be incorporated in such Prospectus
supplement or post-effective amendment.
(q) In the case of any Shelf Registration Statement, the
Company shall enter into such agreements (including underwriting
agreements) and take all other appropriate actions in order to expedite
or facilitate the registration or the disposition of the Securities,
and in connection therewith, if an underwriting agreement is entered
into, cause the same to contain indemnification provisions and
procedures no less favorable than those set forth in Section 6 (or such
other provisions and procedures acceptable to the Company, the Majority
Holders and the Managing
<PAGE>
14
Underwriters, if any, with respect to all parties to be indemnified
pursuant to Section 6).
(r) In the case of any Shelf Registration Statement, the
Company shall (i) make reasonably available for inspection by the
Holders of securities to be registered thereunder, any underwriter
participating in any disposition pursuant to such Registration
Statement, and any attorney, accountant or other agent retained by the
Holders or any such underwriter all relevant financial and other
records, pertinent corporate documents and properties of the Company
and its subsidiaries; (ii) cause the Company's officers, directors and
employees to supply all relevant information reasonably requested by
the Holders or any such underwriter, attorney, accountant or agent in
connection with any such Registration Statement as is customary for
similar due diligence examinations; provided, however, that any
information provided pursuant to clause (i) or clause (ii) hereof that
is designated in writing by the Company, in good faith, as confidential
at the time of delivery of such information shall be kept confidential
by the Holders or any such underwriter, attorney, accountant or agent,
unless such disclosure is made in connection with a court proceeding or
required by law, or such information becomes available to the public
generally or through a third party without an accompanying obligation
of confidentiality; (iii) make such representations and warranties to
the Holders of securities registered thereunder and the underwriters,
if any, in form, substance and scope as are customarily made by issuers
to underwriters in primary underwritten offerings and covering matters
including, but not limited to, those set forth in the Purchase
Agreement; (iv) obtain opinions of counsel to the Company and updates
thereof (which counsel and opinions (in form, scope and substance)
shall be reasonably satisfactory to the Managing Underwriters, if any)
addressed to each selling Holder and the underwriters, if any, covering
such matters as are customarily covered in opinions requested in
underwritten offerings and such other matters as may be reasonably
requested by such Holders and underwriters; (v) obtain "cold comfort"
letters and updates thereof from the independent certified public
accountants of the Company (and, if necessary, any other independent
certified public accountants of any subsidiary of the Company or of any
business acquired
<PAGE>
15
by the Company for which financial statements and financial data are,
or are required to be, included in the Registration Statement),
addressed to each selling Holder of securities registered thereunder
and the underwriters, if any, in customary form and covering matters of
the type customarily covered in "cold comfort" letters in connection
with primary underwritten offerings; and (vi) deliver such documents
and certificates as may be reasonably requested by the Majority Holders
and the Managing Underwriters, if any, including those to evidence
compliance with Section 4(k) and with any customary conditions
contained in the underwriting agreement or other agreement entered into
by the Company. The foregoing actions set forth in clauses (iii), (iv),
(v) and (vi) of this Section 4(r) shall be performed at (A) the
effectiveness of such Registration Statement and each post-effective
amendment thereto and (B) each closing under any underwriting or
similar agreement as and to the extent required thereunder.
(s) In the case of any Exchange Offer Registration Statement,
the Company shall (i) make reasonably available for inspection by such
Initial Purchaser, and any attorney, accountant or other agent retained
by such Initial Purchaser, all relevant financial and other records,
pertinent corporate documents and properties of the Company and its
subsidiaries; (ii) cause the Company's officers, directors and
employees to supply all relevant information reasonably requested by
such Initial Purchaser or any such attorney, accountant or agent in
connection with any such Registration Statement as is customary for
similar due diligence examinations; provided, however, that any
information provided pursuant to clause (i) or (ii) hereof that is
designated in writing by the Company, in good faith, as confidential at
the time of delivery of such information shall be kept confidential by
such Initial Purchaser or any such attorney, accountant or agent,
unless such disclosure is made in connection with a court proceeding or
required by law, or such information becomes available to the public
generally or through a third party without an accompanying obligation
of confidentiality; (iii) make such representations and warranties to
such Initial Purchaser, in form, substance and scope as are customarily
made by issuers to underwriters in primary
<PAGE>
16
underwritten offerings and covering matters including, but not limited
to, those set forth in the Purchase Agreement; (iv) obtain opinions of
counsel to the Company and updates thereof (which counsel and opinions
(in form, scope and substance) shall be reasonably satisfactory to such
Initial Purchaser and its counsel, addressed to such Initial Purchaser,
covering such matters as are customarily covered in opinions requested
in underwritten offerings and such other matters as may be reasonably
requested by such Initial Purchaser or its counsel; (v) obtain "cold
comfort" letters and updates thereof from the independent certified
public accountants of the Company (and, if necessary, any other
independent certified public accountants of any subsidiary of the
Company or of any business acquired by the Company for which financial
statements and financial data are, or are required to be, included in
the Registration Statement), addressed to such Initial Purchaser, in
customary form and covering matters of the type customarily covered in
"cold comfort" letters in connection with primary underwritten
offerings, or if requested by such Initial Purchaser or its counsel in
lieu of a "cold comfort" letter, an agreed-upon procedures letter under
Statement on Auditing Standards No. 35, covering matters requested by
such Initial Purchaser or its counsel; and (vi) deliver such documents
and certificates as may be reasonably requested by such Initial
Purchaser or its counsel, including those to evidence compliance with
Section 4(k) and with conditions customarily contained in underwriting
agreements. The foregoing actions set forth in clauses (iii), (iv),
(v), and (vi) of this Section 4(s) shall be performed at the close of
the Registered Exchange Offer and the effective date of any
post-effective amendment to the Exchange Offer Registration Statement.
5. Registration Expenses. The Company shall bear all expenses
incurred in connection with the performance of its obligations under Sections 2,
3 and 4 hereof and, in the event of any Shelf Registration Statement, will
reimburse the Holders for the reasonable fees and disbursements of one firm or
counsel designated by the Majority Holders to act as counsel for the Holders in
connection therewith, and, in the case of any Exchange Offer Registration
Statement, will reimburse the Initial Purchasers for the reasonable fees and
disbursements of counsel acting in connection therewith.
<PAGE>
17
6. Indemnification and Contribution. (a) In connection with
any Registration Statement, the Company agrees to indemnify and hold harmless
each Holder of securities covered thereby (including each Initial Purchaser and,
with respect to any Prospectus delivery as contemplated in Section 4(h) hereof,
each Exchanging Dealer), the directors, officers and employees of each such
Holder and each person who controls any such Holder within the meaning of either
the Act or the Exchange Act against any and all losses, claims, damages or
liabilities, joint or several, to which they or any of them may become subject
under the Act, the Exchange Act or other Federal or state statutory law or
regulation, at common law or otherwise, insofar as such losses, claims, damages
or liabilities (or actions in respect thereof) arise out of or are based upon
any untrue statement or alleged untrue statement of a material fact contained in
the Registration Statement as originally filed or in any amendment thereof, or
in any preliminary Prospectus or Prospectus, or in any amendment thereof or
supplement thereto, or arise out of or are based upon the omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, and agrees to reimburse
each such indemnified party, as incurred, for any legal or other expenses
reasonably incurred by them in connection with investigating or defending any
such loss, claim, damage, liability or action; provided, however, that the
Company will not be liable in any case to the extent that any such loss, claim,
damage or liability arises out of or is based upon any such untrue statement or
alleged untrue statement or omission or alleged omission made therein in
reliance upon and in conformity with written information furnished to the
Company by or on behalf of any such Holder specifically for inclusion therein.
This indemnity agreement will be in addition to any liability which the Company
may otherwise have.
The Company also agrees to indemnify or contribute to Losses
of, as provided in Section 6(d), any underwriters of Securities registered under
a Shelf Registration Statement, their officers and directors and each person who
controls such underwriters on substantially the same basis as that of the
indemnification of the Initial Purchaser and the selling Holders provided in
this Section 6(a) and shall, if requested by any Holder, enter into an
underwriting agreement reflecting such agreement, as provided in Section 4(q)
hereof.
<PAGE>
18
(b) Each Holder of securities covered by a Registration
Statement (including each Initial Purchaser and, with respect to any Prospectus
delivery as contemplated in Section 4(h) hereof, each Exchanging Dealer)
severally agrees to indemnify and hold harmless (i) the Company, (ii) each of
its directors, (iii) each of its officers who signs such Registration Statement
and (iv) each person who controls the Company within the meaning of either the
Act or the Exchange Act to the same extent as the foregoing indemnity from the
Company to each such Holder, but only with reference to written information
relating to such Holder furnished to the Company by or on behalf of such Holder
specifically for inclusion in the documents referred to in the foregoing
indemnity. This indemnity agreement will be in addition to any liability which
any such Holder may otherwise have.
(c) Promptly after receipt by an indemnified party under this
Section 6 or notice of the commencement of any action, such indemnified party
will, if a claim in respect thereof is to be made against the indemnifying party
under this Section 6, notify the indemnifying party in writing of the
commencement thereof; but the failure so to notify the indemnifying party (i)
will not relieve it from liability under paragraph (a) or (b) above unless and
to the extent it did not otherwise learn of such action and such failure results
in the forfeiture by the indemnifying party of substantial rights and defenses
and (ii) will not, in any event, relieve the indemnifying party from any
obligations to any indemnified party other than the indemnification obligation
provided in paragraph (a) or (b) above. The indemnifying party shall be entitled
to appoint counsel of the indemnifying party's choice at the indemnifying
party's expense to represent the indemnified party in any action for which
indemnification is sought (in which case the indemnifying party shall not
thereafter be responsible for the fees and expenses of any separate counsel
retained by the indemnified party or parties except as set forth below);
provided, however, that such counsel shall be reasonably satisfactory to the
indemnified party. Notwithstanding the indemnifying party's election to appoint
counsel to represent the indemnified party in an action, the indemnified party
shall have the right to employ separate counsel (including local counsel), and
the indemnifying party shall bear the reasonable fees, costs and expenses of
such separate counsel (and local counsel) if (i) the use of counsel chosen by
the indemnifying party to represent the indemnified party would present such
counsel with a conflict
<PAGE>
19
of interest, (ii) the actual or potential defendants in, or targets of, any such
action include both the indemnified party and the indemnifying party and the
indemnified party shall have reasonably concluded that there may be legal
defenses available to it and/or other indemnified parties which are different
from or additional to those available to the indemnifying party, (iii) the
indemnifying party shall not have employed counsel reasonably satisfactory to
the indemnified party to represent the indemnified party within a reasonable
time after notice of the institution of such action or (iv) the indemnifying
party shall authorize the indemnified party to employ separate counsel at the
expense of the indemnifying party. An indemnifying party will not, without the
prior written consent of the indemnified parties, settle or compromise or
consent to the entry of any judgment with respect to any pending or threatened
claim, action, suit or proceeding in respect of which indemnification or
contribution may be sought hereunder (whether or not the indemnified parties are
actual or potential parties to such claim or action) unless such settlement,
compromise or consent includes an unconditional release of each indemnified
party from all liability arising out of such claim, action, suit or proceeding.
(d) In the event that the indemnity provided in paragraph (a)
or (b) of this Section 6 is unavailable to or insufficient to hold harmless an
indemnified party for any reason, then each applicable indemnifying party, in
lieu of indemnifying such indemnified party, shall have a joint and several
obligation to contribute to the aggregate losses, claims, damages and
liabilities (including legal or other expenses reasonably incurred in connection
with investigating or defending same) (collectively "Losses") to which such
indemnified party may be subject in such proportion as is appropriate to reflect
the relative benefits received by such indemnifying party, on the one hand, and
such indemnified party, on the other hand, from the Initial Placement and the
Registration Statement which resulted in such Losses; provided, however, that in
no case shall any Purchaser or any subsequent Holder of any Security or New
Security be responsible, in the aggregate, for any amount in excess of the
purchase discount or commission applicable to such Security, or in the case of a
New Security, applicable to the Security which was exchangeable into such New
Security, as set forth on the cover page of the Final Memorandum, nor shall any
underwriter be responsible for any amount in excess of the underwriting discount
or commission applicable to the securities
<PAGE>
20
purchased by such underwriter under the Registration Statement which resulted in
such Losses. If the allocation provided by the immediately preceding sentence is
unavailable for any reason, the indemnifying party and the indemnified party
shall contribute in such proportion as is appropriate to reflect not only such
relative benefits but also the relative fault of such indemnifying party, on the
one hand, and such indemnified party, on the other hand, in connection with the
statements or omissions which resulted in such Losses as well as any other
relevant equitable considerations. Benefits received by the Company shall be
deemed to be equal to the sum of (x) the total net proceeds from the Initial
Placement (before deducting expenses) as set forth on the cover page of the
Final Memorandum and (y) the total amount of additional interest which the
Company was not required to pay as a result of registering the securities
covered by the Registration Statement which resulted in such Losses. Benefits
received by the Purchasers shall be deemed to be equal to the total purchase
discounts and commissions as set forth on the cover page of the Final
Memorandum, and benefits received by any other Holders shall be deemed to be
equal to the value of receiving Securities or New Securities, as applicable,
registered under the Act. Benefits received by any underwriter shall be deemed
to be equal to the total underwriting discounts and commissions, as set forth on
the cover page of the Prospectus forming a part of the Registration Statement
which resulted in such Losses. Relative fault shall be determined by reference
to whether any alleged untrue statement or omission relates to information
provided by the indemnifying party, on the one hand, or by the indemnified
party, on the other hand. The parties agree that it would not be just and
equitable if contribution were determined by pro rata allocation or any other
method of allocation which does not take account of the equitable considerations
referred to above. Notwithstanding the provisions of this paragraph (d), no
person guilty of fraudulent misrepresentation (within the meaning of Section
11(f) of the Act) shall be entitled to contribution from any person who was not
guilty of such fraudulent misrepresentation. For purposes of this Section 6,
each person who controls a Holder within the meaning of either the Act or the
Exchange Act and each director, officer and employee of such Holder shall have
the same rights to contribution as such Holder, and each person who controls the
Company within the meaning of either the Act or the Exchange Act, each officer
of the Company who shall have signed the Registration Statement and each
director of the
<PAGE>
21
Company shall have the same rights to contribution as the Company, subject in
each case to the applicable terms and conditions of this paragraph (d).
(e) The provisions of this Section 6 will remain in full force
and effect, regardless of any investigation made by or on behalf of any Holder
or the Company or any of the officers, directors or controlling persons referred
to in Section 6 hereof, and will survive the sale by a Holder of securities
covered by a Registration Statement.
7. Miscellaneous.
(a) No Inconsistent Agreements. The Company has not, as of the
date hereof, entered into, nor shall it, on or after the date hereof,
enter into, any agreement with respect to its securities that is
inconsistent with the rights granted to the Holders herein or otherwise
conflicts with the provisions hereof.
(b) Amendments and Waivers. The provisions of this Agreement,
including the provisions of this sentence, may not be amended,
qualified, modified or supplemented, and waivers or consents to
departures from the provisions hereof may not be given, unless the
Company has obtained the written consent of the Holders of at least a
majority of the then outstanding aggregate principal amount of
Securities (or, after the consummation of any Exchange Offer in
accordance with Section 2 hereof, of New Securities); provided that,
with respect to any matter that directly or indirectly affects the
rights of any Initial Purchaser hereunder, the Company shall obtain the
written consent of each such Initial Purchaser against which such
amendment, qualification, supplement, waiver or consent is to be
effective. Notwithstanding the foregoing (except the foregoing
proviso), a waiver or consent to departure from the provisions hereof
with respect to a matter that relates exclusively to the rights of
Holders whose securities are being sold pursuant to a Registration
Statement and that does not directly or indirectly affect the rights of
other Holders may be given by the Majority Holders, determined on the
basis of securities being sold rather than registered under such
Registration Statement.
(c) Notices. All notices and other communications provided
for or permitted hereunder
<PAGE>
22
shall be made in writing by hand-delivery, first-class mail, telex,
telecopier, or air courier guaranteeing overnight delivery:
(1) if to a Holder, at the most current address given
by such holder to the Company in accordance with the
provisions of this Section 7(c), which address initially is,
with respect to each Holder, the address of such Holder
maintained by the Registrar under the Indenture, with a copy
in like manner to Salomon Brothers Inc;
(2) if to you, initially at the respective
addresses set forth in the Purchase Agreement; and
(3) if to the Company, initially at its
address set forth in the Purchase Agreement.
All such notices and communications shall be deemed to have
been duly given when received.
The Initial Purchasers or the Company by notice to the other
may designate additional or different addresses for subsequent notices or
communications.
(d) Successors and Assigns. This Agreement shall inure to the
benefit of and be binding upon the successors and assigns of each of
the parties, including, without the need for an express assignment or
any consent by the Company thereto, subsequent Holders of Securities
and/or New Securities. The Company hereby agrees to extend the benefits
of this Agreement to any Holder of Securities and/or New Securities and
any such Holder may specifically enforce the provisions of this
Agreement as if an original party hereto.
(e) Counterparts. This agreement may be executed in any number
of counterparts and by the parties hereto in separate counterparts,
each of which when so executed shall be deemed to be an original and
all of which taken together shall constitute one and the same
agreement.
(f) Headings. The headings in this agreement are for
convenience of reference only and shall not limit or otherwise affect
the meaning hereof.
<PAGE>
(g) Governing Law. This agreement shall be governed by and
construed in accordance with the internal laws of the State of New York
applicable to agreements made and to be performed in said State.
(h) Severability. In the event that any one of more of the
provisions contained herein, or the application thereof in any
circumstances, is held invalid, illegal or unenforceable in any respect
for any reason, the validity, legality and enforceability of any such
provision in every other respect and of the remaining provisions hereof
shall not be in any way impaired or affected thereby, it being intended
that all of the rights and privileges of the parties shall be
enforceable to the fullest extent permitted by law.
(i) Securities Held by the Company, etc. Whenever the consent
or approval of Holders of a specified percentage of principal amount of
Securities or New Securities is required hereunder, Securities or New
Securities, as applicable, held by the Company or its Affiliates (other
than subsequent Holders of Securities or New Securities if such
subsequent Holders are deemed to be Affiliates solely by reason of
their holdings of such Securities or New Securities) shall not be
counted in determining whether such consent or approval was given by
the Holders of such required percentage.
<PAGE>
24
Please confirm that the foregoing correctly sets forth the
agreement between the Company and you.
INTER(bullet)ACT SYSTEMS, INCORPORATED
by: __________________________
Name:
Title:
The foregoing Agreement is
hereby accepted as of the
date first above written.
SALOMON BROTHERS INC
BT SECURITIES CORPORATION
TORONTO-DOMINION SECURITIES (USA) INC.
by: SALOMON BROTHERS INC
by: _______________________
Name:
Title:
<PAGE>
ANNEX A
Each broker-dealer that receives New Securities for its own account
pursuant to the Exchange Offer must acknowledge that it will deliver a
prospectus in connection with any resale of such New Securities. The Letter of
Transmittal states that by so acknowledging and by delivering a prospectus, a
broker-dealer will not be deemed to admit that it is an "underwriter" within the
meaning of the Act. This Prospectus, as it may be amended or supplemented from
time to time, may be used by a broker-dealer in connection with resales of New
Securities received in exchange for Securities where such Securities were
acquired by such broker-dealer as a result of market-making activities or other
trading activities. The Company has agreed that, starting on the Expiration Date
(as defined herein) and ending on the close of business 90 days after the
Expiration Date, it will make this Prospectus available to any broker-dealer for
use in connection with any such resale. See "Plan of Distribution."
<PAGE>
ANNEX B
Each broker-dealer that receives New Securities for its own account in
exchange for Securities, where such Securities were acquired by such
broker-dealer as a result of market-making activities or other trading
activities, must acknowledge that it will deliver a prospectus in connection
with any resale of such New Securities. See "Plan of Distribution."
<PAGE>
ANNEX C
PLAN OF DISTRIBUTION
Each broker-dealer that receives New Securities for its own account
pursuant to the Exchange Offer must acknowledge that it will deliver a
prospectus in connection with any resale of such New Securities. This
Prospectus, as it may be amended or supplemented from time to time, may be used
by a broker-dealer in connection with resales of New Securities received in
exchange for Securities where such Securities were acquired as a result of
market-making activities or other trading activities. The Company has agreed
that, starting on the Expiration Date and ending on the close of business 90
days after the Expiration Date, it will make this Prospectus, as amended or
supplemented, available to any broker-dealer for use in connection with any such
resale. In addition, until ________________, 199_, all dealers effecting
transaction in the New Securities may be required to deliver a prospectus.
The Company will not receive any proceeds from any sale of New
Securities by broker-dealers. New Securities received by broker-dealers for
their own account pursuant to the Exchange Offer may be sold from time to time
in one or more transactions in the over-the-counter market, in negotiated
transactions, through the writing of options on the New Securities or a
combination of such methods of resale, at market prices prevailing at the time
of resale, at prices related to such prevailing market prices or negotiated
prices. Any such resale may be made directly to purchasers or to or through
brokers or dealers who may receive compensation in the form of commissions or
concessions from any such broker-dealer and/or the purchasers of any such New
Securities. An broker-dealer that resells New Securities that were received by
it for its own account pursuant to the Exchange Offer and any broker or dealer
that participates in a distribution of such New Securities may be deemed to be
an "underwriter" within the meaning of the Act and any profit of any such resale
of New Securities and any commissions or concessions received by any such
persons may be deemed to be underwriting compensation under the Act. The Letter
of Transmittal states that by acknowledging that it will deliver and by
delivering a prospectus, a broker-dealer will not be deemed to admit that it is
an "underwriter" within the meaning of the Act.
For a period of 90 days after the Expiration Date, the Company will
promptly send additional copies of this prospectus and any amendment or
supplement to this Prospectus to any broker-dealer that requests such documents
in the Letter of Transmittal. The Company has agreed to pay all expenses
incident to the Exchange Offer (including the
<PAGE>
2
expenses of one counsel for the Holders of the Securities) other than
commissions or concessions of any brokers or dealers and will indemnify the
Holders of the Securities (including any broker-dealers) against certain
liabilities, including liabilities under the Act.
[If applicable, add any additional information required by Regulation
S-K Item 507 and/or 508.]
<PAGE>
ANNEX D
Rider A
|_| CHECK HERE IF YOU ARE A BROKER-DEALER AND WISH TO RECEIVE 10
ADDITIONAL COPIES OF THE PROSPECTUS AND 10 COPIES OF ANY
AMENDMENTS OR SUPPLEMENTS THERETO.
Name: ________________________________________________________
Address: _____________________________________________________
______________________________________________________________
Rider B
If the undersigned is not a broker-dealer, the undersigned represents
that it is not engaged in, and does not intend to engage in, a distribution of
New Securities. If the undersigned is a broker-dealer that will receive New
Securities for its own account in exchange for Securities, it represents that
the Securities to be exchanged for New Securities were acquired by it as a
result of market-making activities or other trading activities and acknowledges
that it will deliver a prospectus in connection with any resale of such New
Securities; however, by so acknowledging and by delivering a prospectus, the
undersigned will not be deemed to admit that it is an "underwriter" within the
meaning of the Act.
<PAGE>
<PAGE>
Exhibit 10(p)
KIOSK AGREEMENT
This Kiosk Agreement (the "Agreement") dated this 9th day of
September, 1996 by and between COLEMAN RESEARCH CORPORATION, a corporation
organized and existing under the laws of the state of Florida, with its
corporate headquarters located at 201 South Orange Avenue, Suite 1300, Orlando,
Florida 32801 ("Coleman"), and INTER*ACT SYSTEMS INCORPORATED, a corporation
organized and existing under the laws of the State of North Carolina, with its
principal place of business at 14 Westport Avenue, Norwalk, Connecticut 06891
("Inter*Act") (together, the "Parties").
WHEREAS, Coleman has purchased from Inter*Act the
manufacturing assets and the manufacturing process located at 101 Trade Zone
Drive, Suites 16A, 18A and 19A of Trade Zone 127, West Columbia, South Carolina
29170; and
WHEREAS Coleman and Inter*Act desire to enter into this
Agreement regarding the purchase and sale of Kiosks.
NOW THEREFORE, for Ten Dollars ($10.00) and in consideration
of the foregoing and other good and valuable consideration, the receipt and
sufficiency of which in hereby acknowledged, the Parties agree as follows:
1. Definitions. In addition to other terms defined herein, the following terms
shall have the meanings set forth below:
1.1 "Acceptance Procedures" shall have the meaning given in Section 3.7
herein.
1.2 "Effective Date" shall mean the date first set forth above.
1.3 "Force Majeure Event" shall mean an act of God, war (whether
declared or not), riot, embargo, act of governmental or military authority,
strike, labor dispute, fire, flood, earthquake, disaster or other similar cause
beyond a party's reasonable control. Notwithstanding the foregoing, a party
failing to perform because of a Force Majeure Event will undertake reasonable
commercial efforts to mitigate the impact thereof.
1.4 "Hardware" shall mean the touch screen display, personal computer
and printer used as components of a Kiosk.
1.5 "Initial Kiosk Order" shall mean the initial Kiosk Order set forth
on Schedule 1.
1.6 "Invoice Date" shall mean the date typed on the invoice to
Inter*Act for Kiosks Shipped to Inter*Act.
<PAGE>
1.7 "Kiosk" shall mean the integrated computer system consisting
primarily of a printer, touch display screen and personal computer executing the
Software housed in a cabinet of the Proprietary Design.
1.8 "Kiosk Order" shall mean an order of Kiosks by Inter*Act under this
Agreement.
1.9 "Marketing Materials" shall mean all customer lists, advertising
and promotional materials and other information and data used by Inter*Act,
including, without limitation, sales and market research materials pertaining to
Inter*Act's business.
1.10 "Proprietary Design" shall mean the design of the Kiosk as set
forth on Schedule 6.
1.11 "Proprietary Property" shall mean individually and collectively:
(i) the Proprietary Design; (ii) the Marketing Materials; and (iii) the
Software.
1.12 "Rate" shall mean the price for each Kiosk in each Kiosk Order, as
mutually agreed by Coleman and Inter*Act, provided, however, the Rate for the
Initial Kiosk Order is set forth on Schedule 1 attached hereto.
1.13 "Shipped" or "Shipment" shall mean the transfer from Coleman to
Inter*Act, FOB Coleman's manufacturing site, of a fully manufactured Kiosk which
satisfies the Acceptance Procedures.
1.14 "Shipping Schedule" shall mean the schedule for the Shipment of
Kiosks from Coleman to Inter*Act, which Coleman and Inter*Act mutually agree to
in writing for each Kiosk Order.
1.15 "Software" shall mean the software owned and supplied by Inter*Act
that is loaded onto the personal computer component of the Kiosk.
1.16 "Specifications" shall have the meaning given in Section 3.3.
2. Rights and Responsibilities.
2.1 Coleman shall:
2.1.1 Manufacture and sell Kiosks on an exclusive
basis to Inter*Act as described in this
Agreement, provided however, except for the
restrictions of Section 9.2, nothing in this
Agreement shall prohibit Coleman from
selling kiosks without Inter*Act's
permission: (i) during or upon expiration of
this Agreement, which do not use the
Software
2
<PAGE>
or the Proprietary Design to any purchaser;
and (ii) in accordance with Section 2.1.2.
To the extent Coleman manufactures kiosks
for sale to purchasers other than Inter*Act,
Coleman shall use its best efforts to
manufacture kiosks which are not
substantially similar to the Proprietary
Design and Specifications of the Kiosks. If,
however, Inter*Act believes that a kiosk
sold by Coleman is substantially similar to
the Proprietary Design and Specifications of
the Kiosks, Inter*Act shall notify Coleman
and Coleman shall either (i) pay a royalty
to Inter*Act of Fifty Dollars ($50) for each
kiosk sold which is substantially similar to
the Proprietary Design and specifications of
the Kiosks as demanded by Inter*Act or (ii)
submit the dispute for resolution pursuant
to Section 9.19. If the dispute is submitted
for resolution pursuant to Section 9.19 and
resolved in favor of Inter*Act, Coleman
shall pay Inter*Act a royalty of fifty
dollars ($50) for each kiosk sold by Coleman
which is the subject of the dispute.
Notwithstanding the foregoing, Coleman shall
not manufacture or sell kiosks which are
substantially similar to the Proprietary
Design and Specifications for use in
pharmacies (the "Pharmacy Restriction"). In
the event of a breach of this Pharmacy
Restriction, Inter*Act shall have the right
to seek appropriate relief, in lieu of the
fifty dollar royalty, whether for actual
damages or in equity, including, but not
limited to injunctive relief (to which
Coleman hereby consents to if reasonable),
to protect the interests of Inter*Act.
Inter*Act and Coleman understand that except
for the Pharmacy Restriction contained in
this Section 2.1.1, the pharmacy use
restrictions of Section 2.2 and the
restriction on sales to Excluded Entities
set forth in Section 9.2, Coleman shall have
the right to manufacture and/or sell kiosks
for use in pharmacies;
2.1.2 Have to right to manufacture and sell kiosks
using the Proprietary Design and
Specifications, but not the color of the
Kiosks or the Software, to purchasers, other
than Inter*Act and the Excluded Entities,
for use in locations other than grocery
stores and pharmacies, provided Coleman pays
to Inter*Act a royalty of fifty dollars
($50) per kiosk sold. No royalty shall be
payable for Kiosks sold to Inter*Act; and
2.1.3 Require the officers and employees
identified on Schedule 5 to sign a
confidentiality agreement substantially in
the form annexed hereto as Schedule 2
"Confidentiality Agreement."
2.2 Inter*Act shall:
3
<PAGE>
2.2.1 Purchase Kiosks exclusively from Coleman for
a period of three (3) years from the
Effective Date or until the termination of
this Agreement in accordance with Section 7
hereof (the "Term"). The Term shall be
renewable by the mutual agreement of the
Parties;
2.2.2 Inter*Act reserves the right to manufacture
Kiosks upon expiration of this Agreement for
any reason, but understands and agrees that
upon expiration of this Agreement, Coleman
shall have the right to manufacture and sell
kiosks, with any software, but the Software,
and with any design, but the Proprietary
Design, to any purchaser selected by
Coleman, as long as Coleman is not in
violation of Section 9.2 of this Agreement;
and
2.2.3 Provide a release from the confidentiality
and non-compete obligations, in the form of
Schedule 7, to each Employee who accepts
employment with Coleman.
3. Ordering, Manufacture, and Shipment of Kiosks.
3.1 Inter*Act and Coleman hereby agree to the Initial Kiosk Order
attached as Schedule 1, and the Shipping Schedule for the
Initial Kiosk Order, attached as Schedule 9. Thereafter,
Inter*Act may place additional Kiosk Orders as Inter*Act and
Coleman mutually agree in writing. The Shipping Schedule for
any Kiosk Order shall be as agreed by the Parties in writing.
There shall be no limit to the number of Kiosks Inter*Act may
order during the Term, provided the Shipping Schedule and Rate
are acceptable to Coleman.
3.2 The Shipping Schedule or the Specifications for any Kiosks of
a Kiosk Order, not yet Shipped, may be changed by the mutual
agreement of Coleman and Inter*Act, evidenced by a writing
signed by both Parties.
3.3 Kiosks ordered by Inter*Act from Coleman shall be built to the
drawings and designs provided to Coleman by Inter*Act (the
"Specifications") the current version of which is incorporated
in this Agreement by reference as Schedule 3,
"Specifications". Inter*Act may from time to time revise the
Specifications, provided Coleman reserves the right to change
the Rate and/or Shipping Schedule of Kiosks manufactured, if
reasonably required because of the revised Specifications.
Notwithstanding the above, if the revision to the
Specifications by Inter*Act makes the then current inventory
of Coleman (purchased to satisfy existing Kiosk Orders using
the then current Specifications), obsolete, Inter*Act agrees
to purchase the number of Kiosks necessary to use up to a
thirty (30) days supply of the obsolete inventory using the
prior Specifications (the then current Specifications prior to
the revision to the Specifications) or to reimburse Coleman
for the actual invoice cost of the obsolete inventory,
4
<PAGE>
upon delivery of the obsolete inventory to Inter*Act. Payment
for any obsolete inventory shall be made by Inter*Act to
Coleman within thirty (30) days of delivery of the obsolete
inventory to Inter*Act. Coleman may purchase the items
described in the Specifications from any vendor, provided no
change in the manufacturer of the item can be made without
Inter*Act's consent.
3.4 Coleman shall provide research and development support at
Inter*Act's request at a mutually agreed price.
3.5 Upon notice to Inter*Act and Inter*Act's receipt of a
Confidentiality Agreement, in the form of Schedule 8, from the
manufacturer, Coleman may outsource the manufacture of the
Kiosk. Notwithstanding the foregoing, Coleman shall not
outsource the installation of the Software in the Kiosk.
3.6 Coleman acknowledges that timely Shipment is of the essence of
this Agreement. If Coleman fails to meet the Shipping Schedule
for a Kiosk Order (other than the Initial Kiosk Order) or with
respect to the Initial Kiosk Order fails to meet the Shipping
Schedule for the then outstanding three (3) month rolling firm
shipping commitment as described in Schedule 9, and Inter*Act
has not committed a breach of this Agreement, and Coleman's
failure to meet the respective Shipping Schedule continues for
fourteen (14) days for any reason other than an action of
Inter*Act or failure of the Software not due to Coleman's
actions, Inter*Act may fill any percentage of the total number
of undelivered Kiosks of a Kiosk Order (other than the Initial
Kiosk Order) or the then outstanding three (3) month rolling
firm shipping commitment of the Initial Kiosk Order using
another manufacturer without breaching this Agreement. For
those Kiosks that Inter*Act does obtain from Coleman,
Inter*Act will pay Coleman at the Rate agreed under the Kiosk
Order (other than the Initial Kiosk Order) or the Initial
Kiosk Order. Nothing herein should be construed as limiting
any other right or remedy available to Inter*Act or Coleman
pursuant to this Agreement.
3.7 The procedure to test each completed Kiosk (the "Acceptance
Procedures") is attached hereto as Schedule 10 and these
Acceptance Procedures may be changed upon the mutual written
agreement of Coleman and Inter*Act. The Acceptance Procedures
will be reviewed whenever Inter*Act changes the
Specifications, or at any time on the request of either Party.
3.8 Prior to Shipment, Coleman shall test each Kiosk and certify
to Inter*Act that the Kiosk operates and otherwise conforms
with the Acceptance Procedures, de minimis deviations not
affecting the performance of the Kiosks excepted. Upon
Shipment, Inter*Act shall have the right to reject a Kiosk for
failing to meet the Acceptance Procedures, for a reason other
than loss or damage
5
<PAGE>
during transit or failure of the Software not due to Coleman's
actions. As soon as reasonably possible, but with the highest
priority, Coleman shall provide another Kiosk to replace a
properly rejected Kiosk. Upon proper rejection of fifteen
percent (15%) of the Kiosks in a Kiosk Order, Inter*Act may
fill any percentage of the total number of Kiosks remaining of
the Kiosk Order using another manufacturer without breaching
this Agreement. For those Kiosks that Inter*Act does obtain
from Coleman, Inter*Act will pay Coleman at the Rate agreed
under the Kiosk Order. Nothing herein should be construed as
limiting any other right or remedy available to Inter*Act or
Coleman pursuant to this Agreement.
3.9 Inter*Act will pay all shipping costs for Shipment and
delivery of Kiosks. Inter*Act will assume the risk of loss or
damage during transit of the Kiosks. Inter*Act shall have the
responsibility to provide the correct address for Shipment of
Kiosks.
3.10 Inter*Act shall pay all sales and use taxes associated with
the sale of Kiosks under this Agreement. Upon audit of Coleman
by any state, county, municipality or other taxing authority
resulting in the assessment of sales taxes for Kiosks sold to
Inter*Act under this Agreement, Inter*Act shall pay or
reimburse Coleman for any such sales taxes.
4. Payment.
Coleman shall have the right to invoice Inter*Act weekly for all Kiosks
Shipped to Inter*Act. The invoice shall identify the number of Kiosks
Shipped, the day of Shipment, the Rate charged for the Kiosks Shipped
and the Invoice Date. Inter*Act shall pay each invoice within thirty
(30) days of the Invoice Date. Coleman shall send a copy of the invoice
to Inter*Act by facsimile on the Invoice Date and shall deposit the
original invoice in the U.S. Mail within five (5) days of the Invoice
Date. Notwithstanding anything in this Agreement to the contrary, the
failure by Inter*Act to pay an invoice within thirty (30) days of the
Invoice Date shall be a material breach of this Agreement, relieving
Coleman of its obligation to meet any Shipping Schedule, without
notice, until payment is made. If Inter*Act disputes the accuracy of an
invoice, Inter*Act shall have the obligation to pay the invoice within
thirty (30) days of the Invoice Date and if Inter*Act's objection shall
be correct, Coleman shall refund to Inter*Act the disputed amount, plus
any late charges paid by Inter*Act. Inter*Act shall pay Coleman a late
charge of one and one-half percent (1 1/2%) per month for all amounts
invoiced to Inter*Act which are not paid within thirty (30) days of the
Invoice Date. In addition to any late fees, Inter*Act shall pay Coleman
for all costs of collection, including reasonable attorneys fees, of
all amounts due Coleman under this Agreement.
5. Price Changes.
6
<PAGE>
The Rate to be paid for each Kiosk under a Kiosk Order may be changed
only by the written mutual agreement of Inter*Act and Coleman.
6. Representations and Warranties.
6.1 Inter*Act represents and warrants that:
6.1.1 Inter*Act will pay the rates for the Kiosks
in accordance with Section 4.
6.1.2 Within fifteen (15) days after the end of
each month, Inter*Act shall provide to
Coleman a copy of an unaudited balance sheet
dated as of the last day of the month just
ended.
6.2 Coleman represents and warrants that;
6.2.1 Coleman shall meet the Shipping Schedule for
Kiosks, subject to delays in obtaining the
inventory to manufacture the Kiosks because
of a Force Majeure Event or delays
attributable to the Software;
6.2.2 All Kiosks delivered to Inter*Act by Coleman
will conform to the Specifications, de
minimis deviations not affecting the
performance of the Kiosks excepted;
6.2.3 The Kiosks shall be manufactured with
quality workmanship;
6.2.4 EXCEPT AS SET FORTH HEREIN, COLEMAN MAKES NO
REPRESENTATIONS OR WARRANTIES, EXPRESS OR
IMPLIED, WITH RESPECT TO THE KIOSKS,
INCLUDING, WITHOUT LIMITATION,
MERCHANTABILITY OR FITNESS FOR ANY
PARTICULAR PURPOSE; and
6.2.5 During the period that any manufacturers'
warranty for a defective piece of Hardware
used as a component of a Kiosk is in force
and effect, Coleman shall repair or replace
the defective piece of Hardware upon
Inter*Act's delivery of the piece of
defective Hardware to Coleman. Inter*Act
shall bear all cost and expense of removal
of the piece of defective Hardware from the
Kiosk, the shipment of the defective piece
of Hardware to Coleman and the
reinstallation in the Kiosk of the repaired
defective piece of Hardware or the
replacement for the defective piece of
Hardware. Coleman shall not be responsible
for any loss of revenue or damage during the
time the Kiosk is not working because of the
defective piece of Hardware. Coleman's sole
obligation shall be to repair, have the
manufacturer repair or to replace
7
<PAGE>
the piece of defective Hardware. Coleman
shall bear the cost shipping the repaired
defective piece of Hardware or the
replacement for the defective piece of
Hardware to Inter*Act. If Coleman receives a
piece of defective Hardware from Inter*Act
which is not covered by the manufacture's
warranty, Coleman shall return the defective
piece of Hardware to Inter*Act without
repair or further obligation, unless Coleman
and Inter*Act otherwise agree to some other
disposition of the defective piece of
Hardware.
6.3 Neither party shall take any action or fail to take any action
during the term of this Agreement which would cause its
representations and warranties to the other party stated
herein to become untrue.
7. Termination of Agreement.
This Agreement may be terminated at any time as set forth below,
subject to completion of any obligations by the Parties under any
outstanding Kiosk Order:
7.1 by mutual written agreement of Coleman and Inter*Act;
7.2 by Coleman or Inter*Act if: (i) the transaction contemplated
hereby shall violate an non-appealable final order, decree or
judgment of any court or governmental body having competent
jurisdiction; or (ii) there shall be a statue, rule or
regulation which makes the transaction contemplated hereby
illegal or otherwise prohibited;
7.3 by either Party upon the material breach of the Agreement by
the other party, if after providing written notice of such
alleged breach, such breach is not cured within sixty (60)
days after receipt of such notice; or
7.4 by Inter*Act, if within sixty (60) days of placing a new Kiosk
Order with Coleman, Coleman fails to accept a Rate proposed by
Inter*Act for a new Kiosk Order, which is equal to or greater
than the average of the rates quoted in good faith and
submitted in writing to Inter*Act and delivered to Coleman at
the time of placement of the new Kiosk Order, by three (3)
other manufacturers of kiosks for the same quantity of Kiosks
of equal quality and comparable specifications as the Kiosks
specified in the new Kiosk Order to Coleman (unless there are
less than three (3) qualified manufacturers of kiosks, in
which case the average of the rates quoted by the actual
number of manufacturers of kiosks mutually agreed to by
Inter*Act and Coleman as qualified, in terms of their ability
to produce kiosks of comparable quantity and quality, shall be
an acceptable average).
8
<PAGE>
7.5 by Inter*Act, if Inter*Act has delivered written notice to
Coleman of Coleman's failure to meet the Shipping Schedule and
such failure by Coleman has continued for sixty (60) days
after the written notice and Coleman's failure to meet the
Shipping Schedule is not due to a Force Majeure Event or the
failure of the Software.
8. Intellectual Property Rights and Limited License.
8.1 Except as otherwise provided in this Agreement, Coleman
acknowledges and agrees this Agreement gives it no right,
title or interest in or to any of: (i) the Proprietary
Property; (ii) the Specifications; (iii) the name, trademarks,
and service marks of Inter*Act; or (iv) all patents owned or
controlled or licensed by Inter*Act now or subsequently during
the Term, except as set forth in this Agreement and except for
information in the public domain. Inter*Act acknowledges and
agrees that Coleman has the right to manufacture kiosks with
any software, but the Software and using any design but the
Proprietary Design.
8.2 As long as this Agreement is in effect, Inter*Act hereby
grants Coleman a non-exclusive, non-assignable limited license
to use: (i) the Proprietary Property; (ii) the object code
form of the Software; (iii) the Specifications; (iv) the name,
trademarks, and service marks of Inter*Act, and (v) all
non-expired patents owned or controlled or licensed by
Inter*Act necessary to manufacture the Kiosks now or
subsequently during the Term, solely in connection with
Coleman's rights and obligations under this Agreement and for
no other purpose. Coleman shall immediately return all
licensed material upon the termination or expiration of this
Agreement for any reason. Nothing in this Section 8.2 shall
limit Coleman's ability to manufacture kiosks in accordance
with Section 2.1.2 of this Agreement.
9. Miscellaneous.
9.1 Confidentiality. Without the prior written consent of
Inter*Act, Coleman will not disclose to any third party (other
than to its bank, and/or any investor in Coleman and their
representatives, but only in conjunction with the financing of
the transaction contemplated by this Agreement) the
Proprietary Property or information identified by Coleman and
Inter*Act as confidential, except (i) as required by law and
(ii) information otherwise available in the public domain.
9.2 Non-Competition. Coleman agrees that, from the Closing Date
until the termination of this Agreement, it shall not directly
or indirectly: (i) sell Kiosks to or produce kiosks for the
excluded entities identified on Schedule 4 hereto (the
"Excluded Entities"); (ii) solicit, or attempt to solicit, for
the
9
<PAGE>
purpose of hiring, contracting, employing or engaging any of
the Inter*Act's employees not identified in the Business Asset
Purchase Agreement of even date herewith; provided, however,
that nothing contained in this Section 9 shall be deemed to
prohibit Coleman from acquiring or holding, solely for
investment, publicly traded securities of any corporation any
activities of which are related to Inter*Act's business so
long as such securities do not, in the aggregate, constitute
more than 2% of any class or series of outstanding securities
of such corporation. During the term of this Agreement,
Inter*Act agrees not to solicit, or attempt to solicit, for
the purpose of hiring, contracting, employing or engaging any
of the employees of Coleman. In addition, from the Closing
Date until the second anniversary of the termination of this
Agreement, Coleman shall not directly or indirectly, sell or
produce kiosks for use in supermarkets to any person, whether
an individual or entity, other than Inter*Act.
9.3 Public Announcements. Both Parties shall be entitled to issue
any press release or make any other public statement with
respect to this Agreement and the transaction contemplated,
provided for marketing purposes, only general statements of
Rate ranges and/or Kiosks ordered may be disclosed and the
name or identity of Inter*Act shall not be disclosed in making
these general statements of Rates and Kiosks ordered, without
the consent of the other party, such consent to not be
unreasonably withheld.
9.4 Binding Nature and Assignment. This Agreement shall be binding
on the parties hereto and their respective successors and
permitted assigns, but neither party may, or shall have the
power to, assign this Agreement without the prior written
consent of the other party.
9.5 Headings. The headings used herein are for reference and
convenience only and do not constitute part of this Agreement.
9.6 No Third Party Beneficiaries. The parties agree that this
Agreement is for the benefit of Inter*Act and Coleman and is
not intended to confer any rights or benefits on any third
party, including any employee, vendor, or customer of either
party, and that there are no third party beneficiaries as to
this Agreement or any part or specific provision of this
Agreement. The foregoing shall not limit the rights of any
assignees permitted hereunder, including without limitation
Coleman.
9.7 Approvals and Similar Actions. Where agreement, approval,
acceptance, consent or similar action by either party hereto
is required by any provision of this Agreement, such action
shall not be unreasonably delayed or withheld.
10
<PAGE>
9.8 Severability. If any provision of this Agreement should be
held invalid, illegal or unenforceable, the validity, legality
and enforceability of the remaining provisions shall not in
any way be affected or impaired thereby, any such provision
shall be deemed restated to reflect the original intention of
the parties as nearly as possible in accordance with
applicable law.
9.9 No Waiver. No delay or omission by either party hereto to
exercise any right or power hereunder shall impair such right
or power or be construed to be a waiver thereof. A waiver by
any of the parties hereto of any of the covenants to be
performed by the other or any breach thereof shall not be
construed to be a waiver of any succeeding breach thereof or
of any other covenant herein contained.
9.10 Attorneys' Fees. If any legal action or proceeding is brought
for the enforcement of an arbitration award pursuant to this
Agreement, or because of an alleged dispute, breach, default
or misrepresentation in connection with any of the provisions
of this Agreement, the prevailing party shall be entitled to
recover reasonable attorneys' fees and other costs incurred in
addition to any other relief to which it may be entitled.
9.11 Amendments. No amendment, change, waiver, or discharge hereof
shall be valid unless in writing and signed by an authorized
representative of the party against which such amendment,
change, waiver, or discharge is sought to be enforced.
9.12 Entire Agreement. This Agreement, including any Schedules and
Exhibits referred to herein, each of which is incorporated
herein for all purposes, constitutes the entire agreement
between the parties hereto with respect to the subject matter
hereof and there are no representations, understandings or
agreements relative hereto which are not fully expressed
herein.
9.13 Survival. The provisions of Sections 2, 4, 6, 7, and 9 shall
survive the termination or expiration of this Agreement for
any reason.
9.14 Governing Law. This Agreement shall be governed by and
construed in all respects in accordance with the laws of South
Carolina without regard to its conflicts of law rules.
9.15 Notices. Except for invoices for Kiosks Shipped to Inter*Act,
which may be sent solely to Inter*Act by deposit in the U.S.
mails to Inter*Act's address set forth below, all notices,
consents or other communications required or permitted to be
given by any party hereunder shall be in writing (including
telecopy or similar writing) and shall be given by delivery or
by certified or registered mail, postage prepaid, as follows:
11
<PAGE>
9.15.1 If to Inter*Act:
14 Westport Avenue
Norwalk Connecticut 06851
Attention: President
Telecopy: 203-750-0202
With a copy to:
Schell Bray Aycock Abel & Livingston, L.L.P.
Suite 1500, Renaissance Plaza
230 North Elm Street
Greensboro, North Carolina 27401
Attention: Doris R. Bray, Esq.
Telecopy: 910-370-8830
9.15.2 If to Coleman:
201 South Orange Avenue
Suite 1300
Orlando, Florida 32801
Attention: President
Telecopy: (407) 244-5753
With a copies to:
Richard H. Levine
201 South Orange Avenue
Suite 1300
Orlando, Florida 32801
Telecopy: (407) 244-5753
Worth Roberts
17 Lockwood Drive
Suite 401
Charleston, South Carolina 29401
Telecopy: (803) 937-4106
Joseph T. Ritchey, Esq.
Sirote & Permutt, P.C.
2222 Arlington Avenue South
Birmingham, Alabama 35205
Telecopy: (205) 930-5301
or at such other address or telecopy number (or other similar number)
as any party may from time to time specify to the other parties hereto.
Any notice, consent or
12
<PAGE>
other communication required or permitted to be given hereunder shall
be deemed to have been given on the date of mailing, personal delivery
or telecopy (provided the appropriate answer back is received) thereof
and shall be conclusively presumed to have been received on the second
business day following the date of mailing or, in the case of personal
delivery, the actual day of personal delivery thereof, or, in the case
of telecopy delivery, when such telecopy is transmitted, except that a
change of address shall not be effective until actually received.
9.16 Exhibits and Schedules. The Exhibits and Schedules are part of
this Agreement as if set forth fully herein.
9.17 Further Assurances. Subject to the terms and conditions of
this Agreement, each of the parties hereto will use all
reasonable efforts to take, or cause to be taken, all action,
and to do, or cause to be done, all things necessary, proper
or advisable, under applicable laws and regulations or
otherwise, to fulfill its obligations under this Agreement and
to consummate the transaction contemplated by this Agreement.
9.18 Disclosure on Schedules. For purposes of this Agreement, a
disclosure by any party hereto of any fact on any Schedule
shall be deemed a disclosure on every Schedule of any party
hereto to the extent such disclosure properly could have been
made thereon but was not made.
9.19 Resolution of Disputes; Consent to Jurisdiction.
9.19.1 The parties hereto agree that upon the
failure of mediation as described in 9.19.2
the sole and exclusive remedy for any
dispute between the parties arising out of
or relating to this Agreement shall be the
arbitration procedure contained in this
Section. Such arbitration procedure shall
take place in Charlotte, North Carolina.
9.19.2 (a) The parties shall attempt in good
faith to resolve any dispute arising
out of or relating to this Agreement
promptly by negotiations between the
parties who have authority to
settle the controversy. Either party
may give the other party written
notice of any dispute not resolved
in the normal course of business.
Within thirty (30) days after
delivery of said notice, both
parties shall meet at a mutually
acceptable time and place (by
mutual agreement, such meeting may
be held by telephone), and
thereafter as often as they deem
necessary, to exchange relevant
information and to attempt to
resolve the dispute. If the matter
has not been resolved within
13
<PAGE>
sixty (60) days of the disputing
party's notice, or if the parties
fail to meet within thirty (30)
days, either party may initiate
mediation of the controversy or
claim as provided in paragraph (b)
below.
(b) If any dispute has not been resolved
by negotiation as provided in
paragraph (a) hereof, the parties
shall endeavor to resolve the
dispute by mediation under the then
current Model Procedure for
Mediation of Business Disputes of
the Center for Public Resources,
Inc. ("CPR"), 366 Madison Avenue,
New York, New York 10017. The
neutral third party will be selected
from the CPR Panel of Neutrals. If
the parties encounter difficulty in
agreeing on a neutral, they will
seek the assistance of CPR in the
selection process. Unless otherwise
agreed by the parties, the place of
mediation shall be in Charlotte,
North Carolina, at a site mutually
acceptable to the parties.
(c) Any dispute that has not been
resolved by mediation, as provided
in paragraph (b) hereof, within
sixty (60) days of the initiation of
such procedure (the "Mediation
Period"), shall be finally settled
by arbitration in accordance with
Section 9.19.3.
(d) The parties shall bear their
respective costs in connection with
the dispute resolution procedures
(non- litigation) described in
paragraphs (a) and (b) hereof,
except that the parties shall share
equally the fees and expenses of any
neutral third party or arbitrator
and the costs of any facility used
in connection with such dispute
resolution procedures.
(e) With respect to the non-binding
procedures provided in paragraphs
(a) and (b) hereof, if a negotiator
intends to be accompanied at a
meeting by an attorney, the other
negotiator shall be given at least
three (3) working days' notice of
such intention and may also be
accompanied by an attorney. All
negotiations relating to any non-
litigated procedure provided herein
are confidential and shall be
treated as compromise and settlement
negotiations for purposes of the
rules of evidence of all applicable
jurisdictions.
14
<PAGE>
9.19.3 (a) In the event the parties hereto
cannot resolve a dispute by
mediation, they shall jointly select
one qualified individual to
arbitrate such dispute. In the
event the parties are unable to
agree on such an individual within
forty-five (45) days of the end of
the Mediation Period, each party
shall select one qualified
individual who is not an Affiliate.
Those individuals shall in turn
select a third qualified individual
within ten (10) days thereafter and,
if they are unable to agree on a
third qualified individual, such
third individual will be appointed
by the American Arbitration
Association. The three arbitrators
shall be given access to whatever
documentation and personnel they
deem appropriate and shall render a
decision within thirty (30) days of
the appointment of the third
arbitrator. Their decision shall be
by a majority vote and shall be
final and binding on the parties.
The expenses incident to the
arbitration shall be borne by the
losing party in such arbitration,
unless the arbitrator(s) rule
otherwise at the time of decision.
Pending the decision of the
arbitrator(s), the party whose
actions caused the dispute shall
continue to act as it deems
appropriate. In the event the
arbitrator(s) determine that any
money is due and owing to either
party, such sum shall be paid within
ten (10) days of the decision.
(b) Except as provided in this Section,
this Agreement shall be subject to
the rules then obtaining of the
American Arbitration Association.
The arbitrators shall have no power
to alter or modify any express
provision of this Agreement, or to
render any award which by its terms,
effects any such alteration or
modification. Judgement upon the
award rendered may be entered by any
court having jurisdiction. If any
action or proceeding is brought to
enforce the decision of the
arbitrators, the prevailing party
shall be entitled to recover its
reasonable attorney's fees and other
costs incident to such action or
proceeding.
(c) The parties hereto consent to the
jurisdiction of the arbitrators for
all disputes covered by this Section
9.19 and expressly waive any rights
they may have to contest the
jurisdiction, venue or authority of
such arbitrators.
15
<PAGE>
IN WITNESS WHEREOF, the Parties, each intending to be legally
bound, have each caused this Agreement to be executed on the date first set
forth above.
INTER*ACT SYSTEMS, INC. COLEMAN RESEARCH CORPORATION
By: _________________________ By: _____________________________
Name:________________________ Name:_____________________________
Title:_______________________ Title:_____________________________
Date: _______________________ Date: _____________________________
16
<PAGE>
SCHEDULE 1
INITIAL ORDER AND RATE
INTERACTIVE PROMOTION NETWORK TERMINAL
The initial order is for 5,000 terminals to be delivered over a period estimated
to be eighteen months in accordance with the Shipping Schedule, attached to this
Agreement as Schedule 9. This initial order shall be complete upon delivery of
the 5,000 terminals.
UNIT DESCRIPTION
The Interactive Promotion Network Terminal consists of the following general
components:
O Cabinet, per Inter*Act Systems, Inc. proprietary design Drawing Number:
D-0A-003- 01-01-0A, Assembly Illustration, Unit Promotions Terminal.
O 17" Monitor with touch activated screen
O 80mm High Speed Printer (Swecoin)
O Omni Directional Laser Scanner
O Speakers configured for stereo sound delivery
O Computer, Pentium Based P-120 or better
O Signage Package, including lightbox as presently configured in the
design
O Corrugated Packaging, Foam and palletized for Shipping
O All miscellaneous parts not included as per Document #C-FP-001-01-1-OA
To be built as specified in the Bill of Materials, internal document
D-FP-001-01-1-OA
INTER*ACT'S PRICE: $7,200.00
TERMS: U.S. currency
FOB Columbia, SC Plus all applicable taxes Net 30 days from
date of invoice
<PAGE>
SCHEDULE 1.4
CURRENT EMPLOYEES
Wages
Tejay M. Beaupariant $60,000.00/annual
703 Oakland Avenue
West Columbia, SC 29169
803-928-1839
Roger A. Cloutier $15.00/hr.
2011 Cheltenham Lane
Columbia, SC 29223
803-790-4443
John A. Gambrill $12.50/hr.
4939 McDonald Avenue
West Columbia, SC 29172
803-755-7667
Norman L. Sterrett $100,000.00/annual
311 Timberhill Court
Columbia, SC 29212
803-781-5448
Dustin L. Tucker $10.00/hr.
105 Turnberry Lane
Lexington, SC 29072
803-931-0666
Stephen D. White $15.00/hr.
412 Two Notch Road, #15
Lexington, SC 29073
803-356-4147
Norman R. Williams $35,000.00/annual
3127 Cimarron Trail
West Columbia, SC 29170
803-796-1027
<PAGE>
SCHEDULE 1.7
CONTRACTS
1. The ADT Security Systems Contract dated December 22, 1994, a copy of
which is attached hereto as 1.7(a).
2. Buyer is assuming Seller's obligations under the purchase orders
identified on the attached 1.7(b) to purchase the items which have not been
delivered to Seller and are not included in the definition of Inventory,
except purchase orders for servers, items needed to support or related to the
servers, or items which are not components usable to manufacture the Kiosks
to be offered for sale to Seller as contemplated under the Kiosk Agreement,
which shall remain the obligation of Seller.
3. Buyer is assuming the obligation to pay for the Recent Inventory,
provided Buyer shall not be obligated to pay for any portion of the Recent
Inventory which is servers, items needed to support or related to the
servers, or items which are not components usable to manufacture the Kiosks
to be offered for sale to Seller as contemplated under the Kiosk Agreement.
<PAGE>
SCHEDULE 1.9
Inventory Determined by Physical Inventory
See List of Inventory attached hereto.
<PAGE>
SCHEDULE 9
SHIPPING SCHEDULE FOR INITIAL KIOSK ORDER
The Initial Kiosk Order as agreed by Inter*Act and Coleman is
attached as Schedule 1 to this Agreement. The Initial Kiosk Order is for 5,000
Kiosks to be Shipped during the 18 months following the date of this Agreement.
The Shipping Schedule for these Kiosks shall be determined as follows:
A. Until the 5,000 Kiosks have been Shipped under the Initial
Kiosk Order, the Shipping Schedule shall be based on a continuous three (3)
month rolling firm Shipping commitment as agreed by Coleman and Inter*Act and an
additional three (3) month rolling Shipping estimate submitted by Inter*Act. As
the first month of the three (3) month rolling firm commitment ends, Inter*Act
and Coleman must agree on the Shipping Schedule for the new third month of the
three (3) month rolling firm Shipping commitment and Inter*Act must submit the
next three (3) month rolling Shipping estimate to Coleman. The three (3) month
rolling firm Shipping commitment shall not be changed without the written
consent of Coleman and Inter*Act.
B. To commence the operation of A, above, the three (3) month
rolling firm Shipping commitment and three (3) month rolling Shipping estimate
are as follows:
THREE (3) MONTH ROLLING FIRM SHIPPING COMMITMENT
Month Kiosks
September, 1996 139
October, 1996 518
November, 1996 551
Total 1208
THREE (3) MONTH ROLLING SHIPPING ESTIMATE
Month Kiosks
December, 1996 341
January, 1997 695
February, 1997 619
Total 1655
In continuation of A, prior to the end of September 1996,
Coleman and Inter*Act must agree to a firm commitment for the Shipment for
December, 1996 to replace September, 1996 and Inter*Act must submit a new three
(3) month rolling Shipping estimate for January, 1997, February, 1997 and March,
1997. This same process shall continue each month thereafter until the Initial
Kiosk Order is satisfied by both Coleman and Inter*Act.
29
<PAGE>
EXHIBIT 12
INTER(BULLET)ACT SYSTEMS, INCORPORATED
COMPUTATION OF DEFICIENCY OF EARNINGS
AVAILABLE TO COVER FIXED CHARGES
(AMOUNTS IN 000S)
<TABLE>
<CAPTION>
FOR THE PERIOD FROM NINE MONTHS ENDED FOR THE PERIOD FROM
FEBRUARY 25, 1993 YEAR ENDED JULY FEBRUARY 25, 1993
(DATE OF INCEPTION) TO SEPTEMBER 30, 1, JUNE 29, (DATE OF INCEPTION) TO
SEPTEMBER 30, 1993 1994 1995 1995 1996 JUNE 29, 1996
<S> <C> <C> <C> <C> <C> <C>
Loss from operations................. $1,295 $2,267 $4,427 $3,015 $5,638 $ 13,627
Interest expense..................... -- 87 188 120 111 386
Deficiency of earnings available to
cover fixed charges................ $1,295 $2,354 $4,615 $3,135 $5,749 $ 14,013
</TABLE>
<PAGE>
<PAGE>
Exhibit 21
Inter(bullet)Act Systems Incorporated
List of Subsidiaries
(bullet) Network Licensing, Inc., a North Carolina Corporation, doing business
under the name Network Licensing, Inc.
<PAGE>
EXHIBIT 23(A)
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our
review and audit reports dated September 11, 1996 and April 15, 1996 (except
with respect to the matters discussed in Note 13, as to which the date is July
25, 1996), respectively, and to all references to our Firm included in or made a
part of this registration statement.
ARTHUR ANDERSEN LLP
Melville, New York
September 16, 1996
<PAGE>
<PAGE>
Exhibit 25
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------
FORM T-1
----------
STATEMENT OF ELIGIBILITY AND QUALIFICATION UNDER THE
TRUST INDENTURE ACT OF 1939 OF A CORPORATION
DESIGNATED TO ACT AS TRUSTEE
----------
/ / CHECK IF AN APPLICATION TO DETERMINE
ELIGIBILITY OF A TRUSTEE PURSUANT TO SECTION 305(B)(2)
FLEET NATIONAL BANK
---------------------------------------------------------
(Exact name of trustee as specified in its charter)
<TABLE>
<S> <C>
Not applicable 04-317415
- ------------------------------- -----------------------------
(State of incorporation (I.R.S. Employer
if not a national bank) Identification No.)
One Monarch Place, Springfield, MA 01102
- ---------------------------------------- -----------------------------
(Address of principal executive offices) (Zip Code)
</TABLE>
Pat Beaudry, 777 Main Street, Hartford, CT 06115 (203) 728-2065
--------------------------------------------------------------
(Name, address and telephone number of agent for service)
Inter*Act Systems, Incorporated
---------------------------------------------------
(Exact name of obligor as specified in its charter)
<TABLE>
<S> <C>
North Carolina 56-1817510
- ------------------------------- -----------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
14 Westport Avenue
Norwalk, Connecticut 06851
- ---------------------------------------- -----------------------------
(Address of principal executive offices) (Zip Code)
</TABLE>
14% Senior Discount Notes due 2003
------------------------------------------------------------------
(Title of the indenture securities)
<PAGE>
Item 1. General Information.
Furnish the following information as to the trustee:
(a) Name and address of each examining or supervising authority to
which it is subject,
The Comptroller of the Currency,
Washington, D.C.
Federal Reserve Bank of Boston
Boston, Massachusetts
Federal Deposit Insurance Corporation
Washington, D.C.
(b) Whether it is authorized to exercise
corporate trust powers:
The trustee is so authorized.
Item 2. Affiliations with obligor and underwriter. If the obligor or
any underwriter for the obligor is an affiliate of the trustee,
describe each such affiliation.
None with respect to the trustee.
Item 16. List of exhibits.
List below all exhibits filed as a part of this statement of
eligibility and qualification.
(1) A copy of the Articles of Association of the trustee as
now in effect.
(2) A copy of the Certificate of Authority of the trustee
to do business.
(3) A copy of the Certification of Fiduciary Powers of the
trustee.
(4) A copy of the By-Laws of the trustee as now in effect.
(5) Consent of the trustee required by Section 321(b)
of the Act.
(6) A copy of the latest Consolidated Reports of Condition
and Income of the trustee published pursuant to law or
the requirements of its supervising or examining authority.
NOTES
In as much as this Form T-1 is filed prior to the ascertainment by the trustee
of all facts on which to base answers to Item 2, the answers to said Items are
based upon imcomplete information. Said Items may, however, be considered
correct unless amended by an amendment to this Form T-1.
<PAGE>
SIGNATURE
Pursuant to the requirements of the Trust Indenture Act of 1939,
the trustee, Fleet National Bank, a national banking association organized and
existing under the laws of the United States, has duly caused this statement of
of eligibility and qualification to be signed on its behalf by the undersigned,
thereunto duly authorized, all in the City of Hartford, and State of
Connecticut, on the 10th day of September, 1996.
FLEET NATIONAL BANK,
AS TRUSTEE
By: /s/Michael M. Hopkins
-------------------------
Its Vice President
<PAGE>
EXHIBIT 1
ARTICLES OF ASSOCIATION
OF
FLEET NATIONAL BANK
FIRST. The title of this Association, which shall carry on the business of
banking under the laws of the United States, shall be "Fleet National Bank."
SECOND. The main office of the Association shall be in Springfield, Hampden
County Commonwealth of Massachusetts. The general business of the Association
shall be conducted at its main office and its branches.
THIRD. The board of directors of this Association shall consist of not less
than five (5) nor more than twenty-five (25) shareholders, the exact number of
directors within such minimum and maximum limits to be fixed and determined
from time to time by resolution of a majority of the full board of directors or
by resolution of the shareholders at any annual or special meeting thereof.
Unless otherwise provided by the laws of the United States, any vacancy in the
board of directors for any reason, including an increase in the number thereof,
may be filled by action of the board of directors.
FOURTH. The annual meeting of the shareholders for the election of directors
and the transaction of whatever other business may be brought before said
meeting shall be held at the main office or such other place as the board of
directors may designate, on the day of each year specified therefore in the
bylaws, but if no election is held on that day, it may be held on any
subsequent day according to the provisions of law; and all elections shall be
held according to such lawful regulations as may be prescribed by the board of
directors.
FIFTH. The authorized amount of capital stock of this Association shall be
eight million five hundred thousand (8,500,000) shares of which three million
five hundred thousand (3,500,000) shares shall be common stock with a
par value of six and 25/100 dollars ($6.25) each, and of which five million
(5,000,000) shares without par value shall be preferred stock. The capital
stock may be increased or decreased from time to time, in accordance with
the provisions of the laws of the United States.
No holder of shares of the capital stock of any class of the Association shall
have any pre-emptive or preferential right of subscription to any shares of any
class of stock of the Association, whether now or hereafter authorized, or to
any obligations convertible into stock of the Association, issued or sold, nor
any right of subscription to any thereof other than such, if any, as the board
of directors, in its discretion, may from time to time determine and at such
price as the board of directors may from time to time fix.
<PAGE>
The board of directors of the Association is authorized, subject to limitations
prescribed by law and the provisions of this Article, to provide for the
issuance from time to time in one or more series of any number of the preferred
shares, and to establish the number of shares be included in each series, and
to fix the designation, relative rights, preferences, qualifications and
limitations of the shares of each such series. The authority of the board of
directors with respect to each series shall include, but not be limited to,
determination of the following:
a. The number of shares constituting that series and the distinctive
designation of that series;
b. The dividend rate on the shares of that series, whether dividends shall be
cumulative, and, if so, from which date or dates, and whether they shall be
payable in preference to, or in another relation to, the dividends payable
to any other class or classes or series of stock;
c. Whether that series shall have voting rights, in addition to the voting
rights provided by law, and, if so, the terms of such voting rights;
d. Whether that series shall have conversion or exchange privileges, and,
if so, the terms and conditions of such conversion or exchange, including
provision for the adjustment of the conversion or exchange rate in such
events as the board of directors shall determine;
e. Whether or not the shares of that series shall be redeemable, and, if so,
the terms and conditions of such redemption, including the manner of
selecting shares for redemption if less than all shares are to be redeemed,
the date or dates upon or after which they shall be redeemable, and the
amount per share payable in case of redemption, which amount may vary under
different conditions and at different redemption dates;
f. Whether that series shall be entitled to the benefit of a sinking fund to
be applied to the purchase or redemption of shares of that series, and, if
so, the terms and amounts of such sinking fund;
g. The right of the shares of that series to the benefit of conditions and
restrictions upon the creation of indebtedness of the Association or any
subsidiary, upon the issue of any additional stock (including additional
shares of such series or of any other series) and upon the payment of
dividends or the making of other distributions on, and the purchase,
redemption or other acquisition by the Association or any subsidiary of
any outstanding stock of the Association;
h. The right of the shares of that series in the event of voluntary or
involuntary liquidation, dissolution or winding up of the Association and
whether such rights shall be in preference to, or in another relation to,
the comparable rights of any other class or classes or series of stock; and
i. Any other relative, participating, optional or other special rights,
qualifications, limitations or restrictions of that series.
Shares of any series of preferred stock which have been redeemed (whether
through the operation of a sinking fund or otherwise) or which, if convertible
or exchangeable, have been converted into or exchanged for shares of stock of
any other class or classes shall have the status of authorized and unissued
shares of preferred stock of the same series and may be reissued as a part of
the series of which they were originally a part or may be reclassified and
reissued as part of a new series of preferred stock to be created by resolution
or resolutions of the board of directors or as part of any other series or
preferred stock, all subject to the conditions and the restrictions adopted by
the board of directors providing for the issue of any series of preferred
stock and by the provisions of any applicable law.
Subject to the provisions of any applicable law, or except as otherwise
provided by the resolution or resolutions providing for the issue of any series
of preferred stock, the holders of outstanding shares of common stock shall
exclusively possess voting power for the election of directors and for all
purposes, each holder of record of shares of common stock being entitled to one
vote for each share of common stock standing in his name on the books of the
Association.
Except as otherwise provided by the resolution or resolutions providing for the
issue of any series of preferred stock, after payment shall have been made to
the holders of preferred stock of the full amount of dividends to which they
shall be entitled pursuant to the resolution or resolutions providing for the
issue of any other series of preferred stock, the holders of common stock shall
be entitled, to the exclusion of the holders of preferred stock of any and all
series, to receive such dividends as from time to time may be declared by the
board of directors.
Except as otherwise provided by the resolution or resolutions for the issue
of any series of preferred stock, in the event of any liquidation, dissolution
or winding up of the Association, whether voluntary or involuntary, after
payment shall have been made to the holders of preferred stock of the full
amount to which they shall be entitled pursuant to the resolution or
resolutions providing for the issue of any series of preferred stock the
holders of common stock shall be entitled, to the exclusion of the holders of
preferred stock of any and all series, to share, ratable according to the
number of shares of common stock held by them, in all remaining assets of the
Association available for distribution to its shareholders.
The number of authorized shares of any class may be increased or decreased by
the affirmative vote of the holders of a majority of the stock of the
Association entitled to vote.
<PAGE>
SIXTH. The board of directors shall appoint one of its members president of
this Association, who shall be chairman of the board, unless the board appoints
another director to be the chairman. The board of directors shall have the
power to appoint one or more vice presidents; and to appoint a secretary and
such other officers and employees as may be required to transact the business
of this Association.
The board of directors shall have the power to define the duties of the
officers and employees of the Association; to fix the salaries to be paid to
them; to dismiss them; to require bonds from them and to fix the penalty
thereof; to regulate the manner in which any increase of the capital of the
Association shall be made; to manage and administer the business and affairs of
the Association; to make all bylaws that it may be lawful for them to make; and
generally to do and perform all acts that it may be legal for a board of
directors to do and perform.
SEVENTH. The board of directors shall have the power to change the location of
the main office to any other place within the limits of the City of Hartford,
Connecticut, without the approval of the shareholders but subject to the
approval of the Comptroller of the Currency; and shall have the power to
establish or change the location of any branch or branches of the Association
to any other location, without the approval of the shareholders but subject to
the approval of the Comptroller of the Currency.
EIGHTH. The corporate existence of this Association shall continue until
terminated in accordance with the laws of the United States.
NINTH. The board of directors of this Association, or any three or more
shareholders owning, in the aggregate, not less than ten percent (10%) of the
stock of this Association, may call a special meeting of shareholders at any
time. Unless otherwise provided by the laws of the United States, a notice of
the time, place and purpose of every annual and special meeting of the
shareholders shall be given by first class mail, postage prepaid, mailed at
least ten (10) days prior to the date of such meeting to each shareholder of
record at his address as shown upon the books of this Association.
TENTH. (a) Right to Indemnification. Each person who was or is made a party
or is threatened to be made a party to any threatened, pending or completed
action, suit, or proceeding, whether civil, criminal, administrative, or
investigative (hereinafter a "proceeding"), by reason of the fact that he or
she is or was a director, officer or employee of the Association or is or was
serving at the request of the Association as a director, officer, employee or
agent of another corporation or of a partnership, joint venture, limited
liability company, trust, or other enterprise, including service with respect
to an employee benefit plan, shall be indemnified and held harmless by the
Association to the fullest extent authorized by the law of the state in which
the Association's ultimate parent company is incorporated, except as provided
in subsection (b). The aforesaid indemnity shall protect the indemnified
person against all expense, liability and loss (including attorney's fees,
judgements, fines ERISA excise taxes or penalties, and amounts paid in
settlement) reasonably incurred by such person in connection with such a
proceeding. Such indemnification shall continue as to a person who has ceased
to be a director, officer or employee and shall inure to the benefit of his or
her heirs, executors, and administrators, but shall only cover such person's
period of service with the Association. The Association may, by action of its
Board of Directors, grant rights to indemnification to agents of the
Association and to any director, officer, employee or agent of any of its
subsidiaries with the same scope and effect as the foregoing indemnification
of directors and officers.
(b) Restrictions on Indemnification. Notwithstanding the foregoing, (i) no
person shall be indemnified hereunder by the Association against expenses,
penalties, or other payments incurred in an administrative proceeding or action
instituted by a federal bank regulatory agency which proceeding or action
results in a final order assessing civil money penalties against that person,
requiring affirmative action by that person in the form of payments to the
Association, or removing or prohibiting that person from service with the
Association, and any advancement of expenses to that person in that proceeding
must be repaid; and (ii) no person shall be indemnified hereunder by the
Association and no advancement of expenses shall be made to any person
hereunder to the extent such indemnification or advancement of expenses would
violate or conflict with any applicable federal statute now or hereafter in
force or any applicable final regulation or interpretation now or hereafter
adopted by the Office of the Comptroller of the Currency ("OCC") or the Federal
Deposit Insurance Corporation ("FDIC"). The Association shall comply with any
requirements imposed on it by any such statue or regulation in connection with
any indemnification or advancement of expenses hereunder by the Association.
With respect to proceedings to enforce a claimant's rights to indemnification,
the Association shall indemnify any such claimant in connection with such a
proceeding only as provided in subsection (d) hereof.
(c) Advancement of Expenses. The conditional right to indemnification
conferred in this section shall be a contract right and shall include the
right to be paid by the Association the reasonable expenses (including
attorney's fees) incurred in defending a proceeding in advance of its final
disposition (an "advancement of expenses"); provided, however, that an
advancement of expenses shall be made only upon (i) delivery to the Association
of a binding written undertaking by or on behalf of the person receiving the
advancement to repay all amounts so advanced if it is ultimately determined
that such person is not entitled to be indemnified in such proceeding,
including if such proceeding results in a final order assessing civil money
penalties against that person, requiring affirmative action by that person
in the form of payments to the Association, or removing or prohibiting that
person from service with the Association, and (ii) compliance with any other
actions or determinations required by applicable law, regulation or OCC or FDIC
interpretation to be taken or made by the Board of Directors of the Association
or other persons prior to an advancement of expenses. The Association shall
cease advancing expenses at any time its Board of Directors believes that any
of the prerequisites for advancement of expenses are no longer being met.
(d) Right of Claimant to Bring Suit. If a claim under subsection (a) of the
section is not paid in full by the Association within thirty (30) days after
written claim has been received by the Association, the claimant may at any time
thereafter bring suit against the Association to recover the unpaid amount
of the claim. If successful in whole or in part in any such suit, or in a
suit brought by the Association to recover an advancement of expenses pursuant
to the terms of an undertaking, the claimant shall be entitled to be paid also
the expense of prosecuting or defending such claim. It shall be a defense to
any such action brought by the claimant to enforce a right to indemnification
hereunder (other than an action brought to enforce a claim for an advancement
of expenses where the required undertaking, if any, has been tendered to the
Association) that the claimant has not met any applicable standard for
indemnification under the law of the state in which the Association's ultimate
parent company is incorporated. In any suit brought by the Association to
recover an advancement of expenses pursuant to the terms of an undertaking, the
Association shall be entitled to recover such expenses upon a final
adjudication that the claimant has not met any applicable standard for
indemnification standard for indemnification under the law of the state in
which the Association's ultimate parent company is incorporated.
(e) Non-Exclusivity of Rights. The rights to indemnification and the
advancement of expenses conferred in this section shall not be exclusive of any
other right which any person may have or hereafter acquired under any statute,
agreement, vote of stockholders or disinterested directors or otherwise.
(f) Insurance. The Association may purchase, maintain, and make payment or
reimbursement for reasonable premiums on, insurance to protect itself and any
director, officer, employee or agent of the Association or another corporation,
partnership, joint venture, trust or other enterprise against any expense,
liability or loss, whether or not the Association would have the power to
indemnify such person against such expense, liability or loss under the law of
the state in which the Association's ultimate parent company is incorporated;
provided however, that such insurance shall explicitly exclude insurance
coverage for a final order of a federal bank regulatory agency assessing civil
money penalties against an Association director, officer, employee or agent.
ELEVENTH. These articles of association may be amended at any regular or
special meeting of the shareholders by the affirmative vote of the holders of a
majority of the stock of this Association, unless the vote of the holders of
greater amount of stock is required by law, and in that case by the vote of the
holders of such greater amount. The notice of any shareholders' meeting at
which an amendment to the articles of association of this Association is to be
considered shall be given as hereinabove set forth.
I hereby certify that the articles of association of this Association, in their
entirety, are listed above in items first through eleventh.
Secretary/Assistant Secretary
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Dated at , as of .
--------------------------------------- --------------------
Revision of February 15, 1996
<PAGE>
EXHIBIT 2
[LOGO]
- --------------------------------------------------------------------------------
COMPTROLLER OF THE CURRENCY
ADMINISTRATOR OF NATIONAL BANKS
- --------------------------------------------------------------------------------
Washington, D.C. 20219
CERTIFICATE
I, Eugene A. Ludwig, Comptroller of the Currency, do hereby certify
that:
(1) The Comptroller of the Currency, pursuant to Revised Statutes
324, et seq., as amended, 12 U.S.C. 1, et seq., as amended, has possession,
custody and control of all records pertaining to the chartering, regulation and
supervision of all National Banking Associations.
(2) "Fleet National Bank", Springfield, Massachusetts
(Charter No. 1338), is a National Banking Association formed under the
laws of the United States and is authorized thereunder to transact the
business of banking on the date of this Certificate.
IN TESTIMONY WHEREOF, I have hereunto
subscribed my name and caused my seal of
office to be affixed to these presents at
the Treasury Department, in the City of
Washington and District of Columbia, this
4th day of April, 1996.
/s/ EUGENE A. LUDWIG
----------------------------------
Comptroller of the Currency
<PAGE>
EXHIBIT 2
[LOGO]
- --------------------------------------------------------------------------------
COMPTROLLER OF THE CURRENCY
ADMINISTRATOR OF NATIONAL BANKS
- --------------------------------------------------------------------------------
Washington, D.C. 20219
Certification of Fiduciary Powers
I, Eugene A. Ludwig, Comptroller of the Currency, do hereby certify
the records in this Office evidence "Fleet National Bank", Springfield,
Massachusetts, (Charter No. 1338), was granted, under the hand
and seal of the Comptroller, the right to act in all fiduciary capacities
authorized under the provisions of The Act of Congress approved
September 28, 1962, 76 Stat. 668, 12 U.S.C. 92a. I further certify the
authority so granted remains in full force and effect.
IN TESTIMONY WHEREOF, I have hereunto
subscribed my name and caused my seal of
Office of the Comptroller of the Currency
to be affixed to these presents at the
Treasury Department, in the City of
Washington and District of Columbia, this
4th day of April, 1996.
/s/ EUGENE A. LUDWIG
----------------------------------
Comptroller of the Currency
<PAGE>
EXHIBIT 4
AMENDED AND RESTATED BY-LAWS OF
FLEET NATIONAL BANK
ARTICLE I
MEETINGS OF SHAREHOLDERS
Section 1. Annual Meeting. The regular annual meeting of the shareholders for
the election of Directors and the transaction of any other business that may
properly come before the meeting shall be held at the Main Office of the
Association, or such other place as the Board of Directors may designate, on
the fourth Thursday of April in each year at 1:15 o'clock in the afternoon
unless some other hour of such day is fixed by the Board of Directors.
If, from any cause, an election of Directors is not made on such day, the Board
of Directors shall order the election to be held on some subsequent day, of
which special notice shall be given in accordance with the provisions of law,
and of these bylaws.
Section 2. Special Meetings. Special meetings of the shareholders may be called
at any time by the Board of Directors, the President, or any shareholders
owning not less than twenty-five percent (25%) of the stock of the Association.
Section 3. Notice of Meetings of Shareholders. Except as otherwise provided
by law, notice of the time and place of annual or special meetings of the
shareholders shall be mailed, postage prepaid, at least ten (10) days before
the date of the meeting to each shareholder of record entitled to vote thereat
at his address as shown upon the books of the Association; but any failure to
mail such notice to any shareholder or any irregularity therein, shall not
affect the validity of such meeting or of any of the proceedings thereat.
Notice of a special meeting shall also state the purpose of the meeting.
Section 4. Quorum; Adjourned Meetings. Unless otherwise provided by law, a
quorum for the transaction of business at every meeting of the shareholders
shall consist of not less than two-fifths (2/5) of the outstanding capital
stock represented in person or by proxy; less than such quorum may adjourn the
meeting to a future time. No notice need be given of an adjourned annual or
special meeting of the shareholders if the adjournment be to a definite place
and time.
Section 5. Votes and Proxies. At every meeting of the shareholders, each
share of the capital stock shall be entitled to one vote except as otherwise
provided by law. A majority of the votes cast shall decide every question
or matter submitted to the shareholder at any meeting, unless otherwise
provided by law or by the Articles of Association or these By-laws. Share-
holders may vote by proxies duly authorized in writing and filed with the
Cashier, but no officer, clerk, teller or bookeeper of the Association may act
as a proxy.
<PAGE>
Section 6. Nominations to Board of Directors. At any meeting of shareholders
held for the election of Directors, nominations for election to the Board of
Directors may be made, subject to the provisions of this section, by any share-
holder of record of any outstanding class of stock of the Association entitled
to vote for the election of Directors. No person other than those whose names
are stated as proposed nominees in the proxy statement accompanying the notice
of the meeting may be nominated as such meeting unless a shareholder shall have
given to the President of the Association and to the Comptroller of the
Currency, Washington, DC written notice of intention to nominate such other
person mailed by certified mail or delivered not less than fourteen (14) days
nor more than fifty (50) days prior to the meeting of shareholders at which
such nomination is to be made; provided, however, that if less than twenty-one
(21) days' notice of such meeting is given to shareholders, such notice of
intention to nominate shall be mailed by certified mail or delivered to said
President and said Comptroller on or before the seventh day following the day
on which the notice of such meeting was mailed. Such notice of intention to
nominate shall contain the following information to the extent known to the
notifying shareholder: (a) the name and address of each proposed nominee; (b)
the principal occupation of each proposed nominee; (c) the total number of
shares of capital stock of the Association that will be voted for each proposed
nominee; (d) the name and residence address of the notifying shareholder; and
(e) the number of shares of capital stock of the Association owned by the
notifying shareholder. In the event such notice is given, the proposed nominee
may be nominated either by the shareholder giving such notice or by any other
shareholder present at the meeting at which such nomination is to be made.
Such notice may contain the names of more than one proposed nominee, and if
more than one is named, any one or more of those named may be nominated.
Section 7. Action Taken Without a Shareholder Meeting. Any action requiring
shareholder approval or consent may be taken without a meeting and without
notice of such meeting by written consent of the shareholders.
ARTICLE II
DIRECTORS
Section 1. Number. The Board of Directors shall consist of such number of
shareholders, not less than five (5) nor more than twenty-five (25), as from
time to time shall be determined by a majority of the votes to which all of its
shareholders are at the time entitled, or by the Board of Directors as
hereinafter provided.
Section 2. Mandatory Retirement for Directors. No person shall be elected a
director who has attained the age of 68 and no person shall continue to serve
as a director after the date of the first meeting of the stockholders of the
Association held on or after the date on which such person attains the age of
68; provided, however, that any director serving on the Board as of December
15, 1995 who has attanined the age of 65 on or prior to such date shall be
permitted to continue to serve as a director until the date of the first
meeting of the stockholders of the Association held on or after the date on
which such person attains the age of 70.
-2-
<PAGE>
Section 3. General Powers. The Board of Directors shall exercise all the
coporate powers of the Association, except as expressly limited by law, and
shall have the control, management, direction and dispositon of all its
property and affairs.
Section 4. Annual Meeting. Immediately following a meeting of shareholders
held for the election of Directors, the Cashier shall notify the directors-
elect who may be present of their election and they shall then hold a meeting
at the Main Office of the Association, or such other place as the Board of
Directors may designate, for the purpose of taking their oaths, organizing the
new Board, electing officers and transacting any other business that may come
before such meeting.
Section 5. Regular Meeting. Regular meetings of the Board of Directors shall
be held without notice at the Main Office of the Association, or such other
place as the Board of Directors may designate, at such dates and times as the
Board shall determine. If the day designated for a regular meeting falls on a
legal holiday, the meeting shall be held on the next business day.
Section 6. Special Meetings. A special meeting of the Board of Directors may
be called at anytime upon the written request of the Chairman of the Board, the
President, or of two Directors, stating the purpose of the meeting. Notice of
the time and place shall be given not later than the day before the date of the
meeting, by mailing a notice to each Director at his last known address, by
delivering such notice to him personally, or by telephoning.
Section 7. Quorum; Votes. A majority of the Board of Directors at the time
holding office shall constitute a quorum for the transaction of all business,
except when otherwise provided by law, but less than a quorum may adjourn
a meeting from time to time, and the meeting may be held, as adjourned, without
further notice. If a quorum is present when a vote is taken, the affirmative
vote of a majority of Directors present is the act of the Board of Directors.
Section 8. Action by Directors Without a Meeting. Any action requiring
Director approval or consent may be taken without a meeting and without notice
of such meeting by written consent of all the Directors.
Section 9. Telephonic Participation in Directors' Meetings. A Director or
member of a Committee of the Board of Directors may participate in a meeting of
the Board or of such Committee may participate in a meeting of the Board or of
such Committee by means of a conference telephone or similar communications
equipment enabling all Directors participating in the meeting to hear one
another, and participation in such a meeting shall constitute presence in person
at such a meeting.
Section 10. Vacancies. Vacancies in the Board of Directors may be filled by
the remaining members of the Board at any regular or special meeting of the
Board.
Section 11. Interim Appointments. The Board of Directors shall, if the share-
holders at any meeting for the election of Directors have determined a number
of Directors less than twenty-five (25), have the power, by affirmative vote of
the majority of all the Directors, to increase such number of Directors to not
more than twenty-five (25) and to elect Directors to fill the resulting
vacancies and to serve until the next annual meeting of shareholders or the
next election of Directors; provided, however, that the number of Directors
shall not be so increased by more than two (2) if the number last determined
by shareholders was fifteen (15) or less, or increased by more than four (4) if
the number last determined by shareholders was sixteen (16) or more.
Section 12. Fees. The Board of Directors shall fix the amount and direct the
payment of fees which shall be paid to each Director for attendance at any
meeting of the Board of Directors or of any Committees of the Board.
ARTICLE III
COMMITTEES OF THE BOARD
Section 1. Executive Committee. The Board of Directors shall appoint from its
members an Executive Committee which shall consist of such number of persons as
the Board of Directors shall determine; the Chairman of the Board and the
President shall be members ex-officio of the Executive Committee with full
voting power. The Chairman of the Board or the President may from time to time
appoint from the Board of Directors as temporary additional members of the
Executive Committee, with full voting powers, not more than two members to serve
for such periods as the Chairman of the Board or the President may determine.
The Board of Directors shall designate a member of the Executive Committee to
serve as Chairman thereof. A meeting of the Executive Committee may be called
at any time upon the written request of the Chairman of the Board, the President
or the Chairman of the Executive Committee, stating the purpose of the meeting.
Not less than twenty four hours' notice of said meeting shall be given to each
member of the Committee personally, by telephoning, or by mail. The Chairman of
the Executive Committee or, in his absence, a member of the Committee chosen by
a majority of the members present shall preside at meetings of the Executive
Committee.
-3-
<PAGE>
The Executive Committee shall possess and may exercise all the powers of the
Board when the Board is not in session except such as the Board, only, by law,
is authorized to exercise; it shall keep minutes of its acts and proceedings
and cause same to be presented and reported at every regular meeting and at any
special meeting of the Board including specifically, all its actions relating
to loans and discounts.
All acts done and powers and authority conferred by the Executive Committee,
from time to time, within the scope of its authority, shall be deemed to be,
and may be certified as being, the acts of and under the authority of the
Board.
Section 2. Risk Management Committee. The Board shall appoint from its
members a Risk Management Committee which shall consist of such number as the
Board shall determine. The Board shall designate a member of the Risk
Management Committee to serve as Chairman thereof. It shall be the duty of the
Risk Management Committee to (a) serve as the channel of communication with
management and the Board of Directors of Fleet Financial Group, Inc. to assure
that formal processes supported by management information systems are in place
for the identification, evaluation and management of significant risks inherent
in or associated with lending activities, the loan portfolio, asset-liablity
management, the investment portfolio, trust and investment advisory activities,
the sale of nondeposit investment products and new products and services and
such additional activities or functions as the Board may determine from time
to time; (b) assure the formulation and adoption of policies approved by the
Risk Management Committee or Board governing lending activities, management of
the loan portfolio, the maintenance of an adequate allowance for loan and lease
losses, asset-liability management, the investment portfolio, the retail
sale of non-deposit investment products, new products and services and such
additional activities or functions as the Board may determine from time to time
(c) assure that a comprehensive independent loan review program is in place for
the early detection of problem loans and review significant reports of the loan
review department, management's responses to those reports and the risk
attributed to unresolved issues; (d) subject to control of the Board, exercise
general supervision over trust activities, the investment of trust funds, the
disposition of trust investments and the acceptance of new trusts and the terms
of such acceptance, and (e) perform such additional duties and exercise such
additional powers of the Board as the Board may determine from time to time.
Section 3. Audit Committee. The Board shall appoint from its members and
Audit Committee which shall consist of such number as the Board shall determine
no one of whom shall be an active officer or employee of the Association or
Fleet Financial Group, Inc. or any of its affiliates. In addition, members of
the Audit Committee must not (i) have served as an officer or employee of the
Association or any of its affiliates at any time during the year prior to their
appointment; or (ii) own, control, or have owned or controlled at any time
during the year prior to appointment, ten percent (10%) or more of any
outstanding class of voting securities of the Association. At least two (2)
members of the Audit Committee must have significant executive, professional,
educational or regulatory experience in financial, auditing, accounting,
or banking matters. No member of the Audit Commitee may have significant
direct or indirect credit or other relationships with the Association, the
termination of which would materially adversely affect the Association's
financial condition or results of operations.
The Board shall designate a member of the Audit Committee to serve as Chairman
thereof. It shall be the duty of the Audit Committee to (a) cause a continuous
audit and examination to be made on its behalf into the affairs of the
Association and to review the results of such examination; (b) review
significant reports of the internal auditing department, management's responses
to those reports and the risk attributed to unresolved issues; (c) review the
basis for the reports issued under Section 112 of The Federal Deposit Insurance
Corporation Improvement Act of 1991; (d) consider, in consultation with the
independent auditor and an internal auditing executive, the adequacy of the
Association's internal controls, including the resolution of identified material
weakness and reportable conditions; (e) review regulatory communications
received from any federal or state agency with supervisory jurisdiction or
other examining authority and monitor any needed corrective action by
management; (f) ensure that a formal system of internal controls is in place
for maintaining compliance with laws and regulations; (g) cause an audit of the
Trust Department at least once during each calendar year and within 15 months
of the last such audit or, in liew thereof, adopt a continuous audit system and
report to the Board each calendar year and within 15 months of the previous
report on the performance of such audit function; and (h) perform such
additional duties and exercise such additional powers of the Board as the Board
may determine from time to time.
The Audit Committee may consult with internal counsel and retain its own
outside counsel without approval (prior or otherwise) from the Board or
management and obligate the Association to pay the fees of such counsel.
-4-
<PAGE>
Section 4. Community Affairs Committee. The Board shall appoint from its
members a Community Affairs Committee which shall consist of such number as the
Board shall determine. The Board shall designate a member of the Community
Affairs Committee to serve as Chairman thereof. It shall be the duty of the
Commmunity Affairs Committee to (a) oversee compliance by the Association with
the Community Reinvestment Act of 1977, as amended, and the regulations
promulgated thereunder; and (b) perform such additional duties and exercise such
additional powers of the Board as the Board may determine from time to time.
Section 5. Regular Meetings. Except for the Executive Committee which shall
meet on an ad hoc basis as set forth in Section 1 of this Article, regular
meetings of the Committees of the Board of Directors shall be held, without
notice, at such time and place as the Committee or the Board of Directors may
appoint and as often as the business of the Association may require.
Section 6. Special Meetings. A Special Meeting of any of the Committees of
the Board of Directors may be called upon the written request of the Chairman
of the Board or the President, or of any two members of the respective
Committee, stating the purpose of the meeting. Not less than twenty-four
hours' notice of such special meeting shall be given to each member of the
Committee personally, by telephoning, or by mail.
Section 7. Emergency Meetings. An Emergency Meeting of any of the Committees
of the Board of Directors may be called at the request of the Chairman of the
Board or the President, who shall state that an emergency exists, upon not
less than one hour's notice to each member of the Committee personally or by
telephoning.
Section 8. Action Taken Without a Committee Meeting. Any Committee of the
Board of Directors may take action without a meeting and without notice of such
meeting by resolution assented to in writing by all members of such Committee.
Section 9. Quorum. A majority of a Committee of the Board of Directors shall
constitute a quorum for the transaction of any business at any meeting of such
Committee. If a quorum is not available, the Chairman of the Board or the
President shall have power to make temporary appointments to a Committee of-
members of the Board of Directors, to act in the place and stead of members who
temporarily cannot attend any such meeting; provided, however, that any
temporary appointment to the Audit Committee must meet the requirements for
members of that Committee set forth in Section 3 of this Article.
Section 10. Record. The committes of the Board of Directors shall keep a
record of their respective meetings and proceedings which shall be presented
at the regular meeting of the Board of Directors held in the calendar month
next following the meetings of the Committees. If there is no regular Board
of Directors meeting held in the calendar month next following the meeting of
a Committee, then such Committee's records shall be presented at the next
regular Board of Directors meeting held in a month subsequent to such Committee
meeting.
Section 11. Changes and Vacancies. The Board of Directors shall have power
to change the members of any Committee at any time and to fill vacancies on any
Committee; provided, however, that any newly appointed member of the Audit
Committee must meet the requirements for members of that Committee set forth in
Section 3 of this Article.
Section 12. Other Committees. The Board of Directors may appoint, from time
to time, other committees of one or more persons, for such purposes and with
such powers as the Board may determine.
ARTICLE IV
WAIVER OF NOTICE OF MEETINGS
Section 1. Waiver. Whenever notice is required to be given to any shareholder,
Director, or member of a Committee of the Board of Directors, such notice may
be waived in writing either before or after such meeting by any shareholder,
Director or Committee member respectively, as the case may be, who may be
entitled to such notice; and such notice will be deemed to be waived by
attendance at any such meeting.
-5-
<PAGE>
ARTICLE V
OFFICERS AND AGENTS
Section 1. Officers. The Board shall appoint a Chairman of the Board and a
President, and shall have the power to appoint one or more Executive Vice
Presidents, one or more Senior Vice Presidents, one or more Vice Presidents, a
Cashier, a Secretary, an Auditor, a Controller, one or more Trust Officers and-
such other officers as are deemed necessary or desirable for the proper
transaction of business of the Association. The Chairman of the Board and the
President shall be appointed from members of the Board of Directors. Any two
or more offices, except those of President and Cashier, or Secretary, may be
held by the same person. The Board may, from time to time, by resolution
passed by a majority of the entire Board, designate one or more officers of the
Association or of an affiliate or of Fleet Financial Group, Inc. with power to
appoint one or more Vice Presidents and such other officers of the Association
below the level of Vice President as the officer or officers designated in such
resolution deem necessary or desirable for the proper transaction of the
business of the Association.
Section 2. Chairman of the Board. The chairman of the Board shall preside at
all meetings of the Board of Directors. Subject to definition by the Board of
Directors, he shall have general executive powers and such specific powers and
duties as from time to time may be conferred upon or assigned to him by the
Board of Directors.
Section 3. President. The President shall preside at all meetings of the
Board of Directors if there be no Chairman or if the Chairman be absent.
Subject to definition by the Board of Directors, he shall have general
executive powers and such specific powers and duties as from time to time may
be conferred upon or assigned to him by the Board of Directors.
-6-
<PAGE>
Section 4. Cashier and Secretary. The Cashier shall be the Secretary of the
Board and of the Executive Committee, and shall keep accurate minutes of their
meetings and of all meetings of the shareholders. He shall attend to the
giving of all notices required by these By-laws. He shall be custodian of the
corporate seal, records, documents and papers of the Association. He shall
have such powers and perform such duties as pertain by law or regulation to the
office of Cashier, or as are imposed by these By-laws, or as may be delegated
to him from time to time by the Board of Directors, the Chairman of the Board
or the President.
Section 5. Auditor. The Auditor shall be the chief auditing officer of the
Association. He shall continuously examine the affairs of the Association and
from time to time shall report to the Board of Directors. He shall have such
powers and perform such duties as are conferred upon, or assigned to him by
these By-laws, or as may be delegated to him from time to time by the Board
of Directors.
Section 6. Officers Seriatim. The Board of Directors shall designate from
time to time not less than two officers who shall in the absence or disability
of the Chairman or President or both, succeed seriatim to the duties and
responsibilities of the Chairman and President respectively.
Section 7. Clerks and Agents. The Board of Directors may appoint, from time
to time, such clerks, agents and employees as it may deem advisable for the
prompt and orderly transaction of the business of the Association, define
their duties, fix the salaries to be paid them and dismiss them. Subject to
the authority of the Board of Directors, the Chairman of the Board or the
President, or any other officer of the Association authorized by either of them
may appoint and dismiss all or any clerks, agents and employees and prescribe
their duties and the conditions of their employment, and from time to time
fix their compensation.
Section 8. Tenure. The Chairman of the Board of Directors and the President
shall, except in the case of death, resignation, retirement or disqualification
under these By-laws, or unless removed by the affirmative vote of at least two-
thirds of all of the members of the Board of Directors, hold office for the
term of one year or until their respective successors are appointed. Either
of such officers appointed to fill a vacancy occurring in an unexpired term
shall serve for such unexpired term of such vacancy. All other officers,
clerks, agents, attorneys-in-fact and employees of the Association shall hold
office during the pleasure of the Board of Directors or of the officer or
committee appointing them respectively.
ARTICLE VI
TRUST DEPARTMENT
Section 1. General Powers and Duties. All fiduciary powers of the Association
shall be exercised through the Trust Department, subject to such regulations as
the Comptroller of the Currency shall from time to time establish. The Trust
Department shall be to placed under the management and immediate supervision
of an officer or officers appointed by the Board of Directors. The duties of
all officers of the Trust Department shall be to cause the policies and
instructions of the Board and the Risk Management Committee with respect to the
trusts under their supervision to be carried out, and to supervise the due
performance of the trusts and agencies entrusted to the Association and under
their supervision, in accordance with law and in accordance with the terms of
such trusts and agencies.
-7-
<PAGE>
ARTICLE VII
BRANCH OFFICES
Section 1. Establishment. The Board of Directors shall have full power to
establish, to discontinue, or, from time to time, to change the location of any
branch office, subject to such limitations as may be provided by law.
Section 2. Supervision and Control. Subject to the general supervision and
control of the Board of Directors, the affairs of branch offices shall be
under the immediate supervision and control of the President or of such other
officer or officers, employee or employees, or other individuals as the Board
of Directors may from time to time determine, with such powers and duties as
the Board of Directors may confer upon or assign to him or them.
ARTICLE VIII
SIGNATURE POWERS
Section 1. Authorization. The power of officers, employees, agents and
attorneys to sign on behalf of and to affix the seal of the Association shall
be prescribed by the Board of Directors or by the Executive Committee or by
both; provided that the President is authorized to restrict such power of any
officer, employee, agent or attorney to the business of a specific department
or departments, or to a specific branch office or branch offices. Facsimile
signatures may be authorized.
-8-
<PAGE>
ARTICLE IX
STOCK CERTIFICATES AND TRANSFERS
Section 1. Stock Records. The Trust Department shall have custody of the
stock certificate books and stock ledgers of the Association, and shall make
all transfers of stock, issue certificates thereof and disburse dividends
declared thereon.
Section 2. Form of Certificate. Every shareholder shall be entitled to a
certificate conforming to the requirements of law and otherwise in such form
as the Board of Directors may approve. The certificates shall state on the
face thereof that the stock is transferable only on the books of the
Association and shall be signed by such officers as may be prescribed from time
to time by the Board of Directors or Executive Committee. Facsimile signatures
may be authorized.
Section 3. Transfers of Stock. Transfers of stock shall be made only on the
books of the Association by the holder in person, or by attorney duly
authorized in writing, upon surrender of the certificate therefor properly
endorsed, or upon the surrender of such certificate accompanied by a properly
executed written assignment of the same, or a written power of attorney to
sell, assign or transfer the same or the shares represented thereby.
Section 4. Lost Certificate. The Board of Directors or Executive Committee
may order a new certificate to be issued in place of a certificate lost or
destroyed, upon proof of such loss or destruction and upon tender to the
Association by the shareholder, of a bond in such amount and with or without
surety, as may be ordered, indemnifying the Association against all liability,
loss, cost and damage by reason of such loss or destruction and the issuance
of a new certificate.
Section 5. Closing Transfer Books. The Board of Directors may close the
transfer books for a period not exceeding thirty days preceding any regular
or special meeting of the shareholders, or the day designated for the payment
of a dividend or the allotment of rights. In lieu of closing the transfer
books the Board of Directors may fix a day and hour not more than thirty days
prior to the day of holding any meeting of the shareholders, or the day
designated for the payment of a dividend, or the day designated for the
allotment of rights, or the day when any change of conversion or exchange of
capital stock is to go into effect, as the day as of which shareholders
entitled to notice of and to vote at such meetings or entitled to such dividend
or to such allotment of rights or to exercise the rights in respect of any
such change, conversion or exchange of capital stock, shall be determined, and
only such shareholders as shall be shareholders of record on the day and hour
so fixed shall be entitled to notice of and to vote at such meeting or to
receive payment of such dividend or to receive such allotment of rights or to
exercise such rights, as the case may be.
ARTICLE X
THE CORPORATE SEAL
Section 1. Seal. The following is an impression of the seal of the
Association adopted by the Board of Directors.
ARTICLE XI
BUSINESS HOURS
Section 1. Business Hours. The main office of this Association and each
branch office thereof shall be open for business on such days, and for such
hours as the Chairman, or the President, or any Executive Vice President, or
such other officer as the Board of Directors shall from time to time
designate, may determine as to each office to conform to local custom and
convenience, provided that any one or more of the main and branch offices or
certain departments thereof may be open for such hours as the President, or
such other officer as the Board of Directors shall from time to time designate,
may determine as to each office or department on any legal holiday on which
work is not prohibited by law, and provided further that any one or more of
the main and branch offices or certain departments thereof may be ordered
closed or open on any day for such hours as to each office or department as
the President, or such other officer as the Board of Directors shall from time
to time designate, subject to applicable laws regulations, may determine when
such action may be required by reason of disaster or other emergency condition.
ARTICLE IX
CHANGES IN BY-LAWS
Section 1. Amendments. These By-laws may be amended upon vote of a majority
of the entire Board of Directors at any meeting of the Board, provided ten (10)
day's notice of the proposed amendment has been given to each member of the
Board of Directors. No amendment may be made unless the By-law, as amended, is
consistent with the requirements of law and of the Articles of Association.
These By-laws may also be amended by the Association's shareholders.
A true copy
Attest:
Secretary/Assistant Secretary
- ---------------------------------------
Dated at , as of .
--------------------------------------- ----------------------
Revision of January 11, 1993
-9-
<PAGE>
EXHIBIT 5
CONSENT OF THE TRUSTEE
REQUIRED BY SECTION 321(b)
OF THE TRUST INDENTURE ACT OF 1939
The undersigned, as Trustee under the Indenture to be entered into between
Inter*Act Systems, Incorporated and Fleet National Bank, as Trustee,
does hereby consent that, pursuant to Section 321(b) of the Trust Indenture
Act of 1939, reports of examinations with respect to the undersigned by Federal,
State, Territorial or District authorities may be furnished by such authorities
to the Securities and Exchange Commission upon request therefor.
FLEET NATIONAL BANK,
AS TRUSTEE
By /s/ Michael M. Hopkins
-------------------------------
Its: Vice President
Dated:
<PAGE>
Board of Governors of the Federal Reserve System
OMB Number: 7100-0036
Federal Deposit Insurance Corporation
OMB Number: 3064-0052
Office of the Comptroller of the Currency
OMB Number: 1557-0081
Expires March 31, 1999
Federal Financial Institutions Examination Council
- --------------------------------------------------------------------------------
[FEDERAL FINANCIAL Please refer to page i, [1]
INSTITUTIONS EXAMINATION Table of Contents, for
COUNCIL LOGO] the required disclosure
of estimated burden.
- --------------------------------------------------------------------------------
CONSOLIDATED REPORTS OF CONDITION AND INCOME FOR
A BANK WITH DOMESTIC AND FOREIGN OFFICES--FFIEC 031
(960630)
REPORT AT THE CLOSE OF BUSINESS JUNE 30, 1996 -----------
(RCRI 9999)
This report is required by law: 12 U.S.C. Section 324 (State member banks);
12 U.S.C. Section 1817 (State nonmember banks); and 12 U.S.C. Section 161
(National banks).
This report form is to be filed by banks with branches and consolidated
subsidiaries in U.S. territories and possessions, Edge or Agreement
subsidiaries, foreign branches, consolidated foreign subsidiaries, or
International Banking Facilities.
- --------------------------------------------------------------------------------
NOTE: The Reports of Condition and Income must be signed by an authorized
officer and the Report of Condition must be attested to by not less than two
directors (trustees) for State nonmember banks and three directors for State
member and National banks.
I, Giro S. DeRosa, Vice President
-----------------------------------------------------------------------------
Name and Title of Officer Authorized to Sign Report
of the named bank do hereby declare that these Reports of Condition and
Income (including the supporting schedules) have been prepared in conformance
with the instructions issued by the appropriate Federal regulatory authority
and are true to the best of my knowledge and belief.
/s/ Giro DeRosa
- --------------------------------------------------------------------------------
Signature of Officer Authorized to Sign Report
July 25, 1996
- --------------------------------------------------------------------------------
Date of Signature
The Reports of Condition and Income are to be prepared in accordance with
Federal regulatory authority instructions. NOTE: These instructions may in
some cases differ from generally accepted accounting principles.
We, the undersigned directors (trustees), attest to the correctness of this
Report of Condition (including the supporting schedules) and declare that it has
been examined by us and to the best of our knowledge and belief has been
prepared in conformance with the instructions issued by the appropriate Federal
regulatory authority and is true and correct.
/s/
- --------------------------------------------------------------------------------
Director (Trustee)
/s/
- --------------------------------------------------------------------------------
Director (Trustee)
/s/
- --------------------------------------------------------------------------------
Director (Trustee)
- --------------------------------------------------------------------------------
For Banks Submitting Hard Copy Report Forms:
State Member Banks: Return the original and one copy to the appropriate Federal
Reserve District Bank.
State Nonmember Banks: Return the original only in the special return address
envelope provided. If express mail is used in lieu of the special return
address envelope, return the original only to the FDIC, c/o Quality Data
systems, 2127 Espey Court, Suite 204, Crofton, MD 21114.
National Banks: Return the original only in the special return address envelope
provided. If express mail is used in lieu of the special return address
envelope, return the original only to the FDIC, c/o Quality Data Systems, 2127
Espey Court, Suite 204, Crofton, MD 21114.
- --------------------------------------------------------------------------------
FDIC Certificate Number | 0 | 2 | 4 | 9 | 9 | Banks should affix
--------------------- the address label
(RCRI 90150) in this space.
CALL NO. 196 31 06-30-96
STAR: 25-0590 00327 STCERT: 25-02490
FLEET NATIONAL BANK
ONE MONARCH PLACE
SPRINGFIELD, MA 01102
Board of Governors of the Federal Reserve System, Federal Deposit
Insurance Corporation, Office of the Comptroller of the Currency
<PAGE>
FOR BANKS SUBMITTING HARD COPY REPORT FORMS:
STATE MEMBER BANKS: Return the original and one copy to the appropriate Federal
Reserve District Bank.
STATE NONMEMBER BANKS: Return the original only in the special return address
envelope provided. If express mail is used in lieu of the special return address
envelope, return the original only to the FDIC, c/o Quality Data Systems, 2127
Espey Court, Suite 204, Crofton, MD 21114.
NATIONAL BANKS: Return the original only in the special return address envelope
provided. If express mail is used in lieu of the special return address
envelope, return the original only to the FDIC, c/o Quality Data Systems, 2127
Espey Court, Suite 204, Crofton, MD 21114.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C>
___ ___
FDIC Certificate Number | 0 | 2 | 4 | 9 | 9 | | Banks should affix the address label in this space. |
______________________
(RCRI 9050) CALL NO. 196 31 06-30-96
STBK: 25-0590 00327 STCERT: 25-02499
FLEET NATIONAL BANK
ONE MONARCH PLACE
SPRINGFIELD, MA 01102
|___ ___|
</TABLE>
Board of Governors of the Federal Reserve System, Federal Deposit Insurance
Corporation, Office of the Comptroller of the Currency
<PAGE>
FFIEC 031
Page i
/2/
Consolidated Reports of Condition and Income for
A Bank With Domestic and Foreign Offices
________________________________________________________________________________
TABLE OF CONTENTS
SIGNATURE PAGE Cover
REPORT OF INCOME
Schedule RI--Income Statement...........................................RI-1,2,3
Schedule RI-A--Changes in Equity Capital....................................RI-4
Schedule RI-B--Charge-offs and Recoveries and
Changes in Allowance for Loan and Lease
Losses..................................................................RI-4,5
Schedule RI-C--Applicable Income Taxes by
Taxing Authority..........................................................RI-5
Schedule RI-D--Income from
International Operations..................................................RI-6
Schedule RI-E--Explanations...............................................RI-7,8
REPORT OF CONDITION
Schedule RC--Balance Sheet................................................RC-1,2
Schedule RC-A--Cash and Balances Due
From Depository Institutions..............................................RC-3
Schedule RC-B--Securities...............................................RC-3,4,5
Schedule RC-C--Loans and Lease Financing
Receivables:
Part I. Loans and Leases..............................................RC-6,7
Part II. Loans to Small Businesses and
Small Farms (included in the forms for
June 30 only).....................................................RC-7a,7b
Schedule RC-D--Trading Assets and Liabilities
(to be completed only by selected banks)..................................RC-8
Schedule RC-E--Deposit Liabilities....................................RC-9,10,11
Schedule RC-F--Other Assets................................................RC-11
Schedule RC-G--Other Liabilities...........................................RC-11
Schedule RC-H--Selected Balance Sheet Items for
Domestic Offices.........................................................RC-12
Schedule RC-I--Selected Assets and Liabilities
of IBFs..................................................................RC-13
Schedule RC-K--Quarterly Averages..........................................RC-13
Schedule RC-L--Off-Balance Sheet Items...............................RC-14,15,16
Schedule RC-M--Memoranda................................................RC-17,18
Schedule RC-N--Past Due and Nonaccrual Loans,
Leases, and Other Assets..............................................RC-19,20
Schedule RC-O--Other Data for Deposit
Insurance Assessments.................................................RC-21,22
Schedule RC-R--Regulatory Capital.......................................RC-23,24
Optional Narrative Statement Concerning the
Amounts Reported in the Reports of
Condition and Income.....................................................RC-25
Special Report (TO BE COMPLETED BY ALL BANKS)
Schedule RC-J--Repricing Opportunities (sent only to
and to be completed only by savings banks)
DISCLOSURE OF ESTIMATED BURDEN
The estimated average burden associated with this information collection is
32.2 hours per respondent and is estimated to vary from 15 to 230 hours per
response, depending on individual circumstances. Burden estimates include the
time for reviewing instructions, gathering and maintaining data in the required
form, and completing the information collection, but exclude the time for
compiling and maintaining business records in the normal course of a
respondent's activities. Comments concerning the accuracy of this burden
estimate and suggestions for reducing this burden should be directed to the
Office of Information and Regulatory Affairs, Office of Management and Budget,
Washington, D.C. 20503, and to one of the following:
Secretary
Board of Governors of the Federal Reserve System
Washington, D.C. 20551
Legislative and Regulatory Analysis Division
Office of the Comptroller of the Currency
Washington, D.C. 20219
Assistant Executive Secretary
Federal Deposit Insurance Corporation
Washington, D.C. 20429
For information or assistance, National and State nonmember banks should
contact the FDIC's Call Reports Analysis Unit, 550 17th Street, NW, Washington,
D.C. 20429, toll free on (800) 688-FDIC (3342), Monday through Friday between
8:00 a.m. and 5:00 p.m., Eastern time. State member banks should contact their
Federal Reserve District Bank.
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
Legal Title of Bank: FLEET NATIONAL BANK Call Date: 06/30/96 ST-BK: 25-0590 FFIEC 031
Address: ONE MONARCH PLACE Page RI-1
City, State Zip: SPRINGFIELD, MA 01102
FDIC Certificate No.: |0|2|4|9|9|
___________
</TABLE>
Consolidated Report of Income
for the period January 1, 1996 - June 30, 1996
All Report of Income schedules are to be reported on a calendar year-to-date
basis in thousands of dollars.
<TABLE>
<CAPTION>
Schedule RI--Income Statement _________
| I480 |
______________________
Dollar Amounts in Thousands | RIAD Bil Mil Thou |
______________________________________________________________________________________________|_____________________|
<S> <C> <C>
1. Interest income: | ////////////////// |
a. Interest and fee income on loans: | ////////////////// |
(1) In domestic offices: | ////////////////// |
(a) Loans secured by real estate .................................................. | 4011 616,395 | 1.a.(1)(a)
(b) Loans to depository institutions .............................................. | 4019 588 | 1.a.(1)(b)
(c) Loans to finance agricultural production and other loans to farmers ........... | 4024 286 | 1.a.(1)(c)
(d) Commercial and industrial loans ............................................... | 4012 562,807 | 1.a.(1)(d)
(e) Acceptances of other banks .................................................... | 4026 261 | 1.a.(1)(e)
(f) Loans to individuals for household, family, and other personal expenditures: | ////////////////// |
(1) Credit cards and related plans ............................................ | 4054 9,643 | 1.a.(1)(f)(1)
(2) Other ..................................................................... | 4055 97,346 | 1.a.(1)(f)(2)
(g) Loans to foreign governments and official institutions ........................ | 4056 0 | 1.a.(1)(g)
(h) Obligations (other than securities and leases) of states and political | ////////////////// |
subdivisions in the U.S.: | ////////////////// |
(1) Taxable obligations ....................................................... | 4503 0 | 1.a.(1)(h)(1)
(2) Tax-exempt obligations .................................................... | 4504 5,232 | 1.a.(1)(h)(2)
(i) All other loans in domestic offices ........................................... | 4058 84,576 | 1.a.(1)(i)
(2) In foreign offices, Edge and Agreement subsidiaries, and IBFs ..................... | 4059 1,981 | 1.a.(2)
b. Income from lease financing receivables: | ////////////////// |
(1) Taxable leases .................................................................... | 4505 75,341 | 1.b.(1)
(2) Tax-exempt leases ................................................................. | 4307 791 | 1.b.(2)
c. Interest income on balances due from depository institutions:(1) | ////////////////// |
(1) In domestic offices ............................................................... | 4105 914 | 1.c.(1)
(2) In foreign offices, Edge and Agreement subsidiaries, and IBFs ..................... | 4106 142 | 1.c.(2)
d. Interest and dividend income on securities: | ////////////////// |
(1) U.S. Treasury securities and U.S. Government agency and corporation obligations ... | 4027 209,142 | 1.d.(1)
(2) Securities issued by states and political subdivisions in the U.S.: | ////////////////// |
(a) Taxable securities ............................................................ | 4506 0 | 1.d.(2)(a)
(b) Tax-exempt securities ......................................................... | 4507 2,953 | 1.d.(2)(b)
(3) Other domestic debt securities .................................................... | 3657 12,164 | 1.d.(3)
(4) Foreign debt securities ........................................................... | 3658 3,348 | 1.d.(4)
(5) Equity securities (including investments in mutual funds) ......................... | 3659 10,212 | 1.d.(5)
e. Interest income from trading assets.................................................... | 4069 360 | 1.e.
______________________
</TABLE>
____________
(1) Includes interest income on time certificates of deposit not held for
trading.
3
<PAGE>
<TABLE>
<S> <C>
Legal Title of Bank: FLEET NATIONAL BANK Call Date: 06/30/96 ST-BK: 25-0590 FFIEC 031
Address: ONE MONARCH PLACE Page RI-2
City, State Zip: SPRINGFIELD, MA 01102
FDIC Certificate No.: |0|2|4|9|9|
___________
</TABLE>
<TABLE>
<CAPTION>
Schedule RI--Continued
________________
Dollar Amounts in Thousands | Year-to-date |
___________________________________________________________________________________ ______________
<S> <C> <C>
1. Interest income (continued) | RIAD Bil Mil Thou |
f. Interest income on federal funds sold and securities purchased | ////////////////// |
under agreements to resell in domestic offices of the bank and of | ////////////////// |
its Edge and Agreement subsidiaries, and in IBFs .................... | 4020 24,925 | 1.f.
g. Total interest income (sum of items 1.a through 1.f) ................ | 4107 1,719,407 | 1.g.
2. Interest expense: | ////////////////// |
a. Interest on deposits: | ////////////////// |
(1) Interest on deposits in domestic offices: | ////////////////// |
(a) Transaction accounts (NOW accounts, ATS accounts, and | ////////////////// |
telephone and preauthorized transfer accounts) .............. | 4508 8,583 | 2.a.(1)(a)
(b) Nontransaction accounts: | ////////////////// |
(1) Money market deposit accounts (MMDAs) ................... | 4509 133,915 | 2.a.(1)(b)(1)
(2) Other savings deposits .................................. | 4511 26,678 | 2.a.(1)(b)(2)
(3) Time certificates of deposit of $100,000 or more ........ | 4174 88,690 | 2.a.(1)(b)(3)
(4) All other time deposits ................................. | 4512 214,225 | 2.a.(1)(b)(4)
(2) Interest on deposits in foreign offices, Edge and Agreement | ////////////////// |
subsidiaries, and IBFs .......................................... | 4172 50,022 | 2.a.(2)
b. Expense of federal funds purchased and securities sold under | ////////////////// |
agreements to repurchase in domestic offices of the bank and of | ////////////////// |
its Edge and Agreement subsidiaries, and in IBFs .................... | 4180 152,094 | 2.b.
c. Interest on demand notes issued to the U.S. Treasury, trading | ////////////////// |
liabilities, and other borrowed money ............................... | 4185 121,525 | 2.c.
d. Interest on mortgage indebtedness and obligations under | ////////////////// |
capitalized leases .................................................. | 4072 361 | 2.d.
e. Interest on subordinated notes and debentures ....................... | 4200 26,110 | 2.e.
f. Total interest expense (sum of items 2.a through 2.e) ............... | 4073 822,203 | 2.f.
___________________________
3. Net interest income (item 1.g minus 2.f) ............................... | ////////////////// | RIAD 4074 | 897,204 | 3.
___________________________
4. Provisions: | ////////////////// |
___________________________
a. Provision for loan and lease losses ................................. | ////////////////// | RIAD 4230 | 21,672 | 4.a.
b. Provision for allocated transfer risk ............................... | ////////////////// | RIAD 4243 | 0 | 4.b.
___________________________
5. Noninterest income: | ////////////////// |
a. Income from fiduciary activities .................................... | 4070 144,614 | 5.a.
b. Service charges on deposit accounts in domestic offices ............. | 4080 111,736 | 5.b.
c. Trading revenue (must equal Schedule RI, sum of Memorandum | ////////////////// |
items 8.a through 8.d)............................................... A220 10,646 5.c.
d. Other foreign transaction gains (losses) ............................ | 4076 247 | 5.d.
e. Not applicable | ////////////////// |
f. Other noninterest income: | ////////////////// |
(1) Other fee income ................................................ | 5407 372,950 | 5.f.(1)
(2) All other noninterest income* ................................... | 5408 211,593 | 5.f.(2)
___________________________
g. Total noninterest income (sum of items 5.a through 5.f) ............. | ////////////////// | RIAD 4079 | 851,786 | 5.g.
6. a. Realized gains (losses) on held-to-maturity securities .............. | ////////////////// | RIAD 3521 | 1 | 6.a.
b. Realized gains (losses) on available-for-sale securities ............ | ////////////////// | RIAD 3196 | 16,126 | 6.b.
___________________________
7. Noninterest expense: | ////////////////// |
a. Salaries and employee benefits ...................................... | 4135 322,146 | 7.a.
b. Expenses of premises and fixed assets (net of rental income) | ////////////////// |
(excluding salaries and employee benefits and mortgage interest) .... | 4217 114,912 | 7.b.
c. Other noninterest expense* .......................................... | 4092 631,554 | 7.c.
___________________________
d. Total noninterest expense (sum of items 7.a through 7.c) ............ | ////////////////// | RIAD 4093 | 1,068,612 | 7.d.
___________________________
8. Income (loss) before income taxes and extraordinary items and other | ////////////////// |
___________________________
adjustments (item 3 plus or minus items 4.a, 4.b, 5.g, 6.a, 6.b, and 7.d)| ////////////////// | RIAD 4301 | 674,833 | 8.
9. Applicable income taxes (on item 8) .................................... | ////////////////// | RIAD 4302 | 280,303 | 9.
___________________________
10. Income (loss) before extraordinary items and other adjustments | ////////////////// |
___________________________
(item 8 minus 9) ....................................................... | ////////////////// | RIAD 4300 | 394,530 | 10.
_________________________________________________
</TABLE>
____________
*Describe on Schedule RI-E--Explanations.
4
<PAGE>
<TABLE>
<S> <C>
Legal Title of Bank: FLEET NATIONAL BANK Call Date: 06/30/96 ST-BK: 25-0590 FFIEC 031
Address: ONE MONARCH PLACE Page RI-3
City, State Zip: SPRINGFIELD, MA 01102
FDIC Certificate No.: |0|2|4|9|9|
___________
</TABLE>
<TABLE>
<CAPTION>
Schedule RI--Continued
________________
| Year-to-date |
______ ______________
Dollar Amounts in Thousands | RIAD Bil Mil Thou |
___________________________________________________________________________________ ______________
<S> <C> <C>
11. Extraordinary items and other adjustments: | ////////////////// |
a. Extraordinary items and other adjustments, gross of income taxes* . | 4310 0 | 11.a.
b. Applicable income taxes (on item 11.a)* ........................... | 4315 0 | 11.b.
c. Extraordinary items and other adjustments, net of income taxes | ////////////////// |__________________________
(item 11.a minus 11.b) ............................................ | ////////////////// | RIAD 4320 | 0 | 11.c.
12. Net income (loss) (sum of items 10 and 11.c) ......................... | ////////////////// | RIAD 4340 | 394,530 | 12.
_________________________________________________
</TABLE>
<TABLE>
<CAPTION>
__________
| I481 |
_______________
Memoranda | Year-to-date |
______ ______________
Dollar Amounts in Thousands | RIAD Bil Mil Thou |
______________________________________________________________________________________________________ ____________________
<S> <C> <C>
1. Interest expense incurred to carry tax-exempt securities, loans, and leases acquired after | ////////////////// |
August 7, 1986, that is not deductible for federal income tax purposes .......................... | 4513 1,798 | M.1.
2. Income from the sale and servicing of mutual funds and annuities in domestic offices | ////////////////// |
(included in Schedule RI, item 8) ............................................................... | 8431 20,910 | M.2.
3.-4. Not applicable | ////////////////// |
5. Number of full-time equivalent employees on payroll at end of current period (round to | //// Number |
nearest whole number) ........................................................................... | 4150 9,852 | M.5.
6. Not applicable | ////////////////// |
7. If the reporting bank has restated its balance sheet as a result of applying push down | //// MM DD YY |
accounting this calendar year, report the date of the bank's acquisition ........................ | 9106 00/00/00 | M.7.
8. Trading revenue (from cash instruments and off-balance sheet derivative instruments) | ////////////////// |
(sum of Memorandum items 8.a through 8.d must equal Schedule RI, item 5.c): | //// Bil Mil Thou |
a. Interest rate exposures ...................................................................... | 8757 1,428 | M.8.a.
b. Foreign exchange exposures ................................................................... | 8758 9,218 | M.8.b.
c. Equity security and index exposures .......................................................... | 8759 0 | M.8.c.
d. Commodity and other exposures ................................................................ | 8760 0 | M.8.d.
9. Impact on income of off-balance sheet derivatives held for purposes other than trading: | ////////////////// |
a. Net increase (decrease) to interest income.....................................................| 8761 (5,575)| M.9.a.
b. Net (increase) decrease to interest expense ...................................................| 8762 (5,752)| M.9.b.
c. Other (noninterest) allocations ...............................................................| 8763 (172)| M.9.c.
10. Credit losses on off-balance sheet derivatives (see instructions).................................| A251 0 | M.10.
</TABLE>
____________
*Describe on Schedule RI-E--Explanations.
5
<PAGE>
<TABLE>
<S> <C>
Legal Title of Bank: FLEET NATIONAL BANK Call Date: 06/30/96 ST-BK: 25-0590 FFIEC 031
Address: ONE MONARCH PLACE Page RI-4
City, State Zip: SPRINGFIELD, MA 01102
FDIC Certificate No.: |0|2|4|9|9|
___________
</TABLE>
<TABLE>
<CAPTION>
Schedule RI-A--Changes in Equity Capital
Indicate decreases and losses in parentheses. _________
| I483 |
_____________________
Dollar Amounts in Thousands | RIAD Bil Mil Thou |
______________________________________________________________________________________________________|____________________|
<S> <C> <C>
1. Total equity capital originally reported in the December 31, 1995, Reports of Condition | ////////////////// |
and Income ...................................................................................... | 3215 1,342,473 | 1.
2. Equity capital adjustments from amended Reports of Income, net* ................................. | 3216 0 | 2.
3. Amended balance end of previous calendar year (sum of items 1 and 2) ............................ | 3217 1,342,473 | 3.
4. Net income (loss) (must equal Schedule RI, item 12) ............................................. | 4340 394,530 | 4.
5. Sale, conversion, acquisition, or retirement of capital stock, net .............................. | 4346 0 | 5.
6. Changes incident to business combinations, net .................................................. | 4356 4,161,079 | 6.
7. LESS: Cash dividends declared on preferred stock ................................................ | 4470 0 | 7.
8. LESS: Cash dividends declared on common stock ................................................... | 4460 490,634 | 8.
9. Cumulative effect of changes in accounting principles from prior years* (see instructions | ////////////////// |
for this schedule) .............................................................................. | 4411 0 | 9.
10. Corrections of material accounting errors from prior years* (see instructions for this schedule) | 4412 0 | 10.
11. Change in net unrealized holding gains (losses) on available-for-sale securities ................ | 8433 (46,607)| 11.
12. Foreign currency translation adjustments ........................................................ | 4414 0 | 12.
13. Other transactions with parent holding company* (not included in items 5, 7, or 8 above) ........ | 4415 (1,003,722)| 13.
14. Total equity capital end of current period (sum of items 3 through 13) (must equal Schedule RC, | ////////////////// |
item 28) ........................................................................................ | 3210 4,357,119 | 14.
______________________
</TABLE>
____________
*Describe on Schedule RI-E--Explanations.
<TABLE>
<CAPTION>
Schedule RI-B--Charge-offs and Recoveries and Changes
in Allowance for Loan and Lease Losses
Part I. Charge-offs and Recoveries on Loans and Leases
Part I excludes charge-offs and recoveries through
the allocated transfer risk reserve.
__________
| I486 |
__________________________________________
| (Column A) | (Column B) |
| Charge-offs | Recoveries |
____________________ ____________________
| Calendar year-to-date |
_________________________________________
Dollar Amounts in Thousands | RIAD Bil Mil Thou | RIAD Bil Mil Thou |
______________________________________________________________________________ ____________________ ____________________
<S> <C> <C> <C>
1. Loans secured by real estate: | ////////////////// | ////////////////// |
a. To U.S. addressees (domicile) ......................................... | 4651 35,701 | 4661 8,412 | 1.a.
b. To non-U.S. addressees (domicile) ..................................... | 4652 0 | 4662 0 | 1.b.
2. Loans to depository institutions and acceptances of other banks: | ////////////////// | ////////////////// |
a. To U.S. banks and other U.S. depository institutions .................. | 4653 0 | 4663 0 | 2.a.
b. To foreign banks ...................................................... | 4654 0 | 4664 0 | 2.b.
3. Loans to finance agricultural production and other loans to farmers ...... | 4655 2 | 4665 22 | 3.
4. Commercial and industrial loans: | ////////////////// | ////////////////// |
a. To U.S. addressees (domicile) ......................................... | 4645 38,139 | 4617 19,005 | 4.a.
b. To non-U.S. addressees (domicile) ..................................... | 4646 0 | 4618 102 | 4.b.
5. Loans to individuals for household, family, and other personal | ////////////////// | ////////////////// |
expenditures: | ////////////////// | ////////////////// |
a. Credit cards and related plans ........................................ | 4656 1,137 | 4666 733 | 5.a.
b. Other (includes single payment, installment, and all student loans) ... | 4657 7,864 | 4667 2,681 | 5.b.
6. Loans to foreign governments and official institutions ................... | 4643 0 | 4627 0 | 6.
7. All other loans .......................................................... | 4644 826 | 4628 541 | 7.
8. Lease financing receivables: | ////////////////// | ////////////////// |
a. Of U.S. addressees (domicile) ......................................... | 4658 3,729 | 4668 3,241 | 8.a.
b. Of non-U.S. addressees (domicile) ..................................... | 4659 0 | 4669 0 | 8.b.
9. Total (sum of items 1 through 8) ......................................... | 4635 87,398 | 4605 34,737 | 9.
___________________________________________
</TABLE>
6
<PAGE>
<TABLE>
<S> <C>
Legal Title of Bank: FLEET NATIONAL BANK Call Date: 06/30/96 ST-BK: 25-0590 FFIEC 031
Address: ONE MONARCH PLACE Page RI-5
City, State Zip: SPRINGFIELD, MA 01102
FDIC Certificate No.: |0|2|4|9|9|
___________
</TABLE>
<TABLE>
<CAPTION>
Schedule RI-B--Continued
Part I. Continued
Memoranda
__________________________________________
| (Column A) | (Column B) |
| Charge-offs | Recoveries |
____________________ ____________________
| Calendar year-to-date |
_________________________________________
Dollar Amounts in Thousands | RIAD Bil Mil Thou | RIAD Bil Mil Thou |
______________________________________________________________________________ ____________________ ____________________
<S> <C> <C> <C>
1-3. Not applicable | ////////////////// | ////////////////// |
4. Loans to finance commercial real estate, construction, and land | ////////////////// | ////////////////// |
development activities (not secured by real estate) included in | ////////////////// | ////////////////// |
Schedule RI-B, part I, items 4 and 7, above .............................. | 5409 383 | 5410 1,374 | M.4.
5. Loans secured by real estate in domestic offices (included in | ////////////////// | ////////////////// |
Schedule RI-B, part I, item 1, above): | ////////////////// | ////////////////// |
a. Construction and land development ..................................... | 3582 189 | 3583 253 | M.5.a.
b. Secured by farmland ................................................... | 3584 145 | 3585 131 | M.5.b.
c. Secured by 1-4 family residential properties: | ////////////////// | ////////////////// |
(1) Revolving, open-end loans secured by 1-4 family residential | ////////////////// | ////////////////// |
properties and extended under lines of credit ..................... | 5411 2,650 | 5412 108 | M.5.c.(1)
(2) All other loans secured by 1-4 family residential properties ...... | 5413 13,892 | 5414 1,231 | M.5.c.(2)
d. Secured by multifamily (5 or more) residential properties ............. | 3588 837 | 3589 395 | M.5.d.
e. Secured by nonfarm nonresidential properties .......................... | 3590 17,988 | 3591 6,294 | M.5.e.
|_________________________________________|
</TABLE>
Part II. Changes in Allowance for Loan and Lease Losses
<TABLE>
<CAPTION>
_____________________
Dollar Amounts in Thousands | RIAD Bil Mil Thou |
___________________________________________________________________________________________________ ____________________
<S> <C> <C>
1. Balance originally reported in the December 31, 1995, Reports of Condition and Income.......... | 3124 266,943 | 1.
2. Recoveries (must equal part I, item 9, column B above) ........................................ | 4605 34,737 | 2.
3. LESS: Charge-offs (must equal part I, item 9, column A above) ................................. | 4635 87,398 | 3.
4. Provision for loan and lease losses (must equal Schedule RI, item 4.a)......................... | 4230 21,672 | 4.
5. Adjustments* (see instructions for this schedule) ................................ ............ | 4815 636,497 | 5.
6. Balance end of current period (sum of items 1 through 5) (must equal Schedule RC, | ////////////////// |
item 4.b) ..................................................................................... | 3123 872,451 | 6.
|____________________|
</TABLE>
____________
*Describe on Schedule RI-E--Explanations.
Schedule RI-C--Applicable Income Taxes by Taxing Authority
Schedule RI-C is to be reported with the December Report of Income.
<TABLE>
<CAPTION>
| I489 | (Less than)-
____________ ________
Dollar Amounts in Thousands | RIAD Bil Mil Thou |
___________________________________________________________________________________________________ ____________________
<S> <C> <C>
1. Federal ....................................................................................... | 4780 N/A | 1.
2. State and local................................................................................ | 4790 N/A | 2.
3. Foreign ....................................................................................... | 4795 N/A | 3.
4. Total (sum of items 1 through 3) (must equal sum of Schedule RI, items 9 and 11.b) ............ | 4770 N/A | 4.
____________________________| |
5. Deferred portion of item 4 ........................................ | RIAD 4772 | N/A | ////////////////// | 5.
__________________________________________________
</TABLE>
7
<PAGE>
<TABLE>
<S> <C>
Legal Title of Bank: Fleet National Bank Call Date: 6/30/96 ST-BK: 25-0590 FFIEC 031
Address: One Monarch Place Page RI-6
City, State Zip: Springfield, MA 01102
FDIC Certificate No.: |0|2|4|9|9|
___________
</TABLE>
<TABLE>
<CAPTION>
Schedule RI-D--Income from International Operations
For all banks with foreign offices, Edge or Agreement subsidiaries, or IBFs where international operations
account for more than 10 percent of total revenues, total assets, or net income.
Part I. Estimated Income from International Operations
__________
| I492 |(Less than)-
______ ________
| Year-to-date |
______ ______________
Dollar Amounts in Thousands | RIAD Bil Mil Thou |
_________________________________________________________________________________________________ ____________________
<S> <C> <C>
1. Interest income and expense booked at foreign offices, Edge and Agreement subsidiaries, | ////////////////// |
and IBFs: | ////////////////// |
a. Interest income booked ................................................................... | 4837 N/A | 1.a.
b. Interest expense booked .................................................................. | 4838 N/A | 1.b.
c. Net interest income booked at foreign offices, Edge and Agreement subsidiaries, and IBFs | ////////////////// |
(item 1.a minus 1.b) ..................................................................... | 4839 N/A | 1.c.
2. Adjustments for booking location of international operations: | ////////////////// |
a. Net interest income attributable to international operations booked at domestic offices .. | 4840 N/A | 2.a.
b. Net interest income attributable to domestic business booked at foreign offices .......... | 4841 N/A | 2.b.
c. Net booking location adjustment (item 2.a minus 2.b) ..................................... | 4842 N/A | 2.c.
3. Noninterest income and expense attributable to international operations: | ////////////////// |
a. Noninterest income attributable to international operations .............................. | 4097 N/A | 3.a.
b. Provision for loan and lease losses attributable to international operations ............. | 4235 N/A | 3.b.
c. Other noninterest expense attributable to international operations ....................... | 4239 N/A | 3.c.
d. Net noninterest income (expense) attributable to international operations (item 3.a | ////////////////// |
minus 3.b and 3.c) ....................................................................... | 4843 N/A | 3.d.
4. Estimated pretax income attributable to international operations before capital allocation | ////////////////// |
adjustment (sum of items 1.c, 2.c, and 3.d) ................................................. | 4844 N/A | 4.
5. Adjustment to pretax income for internal allocations to international operations to reflect | ////////////////// |
the effects of equity capital on overall bank funding costs ................................. | 4845 N/A | 5.
6. Estimated pretax income attributable to international operations after capital allocation | ////////////////// |
adjustment (sum of items 4 and 5) ........................................................... | 4846 N/A | 6.
7. Income taxes attributable to income from international operations as estimated in item 6 .... | 4797 N/A | 7.
8. Estimated net income attributable to international operations (item 6 minus 7) .............. | 4341 N/A | 8.
______________________
<CAPTION>
Memoranda ______________________
Dollar Amounts in Thousands | RIAD Bil Mil Thou |
_________________________________________________________________________________________________ ____________________
<S> <C> <C>
1. Intracompany interest income included in item 1.a above ..................................... | 4847 N/A | M.1.
2. Intracompany interest expense included in item 1.b above .................................... | 4848 N/A | M.2.
______________________
</TABLE>
<TABLE>
<CAPTION>
Part II. Supplementary Details on Income from International Operations Required
by the Departments of Commerce and Treasury for Purposes of the U.S.
International Accounts and the U.S. National Income and Product Accounts
________________
| Year-to-date |
______ ______________
Dollar Amounts in Thousands | RIAD Bil Mil Thou |
_________________________________________________________________________________________________ ____________________
<S> <C> <C>
1. Interest income booked at IBFs .............................................................. | 4849 N/A | 1.
2. Interest expense booked at IBFs ............................................................. | 4850 N/A | 2.
3. Noninterest income attributable to international operations booked at domestic offices | ////////////////// |
(excluding IBFs): | ////////////////// |
a. Gains (losses) and extraordinary items ................................................... | 5491 N/A | 3.a.
b. Fees and other noninterest income ........................................................ | 5492 N/A | 3.b.
4. Provision for loan and lease losses attributable to international operations booked at | ////////////////// |
domestic offices (excluding IBFs) ........................................................... | 4852 N/A | 4.
5. Other noninterest expense attributable to international operations booked at domestic offices | ////////////////// |
(excluding IBFs) ............................................................................ | 4853 N/A | 5.
______________________
</TABLE>
8
<PAGE>
<TABLE>
<S> <C>
Legal Title of Bank: Fleet National Bank Call Date: 06/30/96 ST-BK: 25-0590 FFIEC 031
Address: One Monarch Place Page RI-7
City, State Zip: Springfield, MA 01102
FDIC Certificate No.: |0|2|4|9|9|
___________
</TABLE>
<TABLE>
<CAPTION>
Schedule RI-E--Explanations
Schedule RI-E is to be completed each quarter on a calendar year-to-date basis.
Detail all adjustments in Schedules RI-A and RI-B, all extraordinary items and other adjustments in Schedule RI, and all
significant items of other noninterest income and other noninterest expense in Schedule RI. (See instructions for details.)
__________
| I495 |(Less than)-
______ ________
| Year-to-date |
______ ______________
Dollar Amounts in Thousands | RIAD Bil Mil Thou |
__________________________________________________________________________________________________ ____________________
<S> <C> <C>
1. All other noninterest income (from Schedule RI, item 5.f.(2)) | ////////////////// |
Report amounts that exceed 10% of Schedule RI, item 5.f.(2): | ////////////////// |
a. Net gains on other real estate owned ..................................................... | 5415 0 | 1.a.
b. Net gains on sales of loans .............................................................. | 5416 0 | 1.b.
c. Net gains on sales of premises and fixed assets .......................................... | 5417 0 | 1.c.
Itemize and describe the three largest other amounts that exceed 10% of | ////////////////// |
Schedule RI, item 5.f.(2): | ////////////////// |
_____________
d. | TEXT 4461 | Income on Mortgages Held for Resale | 4461 81,194 | 1.d.
e. | TEXT 4462 | Gain From Branch Divestitures | 4462 77,976 | 1.e.
___________
f. | TEXT 4463 |______________________________________________________________________________| 4463 | 1.f.
_____________
2. Other noninterest expense (from Schedule RI, item 7.c): | ////////////////// |
a. Amortization expense of intangible assets ................................................ | 4531 135,939 | 2.a.
Report amounts that exceed 10% of Schedule RI, item 7.c: | ////////////////// |
b. Net losses on other real estate owned .................................................... | 5418 0 | 2.b.
c. Net losses on sales of loans ............................................................. | 5419 0 | 2.c.
d. Net losses on sales of premises and fixed assets ......................................... | 5420 0 | 2.d.
Itemize and describe the three largest other amounts that exceed 10% of | ////////////////// |
Schedule RI, item 7.c: | ////////////////// |
_____________
e. | TEXT 4464 | Intercompany Corporate Support Function Charges | 4464 143,184 | 2.e.
___________
f. | TEXT 4467 | Intercompany Data Processing & Programming Charges | 4467 158,034 | 2.f.
___________
g. | TEXT 4468 |______________________________________________________________________________| 4468 | 2.g.
_____________
3. Extraordinary items and other adjustments (from Schedule RI, item 11.a) and | ////////////////// |
applicable income tax effect (from Schedule RI, item 11.b) (itemize and describe | ////////////////// |
all extraordinary items and other adjustments): | ////////////////// |
_____________
a. (1) | TEXT 4469 |__________________________________________________________________________| 4469 | 3.a.(1)
_____________
(2) Applicable income tax effect | RIAD 4486 | | ////////////////// | 3.a.(2)
_____________ ____________________________
b. (1) | TEXT 4487 |__________________________________________________________________________| 4487 | 3.b.(1)
_____________
(2) Applicable income tax effect | RIAD 4488 | | ////////////////// | 3.b.(2)
_____________ ____________________________
c. (1) | TEXT 4489 |__________________________________________________________________________| 4489 | 3.c.(1)
_____________
(2) Applicable income tax effect | RIAD 4491 | | ////////////////// | 3.c.(2)
____________________________
4. Equity capital adjustments from amended Reports of Income (from Schedule RI-A, | ////////////////// |
item 2) (itemize and describe all adjustments): | ////////////////// |
_____________
a. | TEXT 4492 |______________________________________________________________________________| 4492 | 4.a.
___________
b. | TEXT 4493 |______________________________________________________________________________| 4493 | 4.b.
_____________
5. Cumulative effect of changes in accounting principles from prior years (from | ////////////////// |
Schedule RI-A, item 9) (itemize and describe all changes in accounting principles): | ////////////////// |
_____________
a. | TEXT 4494 |______________________________________________________________________________| 4494 | 5.a.
___________
b. | TEXT 4495 |______________________________________________________________________________| 4495 | 5.b.
_____________
6. Corrections of material accounting errors from prior years (from Schedule RI-A, | ////////////////// |
item 10) (itemize and describe all corrections): | ////////////////// |
_____________
a. | TEXT 4496 | 4496 | 6.a.
___________|______________________________________________________________________________
b. | TEXT 4497 4497 | 6.b.
____________|____________________________________________________________________________________________________
</TABLE>
9
<PAGE>
<TABLE>
<S> <C>
Legal Title of Bank: Fleet National Bank Call Date: 6/30/96 ST-BK: 25-0590 FFIEC 031
Address: One Monarch Place Page RI-8
City, State Zip: Springfield, MA 01102
FDIC Certificate No.: |0|2|4|9|9|
___________
</TABLE>
<TABLE>
<CAPTION>
Schedule RI-E--Continued
________________
| Year-to-date |
______ ______________
Dollar Amounts in Thousands | RIAD Bil Mil Thou |
__________________________________________________________________________________________________ ____________________
<S> <C> <C>
7. Other transactions with parent holding company (from Schedule RI-A, item 13) | ////////////////// |
(itemize and describe all such transactions): | ////////////////// |
_____________
a. | TEXT 4498 | Fleet National Bank Surplus Distribution to FFG | 4498 (1,003,722) | 7.a.
__________________________________________________________________________________________| |
b. | TEXT 4499 | | 4499 | 7.b.
___________________________________________________________________________________________
8. Adjustments to allowance for loan and lease losses (from Schedule RI-B, part II, | ////////////////// |
item 5) (itemize and describe all adjustments): | ////////////////// |
_____________ | |
a. | TEXT 4521 | 12/31/95 Ending Balance of Pooled Entities | 4521 | 8.a.
___________________________________________________________________________________________| |
b. | TEXT 4522 | | 4522 | 8.b.
___________________________________________________________________________________________| |
____________________
9. Other explanations (the space below is provided for the bank to briefly describe, | I498 | I499 |(Less than)-
______________________
at its option, any other significant items affecting the Report of Income):
___
No comment |X| (RIAD 4769)
___
Other explanations (please type or print clearly):
(TEXT 4769)
</TABLE>
10
<PAGE>
<TABLE>
<S> <C>
Legal Title of Bank: Fleet National Bank Call Date: 06/30/96 ST-BK: 25-0590 FFIEC 031
Address: One Monarch Place Page RC-1
City, State Zip: Springfield, MA 01102
FDIC Certificate No.: |0|2|4|9|9|
___________
</TABLE>
<TABLE>
<CAPTION>
Consolidated Report of Condition for Insured Commercial
and State-Chartered Savings Banks for June 30, 1996
All schedules are to be reported in thousands of dollars. Unless otherwise indicated,
report the amount outstanding as of the last business day of the quarter.
Schedule RC--Balance Sheet
__________
| C400 |(Less than)-
____________ ________
Dollar Amounts in Thousands | RCFD Bil Mil Thou |
__________________________________________________________________________________________________ ____________________
<S> <C> <C>
ASSETS | ////////////////// |
1. Cash and balances due from depository institutions (from Schedule RC-A): | ////////////////// |
a. Noninterest-bearing balances and currency and coin(1) ................................... | 0081 4,130,928 | 1.a.
b. Interest-bearing balances(2) ............................................................ | 0071 46,521 | 1.b.
2. Securities: | ////////////////// |
a. Held-to-maturity securities (from Schedule RC-B, column A) .............................. | 1754 257,441 | 2.a.
b. Available-for-sale securities (from Schedule RC-B, column D) ............................ | 1773 7,250,067 | 2.b.
3. Federal funds sold and securities purchased under agreements to resell in domestic offices | ////////////////// |
of the bank and of its Edge and Agreement subsidiaries, and in IBFs: | ////////////////// |
a. Federal funds sold ...................................................................... | 0276 17,428 | 3.a.
b. Securities purchased under agreements to resell ......................................... | 0277 0 | 3.b.
4. Loans and lease financing receivables: ____________________________| ////////////////// |
a. Loans and leases, net of unearned income (from Schedule RC-C) | RCFD 2122 | 31,278,251 | ////////////////// | 4.a.
b. LESS: Allowance for loan and lease losses ................... | RCFD 3123 | 872,451 | ////////////////// | 4.b.
c. LESS: Allocated transfer risk reserve ....................... | RCFD 3128 | 0 | ////////////////// | 4.c.
____________________________
d. Loans and leases, net of unearned income, | ////////////////// |
allowance, and reserve (item 4.a minus 4.b and 4.c) ..................................... | 2125 30,405,800 | 4.d.
5. Trading assets (from schedule RC-D )........................................................ | 3545 71,354 | 5.
6. Premises and fixed assets (including capitalized leases) ................................... | 2145 534,844 | 6.
7. Other real estate owned (from Schedule RC-M) ............................................... | 2150 34,546 | 7.
8. Investments in unconsolidated subsidiaries and associated companies (from Schedule RC-M) ... | 2130 0 | 8.
9. Customers' liability to this bank on acceptances outstanding ............................... | 2155 16,634 | 9.
10. Intangible assets (from Schedule RC-M) ..................................................... | 2143 2,283,414 | 10.
11. Other assets (from Schedule RC-F) .......................................................... | 2160 3,978,638 | 11.
12. Total assets (sum of items 1 through 11) ................................................... | 2170 49,027,615 | 12.
______________________
</TABLE>
____________
(1) Includes cash items in process of collection and unposted debits.
(2) Includes time certificates of deposit not held for trading.
11
<PAGE>
<TABLE>
<S> <C>
Legal Title of Bank: FLEET NATIONAL BANK Call Date: 06/30/96 ST-BK: 25-0590 FFIEC 031
Address: ONE MONARCH PLACE Page RC-2
City, State Zip: SPRINGFIELD, MA 01102
FDIC Certificate No.: |0|2|4|9|9|
___________
</TABLE>
<TABLE>
<CAPTION>
Schedule RC--Continued
___________________________
Dollar Amounts in Thousands | ///////// Bil Mil Thou |
_______________________________________________________________________________________________ _________________________
<S> <C> <C>
LIABILITIES | /////////////////////// |
13. Deposits: | /////////////////////// |
a. In domestic offices (sum of totals of columns A and C from Schedule RC-E, | /////////////////////// |
part I) ............................................................................... | RCON 2200 34,110,580 | 13.a.
____________________________
(1) Noninterest-bearing(1) ................................ | RCON 6631 10,202,036 | /////////////////////// | 13.a.(1)
(2) Interest-bearing ...................................... | RCON 6636 23,908,544 | /////////////////////// | 13.a.(2)
____________________________
b. In foreign offices, Edge and Agreement subsidiaries, and IBFs (from Schedule RC-E, | /////////////////////// |
part II) .............................................................................. | RCFN 2200 1,745,663 | 13.b.
____________________________
(1) Noninterest-bearing ................................... | RCFN 6631 400 | /////////////////////// | 13.b.(1)
(2) Interest-bearing ...................................... | RCFN 6636 1,745,263 | /////////////////////// | 13.b.(2)
____________________________
14. Federal funds purchased and securities sold under agreements to repurchase in domestic | /////////////////////// |
offices of the bank and of its Edge and Agreement subsidiaries, and in IBFs: | /////////////////////// |
a. Federal funds purchased ............................................................... | RCFD 0278 4,302,800 | 14.a.
b. Securities sold under agreements to repurchase ........................................ | RCFD 0279 566,036 | 14.b.
15. a. Demand notes issued to the U.S. Treasury .............................................. | RCON 2840 14,411 | 15.a.
b. Trading liabilities (from Schedule RC-D) .............................................. | RCFD 3548 57,446 | 15.b.
16. Other borrowed money: | /////////////////////// |
a. With a remaining maturity of one year or less.......................................... | RCFD 2332 487,435 | 16.a.
b. With a remaining maturity of more than one year........................................ | RCFD 2333 893,259 | 16.b.
17. Mortgage indebtedness and obligations under capitalized leases ........................... | RCFD 2910 11,561 | 17.
18. Bank's liability on acceptances executed and outstanding ................................. | RCFD 2920 16,634 | 18.
19. Subordinated notes and debentures ........................................................ | RCFD 3200 1,213,219 | 19.
20. Other liabilities (from Schedule RC-G) ................................................... | RCFD 2930 1,251,452 | 20.
21. Total liabilities (sum of items 13 through 20) ........................................... | RCFD 2948 44,670,496 | 21.
| /////////////////////// |
22. Limited-life preferred stock and related surplus ......................................... | RCFD 3282 0 | 22.
EQUITY CAPITAL | /////////////////////// |
23. Perpetual preferred stock and related surplus ............................................ | RCFD 3838 125,000 | 23.
24. Common stock ............................................................................. | RCFD 3230 19,487 | 24.
25. Surplus (exclude all surplus related to preferred stock).................................. | RCFD 3839 2,551,927 | 25.
26. a. Undivided profits and capital reserves ................................................ | RCFD 3632 1,693,408 | 26.a.
b. Net unrealized holding gains (losses) on available-for-sale securities ................ | RCFD 8434 (32,703)| 26.b.
27. Cumulative foreign currency translation adjustments ...................................... | RCFD 3284 0 | 27.
28. Total equity capital (sum of items 23 through 27) ........................................ | RCFD 3210 4,357,119 | 28.
29. Total liabilities, limited-life preferred stock, and equity capital (sum of items 21, 22, | /////////////////////// |
and 28) .................................................................................. | RCFD 3300 49,027,615 | 29.
___________________________
</TABLE>
<TABLE>
<CAPTION>
Memorandum
To be reported only with the March Report of Condition.
1. Indicate in the box at the right the number of the statement below that best describes the Number
most comprehensive level of auditing work performed for the bank by independent external __________________
auditors as of any date during 1995 ............................................................... | RCFD 6724 N/A | M.1.
__________________
<S> <C>
1 = Independent audit of the bank conducted in accordance 4 = Directors' examination of the bank performed by other
with generally accepted auditing standards by a certified external auditors (may be required by state chartering
public accounting firm which submits a report on the bank authority)
2 = Independent audit of the bank's parent holding company 5 = Review of the bank's financial statements by external
conducted in accordance with generally accepted auditing auditors
standards by a certified public accounting firm which 6 = Compilation of the bank's financial statements by external
submits a report on the consolidated holding company auditors
(but not on the bank separately) 7 = Other audit procedures (excluding tax preparation work)
3 = Directors' examination of the bank conducted in 8 = No external audit work
accordance with generally accepted auditing standards
by a certified public accounting firm (may be required by
state chartering authority)
</TABLE>
____________
(1) Includes total demand deposits and noninterest-bearing time and savings
deposits.
12
<PAGE>
<TABLE>
<S> <C>
Legal Title of Bank: FLEET NATIONAL BANK Call Date: 06/30/96 ST-BK: 25-0590 FFIEC 031
Address: ONE MONARCH PLACE Page RC-3
City, State Zip: SPRINGFIELD, MA 01102
FDIC Certificate No.: |0|2|4|9|9|
___________
</TABLE>
<TABLE>
<CAPTION>
Schedule RC-A--Cash and Balances Due From Depository Institutions
Exclude assets held for trading.
__________
| C405 |(Less than)-
_________________________________ ________
| (Column A) | (Column B) |
| Consolidated | Domestic |
| Bank | Offices |
____________________ ____________________
Dollar Amounts in Thousands | RCFD Bil Mil Thou | RCON Bil Mil Thou |
_____________________________________________________________________________ ____________________ ____________________
<S> <C> <C> <C>
1. Cash items in process of collection, unposted debits, and currency and | ////////////////// | ////////////////// |
coin .................................................................... | 0022 3,402,522 | ////////////////// | 1.
a. Cash items in process of collection and unposted debits .............. | ////////////////// | 0020 2,655,163 | 1.a.
b. Currency and coin .................................................... | ////////////////// | 0080 747,539 | 1.b.
2. Balances due from depository institutions in the U.S. ................... | ////////////////// | 0082 500,301 | 2.
a. U.S. branches and agencies of foreign banks (including their IBFs) ... | 0083 0 | ////////////////// | 2.a.
b. Other commercial banks in the U.S. and other depository institutions | ////////////////// | ////////////////// |
in the U.S. (including their IBFs) ................................... | 0085 500,373 | ////////////////// | 2.b.
3. Balances due from banks in foreign countries and foreign central banks .. | ////////////////// | 0070 7,902 | 3.
a. Foreign branches of other U.S. banks ................................. | 0073 690 | ////////////////// | 3.a.
b. Other banks in foreign countries and foreign central banks ........... | 0074 7,948 | ////////////////// | 3.b.
4. Balances due from Federal Reserve Banks ................................. | 0090 265,916 | 0090 0 | 4.
5. Total (sum of items 1 through 4) (total of column A must equal | ////////////////// | ////////////////// |
Schedule RC, sum of items 1.a and 1.b) .................................. | 0010 4,177,449 | 0010 4,176,641 | 5.
___________________________________________
<CAPTION>
______________________
Memorandum Dollar Amounts in Thousands | RCON Bil Mil Thou |
__________________________________________________________________________________________________ ____________________
<S> <C> <C>
1. Noninterest-bearing balances due from commercial banks in the U.S. (included in item 2, | ////////////////// |
column B above) .............................................................................. | 0050 453,780 | M.1.
______________________
</TABLE>
Schedule RC-B--Securities
Exclude assets held for trading.
<TABLE>
<CAPTION>
_______
| C410 |(Less than)-
___________________________________________________________________________ ________
| Held-to-maturity | Available-for-sale |
_________________________________________ _________________________________________
| (Column A) | (Column B) | (Column C) | (Column D) |
| Amortized Cost | Fair Value | Amortized Cost | Fair Value(1) |
____________________ ____________________ ____________________ ____________________
Dollar Amounts in Thousands | RCFD Bil Mil Thou | RCFD Bil Mil Thou | RCFD Bil Mil Thou | RCFD Bil Mil Thou |
______________________________________ ____________________ ____________________ ____________________ ____________________
<S> <C> <C> <C> <C> <C>
1. U.S. Treasury securities ......... | 0211 250 | 0213 250 | 1286 1,274,624 | 1287 1,252,546 | 1.
2. U.S. Government agency | ////////////////// | ////////////////// | ////////////////// | ////////////////// |
and corporation obligations | ////////////////// | ////////////////// | ////////////////// | ////////////////// |
(exclude mortgage-backed | ////////////////// | ////////////////// | ////////////////// | ////////////////// |
securities): | ////////////////// | ////////////////// | ////////////////// | ////////////////// |
a. Issued by U.S. Govern- | ////////////////// | ////////////////// | ////////////////// | ////////////////// |
ment agencies(2) .............. | 1289 0 | 1290 0 | 1291 0 | 1293 0 | 2.a.
b. Issued by U.S. | ////////////////// | ////////////////// | ////////////////// | ////////////////// |
Government-sponsored | ////////////////// | ////////////////// | ////////////////// | ////////////////// |
agencies(3) ................... | 1294 0 | 1295 0 | 1297 498 | 1298 505 | 2.b.
_____________________________________________________________________________________
</TABLE>
_____________
(1) Includes equity securities without readily determinable fair values at
historical cost in item 6.c, column D.
(2) Includes Small Business Administration "Guaranteed Loan Pool Certificates,"
U.S. Maritime Administration obligations, and Export-Import Bank
participation certificates.
(3) Includes obligations (other than mortgage-backed securities) issued by the
Farm Credit System, the Federal Home Loan Bank System, the Federal Home
Loan Mortgage Corporation, the Federal National Mortgage Association, the
Financing Corporation, Resolution Funding Corporation, the Student Loan
Marketing Association, and the Tennessee Valley Authority.
13
<PAGE>
<TABLE>
<S> <C>
Legal Title of Bank: FLEET NATIONAL BANK Call Date: 06/30/96 ST-BK: 25-0590 FFIEC 031
Address: ONE MONARCH PLACE Page RC-4
City, State Zip: SPRINGFIELD, MA 01102
FDIC Certificate No.: |0|2|4|9|9|
___________
</TABLE>
<TABLE>
<CAPTION>
Schedule RC-B--Continued
_____________________________________________________________________________________
| Held-to-maturity | Available-for-sale |
_________________________________________ _________________________________________
| (Column A) | (Column B) | (Column C) | (Column D) |
| Amortized Cost | Fair Value | Amortized Cost | Fair Value(1) |
____________________ ____________________ ____________________ ____________________
Dollar Amounts in Thousands | RCFD Bil Mil Thou | RCFD Bil Mil Thou | RCFD Bil Mil Thou | RCFD Bil Mil Thou |
____________________________________ ____________________ ____________________ ____________________ ____________________
<S> <C> <C> <C> <C>
3. Securities issued by states | ////////////////// |/ //////////////// | ////////////////// | ///////////////// |
and political subdivisions | ////////////////// |////////////////// | ////////////////// | ///////////////// |
in the U.S.: | ////////////////// |////////////////// | ////////////////// | ///////////////// |
a. General obligations ......... | 1676 150,357 |1677 150,242 | 1678 0 | 1679 0 | 3.a.
b. Revenue obligations ......... | 1681 8,887 |1686 8,889 | 1690 0 | 1691 0 | 3.b.
c. Industrial development | ////////////////// |////////////////// | ////////////////// | ///////////////// |
and similiar obligations .....| 1694 0 |1695 0 | 1696 0 | 1697 0 | 3.c.
4. Mortgage-backed | ////////////////// |////////////////// | ////////////////// | ///////////////// |
securities (MBS): | ////////////////// |////////////////// | ////////////////// | ///////////////// |
a. Pass-through securities: | ////////////////// |////////////////// | ////////////////// | ///////////////// |
(1) Guaranteed by | ////////////////// |////////////////// | ////////////////// | ///////////////// |
GNMA ....................... | 1698 0 |1699 0 | 1701 861,176 | 1702 852,929 | 4.a.(1)
(2) Issued by FNMA | ////////////////// |////////////////// | ////////////////// | ///////////////// |
and FHLMC ................. | 1703 908 |1705 908 | 1706 4,854,605 | 1707 4,831,023 | 4.a.(2)
(3) Other pass-through | ////////////////// |////////////////// | ///////////////////| ///////////////// |
secruities ................. | 1709 4 |1710 4 | 1711 0 | 1713 0 | 4.a.(3)
b. Other mortgage-backed | ////////////////// |////////////////// | ////////////////// | ///////////////// |
securities (include CMO's, | ////////////////// |////////////////// | ////////////////// | ///////////////// |
REMICs, and stripped | ////////////////// |////////////////// | ////////////////// | ///////////////// |
MBS): | ////////////////// |////////////////// | ////////////////// | ///////////////// |
(1) Issued or guaranteed | ////////////////// |////////////////// | ////////////////// | ///////////////// |
by FNMA, FHLMC, | ////////////////// |////////////////// | ////////////////// | ///////////////// |
or GNMA ............... | 1714 0 |1715 0 | 1716 0 | 1717 0 | 4.b.(1)
(2) Collateralized | ////////////////// |////////////////// | ////////////////// | ///////////////// |
by MBS issued or | ////////////////// |////////////////// | ////////////////// | ///////////////// |
guaranteed by FNMA, | ////////////////// |////////////////// | ////////////////// | ///////////////// |
FHLMC, or GNMA ........ | 1718 0 |1719 0 | 1731 0 | 1732 0 | 4.b.(2)
(3) All other mortgage- | ////////////////// |////////////////// | ////////////////// | //////////////// |
backed securities ..... | 1733 0 |1734 0 | 1735 518 | 1736 518 | 4.b.(3)
5. Other debt securities: | ////////////////// |////////////////// | ////////////////// | ///////////////// |
a. Other domestic debt | ////////////////// |////////////////// | ////////////////// | ///////////////// |
securities.................. | 1737 0 |1738 0 | 1739 817 | 1741 812 | 5.a.
b. Foreign debt | ////////////////// |////////////////// | ////////////////// | ///////////////// |
securities ................. | 1742 97,035 |1743 78,878 | 1744 0 | 1746 0 | 5.b.
6. Equity securities: | ////////////////// |////////////////// | ////////////////// | ///////////////// |
a. Investments in mutual | ////////////////// |////////////////// | ////////////////// | ///////////////// |
funds ...................... | ////////////////// |////////////////// | 1747 0 | 1748 0 | 6.a.
b. Other equity securities | ////////////////// |////////////////// | ////////////////// | ///////////////// |
with readily determin- | ////////////////// |////////////////// | ////////////////// | ///////////////// |
able fair values ........... | ////////////////// |////////////////// | 1749 0 | 1751 0 | 6.b.
c. All other equity | ////////////////// |////////////////// | ////////////////// | ///////////////// |
securities (1) ............. | ////////////////// |////////////////// | 1752 311,734 | 1753 311,734 | 6.c.
7. Total (sum of items 1 | ////////////////// |////////////////// | ////////////////// | ///////////////// |
through 6) (total of | ////////////////// |////////////////// | ////////////////// | ///////////////// |
column A must equal | ////////////////// |////////////////// | ////////////////// | ///////////////// |
Schedule RC, item 2.a) | ////////////////// |////////////////// | ////////////////// | ///////////////// |
(total of column D must | ////////////////// |////////////////// | ////////////////// | ///////////////// |
equal Schedule RC, | ////////////////// |////////////////// | ////////////////// | ///////////////// |
item 2.b) ..................... | 1754 257,441 | 1771 239,171 | 1772 7,303,972 | 1773 7,250,067 | 7.
|__________________________________________________________________________________|
</TABLE>
____________
1) Includes equity securities without readily determinable fair values at
historical cost in item 6.c, column D.
14
<PAGE>
<TABLE>
<S> <C>
Legal Title of Bank: FLEET NATIONAL BANK Call Date: 06/30/96 ST-BK: 25-0590 FFIEC 031
Address: ONE MONARCH PLACE Page RC-5
City, State Zip: SPRINGFIELD, MA 01102
FDIC Certificate No.: |0|2|4|9|9|
___________
</TABLE>
<TABLE>
<CAPTION>
Schedule RC-B--Continued
<CAPTION>
___________
Memoranda | C412 |(Less than)-
___________ _________
Dollar Amounts in Thousands | RCFD Bil Mil Thou |
__________________________________________________________________________________________________ ____________________
<S> <C> <C>
1. Pledged securities(2) ......................................................................... | 0416 2,308,912 | M.1.
2. Maturity and repricing data for debt securities(2),(3),(4) (excluding those in | ////////////////// |
nonaccrual status): | ////////////////// |
a. Fixed rate debt securities with a remaining maturity of: | ////////////////// |
(1) Three months or less ................................................................... | 0343 72,490 | M.2.a.(1)
(2) Over three months through 12 months .................................................... | 0344 77,125 | M.2.a.(2)
(3) Over one year through five years ....................................................... | 0345 2,734,577 | M.2.a.(3)
(4) Over five years ........................................................................ | 0346 2,925,207 | M.2.a.(4)
(5) Total fixed rate debt securities (sum of Memorandum items 2.a.(1) through 2.a.(4)) ..... | 0347 5,809,399 | M.2.a.(5)
b. Floating rate debt securities with a repricing frequency of: | ////////////////// |
(1) Quarterly or more frequently ........................................................... | 4544 531,365 | M.2.b.(1)
(2) Annually or more frequently, but less frequently than quarterly ........................ | 4545 855,010 | M.2.b.(2)
(3) Every five years or more frequently, but less frequently than annually ................. | 4551 0 | M.2.b.(3)
(4) Less frequently than every five years .................................................. | 4552 0 | M.2.b.(4)
(5) Total floating rate debt securities (sum of Memorandum items 2.b.(1) through 2.b.(4)) .. | 4553 1,386,375 | M.2.b.(5)
c. Total debt securities (sum of Memorandum items 2.a.(5) and 2.b.(5)) (must equal total debt | ////////////////// |
securities from Schedule RC-B, sum of items 1 through 5, columns A and D, minus nonaccrual | ////////////////// |
debt securities included in Schedule RC-N, item 9, column C) ............................... | 0393 7,195,774 | M.2.c.
3. Not applicable | ////////////////// |
4. Held-to-maturity debt securities restructured and in compliance with modified terms (included | ////////////////// |
in Schedule RC-B, items 3 through 5, column A, above) ......................................... | 5365 0 | M.4.
5. Not applicable | ////////////////// |
6. Floating rate debt securities with a remaining maturity of one year or less(2),(4) (included in | ////////////////// |
Memorandum items 2.b(1) through 2.b.(4) above)................................................. | 5519 3,700 | M.6.
7. Amortized cost of held-to-maturity securities sold or transferred to available-for-sale or | ////////////////// |
trading securities during the calendar year-to-date (report the amortized cost at date of sale | ////////////////// |
or transfer ................................................................................... | 1778 0 | m.7.
8. High-risk mortgage securities (included in the held-to-maturity and available-for-sale | ////////////////// |
accounts in Schedule RC-B, item 4.b): | ////////////////// |
a. Amortized cost ............................................................................. | 8780 0 | M.8.a.
b. Fair Value ................................................................................. | 8781 0 | M.8.b.
9. Structured notes (included in the held-to-maturity and available-for-sale accounts in | ////////////////// |
Schedule RC-B, items 2, 3, and 5): | ////////////////// |
a. Amortized cost ............................................................................. | 8782 0 | M.9.a.
b. Fair Value ................................................................................. | 8783 0 | M.9.b.
----------------------
</TABLE>
____________
(2) Includes held-to-maturity securities at amortized cost and
available-for-sale securities at fair value.
(3) Exclude equity securities, e.g., investments in mutual funds, Federal
Reserve stock, common stock, and preferred stock.
(4) Memorandum items 2 and 6 are not applicable to savings banks that must
complete supplemental Schedule RC-J.
15
<PAGE>
<TABLE>
<CAPTION>
Legal Title of Bank: FLEET NATIONAL BANK Call Date: 6/30/96 ST-BK: 25-0590 FFIEC 031
Address: ONE MONARCH PLACE Page RC-6
City, State Zip: SPRINGFIELD, MA 01102
FDIC Certificate No.: |0|2|4|9|9|
___________
Schedule RC-C--Loans and Lease Financing Receivables
Part I. Loans and Leases
_________
Do not deduct the allowance for loan and lease losses from amounts | C415 |(Less than)-
reported in this schedule. Report total loans and leases, net of unearned _________________________________|________|
income. Exclude assets held for trading. | (Column A) | (Column B) |
| Consolidated | Domestic |
| Bank | Offices |
____________________ ____________________
Dollar Amounts in Thousands | RCFD Bil Mil Thou | RCON Bil Mil Thou |
_____________________________________________________________________________ ____________________ ____________________
<S> <C> <C> <C>
1. Loans secured by real estate ........................................... | 1410 11,754,916 | ////////////////// | 1.
a. Construction and land development ................................... | ////////////////// | 1415 433,880 | 1.a.
b. Secured by farmland (including farm residential and other | ////////////////// | ////////////////// |
improvements) ....................................................... | ////////////////// | 1420 2,172 | 1.b
c. Secured by 1-4 family residential properties: | ////////////////// | ////////////////// |
(1) Revolving, open-end loans secured by 1-4 family residential | ////////////////// | ////////////////// |
properties and extended under lines of credit ................... | ////////////////// | 1797 2,022,596 | 1.c.(1)
(2) All other loans secured by 1-4 family residential properties: | ////////////////// | ////////////////// |
(a) Secured by first liens ...................................... | ////////////////// | 5367 4,418,239 | 1.c.(2)(a)
(b) Secured by junior liens ..................................... | ////////////////// | 5368 492,952 | 1.c.(2)(b)
d. Secured by multifamily (5 or more) residential properties ........... | ////////////////// | 1460 559,373 | 1.d.
e. Secured by nonfarm nonresidential properties ........................ | ////////////////// | 1480 3,825,704 | 1.e.
2. Loans to depository institutions: | ////////////////// | ////////////////// |
a. To commercial banks in the U.S. ..................................... | ////////////////// | 1505 143,682 | 2.a.
(1) To U.S. branches and agencies of foreign banks .................. | 1506 0 | ////////////////// | 2.a.(1)
(2) To other commercial banks in the U.S. ........................... | 1507 143,682 | ////////////////// | 2.a.(2)
b. To other depository institutions in the U.S. ........................ | 1517 0 | 1517 12,345 | 2.b.
c. To banks in foreign countries ....................................... | ////////////////// | 1510 672 | 2.c.
(1) To foreign branches of other U.S. banks ......................... | 1513 149 | ////////////////// | 2.c.(1)
(2) To other banks in foreign countries ............................. | 1516 523 | ////////////////// | 2.c.(2)
3. Loans to finance agricultural production and other loans to farmers .... | 1590 5,889 | 1590 5,889 | 3.
4. Commercial and industrial loans: | ////////////////// | ////////////////// |
a. To U.S. addressees (domicile) ....................................... | 1763 12,446,547 | 1763 12,402,858 | 4.a.
b. To non-U.S. addressees (domicile) ................................... | 1764 83,521 | 1764 54,074 | 4.b.
5. Acceptances of other banks: | ////////////////// | ////////////////// |
a. Of U.S. banks ....................................................... | 1756 0 | 1756 0 | 5.a.
b. Of foreign banks .................................................... | 1757 0 | 1757 0 | 5.b.
6. Loans to individuals for household, family, and other personal | ////////////////// | ////////////////// |
expenditures (i.e., consumer loans) (includes purchased paper) ......... | ////////////////// | 1975 2,217,352 | 6.
a. Credit cards and related plans (includes check credit and other | ////////////////// | ////////////////// |
revolving credit plans) ............................................. | 2008 161,652 | ////////////////// | 6.a.
b. Other (includes single payment, installment, and all student loans).. | 2011 2,055,700 | ////////////////// | 6.b.
7. Loans to foreign governments and official institutions (including | ////////////////// | ////////////////// |
foreign central banks) ................................................. | 2081 0 | 2081 0 | 7.
8. Obligations (other than securities and leases) of states and political | ////////////////// | ////////////////// |
subdivisions in the U.S. (includes nonrated industrial development | ////////////////// | ////////////////// |
obligations) ........................................................... | 2107 167,100 | 2107 167,100 | 8.
9. Other loans ............................................................ | 1563 2,146,172 | ////////////////// | 9.
a. Loans for purchasing or carrying securities (secured and unsecured).. | ////////////////// | 1545 156,275 | 9.a.
b. All other loans (exclude consumer loans) ............................ | ////////////////// | 1564 1,989,897 | 9.b.
10. Lease financing receivables (net of unearned income) ................... | ////////////////// | 2165 2,300,055 | 10.
a. Of U.S. addressees (domicile) ....................................... | 2182 2,300,055 | ////////////////// | 10.a.
b. Of non-U.S. addressees (domicile) ................................... | 2183 0 | ////////////////// | 10.b.
11. LESS: Any unearned income on loans reflected in items 1-9 above ........ | 2123 0 | 2123 0 | 11.
12. Total loans and leases, net of unearned income (sum of items 1 through | ////////////////// | ////////////////// |
10 minus item 11) (total of column A must equal Schedule RC, item 4.a).. | 2122 31,278,251 | 2122 31,205,115 | 12.
___________________________________________
</TABLE>
16
<PAGE>
<TABLE>
<S> <C>
Legal Title of Bank: FLEET NATIONAL BANK Call Date: 06/30/96 ST-BK: 25-0590 FFIEC 031
Address: ONE MONARCH PLACE Page: RC-7
City, State Zip: SPRINGFIELD, MA 01102
FDIC Certificate No.: |0|2|4|9|9|
___________
</TABLE>
<TABLE>
<CAPTION>
Schedule RC-C--Continued
Part I. Continued
___________________________________________
| (Column A) | (Column B) |
| Consolidated | Domestic |
Memoranda | Bank | Offices |
____________________ ____________________
Dollar Amounts in Thousands | RCFD Bil Mil Thou | RCON Bil Mil Thou |
_____________________________________________________________________________ ____________________ ____________________
<S> <C> <C> <C>
1. Commercial paper included in Schedule RC-C, part I, above .............. | 1496 0 | 1496 0 | M.1.
2. Loans and leases restructured and in compliance with modified terms | ////////////////// | ////////////////// |
(included in Schedule RC-C, part I, above and not reported as past due | ////////////////// | ////////////////// |
or nonaccrual in Schedule RC-N, Memorandum item 1): | ////////////////// | ////////////////// |
a. Loans secured by real estate: | ////////////////// | ////////////////// |
(1) To U.S. addressees (domicile) ................................... | 1687 511 | M.2.a.(1)
(2) To non-U.S. addressees (domicile) ............................... | 1689 0 | M.2.a.(2)
b. All other loans and all lease financing receivables (exclude loans | ////////////////// |
to individuals for household, family, and other personal expenditures)| 8691 0 | M.2.b.
c. Commercial and industrial loans to and lease financing receivables | ////////////////// |
of non-U.S. addressees (domicile) included in Memorandum item 2.b | ////////////////// |
above ............................................................... | 8692 0 | M.2.c.
3. Maturity and repricing data for loans and leases(1) (excluding those | ////////////////// |
in nonaccrual status): | ////////////////// |
a. Fixed rate loans and leases with a remaining maturity of: | ////////////////// |
(1) Three months or less ............................................ | 0348 10,215,575 | M.3.a.(1)
(2) Over three months through 12 months ............................. | 0349 369,421 | M.3.a.(2)
(3) Over one year through five years ................................ | 0356 3,479,742 | M.3.a.(3)
(4) Over five years ................................................. | 0357 5,791,166 | M.3.a.(4)
(5) Total fixed rate loans and leases (sum of | ////////////////// |
Memorandum items 3.a.(1) through 3.a.(4)) ....................... | 0358 19,855,904 | M.3.a.(5)
b. Floating rate loans with a repricing frequency of: | ////////////////// |
(1) Quarterly or more frequently .................................... | 4554 8,960,876 | M.3.b.(1)
(2) Annually or more frequently, but less frequently than quarterly . | 4555 1,848,295 | M.3.b.(2)
(3) Every five years or more frequently, but less frequently than | ////////////////// |
annually ........................................................ | 4561 250,031 | M.3.b.(3)
(4) Less frequently than every five years ........................... | 4564 12,721 | M.3.b.(4)
(5) Total floating rate loans (sum of Memorandum items 3.b.(1) | ////////////////// |
through 3.b.(4)) ................................................ | 4567 11,071,923 | M.3.b.(5)
c. Total loans and leases (sum of Memorandum items 3.a.(5) and 3.b.(5)) | ////////////////// |
(must equal the sum of total loans and leases, net, from | ////////////////// |
Schedule RC-C, part I, item 12, plus unearned income from | ////////////////// |
Schedule RC-C, part I, item 11, minus total nonaccrual loans and | ////////////////// |
leases from Schedule RC-N, sum of items 1 through 8, column C) ...... | 1479 30,927,827 | M.3.c.
d. FLOATING RATE LOANS WITH A REMAINING MATURITY OF ONE YEAR OR LESS | ////////////////// |
(INCLUDED IN MEMORANDUM ITEMS 3.b.(1) THROUGH 3.b.(4) ABOVE)......... | A246 1,543,411 | M.3.d.
4. Loans to finance commercial real estate, construction, and land | ////////////////// |
development activities (NOT SECURED BY REAL ESTATE) included in | ////////////////// |
Schedule RC-C, part I, items 4 and 9, column A, page RC-6(2) ........... | 2746 271,706 | M.4.
5. Loans and leases held for sale (included in Schedule RC-C, part I, | ////////////////// |
above .................................................................. | 5369 0 | M.5.
| ////////////////// |_____________________
6. Adjustable rate closed-end loans secured by first liens on 1-4 family | ////////////////// | RCON Bil Mil Thou |
residential properties (included in Schedule RC-C, part I, item | ////////////////// | ___________________|
1.c.(2)(a), column B, page RC-6) ....................................... | ////////////////// | 5370 1.655.898 | M.6.
|_________________________________________|
</TABLE>
_____________________________
(1) Memorandum item 3 is not applicable to savings banks that must complete
supplememtal Schedule RC-J.
(2) Exclude loans secured by real estate that are included in Schedule RC-C,
part I, item 1, column A.
17
<PAGE>
<TABLE>
<S> <C>
Legal Title of Bank: FLEET NATIONAL BANK Call Date: 6/30/96 ST-BK: 25-0590 FFIEC 031
Address: ONE MONARCH PLACE Page RC-7a
City, State Zip: SPRINGFIELD, MA 01102
FDIC Certificate No.: |0|2|4|9|9|
___________
</TABLE>
<TABLE>
<S> <C>
Schedule RC-C--Continued
Part II. Loans to Small Businesses and Small Farms
Schedule RC-C, Part II is to be reported only with the June Report of Condition.
Report the number and amount currently outstanding as of June 30 of business loans with "original amounts" of $1,000,000 or less
and farm loans with "original amounts" of $500,000 or less. The following guidelines should be used to determine the "original
amount" of a loan: (1) For loans drawn down under lines of credit or loan commitments, the "original amount" of the loan is the
size of the line of credit or loan commitment when the line of credit or loan commitment was most recently approved, extended, or
renewed prior to the report date. However, if the amount currently outstanding as of the report date exceeds this size, the
"original amount" is the amount currently outstanding on the report date. (2) For loan participations and syndications, the
"original amount" of the loan participation or syndication is the entire amount of the credit originated by the lead lender.
(3) For all other loans, the "original amount" is the total amount of the loan at origination or the amount currently
outstanding as of the report date, whichever is larger.
Loans to Small Businesses
</TABLE>
<TABLE>
<S> <C>
1. Indicate in the appropriate box at the right whether all or substantially all of the dollar volume of your
bank's "Loans secured by nonfarm nonresidential properties" in domestic offices reported in Schedule RC-C,
part I, item 1.e, column B, and all or substantially all of the dollar volume of your bank's
"Commercial and industrial loans to U.S. addressees" in domestic offices reported in Schedule RC-C, __________
part I, item 4.a, column B, have original amounts of $100,000 or less (If your bank has no loans ________| C415 |(Less than)-
outstanding in both of these two loan categories, place an "X" in the box marked "NO" and go to | RCON YES NO|
Item 5; otherwise, see instructions for further information.).................................. | 6999 | |///| x | 1.
___________________
If YES, complete items 2.a and 2.b below, skip items 3 and 4, and go to item 5.
If NO and your bank has loans outstanding in either loan category, skip items 2.a and 2.b,
complete items 3 and 4 below, and go to item 5. _____________________
| Number of Loans |
2. Report the total number of loans currently outstanding for each of the |____________________|
following Schedule RC-C, part I, loan categories: | RCON |/////////// |
a. "Loans secured by nonfarm nonresidential properties" in domestic | ////////////////// |
offices reported in Schedule RC-C, part I, item 1.e, column B....... | 5562 N/A | 2.a.
b. "Commercial and industrial loans to U.S. addressees" in domestic | ////////////////// |
offices reported in Schedule RC-C, part I, item 4.a, column B ...... | 5563 N/A | 2.b.
______________________
</TABLE>
<TABLE>
<CAPTION>
___________________________________________
| (Column A) | (Column B) |
| | Amount |
| | Currently |
| Number of Loans | Outstanding |
____________________ ____________________
Dollar Amounts in Thousands | RCON | ///////////| RCON Bil Mil Thou |
_____________________________________________________________________________ ____________________ ____________________
<S> <C> <C> <C>
3. Number and amount currently outstanding of "Loans secured by nonfarm | /////////////////////////////////////// | 1.
nonresidential properties" in domestic offices reported in Schedule RC-C | /////////////////////////////////////// | 1.a.
part I item 1.e, column B (sum of items 3.a through 3.c must be less | /////////////////////////////////////// |
or equal to Schedule RC-C, part I, item 1.e, column B): | /////////////////////////////////////// | 1.b
a. With original amounts of $100,000 or less ........................... | 5564 1,988 | 5565 76,370 | 3.a.
b. With original amounts of more than $100,000 through $250,000 ........ | 5566 2,805 | 5567 332,639 | 3.b.
c. With original amounts of more than $250,000 through $1,000,000 ...... | 5568 2,736 | 5569 952,476 | 3.c.
4. Number and amount currently outstanding of "Commercial and industrial | /////////////////////////////////////// |
loans to U.S. addressees" in domestic offices reported in Schedule RC-C, | /////////////////////////////////////// |
part I, item 4.a, column B (sum of items 4.a through 4.c must be less | /////////////////////////////////////// |
than or equal to Schedule RC-C, part I, item 4.a, column B): | /////////////////////////////////////// |
a. With original amounts of $100,000 or less ........................... | 5570 11,433 | 5571 337,759 | 4.a.
b. With original amounts of more than $100,000 through $250,000 ........ | 5572 2,127 | 5573 228,713 | 4.b.
c. With original amounts of more than $250,000 through $1,000,000 ...... | 5574 1,968 | 5575 601,126 | 4.c.
___________________________________________
</TABLE>
17a
<PAGE>
<TABLE>
<S> <C>
Legal Title of Bank: FLEET NATIONAL BANK Call Date: 6/30/96 ST-BK: 25-0590 FFIEC 031
Address: ONE MONARCH PLACE Page RC-7b
City, State Zip: SPRINGFIELD, MA 01102
FDIC Certificate No.: |0|2|4|9|9|
___________
</TABLE>
Schedule RC-C -- Continued
Part II. Continued
Agricultural Loans to Small Farms
<TABLE>
<S> <C> <C>
5. Indicate in the appropriate box at the right whether all or substantially all of the
dollar volume of your bank's "Loans secured by farmland (including farm residential
and other improvements)" in domestic offices reported in Schedule RC-C, part I, item
1.b, column B, and all or substantially all of the dollar volume of your bank's
"Loans to finance agricultural production and other loans to farmers" in domestic
offices reported in Schedule RC-C, part I, item 3, column B, have original amounts
of $100,000 or less (If your bank has no loans outstanding in both of these two YES NO
loan categories, place an "X" in the box marked "NO" and do not complete items 7 _______________________
and 8; otherwise, see instructions for further information.)................................... | 6860 | | /// | X | 5.
|_____________________|
If YES, complete items 6.a and 6.b below and do not complete items 7 and 8.
If NO and your bank has loans outstanding in either loan category, skip items 6.a and 6.b
and complete items 7 and 8 below.
</TABLE>
<TABLE>
<S> <C>
______________________
| Number of Loans |
6. Report the total number of loans currently outstanding for each of the |____________________|
following Schedule RC-C, part I, loan categories: | RCON |//////////// |
a. "Loans secured by farmland (including farm residential and other |______| |
improvements)" in domestic offices reported in Schedule RC-C, part I, | ////////////////// |
item 1.b, column B........................................................ | 5576 N/A | 6.a.
b. "Loans to finance agricultural production and other loans to farmers" in | ////////////////// |
domestic offices reported in Schedule RC-C, part I, item 3, column B...... | 5577 N/A | 6.b.
|____________________|
</TABLE>
<TABLE>
<S> <C> <C>
_____________________________________________
| (Column A) | (Column B) |
| | Amount |
| | Currently |
| Number of Loans | Outstanding |
|_____________________|______________________|
Dollar Amounts in Thousands | RCON |/////////////| RCON Bil Mil Thou |
________________________________________________________________________________| ______| |_____________________ |
7. Number and amount currently outstanding of "Loans secured by farmland | ////////////////////////////////////////// |
(including farm residential and other improvements)" in domestic offices | ////////////////////////////////////////// |
reported in Schedule RC-C, part I, item 1.b, column B (sum of items 7.a | ////////////////////////////////////////// |
through 7.c must be less than or equal to Schedule RC-C, part I, item 1.b, | ////////////////////////////////////////// |
column B): | ////////////////////////////////////////// |
a. With original amounts of $100,000 or less............................... | 5578 18 | 5579 292 | 7.a.
b. With original amounts of more than $100,000 through $250,000............ | 5580 8 | 5581 850 | 7.b.
c. With original amounts of more than $250,000 through $500,000............ | 5582 4 | 5583 1,030 | 7.c.
8. Number and amount currently outstanding of "Loans to finance agricultural | ////////////////////////////////////////// |
production and other loans to farmers" in domestic offices reported in | ////////////////////////////////////////// |
Schedule RC-C, part I, item 3, column B (sum of items 8.a through 8.c | ////////////////////////////////////////// |
must be less than or equal to Schedule RC-C, part I, item 3, column B): | ////////////////////////////////////////// |
a. With original amounts of $100,000 or less............................... | 5584 46 | 5585 992 | 8.a.
b. With original amounts of more than $100,000 through $250,000............ | 5586 17 | 5587 1,877 | 8.b.
c. With original amounts of more than $250,000 through $500,000............ | 5588 4 | 5589 1,054 | 8.c.
|_____________________|______________________|
</TABLE>
17b
<PAGE>
<TABLE>
<CAPTION>
Legal Title of Bank: FLEET NATIONAL BANK Call Date: 06/30/96 ST-BK: 25-0590 FFIEC 031
Address: ONE MONARCH PLACE Page RC-8
City, State Zip: SPRINGFIELD, MA 01102
FDIC Certificate No.: |0|2|4|9|9|
___________
Schedule RC-D--Trading Assets and Liabilities
Schedule RC-D is to be completed only by banks with $1 billion or more in total assets or with $2 billion or more in par/notional
amount of off-balance sheet derivative contracts (as reported in Schedule RC-L, items 14.a through 14.e, columns A through D).
__________
| C420 |
__________________________
Dollar Amounts in Thousands | ////////// Bil Mil Thou|
__________________________________________________________________________________________________| ________________________|
<S> <C> <C>
ASSETS | /////////////////////// |
1. U.S. Treasury securities in domestic offices ................................................ | RCON 3531 0 | 1.
2. U.S. Government agency and corporation obligations in domestic offices (exclude mortgage- | /////////////////////// |
backed securities) .......................................................................... | RCON 3532 0 | 2.
3. Securities issued by states and political subdivisions in the U.S. in domestic offices ...... | RCON 3533 0 | 3.
4. Mortgage-backed securities (MBS) in domestic offices: | /////////////////////// |
a. Pass-through securities issued or guaranteed by FNMA, FHLMC, or GNMA ..................... | RCON 3534 0 | 4.a.
b. Other mortgage-backed securities issued or guaranteed by FNMA, FHLMC, or GNMA | /////////////////////// |
(include CMOs, REMICs, and stripped MBS) ................................................. | RCON 3535 0 | 4.b.
c. All other mortgage-backed securities ......................................................| RCON 3536 0 | 4.c.
5. Other debt securities in domestic offices ................................................... | RCON 3537 0 | 5.
6. Certificates of deposit in domestic offices ................................................. | RCON 3538 0 | 6.
7. Commercial paper in domestic offices ........................................................ | RCON 3539 0 | 7.
8. Bankers acceptances in domestic offices ..................................................... | RCON 3540 0 | 8.
9. Other trading assets in domestic offices .................................................... | RCON 3541 0 | 9.
10. Trading assets in foreign offices ........................................................... | RCFN 3542 0 | 10.
11. Revaluation gains on interest rate, foreign exchange rate, and other commodity and equity | /////////////////////// |
contracts: | /////////////////////// |
a. In domestic offices ...................................................................... | RCON 3543 66,696 | 11.a.
b. In foreign offices ....................................................................... | RCFN 3544 4,658 | 11.b.
12. Total trading assets (sum of items 1 through 11) (must equal Schedule RC, item 5) ........... | RCFD 3545 71,354 | 12.
<CAPTION>
___________________________
___________________________
| ///////// Bil Mil Thou |
LIABILITIES | ________________________|_
<S> <C> <C>
13. Liability for short positions ............................................................... | RCFD 3546 0 | 13.
14. Revaluation losses on interest rate, foreign exchange rate, and other commodity and equity | /////////////////////// |
contracts ................................................................................... | RCFD 3547 57,446 | 14.
15. Total trading liabilities (sum of items 13 and 14) (must equal Schedule RC, item 15.b) ...... | RCFD 3548 57,446 | 15.
___________________________
</TABLE>
18
<PAGE>
<TABLE>
<S> <C>
Legal Title of Bank: FLEET NATIONAL BANK Call Date: 06/30/96 ST-BK: 25-0590 FFIEC 031
Address: ONE MONARCH PLACE Page RC-9
City, State Zip: SPRINGFIELD, MA 01102
FDIC Certificate No.: |0|2|4|9|9|
___________
</TABLE>
<TABLE>
<CAPTION>
Schedule RC-E--Deposit Liabilities
Part I. Deposits in Domestic Offices
__________
| C425 |(Less than)-
______________________________________________________ ________
| | Nontransaction |
| Transaction Accounts | Accounts |
_________________________________________ ____________________
| (Column A) | (Column B) | (Column C) |
| Total transaction | Memo: Total | Total |
| accounts (including| demand deposits | nontransaction |
| total demand | (included in | accounts |
| deposits) | column A) | (including MMDAs) |
____________________ ____________________ ____________________
Dollar Amounts in Thousands | RCON Bil Mil Thou | RCON Bil Mil Thou | RCON Bil Mil Thou |
__________________________________________________________ ____________________ ____________________ ____________________
<S> <C> <C> <C> <C>
Deposits of: | ////////////////// | ////////////////// | ////////////////// |
1. Individuals, partnerships, and corporations .......... | 2201 8,615,650 | 2240 8,158,203 | 2346 22,594,478 | 1.
2. U.S. Government ...................................... | 2202 58,650 | 2280 58,605 | 2520 42,512 | 2.
3. States and political subdivisions in the U.S. ........ | 2203 818,151 | 2290 706,072 | 2530 702,686 | 3.
4. Commercial banks in the U.S. ......................... | 2206 836,005 | 2310 836,005 | 2550 771 | 4.
5. Other depository institutions in the U.S. ............ | 2207 221,571 | 2312 221,571 | 2349 2,968 | 5.
6. Banks in foreign countries ........................... | 2213 18,445 | 2320 18,445 | 2236 0 | 6.
7. Foreign governments and official institutions | ////////////////// | ////////////////// | ////////////////// |
(including foreign central banks) .................... | 2216 108 | 2300 108 | 2377 0 | 7.
8. Certified and official checks ........................ | 2330 198,585 | 2330 198,585 | ////////////////// | 8.
9. Total (sum of items 1 through 8) (sum of | ////////////////// | ////////////////// | ////////////////// |
columns A and C must equal Schedule RC, | ////////////////// | ////////////////// | ////////////////// |
item 13.a) ........................................... | 2215 10,767,165 | 2210 10,197,594 | 2385 23,343,415 | 9.
________________________________________________________________
</TABLE>
<TABLE>
<CAPTION>
______________________
Memoranda Dollar Amounts in Thousands | RCON Bil Mil Thou |
____________________________________________________________________________________________________ ____________________
<S> <C> <C>
1. Selected components of total deposits (i.e., sum of item 9, columns A and C): | ////////////////// |
a. Total Individual Retirement Accounts (IRAs) and Keogh Plan accounts ......................... | 6835 2,735,425 | M.1.a.
b. Total brokered deposits ..................................................................... | 2365 1,636,611 | M.1.b.
c. Fully insured brokered deposits (included in Memorandum item 1.b above): | ////////////////// |
(1) Issued in denominations of less than $100,000 ........................................... | 2343 2,350 | M.1.c.(1)
(2) Issued EITHER in denominations of $100,000 OR in denominations greater than $100,000 | ////////////////// |
and participated out by the broker in shares of $100,000 or less ........................ | 2344 1,634,261 | M.1.c.(2)
d. MATURITY DATA FOR BROKERED DEPOSITS: | ////////////////// |
(1) BROKERED DEPOSITS ISSUED IN DENOMINATIONS OF LESS THAN $100,000 WITH A REMAINING | ////////////////// |
MATURITY OF ONE YEAR OR LESS (INCLUDED IN MEMORANDUM ITEM 1.c.(1) ABOVE)................. | A243 171 | M.1.d.(1)
(2) BROKERED DEPOSITS ISSUED IN DENOMINATIONS OF $100,000 OR MORE WITH A REMAINING | ////////////////// |
MATURITY OF ONE YEAR OR LESS (INCLUDED IN MEMORANDUM ITEM 1.b ABOVE)..................... | A244 509,265 | M.1.d.(2)
e. Preferred deposits (uninsured deposits of states and political subdivisions in the U.S. | ////////////////// |
reported in item 3 above which are secured or collateralized as required under state law) ... | 5590 457,587 | M.1.e.
2. Components of total nontransaction accounts (sum of Memoranda items 2.a through 2.d must | ////////////////// |
equal item 9, column C above): | ////////////////// |
a. Savings deposits: | ////////////////// |
(1) Money market deposit accounts (MMDAs) ................................................... | 6810 10,738,339 | M.2.a.(1)
(2) Other savings deposits (excludes MMDAs) ................................................. | 0352 2,655,659 | M.2.a.(2)
b. Total time deposits of less than $100,000 ................................................... | 6648 7,247,099 | M.2.b.
c. Time certificates of deposit of $100,000 or more ............................................ | 6645 2,702,318 | M.2.c.
d. Open-account time deposits of $100,000 or more .............................................. | 6646 0 | M.2.d.
3. All NOW accounts (included in column A above) .................................................. | 2398 569,571 | M.3.
4. Not applicable
______________________
</TABLE>
19
<PAGE>
<TABLE>
<S> <C>
Legal Title of Bank: FLEET NATIONAL BANK Call Date: 06/30/96 ST-BK: 25-0590 FFIEC 031
Address: ONE MONARCH PLACE Page RC-10
City, State Zip: SPRINGFIELD, MA 01102
FDIC Certificate No.: |0|2|4|9|9|
___________
Schedule RC-E--Continued
Part I. Continued
Memoranda (continued)
_________________________________________________________________________________________________________________________________
</TABLE>
<TABLE>
<CAPTION>
______________________
Dollar Amounts in Thousands | RCON Bil Mil Thou |
___________________________________________________________________________________________________ ____________________
<S> <C> <C>
5. Maturity and repricing data for time deposits of less than $100,000 (sum of | ////////////////// |
Memorandum items 5.a.(1) through 5.b.(3) must equal Memorandum item 2.b above):(1) | ////////////////// |
a. Fixed rate time deposits of less than $100,000 with a remaining maturity of: | ////////////////// |
(1) Three months or less.................................................................... | A225 1,684,248 | M.5.a.(1)
(2) Over three months through 12 months..................................................... | A226 3,493,722 | M.5.a.(2)
(3) Over one year........................................................................... | A227 2,002,999 | M.5.a.(3)
b. Floating rate time deposits of less than $100,000 with a repricing frequency of: | ////////////////// |
(1) Quarterly or more frequently............................................................ | A228 66,130 | M.5.b.(1)
(2) Annually or more frequently, but less frequently than quarterly......................... | A229 0 | M.5.b.(2)
(3) Less frequently than annually........................................................... | A230 0 | M.5.b.(3)
c. Floating rate time deposits of less than $100,000 with a remaining maturity of | ////////////////// |
one year or less (included in Memorandum items 5.b.(1) through 5.b.(3) above)............... | A231 45,084 | M.5.c.
6. Maturity and repricing data for time deposits of $100,000 or more (i.e., time certificates | ////////////////// |
of deposit of $100,000 or more and open-account time deposits of $100,000 or more) | ////////////////// |
(sum of Memorandum items 6.a.(1) through 6.b.(4) must equal the sum of Memorandum | ////////////////// |
items 2.c and 2.d above):(1) | ////////////////// |
a. Fixed rate time deposits of $100,000 or more with a remaining maturity of: | ////////////////// |
(1) Three months or less ................................................................... | A232 534,657 | M.6.a.(1)
(2) Over three months through 12 months .................................................... | A233 754,429 | M.6.a.(2)
(3) Over one year through five years ....................................................... | A234 1,282,541 | M.6.a.(3)
(4) Over five years ........................................................................ | A235 36,761 | M.6.a.(4)
b. Floating rate time deposits of $100,000 or more with a repricing frequency of: | ////////////////// |
(1) Quarterly or more frequently ........................................................... | A236 31,182 | M.6.b.(1)
(2) Annually or more frequently, but less frequently than quarterly ........................ | A237 37,950 | M.6.b.(2)
(3) Every five years or more frequently, but less frequently than annually ................. | A238 24,798 | M.6.b.(3)
(4) Less frequently than every five years .................................................. | A239 0 | M.6.b.(4)
c. Floating rate time deposits of $100,000 or more with a remaining maturity of | ////////////////// |
one year or less (included in Memorandum items 6.b.(1) through 6.b.(4) above)............... | A240 19,186 | M.6.c.
______________________
</TABLE>
_______________
(1) Memorandum items 5 and 6 are not applicable to savings banks that must
complete supplemental Schedule RC-J.
20
<PAGE>
<TABLE>
<S> <C>
Legal Title of Bank: FLEET NATIONAL BANK Call Date: 6/30/96 ST-BK: 25-0590 FFIEC 031
Address: ONE MONARCH PLACE Page RC-11
City, State Zip: SPRINGFIELD, MA 01102
FDIC Certificate No.: |0|2|4|9|9|
___________
</TABLE>
<TABLE>
<CAPTION>
Schedule RC-E--Continued
Part II. Deposits in Foreign Offices (including Edge and
Agreement subsidiaries and IBFs)
______________________
Dollar Amounts in Thousands | RCFN Bil Mil Thou |
___________________________________________________________________________________________________ ____________________
<S> <C> <C>
Deposits of: | ////////////////// |
1. Individuals, partnerships, and corporations ................................................... | 2621 1,730,162 | 1.
2. U.S. banks (including IBFs and foreign branches of U.S. banks) ................................ | 2623 0 | 2.
3. Foreign banks (including U.S. branches and agencies of foreign banks, including their IBFs).... | 2625 0 | 3.
4. Foreign governments and official institutions (including foreign central banks) ............... | 2650 0 | 4.
5. Certified and official checks ................................................................. | 2330 0 | 5.
6. All other deposits ............................................................................ | 2668 15,501 | 6.
7. Total (sum of items 1 through 6) (must equal Schedule RC, item 13.b) .......................... | 2200 1,745,663 | 7.
Memorandum
Dollar Amounts in Thousands |RCFN Bil Mil Thou |
________________________________________________________________________________________________________________________
1. Time deposits with a remaining maturity of one year or less (included in Part II, item 7 above) |A245 1,745,263 | M.1.
______________________
</TABLE>
<TABLE>
<CAPTION>
Schedule RC-F--Other Assets
__________
| C430 |(Less than)-
_________________ ________
Dollar Amounts in Thousands | ////////// Bil Mil Thou |
__________________________________________________________________________________________________ _________________________
<S> <C> <C>
1. Income earned, not collected on loans ........................................................ | RCFD 2164 167,538 | 1.
2. Net deferred tax assets(1) ................................................................... | RCFD 2148 0 | 2.
3. Excess residential mortgage servicing fees receivable ........................................ | RCFD 5371 134,288 | 3.
4. Other (itemize and describe amounts that exceed 25% of this item)............................. | RCFD 2168 3,676,812 | 4.
_____________ ___________________________
a. | TEXT 3549 | Mortgages held for Resale | RCFD 3549 | 1,858,683 | /////////////////////// | 4.a.
_________________________________________________________________| | | |
___________
b. | TEXT 3550 |____________________________________________________| RCFD 3550 | | /////////////////////// | 4.b.
___________
c. | TEXT 3551 |____________________________________________________| RCFD 3551 | | /////////////////////// | 4.c.
_____________
___________________________
5. Total (sum of items 1 through 4) (must equal Schedule RC, item 11) ........................... | RCFD 2160 3,978,638 | 5.
___________________________
<CAPTION>
Memorandum ___________________________
Dollar Amounts in Thousands | ////////// Bil Mil Thou |
__________________________________________________________________________________________________ _________________________
<S> <C> <C>
1. Deferred tax assets disallowed for regulatory capital purposes ............................... | RCFD 5610 0 | M.1.
___________________________
</TABLE>
<TABLE>
<CAPTION>
Schedule RC-G--Other Liabilities
__________
| C435 |(Less than)-
_________________ ________
Dollar Amounts in Thousands | ////////// Bil Mil Thou |
__________________________________________________________________________________________________ _________________________
<S> <C> <C>
1. a. Interest accrued and unpaid on deposits in domestic offices(2) ............................ | RCON 3645 58,011 | 1.a.
b. Other expenses accrued and unpaid (includes accrued income taxes payable) ................. | RCFD 3646 594,954 | 1.b.
2. Net deferred tax liabilities(1) .............................................................. | RCFD 3049 119,644 | 2.
3. Minority interest in consolidated subsidiaries ............................................... | RCFD 3000 0 | 3.
4. Other (itemize and describe amounts that exceed 25% of this item)............................. | RCFD 2938 478,843 | 4.
_____________ ___________________________
a. | TEXT 3552 |____________________________________________________| RCFD 3552 | | /////////////////////// | 4.a.
___________
b. | TEXT 3553 |____________________________________________________| RCFD 3553 | | /////////////////////// | 4.b.
___________
c. | TEXT 3554 |____________________________________________________| RCFD 3554 | | /////////////////////// | 4.c.
_____________
___________________________
5. Total (sum of items 1 through 4) (must equal Schedule RC, item 20) ........................... | RCFD 2930 1,251,452 | 5.
</TABLE>
____________
(1) See discussion of deferred income taxes in Glossary entry on "income taxes."
(2) For savings banks, include "dividends" accrued and unpaid on deposits.
21
<PAGE>
<TABLE>
<S> <C>
Legal Title of Bank: FLEET NATIONAL BANK Call Date: 06/30/96 ST-BK: 25-0590 FFIEC 031
Address: ONE MONARCH PLACE Page RC-12
City, State Zip: SPRINGFIELD, MA 01102
FDIC Certificate No.: |0|2|4|9|9|
___________
</TABLE>
<TABLE>
<CAPTION>
Schedule RC-H--Selected Balance Sheet Items for Domestic Offices
__________
| C440 |(Less than)-
____________ ________
| Domestic Offices |
____________________
Dollar Amounts in Thousands | RCON Bil Mil Thou |
_____________________________________________________________________________________________________ ____________________
<S> <C> <C>
1. Customers' liability to this bank on acceptances outstanding .................................... | 2155 16,634 | 1.
2. Bank's liability on acceptances executed and outstanding ........................................ | 2920 16,634 | 2.
3. Federal funds sold and securities purchased under agreements to resell .......................... | 1350 17,428 | 3.
4. Federal funds purchased and securities sold under agreements to repurchase ...................... | 2800 4,868,836 | 4.
5. Other borrowed money ............................................................................ | 3190 1,380,694 | 5.
EITHER | ////////////////// |
6. Net due from own foreign offices, Edge and Agreement subsidiaries, and IBFs ..................... | 2163 N/A | 6.
OR | ////////////////// |
7. Net due to own foreign offices, Edge and Agreement subsidiaries, and IBFs ....................... | 2941 1,669,058 | 7.
| ////////////////// |
8. Total assets (excludes net due from foreign offices, Edge and Agreement subsidiaries, and IBFs) . | 2192 48,946,123 | 8.
| ////////////////// |
9. Total liabilities (excludes net due to foreign offices, Edge and Agreement subsidiaries, and IBFs)| 3129 42,919,946 | 9.
______________________
</TABLE>
<TABLE>
<CAPTION>
Items 10-17 include held-to-maturity and available-for-sale securities in domestic offices. ______________________
| RCON Bil Mil Thou |
____________________
<S> <C> <C>
10. U.S. Treasury securities ....................................................................... | 1779 1,252,796 | 10.
11. U.S. Government agency and corporation obligations (exclude mortgage-backed | ////////////////// |
securities) .................................................................................... | 1785 505 | 11.
12. Securities issued by states and political subdivisions in the U.S. ............................. | 1786 159,244 | 12.
13. Mortgage-backed securities (MBS): | ////////////////// |
a. Pass-through securities: | ////////////////// |
(1) Issued or guaranteed by FNMA, FHLMC, or GNMA ............................................ | 1787 5,684,860 | 13.a.(1)
(2) Other pass-through securities ........................................................... | 1869 4 | 13.a.(2)
b. Other mortgage-backed securities (include CMOs, REMICs, and stripped MBS): | ////////////////// |
(1) Issued or guaranteed by FNMA, FHLMC, or GNMA ............................................ | 1877 0 | 13.b.(1)
(2) All other mortgage-backed securities..................................................... | 2253 518 | 13.b.(2)
14. Other domestic debt securities ................................................................. | 3159 812 | 14.
15. Foreign debt securities ........................................................................ | 3160 97,035 | 15.
16. Equity securities: | ////////////////// |
a. Investments in mutual funds ................................................................. | 3161 0 | 16.a.
b. Other equity securities with readily determinable fair values ............................... | 3162 0 | 16.b.
c. All other equity securities ................................................................. | 3169 311,734 | 16.c.
17. Total held-to-maturity and available-for-sale securities (sum of items 10 through 16) .......... | 3170 7,507,508 | 17.
______________________
</TABLE>
<TABLE>
<CAPTION>
Memorandum (to be completed only by banks with IBFs and other "foreign" offices)
______________________
Dollar Amounts in Thousands | RCON Bil Mil Thou |
_____________________________________________________________________________________________________ ____________________
<S> <C> <C>
EITHER | ////////////////// |
1. Net due from the IBF of the domestic offices of the reporting bank .............................. | 3051 0 | M.1.
OR | ////////////////// |
2. Net due to the IBF of the domestic offices of the reporting bank ................................ | 3059 N/A | M.2.
______________________
</TABLE>
22
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Legal Title of Bank: FLEET NATIONAL BANK Call Date: 06/30/96 ST-BK: 25-0590 FFIEC 031
Address: ONE MONARCH PLACE Page RC-13
City, State Zip: SPRINGFIELD, MA 01102
FDIC Certificate No.: |0|2|4|9|9|
___________
</TABLE>
<TABLE>
<CAPTION>
<S> <C>
Schedule RC-I--Selected Assets and Liabilities of IBFs
To be completed only by banks with IBFs and other "foreign" offices. __________
| C445 |(Less than)-
____________ ________
Dollar Amounts in Thousands | RCFN Bil Mil Thou |
_____________________________________________________________________________________________________ ____________________
1. Total IBF assets of the consolidated bank (component of Schedule RC, item 12) ................. | 2133 0 | 1.
2. Total IBF loans and lease financing receivables (component of Schedule RC-C, part I, item 12, | ////////////////// |
column A) ..................................................................................... | 2076 0 | 2.
3. IBF commercial and industrial loans (component of Schedule RC-C, part I, item 4, column A) .... | 2077 0 | 3.
4. Total IBF liabilities (component of Schedule RC, item 21) ..................................... | 2898 0 | 4.
5. IBF deposit liabilities due to banks, including other IBFs (component of Schedule RC-E, | ////////////////// |
part II, items 2 and 3) ....................................................................... | 2379 0 | 5.
6. Other IBF deposit liabilities (component of Schedule RC-E, part II, items 1, 4, 5, and 6) ..... | 2381 0 | 6.
______________________
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C>
Schedule RC-K--Quarterly Averages (1)
__________
| C455 |(Less than)-
_________________ ________
Dollar Amounts in Thousands | ///////// Bil Mil Thou |
_______________________________________________________________________________________________ _________________________
ASSETS | /////////////////////// |
1. Interest-bearing balances due from depository institutions .............................. | RCFD 3381 10,737 | 1.
2. U.S. Treasury securities and U.S. Government agency and corporation obligations(2) ...... | RCFD 3382 6,349,267 | 2.
3. Securities issued by states and political subdivisions in the U.S.(2) ................... | RCFD 3383 155,938 | 3.
4. a. Other debt securities(2) ............................................................. | RCFD 3647 98,458 | 4.a.
b. Equity securities(3) (includes investments in mutual funds and Federal Reserve stock). | RCFD 3648 347,675 | 4.b.
5. Federal funds sold and securities purchased under agreements to resell in domestic | /////////////////////// |
offices of the bank and of its Edge and Agreement subsidiaries, and in IBFs ............. | RCFD 3365 812,114 | 5.
6. Loans: | ///////////////////// // |
a. Loans in domestic offices: | /////////////////////// |
(1) Total loans ...................................................................... | RCON 3360 31,884,320 | 6.a.(1)
(2) Loans secured by real estate ..................................................... | RCON 3385 14,940,513 | 6.a.(2)
(3) Loans to finance agricultural production and other loans to farmers .............. | RCON 3386 5,935 | 6.a.(3)
(4) Commercial and industrial loans .................................................. | RCON 3387 12,923,362 | 6.a.(4)
(5) Loans to individuals for household, family, and other personal expenditures ...... | RCON 3388 2,224,980 | 6.a.(5)
b. Total loans in foreign offices, Edge and Agreement subsidiaries, and IBFs ............ | RCFN 3360 70,458 | 6.b.
7. Trading assets .......................................................................... | RCFD 3401 105,824 | 7.
8. Lease financing receivables (net of unearned income) .................................... | RCFD 3484 2,231,479 | 8.
9. Total assets (4) ........................................................................ | RCFD 3368 52,282,230 | 9.
LIABILITIES | /////////////////////// |
10. Interest-bearing transaction accounts in domestic offices (NOW accounts, ATS accounts, | /////////////////////// |
and telephone and preauthorized transfer accounts) (exclude demand deposits) ............ | RCON 3485 965,535 | 10.
11. Nontransaction accounts in domestic offices: | /////////////////////// |
a. Money market deposit accounts (MMDAs) ................................................ | RCON 3486 9,210,475 | 11.a.
b. Other savings deposits ............................................................... | RCON 3487 3,907,216 | 11.b.
c. Time certificates of deposit of $100,000 or more ..................................... | RCON 3345 2,653,452 | 11.c.
d. All other time deposits .............................................................. | RCON 3469 7,513,443 | 11.d.
12. Interest-bearing deposits in foreign offices, Edge and Agreement subsidiaries, and IBFs.. | RCFN 3404 1,765,593 | 12.
13. Federal funds purchased and securities sold under agreements to repurchase in domestic | /////////////////////// |
offices of the bank and of its Edge and Agreement subsidiaries, and in IBFs ............. | RCFD 3353 6,363,286 | 13.
14. Other borrowed money .................................................................... | RCFD 3355 2,670,145 | 14.
___________________________
</TABLE>
_______________
(1) For all items, banks have the option of reporting either (1) an average of
daily figures for the quarter, or
(2) an average of weekly figures (i.e., the Wednesday of each week of the
quarter).
(2) Quarterly averages for all debt securities should be based on amortized
cost.
(3) Quarterly averages for all equity securities should be based on historical
cost.
(4) The quarterly average for total assets should reflect all debt securities
(not held for trading) at amortized cost, equity securities with readily
determinable fair values at the lower of cost or fair value, and equity
securities without readily determinable fair values at historical cost.
23
<PAGE>
<TABLE>
<S> <C>
Legal Title of Bank: FLEET NATIONAL BANK Call Date: 06/30/96 ST-BK: 25-0590 FFIEC 031
Address: ONE MONARCH PLACE Page RC-14
City, State Zip: SPRINGFIELD, MA 01102
FDIC Certificate No.: |0|2|4|9|9|
___________
</TABLE>
<TABLE>
<CAPTION>
Schedule RC-L--Off-Balance Sheet Items
Please read carefully the instructions for the preparation of Schedule RC-L. Some of the amounts
reported in Schedule RC-L are regarded as volume indicators and not necessarily as measures of risk. __________
| C460 |(Less than)-
____________ ________
Dollar Amounts in Thousands | RCFD Bil Mil Thou |
____________________________________________________________________________________________________ ____________________
<S> <C> <C>
1. Unused commitments: | ////////////////// |
a. Revolving, open-end lines secured by 1-4 family residential properties, e.g., home | ////////////////// |
equity lines ............................................................................... | 3814 1,637,875 | 1.a.
b. Credit card lines .......................................................................... | 3815 32,940 | 1.b.
c. Commercial real estate, construction, and land development: | ////////////////// |
(1) Commitments to fund loans secured by real estate ....................................... | 3816 648,369 | 1.c.(1)
(2) Commitments to fund loans not secured by real estate ................................... | 6550 383,022 | 1.c.(2)
d. Securities underwriting .................................................................... | 3817 0 | 1.d.
e. Other unused commitments ................................................................... | 3818 18,626,522 | 1.e.
2. Financial standby letters of credit and foreign office guarantees ............................. | 3819 2,337,268 | 2.
___________________________
a. Amount of financial standby letters of credit conveyed to others | RCFD 3820 | 158,029 | ////////////////// | 2.a.
___________________________
3. Performance standby letters of credit and foreign office guarantees ........................... | 3821 175,703 | 3.
a. Amount of performance standby letters of credit conveyed to | ////////////////// |
___________________________
others .......................................................... | RCFD 3822 | 12,580 | ////////////////// | 3.a.
___________________________
4. Commercial and similar letters of credit ...................................................... | 3411 176,335 | 4.
5. Participations in acceptances (as described in the instructions) conveyed to others by | ////////////////// |
the reporting bank ............................................................................ | 3428 16,524 | 5.
6. Participations in acceptances (as described in the instructions) acquired by the reporting | ////////////////// |
(nonaccepting) bank ........................................................................... | 3429 7,409 | 6.
7. Securities borrowed ........................................................................... | 3432 0 | 7.
8. Securities lent (including customers' securities lent where the customer is indemnified | ////////////////// |
against loss by the reporting bank) ........................................................... | 3433 0 | 8.
9. Loans transferred (i.e., sold or swapped) with recourse that have been treated as sold for | ////////////////// |
Call Report purposes: | ////////////////// |
a. FNMA and FHLMC residential mortgage loan pools: | ////////////////// |
(1) Outstanding principal balance of mortgages transferred as of the report date ........... | 3650 246,244 | 9.a.(1)
(2) Amount of recourse exposure on these mortgages as of the report date ................... | 3651 246,244 | 9.a.(2)
b. Private (nongovernment-issued or -guaranteed) residential mortgage loan pools: | ////////////////// |
(1) Outstanding principal balance of mortgages transferred as of the report date ........... | 3652 33,550 | 9.b.(1)
(2) Amount of recourse exposure on these mortgages as of the report date ................... | 3653 33,550 | 9.b.(2)
c. Farmer Mac agricultural mortgage loan pools: | ////////////////// |
(1) Outstanding principal balance of mortgages transferred as of the report date ........... | 3654 0 | 9.c.(1)
(2) Amount of recourse exposure on these mortgages as of the report date ................... | 3655 0 | 9.c.(2)
d. Small business obligations transferred with recourse under Section 208 of the | ////////////////// |
Riegle Community Development and Regulatory Improvement Act of 1994: | ////////////////// |
(1) Outstanding principal balance of small business obligations transferred | ////////////////// |
as of the report date................................................................... | A249 0 | 9.d.(1)
(2) Amount of retained recourse on these obligations as of the report date.................. | A250 0 | 9.d.(2)
10. When-issued securities: | ////////////////// |
a. Gross commitments to purchase .............................................................. | 3434 0 | 10.a.
b. Gross commitments to sell .................................................................. | 3435 0 | 10.b.
11. Spot foreign exchange contracts ............................................................... | 8765 622,366 | 11.
12. All other off-balance sheet liabilities (exclude off-balance sheet derivatives) (itemize and | ////////////////// |
describe each component of this item over 25% of Schedule RC, item 28, "Total equity capital") | 3430 0 | 12.
a. | TEXT 3555 |______________________________________________________| RCFD 3555 | | ////////////////// | 12.a.
b. | TEXT 3556 |______________________________________________________| RCFD 3556 | | ////////////////// | 12.b.
___________
c. | TEXT 3557 |______________________________________________________| RCFD 3557 | | ////////////////// | 12.c.
_____________
d. | TEXT 3558 |______________________________________________________| RCFD 3558 | | ////////////////// | 12.d.
_____________ _______________________________________________
Dollar Amounts in Thousands RCFD Bil Mil Thou
_________________________________________________________________________________________________________________________
13. All other off-balance sheet assets (exclude off-balance sheet derivatives) (itemize and | ////////////////// |
describe each component of this item over 25% of Schedule RC,item 28,"Total equity capital") | 5591 0 | 13.
_____________ __________________________
a. | TEXT 5592 |______________________________________________________| RCFD 5592 | | ////////////////// | 13.a.
___________
b. | TEXT 5593 |______________________________________________________| RCFD 5593 | | ////////////////// | 13.b.
___________
c. | TEXT 5594 |______________________________________________________| RCFD 5594 | | ////////////////// | 13.c.
_____________
d. | TEXT 5595 |______________________________________________________| RCFD 5595 | | ////////////////// | 13.d.
_____________
________________________________________________
</TABLE>
24
<PAGE>
<TABLE>
<CAPTION>
Legal Title of Bank: FLEET NATIONAL BANK Call Date: 06/30/96 ST-BK: 25-0590 FFIEC 031
Address: ONE MONARCH PLACE Page RC-15
City, State Zip: SPRINGFIELD, MA 01102
FDIC Certificate No.: |0|2|4|9|9|
Schedule RC-L -- Continued
_____________
| C461 |(Less than)-
_________________________________________ ____________________________|___________|
| (Column A) | (Column B) | (Column C) | (Column D) |
| Interest Rate | Foreign Exchange | Equity Derivative | Commodity and other|
| Contracts | Contracts | Contracts | Contracts |
|___________________|____________________|____________________|____________________|
Dollar Amounts in Thousands |Tril Bil Mil Thou | Tril Bil Mil Thou | Tril Bil Mil Thou | Tril Bil Mil Thou |
_______________________________________________________________________________________________________________________|
<S> <C> <C> <C> <C> <C>
| Off-balance Sheet Derivatives | ///////////////// | ////////////////// | ////////////////// | ////////////////// |
| Position Indicators | ///////////////// | ////////////////// | ////////////////// | ////////////////// |
____________________________________| ///////////////// | ////////////////// | ////////////////// | ////////////////// |
14. Gross amounts (e.g., notional | ///////////////// | ////////////////// | ////////////////// | ////////////////// |
amounts) (for each column, sum of | ///////////////// | ////////////////// | ////////////////// | ////////////////// |
items 14.a through 14.e must equal | ///////////////// | ////////////////// | ////////////////// | ////////////////// |
sum of items 15, 16.a, and 16.b): |___________________|____________________|___________________ |____________________|
a. Futures contracts ............. | 1,229,392 | 0 | 0 | 36,486 | 14.a.
|___________________|____________________|____________________|____________________|
| RCFD 8693 | RCFD 8694 | RCFD 8695 | RCFD 8696 |
|___________________|____________________|____________________|____________________|
b. Forward contracts ............. | 2,576,500 | 1,931,682 | 0 | 21,832 | 14.b.
|___________________|____________________|____________________|____________________|
| RCFD 8697 | RCFD 8698 | RCFD 8699 | RCFD 8700 |
|___________________|____________________|____________________|____________________|
c. Exchange-traded option contracts:| ///////////////// | ////////////////// | ////////////////// | ////////////////// |
|___________________|____________________|____________________|____________________|
(1) Written options .......... | 0 | 0 | 0 | 0 | 14.c.(1)
|___________________|____________________|____________________|____________________|
| RCFD 8701 | RCFD 8702 | RCFD 8703 | RCFD 8704 |
|___________________|____________________|____________________|____________________|
(2) Purchased options ........ | 450,000 | 0 | 0 | 2,206 | 14.c.(2)
|___________________|____________________|____________________|____________________|
| RCFD 8705 | RCFD 8706 | RCFD 8707 | RCFD 8708 |
|___________________|____________________|____________________|____________________|
d. Over-the-counter option contracts: | //////////////////| ///////////////// | ///////////////// | //////////////// |
(1) Written options .......... | 1,324,980 | 3,887 | 0 | 0 | 14.d.(1)
|___________________|____________________|____________________|____________________|
| RCFD 8709 | RCFD 8710 | RCFD 8711 | RCFD 8712 |
|___________________|____________________|____________________|____________________|
(2) Purchased options ........ | 10,131,934 | 3,887 | 0 | 0 | 14.d.(2)
|___________________|____________________|____________________|____________________|
| RCFD 8713 | RCFD 8714 | RCFD 8715 | RCFD 8716 |
|___________________|____________________|____________________|____________________|
e. Swaps ............................ | 19,502,262 | 0 | 0 | 0 | 14.e.
|___________________|____________________|____________________|____________________|
| RCFD 3450 | RCFD 3826 | RCFD 8719 | RCFD 8720 |
|___________________|____________________|____________________|____________________|
15. Total gross notional amount of | ///////////////// | ////////////////// | ////////////////// | ////////////////// |
derivative contracts held for | ///////////////// | ////////////////// | ////////////////// | ////////////////// |
trading ......................... | 3,386,305 | 1,939,456 | 0 | 2,206 | 15.
|___________________|____________________|____________________|____________________|
| RCFD A126 | RFD A127 | RCFD 8723 | RCFD 8724 |
|___________________|____________________|____________________|____________________|
16. Total gross notional amount of | ///////////////// | //////////////// | ///////////////// | ////////////////// |
derivative contracts held for | ///////////////// | ///////////////// | ///////////////// | ////////////////// |
purposes other than trading: | ///////////////// | ///////////////// | ///////////////// | ////////////////// |
|___________________|____________________|____________________|____________________|
a. Contracts marked to market ... | 4,202,500 | 0 | 0 | 36,486 | 16.a.
|___________________|____________________|____________________|____________________|
| RCFD 8725 | RCFD 8726 | RCF 8727 | RCFD 8728 |
|___________________|____________________|____________________|____________________|
b. Contracts not marked to market | 27,626,263 | 0 | 0 | 21,832 | 16.b.
|___________________|____________________|____________________|____________________|
| RCFD 8729 | RCFD 8730 | RFD 8731 | RCFD 8732 |
|___________________|____________________|____________________|____________________|
</TABLE>
25
<PAGE>
<TABLE>
<CAPTION>
Legal Title of Bank: FLEET NATIONAL BANK Call Date: 06/30/96 ST-BK: 25-0590 FFIEC 031
Address: ONE MONARCH PLACE Page RC-16
City, State Zip: SPRINGFIELD, MA 01102
FDIC Certificate No.: |0|2|4|9|9|
Schedule RC-L -- Continued
<CAPTION>
_________________________________________ _________________________________________
| (Column A) | (Column B) | (Column C) | (Column D) |
Dollar Amounts in Thousands | Interest Rate | Foreign Exchange | Equity Derivative | Commodity and other|
___________________________________| Contracts | Contracts | Contracts | Contracts |
| Off-balance Sheet Derivatives |___________________|____________________|____________________|____________________|
| Position Indicators |RCFD Bil Mil Thou | RCFD Bil Mil Thou | RCFD Bil Mil Thou | RCFD Bil Mil Thou |
|_____________________________________________________________________________________________________________________|
<S> <C> <C> <C> <C> <C>
17. Gross fair values of | ///////////////// | ////////////////// | ////////////////// | ////////////////// |
derivative contracts: | ///////////////// | ////////////////// | ////////////////// | ////////////////// |
a. Contracts held for | ///////////////// | ////////////////// | ////////////////// | ////////////////// |
trading: | ///////////////// | ////////////////// | ////////////////// | ////////////////// |
(1) Gross positive | ///////////////// | ////////////////// | ////////////////// | ////////////////// |
fair value ................... | 8733 29,782 | 8734 41,523 | 8735 0 | 8736 58 | 17.a.(1)
(2) Gross negative | ///////////////// | ////////////////// | ////////////////// | ////////////////// |
fair value ................... | 8737 20,932 | 8738 36,511 | 8739 0 | 8740 0 | 17.a.(2)
b. Contracts held for | ///////////////// | ////////////////// | ////////////////// | ////////////////// |
purposes other than | ///////////////// | ////////////////// | ////////////////// | ////////////////// |
trading that are marked | ///////////////// | ////////////////// | ////////////////// | ////////////////// |
to market: | ///////////////// | ////////////////// | ////////////////// | ////////////////// |
(1) Gross positive | ///////////////// | ////////////////// | ////////////////// | ////////////////// |
fair value ................... | 8741 524 | 8742 0 | 8743 0 | 8744 1,452 | 17.b.(1)
(2) Gross negative | ///////////////// | ////////////////// | ////////////////// | ////////////////// |
fair value ................... | 8745 2,834 | 8746 0 | 8747 0 | 8748 0 | 17.b.(2)
c. Contracts held for | ///////////////// | ////////////////// | ////////////////// | ////////////////// |
purposes other than | ///////////////// | ////////////////// | ////////////////// | ////////////////// |
trading that are not | ///////////////// | ////////////////// | ////////////////// | ////////////////// |
marked to market: | ///////////////// | ////////////////// | ////////////////// | ////////////////// |
(1) Gross positive | ///////////////// | ////////////////// | ////////////////// | ////////////////// |
fair value .................. | 8749 64,085 | 8750 0 | 8751 0 | 8752 100 | 17.c.(1)
(2) Gross negative | ///////////////// | ////////////////// | ////////////////// | ////////////////// |
fair value ................... | 8753 111,703 | 8754 0 | 8755 0 | 8756 0 | 17.c.(2)
|__________________________________________________________________________________|
</TABLE>
<TABLE>
<CAPTION>
______________________
Memoranda Dollar Amounts in Thousands | RCFD Bil Mil Thou |
_________________________________________________________________________________________________________________________
<S> <C> <C>
1. -2. Not applicable | ////////////////// |
3. Unused commitments with an original maturity exceeding one year that are reported in | ////////////////// |
Schedule RC-L, items 1.a through 1.e, above (report only the unused portions of commitments | ////////////////// |
that are fee paid or otherwise legally binding) ................................................ | 3833 16,829,602 | M.3.
a. Participations in commitments with an original maturity | ////////////////// |
exceeding one year conveyed to others ................................|RCFD 3834 | 1,310,691 | ////////////////// | M.3.a.
________________________
4. To be completed only by banks with $1 billion or more in total assets: | ////////////////// |
Standby letters of credit and foreign office guarantees (both financial and performance) issued | ////////////////// |
to non-U.S. addressees (domicile) included in Schedule RC-L, items 2 and 3, above .............. | 3377 341,139 | M.4.
5. Installment loans to individuals for household, family, and other personal expenditures that | ////////////////// |
have been securitized and sold without recourse (with servicing retained), amounts outstanding | ////////////////// |
by type of loan: | ////////////////// |
a. Loans to purchase private passenger automobiles (to be completed for the | ////////////////// |
September report only)....................................................................... | 2741 N/A | M.5.a.
b. Credit cards and related plans (TO BE COMPLETED QUARTERLY)................................... | 2742 0 | M.5.b.
c. All other consumer installment credit (including mobile home loans)(to be completed for the | ////////////////// |
September report only........................................................................ | 2743 N/A | M.5.c
|____________________|
</TABLE>
26
<PAGE>
<TABLE>
<CAPTION>
Legal Title of Bank: FLEET NATIONAL BANK Call Date: 06/30/96 ST-BK: 25-0590 FFIEC 031
Address: ONE MONARCH PLACE Page RC-17
City, State Zip: SPRINGFIELD, MA 01102
FDIC Certificate No.: |0|2|4|9|9| _____________
| C465 |
_________|___________|
Schedule RC-M--Memoranda | |
Dollar Amounts in Thousands | RCFD Bil Mil Thou |
______________________________________________________________________________________________________|____________________|
<S> <C> <C>
1. Extensions of credit by the reporting bank to its executive officers, directors, principal | ////////////////// |
shareholders, and their related interests as of the report date: | ////////////////// |
a. Aggregate amount of all extensions of credit to all executive officers, directors, principal | ////////////////// |
shareholders and their related interests ..................................................... | 6164 605,294 | 1.a.
b. Number of executive officers, directors, and principal shareholders to whom the amount of all | ////////////////// |
extensions of credit by the reporting bank (including extensions of credit to | ////////////////// |
related interests) equals or exceeds the lesser of $500,000 or 5 percent Number | ////////////////// |
___________________________| ////////////////// |
of total capital as defined for this purpose in agency regulations. | RCFD 6165 | 24 | ////////////////// |
___________________________| ////////////////// | 1.b.
2. Federal funds sold and securities purchased under agreements to resell with U.S. branches | ////////////////// |
and agencies of foreign banks(1) (included in Schedule RC, items 3.a and 3.b) .................... | 3405 0 | 2.
3. Not applicable. | ////////////////// |
4. Outstanding principal balance of 1-4 family residential mortgage loans serviced for others | ////////////////// |
(include both retained servicing and purchased servicing): | ////////////////// |
a. Mortgages serviced under a GNMA contract ...................................................... | 5500 28,855,729 | 4.a.
b. Mortgages serviced under a FHLMC contract: | ////////////////// |
(1) Serviced with recourse to servicer ........................................................ | 5501 55,604 | 4.b.(1)
(2) Serviced without recourse to servicer ..................................................... | 5502 32,340,522 | 4.b.(2)
c. Mortgages serviced under a FNMA contract: | ////////////////// |
(1) Serviced under a regular option contract .................................................. | 5503 190,640 | 4.c.(1)
(2) Serviced under a special option contract .................................................. | 5504 38,282,672 | 4.c.(2)
d. Mortgages serviced under other servicing contracts ............................................ | 5505 8,508,320 | 4.d.
5. To be completed only by banks with $1 billion or more in total assets: | ////////////////// |
Customers' liability to this bank on acceptances outstanding (sum of items 5.a and 5.b must | ////////////////// |
equal Schedule RC, item 9): | ////////////////// |
a. U.S. addressees (domicile) .................................................................... | 2103 16,297 | 5.a.
b. Non-U.S. addressees (domicile) ................................................................ | 2104 337 | 5.b.
6. Intangible assets: | ////////////////// |
a. Mortgage servicing rights ..................................................................... | 3164 1,483,959 | 6.a.
b. Other identifiable intangible assets: | ////////////////// |
(1) Purchased credit card relationships ....................................................... | 5506 0 | 6.b.(1)
(2) All other identifiable intangible assets .................................................. | 5507 126,463 | 6.b.(2)
c. Goodwill ...................................................................................... | 3163 672,992 | 6.c.
d. Total (sum of items 6.a through 6.c) (must equal Schedule RC, item 10) ........................ | 2143 2,283,414 | 6.d.
e. Amount of intangible assets (included in item 6.b.(2) above) that have been grandfathered or | ////////////////// |
are otherwise qualifying for regulatory capital purposes ...................................... | 6442 0 | 6.e.
7. Mandatory convertible debt, net of common or perpetual preferred stock dedicated to | ////////////////// |
redeem the debt ...................................................................................| 3295 75,000 | 7.
______________________
</TABLE>
- ------------
(1) Do not report federal funds sold and securities purchased under agreements
to resell with other commercial banks in the U.S. in this item.
27
<PAGE>
<TABLE>
<CAPTION>
Legal Title of Bank: FLEET NATIONAL BANK Call Date: 06/30/96 ST-BK: 25-0590 FFIEC 031
Address: ONE MONARCH PLACE Page RC-18
City, State Zip: SPRINGFIELD, MA 01102
FDIC Certificate No.: |0|2|4|9|9|
Schedule RC-M--Continued ________________________
Dollar Amounts in Thousands | Bil Mil Thou|
_____________________________________________________________________________________________ |_______________________|
<S> <C> <C>
8. a. Other real estate owned: | /////////////////////// |
(1) Direct and indirect investments in real estate ventures ......................... | RCFD 5372 0 | 8.a.(1)
(2) All other real estate owned: | /////////////////////// |
(a) Construction and land development in domestic offices ....................... | RCON 5508 4,537 | 8.a.(2)(a)
(b) Farmland in domestic offices ................................................ | RCON 5509 0 | 8.a.(2)(b)
(c) 1-4 family residential properties in domestic offices ....................... | RCON 5510 8,067 | 8.a.(2)(c)
(d) Multifamily (5 or more) residential properties in domestic offices .......... | RCON 5511 740 | 8.a.(2)(d)
(e) Nonfarm nonresidential properties in domestic offices ....................... | RCON 5512 21,202 | 8.a.(2)(e)
(f) In foreign offices .......................................................... | RCFN 5513 0 | 8.a.(2)(f)
(3) Total (sum of items 8.a.(1) and 8.a.(2)) (must equal Schedule RC, item 7) ....... | RCFD 2150 34,546 | 8.a.(3)
b. Investments in unconsolidated subsidiaries and associated companies: | /////////////////////// |
(1) Direct and indirect investments in real estate ventures ......................... | RCFD 5374 0 | 8.b.(1)
(2) All other investments in unconsolidated subsidiaries and associated companies ... | RCFD 5375 0 | 8.b.(2)
(3) Total (sum of items 8.b.(1) and 8.b.(2)) (must equal Schedule RC, item 8) ....... | RCFD 2130 0 | 8.b.(3)
c. Total assets of unconsolidated subsidiaries and associated companies ................ | RCFD 5376 0 | 8.c.
9. Noncumulative perpetual preferred stock and related surplus included in Schedule RC, | /////////////////////// |
item 23, "Perpetual preferred stock and related surplus" ............................... | RCFD 3778 125,000 | 9.
10. Mutual fund and annuity sales in domestic offices during the quarter (include | /////////////////////// |
proprietary, private label, and third party products): | /////////////////////// |
a. Money market funds .................................................................. | RCON 6441 55,245 | 10.a.
b. Equity securities funds ............................................................. | RCON 8427 108,359 | 10.b.
c. Debt securities funds ............................................................... | RCON 8428 13,250 | 10.c.
d. Other mutual funds .................................................................. | RCON 8429 0 | 10.d.
e. Annuities ........................................................................... | RCON 8430 102,292 | 10.e.
f. Sales of proprietary mutual funds and annuities (included in items 10.a through | /////////////////////// |
10.e. above) ........................................................................... | RCON 8784 150,100 | 10.f.
_________________________
</TABLE>
<TABLE>
<CAPTION>
_________________________________________________________________________________________________________________________________
| |
______________________
|Memorandum Dollar Amounts in Thousands | RCFD Bil Mil Thou | |
_________________________________________________________________________________________________ ____________________
<S> <C> <C>
|1. Interbank holdings of capital instruments (to be completed for the December report only): | ////////////////// | |
| a. Reciprocal holdings of banking organizations' capital instruments ........................ | 3836 N/A | M.1.a. |
| b. Nonreciprocal holdings of banking organizations' capital instruments ..................... | 3837 N/A | M.1.b. |
______________________
| |
_________________________________________________________________________________________________________________________________
</TABLE>
28
<PAGE>
<TABLE>
<S> <C>
Legal Title of Bank: FLEET NATIONAL BANK Call Date: 06/30/96 ST-BK: 25-0590 FFIEC 031
Address: ONE MONARCH PLACE Page RC-19
City, State Zip: SPRINGFIELD, MA 01102
FDIC Certificate No.: |0|2|4|9|9|
___________
</TABLE>
<TABLE>
<CAPTION>
Schedule RC-N--Past Due and Nonaccrual Loans, Leases,
and Other Assets
The FFIEC regards the information reported in __________
all of Memorandum item 1, in items 1 through 10, | C470 |(Less than)-
column A, and in Memorandum items 2 through 4, ______________________________________________________ ________
column A, as confidential. | (Column A) | (Column B) | (Column C) |
| Past due | Past due 90 | Nonaccrual |
| 30 through 89 | days or more | |
| days and still | and still | |
| accruing | accruing | |
____________________ ____________________ ____________________
Dollar Amounts in Thousands | RCFD Bil Mil Thou | RCFD Bil Mil Thou | RCFD Bil Mil Thou |
______________________________________________________ ____________________ ____________________ ____________________
<S> <C> <C> <C> <C>
1. Loans secured by real estate: | ////////////////// | ////////////////// | ////////////////// |
a. To U.S. addressees (domicile) ................ | 1245 | 1246 71,390 | 1247 223,962 | 1.a.
b. To non-U.S. addressees (domicile) ............ | 1248 | 1249 0 | 1250 0 | 1.b.
2. Loans to depository institutions and | ///// | ////////////////// | ////////////////// |
acceptances of other banks: | ///// | ////////////////// | ////////////////// |
a. To U.S. banks and other U.S. depository | ///// | ////////////////// | ////////////////// |
institutions ................................. | 5377 | 5378 0 | 5379 0 | 2.a.
b. To foreign banks ............................. | 5380 | 5381 0 | 5382 0 | 2.b.
3. Loans to finance agricultural production and | ///// | ////////////////// | ////////////////// |
other loans to farmers .......................... | 1594 | 1597 385 | 1583 531 | 3.
4. Commercial and industrial loans: | ///// | ////////////////// | ////////////////// |
a. To U.S. addressees (domicile) ................ | 1251 | 1252 11,945 | 1253 108,334 | 4.a.
b. To non-U.S. addressees (domicile) ............ | 1254 | 1255 0 | 1256 0 | 4.b.
5. Loans to individuals for household, family, and | ///// | ////////////////// | ////////////////// |
other personal expenditures: | ///// | ////////////////// | ///////////////// |
a. Credit cards and related plans ............... | 5383 | 5384 1,187 | 5385 669 | 5.a.
b. Other (includes single payment, installment, | ///// | ////////////////// | ////////////////// |
and all student loans) ....................... | 5386 | 5387 22,600 | 5388 8,465 | 5.b.
6. Loans to foreign governments and official | ///// | ////////////////// | ////////////////// |
institutions .................................... | 5389 | 5390 0 | 5391 0 | 6.
7. All other loans ................................. | 5459 | 5460 14,909 | 5461 1,919 | 7.
8. Lease financing receivables: | ///// | ////////////////// | ////////////////// |
a. Of U.S. addressees (domicile) ................ | 1257 | 1258 95 | 1259 6,544 | 8.a.
b. Of non-U.S. addressees (domicile) ............ | 1271 | 1272 0 | 1791 0 | 8.b.
9. Debt securities and other assets (exclude other | ///// | ////////////////// | ////////////////// |
real estate owned and other repossessed assets) . | 3505 | 3506 0 | 3507 85,778 | 9.
________________________________________________________________
</TABLE>
<TABLE>
<CAPTION>
====================================================================================================================================
Amounts reported in items 1 through 8 above include guaranteed and unguaranteed portions of past due and nonaccrual loans and
leases. Report in item 10 below certain guaranteed loans and leases that have already been included in the amounts reported in
items 1 through 8.
________________________________________________________________
| RCFD Bil Mil Thou | RCFD Bil Mil Thou | RCFD Bil Mil Thou |
____________________ ____________________ ____________________
<S> <C> <C> <C> <C>
10. Loans and leases reported in items 1 | | | |
through 8 above which are wholly or partially | ///// | ////////////////// | ////////////////// |
guaranteed by the U.S. Government ............... | 5612 | 5613 18,447 | 5614 21,415 | 10.
a. Guaranteed portion of loans and leases | ///// | ////////////////// | ////////////////// |
included in item 10 above .................... | 5615 | 5616 18,250 | 5617 16,952 | 10.a.
________________________________________________________________
</TABLE>
29
<PAGE>
<TABLE>
<S> <C>
Legal Title of Bank: FLEET NATIONAL BANK Call Date: 06/30/96 ST-BK: 25-0590 FFIEC 031
Address: ONE MONARCH PLACE Page RC-20
City, State Zip: SPRINGFIELD, MA 01102
FDIC Certificate No.: |0|2|4|9|9|
___________
</TABLE>
<TABLE>
<CAPTION>
Schedule RC-N--Continued
__________
| C473 |(Less than)-
______________________________________________________ ________
| (Column A) | (Column B) | (Column C) |
| Past due | Past due 90 | Nonaccrual |
| 30 through 89 | days or more | |
| days and still | and still | |
Memoranda | accruing | accruing | |
____________________ ____________________ ____________________
Dollar Amounts in Thousands | RCFD Bil Mil Thou | RCFD Bil Mil Thou | RCFD Bil Mil Thou |
______________________________________________________ ____________________ ____________________ ____________________
<S> <C> <C> <C> <C>
1. Restructured loans and leases included in | ///// | /////////////////// | ///////////////// |
Schedule RC-N, items 1 through 8, above (and not | ///// | //// | |
reported in Schedule RC-C, part I, Memorandum | ///// | //// | |
item 2) ......................................... | 1658 | 1659 | | M.1.
2. Loans to finance commercial real estate, | ///// | //// | |
construction, and land development activities | ///// | //// | |
(not secured by real estate) included in | ///// | /////////////////// | ///////////////// |
Schedule RC-N, items 4 and 7, above ............. | 6558 | 6559 826 | 6560 7,043 | M.2.
|____________________|____________________ |___________________
3. Loans secured by real estate in domestic offices | RCON | RCON Bil Mil Thou | RCON Bil Mil Thou|
|___________________ |____________________ ____________________
(included in Schedule RC-N, item 1, above): | ///// | ////////////////// | ////////////////// |
a. Construction and land development ............ | 2759 | 2769 1,100 | 3492 26,422 | M.3.a.
b. Secured by farmland .......................... | 3493 | 3494 161 | 3495 0 | M.3.b.
c. Secured by 1-4 family residential properties: | ///// | ////////////////// | ////////////////// |
(1) Revolving, open-end loans secured by | ///// | ////////////////// | ////////////////// |
1-4 family residential properties and | ///// | ////////////////// | ////////////////// |
extended under lines of credit ........... | 5398 | 5399 5,114 | 5400 17,374 | M.3.c.(1)
(2) All other loans secured by 1-4 family | ///// | ////////////////// | ////////////////// |
residential properties ................... | 5401 | 5402 58,079 | 5403 75,430 | M.3.c.(2)
d. Secured by multifamily (5 or more) | ///// | ////////////////// | ////////////////// |
residential properties ....................... | 3499 | 3500 521 | 3501 12,491 | M.3.d.
e. Secured by nonfarm nonresidential properties . | 3502 | 3503 6,415 | 3504 92,245 | M.3.e.
________________________________________________________________
</TABLE>
<TABLE>
<CAPTION>
___________________________________________
| (Column A) | (Column B) |
| Past due 30 | Past due 90 |
| through 89 days | days or more |
____________________ ____________________
| RCFD Bil Mil Thou | RCFD Bil Mil Thou |
____________________ ____________________
<S> <C> <C> <C>
4. Interest rate, foreign exchange rate, and other | ///// | ////////////////// |
commodity and equity contracts: | ///// | ////////////////// |
a. Book value of amounts carried as assets ...... | 3522 | 3528 0 | M.4.a.
b. Replacement cost of contracts with a | ///// | ////////////////// |
positive replacement cost .................... | 3529 | 3530 0 | M.4.b.
___________________________________________
</TABLE>
30
<PAGE>
<TABLE>
<S> <C>
Legal Title of Bank: FLEET NATIONAL BANK Call Date: 06/30/96 ST-BK: 25-0590 FFIEC 031
Address: ONE MONARCH PLACE Page RC-21
City, State Zip: SPRINGFIELD, MA 01102
FDIC Certificate No.: |0|2|4|9|9|
___________
</TABLE>
<TABLE>
<CAPTION>
______________________
Schedule RC-O--Other Data for Deposit Insurance Assessments | C475 |
|____________________|
Dollar Amounts in Thousands | RCON Bil Mil Thou |
___________________________________________________________________________________________________ ____________________
<S> <C> <C>
1. Unposted debits (see instructions): | ////////////////// |
a. Actual amount of all unposted debits ...................................................... | 0030 216 | 1.a.
OR | ////////////////// |
b. Separate amount of unposted debits: | ////////////////// |
(1) Actual amount of unposted debits to demand deposits ................................... | 0031 N/A | 1.b.(1)
(2) Actual amount of unposted debits to time and savings deposits(1) ...................... | 0032 N/A | 1.b.(2)
2. Unposted credits (see instructions): | ////////////////// |
a. Actual amount of all unposted credits ..................................................... | 3510 216 | 2.a.
OR | ////////////////// |
b. Separate amount of unposted credits: | ////////////////// |
(1) Actual amount of unposted credits to demand deposits .................................. | 3512 N/A | 2.b.(1)
(2) Actual amount of unposted credits to time and savings deposits(1) ..................... | 3514 N/A | 2.b.(2)
3. Uninvested trust funds (cash) held in bank's own trust department (not included in total | ////////////////// |
deposits in domestic offices) ................................................................ | 3520 101,763 | 3.
4. Deposits of consolidated subsidiaries in domestic offices and in insured branches in | ////////////////// |
Puerto Rico and U.S. territories and possessions (not included in total deposits): | ////////////////// |
a. Demand deposits of consolidated subsidiaries .............................................. | 2211 206,111 | 4.a.
b. Time and savings deposits(1) of consolidated subsidiaries ................................. | 2351 20,089 | 4.b.
c. Interest accrued and unpaid on deposits of consolidated subsidiaries ...................... | 5514 8 | 4.c.
5. Deposits in insured branches in Puerto Rico and U.S. territories and possessions: | ////////////////// |
a. Demand deposits in insured branches (included in Schedule RC-E, Part II) .................. | 2229 0 | 5.a.
b. Time and savings deposits(1) in insured branches (included in Schedule RC-E, Part II) ..... | 2383 0 | 5.b.
c. Interest accrued and unpaid on deposits in insured branches | ////////////////// |
(included in Schedule RC-G, item 1.b) ..................................................... | 5515 0 | 5.c.
______________________
______________________
Item 6 is not applicable to state nonmember banks that have not been authorized by the | ////////////////// |
Federal Reserve to act as pass-through correspondents. | ////////////////// |
6. Reserve balances actually passed through to the Federal Reserve by the reporting bank on | ////////////////// |
behalf of its respondent depository institutions that are also reflected as deposit liabilities| ////////////////// |
of the reporting bank: | ////////////////// |
a. Amount reflected in demand deposits (included in Schedule RC-E, item 4 or 5, column B)..... | 2314 0 | 6.a.
b. Amount reflected in time and savings deposits(1) (included in Schedule RC-E, Part I, | ////////////////// |
item 4 or 5, column A or C, but not column B).............................................. | 2315 0 | 6.b.
7. Unamortized premiums and discounts on time and savings deposits:(1) | ////////////////// |
a. Unamortized premiums ...................................................................... | 5516 769 | 7.a.
b. Unamortized discounts ..................................................................... | 5517 0 | 7.b.
______________________
_______________________________________________________________________________________________________________________________
| |
|8. To be completed by banks with "Oakar deposits." |
______________________
| Total "Adjusted Attributable Deposits" of all institutions acquired under Section 5(d)(3) of | ////////////////// | |
| the Federal Deposit Insurance Act (from most recent FDIC Oakar Transaction Worksheet(s)) .... | 5518 2,188,589 | 8. |
______________________
| |
_______________________________________________________________________________________________________________________________
______________________
9. Deposits in lifeline accounts ................................................................ | 5596 ///////////// | 9.
10. Benefit-responsive "Depository Institution Investment Contracts" (included in total | ////////////////// |
deposits in domestic offices) ................................................................ | 8432 0 | 10.
______________________
______________
(1) For FDIC insurance assessment purposes, "time and savings deposits" consists of nontransaction
accounts and all transaction accounts other than demand deposits.
</TABLE>
31
<PAGE>
<TABLE>
<S> <C>
Legal Title of Bank: FLEET NATIONAL BANK Call Date: 06/30/96 ST-BK: 25-0590 FFIEC 031
Address: ONE MONARCH PLACE Page RC-22
City, State Zip: SPRINGFIELD, MA 01102
FDIC Certificate No.: |0|2|4|9|9|
___________
</TABLE>
<TABLE>
<CAPTION>
Schedule RC-O--Continued
Dollar Amounts in Thousands | RCON Bil Mil Thou |
__________________________________________________________________________________________________ ____________________
<S> <C> <C>
11. Adjustments to demand deposits in domestic offices reported in Schedule RC-E for | ////////////////// |
certain reciprocal demand balances: | ////////////////// |
a. Amount by which demand deposits would be reduced if reciprocal demand balances | ////////////////// |
between the reporting bank and savings associations were reported on a net basis | ////////////////// |
rather than a gross basis in Schedule RC-E .................................................. | 8785 0 | 11.a.
b. Amount by which demand deposits would be increased if reciprocal demand balances | ////////////////// |
between the reporting bank and U.S. branches and agencies of foreign banks were | ////////////////// |
reported on a gross basis rather than a net basis in Schedule RC-E .......................... | A181 0 | 11.b.
c. Amount by which demand deposits would be reduced if cash items in process of | ////////////////// |
collection were included in the calculation of net reciprocal demand balances between | ////////////////// |
the reporting bank and the domestic offices of U.S. banks and savings associations | ////////////////// |
in Schedule RC-E ............................................................................ | A182 0 | 11.c.
____________________
Memoranda (to be completed each quarter except as noted) Dollar Amounts in Thousands | RCON Bil Mil Thou |
_____________________________________________________________________ ___________________________|____________________|
1. Total deposits in domestic offices of the bank (sum of Memorandum it ems 1.a. (1) and | ////////////////// |
1.b.(1) must equal Schedule RC, item 13.a): | ////////////////// |
a. Deposits accounts of $100,000 or less: | ////////////////// |
(1) amount of deposit accounts of $100,000 or less ....................................... | 2702 19,755,631 | M.1.a.(1)
(2) Number of deposit accounts of $100,000 or less (to be Number | ////////////////// |
completed for the June report only) .............................|RCON 3779 3,742,107 | ////////////////// | M.1.a.(2)
b. Deposit accounts of more than $100,000: | ////////////////// |
(1) Amount of deposit accounts of more than $100,000 ..................................... | 2710 14,354,949 | M.1.b.(1)
Number | ////////////////// |
(2) Number of deposit accounts of more than $100,000 ................|RCON 2722 27,062 | ////////////////// | M.1.b.(2)
2. Estimated amount of uninsured deposits in domestic offices of the bank:
a. An estimate of your bank's uninsured deposits can be determined by mutiplying the
number of deposit accounts of more than $100,000 reported in Memorandum item 1.b.(2)
above by $100,000 and subtracting the result from the amount of deposit accounts of
more than $100,000 reported in Memorandum item 1.b.(1) above.
Indicate in the appropriate box at the right whether your bank has a method or
procedure for determining a better estimate of uninsured deposits than the ____________YES_______NO__
estimated described above .................................................................. | 6861| |///| x | M.2.a.
____________________
b. If the box marked YES has been checked, report the estimate of uninsured deposits |RCON Bil Mil Thou|
determined by using your bank's method or procedure .................................... | 5597 N/A | M.2.b.
________________________________________________________________________________________________________________________
| C477 |(Less than)-
Person to whom questions about the Reports of Condition and Income should be directed: __________
PAMELA S. FLYNN, VICE PRESIDENT (401) 278-5194
___________________________________________________________________________________ ______________________________________
Name and Title (TEXT 8901) Area code and phone number (TEXT 8902)
</TABLE>
32
<PAGE>
<TABLE>
<S> <C>
Legal Title of Bank: FLEET NATIONAL BANK Call Date: 06/30/96 ST-BK: 25-0590 FFIEC 031
Address: ONE MONARCH PLACE Page RC-23
City, State Zip: SPRINGFIELD, MA 01102
FDIC Certificate No.: |0|2|4|9|9|
___________
</TABLE>
<TABLE>
<CAPTION>
Schedule RC-R--Regulatory Capital
This schedule must be completed by all banks as follows: Banks that reported total assets of $1 billion or more in Schedule RC,
item 12, for June 30, 1995, must complete items 2 through 9 and Memoranda items 1 and 2. Banks with assets of less than
$1 billion must complete items 1 through 3 below or Schedule RC-R in its entirety, depending on their response to item 1 below.
<S> <C>
____________
| C480 |(Less than)-
1. Test for determining the extent to which Schedule RC-R must be completed. To be completed ____|__________|
only by banks with total assets of less than $1 billion. Indicate in the appropriate | YES NO |
box at the right whether the bank has total capital greater than or equal to eight percent___________ _______________
of adjusted total assets ............................................................... | RCFD 6056 | |////| | 1.
_____________________________
For purposes of this test, adjusted total assets equals total assets less cash, U.S. Treasuries, U.S. Government
agency obligations, and 80 percent of U.S. Government-sponsored agency obligations plus the allowance for loan
and lease losses and selected off-balance sheet items as reported on Schedule RC-L (see instructions).
If the box marked YES has been checked, then the bank only has to complete items 2 and 3 below. If the box marked
NO has been checked, the bank must complete the remainder of this schedule.
A NO response to item 1 does not necessarily mean that the bank's actual risk-based capital ratio is less than eight
percent or that the bank is not in compliance with the risk-based capital guidelines.
</TABLE>
<TABLE>
<CAPTION>
___________________________________________
| (Column A) | (Column B) |
|Subordinated Debt(1)| Other |
_________________________________________________________________ | and Intermediate | Limited- |
| NOTE: All banks are required to complete items 2 and 3 below | | Term Preferred | Life Capital |
| See optional worksheet for items 3.a through 3.f. | | Stock | Instruments |
|________________________________________________________________| ____________________ ____________________
Dollar Amounts in Thousands | RCFD Bil Mil Thou | RCFD Bil Mil Thou |
______________________________________________________________________________ ____________________ ____________________
<S> <C> <C> <C>
2. Subordinated debt(1) and other limited-life capital instruments (original | | |
weighted average maturity of at least five years) with a remaining | | |
maturity of: | | |
a. One year or less ...................................................... | 3780 25,737 | 3786 0 | 2.a.
b. Over one year through two years ....................................... | 3781 737 | 3787 0 | 2.b.
c. Over two years through three years .................................... | 3782 10,745 | 3788 0 | 2.c.
d. Over three years through four years ................................... | 3783 0 | 3789 0 | 2.d.
e. Over four years through five years .................................... | 3784 0 | 3790 0 | 2.e.
f. Over five years ....................................................... | 3785 1,101,000 | 3791 0 | 2.f.
3. Amounts used in calculating regulatory capital ratios (report amounts | ////////////////// | ////////////////// |
determined by the bank for its own internal regulatory capital analyses): | ////////////////// | RCFD Bil Mil Thou |
a. Tier 1 capital......................................................... | ////////////////// | 8274 3,590,367 | 3.a.
b. Tier 2 capital......................................................... | ////////////////// | 8275 1,755,646 | 3.b.
c. Total risk-based capital............................................... | ////////////////// | 3792 5,346,013 | 3.c.
d. Excess allowance for loan and lease losses............................. | ////////////////// | A222 297,250 | 3.d.
e. Risk-weighted assets................................................... | ////////////////// | A223 45,718,856 | 3.e.
f. "Average total assets"................................................. | ////////////////// | A224 51,482,775 | 3.f.
___________________________________________
| (Column A) | (Column B) |
Items 4-9 and Memoranda items 1 and 2 are to be completed | Assets | Credit Equiv- |
by banks that answered NO to item 1 above and | Recorded | alent Amount |
by banks with total assets of $1 billion or more. | on the | of Off-Balance |
| Balance Sheet | Sheet Items(2) |
____________________ ____________________
| RCFD Bil Mil Thou | RCFD Bil Mil Thou |
____________________ ____________________
<S> <C> <C> <C>
4. Assets and credit equivalent amounts of off-balance sheet items assigned | | |
to the Zero percent risk category: | ////////////////// | ////////////////// |
a. Assets recorded on the balance sheet: | ////////////////// | ////////////////// |
(1) Securities issued by, other claims on, and claims unconditionally | ////////////////// | ////////////////// |
guaranteed by, the U.S. Government and its agencies and other | ////////////////// | ////////////////// |
OECD central governments .......................................... | 3794 2,147,648 | ////////////////// | 4.a.(1)
(2) All other ......................................................... | 3795 1,115,265 | ////////////////// | 4.a.(2)
b. Credit equivalent amount of off-balance sheet items ................... | ////////////////// | 3796 101,488 | 4.b.
___________________________________________
</TABLE>
_____
(1) Exclude mandatory convertible debt reported in Schedule RC-M, item 7.
(2) Do not report in column B the risk-weighted amount of assets reported in
column A.
33
<PAGE>
<TABLE>
<S> <C>
Legal Title of Bank: FLEET NATIONAL BANK Call Date: 06/30/96 ST-BK: 25-0590 FFIEC 031
Address: ONE MONARCH PLACE Page RC-24
City, State Zip: SPRINGFIELD, MA 01102
FDIC Certificate No.: |0|2|4|9|9|
___________
</TABLE>
<TABLE>
<CAPTION>
Schedule RC-R--Continued
___________________________________________
| (Column A) | (Column B) |
| Assets | Credit Equiv- |
| Recorded | alent Amount |
| on the | of Off-Balance |
| Balance Sheet | Sheet Items(1) |
____________________ ____________________
Dollar Amounts in Thousands | RCFD Bil Mil Thou | RCFD Bil Mil Thou |
______________________________________________________________________________ ____________________ ____________________
<S> <C> <C> <C>
5. Assets and credit equivalent amounts of off-balance sheet items | ////////////////// | ////////////////// |
assigned to the 20 percent risk category: | ////////////////// | ////////////////// |
a. Assets recorded on the balance sheet: | ////////////////// | ////////////////// |
(1) Claims conditionally guaranteed by the U.S. Government and its | ////////////////// | ////////////////// |
agencies and other OECD central governments ....................... | 3798 714,375 | ////////////////// | 5.a.(1)
(2) Claims collateralized by securities issued by the U.S. Govern- | ////////////////// | ////////////////// |
ment and its agencies and other OECD central governments; by | ////////////////// | ////////////////// |
securities issued by U.S. Government-sponsored agencies; and | ////////////////// | ////////////////// |
by cash on deposit ................................................ | 3799 0 | ////////////////// | 5.a.(2)
(3) All other ......................................................... | 3800 8,774,345 | ////////////////// | 5.a.(3)
b. Credit equivalent amount of off-balance sheet items ................... | ////////////////// | 3801 791,065 | 5.b.
6. Assets and credit equivalent amounts of off-balance sheet items | ////////////////// | ////////////////// |
assigned to the 50 percent risk category: | ////////////////// | ////////////////// |
a. Assets recorded on the balance sheet .................................. | 3802 5,265,173 | ////////////////// | 6.a.
b. Credit equivalent amount of off-balance sheet items ................... | ////////////////// | 3803 409,680 | 6.b.
7. Assets and credit equivalent amounts of off-balance sheet items | ////////////////// | ////////////////// |
assigned to the 100 percent risk category: | ////////////////// | ////////////////// |
a. Assets recorded on the balance sheet .................................. | 3804 31,799,547 | ////////////////// | 7.a.
b. Credit equivalent amount of off-balance sheet items ................... | ////////////////// | 3805 10,122,631 | 7.b.
8. On-balance sheet asset values excluded from the calculation of the | ////////////////// | ////////////////// |
risk-based capital ratio(2) .............................................. | 3806 83,713 | ////////////////// | 8.
9. Total assets recorded on the balance sheet (sum of | ////////////////// | ////////////////// |
items 4.a, 5.a, 6.a, 7.a, and 8, column A)(must equal Schedule RC, | ////////////////// | ////////////////// |
item 12 plus items 4.b and 4.c) .......................................... | 3807 49,900,066 | ////////////////// | 9.
___________________________________________
Memoranda
______________________
Dollar Amounts in Thousands | RCFD Bil Mil Thou |
__________________________________________________________________________________________________ ____________________
1.Current credit exposure across all off-balance sheet derivative contracts covered by the | ///////////////// |
risked-based capital standards .................................................................| 8764 135,825| M.1.
|___________________|
_____________________________________________________________________
| With a remaining maturity of |
|____________________________________________________________________|
| (Column A) | (Column B) | (Column C) |
| | | |
| One year or less | Over one year | Over five years |
| | through five years | |
|______________________|______________________|______________________|
|RCFD Tril Bil Mil Thou|RCFD Tril Bil Mil Thou|RCFD Tril Bil Mil Thou|
|______________________|______________________|______________________|
2. Notional principal amounts of | | | |
off-balance sheet derivative contracts(3):| | | |
a. Interest rate contracts ................. | 3809 8,320,956 | 8766 18,597,686 | 8767 801,055 | M.2.a.
b. Foreign exchange contracts .............. | 3812 1,578,420 | 8769 101,907 | 8770 0 | M.2.b.
c. Gold contracts .......................... | 8771 15,291 | 8772 0 | 8773 0 | M.2.c.
d. Other precious metals contracts ......... | 8774 8,748 | 8775 0 | 8776 0 | M.2.d.
e. Other commodity contracts ............... | 8777 0 | 8778 0 | 8779 0 | M.2.e.
f. Equity derivative contracts ............. | A000 0 | A001 0 | A002 0 | M.2.f.
|____________________________________________________________________|
</TABLE>
_________________
1) Do not report in column B the risk-weighted amount of
assets reported in column A.
2) Include the difference between the fair value and the amortized cost of
available-for-sale securities in item 8 and report the amortized cost of these
securities in items 4 through 7 above. Item 8 also includes on-balance sheet
asset values (or portions thereof) of off-balance sheet interest rate, foreign
exchange rate, and commodity contracts and those contracts (e.g., futures
contracts) not subject to risk-based capital. Exclude from item 8 margin
accounts and accrued receivables as well as any portion of the allowance for
loan and lease losses in excess of the amount that may be included in Tier 2
capital. 3) Exclude foreign exchange contracts with an original maturity of 14
days or less and all futures contracts.
34
<PAGE>
<TABLE>
<S> <C>
Legal Title of Bank: FLEET NATIONAL BANK
Address: ONE MONARCH PLACE Call Date: 06/30/96 ST-BK: 25-0590 FFIEC 031
City, State, Zip: SPRINGFIELD, MA 01102 Page RC-25
FDIC Certificate No.: 02499
</TABLE>
Optional Narrative Statement Concerning the Amounts
Reported in the Reports of Condition and Income
at close of business on June 30, 1996
FLEET NATIONAL BANK SPRINGFIELD , MASSACHUSETTS
- ------------------- ----------------- -------------
Legal Title of Bank City State
The management of the reporting bank may, if it wishes, submit a brief
narrative statement on the amounts reported in the Reports of Condition and
Income. This optional statement will be made available to the public, along
with the publicly available data in the Reports of Condition and Income, in
response to any request for individual bank report data. However, the
information reported in column A and in all of Memorandum item 1 of Schedule
RC-N is regarded as confidential and will not be released to the public.
BANKS CHOOSING TO SUBMIT THE NARRATIVE STATEMENT SHOULD ENSURE THAT THE
STATEMENT DOES NOT CONTAIN THE NAMES OR OTHER IDENTIFICATIONS OF INDIVIDUAL
BANK CUSTOMERS, REFERENCES TO THE AMOUNTS REPORTED IN THE CONFIDENTIAL ITEMS
IN SCHEDULE RC-N, OR ANY OTHER INFORMATION THAT THEY ARE NOT WILLING TO HAVE
MADE PUBLIC OR THAT WOULD COMPROMISE THE PRIVACY OF THEIR CUSTOMERS. Banks
choosing not to make a statement may check the "No comment" box below and
should make no entries of any kind in the space provided for the narrative
statement; i.e., DO NOT enter in this space such phrases as "No statement,"
"Not applicable," "N/A," "No comment," and "None."
The optional statement must be entered on this sheet. The statement should
not exceed 100 words. Further, regardless of the number of words, the
statement must not exceed 750 characters, including punctuation, indentation,
and standard spacing between words and sentences. If any submission should
exceed 750 characters, as defined, it will be truncated at 750 characters with
no notice to the submitting bank and the truncated statement will appear as the
bank's statement both on agency computerized records and in computer-file
releases to the public.
All information furnished by the bank in the narrative statement must be
accurate and not misleading. Appropriate efforts shall be taken by the
submitting bank to ensure the statement's accuracy. The statement must be
signed, in the space provided below, by a senior officer of the bank who
thereby attests to its accuracy.
If, subsequent to the original submission, material changes are submitted for
the data reported in the Reports of Condition and Income, the existing
narrative statement will be deleted from the files, and from disclosure; the
bank, at its option, may replace it with a statement, under signature,
appropriate to the amended data.
The optional narrative statement will appear in agency records and in release
to the public exactly as submitted (or amended as described in the preceding
paragraph) by the management of the bank (except for the truncation of
statements exceeding the 750-character limit described above). THE STATEMENT
WILL NOT BE EDITED OR SCREENED IN ANY WAY BY THE SUPERVISORY AGENCIES FOR
ACCURACY OR RELEVANCE. DISCLOSURE OF THE STATEMENT SHALL NOT SIGNIFY THAT ANY
FEDERAL SUPERVISORY AGENCY HAS VERIFIED OR CONFIRMED THE ACCURACY OF THE
INFORMATION CONTAINED THEREIN. A STATEMENT TO THIS EFFECT WILL APPEAR ON ANY
PUBLIC RELEASE OF THE OPTIONAL STATEMENT SUBMITTED BY THE MANAGEMENT OF THE
REPORTING BANK.
___________________________________________________________________
No comment |X| (RCON 6979) | c471 | C472 |(Less than)-
BANK MANAGEMENT STATEMENT (please type or print clearly):
(TEXT 6980)
/s/__Gero DeRosa_______________________________ ___7/25/96________
Signature of Executive Officer of Bank Date of Signature
35
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C> <C>
<PERIOD-TYPE> 9-MOS YEAR
<FISCAL-YEAR-END> SEP-30-1996 SEP-30-1995
<PERIOD-END> JUN-29-1996 SEP-30-1995
<CASH> 7,416,893 65,676
<SECURITIES> 0 0
<RECEIVABLES> 80,006 65,852
<ALLOWANCES> 3,535 3,550
<INVENTORY> 0 0
<CURRENT-ASSETS> 7,829,882 294,350
<PP&E> 6,483,504 1,526,180
<DEPRECIATION> 615,280 201,038
<TOTAL-ASSETS> 16,783,408 2,177,967
<CURRENT-LIABILITIES> 2,541,917 1,046,909
<BONDS> 0 0
0 0
0 0
<COMMON> 27,651,471 7,253,965
<OTHER-SE> (13,748,673) (8,164,284)
<TOTAL-LIABILITY-AND-EQUITY> 16,783,408 2,177,967
<SALES> 104,275 110,239
<TOTAL-REVENUES> 104,275 110,239
<CGS> 1,287,560 842,025
<TOTAL-COSTS> 1,287,560 842,025
<OTHER-EXPENSES> 4,454,821 3,695,499
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 111,377 187,249
<INCOME-PRETAX> (5,584,389) (4,525,722)
<INCOME-TAX> (5,584,389) (4,525,722)
<INCOME-CONTINUING> (5,584,389) (4,525,722)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (5,584,389) (4,525,722)
<EPS-PRIMARY> (1.08) (1.27)
<EPS-DILUTED> (1.08) (1.27)
</TABLE>
<PAGE>
EXHIBIT 99(A)
<PAGE>
EXHIBIT 99(A)
LETTER OF TRANSMITTAL
INTER(BULLET)ACT SYSTEMS, INCORPORATED
OFFER TO EXCHANGE ITS REGISTERED
14% SENIOR DISCOUNT NOTES DUE 2003
FOR ANY AND ALL OF ITS OUTSTANDING
14% SENIOR DISCOUNT NOTES DUE 2003
PURSUANT TO THE PROSPECTUS, DATED , 1996.
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, ON
,
1996, UNLESS EXTENDED (THE "EXPIRATION DATE"), TENDERS MAY BE WITHDRAWN PRIOR TO
5:00 P.M., NEW YORK CITY TIME, ON , 1996.
<TABLE>
<S> <C> <C>
BY MAIL: FACSIMILE TRANSMISSION NUMBER: BY HAND/OVERNIGHT DELIVERY:
Fleet National Bank (860) 986-7920 Fleet National Bank
777 Main Street (For Eligible Institutions 777 Main Street
Hartford, Connecticut 06115 Only) Hartford, Connecticut 06115
CTM00238 Confirm by Telephone: CTM00238
Michael Hopkins
(860) 986-4236
For Information Call:
Michael Hopkins
(860) 986-4236
</TABLE>
DELIVERY OF THIS INSTRUMENT TO AN ADDRESS OTHER THAN AS SET FORTH ABOVE, OR
TRANSMISSION OF INSTRUCTIONS VIA FACSIMILE OTHER THAN AS SET FORTH ABOVE, WILL
NOT CONSTITUTE A VALID DELIVERY.
The undersigned acknowledges that he or she has received and reviewed the
Prospectus, dated , 1996 (the "Prospectus"), of Inter(Bullet)Act
Systems, Incorporated, a North Carolina corporation (the "Company"), and this
Letter of Transmittal (this "Letter"), which together constitute the Company's
offer (the "Exchange Offer") to exchange an aggregate principal amount of up to
$142,000,000 of 14%, Senior Discount Notes Due 2003 (the "New Notes") of the
Company for an equal principal amount of the Company's outstanding 14% Senior
Discount Notes Due 2003 (the "Old Notes").
For each Old Note accepted for exchange, the holder of such Old Note will
receive a New Note having a principal amount at maturity equal to that of the
surrendered Old Note. The form and terms of the New Notes are generally the same
as the form and terms of the Old Notes, except that the New Notes have been
registered under the Securities Act of 1933, as amended, and therefore will not
bear legends restricting the transfer thereof. The New Notes will accrete at a
rate of 14%, compounded semi-annually, to an aggregate principal amount of
$142,000,000 by August 1, 2003. Cash interest will not accrue on the New Notes
prior to August 1, 1999. Thereafter, interest on the New Notes will accrue at
the rate of 14% per annum and will be payable in cash semi-annually on February
1 and August 1 of each year commencing on February 1, 2000. If by
neither the Exchange Offer has been consummated nor a shelf registration
statement with respect to the Old Notes has been declared effective, interest
will accrue on each Old Note, from and including at a rate per annum
equal to 0.5% of the Accreted Value of the New Notes (determined daily),
representing an additional 1/2% per annum over the interest rate stated on the
face of the Old Notes. The Company reserves the right, at any time or from time
to time, to extend the Exchange Offer at its discretion, in which event the term
"Expiration Date" shall mean the latest time and date to which the Exchange
Offer is extended. The Company shall notify the holders of the Old Notes of any
extension by means of a press release or other public announcement prior to 9:00
A.M., New York City time, on the next business day after the previously
scheduled Expiration Date.
This Letter is to be completed by a holder of Old Notes either if
certificates are to be forwarded herewith or if a tender of Old Notes, if
available, is to be made by book-entry transfer to the account maintained by the
Exchange Agent at The Depository Trust Company (the "Book-Entry Transfer
Facility") pursuant to the procedures set forth in "The Exchange Offer" section
of the Prospectus. Holders of Old Notes whose certificates are not immediately
available, or who are unable to deliver their certificates or confirmation of
the book-entry tender of their Old Notes into the Exchange Agent's account at
the Book-Entry Transfer Facility (a "Book-Entry Confirmation") and all other
documents required by this Letter to the Exchange Agent on or prior to the
Expiration Date, must tender their Old Notes according to the guaranteed
delivery procedures set
<PAGE>
forth in "The Exchange Offer -- Guaranteed Delivery Procedures" section of the
Prospectus. See Instruction 1. Delivery of documents to the Book-Entry Transfer
Facility does not constitute delivery to the Exchange Agent.
The undersigned has completed the appropriate boxes below and signed this
Letter to indicate the action the undersigned desires to take with respect to
the Exchange Offer.
List below the Old Notes to which this Letter relates. If the space
provided below is inadequate, the certificate numbers and principal amount of
Old Notes should be listed on a separate signed schedule affixed hereto.
<TABLE>
<S> <C> <C> <C>
DESCRIPTION OF OLD NOTES 1 2 3
AGGREGATE
PRINCIPAL PRINCIPAL
NAMES AND ADDRESS(ES) OF REGISTERED HOLDER(S) CERTIFICATE AMOUNT OF AMOUNT
(PLEASE FILL IN, IF BLANK) NUMBER(S)* OLD NOTE(S) TENDERED**
TOTAL
* Need not be completed if Old Notes are being tendered by book-entry transfer.
** Unless otherwise indicated in this column, a holder will be deemed to have tendered ALL of the Old Notes represented
by the Old Notes indicated in column 2. See Instruction 2. Old Notes tendered hereby must be in denominations of
principal amount of $1,000 and any integral multiple thereof. See Instruction 1.
</TABLE>
[ ] CHECK HERE IF TENDERED OLD NOTES ARE BEING DELIVERED BY BOOK-ENTRY TRANSFER
MADE TO THE ACCOUNT MAINTAINED BY THE EXCHANGE AGENT WITH THE BOOK-ENTRY
TRANSFER FACILITY AND COMPLETE THE FOLLOWING:
Name of Tendering Institution
Account Number Transaction Code Number
[ ] CHECK HERE IF TENDERED OLD NOTES ARE BEING DELIVERED PURSUANT TO A NOTICE
OF GUARANTEED DELIVERY PREVIOUSLY SENT TO THE EXCHANGE AGENT AND COMPLETE
THE FOLLOWING:
Name(s) of Registered Holder(s)
Window Ticket Number (if any)
Date of Execution of Notice of Guaranteed Delivery
Name of Institution which guaranteed delivery
IF DELIVERED BY BOOK-ENTRY TRANSFER, COMPLETE THE FOLLOWING:
Account Number Transaction Code Number
[ ] CHECK HERE IF YOU ARE A BROKER-DEALER AND WISH TO RECEIVE 10 ADDITIONAL
COPIES OF THE PROSPECTUS AND 10 COPIES OF ANY AMENDMENTS OR SUPPLEMENTS
THERETO.
Name:
Address:
<PAGE>
PLEASE READ THE ACCOMPANYING INSTRUCTIONS CAREFULLY
Ladies and Gentlemen:
Upon the terms and subject to the conditions of the Exchange Offer, the
undersigned hereby tenders to the Company the aggregate principal amount of Old
Notes indicated above. Subject to, and effective upon, the acceptance for
exchange of the Old Notes tendered hereby, the undersigned hereby sells, assigns
and transfers to, or upon the order of, the Company all right, title and
interest in and to such Old Notes as are being tendered hereby.
The undersigned hereby represents and warrants that the undersigned has
full power and authority to tender, sell, assign and transfer the Old Notes
tendered hereby and that the Company will acquire good and unencumbered title
thereto, free and clear of all liens, restrictions, charges and encumbrances and
not subject to any adverse claim when the same are accepted by the Company. The
undersigned hereby further represents that any New Notes acquired in exchange
for Old Notes tendered hereby will have been acquired in the ordinary course of
business of the person receiving such New Notes, whether or not such person is
the undersigned, that neither the holder of such Old Notes nor any such other
person has an arrangement or understanding with any person to participate in the
distribution of such New Notes and that neither the holder of such Old Notes nor
any such other person is an "affiliate," as defined in Rule 405 under the
Securities Act of 1933, as amended (the "Securities Act"), of the Company.
The undersigned also acknowledges that this Exchange Offer is being made in
reliance on an interpretation by the staff of the Securities and Exchange
Commission that the New Notes issued in exchange for the Old Notes pursuant to
the Exchange Offer may be offered for resale, resold and otherwise transferred
by holders thereof (other than any such holder that is an "affiliate" of the
Company within the meaning of Rule 405 under the Securities Act), without
compliance with the registration and prospectus delivery provisions of the
Securities Act, provided that such New Notes are acquired in the ordinary course
of such holders' business and such holders have no arrangement with any person
to participate in the distribution of such New Notes. If the undersigned is not
a broker-dealer, the undersigned represents that it is not engaged in, and does
not intend to engage in, a distribution of New Notes. If the undersigned is a
broker-dealer that will receive New Notes for its own account in exchange for
Old Notes, it represents that the Old Notes to be exchanged for the New Notes
were acquired by it as a result of market-making activities or other trading
activities and acknowledges that it will deliver a prospectus in connection with
any resale of such New Notes; however, by so acknowledging and by delivering a
prospectus, the undersigned will not be deemed to admit that it is an
"underwriter" within the meaning of the Securities Act.
The undersigned will, upon request, execute and deliver any additional
documents deemed by the Company to be necessary or desirable to complete the
sale, assignment and transfer of the Old Notes tendered hereby. All authority
conferred or agreed to be conferred in this Letter and every obligation of the
undersigned hereunder shall be binding upon the successors, assigns, heirs,
executors, administrators, trustees in bankruptcy and legal representatives of
the undersigned and shall not be affected by, and shall survive, the death or
incapacity of the undersigned. This tender may be withdrawn only in accordance
with the procedures set forth in "The Exchange Offer -- Withdrawal of Tenders"
section of the Prospectus.
Unless otherwise indicated herein in the box entitled "Special Issuance
Instructions" below, please deliver the New Notes (and, if applicable,
substitute certificates representing Old Notes for any Old Notes not exchanged)
in the name of the undersigned or, in the case of a book-entry delivery of Old
Notes, please credit the account indicated above maintained at the Book-Entry
Transfer Facility. Similarly, unless otherwise indicated under the box entitled
"Special Delivery Instructions" below, please send the New Notes (and, if
applicable, substitute certificates representing Old Notes for any Old Notes not
exchanged) to the undersigned at the address shown above in the box entitled
"Description of Old Notes."
THE UNDERSIGNED, BY COMPLETING THE BOX ENTITLED "DESCRIPTION OF OLD NOTES"
ABOVE AND SIGNING THIS LETTER, WILL BE DEEMED TO HAVE TENDERED THE OLD NOTES AS
SET FORTH IN SUCH BOX ABOVE.
<PAGE>
SPECIAL ISSUANCE INSTRUCTIONS
(SEE INSTRUCTIONS 3 AND 4)
TO BE COMPLETED ONLY IF CERTIFICATES FOR OLD NOTES NOT EXCHANGED AND/OR
NEW NOTES ARE TO BE ISSUED IN THE NAME OF AND SENT TO SOMEONE OTHER THAN THE
PERSON(S) WHOSE SIGNATURE(S) APPEAR(S) ON THIS LETTER ABOVE, OR IF OLD NOTES
DELIVERED BY BOOK-ENTRY TRANSFER WHICH ARE NOT ACCEPTED FOR EXCHANGE ARE TO BE
RETURNED BY CREDIT TO AN ACCOUNT MAINTAINED AT THE BOOK-ENTRY TRANSFER
FACILITY OTHER THAN THE ACCOUNT INDICATED ABOVE.
ISSUE NEW NOTES AND/OR OLD NOTES TO:
NAME(S):......................................................................
(PLEASE TYPE OR PRINT)
............................................................................
(PLEASE TYPE OR PRINT)
Address:......................................................................
............................................................................
(INCLUDING ZIP CODE)
(COMPLETE ACCOMPANYING SUBSTITUTE FORM W-9)
[ ] Credit unexchanged Old Notes delivered by book-entry transfer to the
Book-Entry Transfer Facility account set forth below.
(Book-Entry Transfer Facility
Account Number, if applicable)
SPECIAL DELIVERY INSTRUCTIONS
(SEE INSTRUCTIONS 3 AND 4)
TO BE COMPLETED ONLY IF CERTIFICATES FOR OLD NOTES NOT EXCHANGED AND/OR
NEW NOTES ARE TO BE SENT TO SOMEONE OTHER THAN THE PERSON(S) WHOSE
SIGNATURE(S) APPEAR(S) ON THIS LETTER ABOVE OR TO SUCH PERSON(S) AT AN ADDRESS
OTHER THAN SHOWN IN THE BOX ENTITLED "DESCRIPTION OF OLD NOTES" ON THIS LETTER
ABOVE.
MAIL NEW NOTES AND/OR OLD NOTES TO:
NAME(S):......................................................................
(PLEASE TYPE OR PRINT)
............................................................................
(PLEASE TYPE OR PRINT)
Address:......................................................................
............................................................................
(INCLUDING ZIP CODE)
IMPORTANT: THIS LETTER OR A FACSIMILE HEREOF (TOGETHER WITH THE CERTIFICATES FOR
OLD NOTES OR A BOOK-ENTRY CONFIRMATION AND ALL OTHER REQUIRED DOCUMENTS OR THE
NOTICE OF GUARANTEED DELIVERY) MUST BE RECEIVED BY THE EXCHANGE AGENT PRIOR TO
5:00 P.M., NEW YORK CITY TIME, ON THE EXPIRATION DATE.
PLEASE READ THIS ENTIRE LETTER OF TRANSMITTAL
CAREFULLY BEFORE COMPLETING ANY BOX ABOVE.
<PAGE>
PLEASE SIGN HERE
(TO BE COMPLETED BY ALL TENDERING HOLDERS)
(COMPLETE ACCOMPANYING SUBSTITUTE FORM W-9 ON REVERSE SIDE)
<TABLE>
<C> <S> <C> <C>
Dated: .............................................................................................. , 1996
x ................................................................. ........................... , 1996
x ................................................................. ........................... , 1996
(Signature(s) of Owner) (Date)
Area Code and Telephone Number:.........................................................................
</TABLE>
If a holder is tendering any Old Notes, this Letter must be signed by
the registered holder(s) as the name(s) appear(s) on the certificate(s) for
the Old Notes or by any person(s) authorized to become registered holder(s) by
endorsements and documents transmitting herewith. If signature is by a
trustee, executor, administrator, guardian, officer or other person acting in
a fiduciary or representative capacity, please set forth full title. See
Instruction 3.
Name(s):................................................
........................................................
(PLEASE TYPE OR PRINT)
Capacity:...............................................
Address:................................................
........................................................
(INCLUDING ZIP CODE)
SIGNATURE GUARANTEE
(IF REQUIRED BY INSTRUCTION 3)
Signature(s) Guaranteed by
an Eligible Institution:................................
(AUTHORIZED SIGNATURE)
........................................................
(TITLE)
........................................................
(NAME AND FIRM)
Dated:............................................, 1996
<PAGE>
<PAGE>
EXHIBIT 99(B)
<PAGE>
EXHIBIT 99(B)
NOTICE OF GUARANTEED DELIVERY FOR
INTER(BULLET)ACT SYSTEMS, INCORPORATED
This form or one substantially equivalent hereto must be used to accept the
Exchange Offer of Inter(Bullet)Act Systems, Incorporated (the "Company") made
pursuant to the Prospectus, dated , 1996 (the "Prospectus"), and
the enclosed Letter of Transmittal (the "Letter of Transmittal") if certificates
for Old Notes of the Company are not immediately available or if the procedure
for book-entry transfer cannot be completed on a timely basis or time will not
permit all required documents to reach the Company prior to 5:00 P.M., New York
City time, on the Expiration Date of the Exchange Offer. Such form may be
delivered or transmitted by facsimile transmission, mail or hand delivery to
Fleet National Bank (the "Exchange Agent") as set forth below. In addition, in
order to utilize the guaranteed delivery procedure to tender Old Notes pursuant
to the Exchange Offer, a completed, signed and dated Letter of Transmittal (or
facsimile thereof) must also be received by the Exchange Agent prior to 5:00
P.M., New York City time, on the Expiration Date. Capitalized terms not defined
herein are defined in the Prospectus.
FLEET NATIONAL BANK, EXCHANGE AGENT
777 Main Street
Hartford, Connecticut 06115
CTM00238
Telephone: (860) 986-7920
Facsimile: (860) 986-4236
DELIVERY OF THIS INSTRUMENT TO AN ADDRESS OTHER THAN AS SET FORTH ABOVE, OR
TRANSMISSION OF INSTRUCTIONS VIA FACSIMILE OTHER THAN AS SET FORTH ABOVE, WILL
NOT CONSTITUTE A VALID DELIVERY.
Ladies and Gentlemen:
Upon the terms and conditions set forth in the Prospectus and the
accompanying Letter of Transmittal, the undersigned hereby tenders to the
Company the principal amount of Old Notes set forth below, pursuant to the
guaranteed delivery procedure described in "The Exchange Offer -- Guaranteed
Delivery Procedures" section of the Prospectus.
<TABLE>
<S> <C>
Principal Amount of Old Notes Tendered:
$ If Old Notes will be delivered by book-entry transfer to The
Depository Trust Company, provide account number.
Certificate Nos. (if available):
Total Principal Amount Represented by Old Notes
Certificate(s):
$ Account Number
</TABLE>
<PAGE>
INSTRUCTIONS
FORMING PART OF THE TERMS AND CONDITIONS OF THE OFFER TO EXCHANGE REGISTERED
14% SENIOR DISCOUNT NOTES FOR ANY AND ALL OUTSTANDING 14% SENIOR DISCOUNT NOTES
OF
INTER(BULLET)ACT SYSTEMS, INCORPORATED
1. DELIVERY OF THIS LETTER AND OLD NOTES; GUARANTEED DELIVERY PROCEDURES.
This Letter is to be completed by holders of Old Notes either if
certificates are to be forwarded herewith or if tenders are to be made pursuant
to the procedures for delivery by book-entry transfer set forth in "The Exchange
Offer -- Book-Entry Transfer" section of the Prospectus. Certificates for all
physically tendered Old Notes, or Book-Entry Confirmation, as the case may be,
as well as a properly completed and duly executed Letter of Transmittal (or
facsimile thereof) and any other documents required by this Letter, must be
received by the Exchange Agent at the address set forth herein on or prior to
the Expiration Date, or the tendering holder must comply with the guaranteed
delivery procedures set forth below. Old Notes tendered hereby must be in
denominations of principal amount of maturity of $1,000 and any integral
multiple thereof.
Holders of Old Notes whose certificates for Old Notes are not immediately
available or who cannot deliver their certificates and all other required
documents to the Exchange Agent on or prior to the Expiration Date, or who
cannot complete the procedure for book-entry transfer on a timely basis, may
tender their Old Notes pursuant to the guaranteed delivery procedures set forth
in "The Exchange Offer -- Guaranteed Delivery Procedures" section of the
Prospectus. Pursuant to such procedures, (i) such tender must be made through an
Eligible Institution (as defined below), (ii) prior to the Expiration Date, the
Exchange Agent must receive from such Eligible Institution a properly completed
and duly executed Letter of Transmittal (or facsimile thereof) and Notice of
Guaranteed Delivery, substantially in the form provided by the Company (by
facsimile transmission, mail or hand delivery), setting forth the name and
address of the holder of Old Notes and the amount of Old Notes tendered, stating
that the tender is being made thereby and guaranteeing that within five New York
Stock Exchange ("NYSE") trading days after the date of execution of the Notice
of Guaranteed Delivery, the certificates for all physically tendered Old Notes,
or a Book-Entry Confirmation, as the case may be, and any other documents
required by this Letter will be deposited by the Eligible Institution with the
Exchange Agent, and (iii) the certificates for all physically tendered Old
Notes, in proper form for transfer, or Book-Entry Confirmation, as the case may
be, and all other documents required by this Letter, are received by the
Exchange Agent within five NYSE trading days after the date of execution of the
Notice of Guaranteed Delivery.
The method of delivery of this Letter, the Old Notes and all other required
documents is at the election and risk of the tendering holders, but the delivery
will be deemed made only when actually received or confirmed by the Exchange
Agent. If Old Notes are sent by mail, it is suggested that the mailing be made
sufficiently in advance of the Expiration Date to permit delivery to the
Exchange Agent prior to 5:00 p.m., New York City time, on the Expiration Date.
See "The Exchange Offer" section of the Prospectus.
2. PARTIAL TENDERS (NOT APPLICABLE TO HOLDERS OF OLD NOTES WHO TENDER BY
BOOK-ENTRY TRANSFER).
If less than all of the Old Notes evidenced by a submitted certificate are
to be tendered, the tendering holder(s) should fill in the aggregate principal
amount of Old Notes to be tendered in the box above entitled "Description of Old
Notes -- Principal Amount Tendered." A reissued certificate representing the
balance of nontendered Old Notes will be sent to such tendering holder, unless
otherwise provided in the appropriate box on this Letter, promptly after the
Expiration Date. ALL OF THE OLD NOTES DELIVERED TO THE EXCHANGE AGENT WILL BE
DEEMED TO HAVE BEEN TENDERED UNLESS OTHERWISE INDICATED.
3. SIGNATURES ON THIS LETTER; BOND POWERS AND ENDORSEMENTS; GUARANTEE OF
SIGNATURES.
If this Letter is signed by the registered holder of the Old Notes tendered
hereby, the signature must correspond exactly with the name as written on the
face of the certificates without any change whatsoever.
If any tendered Old Notes are owned of record by two or more joint owners,
all such owners must sign this Letter.
If any tendered Old Notes are registered in different names on several
certificates, it will be necessary to complete, sign and submit as many separate
copies of this Letter as there are different registrations of certificates.
When this Letter is signed by the registered holder of the Old Notes
specified herein and tendered hereby, no endorsements of certificates or
separate bond powers are required. If, however, the New Notes are to be issued,
or any untendered Old Notes are to be reissued, to a person other than the
registered holder, then endorsements of any certificates transmitted hereby or
separate bond powers are required. Signatures on such certificates must be
guaranteed by an Eligible Institution.
<PAGE>
If this Letter is signed by a person other than the registered holder of
any certificates specified herein, such certificates must be endorsed or
accompanied by appropriate bond powers, in either case signed exactly as the
name of the registered holder appears on the certificates and the signatures on
such certificates must be guaranteed by an Eligible Institution.
If this Letter or any certificates or bond powers are signed by trustees,
executors, administrators, guardians, attorneys-in-fact, officers of
corporations or others acting in a fiduciary or representative capacity, such
persons should so indicate when signing, and, unless waived by the Company,
proper evidence satisfactory to the Company of their authority to so act must be
submitted.
ENDORSEMENTS ON CERTIFICATES FOR OLD NOTES OR SIGNATURES ON BOND POWERS
REQUIRED BY THIS INSTRUCTION 3 MUST BE GUARANTEED BY A FIRM WHICH IS A MEMBER OF
A REGISTERED NATIONAL SECURITIES EXCHANGE OR A MEMBER OF THE NATIONAL
ASSOCIATION OF SECURITIES DEALERS, INC. OR BY A COMMERCIAL BANK OR TRUST COMPANY
HAVING AN OFFICE OR CORRESPONDENT IN THE UNITED STATES (AN "ELIGIBLE
INSTITUTION").
SIGNATURES ON THIS LETTER NEED NOT BE GUARANTEED BY AN ELIGIBLE
INSTITUTION, PROVIDED THE OLD NOTES ARE TENDERED: (I) BY A REGISTERED HOLDER OF
OLD NOTES (WHICH TERM, FOR PURPOSES OF THE EXCHANGE OFFER, INCLUDES ANY
PARTICIPANT IN THE BOOK-ENTRY TRANSFER FACILITY SYSTEM WHOSE NAME APPEARS ON A
SECURITY POSITION LISTING AS THE HOLDER OF SUCH OLD NOTES) TENDERED WHO HAS NOT
COMPLETED THE BOX ENTITLED "SPECIAL ISSUANCE INSTRUCTIONS" OR "SPECIAL DELIVERY
INSTRUCTIONS" ON THIS LETTER, OR (II) FOR THE ACCOUNT OF AN ELIGIBLE
INSTITUTION.
4. SPECIAL ISSUANCE AND DELIVERY INSTRUCTIONS.
Tendering holders of Old Notes should indicate in the applicable box the
name and address to which New Notes issued pursuant to the Exchange Offer and/or
substitute certificates evidencing Old Notes not exchanged are to be issued or
sent, if different from the name or address of the person signing this Letter.
In the case of issuance in a different name, the employer identification or
social security number of the person named must also be indicated. A holder of
Old Notes tendering Old Notes by book-entry transfer may request that Old Notes
not exchanged be credited to such account maintained at the Book-Entry Transfer
Facility as such holder of Old Notes may designate hereon. If no such
instructions are given, such Old Notes not exchanged will be returned to the
name or address of the person signing this Letter.
5. TAX IDENTIFICATION NUMBER.
Federal income tax law generally requires that a tendering holder whose Old
Notes are accepted for exchange must provide the Company (as payor) with such
holder's correct Taxpayer Identification Number ("TIN") on Substitute Form W-9
below, which, in the case of a tendering holder who is an individual, is his or
her social security number. If the Company is not provided with the current TIN
or an adequate basis for an exemption, such tendering holder may be subject to a
$50 penalty imposed by the Internal Revenue Service. In addition, delivery of
New Notes to such tendering holder may be subject to backup withholding in an
amount equal to 31% of all reportable payments made after the exchange. If
withholding results in an overpayment of taxes, a refund may be obtained.
Exempt holders of Old Notes (including, among others, all corporations and
certain foreign individuals) are not subject to these backup withholding and
reporting requirements. See the enclosed Guidelines of Certification of Taxpayer
Identification Number on Substitute Form W-9 (the "W-9 Guidelines") for
additional instructions.
To prevent backup withholding, each tendering holder of Old Notes must
provide its correct TIN by completing the "Substitute Form W-9" set forth below,
certifying that the TIN provided is correct (or that such holder is awaiting a
TIN) and that (i) the holder is exempt from backup withholding, (ii) the holder
has not been notified by the Internal Revenue Service that such holder is
subject to a backup withholding as a result of a failure to report all interest
or dividends or (iii) the Internal Revenue Service has notified the holder that
such holder is no longer subject to backup withholding. If the tendering holder
of Old Notes is a nonresident alien or foreign entity not subject to backup
withholding, such holder must give the Company a completed Form W-8, Certificate
of Foreign Status. These forms may be obtained from the Exchange Agent. If the
Old Notes are in more than one name or are not in the name of the actual owner,
such holder should consult the W-9 Guidelines for information on which TIN to
report. If such holder does not have a TIN, such holder should consult the W-9
Guidelines for instructions on applying for a TIN, check the box in Part 2 of
the Substitute Form W-9 and write "applied for" in lieu of its TIN. Note:
checking this box and writing "applied for" on the form means that such holder
has already applied for a TIN or that such holder intends to apply for one in
the near future. If such holder does not provide its TIN to the Company within
60 days, backup withholding will begin and continue until such holder furnishes
its TIN to the Company.
<PAGE>
6. TRANSFER TAXES.
The Company will pay all transfer taxes, if any, applicable to the transfer
of Old Notes to it or its order pursuant to the Exchange Offer. If, however, New
Notes and/or substitute Old Notes not exchanged are to be delivered to, or are
to be registered or issued in the name of, any person other than the registered
holder of the Old Notes tendered hereby, or it tendered Old Notes are registered
in the name of any person other than the person signing this Letter, or if a
transfer tax is imposed for any reason other than the transfer of Old Notes to
the Company or its order pursuant to the Exchange Offer, the amount of any such
transfer taxes (whether imposed on the registered holder or any other persons)
will be payable by the tendering holder. If satisfactory evidence of payment of
such taxes or exemption therefrom is not submitted herewith, the amount of such
transfer taxes will be billed directly to such tendering holder.
EXCEPT AS PROVIDED IN THIS INSTRUCTION 6, IT NOT BE NECESSARY FOR TRANSFER
TAX STAMPS TO BE AFFIXED TO THE OLD NOTES SPECIFIED IN THIS LETTER.
7. WAIVER OF CONDITIONS.
The Company reserves the absolute right to waive satisfaction of any or all
conditions enumerated in the Prospectus.
8. NO CONDITIONAL TENDERS.
No alternative, conditional, irregular or contingent tenders will be
accepted. All tendering holders of Old Notes, by execution of this Letter, shall
waive any right to receive notice of the acceptance of their Old Notes for
exchange.
Neither the Company, the Exchange Agent nor any other person is obligated
to give notice of any defect or irregularity with respect to any tender of Old
Notes nor shall any of them incur any liability for failure to give any such
notice.
9. MUTILATED, LOST, STOLEN OR DESTROYED OLD NOTES.
Any holder whose Old Notes have been mutilated, lost, stolen or destroyed
should contact the Exchange Agent at the address indicated above for further
instructions.
<PAGE>
10. REQUESTS FOR ASSISTANCE OR ADDITIONAL COPIES.
Questions relating to the procedure for tendering, as well as requests for
additional copies of the Prospectus and this Letter, may be directed to the
Exchange Agent, at the address and telephone number indicated above.
TO BE COMPLETED BY ALL TENDERING HOLDERS
(SEE INSTRUCTION 5)
PAYOR'S NAME: INTER(BULLET)ACT SYSTEMS, INCORPORATED
<TABLE>
<S> <C> <C>
PART 1 -- PLEASE PROVIDE YOUR TIN IN THE
SUBSTITUTE BOX AT RIGHT AND CERTIFY BY SIGNING AND DATING TIN
FORM W-9 BELOW. (SOCIAL SECURITY NUMBER OR
EMPLOYER IDENTIFICATION NUMBER)
DEPARTMENT OF THE TREASURY
INTERNAL REVENUE SERVICE
PART 2 -- TIN APPLIED FOR [ ]
PAYOR'S REQUEST FOR
TAXPAYER CERTIFICATION: UNDER THE PENALTIES OF PERJURY, I CERTIFY THAT:
IDENTIFICATION NUMBER
("TIN") AND (1) the number shown on this form is my correct Taxpayer Identification Number (or I am waiting
CERTIFICATION for a number to be issued to me).
(2) I am not subject to backup withholding either because: (a) I am exempt from backup
withholding, or (b) I have not been notified by the Internal Revenue Service (the "IRS") that I
am subject to backup withholding as a result of a failure to report all interest or
dividends, or (c) the IRS has notified me that I am no longer subject to backup withholding,
and
(3) any other information provided on this form is true and correct.
SIGNATURE DATE
You must cross out item (2) of the above certification if you have been notified by the IRS that you are subject to backup
withholding because of underreporting of interest or dividends on your tax return and you have not been notified by the IRS that
you are no longer subject to backup withholding.
</TABLE>
YOU MUST COMPLETE THE FOLLOWING CERTIFICATE IF YOU CHECKED THE BOX
IN PART 2 OF SUBSTITUTE FORM W-9
CERTIFICATE OF AWAITING TAXPAYER IDENTIFICATION NUMBER
I certify under penalties of perjury that a taxpayer identification number has
not been issued to me, and either (a) I have mailed or delivered an
application to receive a taxpayer identification number to the appropriate
Internal Revenue Service Center or Social Security Administration Office or
(b) I intend to mail or deliver an application in the near future. I
understand that if I do not provide a taxpayer identification number by the
time of the exchange, 31 percent of all reportable payments made to me
thereafter will be withheld until I provide a number.
SIGNATURE DATE
<PAGE>
ALL AUTHORITY HEREIN CONFERRED OR AGREED TO BE CONFERRED SHALL SURVIVE THE
DEATH OR INCAPACITY OF THE UNDERSIGNED AND EVERY OBLIGATION OF THE UNDERSIGNED
HEREUNDER SHALL BE BINDING UPON THE HEIRS, PERSONAL REPRESENTATIVES, SUCCESSORS
AND ASSIGNS OF THE UNDERSIGNED.
PLEASE SIGN HERE
X
X
Signature(s) of Owner(s) Date
or Authorized Signatory
Area Code and Telephone Number:
Must be signed by the holder(s) of Old Notes as the name(s) of such
holder(s) appear(s) on the Old Notes certificate(s) or on a security position
listing, or by person(s) authorized to become registered holder(s) by
endorsement and documents transmitted with this Notice of Guaranteed Delivery.
If any signature is by a trustee, executor, administrator, guardian,
attorney-in-fact, officer or other person acting in a fiduciary or
representative capacity, such person must set forth his or her full title below.
PLEASE PRINT NAME(S) AND ADDRESS(ES)
Name(s):
Capacity:
Address(es):
<PAGE>
GUARANTEE
The undersigned, a member of a registered national securities exchange, or
a member of the National Association of Securities Dealers, Inc., or a
commercial bank or trust company having an office or correspondent in the United
States, hereby guarantees that the certificates representing the principal
amount of Old Notes tendered hereby in proper form for transfer, or timely
confirmation of the book-entry transfer of such Old Notes into the Exchange
Agent's account at The Depository Trust Company pursuant to the procedures set
forth in "The Exchange Offer -- Guaranteed Delivery Procedures" section of the
Prospectus, together with a properly completed and duly executed Letter of
Transmittal (or facsimile thereof) with any required signature guarantee and any
other documents required by the Letter of Transmittal, will be received by the
Exchange Agent at the address set forth above, no later than five New York Stock
Exchange trading days after the date of execution hereof.
<TABLE>
<S> <C>
Name of Firm Authorized Signature
Address Title
Name:
Zip Code (Please Type or Print)
Area Code and Tel. No.: Dated:
</TABLE>
NOTE: DO NOT SEND CERTIFICATES FOR OLD NOTES WITH THIS FORM. CERTIFICATES FOR
OLD NOTES SHOULD ONLY BE SENT WITH YOUR LETTER OF TRANSMITTAL.
<PAGE>
<PAGE>
EXHIBIT 99(C)
<PAGE>
EXHIBIT 99(C)
INTER(BULLET)ACT SYSTEMS, INCORPORATED
OFFER TO EXCHANGE ITS REGISTERED
14% SENIOR DISCOUNT NOTES DUE 2003
FOR ANY AND ALL OF ITS OUTSTANDING
14% SENIOR DISCOUNT NOTES DUE 2003
TO: BROKERS, DEALERS, COMMERCIAL BANKS,
TRUST COMPANIES AND OTHER NOMINEES:
Inter(Bullet)Act Systems, Incorporated (the "Company") is offering to
exchange (the "Exchange Offer"), upon and subject to the terms and conditions
set forth in the Prospectus, dated , 1996 (the "Prospectus"), and
the enclosed Letter of Transmittal (the "Letter of Transmittal"), its registered
14% Senior Discount Notes Due 2003 (the "New Notes") for any and all of its
outstanding 14% Senior Discount Notes Due 2003 (the "Old Notes"). The Exchange
Offer is being made in order to satisfy certain obligations of the Company
contained in the Registration Agreement dated as of November 9, 1995, between
the Company and the Initial Purchasers.
We are requesting that you contact your clients for whom you hold Old Notes
regarding the Exchange Offer. For your information and for forwarding to your
clients for whom you hold Old Notes registered in your name or in the name of
your nominee, or who hold Old Notes registered in their own names, we are
enclosing the following documents:
1. Prospectus dated , 1996;
2. The Letter of Transmittal for your use and for the information of your
clients;
3. A Notice of Guaranteed Delivery to be used to accept the Exchange Offer
if certificates for Old Notes are not immediately available or time will not
permit all required documents to reach the Exchange Agent prior to the
Expiration Date (as defined below) or if the procedure for book-entry transfer
cannot be completed on a timely basis;
4. A form of letter which may be sent to your clients for whose account you
hold Old Notes registered in your name or the name of your nominee, with space
provided for obtaining such clients' instructions with regard to the Exchange
Offer;
5. Guidelines for Certification of Taxpayer Identification Number on
Substitute Form W-9; and
6. Return envelopes addressed to Fleet National Bank, the Exchange Agent
for the Old Notes.
YOUR PROMPT ACTION IS REQUESTED. THE EXCHANGE OFFER WILL EXPIRE AT 5:00
P.M., NEW YORK CITY TIME, ON , 1996 (THE "EXPIRATION DATE"), UNLESS
EXTENDED BY THE COMPANY. THE OLD NOTES TENDERED PURSUANT TO THE EXCHANGE OFFER
MAY BE WITHDRAWN AT ANY TIME BEFORE , 1996.
To participate in the Exchange Offer, a duly executed and properly
completed Letter of Transmittal (or facsimile thereof), with any required
signature guarantees and any other required documents, should be sent to the
Exchange Agent and certificates representing the Old Notes should be delivered
to the Exchange Agent, all in accordance with the instructions set forth in the
Letter of Transmittal and the Prospectus.
If holders of Old Notes wish to tender, but it is impracticable for them to
forward their certificates for Old Notes prior to the expiration of the Exchange
Offer or to comply with the book-entry transfer procedures on a timely basis, a
tender may be effected by following the guaranteed delivery procedures described
in the Prospectus under "The Exchange Offer -- Guaranteed Delivery Procedures."
The Company will, upon request, reimburse brokers, dealers, commercial
banks and trust companies for reasonable and necessary costs and expenses
incurred by them in forwarding the Prospectus and the related documents to the
beneficial owners of Old Notes held by them as nominee or in a fiduciary
capacity. The Company will pay or cause to be paid all stock transfer taxes
applicable to the exchange of Old Notes pursuant to the Exchange Offer, except
as set forth in Instruction 6 of the Letter of Transmittal.
<PAGE>
Any inquiries you may have with respect to the Exchange Offer, or requests
for additional copies of the enclosed materials, should be directed to the
Exchange Agent for the Old Notes, at its address and telephone number set forth
on the front of the Letter of Transmittal.
Very truly yours,
Inter(Bullet)Act Systems, Incorporated
NOTHING HEREIN OR IN THE ENCLOSED DOCUMENTS SHALL CONSTITUTE YOU OR ANY
OTHER PERSON AS AN AGENT OF THE COMPANY OR THE EXCHANGE AGENT, OR AUTHORIZE YOU
OR ANY OTHER PERSON TO USE ANY DOCUMENT OR MAKE ANY STATEMENTS ON BEHALF OF
EITHER OF THEM WITH RESPECT TO THE EXCHANGE OFFER, EXCEPT FOR STATEMENTS
EXPRESSLY MADE IN THE PROSPECTUS OR THE LETTER OF TRANSMITTAL.
<PAGE>
<PAGE>
EXHIBIT 99(D)
INTER(BULLET)ACT SYSTEMS, INCORPORATED
OFFER TO EXCHANGE ITS REGISTERED
14% SENIOR DISCOUNT NOTES DUE 2003
FOR ANY AND ALL OF ITS OUTSTANDING
14% SENIOR DISCOUNT NOTES DUE 2003
TO OUR CLIENTS:
Enclosed for your consideration is a Prospectus, dated , 1996
(the "Prospectus"), and the enclosed Letter of Transmittal (the "Letter of
Transmittal"), relating to the offer (the "Exchange Offer") of Inter(Bullet)Act
Systems, Incorporated (the "Company") to exchange its registered 14% Senior
Discount Notes Due 2003 (the "New Notes") for any and all of its outstanding 14%
Senior Discount Notes Due 2003 (the "Old Notes"), upon the terms and subject to
the conditions described in the Prospectus. The Exchange Offer is being made in
order to satisfy certain obligations of the Company contained in the
Registration Agreement dated as of July 30, 1996 between the Company and the
Initial Purchasers thereto.
This material is being forwarded to you as the beneficial owner of the Old
Notes carried by us in your account but not registered in your name. A TENDER OF
SUCH OLD NOTES MAY ONLY BE MADE BY US AS THE HOLDER OF RECORD AND PURSUANT TO
YOUR INSTRUCTIONS.
Accordingly, we request instructions as to whether you wish us to tender on
your behalf the Old Notes held by us for your account, pursuant to the terms and
conditions set forth in the enclosed Prospectus and Letter of Transmittal.
Your instructions should be forwarded to us as promptly as possible in
order to permit us to tender the Old Notes on your behalf in accordance with the
provisions of the Exchange Offer. The Exchange Offer will expire at 5:00 p.m.,
New York City time, on , 1996, unless extended by the Company. Any
Old Notes tendered pursuant to the Exchange Offer may be withdrawn at any time
before 5:00 p.m., New York City time, on , 1996.
Your attention is directed to the following:
1. The Exchange Offer is for any and all Old Notes.
2. The Exchange Offer is subject to certain conditions set forth in the
Prospectus in the section captioned "The Exchange Offer -- Conditions."
3. Any transfer taxes incident to the transfer of Old Notes from the holder
to the Company will be paid by the Company, except as otherwise provided in the
Instructions in the Letter of Transmittal.
4. The Exchange Offer expires at 5:00 p.m., New York City time, on
, 1996, unless extended by the Company.
If you wish to have us tender your Old Notes, please so instruct us by
completing, executing and returning to us the instruction form on the back of
this letter. THE LETTER OF TRANSMITTAL IS FURNISHED TO YOU FOR INFORMATION ONLY
AND MAY NOT BE USED DIRECTLY BY YOU TO TENDER OLD NOTES.
<PAGE>
INSTRUCTIONS WITH RESPECT TO
THE EXCHANGE OFFER
The undersigned acknowledge(s) receipt of your letter and the enclosed
material referred to therein relating to the Exchange Offer made by
Inter(Bullet)Act Systems, Incorporated with respect to its Old Notes.
This will instruct you to tender the Old Notes held by you for the account
of the undersigned, upon and subject to the terms and conditions set forth in
the Prospectus and the related Letter of Transmittal.
Please tender the Old Notes held by you for my account as indicated below:
<TABLE>
<CAPTION>
AGGREGATE PRINCIPAL AMOUNT OF OLD NOTES
<S> <C>
14% Senior Discount Notes Due 2003...........................
[ ] Please do not tender any Old Notes
held by you for my account.
Dated: 1996
Signature(s)
Please print name(s) here
Address(es)
Area Code(s) and Telephone Number(s)
Tax Identification or Social Security No(s)
</TABLE>
None of the Old Notes held by us for your account will be tendered unless
we receive written instructions from you to do so. Unless a specific contrary
instruction is given in the space provided, your signature(s) hereon shall
constitute an instruction to us to tender all the Old Notes held by us for your
account.
