<PAGE>
<PAGE>
________________________________________________________________________________
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM 10-Q
(MARK ONE)
[x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO
COMMISSION FILE NUMBER 333-12091
------------------------
INTER*ACT SYSTEMS, INCORPORATED
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
------------------------
<TABLE>
<S> <C>
NORTH CAROLINA 56-1817510
(STATE OR OTHER JURISDICTION (I.R.S. EMPLOYER
OF INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
</TABLE>
14 WESTPORT AVENUE
NORWALK, CONNECTICUT 06851
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES, INCLUDING ZIP CODE)
(203) 750-0300
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
------------------------
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
[x] Yes [ ] No
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date. As of August 14, 1998 the
registrant had 7,728,555 shares of common stock outstanding.
________________________________________________________________________________
<PAGE>
<PAGE>
INDEX
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
PART I -- FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets -- June 30, 1998 (unaudited) and December 31, 1997...................... 1
Consolidated Statements of Income for the three-month and six-month periods ended June 30,
1998 and June 30, 1997 (unaudited)............................................................... 2
Consolidated Statements of Cash Flows for the six-month periods ended June 30, 1998 and June
30, 1997 (unaudited)............................................................................. 3
Notes to Consolidated Financial Statements.......................................................... 4
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations................. 6
PART II -- OTHER INFORMATION
Item 1. Legal Proceedings..................................................................................... 11
Item 4. Submission of Matters to a Vote of Security Holders................................................... 11
Item 6. Exhibits and Reports on Form 8-K...................................................................... 12
Signatures....................................................................................................... 13
</TABLE>
<PAGE>
<PAGE>
PART I -- FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
INTER*ACT SYSTEMS, INCORPORATED
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1998 1997
----------- ------------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents....................................................... $ 15,311 $ 45,211
Receivables, net of allowance for doubtful accounts of $60 and $30 at June 30,
1998 and December 31, 1997, respectively....................................... 1,997 813
Other current assets............................................................ 3,263 3,067
----------- ------------
Total current assets....................................................... 20,571 49,091
Property, plant and equipment, net................................................... 30,149 26,900
Bond issuance costs, net of accumulated amortization of $888 and $633 at June 30,
1998 and December 31, 1997, respectively........................................... 3,048 3,302
Patents, licenses and trademarks, net of accumulated amortization of $301 and $95 at
June 30, 1998 and December 31, 1997, respectively.................................. 9,250 1,687
Other noncurrent assets.............................................................. 45 43
----------- ------------
Total assets............................................................... $ 63,063 $ 81,023
----------- ------------
----------- ------------
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Short-term debt................................................................. $ 5,679 $ --
Accounts payable................................................................ 3,662 3,204
Accrued expenses................................................................ 4,757 6,870
Deferred revenue................................................................ 1,416 539
----------- ------------
Total current liabilities.................................................. 15,514 10,613
Long-term debt, net of discount...................................................... 101,141 91,406
----------- ------------
Total liabilities.......................................................... 116,655 102,019
----------- ------------
Common stock purchase warrants....................................................... 27,436 27,436
----------- ------------
Stockholders' equity (deficit):
Preferred stock, no par value, authorized 5,000,000 shares; none outstanding.... -- --
Common stock, no par value, authorized 20,000,000 shares; 7,728,555 shares
issued and outstanding at June 30, 1998 and December 31, 1997, respectively.... 28,251 28,251
Additional paid-in capital...................................................... 768 768
Deferred compensation........................................................... (493) (570)
Cumulative translation adjustments.............................................. (23) (14)
Accumulated deficit............................................................. (109,531) (76,867)
----------- ------------
Total stockholders' equity (deficit)....................................... (81,028) (48,432)
----------- ------------
Total liabilities and stockholders' equity (deficit)....................... $ 63,063 $ 81,023
----------- ------------
----------- ------------
</TABLE>
See Notes to Consolidated Financial Statements
1
<PAGE>
<PAGE>
INTER*ACT SYSTEMS, INCORPORATED
CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
------------------- --------------------
JUNE 30, JUNE 30, JUNE 30, JUNE 30,
1998 1997 1998 1997
-------- ------- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C>
Gross sales........................................................ $ 1,301 $ 464 $ 1,996 $ 768
Less: Retailer reimbursements................................. (538) (267) (950) (453)
-------- ------- -------- --------
Net sales................................................ 763 197 1,046 315
-------- ------- -------- --------
Operating expenses:
Direct costs.................................................. 2,093 1,471 4,375 2,546
Selling, general and administrative expenses.................. 7,302 3,666 16,870 7,084
Depreciation and amortization of intangibles.................. 1,796 896 3,271 1,527
-------- ------- -------- --------
Total operating expenses................................. 11,191 6,033 24,516 11,157
-------- ------- -------- --------
Operating loss..................................................... (10,428) (5,836) (23,470) (10,842)
-------- ------- -------- --------
Other income (expense)
Interest income............................................... 323 1,071 833 2,196
Interest expense.............................................. (5,194) (4,421) (10,027) (8,539)
Other expense................................................. -- (57) -- (57)
-------- ------- -------- --------
Total other income (expense)............................. (4,871) (3,407) (9,194) (6,400)
-------- ------- -------- --------
Net loss........................................................... $(15,299) $(9,243) $(32,664) $(17,242)
-------- ------- -------- --------
-------- ------- -------- --------
Per share information:
Net loss per common share:
Basic......................................................... $ (1.98) $ (1.21) $ (4.23) $ (2.25)
-------- ------- -------- --------
-------- ------- -------- --------
Diluted....................................................... $ (1.98) $ (1.21) $ (4.23) $ (2.25)
-------- ------- -------- --------
-------- ------- -------- --------
Common shares used in computing per share amounts
Basic......................................................... 7,729 7,669 7,729 7,669
-------- ------- -------- --------
-------- ------- -------- --------
Diluted....................................................... 7,729 7,669 7,729 7,669
-------- ------- -------- --------
-------- ------- -------- --------
</TABLE>
See Notes to Consolidated Financial Statements
2
<PAGE>
<PAGE>
INTER*ACT SYSTEMS, INCORPORATED
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
--------------------
JUNE 30, JUNE 30,
1998 1997
-------- --------
(UNAUDITED)
<S> <C> <C>
Cash flows from operating activities:
Net loss............................................................................. $(32,664) $(17,242)
Items not affecting cash:
Depreciation and amortization of intangible assets.............................. 3,477 1,527
Loss on disposal of assets...................................................... 23 116
Non-cash interest on discounted bonds........................................... 9,989 8,495
Other items, net................................................................ 75 9
Changes in working capital:
Receivables..................................................................... (1,184) (565)
Accounts payable and accrued expenses........................................... (1,655) 2,249
Other current assets............................................................ (196) 97
Deferred revenues............................................................... 877 1,102
-------- --------
Net cash used in operating activities...................................... (21,258) (4,212)
-------- --------
Cash flows from investing activities:
Expenditures for property, plant and equipment.................................. (6,543) (10,756)
Patent acquisition costs........................................................ (2,090) (657)
Other investments............................................................... -- (301)
-------- --------
Net cash used in investing activities...................................... (8,633) (11,714)
-------- --------
Foreign exchange effects on cash and cash equivalents..................................... (9) --
-------- --------
Net decrease in cash and cash equivalents................................................. (29,900) (15,926)
Cash and cash equivalents at beginning of period.......................................... 45,211 88,306
-------- --------
Cash and cash equivalents at end of period................................................ $ 15,311 $ 72,380
-------- --------
-------- --------
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest............................................................................. $ 20 $ 44
-------- --------
-------- --------
Supplemental disclosures of non-cash financing activities:
Issuance of note payable for patent acquisition...................................... $ 5,679 --
-------- --------
-------- --------
</TABLE>
See Notes to Consolidated Financial Statements
3
<PAGE>
<PAGE>
INTER*ACT SYSTEMS, INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED JUNE 30, 1998 AND JUNE 30, 1997
1. BUSINESS DESCRIPTION
Inter*Act Systems, Incorporated ("Inter*Act" or the "Company") is one of
the nation's largest in-store operators of customer-interactive electronic
marketing systems. The Company's patented technologies enable consumer products
manufacturers ("Manufacturers") and supermarket retailers ("Retailers") to offer
shopper-specific purchase incentives and messages to customers moments before
shopping begins. The Company's proprietary system, called the Inter*Act Loyalty
Network'TM' ("ILN"), utilizes patented, multimedia touch-screen terminals, or
Smart Kiosks'TM', located in the entrance area of retail grocery stores. These
terminals are connected to each store's point-of-sale scanning system, which
allows the electronic promotions to be immediately redeemed at the check-out.
This fully automated process virtually eliminates misredemption and fraud
associated with paper coupons, estimated by industry sources to cost
manufacturers hundreds of millions of dollars per year. As of June 30, 1998, the
Company had 2,539 terminals installed in 1,680 stores across 18 divisions of six
grocery chains compared to 1,528 terminals in 880 stores across 13 divisions of
five chains as of June 30, 1997.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PREPARATION
The accompanying interim financial statements as of June 30, 1998 and for
the six-month period ended June 30, 1998 and June 30, 1997 are unaudited;
however, in the opinion of management, all adjustments, which consist of normal
recurring accruals, necessary for a fair presentation of the financial position
and results of operations for such interim periods, are included. The results
of operations for the interim periods presented are not necessarily indicative
of results to be expected for an entire year. For further information refer to
the consolidated financial statements and notes thereto included in the
Company's annual report on Form 10-K for the year ended December 31, 1997.
RECLASSIFICATIONS
Certain prior year amounts have been reclassified to conform to the current
year presentation.
NET INCOME (LOSS) PER SHARE
Effective December 31, 1997, the Company adopted SFAS No. 128, "Earnings
Per Share." In accordance with SFAS No. 128, net loss per common share amounts
("basic EPS") were computed by dividing net loss by the weighted average number
of common shares outstanding and contingently issuable shares (which satisfy
certain conditions) and excluded any potential dilution. Net loss per common
share amounts -- assuming dilution ("diluted EPS") were computed by reflecting
potential dilution from the exercise of stock options and warrants. SFAS No. 128
requires the presentation of both basic EPS and diluted EPS on the face of the
income statement. Net loss per share amounts for the same prior-year periods
have been restated to conform with the provisions of SFAS No. 128; however, the
result of that restatement was not material. In all periods presented, the
impact of stock options and warrants was anti-dilutive.
COMPREHENSIVE INCOME
During the quarter ended March 31, 1998, the Company adopted SFAS No. 130,
"Reporting Comprehensive Income," which requires companies to report all changes
in equity during a period, except those resulting from investments by owners and
distributions to owners, for the period in which they are recognized.
Comprehensive income is the total of net income and all other nonowner changes
in equity (or other comprehensive income) such as unrealized gains/losses on
securities classified as available-for-sale, foreign currency translation
adjustments and minimum pension liability adjustments.
4
<PAGE>
<PAGE>
Comprehensive and other comprehensive income must be reported on the face of
annual financial statements or in the case of interim reporting, in the
footnotes to the financial statements. For the six month period ended June 30,
1998 and 1997, the Company's operations did not give rise to material items
includible in comprehensive income which were not already included in net
income. Accordingly, the Company's comprehensive income is the same as its net
income for all periods presented.
DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") No. 133, "Accounting for Derivative
Instruments and Hedging Activities". The Statement establishes accounting and
reporting standards requiring that every derivative instrument (including
certain derivative instruments embedded in other contracts) be recorded in the
balance sheet as either an asset or liability measured at its fair value. The
statement requires that changes in the derivative's fair value be recognized
currently in earnings unless specific hedge accounting criteria are met.
Special accounting for qualifying hedges allows a derivative's gains and
losses to offset related results on the hedged item in the income statement,
and requires that a company must formally document, designate, and assess the
effectiveness of transactions that receive hedge accounting.
SFAS No. 133 is effective for fiscal years beginning after June 15, 1999. A
company may also implement the Statement as of the beginning of any fiscal
quarter after issuance (that is, fiscal quarters beginning June 16, 1998 and
thereafter). SFAS No. 133 cannot be applied retroactively. SFAS No. 133 must be
applied to (a) derivative instruments and (b) certain derivative instruments
embedded in hybrid contracts that were issued, acquired, or substantively
modified after December 31, 1997 (and, at the company's election, before
January 1, 1998).
While the Company operates in international markets, it does so presently
without the use of derivatives and therefore this new pronouncement is not
applicable.
3. LEGAL PROCEEDINGS
In February 1996, the Company filed suit against Catalina Marketing
Corporation ("Catalina") alleging that Catalina has infringed United States
Patent No. 4,554,446 (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, treble damages and the
costs and expenses incurred in connection with the suit. The complaint has been
amended to add additional detail, and Catalina has answered denying the
allegations, raising certain affirmative defenses, and seeking declaratory
judgment of non-infringement, invalidity or unenforceability of the '446 Patent.
In May 1997, Catalina asserted a counterclaim alleging that the Company
is infringing a newly issued Catalina Patent U.S. Patent No. 5,612,868 (the
"'868 Patent"). The Company has answered denying the allegations, raising
affirmative defenses and seeking declaratory judgment of non-infringement,
invalidity and unenforceability of the '868 Patent. Discovery on the claims
and counterclaims is proceeding and various motions are pending before the
United States District Court in 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.
In January 1998, Catalina Marketing International, Inc. ("Catalina
International," a subsidiary of Catalina) filed suit against the Company
alleging that the Company has infringed United States Patent No. 4,674,041 (the
"'041 Patent") which Catalina International acquired by assignment in December
1997. Catalina International alleges that the Company is infringing the '041
Patent by making, using and offering for sale devices and systems that
incorporate and employ inventions covered by the '041 Patent. Also in February
1998, Catalina International amended its complaint to join as additional parties
defendant Thermo Information Solutions, Inc. ("Thermo") and Coleman Research
Corporation ("Coleman"), who have manufactured kiosks pursuant to an agreement
with the Company. Catalina International seeks injunctive and declaratory relief
as well as unspecified money damages against all defendants, and has filed a
motion for preliminary injunction against the Company seeking to stop alleged
infringement of the '041 Patent pending trial. Various other motions are pending
in the United States District Court in the District of Connecticut, including
the Company's motion for a more definite statement. The Company intends to
defend against Catalina International's claims vigorously, and to pursue
available remedies against Catalina International. This action was recently
consolidated with the litigation involving the '446 Patent and the '868 Patent
for purposes of discovery and trial.
On May 27, 1998, the Company filed a new suit against Catalina alleging
that Catalina has infringed United States Patents Nos. 5,201,010; 5,338,165;
5,430,644; 5,448,471; 5,592,560; 5,621,812; 5,659,469; and 5,638,457
(collectively, the "Deaton Patents"), which the Company acquired by assignment
on or about May 22, 1998. The Company alleges that Catalina is infringing the
Deaton Patents by making, using, selling and offering for sale devices and
systems that incorporate and employ inventions covered by the Deaton Patents.
The Company is seeking an injunction against Catalina to stop further
infringement of these patents, treble damages and the costs and expenses
incurred in connection with the suit.
Catalina has not yet served any responsive pleading in this action, but has
challenged some of the claims of six of the Deaton Patents by provoking an
interference proceedings in the U.S. Patent and Trademark Office. The Company
intends to vigorously protect its rights under the Deaton Patents both in the
interference proceeding and in the new lawsuit.
5
<PAGE>
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion and analysis is qualified by reference to and
should be read in conjunction with the Company's Unaudited Consolidated
Financial Statements, including the Notes thereto, included elsewhere in this
Report. This report contains certain statements regarding future operating
results and anticipated growth, the accuracy of which is subject to many risks
and uncertainties. Such trends, and their anticipated impact on the Company,
could differ materially from those discussed in this report. Operating results
for the six months ended June 30, 1998 are not necessarily indicative of the
results that may be expected for the year ending December 31, 1998 or any other
period.
The Company is one of the nation's largest in-store operators of
customer-interactive electronic marketing systems. The Company's patented
technologies enable consumer products manufacturers ("Manufacturers") and
supermarket retailers ("Retailers") to offer shopper-specific purchase
incentives and messages to customers moments before shopping begins. The
Company's proprietary system, called the Inter*Act Loyalty Network'TM' ("ILN"),
utilizes patented, multimedia touch-screen terminals, or Smart Kiosks'TM',
located in the entrance area of retail grocery stores. These terminals are
connected to each store's point-of-sale scanning system, which allows the
electronic promotions to be immediately redeemed at check-out. This fully
automated process virtually eliminates the misredemption and fraud associated
with paper coupons, estimated by industry sources to cost Manufacturers hundreds
of millions of dollars per year.
The Company recognizes revenue as electronic discounts are redeemed at
store cash registers. 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 sales the redemption
fee and the retailer processing fee paid by the Manufacturers. Certain
Manufacturers pay the Company in advance for a portion of anticipated program
expenditures, and these amounts are recorded as deferred revenue until earned
through redemptions.
Direct costs of the Company consist of such expenditures for direct store
support, paper used in the kiosks to print shopping lists and recipes, direct
marketing costs, telecommunications between the stores and the Company and
retailer processing fees. Selling, general and administration expenses include
items relating to sales and marketing, administration, non-paid promotional
expenses and royalties payable under certain patent agreements.
Non-paid promotional expenses represent consumer discounts and retailer
processing fees paid to the Retailer by the Company on promotions offered on the
ILN that are not funded by a Manufacturer contract. Manufacturer participation
in the ILN to date has been characterized by a substantial number of trial
commitments leading to increasing dollar commitments to the ILN from those
Manufacturers as the network approaches a more national footprint. Successful
trials have recently led to multi-cycle/multi-brand category contracts or
letters of intent signed in the six month period ended June 30, 1998 with
Manufacturers including General Mills, Procter & Gamble, Pepsi, Frito-Lay and
Pillsbury among others. See " -- Three and Six Months Ended June 30, 1998
Compared with Three and Six Months Ended June 30, 1997." As the network grows
and is more widely accepted by Manufacturers, the Company believes that the
need for non-paid promotions will diminish and that revenues from
Manufacturers will increase.
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 stockholders' deficit of
$81.0 million as of June 30, 1998, having incurred a loss of $32.7 million
during the first half of 1998. The Company expects to incur substantial
additional costs to install additional ILN terminals in retail supermarket
stores and to sponsor selected promotions to demonstrate the utility of the ILN
to consumers, Retailers and Manufacturers. The Company expects to incur net
losses in 1998 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.
6
<PAGE>
<PAGE>
THREE AND SIX MONTHS ENDED JUNE 30, 1998 COMPARED WITH THREE AND SIX MONTHS
ENDED JUNE 30, 1997
The Company had an installed base of 2,539 terminals in 1,680 stores as of
June 30, 1998 as compared to 1,528 terminals in 880 stores as of June 30, 1997.
During the first half of 1998, the Company entered into contracts to install the
ILN in Weis Markets, a chain located principally in Pennsylvania, and, through a
subsidiary, in Sainsbury's, one of the largest Retailers in the United Kingdom.
Total redemptions for the six-month period ended June 30, 1998 increased by
approximately 6.5 million redemptions to 11.5 million redemptions from 5.0
million redemptions in the comparable period in 1997. Average
redemptions/day/store decreased to 45 from 48 for the period ended June 30, 1998
versus the comparable period in 1997, principally due to the decline in the
number of non-paid promotions for a portion of the second quarter of 1998. The
Company attributes the total redemption increase predominately to a larger
installed base of ILN terminals and Retailer advertising of certain promotions
partially funded by Inter*Act in their in-store fliers, which increased kiosk
usage during the first quarter of 1998. Total redemptions for the three-month
period ended June 30, 1998 increased to 3.7 million from 2.3 million in the
three month period ended June 30, 1997. Average redemptions/day/store declined
to 27 from 37 during the three month periods ended June 30, 1998 and 1997
respectively. The Company believes the decline in the average
redemption/day/store is attributable to a reduced number of non-paid promotional
items offered on the network during the second quarter of 1998 as compared to
the second quarter of 1997.
Manufacturers promoting on the ILN system for at least one week during the
1998 and 1997 six month periods increased to 55 from 31, respectively, while
total products promoted increased to 123 from 86. Net sales during the six-month
period ended June 30, 1998 increased to $1.0 million from $315,000 in the 1997
period, primarily as a result of the larger installed base of ILN terminals.
Net sales were $763,000 in the three month period ended June 30, 1998 as
compared to $197,000 in the three month period ended June 30, 1997. During the
second quarter, the Company continued to sign contracts with new ILN
clients such as Pepsi, Frito-Lay and others. In addition, the Company began to
rollout a trial of the ILN in Sainsbury's stores in the United Kingdom. The
trial phase of the United Kingdom rollout includes promotions sponsored by
several major manufacturers including Procter & Gamble, Unilever, Coca-Cola,
Kellogg's, and many others. There can be no assurance that the Company will
realize the full commitments by the U.S. or U.K. Manufacturers under contract.
Operating loss for the six-month period ended June 30, 1998 was $23.5
million versus $10.8 million in the 1997 comparable period. The increased loss
was primarily due to higher employee costs, non-paid promotions, legal fees and
depreciation expense. Higher employee costs of approximately $4.6 million
represents an increase of 106 employees, from 152 employees at June 30, 1997 to
258 employees at June 30, 1998. Most of the increase in headcount represents
additional client service and field service personnel to support the increase in
number of terminals and stores installed. Non-paid promotion expense increased
by $2.2 million in the 1998 six-month period, to $4.1 million from $1.9 million
in the comparable 1997 period. Legal expense, primarily costs associated with
patent litigation (not expected to extend the life of related patents and
therefore, not capitalized) increased by $1.4 million over the comparable 1997
period (See Note 3 to Consolidated Financial Statements.) Depreciation expense
increased by $1.7 million reflecting the addition of approximately 1,011
terminals installed in 800 stores from June 30, 1997 to June 30, 1998. Second
quarter operating loss of $10.4 million was $4.6 million higher than in the
second quarter 1997, primarily reflecting additional headcount costs of
$2.2 million, increased non-paid promotion expense of $962,000, higher
depreciation expense of $900,000 and higher legal expenses of $784.000.
Net loss for the six month period ended June 30, 1998 increased by
approximately $15.4 million from $17.2 million to $32.7 million primarily due to
higher operating losses of $12.6 million, higher interest expense of $1.5
million and lower interest income of $1.4 million. Interest expense of $10.0
million represents non-cash interest expense on issuance of $142 million of 14%
Senior Discount Notes on August 2, 1996 (See " -- Liquidity and Capital
Resources"). Interest income of $833,000 for the first six months of 1998
declined from the first six months of 1997 reflecting a decreased average cash
balance during the first six months of 1998 versus the comparable period in
1997. Cash and cash equivalents at June 30, 1998 were $15.3 million as compared
to $72.4 million at June 30, 1997. Net loss for the three-month period ended
June 30, 1998 was $15.3 million compared to $9.2 million during the same
three-month period in 1997
7
<PAGE>
<PAGE>
due to increased operating losses and interest expense of $4.6 million and
$773,000, respectively and lower interest income of $748,000.
LIQUIDITY AND CAPITAL RESOURCES
For the six-month period ended June 30, 1998, cash used in operating
activities was $21.3 million as compared to $4.2 million during the six-month
period ended June 30, 1997. From inception to June 30, 1998, the Company
generated minimal revenue yet incurred increased expenses related to the
development of its ILN technology, test marketing the product and recruiting
additional personnel. The Company has funded its operations through private
sales of debt and equity securities. From its inception through June 30, 1998,
the Company's stockholders had contributed $27.7 million of equity to the
Company of which $2.0 million was originally issued as debt and subsequently
converted to equity. The Company consummated a private offering of debt
securities (the "Private Placement") on August 2, 1996 for which it received
net proceeds of approximately $90.8 million. The Private Placement consisted
of 142,000 units representing $142 million in aggregate principal amount of 14%
Senior Discount Notes Due 2003 (the "Notes") and warrants (the "Warrants")
to purchase initially an aggregate of 1,041,428 shares of common stock of the
Company at $.01 per share. As of September 30, 1997, a Qualifying Initial Public
Offering (as defined in the Notes) had not been completed and as a result
thereof, the Warrants were then adjusted to entitle respective holders to
purchase an aggregate of 1,338,918 shares of common stock at $.01 per share.
Therefore, the Company recorded additional Common Stock Purchase Warrants of
$3.0 million reflecting the valuation of the additional 297,492 shares, or 2.095
shares issuable per warrant. In January 1997 the Notes were exchanged for
identical Notes registered under the Securities Act of 1993, as amended (the
"Exchange Act").
At June 30, 1998, the Company had working capital of $5.1 million, compared
to working capital of $38.5 million at December 31, 1997. Total cash and cash
equivalents at June 30, 1998 and December 31, 1997 were $15.3 million and $45.2
million, respectively. The Company's current level of indebtedness, amounting to
approximately $106.8 million, primarily represents long-term debt resulting from
the Private Placement.
Cash used in investing activities was $8.6 million and $11.7 million in
the six months ended June 30, 1998 and June 30, 1997, respectively, primarily
related to expenditures for ILN equipment and patent acquisitions. During the
six-month period ended June 30, 1998, the Company installed 699 terminals in 532
stores. A majority of the terminals used in the first half installation had been
purchased in the latter part of 1997. The Company expects to spend approximately
$15 million on ILN equipment during 1998.
As of March 24, 1998, the Company terminated its three-year exclusive
terminal supply relationship with Coleman and its subsidiary Thermo
(collectively, the "Vendors"). As part of this mutual termination agreement, the
Company agreed to pay $4.5 million, in installments, to pay balances on
previously purchased ILN equipment, to acquire certain inventory and to obtain
an early release from the exclusivity provision of the original contract to
allow the Company to pursue relationships with new vendors. Of this amount, $4.1
million was charged to operating expense during 1997 and approximately $400,000
related to supplies and terminal parts acquired by the Company in the agreement
and were reflected in other current assets as of December 31, 1997. As of August
14, 1998, the total obligation has been paid to the Vendors as part of the
mutual termination agreement.
The Company continues to use the net proceeds from the Private Placement to
fund capital expenditures, working capital requirements and operating losses
incurred in connection with the increased commercialization of its ILN. The
Company intends to raise additional equity or debt capital to fund its ongoing
1998 and 1999 expansion plans and is currently in the process of offering up to
$40 million of convertible preferred stock to its shareholders and a limited
number of other investors. In addition, the Company has received several
multi-year equipment leasing proposals from equipment manufacturers for future
purchases of ILN equipment. There is no assurance that such additional capital
or equipment financing can be obtained. In the event that such additional
capital or equipment financing is not obtained, the Company believes that
existing cash and cash equivalents, together with reduced or delayed operating
and capital expenditures, will be sufficient to meet the Company's operating
requirements into the first quarter of 1999. Because of the Company's early
stage of development and the risks inherent in its business, there are a number
of material uncertainties that
8
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could result in slower development in additional revenues. For example,
revenues could be delayed if the Company experiences delays in installations
of the ILN such that any growth in paid redemption volume is delayed.
If additional funds are raised through the issuance of equity securities,
the percentage ownership of the stockholders will 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
related to the Exchange Notes 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 ILN 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.
The Company is currently in the process of updating its internal systems
for year 2000 compliance. The Company will utilize internal and
external resources to reprogram, replace and test systems for year 2000
compliance. The estimated cost of such project is estimated to be approximately
$300,000. Year 2000 compliance testing is expected to be completed no later than
December 31, 1998. The Company is also reliant on Year 2000 compliance by
Retailers with respect to the Company's Target Engine Software ("TES") ability
to process and collect data from the TES interface to each of the Retailer's
point-of-sale systems. The Company is currently working with Retailers to test
such interfaces for year 2000 compliance. There can be no assurance that a
failure by a Retailer to become Year 2000 compliant will not negatively affect
the Company with respect to that Retailer.
During the second quarter of 1998, the Company acquired by assignment all
rights, title and interest in and to (i) U.S. Patents Nos. 5,621,812; 5,638,457;
5,675,662; 5,237,620; 5,305,196; 5,448,471; 5,430,644; 5,659,469; 5,201,010;
5,327,508; 5,388,165; and 5,592,560; and related intellectual property rights;
and (ii) certain foreign counterpart patent applications, including PCT
Application No. PCT/US94/08221 and EPC Application #95906202.7. These patents
and applications generally disclose systems for targeted marketing in retail
stores utilizing a database including customer identification codes and purchase
histories of identified customers. Consideration for such assignment included
cash and share of the Company's Common Stock. Management believes that these
patents will provide the Company with a significant competitive advantage in its
target market.
Catalina Marketing Corp. ("Catalina"), one of the Company's competitors,
has challenged some of the claims of certain of these patents by provoking an
interference proceeding in the U.S. Patent and Trademark Office. Management
believes that Catalina has done so in recognition that the patents present a
significant impediment to Catalina's efforts to participate in the field of
using historical information to enhance the effectiveness of in-store
promotions, and the Company intends to vigorously protect its property rights to
the technology that supports its products and services.
CAUTIONARY STATEMENT FOR PURPOSE OF THE "SAFE HARBOR" PROVISIONS OF THE PRIVATE
SECURITIES LITIGATION REFORM ACT OF 1995
The statements contained in this report on Form 10-Q that are not
historical facts are forward-looking statements (as such term is defined in the
Private Securities Litigation Reform Act of 1995), which can be identified by
the use of forward-looking terminology such as believes, expects, may, will,
should, or anticipates or the negative thereof or other variations thereon or
comparable terminology, or by discussions of strategy that involve risks and
uncertainties. In addition, from time to time the Company or its representatives
have made or may make forward-looking statements, orally or in writing. Such
forward-looking statements may be included in, but are not limited to, various
filings made by the Company with the Securities and Exchange Commission, or
press releases or oral statements made by or with the approval of an authorized
executive officer of the Company. Forward-looking statements are based on
management's current views and assumptions and involve risks and uncertainties
that could significantly affect expected results. The Company wishes to caution
the reader that factors, such as those listed below, in some cases have affected
and could affect the Company's actual results, causing actual results to differ
materially from those in any forward-looking statement.
9
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These factors include: (i) the Company's limited operating history, significant
losses, accumulated deficit, negative cash flow and expected future losses,
(ii) the dependence of the Company on its ability to establish, maintain and
expand relationships with Manufacturers to promote brands on the ILN (as defined
herein) and the uncertainty of market acceptance for the ILN, (iii) the
uncertainty as to whether the Company will be able to manage its growth
effectively, (iv) the early stage of the Company's products and services and
technical and other problems that the Company has experienced and may
experience, (v) risks related to the Company's substantial leverage and debt
service obligations, (vi) the Company's dependence on third parties such as
those who manufacture ILN terminals, (vii) the intensely competitive nature of
the consumer product and promotional industry, (viii) risks that the Company's
rights related to patents, proprietary information and trademarks may not
adequately protect its business, (ix) the possible inability of new management
to perform their respective roles and the possible conflicts of interest of the
Company's directors, officers and principal shareholders in certain transactions
with the Company. See Part I. Item 7. "Management"s Discussion and Analysis of
Financial Condition and Results of Operations -- Risk Factors" on the Form 10-K
for the year ended December 31, 1997 for a more specific description of these
risks.
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PART II -- OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
In February 1996, the Company filed suit against Catalina 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, treble damages and the
costs and expenses incurred in connection with the suit. The complaint has been
amended to add additional detail, and Catalina has answered denying the
allegations, raising certain affirmative defenses, and seeking declaratory
judgment of non-infringement, invalidity or unenforceability of the '446 Patent.
In May 1997, Catalina asserted a counterclaim alleging that the Company is
infringing a newly issued Catalina Patent, the '868 Patent. The Company has
answered denying the allegations, raising affirmative defenses and seeking
declaratory judgment of non-infringement, invalidity and unenforceability of the
'868 Patent. Discovery on the claims and counterclaims is proceeding and various
motions are pending before the United States District Court in 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.
In January 1998, Catalina International filed suit against the Company
alleging that the Company has infringed the '041 Patent which Catalina
International acquired by assignment in December 1997. Catalina International
alleges that the Company is infringing the '041 Patent by making, using and
offering for sale devices and systems that incorporate and employ inventions
covered by the '041 Patent. Also in February 1998, Catalina International
amended its complaint to join as additional parties' defendant Thermo and
Coleman, who have manufactured kiosks pursuant to an agreement with the Company.
Catalina International seeks injunctive and declaratory relief as well as
unspecified money damages against all defendants, and has filed a motion for
preliminary injunction against the Company seeking to stop alleged infringement
of the '041 Patent pending trial. Various other motions are pending in the
United States District Court in the District of Connecticut, including the
Company's motion for a more definite statement. The Company intends to defend
against Catalina International's claims vigorously, and to pursue available
remedies against Catalina International. This action was recently consolidated
with the litigation involving the '446 Patent and the '868 Patent for purposes
of discovery and trial.
On May 27, 1998, the Company filed a new suit against Catalina alleging
that Catalina has infringed United States Patents Nos. 5,201,010; 5,338,165;
5,430,644; 5,448,471; 5,592,560; 5,621,812; 5,659,469; and 5,638,457
(collectively, the "Deaton Patents"), which the Company acquired by assignment
on or about May 22, 1998. The Company alleges that Catalina is infringing the
Deaton Patents by making, using, selling and offering for sale devices and
systems that incorporate and employ inventions covered by the Deaton Patents.
The Company is seeking an injunction against Catalina to stop further
infringement of these patents, treble damages and the costs and expenses
incurred in connection with the suit.
Catalina has not yet served any responsive pleading in this action, but has
challenged some of the claims of six of the Deaton Patents by provoking an
interference proceeding in the U.S. Patent and Trademark Office. The Company
intends to vigorously protect its rights under the Deaton Patents both in the
interference proceeding and in the new lawsuit.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
(a) The annual meeting of the shareholders of the Company was held on
May 19, 1998.
(b) The name of each director elected at the annual meeting is set forth
in subparagraph (c) below. The name of each other director whose term
of office as a director continued after the annual meeting is as
follows: Robert M. DeMichele; Haynes G. Griffin; Brian A. Rich;
Richard P. Ludington; William F. Penwell; Stuart S. Richardson;
William P. Emerson; and Stephen R. Leeolou.
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(c) At the annual meeting of shareholders, the shareholders voted (i) on
the election of three Class I Directors to hold office until the 2001
Annual Meeting of Shareholders; and (ii) to amend the Company's 1997
Long-Term Incentive Plan to increase to 670,000 shares the number of
shares reserved for issuance thereunder and to increase to 250,000
the number of shares that may be acquired by any one grantee under
the Plan.
The proposals voted on and the results of the voting were as follows:
1. Election of Class I Directors for a three-year term
<TABLE>
<CAPTION>
BROKER
FOR AGAINST ABSTENTIONS WITHHELD NONVOTES
--------- ------- ----------- -------- --------
<S> <C> <C> <C> <C> <C>
Paul A. Nash...................... 5,197,419 -- -- 26,000 --
I. Richardson Preyer, Jr.......... 5,197,419 -- -- 26,000 --
Robert A. Silverberg.............. 5,197,419 -- -- 26,000 --
</TABLE>
2. Approval of amendments to the Company's 1997 Long-Term Incentive
Plan
<TABLE>
<CAPTION>
BROKER
FOR AGAINST ABSTENTIONS WITHHELD NONVOTES
--------- ------- ----------- -------- --------
<S> <C> <C> <C> <C>
4,546,265 677,154 -- -- --
</TABLE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ----------- ----------------------------------------------------------------------------------------------------------
<S> <C>
*(a)(1) -- Articles of Incorporation of the Company, as amended, filed as Exhibit 3(a) to the Company's
Registration Statement of Form S-4 (Registration 333-12091)
*3(a)(2) -- Articles of Amendment of the Company dated May 21, 1997 and effective June 3, 1997 filed as exhibit 3(a)2
to the Company's Form 10-Q Quarterly Report for the period ended June 30, 1997.
*3(b) -- Amended and Restated Bylaws of the Company, filed as Exhibit 3(b) to the Company's Form 10-Q Quarterly
Report for the period ended June 30, 1997.
*4(a) -- Specimen Certificate of the Company's Common Stock, filed as Exhibit 4(a) to the Company's Registration
Statement of Form S-4 (Registration 333-12091)
*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, filed as Exhibit 4(b) to the
Company's Registration Statement of Form S-4 (Registration 333-12091)
*4(c) -- Warrant Agreement dated August 1, 1996, between the Company and Fleet National Bank, as Warrant Agent,
filed as Exhibit 10 (l) to the Company's Annual Report on Form 10-K for the year ended September 28,
1996.
10(hh) -- Patent Purchase Agreement dated May 22, 1998, between the Company, Credit Verification Corporation and
David W. Deaton. (Portions of this exhibit have been omitted pursuant to a request for confidential
treatment.)
10(ii) -- Voting Agreement among shareholders dated as of November 1, 1996.
10(jj) -- Company's 1997 Long-Term Incentive Plan, as amended.
10(kk) -- Management Services Agreement dated June 17, 1998, between the Company and Vanguard Cellular Financial
Corp.
27. -- Financial Data Schedule.
</TABLE>
- ------------
* Incorporated by reference to the statement or report indicated.
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the three months ended June 30,
1998.
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SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
INTER*ACT SYSTEMS, INCORPORATED
<TABLE>
<CAPTION>
DATE
----
<S> <C>
By /s/ STEPHEN R. LEEOLOU August 14, 1998
.......................................
STEPHEN R. LEEOLOU
CHAIRMAN & CHIEF EXECUTIVE OFFICER
By /s/ RICHARD A. VINCHESI August 14, 1998
.......................................
RICHARD A. VINCHESI
SENIOR VICE PRESIDENT,
CHIEF OPERATING OFFICER &
CHIEF FINANCIAL OFFICER
</TABLE>
13
STATEMENT OF DIFFERENCES
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The section symbol shall be expressed as............................... 'SS'
The trademark symbol shall be expressed as ............................ 'TM'
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*CERTAIN MATERIAL DEEMED CONFIDENTIAL BY THE COMPANY HAS BEEN OMITTED FROM
THIS DOCUMENT AND FILED SEPARATELY WITH THE COMMISSION.
PATENT PURCHASE AGREEMENT
This Patent Purchase Agreement (the "Agreement") made this
22nd day of May, 1998 (the "Effective Date"), is by and among INTER*ACT SYSTEMS,
INCORPORATED, a North Carolina corporation, having offices at 14 Westport
Avenue, Norwalk, Connecticut 06851 ("Inter*Act"), CREDIT VERIFICATION
CORPORATION, a Texas corporation, having offices at 401 N. Loop 322, Abilene,
Texas 79601 ("CVC") and David W. Deaton, residing at 1201 Cedar Crest Drive,
Abilene, Texas 79601 ("Deaton") (each a "Party" collectively, the "Parties"). As
used in this Agreement, the term "Closing Date" shall refer to the first date as
of which all of the Parties have duly executed this Agreement.
W I T N E S S E T H:
WHEREAS, CVC and Deaton warrant and represent that CVC is the
sole owner of all rights, title and interests in and to certain patents; and
WHEREAS, CVC wishes to assign to Inter*Act all rights, title
and interests in and to such patents in exchange for valuable consideration.
NOW, THEREFORE, for and in consideration of the promises and
covenants herein contained and other good and valuable consideration as set
forth herein, the receipt of which is hereby acknowledged, the Parties hereby
agree as follows:
1. ASSIGNMENT OF PATENTS.
1.1. Assignment of Sale Patents to Inter*Act. CVC hereby sells, assigns,
transfers and sets over to Inter*Act and to Inter*Act's successors and assigns
all rights, title and interests in and to: (i) the patents * identified or
described on Schedule A attached hereto; and (ii) * and foreign counterpart
patents and patent applications, whether or not identified or described on
Schedule A attached hereto, *((i) and (ii) above in this Section 1.1 shall
hereinafter be collectively referred to as the "Sale
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Patents"). CVC also hereby sells, assigns, transfers and sets over to Inter*Act
and to Inter*Act's successors and assigns, all causes of action, claims,
judgments, and/or other legal and equitable rights and remedies arising out of
or in connection with the Sale Patents which have accrued or taken place prior
to and including the Closing Date, including without limitation, the right to
sue any third party for infringement of any or all of the Sale Patents and to
collect and retain any damages resulting from the infringement of any of the
Sale Patents, the same to be held and enjoyed by Inter*Act, for its own use and
benefit and for the use and benefit of its successors and assigns, as fully and
entirely as if the same would have been held and enjoyed by CVC in the absence
of this Agreement. CVC and Deaton covenant and agree to execute all additional
instruments and to do all things necessary to carry out the purposes of this
Section 1.1.
1.2. *
1.3. Release of Claims. As additional consideration for this Agreement,
CVC, Deaton and Inter*Act hereby release one another and the other's affiliates,
subsidiaries, shareholders, officers, and directors, from and against any and
all actions, causes of actions, claims, judgments, liabilities and damages which
have or may have accrued from the beginning of the world up through and
including the Closing Date, including without limitation, any and all actions,
causes of actions, claims, judgments, liabilities and damages arising from or in
connection with the Sale Patents * and any patents owned by Inter*Act as of the
Closing Date.
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1.4. Form of Assignment. On the Closing Date, CVC shall execute an
assignment document in the form of the assignment document attached hereto as
Exhibit 1, to be filed by Inter*Act in the United States Patent and Trademark
Office ("PTO") or other appropriate authority, which conveys to Inter*Act all
rights, title and interests in and to the Sale Patents in accordance with
Section 1.1 hereof. CVC further agrees to execute such other forms as may be
requested by Inter*Act, to evidence CVC's assignment of the Sale Patents to
Inter*Act in accordance with this Agreement, necessary in any jurisdiction.
2. CONSIDERATION.
2.1. * Consideration. On the Closing Date, Inter*Act shall pay to CVC *
payable by wire transfer as designated by CVC.
2.2. Promissory Note. On the Closing Date, Inter*Act shall issue to CVC a *
promissory note in the form attached hereto as Exhibit 2 (the "Note").
2.3. Consulting Services by Deaton. Deaton shall provide consulting
services to Inter*Act as reasonably requested by Inter*Act and agreed to by
Deaton, with respect to any technical, legal and/or business issues involving
the Sale Patents for a period of three (3) years commencing upon the Closing
Date. In exchange for such consulting services, Inter*Act shall pay to Deaton
one hundred thousand dollars (U.S.) ($100,000) for each calendar year, plus
reasonable pre-approved expenses incurred. The foregoing annual consulting fees
shall be payable in arrears in four equal installments of twenty five thousand
dollars (U.S.) ($25,000) per calendar quarter within thirty (30) days following
the close of each such calendar quarter.
3. DELIVERY OF RECORDS. Within five (5) days after the Closing Date, CVC and
Deaton shall, and shall cause their counsel to, deliver to Inter*Act's counsel,
all originals and copies of all prosecution histories and documents which relate
or refer to the Sale Patents, including without limitation, all correspondence
to and from, and all memoranda, notes, and drafts authored by, the PTO, the
inventor(s) of the Sale Patents, CVC, and their respective
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<PAGE>
counsel (including foreign associate counsel), and all prior art of which the
inventor(s), CVC and their respective counsel (including foreign associate
counsel) are aware (collectively, the "Records"). CVC and Deaton shall also
provide copies of documents relating to Deaton's conception and reduction to
practice of the Sale Patents, and Deaton and CVC shall maintain custody of the
originals of such documents. CVC and Deaton (and their counsel) shall provide
their reasonable assistance, at Inter*Act's expense, with respect to the
transition and interpretation of the Records.
4. OTHER OBLIGATIONS CONCERNING PATENTS.
4.1. *
4.2. Covenant Not to Sue CVC and Deaton. Inter*Act hereby covenants that
neither Inter*Act, nor Inter*Act's affiliates, subsidiaries, successors,
assignees, licensees or transferees, shall bring any legal action or proceeding
against CVC and/or Deaton with respect to any alleged infringement of the Sale
Patents or any of the patents owned by or licensed by Inter*Act as of the
Closing Date, provided that CVC's and Deaton's activities are identical or
substantially similar
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<PAGE>
to those activities in which CVC has commercially engaged up to and including
the Closing Date or as expressly set forth or described on Schedule C hereto and
further provided that such activities do not include or involve: (i) interactive
multimedia kiosk-based applications; or (ii) any system or method where a
manufacturer reimburses or subsidizes the cost of the incentive, discount and/or
coupon or otherwise compensates CVC, Deaton or (except for side agreements
between manufacturers and retailers) the retailer for offering such incentive,
discount and/or coupon (collectively, the "Prohibited Activities"). Inter*Act
shall require any purchaser, assignee or licensee of any of the Sale Patents to
agree in writing to the provisions of this Section 4.2.
4.3. *
4.4. *
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<PAGE>
5. DISPUTE RESOLUTION.
5.1. Communication Among the Parties. The Parties hereby acknowledge and
agree that it is in their mutual best interest not to become involved in
disputes with one another in connection with any of the Sale Patents, * and/or
any patents owned or licensed by Inter*Act. In furtherance of maintaining
positive and open relations among the Parties, Inter*Act shall keep CVC and
Deaton reasonably informed regarding Inter*Act's activities, and CVC and Deaton
shall keep Inter*Act reasonably informed regarding CVC's and Deaton's
activities.
5.2. *
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5.3. Obligations of Inter*Act. In the event that Inter*Act believes that
CVC is infringing any of the Sale Patents, or any of the patents owned or
licensed by Inter*Act, then Inter*Act's sole and exclusive remedy with respect
to any such alleged infringement, both in
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<PAGE>
equity and in law, shall be the commencement of a binding arbitration proceeding
in Wilmington, Delaware in accordance with the rules and procedures of the
American Arbitration Association, which proceeding shall determine all issues
with respect to the subject Sale Patent(s) (and/or other patent(s) owned or
licensed by Inter*Act) including without limitation, the validity and
enforceability of such Sale Patent(s) (and/or other patent(s) owned or licensed
by Inter*Act), whether or not infringement of the Sale Patent(s) (and/or other
patent(s) owned or licensed by Inter*Act) has occurred, and if appropriate, the
award of damages and/or injunctive relief, provided however, that prior to the
commencement of any such arbitration proceeding, Inter*Act shall be required to:
(i) make a good faith, documented determination supported by a written opinion
from legal counsel (and provide a copy of same to CVC) setting forth (a) the
manner in which CVC is infringing the Sale Patent(s) (and/or other patent(s)
owned or licensed by Inter*Act) and (b) an express conclusion that the allegedly
infringing activities of CVC are not identical or substantially similar to the
activities in which CVC and/or Deaton was engaged as of the Closing Date or as
set forth in Schedule C, or the allegedly infringing activities of CVC
constitute Prohibited Activities; (ii) provide CVC with written notice that CVC
is infringing one or more claims in the Sale Patent(s) (and/or other patent(s)
owned or licensed by Inter*Act); (iii) enter into and participate, in good
faith, in a dialogue with CVC, for a minimum of seventy five (75) days following
CVC's receipt of written notice from Inter*Act that CVC is infringing one or
more claims in the Sale Patent(s) (and/or other patent(s) owned or licensed by
Inter*Act) with the goal of resolving such conflict; (iv) at the end of such
seventy five (75) day period, provide CVC with written notice of CVC and
Inter*Act's failure to resolve the conflict; and (v) provide CVC with written
notice of Inter*Act's intent to bring an arbitration proceeding followed by a
two (2) week period after CVC's receipt of such written notice. In the event
that Inter*Act (or its successors, assignees and/or licensees) commences an
arbitration proceeding against CVC in connection with any of the Sale Patents
(and/or other patent(s) owned or licensed by Inter*Act)
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<PAGE>
following the satisfaction of the aforementioned conditions, then it shall be a
complete defense to such action that the accused CVC activities are identical or
substantially similar to the activities in which CVC was engaged as of the
Closing Date or as set forth on Schedule C attached hereto, and such activities
are not Prohibited Activities. In the event Inter*Act enters into any sale,
transfer, assignment, set over or license with any third party with respect to
the Sale Patents (and/or other patents owned or licensed by Inter*Act) then
Inter*Act shall be required to impose written, contractual obligations on such
third party requiring such third party to comply in all respects with the terms
and conditions of this Section 5.3; and in the event that Inter*Act fails to
impose such written contractual obligations, Inter*Act shall indemnify and
defend and hold CVC harmless from and against any and all actions brought in a
manner contrary to this Section 5.3 by such third party who had not been
contractually bound to comply with the terms and conditions in this Section 5.3.
CVC and Deaton agree that with respect to the Sale Patents (and/or other patents
owned or licensed by Inter*Act) they shall not file any declaratory judgment
action seeking a declaration of invalidity, unenforceability or non-infringement
of any of the Sale Patents (and/or other patents owned or licensed by Inter*Act)
and/or seeking to declare that Inter*Act is not infringing one or more of the
Sale Patents (and/or other patents owned or licensed by Inter*Act), provided
however, that in the event that Inter*Act does not commence the binding
arbitration proceeding within sixty (60) days following the two (2) week period
after CVC's receipt of Inter*Act's written notice of the intention to commence
such binding arbitration proceeding against CVC, CVC and Deaton shall then have
the right to commence a binding arbitration proceeding for a declaratory
judgment in Wilmington, Delaware in accordance with the rules and procedures of
the American Arbitration Association. In no event shall CVC or Deaton or their
successors, assignees and/or licensees contest the validity or enforceability of
any of the Sale Patents. Inter*Act further agrees that under no circumstances
shall Inter*Act initiate any legal action, or threaten to take any legal action,
against any customer
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<PAGE>
or supplier of CVC for infringement of any of the Sale Patents (and/or patents
owned or licensed by Inter*Act) to the extent that such alleged infringement
arises out of activities engaged in by such customer or supplier in conjunction
with, or in connection with, CVC.
6. *
6.1. *
6.2. *
7. LICENSE GRANT AND RESTRICTIONS.
7.1. License to CVC. Inter*Act hereby grants to CVC a non-exclusive,
non-transferable (except as expressly provided in this Agreement) non-assignable
(except as expressly provided in this Agreement), royalty-free, personal license
under the Sale Patents solely to operate, strictly for CVC's and its retail
establishment customers' own benefit, a system
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or method identical to or substantially similar to that commercially practiced
by CVC before or on the Closing Date or as set forth in Schedule C attached
hereto (the "License Back"); provided that CVC shall not be permitted under the
License Back to, and shall not, engage in any activities not expressly described
in the immediately preceding sentence, including without limitation, the
Prohibited Activities. Inter*Act hereby reserves any and all rights in and to
the Sale Patents not expressly granted to CVC in this Section 7.1 as part of the
License Back. Inter*Act agrees that in any assignment or transfer by Inter*Act
of the Sale Patents, it shall include a provision requiring said assignee or
transferee to honor the License Back.
7.2. Restrictions. CVC shall have no right to sublicense, assign, or
transfer the License Back or any of its rights under the License Back to any
entity or person or other third party and any such attempted sublicense,
assignment or transfer shall cause the License Back to automatically terminate
and become null and void, provided however, that CVC shall have the right to
permit its retail establishment customers to use for their own internal purposes
CVC's systems or methods authorized under the License Back on a
non-transferable, non-exclusive basis solely in their geographic community, and
provided further that CVC shall have the right to transfer and/or assign the
License Back in connection with a sale of CVC or any portion thereof or any
control or indicia of control thereof, subject to and solely as permitted by the
provisions of Article 6 hereof, and further provided that the License Back shall
not be, and CVC shall use its best efforts (including the imposition of written
contractual obligations) to ensure that, the License Back shall not be further
transferred or assigned by such permitted purchaser of CVC or any portion
thereof or any control or indicia of control thereof or by any such retail
establishment.
7.3. CVC Bankruptcy Or Insolvency. The License Back shall automatically
terminate and shall become null and void in the event that CVC: (i) ceases doing
business; or (ii) becomes or is declared insolvent, (i.e., unable to pay debts
as they become due in the ordinary course) or
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bankrupt and such insolvency or bankruptcy continues for a period of thirty
(30) days or more; or (iii) becomes the subject of any proceedings relating to
its liquidation, insolvency or for the appointment of a receiver or similar
officer for it and such proceeding continues for a period of thirty (30) days or
more; or (iv) makes an assignment for the benefit of all or substantially all of
its creditors; or (v) enters into an agreement for the composition, extension,
or readjustment of all or substantially all of its obligations.
7.4. Nature of License Back. CVC and Deaton hereby acknowledge and agree
that the License Back is personal in nature to CVC and is granted to CVC
hereunder strictly in accordance with the terms hereof. CVC and Deaton further
acknowledge and agree that Inter*Act would be irreparably harmed in the event
that the License Back or any right thereunder is transferred, sublicensed, or
assigned to any entity or person in contravention of this Agreement.
7.5. Inter*Act Bankruptcy or Insolvency. The provisions of Sections 4.4,
and 6.1 shall automatically terminate and shall become null and void in the
event that Inter*Act (i) ceases doing business; or (ii) becomes or is insolvent
(i.e., unable to pay debts as they become due in the ordinary course) or
bankrupt and such insolvency or bankruptcy continues for a period of thirty (30)
days or more; or (iii) becomes the subject of any proceedings relating to its
liquidation, insolvency or for the appointment of a receiver or similar officer
for it and such proceeding continues for a period of thirty (30) days or more;
or (iv) makes an assignment for the benefit of all or substantially all of its
creditors; or (v) enters into an agreement for the composition, extension, or
readjustment of all or substantially all of its obligations; provided, however,
that, in such events, the License Back shall survive in full force and effect;
and further provided that the provisions of Sections 6.2 and 7.2 shall not so
terminate, but Sections 6.2 and 7.2 instead shall terminate only if Inter*Act
commences a Chapter 7 liquidation proceeding or otherwise liquidates all or
substantially all of its assets.
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<PAGE>
8. LITIGATION ASSISTANCE. In the event Inter*Act becomes involved in any legal
action or proceeding with any third party involving any of the Sale Patents, CVC
and Deaton shall provide, and shall cause its counsel to provide, reasonable
assistance, at Inter*Act's expense, in any such legal action or proceeding,
including without limitation, appearing and testifying at depositions, hearings
and trials. To the extent CVC and/or Deaton become involved in any such legal
action or proceeding, CVC and Deaton hereby agree to be represented by counsel
selected by Inter*Act, and reasonably acceptable to Deaton, at Inter*Act's
reasonable expense. At CVC's and Deaton's expense, CVC and/or Deaton shall be
permitted to retain additional counsel which counsel shall cooperate with
counsel of Inter*Act's choice.
9. COOPERATION ON PATENT APPLICATIONS. The Parties hereby acknowledge and agree
that it is in their mutual best interest to keep one another reasonably informed
with respect to any potential continuation, continuation-in-part, divisional and
foreign counterparts patent applications in connection with the Sale Patents (to
be prosecuted by Inter*Act) * . Accordingly, the Parties shall keep one another
reasonably informed regarding such applications on a confidential basis and
shall use reasonable efforts to coordinate such applications in advance of
filing them with the appropriate authority to prevent any conflicts or
inconsistencies which may otherwise arise with respect thereto.
10. REPRESENTATIONS AND WARRANTIES.
10.1. Authority Relative to this Agreement. The Parties hereby represent
and warrant that each has the full power and complete authority to enter into
this Agreement and to carry out its respective obligations hereunder. CVC and
Inter*Act represent and warrant that the execution and delivery of this
Agreement and the consummation of the transactions contemplated hereby have been
duly authorized by their respective Board of Directors and the requisite vote of
their respective shareholders, if required under the law of their respective
jurisdictions. This Agreement constitutes a valid and binding obligation on each
of the Parties
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<PAGE>
enforceable in accordance with its terms except as enforcement may be limited by
bankruptcy, insolvency or other similar laws affecting the enforcement of
creditors' rights generally. CVC and Inter*Act represent and warrant that no
other corporate proceedings are necessary to respectively authorize this
Agreement and the transactions contemplated hereby.
10.2. Representations and Warranties of CVC and Deaton. CVC and Deaton
represent and warrant that: (i) CVC is the owner of all rights, title and
interests in and to the Sale Patents * and that, subject to the site licenses
set forth in Schedule E hereto, neither CVC nor Deaton has granted to any third
party, any license rights or any other rights, title and/or interests in and to
the Sale Patents * (ii) other than the Sale Patents *, neither CVC, nor Deaton,
has any ownership rights whatsoever in any other patents or patent applications
relating in any way to in store couponing, promotions or incentives or to the
subject matter of the Sale Patents *, in any jurisdiction; (iii) Inter*Act will,
as of the Closing Date, be the sole owner of the Sale Patents; (iv) subject to
the site licenses of Schedule E hereto, neither CVC nor Deaton has entered nor
will they enter into any agreement or understanding with any third party that
would interfere with or impair CVC's or Deaton's right to enter into this
Agreement or Inter*Act's rights in and to the Sale Patents under this Agreement;
(v) subject to the correspondence contained in the files set forth in Schedule F
hereto, neither CVC nor Deaton has received written notice of any claim or
demand of any person or entity pertaining to any prosecution, suit, action or
proceeding pending or threatened, that challenges the validity or enforceability
of any of the Sale Patents or Inter*Act's rights to purchase the Sale Patents,
other than attempts by Catalina Marketing Corporation and/or Catalina Marketing
International, Inc. to provoke interferences in the PTO (the "Interference
Attempts"), and other than those Interference Attempts, CVC and Deaton know of
no fact that would cause any of the Sale Patents to be invalid or unenforceable;
(vi) other than actions taken by the U.S. or foreign patent offices, and
disclosed to Inter*Act, no aspect of any of the Sale
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<PAGE>
Patents is subject to any action or any outstanding order, ruling, decree,
judgment or stipulation by or with any court, arbitrator or administrative
agency; (vii) CVC is not engaged in any litigation, and, to the knowledge of CVC
and/or Deaton, no litigation is threatened with respect to any of the Sale
Patents other than the Interference Attempts; (viii) CVC and Deaton have
provided Inter*Act and its counsel, accountants and/or other representatives
with access to and copies of all books, records, documents, reports, contracts,
government filings, personnel and other information concerning the business of
CVC and the Sale Patents and requested by Inter*Act in connection with its due
diligence review of CVC, the Sale Patents* ; (ix) neither CVC nor Deaton shall
take any action which would interfere with the enforceability, validity or
Inter*Act's quiet enjoyment of any of the Sale Patents; (x) CVC and Deaton
shall, within five (5) business days following the Closing Date, terminate each
of the site licenses identified in Schedule E in all respects, * and not with
respect to the Sale Patents; and (xi) CVC and Deaton, within five (5) business
days after the Closing Date, shall file, pursuant to 37 C.F.R. 'SS' 1.138, in
the PTO, a written declaration of abandonment of patent application number
08/096,921, filed July 23, 1993. CVC further represents and warrants and Deaton,
to his current knowledge, represents and warrants, that: (a) all the Sale
Patents have been duly filed in the PTO or in the appropriate foreign patent
office in other jurisdictions, and all communications from CVC to the PTO and
appropriate foreign patent office have been accurate and truthful, all the Sale
Patents have been properly maintained in accordance with all applicable laws,
rules, and regulations and all fees associated therewith have been paid; and (b)
other than those documents reviewed by Inter*Act during its due diligence
review, neither CVC nor Deaton, based on their best recollections as of the
Closing Date, is aware of any documents that would reveal any material fact with
respect to the title, validity and/or enforceability of the Sale Patents * .
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<PAGE>
10.3. LIMITATION ON WARRANTIES BY CVC AND DEATON. OTHER THAN THE EXPRESS
WARRANTIES SET FORTH IN THIS AGREEMENT, CVC AND DEATON DO NOT WARRANT AND MAKE
NO REPRESENTATIONS REGARDING THE VALIDITY, ENFORCEABILITY OR SCOPE OF ANY CLAIM
OR CLAIMS OF THE SALE PATENTS, NOR AS TO THE OUTCOME OF ANY INTERFERENCE
INVOLVING THE SALE PATENTS AND INSTITUTED BY THE U.S. OR ANY FOREIGN PATENT
OFFICE OR INSTITUTED AT THE REQUEST OF A THIRD PARTY, INCLUDING CATALINA
MARKETING CORPORATION.
10.4. Representations of Inter*Act. Inter*Act hereby acknowledges and
agrees that it has conducted due diligence relative to the Sale Patents, using
its attorneys, prior to execution of this Agreement and that CVC and Deaton have
provided certain documents and information requested by Inter*Act during its due
diligence prior to execution of this Agreement. Inter*Act further acknowledges
that it has been made aware of attempts by Catalina Marketing Corporation
and/or Catalina Marketing International, Inc. to commence interference
proceedings with respect to one or more of the Sale Patents.
10.5. LIMITATION ON WARRANTIES BY INTER*ACT. OTHER THAN THE EXPRESS
WARRANTIES SET FORTH IN THIS AGREEMENT, INTER*ACT DISCLAIMS ALL OTHER
WARRANTIES, EXPRESS OR IMPLIED.
11. *
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12. INDEMNIFICATION. CVC, at its sole expense, shall indemnify, defend and hold
harmless Inter*Act and Inter*Act's affiliates, subsidiaries, shareholders,
directors, officers and employees from and against any and all claims, causes of
actions, actions, judgments, liabilities and/or damages, including without
limitation, reasonable expenses and attorneys' fees, arising out of or in
connection with any allegation, fact or circumstance which, if true, would
constitute a breach of an express warranty or representation of CVC or Deaton
under this Agreement.
13. NO CONSEQUENTIAL DAMAGES. EXCEPT WITH RESPECT TO THE PARTIES' EXPRESS
WARRANTY OBLIGATIONS, CVC'S INDEMNIFICATION OBLIGATIONS, AND CVC'S LICENSE BACK
RESTRICTIONS UNDER THIS AGREEMENT, NO PARTY SHALL BE LIABLE TO ANY OTHER PARTY
FOR ANY INDIRECT, SPECIAL, INCIDENTAL OR CONSEQUENTIAL DAMAGES OR LOST PROFITS
ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE SUBJECT MATTER HEREOF EVEN
IF THE PARTY HAS BEEN INFORMED IN ADVANCE OF THE POSSIBILITY OF SUCH DAMAGES.
14. LIMITATION ON DEATON'S LIABILITY. DEATON'S AGGREGATE PERSONAL LIABILITY WITH
RESPECT TO ANY ACTION ARISING OUT OF OR RELATING TO THIS AGREEMENT SHALL NOT
EXCEED * RECEIVED BY CVC UNDER THIS AGREEMENT.
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15. CONFIDENTIALITY.
15.1. Confidential Information. All Parties agree that in connection with
this Agreement, Confidential Information (as defined below) of one Party (the
"Disclosing Party") may be disclosed to another Party (the "Receiving Party").
"Confidential Information" shall mean all information, materials, and knowledge,
whether in written, oral or other form, furnished or made available by a
Disclosing Party to a Receiving Party, whether or not designated as Confidential
Information, constituting, containing, referring to or revealing: (i) the
payment terms of this Agreement; or (ii) proprietary and confidential financial
information of a Disclosing Party; or (iii) proprietary and confidential
business plans and strategies of a Disclosing Party; or (iv) trade secrets and
other proprietary ideas, concepts, know-how, technologies, inventions, and
methodologies of a Disclosing Party.
15.2. Non-Disclosure. All Parties agree to maintain the strict
confidentiality of the Confidential Information of the Disclosing Party and
shall not: (a) transfer or disclose any Confidential Information of the
Disclosing Party, directly or indirectly, to any third party; (b) copy the
Confidential Information of the Disclosing Party or remove any proprietary
notices from originals or copies without the prior written approval of the
Disclosing Party; or (c) take any other action with respect to the Confidential
Information of the Disclosing Party inconsistent with the confidential and
proprietary nature of such Confidential Information. The Parties further agree
to: (i) safeguard and protect the Confidential Information of the Disclosing
Party, using procedures no less rigorous than those procedures used to protect
its own confidential information; and (ii) return all Confidential Information
to the Disclosing Party (and all permitted copies thereof) to the Disclosing
Party, at the written request of such Disclosing Party. The Parties shall be
permitted to disclose the Confidential Information of any Disclosing Party to
their employees or legal or financial advisors having a need for access thereto
in connection with this Agreement who either: (i) have been instructed as to,
and have agreed to be
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bound by, the confidentiality obligations hereunder prior to being given access
to the Confidential Information; or (ii) are subject to a written agreement that
protects the use and disclosure of the Confidential Information to the extent
protected by this Agreement. The Parties shall take steps, no less rigorous than
those they take to protect their own confidential information, to prevent their
employees, agents or subcontractors from acting in a manner inconsistent with
the terms of this Agreement.
15.3. Exclusions. Notwithstanding the foregoing, Confidential Information
of a Disclosing Party shall not include information: (a) required by law to be
disclosed; (b) that becomes part of the public domain other than as a result of
a violation of this Agreement; (c) that was in the possession of a Receiving
Party prior to the disclosure by a Disclosing Party from a source who was not
known by Receiving Party to be bound by a duty of confidentiality to Disclosing
Party; or (d) that was independently developed by a Receiving Party as
demonstrated by written documentation. Notwithstanding anything to the contrary
in this Article 15, Inter*Act shall have the right to disclose this Agreement
and its terms in its required filings with the Securities and Exchange
Commission and/or other governmental authorities.
16. MISCELLANEOUS
16.1. Force Majeure. No Party shall be in default if failure to perform any
obligation hereunder is caused solely by supervening conditions beyond that
Party's reasonable control, including acts of God, civil commotion, strikes,
labor disputes, and governmental demands or requirements.
16.2. Governing Law and Jurisdiction. This Agreement shall be governed by
and construed in accordance with the laws of the state of Delaware without
giving effect to conflict of laws principles. Except as otherwise provided in
Article 5 hereof, the sole and exclusive jurisdiction for any case or
controversy arising out of this Agreement shall be in the appropriate state or
federal court in Wilmington, Delaware.
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16.3. Entire Agreement. The Parties acknowledge that this Agreement,
including the Exhibits and Schedules attached hereto and any documents
incorporated by reference herein constitute the complete and exclusive statement
of the terms and conditions among the Parties, which supersedes all prior
proposals, understandings and all other agreements, oral and written, between
the parties relating to the subject matter of this Agreement, provided however,
that the Confidential Disclosure Agreement, dated May 6, 1998, between CVC and
Inter*Act (the "Confidentiality Agreement") shall remain in full force and
effect provided however, that in the event of a conflict between the terms and
conditions of this Agreement and the Confidentiality Agreement, the terms and
conditions of this Agreement shall prevail. This Agreement may not be modified
or altered except by a written instrument duly executed by all the Parties.
16.4. Severability. In the event any provision hereof shall be deemed
invalid or unenforceable by any court or governmental agency, such provision
shall be deemed severed from this Agreement and replaced by a valid provision
which approximates as closely as possible the intent of the parties. All
remaining provisions shall be afforded full force and effect.
16.5. No Waiver. No delay or omission by any 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 any 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.
16.6. Headings. The headings of the articles and sections used in this
Agreement are included for convenience only and are not to be used in construing
or interpreting this Agreement.
16.7. No Third Party Beneficiaries. The Parties agree that this Agreement
is for the benefit of the Parties hereto and is not intended to confer any
rights or benefits on any third
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party, and that there are no third party beneficiaries as to this Agreement or
any part or specific provision of this Agreement.
16.8. Notice. Wherever under this Agreement a Party is required or
permitted to give notice to another Party, such notice shall be deemed given
when delivered in hand, when telecopied or faxed and receipt confirmed, when
sent by overnight courier service to the address specified below, or when mailed
by United States mail, registered or certified mail, return receipt requested,
postage prepaid, and addressed as follows:
In the case of Inter*Act:
Mr. Stephen R. Leeolou
Inter*Act Systems, Incorporated
14 Westport Avenue
Norwalk, CT 06854
FAX #: 910-545-4806
with copies to:
Jeffrey P. Weingart, Esq.
Brown Raysman Millstein Felder & Steiner LLP
120 West 45th Street
New York, NY 10036
FAX #: 212-840-2429
In the case of CVC:
P.O. Box 387
Abilene, Texas 79601
with copies to:
Jerry W. Mills, Esq.
Baker & Botts, L.L.P.
2001 Ross Avenue
Dallas, Texas 75201
In the case of Deaton:
1201 Cedar Crest Drive
Abilene, Texas 79601
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with copies to:
Jerry W. Mills, Esq.
Baker & Botts, L.L.P.
2001 Ross Avenue
Dallas, Texas 75201
Any Party hereto may from time to time change its address for
notification purposes by giving the other written notice of the new address
and/or fax number and the date upon which it will become effective.
16.9. Independent Contractor. The Parties intend to create an independent
contractor relationship and nothing contained in this Agreement shall be
construed to make any of the Parties joint venturers, principals, agents or
employees of any other Party. No Party shall have any right, power or authority,
express or implied, to bind any other Party.
16.10. Counterparts. This Agreement may be executed in three counterparts,
each of which shall be an original; but such counterparts shall together
constitute but one and the same instrument.
16.11. Assignment. Neither CVC nor Deaton may assign or transfer this
Agreement or any portion hereof or obligation or right herein to any person or
entity without the prior written consent of Inter*Act, and any attempt to do so
shall automatically render the License Back and Inter*Act's payment obligations
hereunder null and void.
16.12. Termination and Survival. Upon the occurrence of an Event of Default
under the Note (as the term "Event of Default" is defined in the Note), and such
Event of Default remains uncured for a period of thirty (30) days following
Inter*Act's receipt of written notice thereof from CVC, then this Agreement
shall terminate in all respects, except that Sections 1.1, 1.3, 1.4, 7.1, 7.2,
7.3, 7.4, 10.1, 10.2, 10.3, 10.4, 12, 13, 14, 15.1, 15.2, 15.3, and 16.2 hereof
shall survive such termination.
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IN WITNESS WHEREOF, the Parties have caused this Agreement to be executed
in their names as of the respective dates written below.
INTER*ACT SYSTEMS, INCORPORATED CREDIT VERIFICATION CORPORATION
By: /s/ Stephen R. Leeolou By: /s/ David W. Deaton
----------------------------- -------------------------------
Name: Stephen R. Leeolou Name: David W. Deaton
----------------------------- -------------------------------
Title: Chairman & CEO Title: President
----------------------------- -------------------------------
Date: May 22, 1998 Date: 5/22/98
---------------------------- -------------------------------
DAVID W. DEATON
Signature: /s/ David W. Deaton
-----------------------
Date: 5/22/98
-----------------------
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SCHEDULES AND EXHIBITS
Schedule A: Sale Patents
Schedule B: Other Rights
Schedule C: Activities of CVC and Deaton
Schedule D: Competitors
Schedule E: Site Licenses
Schedule F: Files Relating to Sale Patents
Exhibit 1: Assignment
Exhibit 2: Note
<PAGE>
<PAGE>
VOTING AGREEMENT
THIS VOTING AGREEMENT (the "Agreement") made and entered into as of
November 1, 1996 by and among Inter*Act Systems, Incorporated, a North Carolina
corporation (the "Company"), a North Carolina corporation, Vanguard Cellular
Operating Corp., a North Carolina corporation and wholly owned subsidiary of
Vanguard Cellular Systems, Inc. (such corporations collectively referred to for
purposes of this Agreement as "Vanguard"), and those individuals or entities
whose names appear on the signature pages hereto (individually, a "Shareholder"
and collectively, the "Shareholders");
W I T N E S S E T H:
WHEREAS, the Shareholders and Vanguard among them own a majority of the
issued and outstanding shares of capital stock of the Company as of the date
hereof (such shares, together with any additional shares of capital stock of the
Company issued and outstanding, being hereinafter referred to as the "Shares");
and
WHEREAS, in connection with the private offering of shares of common
stock of the Company approved by the Board of Directors of the Company on
October 13, 1995, Vanguard committed to purchase up to $8,000,000 of the common
stock of the Company proposed to be offered and sold in such offering, which
commitment was conditioned upon (a) approval by the Company shareholders of an
amendment to the bylaws of the Company to permit a maximum of twelve directors,
and (b) other action by the Company shareholders satisfactory to Vanguard that
would assure that Vanguard would, at all times until the Company shall have
completed its initial public offering, have six representatives on the Board of
Directors of the Company; and
WHEREAS, the Board of Directors of the Company approved Vanguard's
conditional investment and, after having received representations from certain
shareholders that they would support such a bylaw amendment and an agreement
regarding the Vanguard representation on the Board, Vanguard fulfilled its
investment obligations and purchased $8,000,000 of common stock in the offering;
and
WHEREAS, the bylaw amendment has been approved and Vanguard's six
representatives have been elected to the Board of Directors of the Company, and
the parties hereto desire to enter into this Agreement to promote their mutual
interests and the interests of the Company by combining certain of their voting
rights for the purpose of assuring that Vanguard's representation on the Board
of Directors will be maintained; and
WHEREAS, such agreement with respect to the exercise of voting rights
is expressly permitted by Section 55-7-31 of the North Carolina Business
Corporation Act;
NOW, THEREFORE, in consideration of the premises and the mutual
covenants contained herein, the parties hereto agree as follows:
<PAGE>
<PAGE>
1. Voting for Directors. Until this Agreement shall have been
terminated, each of the Shareholders hereby agrees to vote or cause to be voted,
in any and all elections of directors of the Company, whether at a meeting or by
written consent in lieu of a meeting, or to fill a vacancy created by the
resignation or removal of a director, all Shares owned by such Shareholder or
over which such Shareholder has voting control, and to use such Shareholder's
best efforts otherwise, so as to elect and maintain out of the twelve director
positions on the Board of Directors of the Company six persons nominated by
Vanguard. Nothing herein shall affect the right of the Shareholder to vote for
or otherwise use his best efforts to elect any person to the remaining Board
positions as long as such efforts do not adversly affect the election of the
Vanguard nominees.
2. No Amendment to Bylaws. So long as this Agreement shall remain in
effect, each of the Shareholders agrees that, without the prior written consent
of Vanguard, such Shareholder shall take no action the effect of which would be
to amend Section 2 of Article III of the bylaws of the Company or to fix the
number of directors at a number other than twelve.
3. Transfers. Each of the Shareholders agrees that, as conditions to
any transfer of Shares during the effectiveness of this Agreement, the
transferee shall agree to join in this Agreement by executing an appropriate
joinder agreement and the certificate or certificates representing the
transferred shares shall bear an appropriate legend stating that such shares are
subject to this Agreement.
4. Amendment and Termination. This Agreement may be amended only by an
instrument in writing executed by all the parties hereto. This Agreement shall
be terminated upon the earlier to occur of (i) written notice of termination
from Vanguard to the Shareholders, (ii) an underwritten public offering of
shares of the Company's Common Stock pursuant to a registration statement filed
under the Securities Act of 1933, as amended, or (iii) ten years from the date
hereof.
5. Specific Performance. In the event of breach of this Agreement,
legal remedies available to the parties not in breach shall be deemed to be
inadequate and the parties not in breach shall be entitled to seek specific
performance of this Agreement.
6. Conflicts. In the event of a conflict between the terms of this
Agreement and the bylaws of the Company and any other document, policy or
procedure adopted by the Company, the terms of this Agreement shall control. No
party to this Agreement shall vote his Shares or take any action to adopt a
bylaw for the Company inconsistent with the terms of this Agreement. Any such
act shall be deemed null and without effect.
7. Binding Effect. This Agreement shall be binding upon the parties
hereto and their respective heirs, legal representatives, successors and
assigns.
8. Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of North Carolina.
2
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9. Counterparts. This Agreement may be executed in multiple
counterparts, each of which shall be considered to be and have the force and
effect of an original.
IN WITNESS WHEREOF, each of the parties hereto has executed or caused
this Agreement to be executed by its duly authorized officials, as of the date
and year first above written.
INTER*ACT SYSTEMS, INCORPORATED
By: /s/ Stephen R. Leeolou
-----------------------------------
Chief Executive Officer
VANGUARD CELLULAR OPERATING CORP.
By: /s/ Haynes G. Griffin
-----------------------------------
President
SHAREHOLDERS:
ALONZO FAMILY PARTNERS, LTD.
By: /s/ Clarence A. Griffin
-----------------------------------
General Partner
/s/ Timothy G. Biltz
--------------------------------------
Timothy G. Biltz
/s/ F. Cooper Brantley
--------------------------------------
F. Cooper Brantley
/s/ Doris R. Bray
--------------------------------------
Doris R. Bray
CLEARING SYSTEMS, INC.
By: /s/ Paul Nash
----------------------------------
President
/s/ Robert M. DeMichele
--------------------------------------
Robert M. DeMichele
/s/ William P. Emerson
--------------------------------------
William P. Emerson
3
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<PAGE>
CO-TRUSTEES FOR WILLIAM P. EMERSON
IRREVOCABLE TRUST DATED JULY 17, 1996
By: /s/ William O.J. Lynch
------------------------------------
William O.J. Lynch, Co-Trustee
/s/ Dennis B. Francis
---------------------------------------
Dennis B. Francis
/s/ Deborah J. Francis
---------------------------------------
Deborah J. Francis
/s/ S. Tony Gore, III
---------------------------------------
S. Tony Gore, III
/s/ Haynes G. Griffin
---------------------------------------
Haynes G. Griffin
STEPHEN L. HOLCOMBE IRREVOCABLE TRUST
By: /s/ Stephen L. Holcombe
------------------------------------
Stephen L. Holcombe, Trustee
/s/ Robert F. Hutchens
---------------------------------------
Robert F. Hutchens
/s/ Stephen R. Leeolou
---------------------------------------
Stephen R. Leeolou
/s/ Richard P. Ludington
----------------------------------------
Richard P. Ludington
WILLIAM AND MAXWELL LUDINGTON TRUST
By: /s/ Carolyn Miller
-------------------------------------
Carolyn Miller, Trustee
/s/ Wm. F. Penwell
-----------------------------------------
William F. Penwell
/s/ L. Richardson Preyer, Jr.
-----------------------------------------
L. Richardson Preyer, Jr.
[Signature Page to Voting Agreement dated November 1, 1996]
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<PAGE>
/s/ Richard C. Rowlenson
-----------------------------------------
Richard C. Rowlenson
/s/ Peter B. Ruffin, Jr.
-----------------------------------------
Peter B. Ruffin, Jr.
/s/ Robert A. Silverberg
-----------------------------------------
Robert A. Silverberg
/s/ Van E. Snowdon
-----------------------------------------
Van E. Snowdon
/s/ Deborah A. Snowdon
-----------------------------------------
Deborah A. Snowdon
TORONTO DOMINION INVESTMENTS, INC.
By: /s/ Martha L. Gariepy
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Vice President
/s/ Richard A. Vinchesi, Jr.
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Richard A. Vinchesi, Jr.
[Signature Page to Voting Agreement dated November 1, 1996]
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INTER*ACT SYSTEMS, INCORPORATED
1997 LONG-TERM INCENTIVE PLAN
ARTICLE 1
PURPOSE
1.1 Purpose. This Inter*Act Systems, Incorporated 1997 Long-Term
Incentive Plan (the "Plan") is intended to induce those persons who are in a
position to contribute materially to the success of Inter*Act Systems,
Incorporated (the "Company") to remain with the Company, to offer them rewards
in recognition of their contributions to the Company's progress and to offer
them incentives to continue to promote the best interests of the Company.
1.2 Grant of Awards. In order to maintain flexibility in the grant of
incentive benefits, the Plan allows for the grant of Stock Options (both
Incentive Stock Options and Nonqualified Stock Options), Stock Appreciation
Rights, Unrestricted Stock, Restricted Stock and Performance Shares.
ARTICLE 2
DEFINITIONS
2.1 "Award" means any grant of Stock Options, Stock Appreciation
Rights, Unrestricted Stock, Restricted Stock or Performance Shares authorized by
the Committee under this Plan.
2.2 "Board" means the Board of Directors of the Company.
2.3 "Code" means the Internal Revenue Code of 1986, as amended.
2.4 "Committee" means the committee appointed by the Board pursuant to
Article 3 of the Plan for the purpose of administering the Plan.
2.5 "Disinterested Person" means a person who is both a "Non-Employee
Director" within the meaning of Rule 16b-3 as promulgated by the Securities and
Exchange Commission under the Securities Exchange Act of 1934 and an "outside
director" within the meaning of Section 162(m) of the Code and the regulations
promulgated thereunder.
2.6 "Fair Market Value" means, as of a given date, the closing sales
price per share of the Company's Stock, as reported on the national securities
exchange on which the Stock is principally traded on the day preceding the day
(or the most recent trading day preceding the day) on which the 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 Stock
is not admitted to trading on a national securities exchange for which sales
prices are regularly reported, Fair Market Value shall be
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determined by the Committee 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,
shall never lapse.
2.7 "Grantee" means a person who receives an Award pursuant to the
Plan.
2.8 "Incentive Stock Option" means any Stock Option designated as an
Incentive Stock Option within the meaning of Section 422 of Code. Any Stock
Option so designated shall be construed to comply in every respect with Section
422 of the Code.
2.9 "Nontandem Stock Appreciation Right" means any Stock Appreciation
Right granted pursuant to Article 7 of the Plan in a manner not related to a
grant of a Stock Option.
2.10 "Nonqualified Stock Option" means any Stock Option granted
pursuant to the Plan that is not designated as being an Incentive Stock Option
under Section 422 of the Code. Any Stock Option so designated shall not be
subject to Section 422 of the Code.
2.11 "Performance-based Compensation Award" means an Award described in
Article 11 of the Plan.
2.12 "Performance Shares" means shares of Stock that are subject to an
Award pursuant to Article 10 of the Plan.
2.13 "Restricted Stock" means shares of Stock that are issued to a
Grantee subject to restrictions under Article 9 of the Plan.
2.14 "Stock" means the Common Stock, no par value, of the Company or
any successor class of stock.
2.15 "Stock Appreciation Right" means the right to receive, pursuant to
an Award granted pursuant to Article 7 of the Plan, shares of Stock equal in
value to the excess, at the time the right is exercised, of the Fair Market
Value of the number of shares subject to the Award over the Fair Market Value of
such shares at the time the Award was granted. A Stock Appreciation Right may be
a Tandem Stock Appreciation Right or a Nontandem Stock Appreciation Right.
2.16 "Stock Option" means any Incentive Stock Option or Nonqualified
Stock Option to purchase shares of Stock granted to any Grantee pursuant to
Article 6 of the Plan.
2.17 "Subsidiary" means any person, firm, partnership, limited
liability company or corporation at least 50% of the total combined voting power
of which is owned directly or indirectly by the Company.
2.18 "Tandem Stock Appreciation Right" means any Stock Appreciation
Right granted pursuant to Article 7 of the Plan in conjunction with all or part
of any Stock Option granted under the Plan pursuant to a Stock Option agreement
which states that the Grantee may, in lieu of
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exercising the Stock Option, surrender the Stock Option and receive shares of
Stock equal in value to the Stock Appreciation Right.
2.19 "Unrestricted Stock" means an Award of shares of Stock pursuant to
Article 8 of the Plan.
ARTICLE 3
ADMINISTRATION
3.1 Committee. The Plan shall be administered by a Committee appointed
by the Board consisting of not less than two members, all of whom must be
Disinterested Persons. Any action of the Committee shall be taken by majority
vote at a meeting called in accordance with procedures adopted by the Committee
or by the unanimous written consent of the Committee.
3.2 Authority of Committee. Subject to the other provisions of this
Plan, and with a view to effecting its purpose, the Committee shall have sole
authority in its absolute discretion: (i) to grant Awards under the Plan; (ii)
to determine the officers, employees and directors to whom Awards shall be
granted under the Plan; (iii) to determine the number of shares of Stock subject
to any Award under the Plan; (iv) to establish the price, duration, performance
measures and any other term, restriction or condition of an Award under the
Plan; (v) to accelerate the time at which any outstanding Stock Option or Stock
Appreciation Right may be exercised or the time when restrictions or conditions
on any other Awards will lapse; (vi) to construe and interpret the Plan; (vii)
to prescribe, amend, and rescind rules and regulations relating to the Plan; and
(viii) to make any other determinations necessary or advisable for the
administration of the Plan and to do everything necessary or appropriate to
administer the Plan. Notwithstanding the foregoing, the Board may grant Awards
from time to time to consultants and directors who are not employees of the
Company or any of its Subsidiaries.
3.3 Liability; Indemnification. No member of the Committee or the Board
shall be liable for any action or determination made in good faith with respect
to the Plan or to any Award granted thereunder. In addition, directors and
members of the Committee shall be eligible for indemnification from the Company,
pursuant to the Company's Bylaws, with respect to any matter arising under the
Plan.
ARTICLE 4
STOCK SUBJECT TO PLAN
4.1 Maximum Number of Shares Subject to the Plan. The maximum aggregate
number of shares of Stock available pursuant to the Plan, subject to adjustment
as provided in Article 14 hereof, shall be 670,000 shares of the Stock. If any
Stock Option granted pursuant to the Plan expires or terminates for any reason
before it shall have been exercised in full, the unpurchased shares subject to
such expired or terminated Stock Option shall again be available for the
purposes of the Plan, except that any unpurchased shares that have been subject
to a Stock Option in connection with which a Tandem Stock Appreciation Right has
also been granted shall be reduced
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by the number of shares issued in connection with the Tandem Stock Appreciation
Right. If any Nontandem Stock Appreciation Right granted pursuant to the Plan
expires or terminates for any reason before all shares subject thereto have been
issued, the unissued shares associated with such Nontandem Stock Appreciation
Rights shall again be available for the purposes of the Plan. If any shares
issued pursuant to a Restricted Stock Award shall be forfeited, such shares
shall again be available for the purposes of the Plan. If a Performance Share
Award terminates for any reason before all of the shares associated with such
Performance Shares Award shall have been issued pursuant thereto, such unissued
shares shall again be available for the purposes of the Plan. If any Stock
Appreciation Right or Performance Shares are paid in cash rather than in shares,
in whole or in part, the number of shares of Stock available under the Plan will
be reduced by the number of shares to which the cash payment relates.
4.2 Maximum Number of Shares For Any Individual. Notwithstanding any
other term or provision of the Plan, the aggregate number of shares of Stock
with respect to which Awards under the Plan may be granted to any individual
(including Awards that are subsequently canceled) shall not exceed 250,000
shares of Stock of the Company. If a Stock Option is canceled, terminated or
repriced, the canceled, terminated or repriced Stock Option shall be counted
against the maximum number of shares for which Awards may be granted to such
Grantee. If cash is paid to a Grantee in settlement of any Stock Appreciation
Right or Performance Shares Award, the number of shares to which the cash
payment relates shall be counted against the maximum number of shares for which
Awards may be granted to such Grantee.
4.3 Reservation of Shares of Common Stock. The Company, during the term
of this Plan, will at all times reserve and keep available such number of shares
of the Stock as shall be sufficient to satisfy the requirements of the Plan. In
addition, the Company will from time to time, as is necessary to accomplish the
purposes of this Plan, seek to obtain from any regulatory agency having
jurisdiction any requisite authority in order to issue and sell shares of Stock
hereunder. The inability of the Company to obtain from any regulatory agency
having jurisdiction the authority deemed by the Company's counsel to be
necessary to the lawful issuance and sale of any shares of the Stock hereunder
shall relieve the Company of any liability in respect of the nonissuance or sale
of the Stock as to which the requisite authority shall not have been obtained.
ARTICLE 5
ELIGIBILITY
Awards under the Plan may be granted to persons identified by the
Committee who are executive or supervisory employees, officers, directors, or
consultants of the Company or any Subsidiary. Notwithstanding the foregoing,
Incentive Stock Options to purchase shares of Stock may be granted pursuant to
the Plan only to executive or supervisory employees of the Company or a
Subsidiary that is a corporation, including directors and officers who are also
employees of the Company or a Subsidiary that is a corporation.
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ARTICLE 6
STOCK OPTIONS
6.1 Grant of Stock Options. The Committee may cause the Company to
grant Stock Options for the purchase of shares of Stock to Grantees under the
Plan in such amounts as the Committee, in its sole discretion, shall determine.
Such Stock Options may be granted either alone or in addition to other Awards
granted under the Plan. The Stock Options granted under the Plan shall be
designated as either: (i) Incentive Stock Options or (ii) Nonqualified Stock
Options.
6.2 Stock Option Terms and Conditions. Stock Options granted under the
Plan shall be evidenced by written agreements in such form as the Committee may
from time to time approve. The terms and conditions of Stock Options granted
under the Plan, including the satisfaction of corporate or individual
performance objectives and other vesting standards, may differ one from another
as the Committee shall, in its discretion, determine, as long as all Stock
Options granted under the Plan satisfy the requirements of the Plan.
6.3 Purchase Price. The purchase price for shares acquired pursuant to
the exercise, in whole or in part, of any Stock Option shall be determined by
the Committee at the time of grant, subject to the limitations set forth in this
Section 6.3. In no event shall the purchase price of any Stock Option be less
than the Fair Market Value of the shares at the time of the grant of the Stock
Option; except that for any Grantee who owns more than 10% of the combined
voting power of all classes of stock of the Company, the purchase price of any
Incentive Stock Option shall not be less than 110% of Fair Market Value. The
applicable Stock Option agreement may provide for adjustments to the purchase
price, as the Committee shall determine, provided that the purchase price shall
never be less than the initial purchase (except to the extent such adjustments
are pursuant to Article 15). The purchase price so determined shall also be
applicable in connection with the exercise of any Tandem Stock Appreciation
Right granted with respect to such Stock Option.
6.4 Duration of Stock Options. Each Stock Option and all rights
thereunder granted pursuant to the terms of the Plan shall expire on the date
specified in the applicable Stock Option agreement, but in no event shall any
Stock Option granted under the Plan expire later than 15 years from the date on
which the Stock Option is granted; provided, however, that no Incentive Stock
Option may be exercisable more than ten years from the date of the Award and no
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, may be exercisable
after the date five years from the date of the Award.
6.5 Exercise of Stock Options. Each Stock Option shall be exercisable
in one or more installments during its term, and the right to exercise may be
cumulative. No Stock Option may be exercised for a fraction of a share of Stock.
Unless otherwise provided by the applicable Stock Option agreement, 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, by surrender of shares of
Stock held by the Grantee for more than six months and having a value at the
exercise date equal to the exercise price, or through a cashless exercise
through a broker-dealer registered with the Securities and Exchange Commission,
or by a combination of any of the foregoing. If any portion of the purchase
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price is paid in shares of Stock, those shares shall be valued at their Fair
Market Value as of the day of delivery. No Grantee, or Grantee's executor,
administrator, legatee, or distributes, shall be deemed to be a holder of any
shares subject to a Stock Option unless and until a stock certificate or
certificates for such are issued to such Grantee under the terms of the Plan. No
adjustment shall be made for dividends (ordinary or extraordinary, whether in
cash, securities or other property) or distributions or other rights for which
the record date is prior to the date such stock certificate is issued, except as
provided in Article 15. The exercise of Stock Options under the Plan shall be
subject to the withholding requirements as set forth in Section 16.1.
6.6 Written Notice Required. A Stock Option shall be exercised when
written notice of that exercise, stating the number of shares of Stock with
respect to which the Stock Option is being exercised, has been given to the
Company at its principal office, to the attention of the General Counsel, by the
Grantee and full payment for the shares with respect to which the Stock Option
is exercised has been received by the Company.
6.7 Maximum Amount of Incentive Stock Options in Any Calendar Year. The
aggregate Fair Market Value (determined as of the time the option is granted) of
the Stock with respect to which Incentive Stock Options are first exercisable by
any Grantee during any calendar year under the terms of this Plan and all other
such plans of the Company and any parent and Subsidiary shall not exceed
$100,000. Any Stock Option in excess of the foregoing limitation shall be deemed
a Nonqualified Stock Option to the extent of such excess.
6.8 Cancellation of Stock Appreciation Rights. Upon exercise of all or
a portion of a Stock Option, any related Tandem Stock Appreciation Rights shall
be canceled with respect to an equal number of shares of Stock.
ARTICLE 7
STOCK APPRECIATION RIGHTS
7.1 Grant of Stock Appreciation Rights. The Committee may cause the
Company to grant Stock Appreciation Rights to Grantees under the Plan in such
amounts as the Committee, in its sole discretion, shall determine. Such Stock
Appreciation Rights may be granted either alone or in addition to other Awards
granted under the Plan. The Stock Appreciation Rights granted under the Plan
shall be designated as either: (i) Tandem Stock Appreciation Rights or (ii)
Nontandem Stock Appreciation Rights.
7.2 Stock Appreciation Rights Terms and Conditions. Stock Appreciation
Rights granted under the Plan shall be evidenced by written agreements in such
form as the Committee may from time to time approve. The terms and conditions of
Stock Appreciation Rights granted under the Plan, including the satisfaction of
corporate or individual performance objectives and other vesting standards, may
differ one from another as the Committee shall, in its discretion, determine, as
long as all Stock Appreciation Rights granted under the Plan satisfy the
requirements of the Plan.
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7.3 Tandem Stock Appreciation Rights.
7.3.1 Award of Tandem Stock Appreciation Rights. Tandem Stock
Appreciation Rights may be granted by the Committee in connection with
any Stock Option granted under the Plan, either at the time the Stock
Option is granted or thereafter at any time prior to the exercise,
termination or expiration of the Stock Option, except that in the case
of an Incentive Stock Option, such rights may be granted only at the
time of the grant of such Incentive Stock Option.
7.3.2 Limitations on Exercise of Tandem Stock Appreciation
Rights. A Tandem Stock Appreciation Right shall be exercisable only to
the extent that the related Stock Option is exercisable and shall be
exercisable only for such period as the Committee may determine (which
period may expire prior to the expiration date of the related Stock
Option). Upon the exercise of all or a portion of Tandem Stock
Appreciation Rights, the related Stock Option shall be canceled with
respect to the shares of Stock to which the exercised portion of the
Tandem Stock Appreciation Rights relates.
7.3.3 Surrender or Exchange of Tandem Stock Appreciation
Rights. A Tandem Stock Appreciation Right shall entitle the Grantee to
surrender to the Company unexercised the related Stock Option, or any
portion thereof, and to receive from the Company in exchange therefor
that number of shares of Stock having an aggregate Fair Market Value
equal to (i) the excess of (A) the Fair Market Value of one (1) share
of Common Stock at the time the Tandem Stock Appreciation Right is
exercised over (B) the purchase price per share specified in such Stock
Option, multiplied by (ii) the number of shares of Stock subject to the
Stock Option, or portion thereof, which is surrendered. Cash shall be
delivered in lieu of any fractional shares.
7.4 Nontandem Stock Appreciation Rights.
7.4.1 Award of Nontandem Stock Appreciation Rights. Nontandem
Stock Appreciation Rights may be granted by the Committee in a manner
not related to a grant of a Stock Option. At the time of grant of a
Nontandem Stock Appreciation Right, the Committee shall specify the
number of shares of Stock covered by such right and the base price of
shares of Stock to be used in connection with the calculation described
in Section 7.4.2 below. The base price of a Nontandem Stock
Appreciation Right shall be not less than 100% of the Fair Market Value
of a share of Common Stock on the date of grant. A Nontandem Stock
Appreciation Right shall be exercisable during such period as the
Committee shall determine.
7.4.2 Exercise of Nontandem Stock Appreciation Rights. The
exercise of a Nontandem Stock Appreciation Right shall entitle the
Grantee to receive from the Company that number of shares of Stock
having an aggregate Fair Market Value equal to (i) the excess of (A)
the Fair Market Value of one (1) share of Stock at the time at which
the Nontandem Stock Appreciation Right is exercised over (B) the base
price of the shares covered by the Nontandem Stock Appreciation Right,
multiplied by (ii) the number of shares of Stock
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covered by the Nontandem Stock Appreciation Right, or the portion
thereof being exercised. Cash shall be delivered in lieu of any
fractional shares.
7.5 Settlement of Stock Appreciation Rights. As soon as is reasonably
practicable after the exercise of a Stock Appreciation Right, the Company shall
(i) issue, in the name of the Grantee, stock certificates representing the total
number of full shares of Stock to which the Grantee is entitled pursuant to
Section 7.3.3 or Section 7.4.2 hereof and cash in an amount equal to the Fair
Market Value, as of the date of exercise, of any resulting fractional shares,
and (ii) if the Committee causes the Company to elect to settle all or part of
its obligations arising out of the exercise of the Stock Appreciation Right in
cash pursuant to Section 7.6, deliver to the Grantee an amount in cash equal to
the Fair Market Value, as of the date of exercise, of the shares of Stock it
would otherwise be obligated to deliver. The settlement of any Stock
Appreciation Right under the Plan shall be subject to the withholding
requirements as set forth in Section 16.1.
7.6 Cash Settlement. The Committee, in its discretion, may cause the
Company to settle all or any part of its obligation arising out of the exercise
of a Stock Appreciation Right by the payment of cash in lieu of all or part of
the shares of Stock it would otherwise be obligated to deliver in an amount
equal to the Fair Market Value of such shares on the date of exercise.
7.7 Written Notice Required. A Stock Appreciation Right shall be
exercised when written notice of that exercise, stating the number of shares of
Stock with respect to which the Stock Appreciation Right is being exercised, has
been given to the Company at its principal office, to the attention of the
General Counsel, by the Grantee.
ARTICLE 8
UNRESTRICTED STOCK
8.1 Grant of Unrestricted Stock. The Committee may cause the Company to
award Unrestricted Stock to persons eligible under the Plan in such amounts as
the Committee, in its sole discretion, shall determine. Such shares of Stock may
be issued either alone or in addition to other Awards granted under the Plan.
8.2 Delivery of Unrestricted Stock. The Company shall issue, in the
name of each Grantee to whom Unrestricted Stock has been granted, stock
certificates representing the total number shares of Unrestricted Stock granted
to the Grantee and shall deliver such certificates to the Grantee as soon as
reasonably practicable after the date of the Award. The delivery of Unrestricted
Stock under the Plan shall be subject to the withholding requirements as set
forth in Section 16.1.
ARTICLE 9
RESTRICTED STOCK
9.1 Grant of Restricted Stock. The Committee may cause the Company to
grant Restricted Stock to Grantees under the Plan in such amounts as the
Committee, in its
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sole discretion, shall determine. Such shares of Restricted Stock may be issued
either alone or in addition to other Awards granted under the Plan.
9.2 Restrictions and Conditions. Restricted Stock granted under the
Plan shall be evidenced by written agreements in such form as the Committee may
from time to time approve. The restrictions and conditions imposed on Restricted
Stock granted under the Plan, including the satisfaction of corporate or
individual performance objectives, may differ from one Award to another as the
Committee shall, in its discretion, determine as long as all Awards satisfy the
requirements of the Plan; provided, however, that no grant shall require any
payment of cash consideration by the recipient. Each Award of Restricted Stock
shall be effective as of the date so stated in the resolution of the Committee
making the Award.
9.3 Duration of Awards. The restrictions and conditions imposed upon
any Restricted Stock shall lapse, in whole or in part, as provided in the
agreement pursuant to which the Award is made, but in no event later than 10
years from the date of the Award.
9.4 Restricted Stock Certificates. Each certificate issued for shares
of Restricted Stock shall be registered in the name of the Grantee and shall be
deposited by him or her with the Company, to the attention of the Chief
Executive Officer, together with a stock power endorsed in blank. The shares
shall be subject to restrictions as to transferability as provided in Article 13
and to such other restrictions and conditions as may be imposed by the Committee
at the time of making the Award (the "restrictions and conditions"), which shall
be referenced by a conspicuous legend on the reverse side of the stock
certificate representing the shares.
9.5 Rights of Holders of Restricted Stock. Subject to the restrictions
and conditions herein and the written agreement evidencing the Restricted Stock,
the Grantee shall be the owner of the Restricted Stock and shall have all of the
rights of a shareholder, including, but not limited to, the right to receive all
dividends paid on the Restricted Stock and the right to vote the shares. In the
event there is a change in the Stock as described in Article 15, any shares or
other securities issued with respect to shares subject to restrictions and
conditions under the Plan shall be subject to the same restrictions and
conditions, and the certificates therefor, together with a stock power endorsed
in blank, shall be delivered to the Company, to the attention of the Chief
Executive Officer.
9.6 Delivery of Restricted Stock. Following the lapse of the
restrictions and conditions imposed on any Restricted Stock, the certificate or
certificates evidencing such shares shall be reissued by the Company in the name
of the Grantee without legend (except to the extent that a legend may be
necessary for compliance with applicable securities laws) and shall be delivered
to the Grantee. The delivery of Restricted Stock under the Plan shall be subject
to the withholding requirements as set forth in Section 16.1.
ARTICLE 10
PERFORMANCE SHARES
10.1 Grant of Performance Shares. The Committee may cause the Company
to grant Performance Shares to Grantees under the Plan in such amounts as the
Committee, in its sole discretion, shall determine. Such Performance Shares may
be issued either alone or in addition to
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other Awards under the Plan. Each Performance Share grant shall confer upon the
Grantee the right to receive a specified number of shares of Stock contingent
upon the achievement of specified corporate or individual performance objectives
within a specified period.
10.2 Terms and Conditions. Performance Shares granted under the Plan
shall be evidenced by written agreements in such form as the Committee may from
time to time approve. The Committee shall specify the performance objectives and
the period of duration of the Performance Shares Award at the time that such
Award is granted. Any Performance Share Award granted under this Plan shall
constitute an unfunded promise to issue shares of Stock to the Grantee in the
future upon the completion of specified conditions. No Grantee shall be deemed
to be a holder of any shares subject to a Performance Shares Award unless and
until a stock certificate or certificates for such are issued to such Grantee
under the terms of the Plan. No adjustment shall be made for dividends (ordinary
or extraordinary, whether in cash, securities or other property) or
distributions or other rights for which the record date is prior to the date
stock certificates are issued pursuant to any Performance Shares Award, except
as provided in Article 15. The settlement of any Performance Shares Award shall
be subject to the withholding requirements as set forth in Section 16.1.
10.3 Cash in Lieu of Stock. In lieu of some or all of the shares earned
by achievement of the specified performance objectives within the specified
period, the Committee may distribute cash in an amount equal to the Fair Market
Value of the Stock at the time that the performance objective is achieved within
the specified period multiplied by the number of Performance Shares.
10.4 Performance Objective Period. The duration of the period within
which to achieve the performance objectives is to be determined by the
Committee, but in no event shall the duration be later than 15 years from the
date of the Award.
ARTICLE 11
PERFORMANCE-BASED COMPENSATION AWARDS
11.1 Awards. All Stock Options and Stock Appreciation Rights granted to
key executive and supervisory employees under the Plan are Performance-based
Compensation Awards because they are required by the terms of the Plan to have
an exercise price that is not less than Fair Market Value at the time of the
Award. Restricted Stock and Performance Shares awarded to key executive and
supervisory employees are also Performance-based Compensation Awards under this
Article if granted subject to a written agreement between the Company and the
Grantee setting forth one or more objective performance goals based on the
criteria set forth in Section 11.2 that are required to be met in order for an
Award to vest in the Grantee. The performance goals must be established in
writing by the Committee prior to the employee's performance of the relevant
services and while the outcome under the goal or goals is substantially
uncertain.
11.2 Performance Goals. The performance goals established by the
Committee with respect to a specific Performance-based Compensation Award must
be based on one or more of the following criteria: increases in the number of
participating brands; increases in the number of stores
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installed; achieving targeted marketing costs; increases in revenue; control of
operating expenses; increases in operating cash flow; increases in operating
income; reduction in net loss; and achieving and increasing net income.
11.3 Limitations of Shares. The maximum number of shares that may be
subject to Awards under the Plan contained in Section 4.1 and the maximum number
of shares for any individual contained in Section 4.2 include Performance-based
Compensation Awards.
ARTICLE 12
RELOAD OPTIONS
The Committee may provide in any option agreement entered into pursuant
to the Plan, or by the separate agreement, that if a Grantee makes payment upon
the exercise of any option granted hereunder in whole or in part through the
surrender of shares of Stock, such Grantee shall automatically receive a new
option for the number of shares so surrendered by him at a price equal to the
fair market value of the shares at the time of surrender, exercisable on the
same basis and having the same terms as the underlying option or on such other
basis as the Committee shall determine and provide in the option agreement.
ARTICLE 13
TERMINATION OF EMPLOYMENT
13.1 Termination of Employment. If a Grantee ceases to be employed by
the Company or a Subsidiary for any reason other than death or disability, any
Award granted to such Grantee that is unexercised or still subject to any
restrictions or conditions shall be terminated or forfeited, unless otherwise
provided in the applicable Award agreement.
13.2 Disability. If a Grantee becomes disabled within the meaning of
Section 22(e)(3) of the Code while employed by the Company, or a Subsidiary, any
Stock Option or Stock Appreciation Right granted to such Grantee shall expire
one year after the date of termination of employment due to disability, unless a
longer or shorter period of exercise is provided in the applicable Award
agreement. Any Restricted Stock or Performance Shares granted to such Grantee
shall be terminated or forfeited, unless otherwise provided in the applicable
Award agreement.
13.3 Death of Grantee. If a Grantee dies while employed by the Company,
or a Subsidiary, any Stock Option or Stock Appreciation Right granted to such
Grantee shall expire one year after the date of death, unless a longer or
shorter period of exercise is provided in the applicable Award agreement. During
the exercise period after death, the Stock Option or Stock Appreciation Right
may be exercised, to the extent provided in the applicable Award agreement, by
the person or persons to whom the Grantee's rights under the Award Right shall
pass by will or by the laws of descent and distribution but in no event may the
Stock Option or Stock Appreciation Right be exercisable more than ten years from
the date of grant. Any Restricted Stock or Performance Shares
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granted to such Grantee shall be terminated or forfeited, unless otherwise
provided in the applicable Award agreement.
13.4 Termination as Nonemployee Director of the Company. If a
nonemployee director ceases to serve the Company in that capacity, the Grantee's
rights upon such termination shall be governed in the manner of an Grantee's
rights upon termination of employment as set forth above.
ARTICLE 14
TRANSFER RESTRICTIONS
Stock Options and Stock Appreciation Rights that have not been
exercised by the Grantee and Restricted Stock and Performance Shares that are
subject to restrictions and conditions shall not be subject in any manner to
alienation, sale, transfer, assignment, pledge, attachment or encumbrance of any
kind. Any attempt to alienate, sell, transfer, assign, pledge or otherwise
encumber any such Awards shall be void, except for a transfer by will or by the
laws of descent and distribution. Notwithstanding the foregoing, the Committee
may grant Nonqualified Stock Options that are transferable, without payment of
consideration, to immediate family members of the Grantee or to trusts or
partnerships of such family members, or, to the extent such transfers may be
made in compliance with Rule 16b-3 and applicable tax laws, limited liability
companies of such family members. for purposes of this Article 14, the phrase
"immediate family member" shall mean spouse, children or grandchildren of the
Grantee.
ARTICLE 15
ADJUSTMENTS
If the shares of 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, an
appropriate and proportionate adjustment shall be made in the maximum number and
kind of shares as to which Awards may be granted under this Plan. A
corresponding adjustment changing the number or kind of shares allocated to
unexercised or unvested Awards, or portions thereof, which shall have been
granted prior to any such change, shall likewise be made. Any such adjustment in
outstanding Awards shall be made without change in the aggregate purchase price
applicable to the unexercised portion of any such Award, but with a
corresponding adjustment in the price for each share or other unit of any
security covered by the Award. In making any adjustment pursuant to this Article
15, any fractional shares shall be disregarded.
ARTICLE 16
MISCELLANEOUS PROVISIONS
16.1 Tax Withholding. With respect to any Award under the Plan, the
Company shall have the right to require Grantees or their beneficiaries or legal
representatives to remit to the Company an amount sufficient to satisfy federal,
state and local withholding requirements, or to
12
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deduct from all payments under the Plan amounts sufficient to satisfy all
withholding tax requirements. Within the discretion of the Committee, the
Company may withhold the tax required to be withheld from any other cash
compensation then or thereafter payable to the Grantee, or, if deemed necessary
by the Company, the Company may sell or withhold a portion of shares of Stock to
be delivered to the Grantee pursuant to the Plan to provide sufficient funds for
withholding tax and delivery of the proceeds to the Company.
16.2 Termination, Amendment of Plan. The Board may at any time
terminate, amend or revise the terms of the Plan; provided that no amendment or
revision shall, without the approval of the Company's shareholders, (i) increase
the maximum aggregate number of shares that may be sold or distributed pursuant
to Awards granted under this Plan, except as permitted under Article 14; (ii)
change the minimum purchase price for shares of Stock that may be received by
exercise of Stock Option or Stock Appreciation Right under the Plan; (iii)
increase the maximum duration established under the Plan for any Award; or (iv)
permit the granting of an Award to anyone other than specified in Article 5.
16.3 Prior Rights and Obligations. No amendment, suspension, or
termination of the Plan shall, without the consent of the Grantee or other
person who has received an Award, alter or impair any of that Grantee's rights
or obligations under any Award granted under the Plan prior to such amendment,
suspension, or termination.
16.4 Employment. Nothing in the Plan or in any Award shall confer upon
any eligible employee any right to continued employment by the Company, or a
Subsidiary, or limit in any way the right of the Company or a Subsidiary at any
time to terminate or alter the terms of that employment.
16.5 Securities Laws. Shares of Stock issuable pursuant to this 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
such registrations and may, in lieu thereof, issue shares hereunder only
pursuant to applicable exemptions from such registrations. In the event that no
such registrations are undertaken, the shares shall be issued only to persons
who qualify to receive such shares in accordance with the exemption from
registration on which the Company relies. In connection with any Award of shares
or the reissuance of certificates under the Plan, the Committee may require
appropriate representations from the recipient of such shares and take such
other action as the Committee may deem necessary, including but not limited to
placing restrictive legends on certificates evidencing such shares and placing
stop transfer instructions in the Company's stock transfer records, or
delivering such instructions to the Company's transfer agent, in order to assure
compliance with any such exemptions. Notwithstanding any other provision of the
Plan, no shares will be issued pursuant to the Plan unless such shares have been
registered under all applicable federal and state securities laws or unless, in
the opinion of counsel satisfactory to the Company, exemptions from such
registrations are available.
16.6 Compliance with Section 16(b). In the case of Grantees who are or
may be subject to Section 16 of the Securities Exchange Act of 1934, it is the
intent of the Company that this Plan and any Award granted hereunder satisfy and
be interpreted in a manner that satisfies the applicable
13
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<PAGE>
requirements of Rule 16b-3, so that such Grantees will be entitled to the
benefits of Rule 16b-3 or any other exemptive rule under Section 16 and will not
be subjected to liability thereunder. If any provision of the Plan or any Award
would otherwise conflict with the intent expressed herein, that provision, to
the extent possible, shall be interpreted and deemed amended so as to avoid such
conflict. To the extent of any remaining irreconcilable conflict with such
intent, such provision shall be deemed void as applicable to Grantees who are or
may be subject to Section 16.
16.7 Reorganization. Except as otherwise provided in the applicable
Award agreement, 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, all Awards that are
unexercised or still subject to any restrictions and conditions shall thereupon
be terminated or forfeited, provided that the Committee may, prior to the
effective date of any such transaction, either (i) make all such Award
immediately vested or exercisable or (ii) arrange to have the surviving
corporation grant to the Grantees replacement Award on terms which the Board
shall determine to be fair and reasonable.
16.8 Effective Date and Term of Plan. The effective date of this Plan
is April 30, 1997; provided, however, that no Award granted hereunder may be
exercised or become vested unless and until the Plan is approved by the
shareholders of the Company. This plan reflects amendments effective through May
19, 1998. No Awards may be granted under the Plan after April 30, 2007.
INTER*ACT SYSTEMS, INCORPORATED
By: /s/ Stephen R. Leeolou
---------------------------------
Title: Chief Executive Officer
-----------------------------
14
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<PAGE>
MANAGEMENT SERVICES AGREEMENT
THIS MANAGEMENT SERVICES AGREEMENT (the "Agreement") made and entered
into as of the 17th day of June, 1998, 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*Act Systems, Incorporated, a North Carolina
corporation (the "Company").
W I T N E S S E T H:
WHEREAS, the Company and the Consultant have entered into a Management
Services Agreement dated as of June 17, 1996 pursuant to which the Company
engaged Vanguard to provide certain consulting services thereunder for a
two-year term which expired on June 16, 1998; and
WHEREAS, the Company is desirous of engaging the Consultant to continue
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. 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.
2. 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.
3. Term. This Agreement shall commence as of the date hereof and shall
continue for a period of one year.
4. Consulting Fee. For services rendered hereunder, the Company will
reimburse Consultant a pro-rata portion of the salary (plus 20% to cover
benefits) for each employee of Consultant that provides services hereunder based
on the amount of time dedicated by such employee in performing services
hereunder. 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
<PAGE>
<PAGE>
employees of the Company for any purpose. Notwithstanding any provision herein,
this Agreement shall not cover Stephen R. Leeolou, presently the Chief Executive
Officer and Chairman of the Company.
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 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 of,
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 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, 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.
2
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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*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.
(e) This Agreement shall be terminated without further effect in the
event it is not ratified and approved by the Board of Directors of Inter*Act
Systems, Incorporated within 90 days of the date hereof.
[continued on following page]
3
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<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
day and year first above written.
INTER*ACT SYSTEMS, INCORPORATED
By: /s/ Richard A. Vinchesi
-------------------------------
Senior Vice President
VANGUARD CELLULAR FINANCIAL CORP.
By: /s/ Richard C. Rowlenson
-------------------------------
Vice President
4
<PAGE>
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