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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K/A
(MARK ONE)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 1999 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
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INTER*ACT ELECTRONIC MARKETING, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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NORTH CAROLINA 56-1817510
(STATE OR OTHER JURISDICTION OF INCORPORATION (I.R.S. EMPLOYER IDENTIFICATION NO.)
OR ORGANIZATION)
5032 PARKWAY PLAZA BLVD. 28217
CHARLOTTE, NORTH CAROLINA (ZIP CODE)
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
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REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (704) 329-6900
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SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
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TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED
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NONE NONE
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SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
NONE
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Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No __
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this form 10-K. [x]
As of March 27, 2000, the number of shares outstanding of the
registrant's Common Stock was 7,743,739. There is no trading market for the
Common Stock. Accordingly, the aggregate market value of the Common Stock held
by non-affiliates of the registrant is not determinable. See Part II, Item 5. of
this Report.
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CROSS REFERENCE SHEET
AND
TABLE OF CONTENTS
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PAGE NUMBER
OR REFERENCE
PART I
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ITEM 1. Business..............................................................
ITEM 2. Properties............................................................
ITEM 3. Legal Proceedings.....................................................
ITEM 4. Submission of Matters to a Vote of Security Holders...................
PART II
ITEM 5. Market for Registrant's Common Equity and Related Stockholder
Matters.............................................................
ITEM 6. Selected Consolidated Financial Data...................................
ITEM 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations...............................................
ITEM 8. Financial Statements and Supplementary Data............................
ITEM 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure...................................................
PART III
ITEM 10. Directors and Executive Officers of the Company........................
ITEM 11. Executive Compensation.................................................
ITEM 12. Security Ownership of Certain Beneficial Owners and Management.........
ITEM 13. Certain Relationships and Related Transactions.........................
PART IV
ITEM 14. Exhibits, Financial Statement Schedules and Reports on Form 10-K.......
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CAUTIONARY STATEMENT FOR PURPOSE OF THE "SAFE HARBOR" PROVISIONS OF THE PRIVATE
SECURITIES LITIGATION REFORM ACT OF 1995
The statements contained in this Annual Report on Form 10-K 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 forwarding-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.
These factors include: (i) the Company's limited operating history, significant
losses, accumulated deficit, negative cash flow from operations and expected
future losses, (ii) the dependence of the Company on its ability to establish,
maintain and expand relationships with consumer product manufacturers to promote
brands on the IEMN (as defined herein) and the uncertainty of market acceptance
for the IEMN, (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 may experience,
(v) risks related to the Company's leverage and debt service obligations, (vi)
risks inherent in the necessity for the Company to raise additional equity or
debt financing to fund continuing losses, (vii) the Company's dependence on
third parties, (viii) the intensely competitive nature of the consumer product
and promotional industry, (ix) risks that the Company's rights related to
patents, proprietary information and trademarks may not adequately protect its
business, (x) risks relating to the relocation of the Company's corporate
offices, including potential costs involved in the relocation as well as the
need for new employees to develop the skills necessary to develop the Company's
business and (xi) the possible inability of new management to perform their
respective roles. See Part II, Item 7. "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Risk Factors."
PART I
ITEM 1. BUSINESS
Inter*Act Electronic Marketing, Inc. ("Inter*Act" or the "Company"),
which changed its name from Inter*Act Systems, Incorporated effective July 1,
1999, believes it operates the world's largest fully electronic marketing
network linked to supermarket and pharmacy retailers' point-of-sale ("POS")
databases that serves on-line promotions and advertisements to shoppers
seamlessly in-store, at home and in the office. The Company's patented
technologies enable consumer products manufacturers ("Manufacturers") and
supermarket retailers ("Retailers") to use historical purchase behavior data to
develop targeted purchase incentives and messages which the Company delivers to
customers before shopping begins. The Company's proprietary system, called the
Inter*Act e-Marketing Network'sm' ("IEMN"), currently comprises approximately
4,000 server-based terminals located inside the front entrance of more than 20
retail chains in the U.S. and Europe, as well as a recently launched
Company-owned Internet web site called ShopperPerks.com'sm'. The Company's web
site and its in-store ShopperPerks'TM' portals are linked directly to each
store's point-of-sale scanning system via Company-owned in-store servers. This
on-line network gives the Company's business partners exclusive access to offer
all shoppers (whether Internet users or not) same-day, personalized savings that
are electronically downloaded to participating retailers' cash register systems.
Delivering highly targeted, pre-shopping promotions on the IEMN historically has
generated average consumer response, or redemption, rates above 25%, which the
Company believes is superior to the response rate of any other marketing or
advertising medium in the industry.
The Company's primary objective is to become the preeminent electronic
marketing services provider in the consumer packaged goods industry in the U.S.
and Europe by serving the economic needs of Manufacturers, Retailers, and
consumers more efficiently than any other marketing vehicle. The Company
believes that the IEMN capitalizes on the convergence of major trends in the
Manufacturer and Retailer industries to better target and serve consumers.
Manufacturers are striving to increase the efficiency of their brand promotions
through highly targeted incentives and are seeking to offer promotions nearer to
the shopper purchase decision. Retailers are developing customer databases that
identify individual households and their product purchasing histories over time,
thereby allowing Retailers first to segment their customers by sales and
profitability and then reward them accordingly. Retailers are also seeking to
offer rewards to and communicate with their customers in-store as well as at
home and in the office. In addition to these industry trends, consumers are
seeking greater convenience in shopping without sacrificing savings. The Company
owns an extensive portfolio of patents and exclusive patent licenses that it
believes are significant barriers to other potential electronic marketing
competitors who may seek to deploy similar technology.
As of December 31, 1999, the Company had installed systems in
approximately 2338 stores in the U.S. and the U.K. In the U.S. as of December
31, 1999, the Company has contracted to install systems in an additional 3200
stores. In Europe, the Company
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has entered into multi-year contracts with Sainsbury's, the second largest
Retailers in the United Kingdom; Boots, the largest pharmacy retailer in the
United Kingdom; and Delhaize, one of the largest grocers in Belgium. As of
December 31, 1999, the Company has contracted to install systems in 789 stores
of these chains, which collectively account for approximately 1,840 stores in
Europe. These installed European stores are typically three to four times larger
than a comparable U.S. store in terms of size and shopper traffic per store.
The Company is compensated by Manufacturers who purchase access to the
IEMN on an exclusive category basis for the four-week cycles in which their
brand is promoted. Contracts were predominantly annual commitments for a flat
fee for 1999, but new contracts allowing for shorter promotion periods that
include flat fees and variable performance-based fees through the IEMN have been
entered into for 2000. All contracts call for continuous data reporting by the
Company on promotion results and category share movements. The Company has
altered its pricing format significantly for 2000. From late 1998 through all of
1999, the Company's pricing format was based on annual contracts for each
category of goods promoted under which the Manufacturer, for a flat fee, had
exclusivity with respect to that category of product for the year that the
contract ran. The Manufacturer would be able to promote for several cycles
within the contract period, with more cycles of promotion allowed for higher
flat fees paid. Because fewer Manufacturers promoted fewer products during 1999,
the Company introduced a pricing plan which allowed for shorter-term commitments
and a fee schedule combining a per-store promotion management fee with a
per-redemption fee. The Company anticipates that this format, along with a
significant increase in the installation of retail stores currently under
contract, should result in more contracts with Manufacturers being entered into
in 2000, but there is no assurance that this will occur.
INDUSTRY OVERVIEW
Manufacturers have traditionally used marketing vehicles such as mass
media advertising (newspapers, printed circulars, television, radio, and
billboards), Free Standing Inserts ("FSI") coupons and direct marketing
techniques to reach consumers. Promo Magazine estimated that in 1998 the
promotion marketing industry's gross revenues were $85.4 billion, an increase of
7.6% from their survey of 1997 expenditures. A growing diversity of lifestyles
and an expansion in the amount of information delivered to increasingly
fragmented consumer segments have contributed to brand proliferation and a
perceived decline in brand loyalty. At the same time, changes in the workforce
and demographic shifts have made it increasingly difficult and expensive to
reach purchasing decision-makers using traditional mass distributed promotional
methods not targeted to specific consumer segments.
Manufacturers have recognized the limitations of traditional
promotional vehicles. Despite the ineffectiveness of coupons and other mass
distributed promotional vehicles to reach consumers efficiently, they continue
to be prevalent promotional tools. According to Winston-Salem, NC-based coupon
clearinghouse CMS, Inc., 278 billion coupons were distributed in the United
States in 1998. Consumers continued to recognize the value of coupons by
redeeming them for an estimated $3.1 to $3.6 billion of savings in 1998, an
increase from 1997. The overall redemption rates of distributed coupons dropped
to around 1.7% in 1998, as reported by CMS, Inc., versus 1.9% in 1997. 1998
spending by Manufacturers on FSIs at $6.45 billion was still less than 1995 high
of $7 billion, though slightly more than the $6.24 billion spent in 1997, in
part because Manufacturers are said to be increasing coupon values to attract
consumers to use the FSIs. For grocery products, 3.54 billion coupons were
redeemed in 1998, a decline of 4.6% over the previous year.
In spite of the decreasing effectiveness of the more traditional
promotional methods such as coupons and mass media, and the corresponding
decline in Manufacturers' spending on promotional incentives such as FSIs,
Manufacturers are maintaining a similar level of overall investment in brand
promotions by shifting their promotional dollars to more targeted vehicles. Not
only have Manufacturers recognized the value of targeted promotions, they have
also recognized the effectiveness of promotions delivered in close proximity to
the purchase decision. It is estimated that 70% of all brand purchase decisions
are made by consumers while they are in the store, according to Progressive
Grocer Magazine and the Point-of-Purchase Advertising Institute (POPAI).
In-store promotion has enjoyed rapid growth as Manufacturers have begun to shift
promotion spending to emerging in-store and e-commerce-oriented platforms. As
reported in the Annual Survey of Promotional Practices, 72% of Manufacturers
utilized in-store electronic promotion techniques in 1996 as compared with only
48% in 1994, spending $850 million on these promotions in 1996, an increase of
33% over 1994, according to Promo Magazine. In Promo Magazine's 1998 Annual
Report of the Promotion Industry, it reported that the distribution of in-store
electronic checkout, electronic shelf and handout coupons had an 8.3% share of
coupon distribution, up from 6.7% in 1996. The segment is projected to grow
eight percent annually and hit $1.1 billion by 2002, according to Veronis,
Suhler & Associates' Communications Industry Forecast
Retailers have also begun to institute changes in their approach to
reaching their customers. Retailers have invested in technology to improve
efficiency and inventory management. Advances in point of sale technology, in
addition to providing efficiency at check-out and a means of price and inventory
control, also provide a platform for Retailers to identify and target their
customer base. This new technology has enabled Retailers to develop programs
that permit them to capture information about and communicate with targeted
segments of their customer base. However, they have had to rely on traditional
mass media to deliver their targeted ads and
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promotions.
Today Retailers have begun to concentrate on retaining and growing the
30% of their customer base that accounts for an estimated 70% of total store
sales and 70% of their profits, according to a study released in 1999 by The
Partnering Group. Retailers are using loyalty-building frequent shopper card
programs ("frequent shopper card") in order to establish a direct means of
rewarding these most important customers and to make their product mix more
attractive to their highest-spending shoppers. The card programs are also
designed to counteract competition from other supermarkets, mass merchandisers,
warehouse clubs and specialty Retailers. These frequent shopper cards enable
participating customers to take advantage of product discounts offered by that
store or by regional chains without presenting a paper coupon. In an ACNielsen
survey cited in In-Store (February 1999) it was reported that 75% of households
contacted had a least one frequent shopper card. According to Supermarket News
77% of these households always used the card when shopping, and 82% of these
card holders say they use their cards every time they shop. In 1997 $172 million
was spent to develop frequent shopper card programs, with Retailers paying for
most of the programs. Approximately 10,000 grocery stores will be participating
in frequent shopper card programs by the spring of 2000, according to a study by
Retail Systems Consulting .
RATIONALE FOR THE IEMN NETWORK
The IEMN is positioned to provide a competitive advantage to
Manufacturers and Retailers. It does this by (i) offering sophisticated
targeting of consumers in close proximity to the point of purchase decision at
the beginning of the shopping process, (ii) offering promotions to consumers
that are based on their past purchase history, (iii) providing comprehensive
data reporting feedback on promotion results and changes in a Manufacturer's
(and its competitors') category market share, and (iv) delivering the promotions
in a paperless electronic system that improves the efficiency of redemptions.
Promotions are offered to consumers on the Internet through the Company's
ShopperPerks web site as well as in-store through the ShopperPerks portals,
allowing access to promotions to the estimated 50-60% of shoppers who do not
have access to the Internet.
BENEFITS FOR RETAILERS
The Company believes that the IEMN provides competitive advantages for
Retailers.
Provides Inexpensive, In-Store and Internet-based Platform To Reward
The Most Valued Shoppers. As in many industries, a small number of loyal
customers account for a major portion of revenue and profits per store. Many
major supermarket chains have developed frequent shopper card marketing programs
to help them identify and reward these valuable customers. The Company believes
that the IEMN, working in conjunction with a store's frequent shopper card,
offers Retailers a unique and cost-efficient way to deliver in-store targeted
messages, promotional incentives and rewards to this important shopper segment.
In a study conducted by the Company utilizing data procured from three IEMN
stores, the average transaction size for a frequent shopper card holder who
visited a ShopperPerks portal was approximately twice as large as the average
transaction size of a frequent shopper card holder and approximately three times
as large as the average for all customers.
Promotes Consumer/Retailer Communication. In addition to rewarding its
best customers, a store can use the IEMN more generally to capture information
from, and to communicate with, cardholders through questionnaires, interactive
games, electronic sweepstakes, tie-in promotions with local media, charities,
special events and other merchandising theme promotions. Access to the IEMN also
enhances the efforts by Retailers to promote acceptance and usage of their
frequent shopper cards. In addition, Retailers can use the IEMN platform as an
inexpensive alternative to direct mail as a means of communicating with their
best shoppers, either at home or immediately before shopping through the
ShopperPerks portals. The IEMN platform can also be used as a method of
communicating with employees.
Stimulates Incremental Product Sales. The Company believes that the
IEMN stimulates incremental product sales for Retailers as a result of several
factors. The IEMN's location at the store entrance enables it to remind a
shopper of an item they may have forgotten or stimulate them to purchase items
in addition to those they intended to purchase. The IEMN also provides the
Retailer a channel to promote perishable foods and private label products.
Finally, the IEMN program is able to track the time lapse since the last
purchase of a particular product and remind a consumer to buy the needed item in
the store that day rather than in another class of trade, such as convenience
stores.
Distributes, Redeems and Clears Promotions Electronically. Traditional
promotion of food and related products relies upon paper-based systems such as
FSIs and other paper coupon vehicles. Paper-based promotions require Retailers
to handle paper at checkout and bundle paper records that must be sent to third
party clearing businesses. With the IEMN, there is no paper for cashiers to
handle and no need for expensive third party clearing. See " -- Products and
Services - Inter*Act e-Marketing Network'sm' ("IEMN")."
Generates Incremental Fee Revenue. Retailers receive revenue based upon
promotion redemptions, currently $0.04 or 0.08 per
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transaction. The Company believes that this fee produces high-margin revenue for
Retailers relative to the amount of floor space that the IEMN occupies.
Cardless Program. The Company has also developed the technology to
deliver offers within stores without a frequent shopper program. This
functionality allows for the installation in virtually all retail channels and
adds consumer value as well as provide incremental income to the Retailer.
BENEFITS FOR MANUFACTURERS
The Company believes that the IEMN provides Manufacturers with a more
efficient means to promote consumer goods than traditional methods of promotion
and advertising.
Targets Incentives Based on Prior Purchase History. The Company
believes that Manufacturers would like to tailor promotional incentives by
individual households according to their degree of loyalty to the promoted
brand. In order for Manufacturers to offer targeted promotions they must have
access to household purchase history data and a targeting algorithm that can
match the desired promotions with the desired households. The IEMN provides
access to this household data through its connection to the retailer
point-of-sale system, which permits the Company's Target Engine Software ("TES")
to deliver different promotional strategies for the same product depending on
the buying habits of each customer. See " -- Technology and Software -- IEMN
Software".
Delivers Promotions in Close Proximity to Brand Purchase Decisions. It
is estimated that 70% of all brand purchase decisions are made by consumers
while they are in the store according to Progressive Grocer Magazine and POPAI.
The Company believes that the IEMN's store entrance location, which provides a
shopping list of promotions immediately prior to shopping affords Manufacturers
the most opportune time to reach shoppers with a targeted incentive.
The Company believes that the offering of personally customized
discounts to consumers in the store immediately prior to making purchase
decisions explains the historical average redemption rate for IEMN-offered
discounts of approximately 35% (which the Company believes is two to five times
higher than that of other in-store vehicles and approximately 18 times higher
than that of FSIs).
Develops Manufacturer/Retailer Partnership. The Company believes that
its IEMN provides a new and unique platform for Manufacturers to maximize the
impact of account-specific (i.e., retail chain-specific) promotion dollars. For
example, a Manufacturer-sponsored sweepstakes promotion may be conducted
electronically via the IEMN and advertised jointly by the Manufacturer and
Retailer in a specific market area. In this way, the IEMN can serve as a bridge
between the Manufacturer and the Retailer's frequent shopper card program.
Delivers Accountable Consumer Promotion Alternative. The Company
believes that the IEMN offers Manufacturers the lowest cost alternative among
coupon promotional strategies. This is because the IEMN's electronic scanning of
the frequent shopping card at checkout verifies that items for which promotions
were selected were actually purchased, virtually eliminating the problem of
mistaken and fraudulent redemption of paper coupons. Industry sources estimate
that this costs Manufacturers hundreds of millions of dollars per year through
other coupon promotion vehicles.
Stimulates Incremental Product Sales. As a result of its front-end
location and targeted touch-screen promotional display, the Company believes
that the IEMN increases the sales volume of promoted products. Sales increases
are generally attributable to a promotion motivating consumers to trade up in
volume (e.g., buy two and get the third free), to try a new brand due to the
value of the offered incentive or to remind consumers to buy a specified brand
due to the on-screen prompt. Substantial sales increases at the product and
category level were attributed to the Company's IEMN in Information Resources
Inc. matched store studies ("IRI Studies") performed for several Manufacturers.
These studies showed that Manufacturers who promoted products on the IEMN
enjoyed significant product sales increases versus the same Manufacturer
products not promoted on the IEMN in comparable stores.
Provides Promotion Flexibility. The IEMN allows Manufacturers to adjust
any attribute of a promotion virtually on a daily basis. Modifications to
Manufacturer promotions can be introduced to the IEMN remotely from the
Company's headquarters.
Paperless and (virtually) Fraudless. IEMN is based on electronic
distribution of offers which ensures valid purchase and redemption of those
offers by consumers. Manufacturers historically have had issues with
misredemption of coupons, thus wasting part of the investment made in their
marketing efforts. In addition, Manufacturers utilizing the IEMN can control
redemption costs by capping their expenditure to a maximum number or dollar
level they wish to spend.
Available To All Retail Channels. With the addition of the non-frequent
shopper program option of delivery of offers on IEMN,
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offers can now be provided in a variety of retail channels, assuming those
chains sign-on to IEMN. Additionally, the IEMN offers a wide range of
promotional alternatives that can be tailored to the unique needs of individual
brands. Beyond simply delivering incentives, the IEMN can reward consumers for
such things as multiple purchases, purchases over time, purchases of related
products or even an incentive on a second item with the purchase of a targeted
item. This flexibility is viewed as a powerful tool by the Manufacturers and
allows them to spend their promotional dollars in the most efficient manner
possible.
Provides Detailed Promotion Analysis. Because the IEMN delivers
targeted incentives using consumers frequent shopper card numbers as an
identifier, the system also captures all consumer purchases using the system and
allows for detailed reporting back to the participating brands. At the end of a
promotion a Manufacturer can understand such things as total consumer purchases
by segment (for example, a loyal consumer versus a competitive buyer), the
number of consumers who bought the promoted item for the first time and even the
retention rate (how many new consumers for a brand came back on a subsequent
shopping trip and repurchased the item). The level of promotion analysis
provided by the IEMN is such that Manufacturers can use the data to further
refine marketing strategies and alter promotional tactics on future promotions,
further increasing both efficiency and effectiveness.
BENEFITS FOR CONSUMERS
The Company believes that consumers who are introduced to the IEMN
continue their usage as they discover the following benefits:
Provides Increased Purchasing Power and Convenience. Consumers
want to maximize the value of their shopping dollars through discounts
and promotions, but at the same time wish to limit the amount of time
they invest preparing for shopping. The IEMN eliminates the
time-consuming exercise of locating, clipping and organizing individual
coupons, and the consumer does not have to remember to bring any paper
coupons to the store or track expiration dates. The IEMN is
conveniently located inside the store entrance where it can easily be
accessed at the beginning of shopping. In 60 to 90 seconds, the
ShopperPerks portal will display several screens of customer-specific
product promotions and will dispense a shopping list for the product
discounts selected by the customer, which if redeemed could result in
substantial savings to the consumer. The ShopperPerks.com web site
allows shoppers to access incentives from home or in the office just
before shopping, by using their mouse to select certain offers. These
offers are sent to the store, either directly to the Point-of-Sale
("POS") cash register or to the Company's ShopperPerks portals in the
case of Retailers with technology that requires printed coupons to be
redeemed at the POS. ShoppersPerks web site users have the option of
printing a reminder list as well.
Provides Personalized Discounts and Incentives. The IEMN is
designed to deliver customer-selected incentives that are customized to
an individual consumer's purchasing preferences. The Company believes
that consumers prefer to select and redeem promotions on the IEMN that
are targeted to their past purchasing history as evidenced by
redemption rates of targeted promotions that are approximately twice
the redemption rates of promotions that are randomly presented.
In 1997, the Company contracted Yankelovich Partners to conduct a
telephone "Habits and Usage" study among 302 frequent shopper card holders
selected at random. The results of the study indicate that the IEMN system is an
attractive source of value to the customer with few barriers to trial and high
satisfaction rates promoting repeat usage. The study was conducted in the
Philadelphia market, where participating IEMN chains include the market leader
ACME (a division of Albertson's), SuperFresh (a division of A&P) and Laneco. The
conversion from trial to repeat usage (trial to acceptor) was 86%.
Accordingly, the Company believes that consumer marketing support that
raises awareness of the IEMN will increase terminal and ShopperPerks web site
usage among existing and new frequent shopper card holders.
BUSINESS STRATEGY
The Company's primary objective is to become the preeminent electronic
marketing services providerfor the consumer packaged goods industry in the U.S.
and Europe by integrating the economic interests of Manufacturers, Retailers and
consumers at a lower cost than any other in-store marketing vehicle. The Company
is pursuing the following principal business strategies to achieve this
objective:
INCREASE NATIONWIDE AND EUROPEAN INSTALLATION OF THE IEMN
The Company is actively pursuing multi-year contracts with additional
major Retailers who have or plan to launch loyalty and/or e-commerce programs in
key geographic regions across the United States and throughout Europe. In
addition, the Company has developed an in-store terminal and ShopperPerks web
site platform that does not require a frequent shopper card in order to make its
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services available to a wider range of Retailers. The Company believes that
Manufacturers seek access to a promotion platform that incorporates such a
network of top Retailers, with or without loyalty marketing programs. The
Company believe that there has been some resistance among Manufacturers to using
the Company's services because they would like to use the IEMN when it hase more
stores and more chains installed. The Company believes that as the IEMN is
installed in more stores and chains the Manufacturers will be more receptive to
participating in the IEMN, but there is no assurance that this will be the case.
INCREASE MANUFACTURER ENROLLMENT ON THE IEMN
During the year ended December 31, 1999, approximately 67 Manufacturers
promoted approximately 115 products through the IEMN in the United States and
Europe, the latter through a rollout at Sainsbury's and a pilot and rollout at
Boots the Chemist in the United Kingdom in 1999. The Company is continually
working to increase both the number of brands per Manufacturer and dollars
committed per brand as rollouts continue across the United States and Europe.
The Company has altered its pricing format significantly for 2000. From
late 1998 through all of 1999, the Company's pricing format was based on annual
contracts for each category of goods promoted under which the Manufacturer, for
a flat fee, had exclusivity with respect to that category of product for the
year that the contract ran. The Manufacturer would be able to promote for
several cycles within the contract period, with more cycles of promotion allowed
for higher flat fees paid. Because fewer Manufacturers promoted fewer products
during 1999, the Company introduced a pricing plan which allowed for
shorter-term commitments and a fee schedule combining a per-store promotion
management fee with a per-redemption fee. The Company anticipates that this
format, along with a significant increase in the installation of retail stores
currently under contract, should result in more contracts with Manufacturers
being entered into in 2000, but there is no assurance that this will occur.
PROMOTE "TRUE" ELECTRONIC COMMERCE BENEFITS FOR RETAILERS, MANUFACTURERS AND
CONSUMERS
In March 1999, the Company launched its Internet product, called the
Shopper Perks'sm' web site, in certain divisions of A&P in the New York and
Philadelphia metropolitan areas. With other chains connected or under contract
to connect to it in the near future, the product offers shoppers and the
consumer product promotion industry the first truly electronic home-to-store
transaction experience on a commercial scale. That is, the IEMN's
already-existing POS connection in participating Retailers allows in-store
electronic redemptions at the cash register from previously home-selected
promotions. Other Internet-based promotion systems require paper in one form or
another, primarily mailing coupons to the consumer or distributing paper in the
store to consumers for redemption on a subsequent store visit, or require paying
in advance by credit card and checking out discounted groceries separately from
other groceries. Importantly, the Company's in-store terminals and Shopper
Perks'sm' web site will complement each other by allowing consumers to print a
reminder list of selections either at home or at the in-store terminals, which
will "remember" what was selected at home. Also, the Company expects that its
in-store terminals will largely mirror the Internet offers and thereby provide
similar savings to the millions of grocery shoppers who do not have Internet
access. This system provides a marketing advantage for participating Retailers,
as consumers without Internet access have protested the availability of
discounts only for those with computers. The Company's IEMN platform addresses
that problem for Retailers by providing discounts for all shoppers in-store,
through the ShopperPerks portals, as well as on the Internet through
ShopperPerks. In addition, by not printing out coupons at home, the ShopperPerks
web site avoids the possibility of tampering with coupons, which can occur when
a "hacker" tampers with the universal product code and value of the coupon,
generally with the intent of increasing the discount amount.
NCR STRATEGIC ALLIANCES IN CONNECTION WITH HARDWARE
The Company has developed and intends to develop relationships with
other companies with a common interest in certain products or services. In the
case of hardware, the Company has entered into an exclusive supply agreement
with NCR Corporation ("NCR"), which has developed terminals for use in retail
environments for displaying information, ordering specialty food and wine,
registering gift lists, connecting to the Internet, dispensing coupons, and
other uses depending on the software installed. With the Company's success in
contracting with Retailers for its in-store marketing services and its portfolio
of owned and licensed patents and with NCR's hardware, large field service
staff and retail sales force, NCR and the Company have entered into a terminal
supply agreement and may enter into additional agreements to supply goods and
services. The Company anticipates cost savings with respect to terminals
supplied by NCR, and that NCR's relations with grocery and other retailers will
allow the Company to deal with a wider range of the retail industry than that
with which the Company is currently operating. However, there is no assurance
that this will occur.
ENLIST IEMN RETAILERS TO ASSIST IN THE MANUFACTURER SALES EFFORT
Substantially all of the Retailers who have installed the IEMN are
aiding the Company in its efforts to expand Manufacturer participation on the
IEMN. Retailer efforts include (i) the inclusion of IEMN promotional materials
in Retailer sales meetings with Manufacturers; (ii) the distribution of letters
to Manufacturers indicating Retailer support of the IEMN; and (iii) the
placement of
<PAGE>
ShopperPerks portals and sale literature in the lobbies or waiting rooms of
Retailer headquarters.
CONTINUE EXPANSION OF IEMN FUNCTIONALITY THROUGH INNOVATIVE PROPRIETARY SOFTWARE
DEVELOPMENT
The Company's video touch-screen platform offers virtually unlimited
opportunity for the creation of innovative in-store promotions that appeal to
consumers and make the IEMN more personalized to each of them. The Company
intends to maximize this opportunity through aggressive proprietary software
development that anticipates and addresses the loyalty marketing goals of
Manufacturers and Retailers while simultaneously enhancing consumers' enjoyment
of an IEMN visit.
LEVERAGE THE COMPANY'S GROWING DATABASE ON CONSUMER SHOPPING PATTERNS
Certain Manufacturers receive reports generated by the Company from its
extensive consumer behavior database. Each day the Company collects data on all
card-identified shoppers, whether or not they stopped at the Company's
terminals. For certain stores, this data is aggregated centrally at the
Company's headquarters. This information enables the Company to assist
Manufacturers in creating the optimal promotional strategy given the historical
impact of the IEMN and other promotions initiated by Manufacturers.
ACQUISITION OF INTELLECTUAL PROPERTY RIGHTS
The Company has successfully acquired exclusive and non-exclusive
licenses to a number of patents covering various aspects of in-store promotion
in general and its business in particular. The Company believes that several of
its licensed patents are seminal in the electronic incentive distribution
industry and afford the Company the ability to aggressively protect its growing
business franchise. The Company has brought suit against Catalina Marketing
Corporation for infringement of several of its patents, and a subsidiary,
Catalina Marketing International, Inc., filed counterclaims against the Company.
There is no assurance as to the outcome of this litigation, and the cost of
litigating it is likely to be high. See Item 3, "Legal Proceedings".
EUROPEAN EXPANSION
The Company believes that the European consumer promotion and retail
markets represent a substantial opportunity for the Company's products and
services. The Company, through a subsidiary, has entered into an exclusive
contract to commercially deploy the IEMN with Sainsbury's, one of the largest
Retailers in the United Kingdom. Rollout began in 1999, after a successful pilot
program, and will continue into 2000. The Company also entered into an exclusive
contract with Boots, the largest pharmacy retailer in the United Kingdom, which
piloted the ShopperPerks portals in early 1999 and began a rollout in the summer
of 1999, which will continue into 2000. The Company also has an exclusive
multi-year agreement with Delhaize, one of the largest grocers in Belgium, which
is to begin a pilot in the spring of 2000.
PRODUCTS AND SERVICES
INTER*ACT E-MARKETING NETWORK'sm' ("IEMN")
A customer can access the IEMN by inserting his or her frequent shopper
card, as issued under the store's existing frequent shopper card program, into
the Company's ATM-like terminal(s) located near the entrance to the store. The
system identifies the customer and, based upon data gathered by the IEMN on that
customer's cumulative purchasing history, displays full color images of
promotions and discounts specifically selected for that customer. The IEMN may
also present several "universal" promotions (offered by either the Retailer or
Manufacturers) to all IEMN visitors. In the case of the Company's cardless
platform, all the promotions offered are universal and would be offered to all
shoppers or every "nth" shopper. On either the card or cardless in-store
platform, the customer selects desired promotions, usually price discounts,
multiple purchase bonuses or free product samples, by simply touching the
desired product icon displayed on the screen. When the selection process is
complete (in less than 60 seconds for most shoppers), the ShopperPerks portal
can deliver a "shopping list" of all selected promotions, which serves to remind
the customer of the selected promotions while shopping. After shopping, the
customer's purchases and frequent shopper card are electronically scanned at
checkout, and the IEMN (i) verifies that the promoted items were purchased, (ii)
immediately notifies the store register system to give the customer the selected
discounts and promotions and (iii) records all the customer's purchases for use
in more accurately targeting promotions during future visits. Due to
technological constraints unique to certain Retailers in approximately 500
stores, the IEMN delivers individual coupons rather than a shopping list. The
Company can tailor its technology to a wide range of Retailer requirements, and
has expanded its line of product offerings to include a IEMN platform that
doesn't require the Retailer to have a frequent shopper card program.
The Company's contracts with Manufacturers provide them with the
opportunity to offer promotions on an exclusive basis for a particular product
category within four-week cycles during a year. These product categories are
generally based on standard industry classifications of household and consumer
products available in supermarkets. The purchaser of a particular category is
given the
<PAGE>
exclusive right to promote products in that category during each cycle
purchased. Categories are generally purchased nationally, although programs can
be developed with regional differences in mind.
The Company's primary source of revenue is the sale of product category
cycles to Manufacturers. The Company's revenue is generated from a fee charged
for each redeemed electronic incentive and a program management fee.
MANUFACTURER PRODUCTS
Consumer Product Incentives. The Company's business primarily derives
revenue from the presentation, distribution and/or redemption of consumer
incentives offered by Manufacturers. Manufacturers can buy access to the
Inter*Act e-Marketing Network in the U.S. by paying a per-store promotion
management fee and then paying a redemption fee for promoted items that are
actually purchased by the consumer. In the U.K. Manufacturers pay for access to
the IEMN on an periodic basis, ranging from one to three or six cycles, with the
fee varying depending on whether the Manufacturer contracts for a full screen
promotion or for a single icon out of several on a screen. The per-store
promotion management fee for U.S. contracts is a flat fee per store. The
redemption fee is determined by the number of promotional cycles purchased with
the fee decreasing as more cycles are committed to. Manufacturers can also earn
category exclusivity on the IEMN for specified periods of time depending on the
number of cycles contracted for. If a specified number of cycles is purchased, a
manufacturer is also given renewal rights for subsequent promotional periods.
These two fees, combined with the incentive face value and retailer handling
fees (both paid by the Manufacturers) create the complete promotion budget for
the Manufacturer, and entitles the Manufacturer to: (1) category exclusivity
during the contract period, even during "off" cycles of no promotion on the
IEMN; (2) ongoing point-of-sale data analysis of not only the promoted brand
results, but also of the category and the market share dynamics of the
individual competitors (names masked); and (3) renewal rights on the following
year.
This contrasts with previous Company formats in the U.S. market of
either a fully pay-on-redemption approach or an annual flat fee format. The
pay-on-redemption approach entitled Manufacturers to category exclusivity only
in the cycles during which they promoted, and which allowed Manufacturers to buy
as little as one cycle of promotion or as much as all 13 cycles . Under this
format, revenue was derived exclusively from promotion redemptions. With the
annual flat fee format, a Manufacturer had exclusivity in its category for the
entire contract year but had to commit to a long term contract regardless of the
level of redemption that occurred. The current hybrid approach, a per-store
management fee plus a redemption fee, allows for more flexibility for
Manufacturers and less percieved risk, yet locks in a certain revenue stream for
the Company by virtue of the program management fee. In addition, the data
reporting has become more comprehensive over time.
Internet Promotion & In-Store Redemption. In March 1999, the Company
launched its Internet product, called "Shopper Perks'sm'", in certain divisions
of A&P. With other chains connected or under contract to connect to it in the
near future, the product offers shoppers and the consumer product promotion
industry the first electronic home-to-store transaction experience on a
commercial scale. That is, the IEMN's already-existing POS connection in
participating Retailers will allow in-store electronic redemptions at the cash
register from promotions previously selected at home or in the office. Other
Internet-based promotion systems require paper in one form or another, and
primarily mail coupons to the consumer or distribute paper in the store for
redemption on a subsequent store visit, or require payment in advance by
credit card and the shopper to pay separately for discounted groceries.
Media and Advertising Related Products. The Company plans to introduce
an electronic billboard advertising product in 2000 to allow companies outside
the consumer products industry to promote on the IEMN. The advertising product
will offer such companies the ability to place an advertisement that is
unobtrusive to the core IEMN session (at side or bottom of screens) or as a
whole page promotion, often in conjunction with the Retailer, such as a discount
on amusement park admission to shoppers using the ShopperPerks portals. The
Company currently expects to structure its fees for this product on a cost per
thousand impressions basis.
RETAILER PRODUCTS
Although the Company derives its revenue from sales of customer
incentives to consumer products manufacturers, it is an essential part of the
Company's strategy to make the IEMN one of the preferred loyalty marketing
vehicles of Retailers in the U.S. and Europe. To this end, the Company has
developed a variety of products designed to increase the effectiveness of
Retailers' communication with their top customers and to create a feeling of
value and excitement related to the ShopperPerks portal that will drive greater
traffic to the terminal and the Retailer's frequent shopper card program.
Although the Company feels that these products and services are clearly
value-added to its Retailer partners, it does not currently charge its Retailers
for any of these services.
Customer Specific Messages. The Company offers Retailers the ability to
deliver targeted messages to specific groups of customers according to their
relative profitability to the store and/or purchasing tendencies or other
parameters. The product, called "Stamp Saver," is being positioned as an
alternative to or re-enforcement of Retailers' cardholder-specific direct mail
programs.
<PAGE>
Private Label and Perimeter Department Promotions. The IEMN offers
Retailers the ability to permanently feature in-store promotions that grow their
most profitable segments, typically private label merchandise and perimeter
departments (e.g., bakery and deli).
Games. The IEMN offers Retailers an electronic platform for sweepstakes
and games, such as the "spin and win" game, which is similar to a slot machine
with a touch-screen handle but that requires no wager to play. The prizes in
such sweepstakes and games are funded through the Retailers, which provide
private label products and third party consumer goods from local merchants,
radio stations which seek to cross promote on the IEMN, and others.
Customer Give-Aways. The Company also offers promotions or prizes to
customers on an "Nth" terminal visitor basis (e.g., every tenth terminal
visitor). This functionality, called "Pre-wards," allows the Retailer to
generate excitement at the terminal through the element of potential surprise.
Additionally, this product creates another method for Retailers to offer prizes
that could drive customers to their perimeter departments or other areas where
they may want to increase traffic among their best customers.
Employee Rewards. Through the IEMN Retailers conduct employee-only
communications allowing a convenient and accessible focal point for
disseminating news, information and rewards among other things.
RETAILER PARTNERS
As of March 1, 2000, the Company had over 5,100 stores in the United
States under contract and had installed terminals in approximately 1,800 stores.
The Company has installed its in-store IEMN in A&P (consisting of A&P, Farmer
Jack, Food Emporium, Kohl's, Super Fresh and Waldbaum's stores), Albertson's
(ACME, Jewel, and Albertson's West Coast division) , Food Lion (Charlotte and
Virginia divisions), Gerland's, Grand Union, Laneco, Cub Foods, and Weis Markets
in the U.S., and Boots the Chemist and Sainsbury's in the U.K. The Company has
contracts for future installation in the remaining divisions of Food Lion, and
in the Marsh, Giant Eagle, Spartan, SuperValu, SuperValu New England, Giant of
Landover and Eagle Food supermarket chains in the U.S. In Europe, the Company
had almost 800 stores under contract and had installed terminals in
approximately 590 stores. The Company has installed its in-store IEMN in
Sainsbury's and at Boots the Chemist in the United Kingdom. The Company has
contracts for future installation in additional stores for these chains and also
in Delhaize of Belgium.
TECHNOLOGY AND SOFTWARE
IEMN SOFTWARE
The Company maintains a staff of software developers and engineers.
This team continually refines and enhances IEMN functionality for both
Manufacturers and Retailers. It also has primary responsibility for developing
the unique interfaces required to connect the IEMN to each Retailer's
point-of-sale system. The Company's core targeting products are driven by its
proprietary Target Engine Software ("TES") which collects and analyzes each
shopper's cumulative market basket of purchases stored over a rolling time
period of between three and 15 months depending on the size of the store. On a
daily basis, TES tailors discounts and promotions for each customer based upon
previous purchase history. It also selects targeted customer groups to receive
special promotions as designated by retailers. Presently the Company is
developing software and hardware enhancements to enable the Company to collect
and analyze consumer data over longer periods in all stores, and to make
available to Retailers without a frequent shopper card program an in-store and
Internet cardless kiosk marketing program
For each product category available on the IEMN, the TES classifies
each consumer as follows:
<TABLE>
<CAPTION>
CLASSIFICATION CONSUMER DESCRIPTION
-------------- --------------------
<S> <C>
Brand loyal.............. Tends to purchase consistently the Manufacturer's brand within the
product category
Brand switcher........... Tends to demonstrate little brand loyalty, buying several different
brands over time within a category
Brand competitive........ Tends to purchase consistently a competitor's brand
Entry level.............. A consumer who has no record of purchasing products within the
product category
Related.................. A consumer who has bought a product related to the promoted product.
</TABLE>
Customers are offered promotions with specific incentives on specific
products depending on their individual purchasing profiles. For example, a
customer classified as "brand competitive" can be offered a higher discount than
would a consumer classified as a `brand switcher', who in turn would receive a
higher discount than would a consumer classified as `brand loyal". In this way,
the TES offers Manufacturers the ability to execute different promotional
strategies for the same product simultaneously. Manufacturers
<PAGE>
have the flexibility to change the relative face values of redemptions for
each targeted category.
IEMN software also enables event promotions (full screen(s) dedicated
to the promotion of a specific marketing campaign), sweepstakes and games,
full-motion videos and printed vouchers that shoppers can mail in for rebates or
other special promotions. The Company's current system release gives Retailers
the ability to target offers directly to a predetermined set of customers, such
as preferred shoppers.
IEMN HARDWARE
In-Store and Internet Configuration and Interaction
THE INTER*ACT e-MARKETING NETWORK'sm'
[Graphic]
A customer can access the IEMN by inserting his or her frequent shopper
card, as issued under the store's existing frequent shopper card program, into
the Company's ATM-like ShopperPerks portals located near the entrance to the
store. The system identifies the customer and, based upon data gathered by the
IEMN on that customer's cumulative purchasing history, displays full color
images of promotions and discounts specifically selected for that customer.
The IEMN may also present "universal" promotions (offered by either the
Retailer or Manufacturers) to all IEMN visitors. The customer selects desired
promotions, usually price discounts, multiple purchase bonuses or free product
samples, by simply touching the desired product icon displayed on the screen.
When the selection process is complete (in less than 60 seconds for most
shoppers), the ShopperPerks portal can deliver a "shopping list" of all selected
promotions, which serves to remind the customer of the selected promotions while
shopping. which serves to remind the customer of the selected promotions while
shopping. After shopping, the customer's purchases and frequent shopper card are
electronically scanned at checkout, and the IEMN (i) verifies that the promoted
items were purchased, (ii) immediately notifies the store register system to
give the customer the selected discounts and promotions and (iii) records all
the customer's purchases for use in more accurately targeting promotions during
future visits. Due to technological constraints unique to certain Retailers' POS
systems in approximately 500 stores, the IEMN delivers individual coupons rather
than a shopping list. The Company can tailor its technology to a wide range of
Retailer requirements, and has expanded its line of product offerings to include
a IEMN platform that doesn't require the Retailer to have a frequent shopper
card program..
Internet users can access incentives offered through the Company's
ShopperPerks web site by calling up ShopperPerks.com and selecting the Retailer
location where she wishes to shop, or by clicking on the ShopperPerks "hot link"
on the web site of participating Retailers. With respect to the core
ShopperPerks product, the shopper types in her frequent shopper number and then
is
<PAGE>
offered a number of targeted and universal promotions categorized by product
category, which can be selected using the computer mouse. In addition, the
Company presents other information from the Retailer such as other promotions in
the stores, recipes and other information. The customer can set his own pace in
reading through and selecting incentives or reading other material on the web
site, at his option. When finished selecting the incentives the shopper would
like to use, the shopper closes the session and can choose to have a reminder
list printed to bring to the store. After shopping, the customer gives her
frequent shopper card to the cashier, and the discounts will automatically be
deducted from the total for any products selected on ShopperPerks and purchased
by the customer. The Company also has a ShopperPerks product for Retailers with
no loyalty card program, in which the shopper is assigned a number which allows
him to obtain incentives either by having coupons printed at the ShopperPerks
portal in the selected store, or by having the incentive values sent directly to
the POS, depending on the technology used by the particular Retailer.
By not printing out coupons at home, the ShopperPerks web site avoids
the possibility of tampering with coupons, which can occur when a "hacker"
changes the universal product code coupon value, generally with the intent of
increasing the discount amount.
SALES AND MARKETING
The primary focus of the Company's sales effort is to attract national
Manufacturers to contract for IEMN category cycles. The sales effort is
conducted primarily through the Company's direct sales force, all of whom are
experienced in packaged goods and marketing services sales. These people are
organized into three geographical teams based in the Northeast, the Central US
and the West Coast. Individual sales managers are located in key markets where
there is a concentration of Manufacturer customers, including Charlotte, San
Francisco, Chicago, Denver, Cincinnati, Atlanta, St. Louis, Cleveland,
Winston-Salem and Norwalk. The teams are headed by group sales directors who
report to the Senior Vice President, Brand Sales. The Company augments its
direct sales efforts through the development of strategic relationships with
prominent promotion agencies and food brokers at a local market level. Through
development of custom events and packages executed through individual retail
grocery chains, the Company can provide a unique offering to both of these
constituents, giving a competitive point of difference in the marketplace. This,
in turn, generates success stories for the sales managers that can be cultivated
into larger commitments at the manufacturer's national buying headquarters.
The Company plans to continue to aggressively hire experienced,
well-trained industry sales professionals into key positions across the nation
and to invest in continuous training of the team.
Retailer sales efforts are conducted through direct mail campaigns and
trade shows led by a senior executive and supported by senior management.
Ongoing Retailer service, support, and product sales are provided by the
Company's Client Services group. Client Service account executives typically
have substantial industry experience selling packaged goods to Retailers and are
responsible for maximizing each Retailer's use of IEMN retailer products.
The Company has altered its pricing format significantly for 2000. From
late 1998 through all of 1999, the Company's pricing format was based on annual
contracts for each category of goods promoted under which the Manufacturer, for
a flat fee, had exclusivity with respect to that category of product for the
year that the contract ran. The Manufacturer would be able to promote for
several cycles within the contract period, with more cycles of promotion allowed
for higher flat fees paid. Because fewer Manufacturers promoted fewer products
during 1999, the Company introduced a pricing plan in late 1999 which allowed
for shorter-term commitments and a fee schedule combining a per-store promotion
management fee with a per-redemption fee. The Company anticipates that this
format, along with a significant increase in the number of IEMN installations
in retail stores currently under contract, should result in more contracts
with Manufacturers being entered into in 2000, but there is no assurance that
this will occur.
SUPPLY OF SHOPPERPERKS PORTALS
The Company signed an exclusive terminal supply agreement during the
first quarter of 2000 with NCR Corporation ("NCR") to supply up to 10,000
terminals to the Company at discounted prices for a two-year period. For each
terminal sold to the Company, NCR will receive equity in the Company. The
Company and NCR anticipate that NCR will supply additional goods and/or services
to the Company in the future where such relationships would be expected to
provide cost savings to the Company.
INTELLECTUAL PROPERTY MATTERS
The Company currently uses U.S. Patent No. 4,554,446 (the "'446
Patent") in its in-store consumer product promotion and couponing business
through license agreements with the holders of rights in this patent, which
provide the Company with exclusive right to use the patent. The term of such
agreement is for as long as the patent remains valid and enforceable, subject to
certain termination rights as set forth in such agreement. The Company has
brought suit against Catalina Marketing Corporation for infringement of the `446
Patent and certain other of the Company's patents, and a subsidiary, Catalina
Marketing International, Inc., filed counterclaims against the Company. There is
no assurance as to the outcome of this litigation, and the cost of litigating it
is likely to be high. See "Legal Proceedings".
<PAGE>
The Company also has certain exclusive and nonexclusive rights for U.S.
Patent No. Re.34,915 for a "Paperless System for Distributing, Redeeming and
Clearing Merchandise Coupons" pursuant to a patent license agreement. The term
of such agreement is for as long as the patent remains valid and enforceable,
subject to certain termination rights as set forth in such agreement. Management
believes that by obtaining the rights to this patent the Company will experience
a significant competitive edge in the electronic coupon redemption industry in
the future.
During 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. Management believes that these patents will provide the
Company with a significant competitive advantage in its target market.
The Company has obtained federal registration of the service marks
Inter*Act Loyalty Network'r' and the Company's hand logo along with other marks.
Inter*Act e-Marketing Network'sm' and ShopperPerks'sm' are service marks of the
Company and applications for federal registrations are pending. In addition, the
Company has applied to register several of its service and trade marks in
Europe. See "Patents, Proprietary Information and Trademarks."
CUSTOMERS AND COMPETITION
The Company competes against a wide range of promotional media for
Manufacturers' advertising and promotional dollars, including television, radio,
print and direct mail. The Company also competes against providers of in-store,
point-of-sale, and Internet couponing marketing platforms, such as ActMedia,
Inc. ("ActMedia"), which provides automatic coupon dispensers in the aisles of
supermarkets and Catalina Marketing Corporation, together with its subsidiaries
and affiliates ("Catalina"), which provides an electronic marketing network that
delivers coupons to consumers at checkout lanes based on that day's purchases.
Internet couponing marketing platforms include Catalina's Supermarkets On-line,
which provides coupons for which consumers, upon purchase of a specified product
receive vouchers for redemption the next time the shopper shops at the store,
and Planet U, which predominantly supplies coupons selected by shoppers on its
web site to them by mail. WebHouse has recently introduced an Internet service
offering discounts on groceries which a customer pays for by credit card in
certain Retailers. The Company competes for promotional dollars based on several
factors, including its ability to deliver Internet and in-store discounts to
shoppers without access to the Internet, the ability to more accurately and
effectively target consumers, the ability to demonstrate Retailer support of the
system, the ability to influence buying behavior, promotion flexibility, and
price. Most of the Company's competitors are larger and have substantially
greater resources than the Company. In many of the grocery stores in which the
Company has installed its IEMN, ActMedia and Catalina also provide their
in-store promotion services. Catalina, Planet U, WebHouse and other Internet
couponing companies make their coupons or discounts available to shoppers in
many of the same grocery stores as well.
EMPLOYEES
As of December 31, 1999, the Company had approximately 210 employees,
primarily full-time. None of the Company's employees is represented by a labor
union. The Company considers its relations with its employees to be good. The
Company's future success will depend in significant part on the continued
service of its key technical, sales and senior management personnel. Competition
for such personnel is intense and there can be no assurance that the Company can
retain its key managerial, sales and technical employees. The Company
anticipates that the nationwide commercialization of the IEMN will require the
hiring of a substantial number of new employees in connection with the planned
expansion of its business.
ITEM 2. PROPERTIES
The Company is in the process of relocating its corporate offices to
Charlotte, North Carolina, where it will lease 30,606 square feet of office
space for a five-year lease term. Until that space opens up, the Company is
subleasing approximately 27,000 square feet of office space in Charlotte, with a
sublease that runs through July 2000. The Company will close its offices
Norwalk, Connecticut, where it leases 33,452 square feet of office space, in
April 2000. The Company also has a technology center in Greensboro, N.C., where
it leases approximately 3,100 square feet through September 2000. The Company
leases 8,000 square feet of warehouse storage space in Central Islip, New York.
The lease runs through February 2002. The Company intends to lease other
warehouse storage space as necessary and believes that suitable space will be
readily available to meet its anticipated needs for the foreseeable future. The
Company believes this space is adequate to accommodate the Company's variable
storage requirements. The
<PAGE>
Company leases 11,430 square feet of office space in Hemel Hempstead, England
for its European headquarters, with a lease that expires in February 2009. The
Company also leases regional sales offices in Cincinnati, San Mateo and
Winston-Salem.
ITEM 3. LEGAL PROCEEDINGS
In February 1996, the Company filed suit against Catalina Marketing
Corporation ("Catalina Marketing") alleging that Catalina Marketing has
infringed United States Patent No. 4,554,446 under which the Company is
licensee. The Company is seeking money damages (including costs and expenses)
and a permanent injunction against Catalina Marketing to stop further
infringement of the patent. In May 1997, Catalina Marketing asserted a
counterclaim alleging that the Company is infringing a newly issued Catalina
Marketing Patent, U.S. Patent No. 5,612,868. The Company answered denying the
allegations and seeking declaratory judgment of non-infringement, invalidity and
unenforceability of the patent. The United States District Court in the District
of Connecticut has denied Catalina Marketing's motions for summary judgment, and
a scheduling order is pending. Although the ultimate outcome of the suit cannot
be predicted, the Company intends to pursue and defend the action vigorously.
In January 1998, Catalina Marketing International, Inc. ("Catalina
International," a subsidiary of Catalina Marketing) filed suit against the
Company alleging that the Company has infringed United States Patent No.
4,674,041 Catalina International seeks money damages as well as injunctive
relief. . The Company intends to defend against Catalina International's claims
vigorously. This action has been consolidated with the litigation involving
Catalina Marketing for purposes of discovery and trial.
On May 27, 1998, the Company filed a suit against Catalina Marketing
alleging that Catalina Marketing 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 in
1998. The Company is seeking monetary damages (including costs and expenses).
This action has been brought in the United States District Court in the District
of Connecticut. Catalina Marketing has also challenged some of the claims of six
of the Deaton Patents by provoking 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 proceedings and in the new lawsuit.
See also "Patents, Proprietary Information and Trademarks," and "Intellectual
Property Matters".
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
At a special meeting of the holders of the Company's 10% Series A
Mandatorily Convertible Preferred Stock (the "Series A Preferred Stock") held on
December 20, 1999, such shareholders approved the Statement of Rights and
Preferences of the Company's 14% Series B Senior Mandatorily Redeemable
Convertible Preferred Stock (the "Series B Preferred Stock") and the issuance of
up to 140,000 shares of Series B Preferred Stock. See Item 5. "Market for
Registrant's Common Equity and Related Stockholder Matters" and Item 7.
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources" in Part II of this Annual Report on
Form 10-K. The Statement of Rights and Preferences of the Series B Preferred
Stock is set forth in the Articles of Amendment to the Company's Articles of
Incorporation listed as Exhibit No. 3(a)(2) in Item 14 "Exhibits, Financial
Statement Schedules and Reports on Form 8-K" in Part IV of this Annual Report
on Form 10-K. The number of votes cast for and against the proposed amendment,
and the number of abstentions and broker nonvotes, were as follows:
<TABLE>
<CAPTION>
For Against Abstentions Broker Nonvotes
--- ------- ----------- ---------------
<S> <C> <C> <C>
391,461 1,500 0 0
</TABLE>
<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
At March 27, 2000, the Company had outstanding 7,743,739 shares of
common stock (the "Common Stock"), held by approximately 258 shareholders of
record. These shares were issued in a series of private offerings prior to
December 31, 1999. Issuances of Common Stock over the past three years include:
(i) 50,000 shares in August 1997 as partial consideration for the acquisition of
certain intellectual property recorded at $10.00 per share, (ii) 10,000 shares
issued in June 1997 in exchange for management services recorded at $10.00 per
share; and (iii) 15,184 shares issued in November 1999 in exchange for executive
recruiting services recorded at $8.50 per share. Such shares were issued in
reliance on exemptions from registration contained in Regulation D of the
Securities and Exchange Commission promulgated under the Securities Act of 1933,
as amended (the "1933 Act"), because the offers and sales of such shares were
limited to "Accredited Investors" (as defined in Regulation D) and up to 35
persons who were "qualified investors" (as defined in Regulation D).
There is currently no established trading market for the Common Stock
or for any of the classes of the Company's preferred stock described below
(collectively the "Preferred Stock"). Inter*Act has no present intention to
list the Common Stock for trading on any securities exchange or any automated
dealer quotation system.
The Company has not paid any cash dividends since its inception and
does not intend to pay cash dividends on its Common Stock or Preferred Stock in
the foreseeable future. The Company intends to retain future earnings to finance
its operations and fund the growth of its business. Any payment of dividends in
the future will be at the discretion of the Board of Directors of the Company
and will depend upon, among other things, the Company's earnings, financial
condition, capital requirements, level of indebtedness, contractual and other
restrictions in respect of the payment of dividends, and other factors the
Company's Board of Directors deems relevant. The Company's ability to pay
dividends or make distributions to shareholders is also restricted by the
terms of the Indenture.
Series A Preferred Stock
In 1998, the Board of Directors of Company established a series of
preferred stock of the Company--the 10% Series A Mandatorily Convertible
Preferred Stock (the "Series A Preferred Stock")--and approved the sale of up to
$40 million of Series A Preferred Stock in a private offering in reliance on
exemptions from registration of such shares contained in Regulation D of the
Securities and Exchange Commission promulgated under the Securities Act because
the offers and sales of such shares were limited to the Company's existing
shareholders and others who were "Accredited Investors" and up to 35 of the
Company's existing shareholders who were "qualified investors". During the year
ended December 31, 1998, the Company issued 177,878 shares of Series A Preferred
Stock at a purchase price of $100.00 per share resulting in approximately $17.8
million in gross proceeds, $100,000 of which was received in the form of
satisfaction of accounts payable and the balance of which was received in cash.
In March 1999, the Board of Directors and shareholders of the Company
approved certain changes to the Series A Preferred Stock and the Board increased
the aggregate
<PAGE>
offering of Series A Preferred Stock to $70 million. Such changes consisted of
(i) a reduction in the conversion price from $10.00 to $8.50 per share of common
stock into which each share of Series A Preferred Stock is convertible, (ii) an
increase in the number of votes per share of Series A Preferred Stock from 10 to
the number of shares of common stock into which it is convertible (initially
11.7647), (iii) accrual of dividends on the Series A Preferred Stock
semi-annually, as opposed to quarterly, to be paid only in shares of Series A
Preferred Stock and (iv) the addition of anti-dilution provisions. Such changes
are applicable to all shares of Series A Preferred Stock issued prior to the
effective date of the changes and all additional shares of Series A Preferred
Stock issued in the private offering. During the year ended December 31, 1999,
the Company issued and sold 320,990 shares of Series A Preferred Stock at a
price of $100 per share for total cash proceeds of approximately $32.1 million,
all of which were received in cash. As of March 27, 2000, the Company had
issued and outstanding 498,868 shares of Series A Preferred Stock held by
approximately 103 shareholders of record.
Dividends on the Series A Preferred Stock accrue from the date of
issuance, and holders of Series A Preferred Stock are entitled to receive
cumulative dividends at the rate of 10% per annum of the initial Liquidation
Preference per share, payable semi-annually on the last day of March and
September of each year, when, as and if declared by the Company's Board of
Directors. Dividends, to the extent declared by the Company's Board of
Directors, will be payable only in shares of Series A Preferred Stock. Accrued
dividends, payable in Series A Preferred Stock, were approximately $4.0 million
as of December 31, 1999.
Each share of Series A Preferred Stock entitles the holder to such
number of votes on each such matter as shall equal the number of shares of
Common Stock into which such share of Series A Preferred Stock is convertible on
the record date with respect to such matter. Approval of holders of 75% of the
outstanding shares of Series A Preferred Stock will be required prior to the
Company's issuing any shares of a class of preferred stock that rank pari passu
with or senior to the Series A Preferred Stock, except that the Company may
issue up to $90 million of Series A Preferred Stock and preferred stock ranking
pari passu with the P Series A referred Stock without the approval of any
holders of Series A Preferred Stock. The Company may not amend or alter any of
the preferences of the Series A Preferred Stock without the approval of the
holders of 75% of the outstanding Series A Preferred Stock
Each share of Series A Preferred Stock will automatically be converted
into a number of shares of Common Stock equal to the Liquidation Preference
($100 plus accrued dividends) on the date of conversion divided by the
Conversion Price ($8.50 per share) upon (i) the closing of a firm commitment
public offering of the Common Stock pursuant to a registration statement
declared effective under the 1933 Act, underwritten by a securities firm of
nationally recognized standing with an aggregate offering price to the public of
not less than $30 million and a price per share not less than the Conversion
Price, (ii) the closing of any transaction (including, without limitation, a
merger, consolidation, share exchange, sale, lease or other disposition of all
or substantially all of the corporation's assets) in connection with which the
previously outstanding Common Stock shall be changed into or exchanged for
different securities of the corporation or capital stock or other securities of
another corporation or interests in a noncorporate entity or other property
(including cash) or any
<PAGE>
combination of the foregoing or (iii) the vote of not less than 75% of the
outstanding shares of Series A Preferred Stock. Holders of Series A Preferred
Stock are entitled at any time to convert each share of Series A Preferred Stock
held by them into a number of shares of Common Stock equal to the Liquidation
Preference on the date of conversion divided by the Conversion Price.
Series B Preferred Stock, PIK Notes and Warrants
In December 1999, the Company completed an exchange offer (the
"Exchange Offer") of 14% Senior Pay-in-Kind Notes Due 2003 of Inter*Act
Operating Co., Inc., a wholly owned subsidiary of the Company (the "PIK Notes"),
14% Series B Senior Mandatorily Redeemable Convertible Preferred Stock of the
Company (the "Series B Preferred Stock") and common stock purchase warrants (the
"Exchange Offer Warrants") for its outstanding Discount Notes. See Item 7.
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources" in Part II of this Annual Report on
Form 10-K. The Exchange Offer was effected in reliance on exemptions from
registration of the securities under Section 4(2) of the Securities Act because
the offering was limited to the Company's existing noteholders all of which were
institutional shareholders and Accredited Investors. In the Exchange Offer, each
holder of $1,000 principal amount of Discount Notes received $500 principal
amount of PIK Notes, one share of Series B Preferred Stock having an initial
liquidation preference of $500 and one Exchange Offer Warrant to purchase 17.96
shares of common stock for an exercise price of $.01. Because 100% of the
outstanding Discount Notes (other than those held by the Company) were tendered
in the Exchange Offer, the issuer of the PIK Notes, Inter*Act Operating Co.,
Inc., merged with and into its parent, the Company, on December 30, 1999.
Consequently, the PIK Notes are direct obligations of the Company.
The PIK Notes mature on August 1, 2003 and accrue interest at a rate of
14% per annum from and after August 1, 1999, payable semiannually on February 1
and August 1 of each year, beginning February 1, 2000. The Company may, at its
option, elect not to make interest payments in cash prior to the date that is 18
months following the earlier of an initial public offering of the Company's
common stock or a Change in Control (as defined in the Indenture governing the
PIK Notes). To the extent that the Company does not pay interest in cash, the
interest accrued on the PIK Notes will be paid by the issuance of additional
promissory notes, which will have substantially the same terms, including date
of maturity and interest rate, as the PIK Notes.
In the Exchange Offer, the Company issued to tendering holders of the
Company's Discount Notes 139,575 shares of Series B Preferred Stock. All such
shares were outstanding as of March 27, 2000 and held by two shareholders of
record. The shares of Series B Preferred Stock have a liquidation preference of
$500.00 per share and rank senior, as to dividends and liquidation preference,
to all other classes of the Company's capital stock. Dividends on the Series B
Preferred Stock accrue from August 1, 1999, at the rate of 14% per annum of the
liquidation preference (determined as of the respective dividend payment date)
per share, payable semi-annually on the first day of February and August of each
year, commencing on February 1, 2000, and are cumulative to the extent unpaid.
Accrued dividends on the Series B Preferred Stock were approximately
$4.0 million as of December 31, 1999.
<PAGE>
Each share of Series B Preferred Stock will automatically be converted
into a number of shares of Common Stock equal to the Liquidation Preference
($500) plus accrued and unpaid dividends on the date of conversion divided by
$14.00 (adjusted as described below, the "Conversion Price") upon the closing of
a Qualified Public Offering. Holders of Series B Preferred Stock are entitled at
any time to convert each share of Series B Preferred Stock held by them into a
number of shares of Common Stock equal to the Liquidation Preference plus
accrued and unpaid dividends on the date of conversion divided by the Conversion
Price.
Upon a Change of Control (as defined in the statement), each holder of
Series B Preferred Stock will have the right to require the Company to redeem
its Series B Preferred Stock at a price equal to the Liquidation Preference on
the date of redemption.
The Company will not purchase or redeem any shares of Preferred Stock
unless the assets of the Company remaining after such redemption and any
corresponding reduction in capital, if any, shall be sufficient to pay any debts
of the Company for which payment has not been otherwise provided, or as may
otherwise be limited by applicable North Carolina law. However, the Company will
redeem all shares of the Series B Preferred Stock duly tendered for redemption
as soon thereafter as such redemption may be permitted by applicable North
Carolina law. To the extent that redemption of less than all of the shares of
Preferred Stock duly tendered for redemption is permitted, the Company will
redeem such shares on a pro rata basis based on the number of shares tendered.
Holders of Series B Preferred Stock will generally vote together with
the holders of the Common Stock as a single class and will be entitled to cast
the number of votes for each share of Series B Preferred Stock held by them
equal to the number of shares of Common Stock into which the Series B Preferred
Stock is convertible.
Exchange Offer Warrants to purchase an aggregate of 2,506,767 shares of
the Company's Common Stock were issued in the Exchange Offer and are outstanding
as of March 27, 2000. The Exchange Offer Warrants are not exercisable until
December 31, 2002. To the extent that the Company redeems any of the PIK
Notes prior to December 31, 2002, the number of shares of Common Stock into
which each Exchange Offer Warrant is exercisable will be reduced by an amount
equal to the product of (i) the number of shares into which such warrant is
exercisable immediately prior to such redemption and (ii) a fraction, the
numerator of which is the aggregate principal amount of PIK Notes redeemed and
the denominator of which is the aggregate principal amount of PIK Notes
outstanding immediately prior to such optional redemption. Consequently, if the
Company redeems all of the PIK Notes prior to December 31, 2002, the Exchange
Offer Warrants will not be exercisable for any shares of the Company's Common
Stock.
Series C Preferred Stock and Warrants
In December 1999, the Company's Board of Directors designated an
additional series of preferred stock, the 10% Series C Mandatorily Redeemable
Convertible Preferred Stock ("Series C Preferred Stock") and authorized the
issuance and sale in a private offering up to 250,000 units consisting of one
share of Series C Preferred Stock and one warrant to purchase approximately
7.14 shares of the Company's common stock a price of $14.00 per share. As of
December 31, 1999, 70,120 units had been issued and sold for total proceeds
<PAGE>
of $7,012,000, all of which were received in cash. The shares of
Series C Preferred Stock have a liquidation preference of $100.00 per share and
rank, as to dividends and liquidation preference, equal to the Series A
Preferred Stock, junior to the Series B Preferred Stock and senior to the
Company's common stock. Dividends on the Series C Preferred Stock are payable
only in shares of Series C Preferred Stock and accrue from the date of
issuance, at the rate of 10% per annum of the liquidation preference, payable
semi-annually on the first day of March and September of each year, commencing
on the last day of March and September of each year, and are cumulative to
the extent unpaid. Accrued dividends, payable in Series C Preferred Stock,
were approximately $27,000 as of December 31, 1999.
Each share of Series C Preferred Stock will automatically be converted
into a number of shares of Common Stock equal to the Liquidation Preference on
the date of conversion divided by the Conversion Price (initially $14.00) upon
(i) the closing of a firm commitment public offering of the Common Stock
pursuant to a registration statement declared effective under the 1933 Act,
underwritten by a securities firm of nationally recognized standing with an
aggregate offering price to the public of not less than $30 million, (ii) the
closing of any any transaction (including, without limitation, a merger,
consolidation, share exchange, sale, lease or other disposition of all or
substantially all of the corporation's assets) in connection with which the
previously outstanding Common Stock shall be changed into or exchanged for
different securities of the corporation or capital stock or other securities of
another corporation or interests in a noncorporate entity or other property
(including cash) or any combination of the foregoing or (iii) the vote of not
less than 75% of the outstanding Series C Preferred Stock. Holders of Series C
Preferred Stock will be entitled at any time to convert each share Series C
Preferred Stock held by them into a number of shares of Common Stock equal to
the Liquidation Preference on the date of conversion divided by the Conversion
Price.
The holders of Series C Preferred Shares will generally vote together
with the holders of the Common Stock as a single class on all matters submitted
to the shareholders of the Company for voting. Each share of Series C Preferred
Stock entitles the holder to such number of votes on each such matter as shall
equal the number of shares of Common Stock into which such Series C Preferred
Stock is convertible on the record date with respect to such matter. In
addition, approval of holders of a majority of the outstanding Series C
Preferred Stock will be required prior to the Company's issuing any shares of a
class of preferred stock that rank pari passu with or senior to the Series C
Preferred Stock. Except that the Company may issue up to an aggregate of $90
million of Series C Preferred Stock, Series C Preferred Stock and preferred
stock ranking pari passu with the Series C Preferred Stock without the approval
of any holders of Series C Preferred Stock. The Company may not amend or alter
any of the preferences of the Series C Preferred Stock without the approval of
the holders of a majority of the outstanding Series C Preferred Stock.
At any time after November 1, 2005, the Series C Preferred Stock may be
redeemed at the option of the Company from time to time, in whole or in part,
upon not less than 30 days' notice to each registered holder of the Series C
Preferred Stock at a redemption price equal to the Liquidation Preference on the
date of redemption. Holders of Series C Preferred Stock will have the option to
convert such Series C Preferred Stock into shares of Common Stock prior to the
redemption. The Company does not intend to establish a sinking fund or
<PAGE>
otherwise set aside any amounts for the redemption of the Series C Preferred
Stock.
On November 1, 2008, the Company will redeem each outstanding share of
Series C Preferred Stock, out of funds legally available for such redemption, at
a redemption price equal to its Liquidation Preference on the date of
redemption. Holders of shares of Series C Preferred Stock will have the option
to convert such Series C Preferred Stock into shares of Common Stock prior to
the redemption.
At no time will the Company purchase or redeem any Series C Preferred
Shares unless the assets of the Company remaining after such redemption and any
corresponding reduction in capital, if any, are sufficient to pay any debts of
the Company for which payment has not been otherwise provided, or as may
otherwise be limited by applicable North Carolina law. However, the Company will
redeem all Series C Preferred Stock duly tendered for redemption as soon
thereafter as such redemption may be permitted by applicable North Carolina law.
To the extent that redemption of less than all of the Series C Preferred Stock
duly tendered for redemption is permitted, the Company will redeem such shares
(together with the Series A Preferred Stock) on a pro rata basis.
The number of shares of the Common Stock for which the warrants issued
in the private offering are exercisable and the exercise price are subject to
adjustment upon the occurrence of certain events, including if the Company
issues additional common stock without consideration or at a price less than the
exercise price (except in certain circumstances) and if the Company declares and
pays on shares of its Common Stock a dividend payable in shares of Common Stock
or splits the then outstanding shares of common stock into a greater number of
shares.
During the first quarter of 2000, the Company issued additional units
in the private offering for total proceeds of approximately $6.7 million.
Included in the additional units were 67,210 shares of Series C Preferred Stock
and warrants to purchase approximately 480,000 shares of Common Stock of the
Company at $14.00 per share. As of March 27, 2000 the Company had outstanding
137,330 shares of Series C Preferred Stock held by 54 shareholders of record.
Such shareholders held warrants to purchase an aggregate of approximately
980,900 shares of Common Stock at $14.00 per share.
<PAGE>
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
The following selected consolidated financial data of the Company are
qualified by reference to, and should be read in conjunction with, Part II, Item
8. "Financial Statements and Supplementary Data -- Consolidated Financial
Statements," including notes thereto, and Part II, Item 7. "Management's
Discussion and Analysis of Financial Condition and Results of Operations." In
February 1997, the Company elected to change its fiscal year end from the last
Saturday in September to December 31, effective December 31, 1996. For
comparability purposes, the following summary consolidated financial data of the
Company for the year ended 1996 has been restated into a comparable twelve-month
period ended December 31, 1996. The consolidated financial data for the years
1994 through 1997 have been derived from audited consolidated financial
statements.
<TABLE>
<CAPTION>
Three Month Fiscal Years Ended
Period Ended -------------------
Year Ended December 31, December 31, Sept. 30, Sept. 30,
--------------------------------------- ------------------ ------------- -------------
1999 1998 1997 1996 1996 1995 1996 1995 1994
---- ---- ---- ---- ---- ---- ---- ---- ----
(UNAUDITED) (UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Consolidated Income Statement Data:
Gross sales........................... $ 7,706 $ 7,082 $ 1,672 $ 823 $ 408 $ 78 $492 $ 255 $6
Less: Retailer reimbursements........ (2,610) (2,489) (964) (482) (240) (45) (287) (144) (4)
------- ------- ----- ----- ----- ---- ----- ----- ---
Net sales.......................... 5,096 4,593 708 341 168 33 205 111 2
------- ------- ----- ----- ----- ---- ----- ----- ---
Operating Expenses:
Direct costs....................... 9,538 10,216 5,784 3,030 939 275 2,298 903 262
Selling, general and
administrative expenses............ 28,623 29,169 26,352 8,468 3,077 1,453 6,911 3,391 1,973
Depreciation and amortization of
intangibles........................ 9,687 7,459 3,934 1,201 468 88 821 191 32
------- ------- -------- -------- ------- ------- ------- ------- ------
Total operating expenses............ 47,848 46,844 36,070 12,699 4,484 1,816 10,030 4,485 2,267
------- ------- -------- -------- ------- ------- ------- ------- ------
Operating loss........................ (42,752) (42,251) (35,362) (12,358) (4,316) (1,783) (9,825) (4,374) (2,265)
------- ------- -------- -------- ------- ------- ------- ------- ------
Other income (expense)
Interest income.................... 267 1,338 3,892 2,251 1,249 7 1,009 35 9
Interest expense................... (23,582) (21,147) (18,033) (6,948) (4,263) (58) (2,743) (187) (88)
Other expense...................... 2 -- (301) -- -- -- -- -- --
------- ------- -------- -------- ------- ------- ------- ------- ------
Total other expense................ (23,313) (19,809) (14,442) (4,697) (3,014) (51) (1,734) (152) (79)
------- ------- -------- -------- ------- ------- ------- ------- ------
Loss from operations before
extraordinary item and income
taxes.............................. (66,065) (62,060) (49,804) (17,055) (7,330) (1,834) (11,559) (4,526) (2,344)
Income taxes.......................... -- -- (10) -- -- -- -- -- --
------- ------- -------- -------- ------- ------- ------- ------- ------
Net loss.before extraordinary item (66,065) (62,060) (49,814) (17,055) (7,330) (1,834) (11,559) (4,526) (2,344)
Extraordinary item-gain on
extinguishment/restructuring of debt.. 4,213 -- -- -- -- -- -- -- --
------- ------- -------- -------- ------- ------- ------- ------- ------
Net Loss (61,852) (62,060) (49,814) (17,055) (7,330) (1,834) (11,559) (4,526) (2,344)
Preferred stock dividends accrued..... (7,752) (354) -- -- -- -- -- -- --
------- ------- -------- -------- ------- ------- ------- ------- ------
Net loss attributable to Common Stock $(69,604) $(62,414) $(49,814) $(17,055) $(7,330) $(1,834) $(11,559) $(4,526) $(2,344)
========= ========= ========= ========= ======== ======== ========= ======= =======
Loss Per Common Share Basic and
diluted............................ $(9.00) $(8.08) $ (6.48) $(2.46) $ (0.96) $(0.44) $(1.91) $(1.27) $(0.83)
======== ======== ======== ======== ======== ======= ========== ======= ======
Weighted average number of common shares:
Basic and Diluted.................. 7,731 7,729 7,692 6,939 7,669 4,126 6,038 3,556 2,830
Other Data: (in whole numbers)
Installed terminals at end
of period........................ 3,898 2,728 1,840 623 623 96 614 62 7
Installed stores at end of period.. 2,338 1,845 1,148 335 335 51 328 25 3
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, SEPT. 30, SEPT. 30,
--------------------------------------- ------------ -------------
1999 1998 1997 1996 1996 1995 1994
---- ---- ---- ---- ---- ---- ----
(DOLLARS IN THOUSANDS)
CONSOLIDATED BALANCE SHEET DATA:
<S> <C> <C> <C> <C> <C> <C> <C>
Working capital (deficit)................. $ 627 $ 7,006 $ 38,478 $ 86,370 $ 91,835 $ (753) $ 63
Total assets.............................. 55,113 60,491 81,023 106,054 107,757 2,178 644
Total debt................................ 74,155 117,373 91,406 77,095 72,923 2,042 1,893
Common stock purchase warrants(1)......... 11,367 27,436 27,436 24,464 24,464 -- --
Stockholder's equity (deficit)............ (105,692) (92,555) (48,432) 643 7,934 (910) (1,417)
</TABLE>
<PAGE>
- ---------
(1) Reflects the effect of the valuation of the warrants issued in the Private
Placement, which are exercisable for 9.429 shares of Common Stock per
warrant. The exercise price of $.01 per share was deemed to have been paid
at the time of issuance. See Notes 6 and 8 to the Notes to Consolidated
Financial Statements.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following should be read in conjunction with the Consolidated
Financial Statements of the Company and the Notes thereto, and other financial
information 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. Factors that could cause or contribute to such
differences include, but are not limited to, those discussed in " -- Risk
Factors" and elsewhere in this report.
The Company believes it operates the world's largest fully electronic
marketing network linked to supermarket and pharmacy retailers' point-of-sale
("POS") databases that serves on-line promotions and advertisements to shoppers
seamlessly in-store, at home and in the office. The Company's patented
technologies enable consumer products manufacturers ("Manufacturers") and
supermarket retailers ("Retailers") to use historical purchase behavior data to
develop targeted purchase incentives and messages which the Company delivers to
customers before shopping begins. The Company's proprietary system, called the
Inter*Act e-Marketing Network'sm' ("IEMN"), currently comprises approximately
4,000 server-based terminals located inside the front entrance of more than 20
retail chains in the U.S. and Europe, as well as a recently launched
Company-owned Internet web site called ShopperPerks.com'sm' The Company's web
site and its in-store ShopperPerks'TM' portals, are linked directly to each
store's point-of-sale scanning system via Company-owned in-store servers. This
on-line network gives Inter*Act's business partners exclusive access to offer
all shoppers (whether Internet users or not) same-day, personalized savings
that are electronically downloaded to participating retailers' cash register
systems. Delivering highly targeted, pre-shopping promotions on the IEMN
historically has generated average consumer response, or redemption, rates
above 25%, which the Company believes is superior to the response rate of any
other marketing or advertising medium in the industry.
During, 1997, 1998 and to a limited extent in 1999, the Company
recognized revenue as electronic discounts were redeemed at store cash
registers. Manufacturers paid a fee to the Company for each redemption. The
fee was composed of (i) a retailer processing fee, (ii) a redemption fee and
(iii) the face value of the coupon. The Company, in turn, passed through both
the retailer processing fee, which was included in direct operating expenses,
and the face value of the coupon to the Retailer, while retaining the redemption
fee. The Company recorded as net sales the redemption fee and the retailer
processing fee paid by the Manufacturers.
Beginning in 1998 and through 1999, the Company also had arrangements
with Manufacturers whereby the Company received a fixed payment over a fixed
period, generally one year. In these cases, the Company recognizes revenue on a
ratable basis over the fixed period during which it is providing service or
exclusivity to such Manufacturers, as well as the retailer processing fee paid
by the Manufacturers. The Company believes that the number of Manufacturer
promotions on the IEMN declined and its sales revenue increased less than
anticipated because of the introduction of this pricing format and resistance to
promoting, at a higher expenditure level, on the IEMN among Manufacturers that
wish to use a system installed in more stores and chains.
Starting in 2000, the Company will be receiving variable fees from
Manufacturers for each product redeemed and fixed fees for project management of
each promotion. The Company will recognize revenue as electronic discounts are
redeemed at the store cash register and, for the project management fee, on a
ratable basis over the fixed period over which it is providing services or
exclusivity to such Manufacturers. The Company believes that more Manufacturers
will agree to promote more products on the IEMN with this new pricing format,
since the cost per product sold is expected to be lower, but there is no
assurance that this will be the case.
Certain Manufacturers pay the Company in advance for a portion of
anticipated redemptions or a portion of the fixed contract amount, as applicable
and these amounts are recorded as deferred revenue until earned through
redemption activity during the contract period.
Direct costs of the Company consist of such expenditures for direct
store support, paper used in the terminals 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
<PAGE>
on promotions offered on the IEMN that are not funded by a Manufacturer
contract. Manufacturer participation in the IEMN to date has been characterized
by a substantial number of trial commitments leading to increasing dollar
commitments to the IEMN from those Manufacturers as the network approaches a
more national footprint. 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 not generated significant operating revenue
relative to its expenses, 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 $105.7 million as of December 31, 1999 and
has incurred losses of $69.6 million, $62.4 million, and $49.8 million
for the years ended December 31, 1999, 1998 and 1997, respectively. The Company
expects to incur substantial additional costs to install additional ShopperPerks
portals in retail supermarket stores and to sponsor selected promotions to
demonstrate the utility of the IEMN to consumers, Retailers and Manufacturers.
The Company expects to incur net losses in 2000 and may operate at a loss for
the foreseeable future. There can be no assurance that the Company will
achieve profitability or, if achieved, sustain such profitability.
YEAR ENDED DECEMBER 31, 1999 COMPARED WITH YEAR ENDED DECEMBER 31, 1998
The Company had installed 3,898 terminals in 2,338 stores as of
December 31, 1999 as compared to 2,728 terminals in 1,845 stores as of December
31, 1998. The number of terminals and number of stores with terminals increased
as of December 31, 1999 as compared to 1998 largely as a result of the Company's
rollout of terminals in the United Kingdom. This was partially offset by a large
retailer closing stores in the United States on the East Coast and concerns by
Retailers over installing new technology during the second half of 1999 due to
Y2K issues.
Manufacturers promoting on the IEMN system during the 1999 and 1998
periods decreased to approximately 67 from 100, respectively, while total
products promoted decreased to approximately 115 from 270, including the
European Manufacturers and products. The Company believes that the number of
Manufacturer promotions on the IEMN declined and its sales revenue increased
only slightly due to the introduction of the fixed fee, annual contract pricing
format and resistance to promoting at a higher expenditure level on the IEMN
among Manufacturers that wish to use a system installed in more stores and
chains. Net sales during the year ended December 31, 1999 increased to $5.1
million from $4.6 million in 1998, primarily as a result of the larger installed
base of ShopperPerks portals, and the higher amount of consumer redemptions per
promotion run by key manufacturers as the network approaches a more national
footprint in both the U.S. and U.K.
Operating loss for the year ended December 31, 1999 was $42.8 million
versus an operating loss of $42.3 million in 1998. The increased loss was
primarily due to higher depreciation and amortization expense, partially offset
by reduced direct and selling, general and administrative costs. Depreciation
and amortization expense increased by $2.2 million reflecting the addition of
approximately $11.8 million for the installation of 2,262 and deinstallation of
400 terminals and intellectual property acquired during 1999. Direct costs
decreased $0.7 million due to cost cutting programs implemented during the year,
reducing the costs associated with operating terminals installed in 1999.
Non-paid promotions, which the Company historically has used to stimulate
customer usage, have been curtailed significantly in 1999 as the Company has
been able to offer products on its terminals which were paid for by
Manufacturers. Non-paid promotions declined from $4.7 million in 1998 to
$1.8 million in 1999. While the Company believes non-paid promotions will
continue to be a valuable tool, it expects non-paid promotions to continue to
decline as the network has a greater national footprint in the future.
Net losses for the years ended December 31, 1999 were approximately
$61.8 million compared to $62.1 million in 1998. The net loss before the
extraordinary item for the year ended December 31, 1999 increased to $66.1
million from $62.1 million in 1998, primarily due to higher operating losses of
$0.5 million, increased non-cash interest expense of $2.4 million and decreased
interest income of $1.1 million. Interest income of $0.3 million for 1999
reflects a decreased average cash balance during 1999 compared to 1998. Non-cash
interest expense of $23.6 million during the year ended December 31, 1999
reflects the interest expense related to the Company's issuance of $142 million
of 14% Senior Discount Notes in 1996 for which the Company received net proceeds
of $90.8 million. The extraordinary gain of $4.2 million reflects a gain of $1.7
million for repurchase of notes in March 1999 and a $2.5 million gain for
restructuring of the 14% Senior Discount Notes in December 1999. (See " --
Liquidity and Capital Resources").
YEAR ENDED DECEMBER 31, 1998 COMPARED WITH YEAR ENDED DECEMBER 31, 1997
The Company had installed 2,728 terminals in 1,845 stores as of
December 31, 1998 as compared to 1,840 terminals in 1,148
<PAGE>
stores as of December 31, 1997.
Manufacturers promoting on the IEMN system during the 1998 and 1997
periods, increased to approximately 100 from 52, respectively, while total
products promoted increased to approximately 270 from 116, including the
European Manufacturers and products for 1998. Net sales during the year ended
December 31, 1998, increased to $4.6 million from $708,000 in 1997, primarily as
a result of the larger installed base of ShopperPerks portals, and the increased
number of promotions run by key manufacturers as the network approaches a more
national footprint.
Operating loss for the year ended December 31, 1998 was $42.3 million
versus an operating loss of $35.4 million in 1997. The increased loss was
primarily due to higher depreciation and amortization expense, direct costs and
employee costs. Depreciation and amortization expense increased by $3.5 million
reflecting the addition of approximately $15.9 million in intellectual property
acquired and installation of 888 terminals during 1998. Direct costs increased
$4.4 million due to the costs associated with operating terminals installed in
1999, the full year costs related to terminals installed in 1998 and increased
retailer processing fees associated with the increased promotions during the
year. Employee costs increased as its number of employees grew 32%. Non-paid
promotions, which the Company historically has used to stimulate customer usage,
have been curtailed significantly in 1998 as the Company has been able to offer
a full range of products on its terminals which were paid for by Manufacturers.
Non-paid promotions declined from $6.3 million in 1997 to $4.7 million in 1998.
While the Company believes non-paid promotions will continue to be a valuable
tool, it expects non-paid promotions to continue to decline as the network has a
greater national footprint in the future.
Net loss for the year ended December 31, 1998 increased by
approximately $12.3 million from $49.8 million in 1997 period to $62.1 million
primarily due to higher operating losses of $6.9 million, increased non-cash
interest expense of $3.1 million and decreased interest income of $2.6 million.
Non-cash interest expense of $21.1 million during the year ended December 31,
1998 reflects the interest expense related to the Company's issuance of $142
million of 14% Senior Discount Notes in 1996 for which the Company received net
proceeds of $90.8 million (See " -- Liquidity and Capital Resources"). Interest
income of $1.3 million for 1998 reflects a decreased average cash balance during
1998 compared to 1997.
LIQUIDITY AND CAPITAL RESOURCES
At December 31, 1999, the Company had net working capital of $0.6
million, compared to working capital of $7.0 million at December 31, 1998. Total
cash and cash equivalents at December 31, 1999 and 1998 was $9.9 million and
$14.2 million, respectively. The Company's current level of indebtedness was
$74.2 million at December 31, 1999, representing long-term debt of $68.0 million
resulting from the issuance of debt securities, capital lease obligations and
accrued dividends on the Series B Preferred Stock as well as current debt of
approximately $6.1 million from the purchase of intellectual property due to be
repaid on June 1, 2000, and capital lease obligations.
Cash used in operating activities during the year ended December 31,
1999 was $30.4 million, as compared to $38.4 million and $22.2 million for the
years ended December 31, 1998 and 1997, respectively. Cash has been used
primarily for the development of the Company's IEMN technology, test marketing
and deploying the product and compensation of personnel.
Cash used in investing activities during the year ended December 31,
1999, was $11.8 million, reflecting disbursements for net capital expenditures.
Such net capital expenditures were primarily for IEMN equipment and components,
fixtures, furniture and equipment for expansion in Europe, and other equipment.
For the years ended December 31, 1998 and 1997, cash used in investing
activities was $10.2 million and $20.9 million, respectively, primarily
reflecting disbursements for net capital expenditures. During 1999, the Company
installed approximately 1,170 ShopperPerks portals in approximately 493 stores
in the United States and the United Kingdom. The Company estimates that its
capital expenditures during 2000 will be approximately $10.0 to $20.0 million,
depending on the extent to which Retailers participate in the purchase of IEMN
equipment and the availability of third-party equipment financing, to be used
primarily for IEMN equipment purchases.
Net cash provided by financing activities during the years ended
December 31, 1999 and 1998 was $37.9 million and $17.6 million, respectively,
resulting primarily from the net proceeds from private offerings of preferred
stock. No cash was provided by financing activities during the year ended
December 31, 1997.
Since its inception in 1993, the Company has generated revenue well
below its expenses, primarily related to the development of its IEMN technology,
test marketing and deploying the product and compensation of personnel. To date,
the Company has funded its operations through private sales of equity and debt
securities. The Company will require additional equity or debt financing to fund
capital expenditures, working capital requirements and operating losses to be
incurred in connection with the increased commercialization of its IEMN.
From inception through December 31, 1999, the Company's shareholders
have contributed approximately $166.2 million
<PAGE>
of equity to the Company through private offerings of common stock, the
conversion of approximately $2.0 million in stockholder debt to common stock and
private offerings of the preferred stock.
The private offerings of common stock and conversion of stockholder
indebtedness occurred primarily from inception through 1996. During the year
ended December 31, 1997, the Company issued an aggregate of 60,000 shares of
common stock in exchange for intellectual property and services. No common stock
was issued during the year ended December 31, 1998. The Company issue
approximately 15,000 shares of common stock in exchange for services during the
year ended December 31, 1999.
In 1996, the Company consummated a private offering of debt securities
(the "Private Placement") 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 "Discount Notes") and warrants (the "Discount Note Warrants") to purchase
initially an aggregate of 1,041,428 shares of common stock of the Company at
$.01 per share. As required by the Warrant Purchase Agreement, the Discount Note
Warrants were adjusted effective September 30, 1997 to entitle the respective
holders to purchase an aggregate of 1,338,918 shares of common stock at $.01 per
share because the Company had not completed a qualifying initial public
offering. Accordingly, 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 Company
exchanged for the outstanding Discount Notes issued in the Private Placement new
and identical Discount Notes that were registered under the Securities Act of
1933, as amended, and that do not bear legends restricting their transfer. The
first interest payment on the Discount Notes in the amount of $8.7 million was
scheduled to be paid in February 2000.
In March 1999, the Company repurchased a portion of the Discount Notes
with an aggregate face value of approximately $2.4 million, for an aggregate of
$194,000 in cash. The Discount Note Warrants originally issued in connection
with the issuance of these Discount Notes were not repurchased by the Company
and continue to be outstanding. This repurchase of Discount Notes resulted in an
extraordinary gain on extinguishment of debt of $1.7 million. In October 1999,
the Company repurchased additional Discount Notes with a face value of
approximately $15.0 million for an aggregate of $3.0 million in cash. Discount
Note Warrants to purchase 141,435 shares of the Company's common stock
originally issued in connection with the issuance of these Discount Notes were
also repurchased by the Company in this transaction at no additional cost. In
December 1999, the $15.0 million of Discount Notes and related Discount Note
Warrants repurchased in October 1999 were resold by the Company for $3.0 million
cash. See Part III, Item 13 "Certain Relationships and Related Transactions."
In December 1999, the Company completed an exchange offer (the
"Exchange Offer") of 14% Senior Pay-in-Kind Notes Due 2003 of Inter*Act
Operating Co., Inc., a wholly owned subsidiary of the Company (the "PIK Notes"),
14% Series B Senior Mandatorily Redeemable Convertible Preferred Stock of the
Company (the "Series B Preferred Stock") and common stock purchase warrants (the
"Exchange Offer Warrants") for its outstanding Discount Notes. In the Exchange
Offer, each holder of $1,000 principal amount of Discount Notes received $500
principal amount of PIK Notes, one share of Series B Preferred Stock having an
initial liquidation preference of $500 and one Exchange Offer Warrant to
purchase 17.96 shares of common stock for an exercise price of $.01. Because
100% of the outstanding Discount Notes (other than those held by the Company)
were tendered in the Exchange Offer, the issuer of the PIK Notes, Inter*Act
Operating Co., Inc., merged with and into its parent, the Company, on
December 30, 1999. Consequently, the PIK Notes are direct obligations of the
Company.
The PIK Notes mature on August 1, 2003 and accrue interest at a rate of
14% per annum from and after August 1, 1999, payable semiannually on February 1
and August 1 of each year, beginning February 1, 2000. The Company may, at its
option, elect not to make interest payments in cash prior to the date that is 18
months following the earlier of an initial public offering of the Company's
common stock or a Change in Control (as defined in the Indenture governing the
PIK Notes). To the extent that the Company does not pay interest in cash, the
interest accrued on the PIK Notes will be paid by the issuance of additional
promissory notes, which will have substantially the same terms, including date
of maturity and interest rate, as the PIK Notes.
As a result of the Exchange Offer, the Company's long-term debt at
December 31, 1999 was $68.0 million, reflecting a decrease in long-term debt of
$43.8 million as compared to long-term debt of $111.8 million at December 31,
1998. Further, the Exchange Offer resulted in an extension of the scheduled cash
interests payments until February 2003.
In May 1998 the Company issued, in connection with the acquisition of
certain intellectual property, a note payable. This note, which was amended in
June 1999, bears interest currently at 10.0% per year on the $5.7 million
principal balance and is payable on June 1, 2000. If, prior to the maturity of
this note, the Company completes a qualifying initial public offering of Common
Stock or consummates a change of control, the then-outstanding principal balance
and accrued interest would be convertible into shares of the Company's common
stock at a conversion price of $8.50 per share, which management believes
represents the fair value of the Company's Common Stock at the time of the June
1999 amendment. This note is reflected as a current liability in the Company's
consolidated balance sheet as of December 31, 1999.
<PAGE>
The Company's first private offering of preferred stock began in July
1998 when the Board of Directors authorized the sale of up to $40 million of 10%
Series A Mandatorily Convertible Preferred Stock (the "Series A Preferred
Stock"), first to the Company's shareholders and then to other investors at a
price of $100 per share. The Series A Preferred Stock originally offered was
convertible into common stock at a conversion rate of $10.00 per share of common
stock. As of December 31, 1998, the Company had issued and sold 177,878 shares
of Series A Preferred Stock for gross proceeds of approximately $17.8 million.
Of such proceeds, $17.7 million was received in cash and $1.0 million was
exchanged for outstanding accounts payable. Accrued dividends, payable in Series
A Preferred Stock, were approximately $354,000 as of December 31, 1998.
In March 1999, the Board of Directors and shareholders of the Company
approved certain changes to the Series A Preferred Stock and the Board increased
the aggregate offering of Series A Preferred Stock to $70 million. Such changes
consisted of (i) a reduction in the conversion price from $10.00 to $8.50 per
share of common stock into which each share of Series A Preferred Stock is
convertible, (ii) an increase in the number of votes per share of Series A
Preferred Stock from 10 to the number of shares of common stock into which it is
convertible (initially 11.7647), (iii) accrual of dividends on the Series A
Preferred Stock semi-annually, as opposed to quarterly, to be paid only in
shares of Series A Preferred Stock and (iv) the addition of anti-dilution
provisions. Such changes are applicable to all shares of Series A Preferred
Stock issued prior to the effective date of the changes and all additional
shares of Series A Preferred Stock issued in the private offering. During the
fiscal year ended December 31, 1999, the Company issued and sold 320,990 shares
of Series A Preferred Stock at a price of $100 per share for total cash proceeds
of approximately $32.1 million, all of which were received in cash. Accrued
dividends, payable in Series A Preferred Stock, were $4.0 million as of December
31, 1999.
In December 1999, the Company issued to tendering holders of the
Company's Discount Notes in the Exchange Offer described above 139,575 shares of
14% Series B Senior Mandatorily Redeemable Convertible Preferred Stock ("Series
B Preferred Stock"), all of which were issued and outstanding as of
December 31, 1999. The shares of Series B Preferred Stock have a liquidation
preference of $500.00 per share and rank senior, as to dividends and liquidation
preference, to all other classes of the Company's capital stock. Dividends on
the Series B Preferred Stock accrue from August 1, 1999, at the rate of 14% per
annum of the liquidation preference (determined as of the respective dividend
payment date) per share, payable semi-annually on the first day of February and
August of each year, commencing on February 1, 2000, and are cumulative to the
extent unpaid. Accrued dividends on the Series B Preferred Stock were
$4.1 million as of December 31, 1999.
In December 1999, the Company's Board of Directors designated an
additional series of preferred stock, the 10% Series C Mandatorily Redeemable
Convertible Preferred Stock ("Series C Preferred Stock") and authorized the
issuance and sale in a private offering up to 250,000 units consisting of one
share of Series C Preferred Stock and one warrant to purchase approximately 7.14
shares of the Company's common stock at a price of $14.00 per share. As of
December 31, 1999, 70,120 units had been issued and sold for total proceeds of
approximately $7.0 million, all of which were received in cash. The shares of
Series C Preferred Stock have a liquidation preference of $100.00 per share and
rank, as to dividends and liquidation preference, equal to the Series A
Preferred Stock, junior to the Series B Preferred Stock and senior to the
Company's common stock. Dividends on the Series C Preferred Stock are payable
only in shares of Series C Preferred Stock and accrue from the date of issuance,
at the rate of 10% per annum of the liquidation preference, payable
semi-annually on the first day of March and September of each year, commencing
on the last day of March and September of each year, and are cumulative to the
extent unpaid. Accrued dividends, payable in Series C Preferred Stock, were
$0.03 million as of December 31, 1999.
During the first quarter of 2000, the Company issued 67,210 additional
units in this private offering for total proceeds of approximately $6.7 million.
Included in the additional units were 67,210 shares of Series C Preferred Stock
and warrants to purchase an additional 480,070 shares of common stock of the
Company at $14.00 per share.
The Company will require additional equity or debt financing to fund
capital expenditures, working capital requirements and operating losses to be
incurred in connection with the increased commercialization of its IEMN. In
1999, the Company entered into an agreement with a leasing company to lease up
to $3.0 million of terminals and related equipment in the U.S., with a right of
first refusal on up to $10.0 million in additional lease financing. The Company
is working with its leasing source and other third parties to secure additional
lease financing for the purchase of IEMN equipment in the United States and
Europe. In addition, the Company is negotiating with private investors for
additional equity and debt capital. There is no assurance that such additional
equipment financing or additional capital can be obtained. If additional funds
are raised through the issuance of equity securities, shareholders may
experience 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.
If the Company is unsuccessful in raising the required additional
capital or equipment or other debt financing, the Company would be
<PAGE>
unable to continue its planned IEMN installations, expand either the number and
dollar amount of Manufacturer commitments, respond to competitive pressures, or
continue its business operations as presently conducted, any of which could have
a material adverse effect on the Company's results of operations and financial
condition. In the event that the Company is only partially successful, however,
the Company believes that existing cash and cash equivalents, cash received from
sales of preferred stock since December 31, 1999 and reduced or delayed
operating and capital expenditures will be sufficient to meet the Company's
operating requirements only until the second quarter of 2001.
RISK FACTORS
The information contained in this report should be read in conjunction
with the following factors.
LIMITED OPERATING HISTORY; SIGNIFICANT LOSSES; ACCUMULATED DEFICIT; FUTURE
LOSSES
The Company was incorporated in February 1993 and has concentrated its
efforts on the development, testing and deployment of the IEMN, on capital
formation and on the recruitment of management and other key employees.
Accordingly, the Company has a limited operating history upon which an
evaluation of the Company and its prospects can be based. To date, the Company
has generated minimal operating revenue relative to its expenses, has incurred
significant losses and has experienced substantial negative cash flow from
operations. The Company had an accumulated stockholders' deficit of $105.7
million as of December 31, 1999 and has incurred net losses of $69.6 million and
$62.4 million for the years ended December 31, 1999 and 1998, respectively. The
Company expects to incur substantial additional costs to install and operate
additional ShopperPerks portals and to sponsor selected promotions to
demonstrate the utility of the IEMN to consumers, Retailers and Manufacturers.
The Company expended $2.4 million and $4.5 million for the years ended December
31, 1999 and December 31, 1998, respectively, to sponsor promotions. The Company
will incur net losses in fiscal 2000 and may operate at a loss for the
foreseeable future. There can be no assurance that the Company will ever be able
to achieve profitability or, if achieved, sustain such profitability.
The Company's prospects must be considered in light of the risks,
expenses and difficulties frequently encountered by companies in the early
stages of their development. To address these risks, the Company must, among
other things, effectively manage any growth that may occur, successfully
commercialize its product by securing new and renewal commitments from
Manufacturers, respond to competitive developments and attract and retain
management and other key personnel.
ABILITY TO OBTAIN BRAND CONTRACTS; LENGTHY SALES CYCLE
All or substantially all the Company's revenue is expected to be
derived for the foreseeable future from fees paid by Manufacturers that promote
products on the IEMN. However, many Manufacturers currently participating in the
IEMN are doing so at relatively low promotional dollar commitments to test the
IEMN's effectiveness. Accordingly, the Company's future success will depend
substantially on its ability to establish, maintain and expand relationships
with Manufacturers to promote their products using the IEMN. Moreover, it is
critical that the Company obtain additional commitments from Manufacturers of
major brands in the most popular consumer product categories, as it has recently
done with Procter & Gamble and General Mills, and to develop long-term
relationships with these Manufacturers in order to ensure that an appropriate
mix of products is displayed on the IEMN.
In addition, the Company has experienced a lengthy sales cycle in
marketing the IEMN to Manufacturers. In most cases, the time between initial
contact with the Manufacturer and the execution of the final contract, if any,
exceeds five months. The Company could fail to obtain such commitments or could
experience substantial delays in obtaining such commitments, and, once such
commitments are received, the Company could fail to maintain relationships
through renewal contracts. There can be no assurance that the Company will
obtain additional commitments on a timely basis from any Manufacturers and
maintain long-term relationships with these Manufacturers to participate in the
IEMN. Even if the Company obtains initial commitments from additional major and
other Manufacturers, these contracts typically have had short-term durations,
and there can be no assurance that such Manufacturers will make the IEMN a
component of their long-term promotional strategies. Any of the foregoing events
could result in the Company incurring substantially greater losses for a longer
period than expected and could have a material adverse effect on the Company's
business, results of operations and financial condition. As a result, even
short-term difficulties in implementing its strategies could have a material
adverse effect on its results of operations and financial condition.
In order to enhance its prospects of enrolling Manufacturers in the
IEMN, the Company has elected in the past, and expects to elect in the future,
to sponsor from time to time, at its own cost, selected product promotions in
certain stores to continue to demonstrate the effectiveness of the IEMN. Since
these promotional expenditures are classified as selling, general and
administrative expenses and are incurred to attract Manufacturers and enhance
future revenue, the Company's current losses will be increased in the period of
the expenditures and, if the expected future revenue does not materialize,
liquidity difficulties currently experienced by the Company could become more
significant. See " -- Limited Operating History; Significant Losses; Accumulated
Deficit; Future
<PAGE>
Losses."
UNCERTAINTY OF MARKET ACCEPTANCE
Because the utility and the ultimate attractiveness of the IEMN to
Manufacturers are substantially dependent on the number of shoppers using the
system, the number of stores in which the Company has installed its IEMN
significantly affects its revenue generation potential. The Company's
profitability and the success of its growth plans will be significantly affected
by its ability to contract with additional Retailers for the installation of the
IEMN and to install the system in such stores in a rapid and orderly manner.
While the Company has contractual commitments from 19 supermarket chains and one
pharmacy chain in the U.S. and Europe as of March 1, 2000, there can be no
assurance that Retailers who currently, or in the future, have ShopperPerks
portals installed or are connected to the ShopperPerks web site will retain the
IEMN in their stores or that the Company will be able to continue to increase
the number of stores in which the IEMN is installed.
The Company also is dependent on the level of general acceptance and
usage by consumers. Consumer acceptance and usage are dependent on many factors,
such as actual and perceived ease of use, access to terminals during peak
shopping periods, reliability of the Company's IEMN and perceived attractiveness
of the product offerings of the IEMN. There can be no assurance that an adequate
number of consumers will use the IEMN at a level sufficient to support the IEMN
on an ongoing basis or at a level that will attract additional Manufacturers.
Inasmuch as demand by Manufacturers, Retailers and consumers is
substantially interrelated, any significant continuous lack or lessening of
demand by any one of these constituencies could have an adverse effect on
overall market acceptance. See Part I, Item 1. "Business -- Business Strategy."
MANAGEMENT OF GROWTH
The Company's rapid growth has placed, and is expected to continue to
place, significant pressure on the Company's managerial, operational and
financial resources. To manage its growth, the Company must continue to
strengthen its management, implement and improve its operational and financial
systems and expand, train and manage its employee base. The Company also will be
required to develop and manage multiple relationships with various customers,
business partners and other third parties. The Company's systems, procedures or
controls may not be adequate to support the Company's operations and Company
management may not be able to achieve the rapid expansion necessary to exploit
potential market opportunities for the Company's products and services. Any
significant problems in the Company's commercialization of the IEMN could create
a negative image in the consumer product promotion and discounting business that
may be impossible to overcome. The Company's future operating results will also
depend on its ability to expand its sales and marketing and research and
development organizations, to implement and manage new distribution channels to
penetrate markets and to expand its support organization. The Company's failure
to manage growth effectively will have a material adverse effect on the
Company's business, operating results and financial condition.
RISKS RELATING TO SUBSTANTIAL LEVERAGE AND DEBT SERVICE OBLIGATIONS
The Company is highly leveraged with indebtedness that is substantial
in relation to its stockholders' equity. As of December 31. 1999, the Company
had an aggregate of $74.2 million of indebtedness and stockholders' deficit of
$105.7 million. See Part II, Item 6. "Selected Consolidated Financial Data.".
The Company's high degree of leverage could have important consequences
including but not limited to the following: (i) the Company's ability to obtain
additional financing for capital expenditures, working capital, general
corporate purposes or other purposes (including potential acquisitions) may be
impaired in the future; and (ii) the Company's flexibility to adjust to changing
market conditions and ability to withstand competitive pressures could be
limited, and the Company may be more vulnerable to a downturn in general
economic conditions of its business, or be unable to carry out capital spending
that is important to its growth strategy.
The Company recently restructured certain indebtedness. See--"Liquidity
and Capital Resources." The Company has a note payable in the amount of
approximately $5.7 million in connection with the acquisition of certain
intellectual property. The note principal, together with accrued interest
payable at 10% per year as restructured in 1999, is payable on June 1, 2000.
The Company's ability to make scheduled payments or to refinance its
obligations with respect to this note and its other indebtedness will ultimately
depend on its financial and operating performance, which in turn is subject to
prevailing economic and competitive conditions and to certain financial,
business and other factors that may be beyond its control, including operating
<PAGE>
difficulties, increased operating costs, product prices, the response of
competitors, regulatory developments and delays in implementing its strategy.
The Company's ability to meet its debt service and other obligations will depend
on the extent to which the Company can implement successfully its business
strategy of achieving large-scale commercialization of the IEMN. There can be no
assurance that the Company will be able to implement fully its strategy or that
the anticipated results of its strategy will be realized. See Part I, Item 1.
"Business -- Business Strategy."
If the Company's cash flow and capital resources are insufficient to
fund its debt service obligations, the Company may be forced to reduce or delay
capital expenditures, sell assets, seek to obtain additional equity capital, or
restructure its debt. There can be no assurance that the Company's cash flow and
capital resources will be sufficient for payment of interest on and principal of
its indebtedness in the future, or that any such alternative measures would be
available at reasonable costs or would permit the Company to meet its scheduled
debt service obligations. In the absence of adequate operating results and/or
capital resources, the Company could face substantial liquidity problems and
might be required to dispose of material assets or operations to meet its debt
service and other obligations, and there can be no assurance as to the timing of
such sales or the proceeds which the Company could realize therefrom.
NEED FOR ADDITIONAL FINANCING
The Company will need to procure additional financing, the amount and
timing of which will depend on a number of factors including the pace of
expansion of the Company's markets and customer base, services offered, and
development efforts and the cash flow generated by its operations. In the event
that such additional financing is not obtained, the Company believes that
existing cash and cash equivalents, cash received from sales of Series C
Preferred Stock since December 31, 1999 and reduced or delayed operating and
capital expenditures will be sufficient to meet the Company's operating
requirements into the second quarter of 2001. See "Liquidity and Capital
Resources." The Indenture limits the ability of the Company to incur additional
indebtedness in certain circumstances. 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.
There can be no assurance that additional financing will be available when
needed on terms favorable to the Company. Any future debt financing or issuance
of preferred stock by the Company would be senior to the rights of the holders
of Common Stock, and any future issuance of Common Stock would result in the
dilution of the then existing stockholders' proportionate equity interests in
the Company. If adequate funds are not available on acceptable terms, the
Company may be unable to continue its planned IEMN installations, expand either
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 business, results of operations and financial condition.
DEPENDENCE ON THIRD PARTIES
The Company's success is dependent upon its ability to obtain and
maintain favorable contracts with Retailers and Manufacturers. The Company has
derived and will continue to derive substantially all its revenue from the
participation of Manufacturers on the IEMN and from the operation of the IEMN in
supermarkets. Any decrease in Manufacturers' promotional expenditures in general
or the decision of Manufacturers to promote their products through marketing
strategies that do not include the IEMN could result in a smaller overall market
for the Company's services. In addition, the Company's terminals will be
primarily manufactured by a single supplier, NCR Corporation, under an exclusive
two-year contract. The Company is also dependent on its suppliers of
ShopperPerks portals and servers. In addition, the Company is dependent upon
the condition and performance of its Retailer partners. Consequently, factors
affecting the advertising and promotional strategy of Manufacturers or the
condition of its Retail partners or suppliers, such as labor disputes or supply
problems, could have a material adverse effect on the Company's business,
results of operations or financial condition.
COMPETITION
The consumer product advertising and promotional business is intensely
competitive. Many media outlets compete for the advertising and promotional
dollars Manufacturers spend to promote their products. The Company's services
compete against these media outlets, such as television, radio, newspapers and,
most directly, coupons. A number of new, electronic marketing products and
services also have been introduced, including electronic shelf markers,
computer-screen equipped shopping carts, battery-powered coupon dispensers,
electronic marketing networks, Internet coupons and frequent shopper programs. A
number of potential competitors have failed because of a lack of acceptance,
lack of capital, technical problems or a combination of these factors. While the
Company believes it provides a cost-effective targeted marketing service, there
are many factors a Manufacturer will take into account in allocating advertising
or promotional expenditures, and there can be no assurance that the Company's
services will compete effectively against alternative marketing outlets. Most of
the Company's competitors in the consumer product promotional and advertising
business are larger, possess significantly greater financial resources and have
longer operating histories than the Company. See Part I, Item 1. "Business --
Customers and Competition".
<PAGE>
PATENTS, PROPRIETARY INFORMATION AND TRADEMARKS
The Company's success and ability to compete are dependent upon its
proprietary systems and technology. The Company holds licenses to United States
patents which cover various aspects of its systems and methods of distributing
promotions, and the Company also has an additional patent application pending.
Inter*Act e-Marketing Network'sm' is a service mark of the Company. However,
it is possible that patent rights held by the Company may be held invalid or
that disputes with third parties over the scope of licensed patents and other
proprietary rights may occur, including the Company's trademarks. Certain
aspects of the Company's services may not be adequately protected from
infringement or copying and there can be no assurance that the Company's
licensed patents or its trademarks would be upheld if challenged or that
competitors might not develop similar or superior processes or services outside
the protection of any patents licensed to the Company. In addition, litigation
may be necessary to enforce or protect the Company's intellectual property
rights or to defend against claims of infringement or invalidity. The Company is
presently in litigation with Catalina Marketing Corporation and its affiliates
with each side claiming infringement of its respective patents. See Part I, Item
3. "Legal Proceedings." Misappropriation of the Company's intellectual property
or any potential litigation on the Company's rights to its intellectual property
could have a material adverse effect on the Company's business, results of
operations and financial condition. See Part I, Item 1. "Business --
Intellectual Property Matters"
RELOCATION OF COMPANY'S HEADQUARTERS
The Company's operations and financial condition depend in part on
operating in a location where the operating costs for salaries, real estate,
utilities and other such expenditures are reasonable. The Company recently moved
its headquarters from Norwalk, Connecticut to Charlotte, North Carolina in
anticipation of reducing such operating costs over the long-term. The relocation
has resulted in an expected turnover of employees and expenditures for retention
bonuses, travel, and the relocation of the Company's network operations first
from Norwalk to the short-term offices being subleased, then to the Company's
permanent office in Charlotte. It is uncertain that the operating costs in the
new location will result in significant savings in the long-term. See Part I,
Item 2, "Properties"; "Risk Factors -- New Management; Dependence on Key
Employees."
NEW MANAGEMENT; DEPENDENCE ON KEY EMPLOYEES
The Company's business operating results and financial condition depend
in significant part upon the continued contributions of its management and other
key technical personnel and sales people. Most of the Company's management and
sales force has been hired by the Company in the last twelve months. The
Company's President and Chief Operating Officer has served in such capacity
since August 1999. The Company's Chief Financial Officer has served in such
capacity since December 1999, and its Senior Vice President, Retail Sales, has
held that position since September 1998. The Company's Senior Vice President and
Chief Technical Officer has served since October 1998 and its Senior Vice
President of Brand Sales since February 1999. The Company's Chairman and Chief
Executive Officer, Mr. Stephen Leeolou, was elected to such position on June 12,
1996. See Part III, Item 10. "Directors and Executive Officers of the Company".
An inability of new management and other recently hired employees of
the Company to adjust quickly to, and to perform as expected in, their
respective roles within the Company or an inability of the Company to attract
and retain employees with such skills could have a material adverse effect on
the Company's business, results of operations and financial condition.
The Company is also highly dependent on certain key technical employees
and on its ability to recruit, retain and motivate high quality technical
personnel. The Company's future success will depend on its ability to retain
key managers and employ additional qualified senior managers. Competition for
such personnel is intense and the inability to attract and retain additional
qualified employees or the loss of current key employees and managers could
materially and adversely affect the Company's business, results of operations
and financial condition.
FLUCTUATIONS IN QUARTERLY OPERATING RESULTS
The Company has experienced fluctuations in its quarterly operating
results and may continue to do so in the future. Some of the factors that may
affect the quarterly operating results of the Company include (i) the timing and
nature of expansion efforts in both new and existing markets, (ii) the
introduction of new products or services and the market response to those
introductions, (iii) relationships with Retailers, (iv) relationships with
Manufacturers, (v) seasonal trends, particularly in the retail grocery industry,
(vi) changes in pricing policies or service offerings, (vii) changes in the
level of marketing and other operating expenses to support future growth, (viii)
the mix of product and promotional offerings on the IEMN, (ix) competitive
factors and (x) general economic conditions.
<PAGE>
Consequently, quarterly revenues and operating results may fluctuate
significantly, and the Company believes that period-to-period comparisons of
results will not necessarily be meaningful and should not be relied upon as an
indication of future performance.
RELATIONSHIP WITH DIRECTORS, OFFICERS AND PRINCIPAL SHAREHOLDERS; POTENTIAL
CONFLICTS OF INTEREST; CONTROL BY SIGNIFICANT SHAREHOLDER
The directors, officers and principal shareholders of the Company have
potential conflicts of interest in certain transactions with the Company and
between the Company and certain parties controlled by or otherwise related to
directors, officers or principal shareholders. These transactions include asset
purchases, private purchases of stock, loans to the Company, licensing of
proprietary rights, option grants, consulting agreements and other transactions.
See Part III, Item 13. "Certain Relationships and Related Transactions." With
respect to future transactions, the Company currently has not adopted or
formulated any procedures to resolve conflicts of interest other than customary
board practices such as relying on the judgment of disinterested directors, when
appropriate.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements and supplementary financial information that
are required to be included pursuant to this Item 8. are listed in and follow
the Index to Financial Statements following Item 14 of this Report.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY
The following table sets forth certain information about each of the
Company's executive officers and directors.
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Stephen R. Leeolou............... 44 Chairman of the Board of Directors, Chief Executive Officer
and Treasurer
Lee D. Armbuster................. 44 President and Chief Operating Officer
Thomas J. McGoldrick............. 54 Executive Vice President, Chief Financial Officer and Chief
Administrative Officer
Donald J. Anderson............... 52 Senior Vice President and Chief Technical Officer
Michael T. Leeolou............... 42 Senior Vice President, Retail Services
Mary Braunsdorf.................. 42 Senior Vice President, General Counsel and Secretary
Gary Schneider................... 49 Senior Vice President U.S. Brand Sales
Poul E. Heilmann................. 39 Senior Vice President Global Marketing
Van E. Snowden................... 44 Senior Vice President Business Development
Robert M. DeMichele.............. 54 Director
William P. Emerson, Jr........... 46 Director
Haynes G. Griffin................ 52 Director
Richard A. Horvitz............... 47 Director
Richard P. Ludington............. 52 Director
L. Richardson Preyer, Jr. ....... 51 Director
Brian A. Rich.................... 38 Director
Stuart S. Richardson............. 52 Director
Robert A. Silverberg............. 63 Director
</TABLE>
Stephen R. Leeolou has been a director of the Company since its
inception in 1993 and Chairman of the Board of Directors and Treasurer of the
Company since August 1995. In June 1996, Mr. Leeolou became Chief Executive
Officer of the Company. Mr. Leeolou was a co-founder and served as a director
and executive officer of Vanguard Cellular Systems, Inc. from its inception in
1984 until May 1999 when it was acquired by AT&T Corporation. Stephen R. Leeolou
is the brother of Michael T. Leeolou.
Lee D. Armbuster has been President and Chief Operating Officer of the
Company since August 1999. Prior to joining the Company, Mr. Armbuster was
employed by the Laneco division of Super Value, Inc. where he served as
Executive Vice President since 1995 and General Manager since 1998.
<PAGE>
Thomas J. McGoldrick has been Executive Vice President, Chief Financial
Officer and Chief Administrative Officer of the Company since December 1999.
Prior to joining the Company, Mr. McGoldrick served as President of Geneva
Management Services, a management consulting firm.
Donald J. Anderson has been Senior Vice President and Chief Technical
Officer of the Company since October 1998. Prior to joining the Company, he
served as Vice President -- Information Services of Vanguard Cellular Systems,
Inc. since 1995. In this capacity, Mr. Anderson was responsible for all computer
network and software development operations. Prior to his position with
Vanguard, Mr. Anderson was Vice President -- Development and Operations for
Capital Data Systems from 1992 through 1995 and was responsible for development
of paging and natural gas billing systems.
Michael T. Leeolou has been Senior Vice President, U.S. Retail Sales
since November, 1999 and Vice President, Retail Services of the Company, since
September 1996. From September 1995 through August 1996, Mr. Leeolou was a
Regional Sales Manager for Geotek Communications, Inc. From January 1990 through
August 1995, he was a Senior Account Executive with AT&T. Michael T. Leeolou is
the brother of Stephen R. Leeolou.
Mary Braunsdorf has been a Senior Vice President of the Company since
November 1999 and General Counsel of the Company since March 1998. She became
Secretary of the Company in November 1998. Prior to joining the Company, Ms.
Braunsdorf served as corporate counsel for Timex Corporation since 1989 and also
served as Assistant Secretary for Timex and certain of its subsidiaries.
Gary Schneider has been Senior Vice President U.S. Brand Sales of the
Company since November, 1999. Prior to joining the Company in February 1999, Mr.
Schneider was a consultant with Coopers & Lybrand L.L.P. concentrating in
the packaged goods industry from 1996 to 1998. Prior thereto, Mr. Schneider
was Vice President - Sales Strategy with Coca-Cola Foods.
Poul E. Heilmann has been Senior Vice President Global Marketing of
the Company since November, 1999. Prior to joining the Company in August
1999, Mr. Heilmann served as Director of Marketing of Kash N'Karry Food
Stores, a subsidiary of Delhaize America, Inc. from 1997 to 1999, and as
Director of Marketing of Food Lion, Inc. from 1994 to 1997.
Van E. Snowdon has been Senior Vice President Business Development
of the Company since November, 1999. Prior to joining the Company,
Mr. Snowdon served as President and Chief Executive Officer
of International Wireless Communications, Inc. from March 1998 to September
1999. Prior thereto, Mr. Snowdon was President of Vanguard's International
Division.
Robert M. DeMichele has been a director of the Company since 1995 and
has served as President, Chief Executive Officer and a director of Lexington
Global Asset Managers, Inc., a diversified financial services holding company,
since 1995. Prior thereto, Mr. DeMichele was President, Chief Executive Officer
and a director of Piedmont Management Company, Inc., formerly the parent
corporation of Lexington Global Asset Managers, Inc. Mr. DeMichele also serves
as a director of Chartwell Reinsurance Co. and the Navigators Group, Inc.
William P. Emerson, Jr. has been a director of the Company since its
inception in 1993. During 1995, Mr. Emerson served as Chairman of the Company's
Board of Directors. Mr. Emerson has served as the President and Chief Executive
Officer of Wilmington Shipping Company since 1991. Wilmington Shipping Company
services the international trade community through various divisions that
provide steamship line agents, customs brokers and freight forwarders, and a
warehouse and container maintenance and repair station.
Haynes G. Griffin has been a director of the Company since its
inception in 1993 and served as Chairman of the Board of Directors of the
Company from 1993 through 1995. Mr. Griffin currently serves as Chairman and
Chief Executive Officer of Prospect Partners, LLC, a venture capital
firm. Mr. Griffin was a co-founder and Chairman of the Board of Vanguard and
served as an executive officer and director of Vanguard from its inception in
1984 until May 1999 when it was acquired by AT&T Corporation. Mr. Griffin is a
member of the Board of Directors of Lexington Global Asset Managers, Inc.
Richard A. Horvitz has been a director of the Company since April 1999.
Mr. Horvitz is Chairman and Chief Executive Officer of Moreland Management,
Co., a management advisory firm. Mr. Horvitz is also Vice Chairman and a trustee
of LJR Trust, which is a general partner of LJR Limited Partnership.
Richard P. Ludington has been a director of the Company since its
inception in 1993. Mr. Ludington is presently in the private practice of law.
From 1996 to 1997, Mr. Ludington was Vice President-Real Estate of The
ForestLand Group, L.L.C., a timberland investment company. Prior thereto, Mr.
Ludington served as Southeast Regional Director for The Conservation Fund, a
<PAGE>
nonprofit organization that creates partnerships with private and public sector
corporations and organizations to help protect America's outdoor environment.
L. Richardson Preyer, Jr. has been a director of the Company since its
inception in 1993. Mr. Preyer currently serves as President and Vice Chairman
of Prospect Partners, LLC, a venture capital firm. Mr. Preyer was a
co-founder of Vanguard and served as a director and executive officer of
Vanguard from its inception in 1983 until May 1999 when it was acquired by AT&T
Corporation. Mr. Preyer is a cousin of Stuart S. Richardson.
Brian A. Rich has been a director of the Company since 1996. Mr. Rich
is currently a business consultant. From July 1995 through December 1998, Mr.
Rich served as Managing Director and Group Head of Toronto Dominion Capital, the
U.S. merchant bank affiliate of Toronto Dominion Bank. Prior thereto, Mr. Rich
was a managing director of the Communications Finance Group of Toronto Dominion
Bank in New York.
Stuart S. Richardson has been a director of the Company since 1995 and
has served as Chairman of Lexington Global Asset Managers, Inc., a diversified
financial services holding company, since 1995. Prior thereto, Mr. Richardson
was an executive of Piedmont Management Company, Inc., formerly the parent
corporation of Lexington Global Asset Managers, Inc., and served as its Vice
Chairman from 1986 to 1995. Mr. Richardson also serves as a director of
Chartwell Reinsurance Co. Mr. Richardson is a cousin of L. Richardson
Preyer, Jr.
Robert A. Silverberg has been a director of the Company since 1996. Mr.
Silverberg served as Executive Vice President and Director of Vectra Bank from
1995-1998. Prior thereto, Mr. Silverberg was Chairman of the Board and President
of First Denver Corporation and Chairman of the Board of its subsidiary, First
National Bank of Denver. Mr. Silverberg was also the President and Chairman of
the Board of 181 Realty Company, a commercial real estate holding company
and from 1996 to 1998 served as a managing partner of Silverberg Investment
Co. LLLP.
In addition to the executive officers of the Company mentioned above,
Peter F. Kelly, age 42, has served as Managing Director of the Company's
United Kingdom operations since December 1999. Prior to joining the Company,
Mr. Kelly served as Business Unit Head-Retail for Europe with IBM (U.K), Ltd.
Prior thereto, Mr. Kelly served as Trading Director for Tesco, the United
Kingdom's largest grocery retailer.
The Company's bylaws provide that the number of directors shall be not
less than seven nor more than 12, such number within the foregoing range to be
fixed from time to time by the Board of Directors or shareholders. The number is
presently fixed at 12, and there are presently two vacancies on the Board. The
holders of a majority of the Company's Common Stock have entered into a voting
agreement whereby LJR Limited Partnership is entitled to designate one director
of the Company. Pursuant to this arrangement, Richard A. Horvitz was elected as
a director of the Company in June 1999. See Part III, Item 13. " Certain
Relationships and Related Transactions."
COMMITTEES
The Compensation and Stock Option Committee of the Board of Directors
consists of Messrs. DeMichele (Chairman), Horvitz, Preyer and Richardson. This
Committee recommends employee salaries and incentive compensation to the Board
of Directors and administers the Company's stock option plans.
The Nominating Committee of the Board of Directors was created in June
1999 and presently consists of Stephen R. Leeolou, Richard A. Horvitz and Brian
A. Rich. This Committee considers and makes recommendations to the Board
regarding the appropriate size of the Board and recommends nominees to be
considered as directors of the Company.
The Audit Committee of the Board of Directors consists of Messrs.
Silverberg (Chairman), Emerson and Ludington. The Audit Committee makes
recommendations to the Board of Directors concerning its review of the Company's
internal controls and accounting system and its review of the annual audit, and
regarding the selection of independent auditors.
<PAGE>
Item 11. EXECUTIVE COMPENSATION
COMPENSATION OF EXECUTIVE OFFICERS
The following table sets forth all compensation paid by the Company for
services rendered in all capacities to the Company during the periods indicated
to its Chairman and Chief Executive Officer, its four most highly compensated
individuals serving as executive officers of the Company at December 31, 1999
and two additional individuals who served as executive officers of the Company
during the year and would have been included in the table but for the fact that
they were no longer employed by the Company at December 31, 1999 (collectively,
the "Named Officers").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
OTHER SECURITIES
NAME AND ANNUAL UNDERLYING
PRINCIPAL POSITION YEAR SALARY ($) BONUS ($) COMPENSATION OPTIONS (#)
------------------ ---- ---------- --------- ------------ -----------
<S> <C> <C> <C> <C> <C>
Stephen R. Leeolou 1999 50,000 -- -- 800,000(1)
Chairman of the Board 1998 51,923 -- -- --
Chief Exec. Officer & Treasurer 1997 50,000 -- -- --
Lee D. Armbuster 1999 110,904 40,000 -- 200,000
President 1998 -- -- -- --
Chief Operating Officer 1997 -- -- -- --
Donald J. Anderson 1999 125,000 10,000 -- 85,000(2)
Senior Vice President 1998 30,126 -- -- 50,000
Chief Technical Officer 1997 -- -- -- 10,000(3)
Michael T. Leeolou 1999 145,000 31,750 -- 110,000(4)
Senior Vice President 1998 138,327 35,000 -- 80,000
U.S. Retail Sales 1997 -- -- -- 30,000
Mary Braunsdorf 1999 118,998 10,000 -- 45,000(5)
Senior Vice President 1998 76,366 -- -- 15,000
General Counsel and Secretary 1997 -- -- -- --
Gary Schneider 1999 116,827 10,000 133,817 (6) 60,000
Senior Vice President 1998 -- -- -- --
U.S. Brand Sales 1997 -- -- --
Richard A. Vinchesi 1999 98,365 30,000 -- 152,000(7)
Senior Vice President, Chief 1998 160,962 20,000 -- 100,000
Operating Officer and Chief 1997 142,538 -- -- 52,000
Financial Officer (through August
1999)
Thomas A. Manna 1999 145,000 40,000 -- --
Vice President, National Sales 1998 150,577 77,500 -- --
(through January 1999) 1997 105,962 155,000 -- 70,000
</TABLE>
<PAGE>
Footnotes to Summary Compensation Table
(1) Includes special option to purchase 475,000 shares, exercisable only upon
an initial public offering or sale of the Company.
(2) Includes 60,000 options granted in previous years that were repriced in
1999 from $10.00 to $8.50 per share.
(3) Granted in his capacity as a consultant prior to his employment with the
Company.
(4) Includes 110,000 options granted in previous years that were repriced in
1999 from $10.00 to $8.50 per share.
(5) Includes 15,000 options granted in previous years that were repriced in
1999 from $10.00 to $8.50 per share.
(6) Mr. Schneider received this amount as a relocation allowance in connection
with his relocation to the Company's headquarters in Charlotte, North
Carolina.
(7) Includes 152,000 options granted in previous years that were repriced in
1999 from $10.00 to $8.50 per share.
Option Grants, Exercises and Holdings and Fiscal Year-end Option Values. The
following table summarizes all option grants during the year ended December 31,
1999 to the Named Officers. Except as otherwise indicated in the table below,
the options become exercisable, 20% each year, over a period of five years from
the date of grant, commencing on the first anniversary of the date of grant. All
options expire ten years from the date of grant.
<TABLE>
<CAPTION>
Option Grants During 1999
--------------------------------------------------------------------------------------
Potential Realizable Value
Number of Percent of Value at Assumed
Shares Total Options Exercise Annual Rates of Stock
Underlying Granted to or Base Price Appreciation for
Options Employees in Price Per Expiration Option Term(1)
Granted(#) 1999 (%) Share Date 5% ($) 10% ($)
---------- -------- ----- ---- ------ -------
Name
----
<S> <C> <C> <C> <C> <C> <C>
Stephen R. Leeolou 800,000(2) 45.37 8.50 9/15/09 4,284,000 10,812,000
Lee D. Armbuster 200,000 11.34 8.50 9/1/09 1,070,000 2,702,000
Donald J. Anderson 10,000(3) 0.57 8.50 4/30/07 40,584 97,205
50,000(3) 2.84 8.50 11/20/08 234,314 577,128
12,500 0.71 8.50 7/21/09 66,937 168,937
12,500 0.71 8.50 9/15/09 66,937 168,937
Michael T. Leeolou 30,000(3) 1.70 8.50 4/30/07 121,751 291,615
80,000(3) 4.54 8.50 4/20/08 374,903 923,404
Mary Braunsdorf 15,000(3) 0.85 8.50 4/20/08 70,295 173,138
30,000 1.70 8.50 7/21/09 160,368 406,404
Gary Schneider 50,000 2.83 8.50 7/21/09 267,750 675,755
10,000 0.57 8.50 9/15/09 53,550 135,150
Richard A. Vinchesi, Jr. 152,000(3) 8.62 8.50 8/20/01 132,430 271,320
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Option Grants During 1999
--------------------------------------------------------------------------------------
Potential Realizable Value
Number of Percent of Value at Assumed
Shares Total Options Exercise Annual Rates of Stock
Underlying Granted to or Base Price Appreciation for
Options Employees in Price Per Expiration Option Term(1)
Granted(#) 1999 (%) Share Date 5% ($) 10% ($)
---------- -------- ----- ---- ------ -------
Name
----
<S> <C> <C> <C> <C> <C> <C>
Thomas A. Manna 0 0 N/A N/A N/A N/A
</TABLE>
(1) Amounts represent hypothetical gains that could be achieved for the
respective aggregate options granted to each Named Officer if exercised
at the end of the option term. These gains are based on assumed rates of
stock price appreciation, mandated by rules promulgated by the Securities
and Exchange Commission, of 5% and 10% compounded annually from the date
the respective options were granted or repriced to their expiration date,
and are not intended to forecast possible future appreciation, if any, in
the price of the Company's Common Stock. The gains shown are net of the
option exercise price, but do not include deductions for federal or state
income taxes or other expenses associated with the exercise of the options
or the sale of the underlying shares. The actual gains, if any, on the
exercise of the stock options will depend on the future performance of the
Common Stock, the option holder's continued employment through the option
period and the date on which the options are exercised.
(2) Includes special option to purchase 475,000 shares vesting over three years
granted to Mr. Leeolou that become exercisable only upon an initial public
offering or sale of the Company. Also includes an option to purchase
325,000 shares vesting in annual one-third increments over a period of
three years from the date of grant, commencing on the first anniversary of
the date of grant.
(3) Such options were granted in previous years but were repriced in 1999 to
reduce the exercise price from $10.00 to $8.50 per share.
(4) Fully vested option originally granted in his capacity as a consultant
prior to his employment with the Company.
No Named Officers exercised any stock options during 1999. The following
table sets forth information concerning all option holdings for the year ended
December 31, 1999, with respect to the Named Officers.
AGGREGATED OPTIONS/SAR EXERCISES IN 1999 AND YEAR-END 1999 OPTION VALUES
<TABLE>
<CAPTION>
Number of Securities
Underlying Unexercised Value of in-the-Money
Shares Options/SARs at Fiscal Options/SARs at Fiscal Year-
Acquired on Value Realized Year-End (#) End($)(1)
Exercise (#) ($) Exercisable/Unexercisable Exercisable/Unexercisable
------------ --------------- ------------------------- -------------------------
Name
- ----
<S> <C> <C> <C> <C>
Stephen R. Leeolou 0 0 202,000/800,000 1,721,700/4,400,000
Lee D. Armbuster 0 0 0/200,000 0/1,100,000
Donald J. Anderson 0 0 20,000/65,000 110,000/357,500
Michael T. Leeolou 0 0 56,000/64,000 326,000/364,000
Mary Braunsdorf 0 0 6,000/39,000 33,000/214,500
Gary Schneider 0 0 0/60,000 0/330,000
Richard A. Vinchesi, Jr. 0 0 75,000/0 431,700/0
Thomas A. Manna 0 0 21,000/0(2) 84,000/0
</TABLE>
(1) There is no trading market for the Common Stock. Management estimated the
fair market value of the Common Stock to be $14.00 share at December 31,
1999.
(2) These options expired, without exercise, on January 7, 2000.
<PAGE>
Stock Compensation Plans. The Company has a 1994 Stock Compensation Plan
that provides for the issuance of shares of Common Stock to key employees,
consultants and directors pursuant to stock options that meet the requirements
of Section 422 of the Internal Revenue Code of 1986, as amended (incentive stock
options), options that do not meet such requirements (nonqualified stock
options) and stock bonuses. All options under the plan must be granted at an
exercise price not less than fair market value. Stock bonuses may be in the form
of grants of restricted stock. The aggregate number of shares of Common Stock
that may be issued pursuant to the plan may not exceed 330,000 shares, subject
to adjustment upon occurrence of certain events affecting the Company's
capitalization. As of December 31, 1999, there were no shares available for
future grants under the 1994 Stock Compensation Plan.
The Company also has a 1996 Nonqualified Stock Option Plan that provides
for the issuance of shares of Common Stock to key employees, consultants and
directors pursuant to nonqualified stock options. All options must be granted at
an exercise price not less than $5.50 per share. The aggregate number of shares
of Common Stock that may be issued pursuant to the plan may not exceed 600,000
shares of Common Stock, subject to adjustment upon occurrence of certain events
affecting the Company's capitalization. This plan is subject to shareholder
approval. As of December 31, 1999, 15 shares were available for future grants
under the 1996 Nonqualified Stock Option Plan.
The Company also has established the 1997 Long-Term Incentive Plan that
provides for the issuance of shares of Common Stock to officers, supervisory
employees, directors or consultants pursuant to incentive and nonqualified stock
options and restricted and unrestricted stock awards. All options under the plan
must be granted at an exercise price not less than the fair market value of the
Common Stock at the time of the grant. No stock awards or stock appreciation
rights have been granted under the plan. In June 1999, the Board of Directors
authorized an increase in the aggregate number of shares that may be issued
pursuant to this plan from 670,000 to 1,470,000, subject to certain adjustments
affecting the Company's capitalization. As of December 31, 1999, 1,918 shares
were available for future grants under this plan.
The foregoing plans are administered by the Compensation and Stock
Option Committee of the Board of Directors, which is authorized, subject to the
provisions of the Plan, to determine to whom and at what time options and
bonuses may be granted and the other terms and conditions of the grant.
DIRECTOR COMPENSATION
In July 1999 each of the nonemployee directors of the Company was
granted a nonqualified stock option, exercisable for 5,000 shares of Common
Stock of the Company at an exercise price of $8.50 per share as compensation for
services rendered. The directors were not otherwise compensated for their
service as directors during 1999 except for the repricing of existing options
that reduced the exercise price of such options from $10.00 to $8.50.
EMPLOYMENT AND OTHER AGREEMENTS
With the exception of the CEO, all of the Company's employees, including
the Named Officers, are employees at will. Each of the Named Officers and each
employee of the Company is required to sign non-compete and non-disclosure
agreements covering such items as ownership and authorship of all work and
materials, trade secrets, confidential information, unfair business practices
and covenants not to compete.
Effective November 2, 1999, the Company entered into an Employment
Agreement with Steve Leeolou, who is Chairman of the Board, Chief Executive
Officer and Treasurer of the
<PAGE>
Company. The Agreement is for a term of three years and provides for an annual
salary of $50,000 for the first year with subsequent increases in salary as may
be approved by the Board of Directors of the Company. Under the terms of the
Agreement, Mr. Leeolou's salary will be reviewed at least annually and the
annual increase shall be not less than 5% of the then Base Salary. Upon the
occurrence of a "Liquidity Event," which is defined as (i) completion of an
initial public offering by the Company, or (ii) a sale of all or substantially
all of the Company, by means of a merger, a share exchange, a sale of assets or
otherwise, for an aggregate equity value (excluding debt) of not less than
$200,000,000. Mr. Leeolou's salary shall be increased to $250,000 per annum.
The Agreement also contains a provision providing for a severance
payment equal to 2.99 times Mr. Leeolou's average annual total cash compensation
for the immediately preceding two fiscal years if he is terminated without cause
following a change in control, or if Mr. Leeolou's responsibilities are
substantially diminished, he is required to change his residence or his travel
obligations are substantially increased without his consent following a change
in control.
In January 1999, Mr. Manna resigned from his position with the Company.
Pursuant to the terms of a Severance and Release Agreement (the "Severance
Agreement") between Mr. Manna and the Company, the Company agreed to pay Mr.
Manna's annual salary of $150,577 for a period of 12 months. The Company also
agreed to pay $40,000 to Mr. Manna in equal installments of $5,000 per month
and to extend the exercise period for his vested options for a period of one
year.
In August 1999, Mr. Vinchesi terminated his position with the Company.
As part of a severance arrangement, the Company agreed to accelerate the vesting
of 15,000 of his options and extend the exercise period for all his vested
options for two years from the termination of his employment.
In 1999, the Board of Directors adopted a Key Employee Severance Plan
for the purpose of improving the ability of the Company to attract and retain
highly qualified, high impact key employees. Pursuant to the Plan, an employee
of the Company who is identified as a participant by the Board of Directors or
Compensation Committee becomes entitled to receive a severance payment if the
participant is terminated without cause following a change in control of the
Company or if the participant terminates his or her employment because of
a change in position or employment conditions following a change in control.
The severance payment would be equal to a multiple (ranging from 1.00 to 2.99)
of the participant's average annual base salary for the immediately two
preceding two fiscal years. The Named Officers presently serving and other key
employees have been named as participants in the plan. The multiples with
respect to Named Officers presently serving are: Stephen R. Leeolou (2.99),
Lee D. Armbuster (1.75), Donald J. Anderson (1.25), Michael T. Leeolou (1.25),
Mary Braunsdorf (1.25), and Gary Schneider (1.25).
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Robert DeMichele, Richard Horvitz, L. Richardson Preyer, Jr. and Stuart
S. Richardson are members of the Company's Compensation and Stock Option
Committee and have provided capital to the Company and engaged in related
transactions. See Part III, Item 13. "Certain Relationships and Related
Transactions".
INDEMNIFICATION MATTERS
The North Carolina Business Corporation Act (the "Business Corporation
Act") provides for mandatory indemnification against reasonable expenses for a
director or officer who is wholly successful in the defense of any proceeding to
which he is a party because he is or was a director or officer of a corporation.
Additionally, as permitted by the Business Corporation Act, the Company's Bylaws
provide for indemnification of the Company's directors and Indemnified Officers
(executive officers who are also directors and any other officer, employee or
agent of the Company who is designated by the Board as an Indemnified Officer)
against any and all liability and expenses in any proceeding, including
reasonable attorneys' fees, arising out of their status or activities as
directors and officers, except for liability or litigation expense incurred on
account of activities that at the time taken were not in good faith or were
known or reasonably should have been known by such director or officer or
employee to be clearly in conflict with the best interests to the Company or
that such director or officer had reason to believe were unlawful.
At present, there is no pending litigation or proceeding involving any
director or officer, employee or agent of the Company where indemnification will
be required. The Company is not aware of any threatened litigation or proceeding
which may result in a claim for such indemnification.
<PAGE>
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following tables set forth the beneficial ownership of each class
of the Company's voting securities by each person known by the Company to be the
owner of 5% or more of the shares of each class, by each person who is a
director or Named Officer of the Company and by all directors and officers of
the Company as a group. Ownership of the Company's Common Stock is set forth in
the first table and ownership of each of the Company's three classes of
preferred stock-- the 10% Series A Mandatorily Convertible Preferred Stock
("Series A Preferred Stock"), the 14% Series B Senior Mandatorily Convertible
Preferred Stock ("Series B Preferred Stock") and the 10% Series C Mandatorily
Convertible Preferred Stock ("Series C Preferred Stock")- - is set forth in the
second table.
<TABLE>
<CAPTION>
COMMON STOCK BENEFICIALLY OWNED (1)
-----------------------------------
SHAREHOLDER SHARES PERCENT
------------ ------- -------
<S> <C> <C> <C>
Vanguard Cellular Operating Corp. (2) 2,920,114 33.22%
Piedmont Acorn Investors Limited Partnership (3) (4) 787,285 10.16%
Clearing Systems, Inc. 792,548 10.23%
William P. Emerson, Jr. (5) 304,612 3.91%
Haynes G. Griffin (6) 389,677 5.00%
Richard A. Horvitz (7) 126,429 1.61%
Stephen R. Leeolou (8) 582,649 7.30%
Richard P. Ludington (9) 118,567 1.53%
L. Richardson Preyer, Jr. (10) 396,677 5.09%
Brian A. Rich (11) 11,000 *
Stuart S. Richardson (12) 420,122 5.31%
Robert A. Silverberg (13) 41,714 *
Robert M. DeMichele (14) 224,857 2.84%
Michael T. Leeolou (15) 73,961 *
Mary Braunsdorf (16) 6,000 *
Gary Schneider 0 -
Donald Anderson (17) 20,000 *
Richard A. Vinchesi (18) 85,000 1.09%
Thomas A. Manna (19) 0 -
All Directors and Officers as a group 2,502,039 28.67%
(18 persons) (20)
- ---------
* Owns less than 1% of the total outstanding shares of class.
<PAGE>
Footnotes to Common Stock Ownership Table
(1) Applicable percentage of ownership is based on outstanding shares of Common
Stock as of March 27, 2000. Beneficial ownership is determined in accordance
with the rules of the Commission and includes voting and investment power with
respect to securities. Shares of Common Stock issuable under options or warrants
currently exercisable or exercisable within 60 days of March 27, 2000 are deemed
outstanding for purposes of computing the percentage ownership of the person
holding such options or warrants, but are not deemed outstanding for purposes of
computing the percentage of any other person. Except for shares held jointly
with a person's spouse or subject to applicable community property laws, or as
indicated in these footnotes, each stockholder identified in the tables
possesses sole voting and investment power with respect to all shares shown as
beneficially owned by such stockholder.
(2) Includes 900,113 shares of Common Stock that Vanguard has the right to
acquire at $23.50 per share under an amended and restated warrant. Also includes
145,455 shares of Common Stock that Vanguard has the right to acquire at $8.50
per share under other warrants.
(3) These shares are owned of record by Piedmont Acorn Investors Limited
Partnership. Lunsford Richardson, Jr. is the general partner of Piedmont Acorn
Investors Limited Partnership and may also be deemed to beneficially own such
shares. Includes 2,500 shares of Common Stock that Piedmont Acorn has the right
to purchase under presently exercisable warrants.
(4) The descendants of Lunsford Richardson, Sr., their spouses, trusts, and
corporations in which they have interests and charitable organizations
established by such descendants (collectively referred to as the "Richardson
Family") beneficially own approximately 1,593,176 shares, or 19.43%, of the
Common Stock. Such number of shares of Common Stock includes 784,785 shares and
presently exercisable warrants to purchase 2,500 shares held by Piedmont Acorn
Investors Limited Partnership, 50,000 shares and presently exercisable warrants
to purchase 145,357 shares held by the Smith Richardson Foundation, Inc., 50,000
shares and presently exercisable warrants to purchase 109,643 shares held by
Piedmont Harbor-Piedmont Associates Limited Partnership, 268,741 shares and
presently exercisable warrants to purchase 9,915 shares held directly by L.
Richardson Preyer, Jr., 73,421 shares held in family trusts for Mr. Preyer and
his children, 44,600 and 18,500 shares Mr. Preyer and Mr. Stuart S. Richardson,
respectively, have the right to acquire under presently exercisable options
granted to them under the Company's stock option plans, and 35,714 shares that
Mr. Richardson has the right to acquire under presently exercisable warrants.
The individuals and institutions constituting the Richardson Family have
differing interests and may not necessarily vote their shares in the same
manner. Furthermore, trustees and directors have fiduciary obligations (either
individually or jointly with other fiduciaries) under which they must act on the
basis of fiduciary requirements which may dictate positions that differ from
their personal interests.
(5) Includes 47,200 shares of Common Stock that Mr. Emerson has the right to
acquire under presently exercisable options granted to him under the Company's
stock option plans. Also includes 500 shares that Mr. Emerson has the right to
purchase under presently exercisable warrants. Includes 30,000 shares of Common
Stock held by a trust for the benefit of his children and 5,000 shares of Common
Stock held by an entity controlled by Mr. Emerson. Includes 1,375 shares that
such entity has the right to purchase under presently exercisable warrants. Does
not include 5,000 shares of Common Stock held by members of his immediate family
for which Mr. Emerson disclaims beneficial ownership.
(6) Includes 37,600 shares of Common Stock that Mr. Griffin has the right to
acquire under presently exercisable options granted to him under the Company's
stock option plans. Includes 10,905 shares of Common Stock held in trusts for
the benefit of Mr. Griffin's children. Also includes 9,915 shares that Mr.
Griffin has the right to purchase under presently exercisable warrants. Does not
include 85,702 shares of Common Stock owned by a partnership of which his
brother is general partner. Mr. Griffin disclaims beneficial ownership of such
shares.
(7) Includes 5,000 shares of Common Stock that Mr. Horvitz has the right to
acquire under presently exercisable stock options granted to him under the
Company's stock option plans. Includes 121,429 shares of Common Stock that LJR
Limited Partnership has the right to acquire under presently exercisable
warrants. Mr. Horvitz is Vice Chairman and a trustee LJR Trust, a general
partner of LJR Limited Partnership.
<PAGE>
(8) Includes 202,000 shares of Common Stock that Mr. Stephen Leeolou has the
right to acquire under presently exercisable stock options granted to him under
the Company's stock option plans. Also includes 29,559 shares that Mr. Leeolou
has the right to purchase under presently exercisable warrants. Includes 8,928
shares that a partnershp controlled by Mr. Leeolou has the right to purchase
under presently exercisable warrants. Includes 17,961 shares of Common Stock
held by trusts for the benefit of his children for which Mr. Michael T. Leeolou
serves as trustee. Such shares are also reported as beneficially owned by Mr.
Michael T. Leeolou.
(9) Includes 23,000 shares of Common Stock that Mr. Ludington has the right to
acquire under presently exercisable stock options granted to him under the
Company's stock option plans and 17,113 shares of Common Stock held by a trust
for the benefit of his children.
(10) Includes 44,600 shares of Common Stock that Mr. Preyer has the right to
acquire under presently exercisable options granted to him under the Company's
stock option plans. Includes 73,421 shares of Common Stock held in trusts
for the benefit of Mr. Preyer and his children, a portion of which (10,908
shares) are also reported as beneficially owned by Mr. Richardson. Also
includes 9,915 shares that Mr. Preyer has the right to purchase under presently
exercisable warrants.
(11) Includes 11,000 shares of Common Stock that Mr. Rich has the right to
acquire under presently exercisable options granted to him under the Company's
stock option plans.
(12) Includes 35,714 shares that Mr. Richardson has the right to purchase under
presently exercisable warrants. Includes 10,908 shares of Common Stock held in
trust for Mr. Preyer's children for which Mr. Richardson serves as trustee. Such
shares are also reported as beneficially owned by Mr. Preyer. Includes 50,000
shares of Common Stock held by the Smith Richardson Foundation, of which Mr.
Richardson serves as one of eight trustees and 145,357 shares that the
Foundation has the right to purchase under presently exercisable warrants.
Includes 50,000 shares of Common Stock held by Piedmont Harbor-Piedmont
Associates Limited Partnership, of which Mr. Richardson serves as a general
partner, and 109,643 shares that such Partnership has the right to purchase
under presently exercisable warrants. The shares held by the Smith Richardson
Foundation are also reported as beneficially owned by Robert M. DeMichele. Mr.
Richardson disclaims beneficial ownership of the shares held by the Foundation.
Includes 18,500 shares of Common Stock that Mr. Richardson has the right to
acquire under the presently exercisable options granted to him under Company's
stock option plans.
(13) Includes 11,000 shares of Common Stock that Mr. Silverberg has the right to
acquire under presently exercisable options granted to him under the Company's
stock option plans. Includes 20,000 shares of Common Stock owned by an entity
controlled by Mr. Silverberg. Also includes 10,714 shares that such entity has
the right to purchase under presently exercisable warrants.
(14) Includes 50,000 shares of Common Stock held by the Smith Richardson
Foundation, of which Mr. DeMichele serves as one of eight trustees and 145,357
shares that the Foundation has the right to purchase under presently exercisable
warrants. The shares held by the Smith Richardson Foundation are also reported
as beneficially owned by Stuart S. Richardson. Mr. DeMichele disclaims
beneficial ownership of the shares held by the Foundation. Includes 18,500
shares of Common Stock that Mr. DeMichele has the right to acquire under
presently exercisable options granted to him under the Company's stock option
plans. Also includes 1,000 shares that Mr.
DeMichele has the right to acquire under presently exercisable warrants.
(15) Includes 56,000 shares of Common Stock that Mr. Michael Leeolou has the
right to acquire under presently exercisable stock options granted to him under
the Company's stock option plans. Also includes 17,961 shares of Common Stock
held by trusts for the benefit of Mr. Stephen Leeolou's children for which Mr.
Michael Leeolou serves as trustee. Such shares are also reported as beneficially
owned by Mr. Stephen Leeolou.
(16) Includes 6,000 shares of Common Stock that Ms. Braunsdorf has the right to
acquire under presently exercisable options granted to her under the Company's
stock option plans.
<PAGE>
(17) Includes 20,000 shares of Common Stock that Mr. Anderson has the right to
acquire under presently exercisable options granted to him under the Company's
stock option plans.
(18) Includes 75,000 shares of Common Stock that Mr. Vinchesi has the right to
acquire under presently exercisable options granted to him under the Company's
stock option plans. Mr. Vinchesi's employment with the Company terminated in
August, 1999.
(19) Mr. Manna's employment with the Company terminated in January, 1999.
(20) Includes 500,400 shares of Common Stock that may be purchased under
presently exercisable options granted to directors and officers under the
Company's stock option plans and 484,049 shares that such directors and officers
have the right to purchase under presently exercisable warrants.
</TABLE>
<TABLE>
<CAPTION>
PREFERRED STOCK BENEFICIALLY OWNED
----------------------------------
SERIES A PREFERRED SERIES B PREFERRED SERIES C PREFERRED
SHAREHOLDER SHARES PERCENT SHARES PERCENT SHARES PERCENT
----------- ------ ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Vanguard Cellular Operating Corp. 80,000 16.04% 18,000 12.90% 0 --
Piedmont Acorn Investors Limited 75,681 15.17% 0 -- 0 --
Partnership (2) (5)
Smith Richardson Foundation (3) (5) 50,000 10.02% 0 -- 20,000 14.56%
Piedmont Harbor-Piedmont Associates 22,478 4.51% 0 -- 15,000 10.92%
Limited Partnership (4) (5)
LJR Limited Partnership (6) 75,000 15.03% 5,000 3.58% 17,000 12.38%
United Opportunities Fund 0 -- 0 -- 41,750 30.40%
Richard M. Cundiff (7) 25,000 5.01% 0 -- 0 --
William P. Emerson, Jr 0 -- 0 -- 0 --
Haynes G. Griffin 11,250 * 300 * 1,000 *
Richard A. Horvitz (8) 75,000 15.03% 5,000 3.58% 17,000 12.38%
Stephen R. Leeolou (9) 27,500 5.51% 2,000 1.43% 5,000 3.64%
Richard P. Ludington 1,000 * 0 -- 0 --
L. Richardson Preyer, Jr. (10) 24,500 4.91% 400 * 1,000 *
Brian A. Rich 0 -- 0 -- 0 --
Stuart S. Richardson (11) 72,478 14.53% 700 * 40,000 29.13%
Robert A. Silverberg (12) 2,500 * 400 * 1,500 1.09%
Robert DeMichele (13) 50,000 10.02% 0 -- 20,000 14.56%
Michael T. Leeolou (14) 0 -- 0 -- 0 --
Mary Braunsdorf 0 -- 0 -- 0 --
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PREFERRED STOCK BENEFICIALLY OWNED
----------------------------------
SERIES A PREFERRED SERIES B PREFERRED SERIES C PREFERRED
SHAREHOLDER SHARES PERCENT SHARES PERCENT SHARES PERCENT
----------- ------ ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Gary Schneider 0 -- 0 -- 0 --
Donald Anderson 0 -- 0 -- 0 --
Richard A. Vinchesi (14) 0 -- 0 -- 0 --
Thomas A. Manna (15) 0 -- 0 -- 0 --
All Directors and Officers as a group 214,378 42.97% 8,800 6.30% 65,500 47.70%
(18 persons)
</TABLE>
* Owns less than 1% of the total outstanding shares of class.
Footnotes to Preferred Stock Table
(1) Applicable percentage of ownership is based on outstanding shares of each
series of preferred stock as of March 27, 2000. Does not include accrued
dividends payable in shares on the Series A and Series C Preferred Stock.
Beneficial ownership is determined in accordance with the rules of the
Commission and includes voting and investment power with respect to securities.
Except for shares held jointly with a person's spouse or subject to applicable
community property laws, or as indicated in these footnotes, each stockholder
identified in the tables possesses sole voting and investment power with respect
to all shares shown as beneficially owned by such stockholder.
(2) These shares are owned of record by Piedmont Acorn Investors Limited
Partnership. Lunsford Richardson, Jr. is the general partner of Piedmont Acorn
Investors Limited Partnership and may also be deemed to beneficially own such
shares.
(3) Lunsford Richardson, Jr. is a trustee of the Foundation. Messrs. DeMichele
and Richardson are trustees of the Foundation.
(4) Lunsford Richardson, Jr. and Stuart S. Richardson are general partners of
this partnership.
(5) As of March 27, 2000, the descendants of Lunsford Richardson, Sr., their
spouses, trusts, and corporations in which they have interests and charitable
organizations established by such descendants (collectively referred to as the
"Richardson Family") beneficially own approximately 172,659 shares, or 34.61%,
of the Series A Preferred Stock, 1,100 shares, or less than one percent of the
Series B Preferred Stock and 41,000 shares, or 29.86%, of the Series C Preferred
Stock. Such number of shares includes: 75,681 shares of Series A Preferred Stock
owned by Piedmont Acorn Investors Limited Partnership; 22,478 shares of Series A
Preferred Stock and 15,000 shares of Series C Preferred Stock held by Piedmont
Harbor-Piedmont Associates Limited Partnership; 50,000 shares of Series A
Preferred Stock and 20,000 shares of Series C Preferred Stock held by the Smith
Richardson Foundation; 700 shares of Series B Preferred Stock and 5,000 shares
of Series C Preferred Stock held directly by Stuart S. Richardson; and 24,500
shares of Series A Preferred Stock, 400 shares of Series B Preferred Stock and
1,000 shares of Series C Preferred Stock held directly by L. Richardson Preyer,
Jr. and his famliy trusts. The individuals and institutions constituting the
Richardson Family have differing interests and may not necessarily vote their
shares in the same manner. Furthermore, trustees and directors have fiduciary
obligations (either individually or jointly with other fiduciaries) under
which they must act on the basis of fiduciary requirements which may dictate
positions that differ from their personal interests.
(6) Mr. Horvitz is Vice Chairman and a trustee of LJR Trust, the general partner
of LJR Limited Partnership.
(7) Nominee for certain individual shareholders, none of which individually
beneficially own 5% or more of any class of the Company's Preferred Stock.
(8) All shares are held by LJR Limited Partnership. See Note (6).
<PAGE>
(9) Includes 10,000 shares of Series A Preferred Stock and 1,250 shares of
Series C Preferred Stock that are held by a family partnershp controlled by Mr.
Leeolou.
(10) Includes 19,000 shares of Series A Preferred Stock held in a trust for
the benefit of Mr. Preyer and his children.
(11) Includes 50,000 shares of Series A Preferred Stock and 20,000 shares of
Series C Preferred Stock held by the Smith Richardson Foundation, of which Mr.
Richardson serves as one of eight trustees and 22,478 shares of Series A
Preferred Stock and 15,000 shares of Series C Preferred Stock held by Piedmont
Harbor-Piedmont Associates Limited Partnership, of which Mr. Richardson serves
as a general partner. The shares held by the Smith Richardson Foundation are
also reported as beneficially owned by Robert M. DeMichele. Mr. Richardson
disclaims beneficial ownership of the shares held by such foundation and
partnership.
(12) Includes 2,500 shares of Series A Preferred Stock, 400 shares of Series B
Preferred Stock and 1,500 shares of Series C Preferred Stock owned by various
enties controlled by Mr. Silverberg.
(13) Includes 50,000 shares of Series A Preferred Stock and 20,000 shares of
Series C Preferred Stock held by the Smith Richardson Foundation, of which Mr.
DeMichele serves as one of eight trustees.The shares held by the Smith
Richardson Foundation are also reported as beneficially owned by Stuart S.
Richardson. Mr. DeMichele disclaims beneficial ownership of the shares held by
such foundation.
(14) Mr. Vinchesi's employment with the Company terminated in August, 1999.
(15) Mr. Manna's employment with the Company terminated in January, 1999.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Company was incorporated in 1993 and in April of that year
purchased certain technology and other assets, including software and trademarks
and service marks under which the IEMN was developed, and assumed certain
liabilities, of Clearing Systems, Inc. ("CSI") in exchange for 816,902 shares of
the Company's authorized Common Stock. CSI is a Delaware corporation founded in
1992 whose principal shareholders are Paul A. Nash, a former director and
executive officer of the Company, and Michael R. Jones, a former director of the
Company. CSI was the shell corporation under which certain of the Company's
technology was first developed and has had no business operation. On June 15,
1993, Mr. Jones assigned to the Company his rights as licensee of certain patent
rights, including the patent presently used in the Company's business. See Part
I, Item 1. "Business -- Intellectual Property Matters."
From time to time after such purchase, the Company has obtained capital
for its business by issuing shares of its Common Stock in private transaction
and directors, officers, and principal shareholders of the Company and members
of their immediate families and certain related entities have purchased shares.
The first of these transactions was consummated April 1993, whereby the Company
issued 1,999,998 shares of its Common Stock at a purchase price of approximately
$1.02 per share to certain individual investors including Messrs. Preyer,
Griffin, Leeolou, Emerson, and Ludington.
In connection with their April 1993 purchases of Common Stock, the
initial investors agreed to lend the Company an aggregate of $1.6 million. These
loans were made to the Company in 1994 and included loans made by the following
investors in the amounts indicated: Mr. Preyer, $196,722; Mr. Griffin, $196,722;
Mr. Leeolou, $196,722; Mr. Emerson, $177, 050; and Mr. Ludington, $65,574. Also
included were loans made by Alonzo Family Partners, Ltd., a limited partnership
owned by the brother of Haynes G. Griffin and certain members of the brother's
immediate family, which purchased part of an initial investor's interest and
<PAGE>
agreed to fulfill a portion his loan commitment. The promissory notes issued for
such loans, bearing interest with rates from prime plus 2% to 15%, were
exchanged for 8.5% convertible notes in 1995 in the same principal amount and
with a conversion price of $5.00 per share.
Vanguard Cellular Systems, Inc. (together with its subsidiaries,
"Vanguard") made a series of investments in the Company's equity and debt
securities beginning in 1995. In 1999, Vanguard was acquired by AT&T Corporation
("AT&T"). Prior to the acquisition by AT&T, Stephen R. Leeolou, the Chairman and
Chief Executive Officer of the Company, was President and Chief Executive
Officer of Vanguard and five of the Company's other directors (Mr. Preyer, Mr.
Griffin, Mr. Richardson, Mr. DeMichele and Mr. Silverberg) were also directors
of Vanguard. Since the acquisition of Vanguard by AT&T, there has been no
overlapping of management of the Company.
In May 1995, Vanguard, purchased 400,000 shares of Common Stock of the
Company at a purchase price of $5.00 per share. In connection with such
purchase, Vanguard received a warrant to purchase up to an additional 10.27% of
the Common Stock of the Company (the "Vanguard Warrant"). The Vanguard Warrant
was restructured in 1996 to provide Vanguard with the right to buy 900,113
shares at any time before May 5, 2005 at $23.50 per share.
In October 1995, the Board of Directors approved a private offering of
Common Stock at a purchase price of $5.50 per share, pursuant to which $18.1
million of Common Stock was sold. Purchasers included Mr. Preyer (45,454
shares), Mr. Griffin (45,454 shares), Mr. Leeolou (45,454 shares) Mr. DeMichele
(10,000 shares), Alonzo Family Partners, Ltd. (36,363 shares), Shipyard
Associates, a general partnership of which certain of Mr. Emerson's family
members and an entity affiliated with Mr. Emerson were general partners,
Vanguard (1,454,546 shares), Toronto Dominion Investments, Inc. ("TDI") (363,636
shares), and Piedmont Acorn Investors Limited Partnership (786,286 shares). In
connection with this offering, purchasers of $250,000 or more of Common Stock
received warrants to purchase a number of shares of Common Stock equal to 5% of
the shares purchased in the offering and purchasers of $1,000,000 or more of
Common Stock received warrants to purchase a number of shares of Common Stock
equal to 10% of the shares purchased in the offering. Purchasers of Common Stock
in this offering who were also purchasers of Common Stock in 1994 and earlier
1995 offerings (excluding Vanguard) were also offered warrants (at a purchase
price of $.01 per warrant share) to purchase Common Stock. The exercise price of
the warrants in this offering was stated to equal the average sales price of the
next $2 million of Common Stock issued and sold by the Company. Purchasers and
recipients of warrants in this offering included Mr. Preyer (2,773 shares), Mr.
Griffin (2,773 shares), Mr. Leeolou (2,773 shares), Mr. DeMichele (1,000
shares), Vanguard (145,455 shares), Piedmont Acorn Investors Limited Partnership
(78,629 shares), TDI (36,364 shares), Shipyard Associates (13,750 shares), Smith
Richardson Foundation, Inc. (2,500 shares) and Piedmont Harbor-Piedmont
Associates Limited Partnership (2,500 shares). Since the issuance of the
warrants, the Company has not sold $2 million of common stock but did sell in
excess of $2 million of Series A Preferred Stock convertible into common stock
at a conversion price of $8.50 per share. Therefore, in June 1999 the Board of
Directors declared that the exercise price for these warrants to be $8.50 per
share. These warrants expire on December 31, 2000.
In connection with its investment in the aforementioned offering, the
Company, Vanguard and shareholders representing a majority of the outstanding
common stock, including the directors of the Company who owned common stock,
entered into a voting agreement in November 1996 pursuant to which such
shareholders agreed to vote their shares in all elections of directors so as to
elect to the Board of Directors six persons nominated by Vanguard. The Voting
Agreement terminated upon the acquisition of Vanguard by AT&T in 1999.
On December 28, 1995, the Company issued to CSI a $375,000 note,
convertible into shares of Common Stock at the rate of $5.50 per share and
bearing interest at the rate of 8.5% per annum, in satisfaction of certain
obligations of the Company to CSI for consulting services rendered. In January
1996, at CSI's request the convertible note was partitioned and distributed to
certain creditors of CSI, including Mr. Nash ($90,000) and Mr. Jones ($216,000).
In connection with Mr. Nash's agreement to assign his interest in a terminal
design to the Company, Mr. Nash's note was prepaid by the Company in January
1996.
Effective February 1, 1996, the holders of the 8.5% convertible notes
issued in 1995 converted the principal thereof into shares of Common Stock at
the conversion price of $5.00 per share and accepted Common Stock in lieu of
one-half of the accrued interest thereon at the rate of $5.50 per share. Shares
issued to converting noteholders pursuant to this conversion and interest
payment included the following: Mr. Preyer, 40,864 shares; Mr. Griffin, 40,864
shares; Mr. Leeolou, 40,864 shares; Mr. Emerson, 36,778 shares; Mr. Ludington,
13,620 shares; and Alonzo Family Partners, Ltd., 7,350 shares.
Effective May 31, 1996, other promissory notes issued in 1994 to Mr.
Emerson, Mr. Griffin, Mr. Leeolou, Mr. Preyer and Mr. Ludington, including
accrued interest, were exchanged for shares of the Common Stock at the rate of
$5.50 per share. Shares issued to exchanging noteholders pursuant to such
exchange included the following: Mr. Emerson, 11,169 shares; Mr. Griffin, 12,410
shares; Mr. Leeolou, 12,410 shares; Mr. Preyer, 12,410 shares; and Mr.
Ludington, 4,136 shares.
<PAGE>
In June 1996, the Company entered into a management services agreement
with Vanguard for a two year term pursuant to which Vanguard agreed to provide
services to the Company from time to time to assist the Company in developing
accounting, human resources, information management, legal compliance, sales
training, research and development, business development and operation
procedures, and systems and programs. In 1996 and 1997, the Company issued an
aggregate of 20,000 shares of Common Stock to Vanguard as compensation for
services under this agreement. In June 1998, the Company and Vanguard entered
into a new management services agreement pursuant to which the Company agreed to
reimburse Vanguard a pro-rata portion of the salary and benefits paid by
Vanguard to its employees providing services to the Company at the Company's
request, based on their time devoted to the Company, plus Vanguard's
out-of-pocket expenses. For the fiscal years December 31, 1999, 1998 and 1997,
the Company reimbursed Vanguard $21,000, $78,000, and $218,000 respectively,
for services rendered to the Company.
In connection with their respective investments, Vanguard and TDI each
entered into agreements providing certain rights to have their shares of the
Company's Common Stock registered under the Securities Act. If the Company
proposes to make a registered public offering of any of its securities under the
Securities Act, other than certain specified types of offerings, the Company
will be obligated to give written notice of the proposed registration to
Vanguard and TDI. Upon receipt of such written notice of the proposed
registration, Vanguard and TDI will be entitled to request that all or a portion
of their Common Stock be included in such registration offering (a "Piggyback
Registration") except in certain specified circumstances. The agreements also
provide that, at any time after six months from the date the first registration
statement filed under the Securities Act by the Company becomes effective, the
shareholder is entitled to request registration for sale under the Securities
Act of all or a portion of its Common Stock (a "Demand Registration"), provided
that the shareholder shall not be entitled to request any Demand Registration
within the 12-month period immediately following the date of any previous
request for a Demand Registration. These rights to Piggyback and Demand
Registrations expire at such time as the recipient's shares subject to such
registration rights may be sold pursuant to Rule 144(k) of the Securities Act.
In August 1996, the Company issued in a private placement transaction
(the "Private Placement") 142,000 units, each consisting of a 14% Senior
Discount Note due 2003 with a principal amount at maturity of $1,000
(collectively, the "Discount Notes") and a warrant to purchase 7.334 shares
(adjusting to 9.429 shares at September 30, 1997 if the Company did not complete
a qualified initial public offering of common stock by that date) of common
stock of the Company at $.01 per share (collectively, the "Discount Note
Warrants"). Vanguard purchased 18,000 of the units sold in the Private
Placement.
In July 1998, the Board of Directors approved a private offering of
Series A Preferred Stock at $100 per share. See Item 5. of Part II "Market for
Registrant's Common Equity and Related Stockholder Matters" and Item 7. of
Part II "Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Liquidity and Capital Resources." Purchasers in the
private offering included the following: Mr. Leeolou, 27,500 shares;
Mr. Griffin, 11,250 shares; Mr. Ludington, 1,000 shares; Mr. Silverberg,
2,500 shares; Mr. Preyer, 24,500 shares; and Vanguard, 80,000 shares.
In addition, Richardson Family entities purchased 72,478 shares of
Series A Preferred Stock in the private offering. See Part III, Item 12,
"Security Ownership of Certain Beneficial Owners and Management."
In March 1999, LJR Limited Partnership ("LJR") purchased 75,000 shares
of Series A Preferred Stock in the private offering. In connection with its
investment, LJR was granted the right to have an advisor attend meetings of the
Board of Directors and committee meetings and was also granted registration
rights similar to those granted to Vanguard and TDI. In addition, the Company
and a majority of the holders of its voting stock entered into an agreement
pursuant to which LJR is entitled to designate one director on the Company's
Board of Directors. Richard A. Horvitz was designated as that director. LJR's
rights to its Board representative and advisor terminates upon consummation of
an initial public offering of the Company's Common Stock.
In October 1999, the Company repurchased for an aggregate of $3.0
million in cash Discount Notes issued in the Private Placement in 1996 with a
face value of approximately $15.0 million. Discount Note Warrants to purchase
141,435 shares of the Company's common stock originally issued in connection
with the issuance of these Discount Notes were also repurchased by the Company
in this transaction at no additional cost. In December 1999, the Company
effected an exchange offer (the "Exchange Offer") of Senior Pay-in-Kind Notes
Due 2003 of Inter*Act Operating Co., Inc., a wholly owned subsidiary of the
Company, 14% Series B Senior Mandatorily Convertible Preferred Stock of the
Company and common stock purchase warrants for its outstanding Discount Notes.
See Item 7. of Part II "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Liquidity and Capital Resources." A
condition of the noteholders agreeing to tender in the Exchange Offer was that
the Company raise $10 million in cash, $3 million of which was permitted to be
raised through the resale for $3 million in cash of the $15 million in face
value of Discount Notes and related Discount Note Warrants repurchased by the
Company in October 1999; the balance was expected to be raised through the
issuance of equity securities. Prior to the consummation of the Exchange Offer
in December 1999, the Company sold in a private offering 70,012 shares of
Series C Preferred Stock at a purchase price of $100 per share for aggregate
proceeds of $7 million. See Item 5. of Part II "Market for Registrant's Common
Equity and Related Stockholder Matters" and Item 7. of Part II "Management's
Discussion and Analysis of Financial Condition and Results of Operations --
Liquidity and Capital Resources." Purchasers of the Series C Preferred Stock in
December 1999 included the following: Mr. Leeolou, 5,000 shares; Mr. Griffin,
1,000 shares; Mr. Richardson, 5,000 shares; and Mr. Silverberg, 1,500 shares.
In addition, LJR Limited Partnership purchased 17,000 shares and Richardson
Family entities purchased 35,000 shares. The Company then
72
<PAGE>
offered to the initial purchasers of the Series C Preferred Stock in December
1999 a portion of the Discount Notes and related Discount Note Warrants
repurchased by the Company in October 1999 to be resold by the Company in order
to raise the additional $3 million necessary to consummate the Exchange Offer.
The balance of the Discount Notes and related Discount Note Warrants were
offered and sold to an unrelated institutional noteholder. The purchase price
for these Discount Notes and related Discount Note Warrants was $.20 per $1.00
of Discount Note face value, which was the same price at which the Company
purchased these Discount Notes and related Discount Note Warrants in October,
1999. Purchasers and amounts paid included the following: Mr. Leeolou, $400,000;
Mr. Griffin, $60,000; Mr. Preyer, $80,000; Mr. Richardson, $140,000;
Mr. Silverberg, $80,000; and LJR Limited Partnership, $1,000,000. Following
these purchases, the Discount Notes were exchanged for Series B Preferred Stock,
PIK Notes and Exchange Offer Warrants in the Exchange Offer.
Stock options have been granted under the Company's stock option plans
from time to time the Company directors and officers. See Part III, Item 10,
"Directors and Executive Officers of the Registrant" and Part III, Item 11,
"Executive Compensation."
73
<PAGE>
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
(a) List of documents filed as part of this report:
1. The financial statements listed on page F-1.
2. All schedules are omitted because they are not applicable, not
required or the requested information is included in the Consolidated
Financial Statements or notes thereto.
3. Exhibits to this report are listed below and in the accompanying
Index to Exhibits.
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ---------- -----------
<S> <C>
*3 (a)(1) Restated Articles of Incorporation of the Company, effective
September 10, 1999, filed as Exhibit 3(a) to the Company's
Quarterly Report on Form 10-Q for the period ended September
30, 1999.
3 (a)(2) Articles of Amendment of the Company, dated December 22,
1999 and effective December 22, 1999.
3 (a)(3) Articles of Merger of Inter*Act Operating Co., Inc. into the
Company, dated December 29, 1999 and effective December 30,
1999.
*3 (b) Amended and Restated Bylaws of the Company, filed as Exhibit
3(b) to the Company's Annual Report on Form 10 K for the
fiscal year ended December 31, 1998.
*4 (a)(1) Specimen Certificate of the Company's Common Stock, filed as
Exhibit 4(a) to the Company's Registration Statement on Form
S-4 (No. 333-12091).
*4 (a)(2) Specimen Certificate of the Company's 10% Series A
Mandatorily Convertible Preferred Stock, filed as Exhibit
4(a)(2) To the Company's Annual Report on Form 10-K for the
fiscal year ended December 31, 1998.
4 (a)(3) Specimen Certificate of the Company's 14% Series B Senior
Mandatorily Convertible Preferred Stock.
4 (a)(4) Specimen Certificate of the Company's 10% Series C
Mandatorily Convertible Preferred Stock.
4 (b) Indenture dated as of December 15, 1999. between the Company
and State Street Bank and Trust Company, as trustee,
relating to $70,000,000 in principal amount of
Senior-Paid-In-Kind Notes due 2003.
4 (b)(1) First Supplemental Indenture dated as of December 30, 1999
to Indenture dated as of December 15, 1999, between the
Company and State Street Bank and Trust Company, as trustee,
relating to $70,000,000 in principal amount of
Senior-Paid-in-Kind Notes due 2003.
*10 (a)(1) Shareholders' Agreement dated April 16, 1993, between the
Company and its shareholders, filed as Exhibit 10(m) to the
Company's Registration Statement on Form S-4 (No.
333-12091).
*10 (a)(2) Amendment No. l to Shareholders' Agreement dated June 17.
1994, between the Company and its shareholders, filed as
Exhibit 10(n) to the Company's Registration Statement on
Form S-4 (No. 333-12091).
*10 (a)(3) Registration Rights Agreement dated May 5, 1995, between the
Company and Vanguard Cellular Systems, Inc., filed as
Exhibit 10(c) to the Company's Registration Statement on
Form S-4 (No. 333-12091).
*10 (a)(4) Amendment No. 1 to Registration Rights Agreement dated
October 1995, between the Company and Vanguard Cellular
Systems, Inc., filed as Exhibit 10(d) to the Company's
Registration Statement on Form S-4 (No. 333-12091).
*10 (a)(5) Subscription Agreement dated October 1995, between the
Company and Vanguard Cellular Systems, Inc., filed as
Exhibit 10(f) to the Company's Registration Statement on
Form S-4 (No. 333-12091).
*10 (a)(6) Registration Rights Agreement dated March 1996 between the
Company and Toronto Dominion Investments, Inc., filed as
Exhibit 10(e) to the Company's Registration Statement on
Form S-4 (No. 333-12091).
*10 (a)(7) Exchange and Registration Rights Agreement dated July 30,
1996, between the Company and the Initial Purchasers, filed
as Exhibit 10(o) to the Company's Registration Statement on
Form S-4 (No. 333-12091).
*10 (a)(8) Amended and Restated Common Stock Purchase Warrant granted
to Vanguard Cellular Operating Corp, filed as Exhibit l0(k)
to the Company's Registration Statement on Form S-4 (No.
333-12091).
*10 (a)(9) 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 Registration Statement on Form S-4
(No, 333-12091).
*10 (a)(10) Voting Agreement among the Company, Vanguard Cellular
Operating Corp. and certain shareholders dated as of
November 1, 1996, filed as Exhibit 10(ii) to the Company's
Quarterly Report on Form 10-Q for the period ended June 30,
1998.
*10 (a)(11) Amendment No. 1 to Voting Agreement among the Company, Vanguard
Cellular Operating, Corp. and certain shareholders, dated September 30,
1998, filed as Exhibit 10(a)(11) to the Company's Annual Report on
Form 10-K for the fiscal year ended December 31, 1998.
*10 (a)(12) Form of Rights Offering Subscription Agreement for the
Company's 10% Series A Mandatorily Convertible Preferred
Stock filed as Exhibit 10(a)(12) to the Company's Annual
Report on Form 10-K for the fiscal year ended
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ---------- -----------
<S> <C>
December 31, 1998.
10 (a)(13) Warrant Agreement, dated as of December 15, 1999, between
the Company and American Stock Transfer & Trust Company, as
Warrant Agent.
10 (a)(14) Exchange and Registration Rights Agreement, dated as of
December 15, 1999, between Inter*Act Operating Co., Inc, and
certain noteholders.
10 (a)(15) Registration Rights Agreement, dated as of December 15,
1999, between the Company and the holders of the Company's
14% Series B Senior Mandatorily Convertible Preferred Stock.
10 (a)(16) Stockholders Agreement, dated as of December 15, 1999,
between the Company and certain stockholders.
10 (a)(17) Form of Subscription Agreement for the Company's 10% Series
C Mandatorily Convertible Preferred Stock and Common Stock
Warrants.
10 (a)(18) Form of Common Stock Warrant.
*10 (b)(1) Company's 1994 Stock Compensation Plan, filed as Exhibit
10(i) to the Company's Registration Statement on Form S-4
(No. 333-12091).
*10 (b)(2) Form of Incentive Stock Option Agreement under the 1994
Stock Compensation Plan, filed as Exhibit 10(k) to the
Company's Registration Statement on Form S-4 (No. 333-12091).
*10 (b)(3) Company's 1996 Nonqualified Stock Option Plan, filed as
Exhibit 10(g) to the Company's Registration Statement on
Form S-4 (No. 333-12091).
*10 (b)(4) Form of Nonqualified Stock Option Agreement under the 1996
Nonqualified Stock Option Plan, filed as Exhibit 10(h) to
the Company's Registration Statement on Form S-4 (No.
333-12091).
*10 (b)(5) Company's 1997 Long-Term Incentive Plan, as amended, filed
as Exhibit 10(b)(5) to the Company's Quarterly Report on
Form 10-Q for the period ended June 30, 1999.
*10 (b)(6) Form of Incentive Stock Option Agreement to the 1997
Long-Term Incentive Plan, filed as Exhibit 10(aa) to the
Company's Annual Report on Form 10-K for the fiscal year
ended December 31, 1997.
*10 (b)(7) Form of Nonqualified Stock Option Agreement to the 1997
Long-Term Incentive Plan Fled as Exhibit 10(bb) to the
Company's Annual Report on Form 10-K for the fiscal year
ended December 31, 1997.
*10 (b)(8) Key Employee Severance Plan, filed as Exhibit 10(b)(8) to
the Company's Quarterly Report cm Form 10-Q for the period
ended June 30, 1999.
*10 (b)(9) Form of Severance Agreement for Key Employees, filed as
Exhibit 10(b)(9) to the Company's Quarterly Report on Form
10-Q for the period ended June 30, 1999.
*10 (c)(1) Assignment of License Agreement dated June 15, 1993 among
Gerald Singer and Arthur Murphy as Licensors, Michael R.
Jones as Licensee and Network Licensing, Inc. as Assignee,
filed as Exhibit 10(q) to the Company's Registration
Statement on Form S-4 (No. 333-12091).
*10 (c)(2) Security Agreement dated June 16, 1993 between Michael R.
Jones and Network Licensing, Inc, filed as Exhibit 10(r) to
the Company's Registration Statement on Form S-4 (No. 233-12091).
*10 (c)(3) Sublicense dated June 16, 1993 between Network Licensing,
Inc. and the Company, filed as Exhibit 10(s) to the
Company's Registration Statement on Form S-4 (No. 333-12091).
*10 (c)(4) Settlement Agreement and Mutual General Release dated as of
September 6, 1994 among Gerald R. Singer, Arthur J. Murphy,
Lenora Singer, Joan Murphy, Network Licensing, Inc. and the
Company, filed as Exhibit 10(t) to the Company's
Registration Statement on Form S-4 (No. 333-12091).
*10 (c)(5) Amended and Restated Patent Rights Assignment/Consulting
Agreement dated as of March 29, 1995 between Joseph F.
Stratton and the Company, filed as Exhibit 10(u) to the
Company's Registration Statement on Form S-4 (No.
333-12091).
*10 (c)(6) Agreement Regarding Licensing matters dated as of January
22, 1996 among Michael R. Jones, Network Licensing, Inc. and
the Company, filed as Exhibit 10(v) to the Company's
Registration Statement on Form S-4 (No. 333-12091).
*10 (c)(7) Letter Agreement dated July 22, 1996 between Gerald Singer,
Arthur J. Murphy and the Company, filed as Exhibit 10(w) to
the Company's Registration Statement on Form S-4 (No.
333-12091).
*10 (c)(8) Assignment dated as of July 23, 1996 from Network Licensing,
Inc, to the Company, filed as Exhibit 10(x) to the Company's
Registration Statement on Form S-4 (No. 333-12091).
*10 (c)(9) Patent License Agreement dated August 20, 1997, between the
Company and Coupco, Inc, filed as Exhibit 10(cc) to the
Company's Annual Report on Form 10-K for the fiscal year
ended December 31, 1997 (Portions of this exhibit have been
omitted pursuant to a request for confidential treatment).
*10 (c)(10) Patent Purchase Agreement dated May 22, 1998, between the
Company, Credit Verification Corporation and David W. Deaton,
filed as Exhibit 10(hh) to the Company's Quarterly Report on Form
10-Q for the period ended June 30, 1998 (Portions of this
exhibit have been omitted pursuant to a request for
confidential treatment).
*10 (c)(11) Letter Agreement dated October 2, 1998 between Leona R.
Singer, Trustee under the Gerald And Leona R. Singer Family
Trust, Arthur J. Murphy and the Company, filed as Exhibit
10(c)(11) to the Company's Annual Report on
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ---------- -----------
<S> <C>
Form l0-K for the fiscal year ended December 31, 1998.
*10 (d)(1) Letter Agreement dated March 17, 1997 between the Company
and Thomas A. Manna, filed as Exhibit 10(ee) to the
Company's Annual Report on Form 10-K for the fiscal year
ended December 31, 1997.
*10 (d)(2) Severance and Release Agreement dated January 23, 1999
between the Company and Thomas A. Manna, filed as Exhibit
10(d)(2) to the Company's Annual Report on Form 10-K for the
fiscal year ended December 31, 1998.
*10 (d)(3) Form of Employment, Noncompetition and Nondisclosure
Agreement, filed as Exhibit 10(aa) to the Company's Annual
Report on Form 10-K for the fiscal year ended December 31,
1997.
10 (d)(4) Nonqualified Stock Option Agreement dated September 15, 1999
between the Company and Stephen R. Leeolou.
10 (d)(5) Incentive Stock Option Agreement dated September 15, 1999
between the Company and Stephen R. Leeolou.
10 (d)(6) Nonqualified Stock Option Agreement dated September 15, 1999
between the Company and Stephen R, Leeolou.
10 (d)(7) Employment Agreement dated November 2, 1999 between the
Company and Stephen R. Leeolou.
10 (d)(8) Nonqualified Stock Option Agreement dated November 2, 1999
between the Company and Stephen R. Leeolou.
10 (e)(1) Global Master Agreement effective January 26, 2000 between the
Company and NCR Corporation.
10 (e)(2) Addendum to Master Agreement dated January 26, 2000 between
the Company and NCR Corporation (Portions of this exhibit have
been omitted pursuant to a request for confidential
treatment).
21 List of Subsidiaries of the Company, filed as Exhibit 21 to
the Company's Annual Report on Form 10-K for the fiscal year
ended December 31, 1997.
27 Financial Data Schedule.
</TABLE>
- ---------
* Incorporated by reference to the statement or report indicated.
(b) Reports on Form 8-K.
The Company did not file any reports on Form 8-K with the Securities and
Exchange Commission during the fourth quarter of 1999.
(c) Exhibits.
See (a)3 of this Item 14 for a listing of Exhibits filed as a part of this
Report.
(d) Additional Financial Statement Schedules.
None. Additional financial statement schedules are not filed herewith, as
the information required therein is either not applicable, or can be found in
the Consolidated Financial Statements or the Notes thereto.
SUPPLEMENTAL INFORMATION TO BE FURNISHED WITH REPORTS FILED PURSUANT TO SECTION
15(d) OF THE ACT BY REGISTRANTS WHICH HAVE NOT REGISTERED SECURITIES PURSUANT TO
SECTION 12 OF THE ACT
Neither an annual report covering the Company's last fiscal year nor
proxy materials with respect to any annual or other meeting of security
holders have been sent to security holders. The Company currently
anticipates that it will send to security holders a copy of this Annual
Report on Form 10-K the year ended December 31, 1999 at a future date.
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15 (d) of the Securities
and Exchange Act of 1934, the Company has duly caused this Annual Report on
Form 10-K/A report to be signed on its behalf by the undersigned, thereunto
duly authorized.
INTER*ACT ELECTRONIC MARKETING, INC.
By: /s/ Thomas J. McGoldrick
.............................................
THOMAS J. McGOLDRICK, EXECUTIVE VICE PRESIDENT,
AND CHIEF FINANCIAL OFFICER
April 5, 2000
<PAGE>
INTER*ACT ELECTRONIC MARKETING, INC.
(formerly Inter*Act Systems, Inc.)
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
Report of Independent Public Accountants F-2
Consolidated Balance Sheets as of December 31, 1999 and 1998 F-3
Consolidated Statements of Operations for each of the three years in the period ended December 31, 1999 F-4
Consolidated Statements of Cash Flows for each of the three years in the period ended December 31, 1999 F-5
Consolidated Statements of Stockholders' Equity (Deficit) and Comprehensive Income for each of the three years in
the period ended December 31, 1999 F-6
Notes to Consolidated Financial Statements F-7
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Inter*Act Electronic Marketing, Inc.:
We have audited the accompanying consolidated balance sheets of Inter
Act*Electronic Marketing, Inc. (a North Carolina corporation) (formerly Inter
Act*Systems, Inc.) and subsidiaries as of December 31, 1999 and 1998, and the
related consolidated statements of operations, stockholders' equity (deficit)
and comprehensive income and cash flows for each of the three years in the
period ended December 31, 1999. These financial statements are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Inter*Act Electronic Marketing,
Inc. and subsidiaries as of December 31, 1999 and 1998, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1999, in conformity with accounting principles generally accepted
in the United States.
ARTHUR ANDERSEN LLP
New York, New York
March 30, 2000
F-2
<PAGE>
INTER*ACT ELECTRONIC MARKETING, INC.
(formerly Inter*Act Systems, Inc.)
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31,
---------------------------------
ASSETS 1999 1998
------ ---- ----
(In thousands, except share data)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 9,939 $ 14,166
Receivables, net 1,715 3,667
Other current assets 4,206 2,964
----------- -----------
Total current assets 15,860 20,797
Property, plant and equipment, net 31,222 28,102
Bond issuance costs, net 96 2,776
Patents, licenses and trademarks, net 7,812 8,771
Other noncurrent assets 123 45
----------- -----------
Total assets $ 55,113 $ 60,491
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
----------------------------------------------
Current liabilities:
Accounts payable $ 5,351 $ 3,075
Accrued expenses 3,415 3,016
Current portion of long-term 6,135 5,554
Deferred revenue 332 2,146
----------- -----------
Total current liabilities 15,233 13,791
Long-term debt, net of discount 63,949 111,819
Accrued dividends 4,071 --
----------- -----------
Total liabilities 83,253 125,610
----------- -----------
Common stock purchase warrants 11,367 27,436
----------- -----------
14% Series B Senior Mandatorily Redeemable Convertible Preferred Stock, no par value, authorized
140,000 shares; 139,575 and 0 shares issued and outstanding at December 31, 1999 and
1998, respectively 59,146 --
----------- -----------
10% Series C Mandatorily Redeemable Convertible Preferred Stock, no par value, authorized
250,000 shares; 70,120 and 0 shares issued and outstanding at December 31, 1999 and 1998,
respectively 7,039 --
----------- -----------
Committments and Contingencies (Note 4 and 15)
Stockholders' equity (deficit):
10% Series A Mandatorily Convertible Preferred stock, no par value, authorized 700,000
shares; 498,868 and 177,878 shares issued and outstanding at December 31, 1999 and
1998, respectively 53,199 18,142
Common stock, no par value, authorized 50,000,000 shares; 7,743,739 and 7,728,555 shares
issued and outstanding at December 31, 1999 and 1998, respectively 28,380 28,251
Additional paid-in capital 22,468 768
Deferred compensation -- (416)
Accumulated other comprehensive income (loss) 26 (19)
Accumulated deficit (209,765) (139,281)
----------- -----------
Total stockholders' equity (deficit) (105,692) (92,555)
----------- -----------
Total liabilities and stockholders' equity (deficit) $ 55,113 $ 60,491
=========== ===========
</TABLE>
The accompanying notes are an integral part of these balance sheets.
F-3
<PAGE>
INTER*ACT ELECTRONIC MARKETING, INC.
(formerly Inter*Act Systems, Inc.)
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------------------------
1999 1998 1997
---- ---- ----
(In thousands, except per share data)
<S> <C> <C> <C>
Gross sales $ 7,706 $ 7,082 $ 1,672
Less: Retailer reimbursements (2,610) (2,489) (964)
--------------- --------------- --------------
Net sales 5,096 4,593 708
--------------- --------------- --------------
Operating expenses:
Direct costs 9,538 10,216 5,784
Selling, general and administrative expenses 28,623 29,169 26,352
Depreciation and amortization of intangible assets 9,687 7,459 3,934
--------------- --------------- --------------
Total operating expenses 47,848 46,844 36,070
--------------- --------------- --------------
Operating loss (42,752) (42,251) (35,362)
--------------- --------------- --------------
Other income (expense):
Interest income 267 1,338 3,892
Interest expense (23,582) (21,147) (18,033)
Other expense 2 -- (301)
--------------- --------------- --------------
Total other expense (23,313) (19,809) (14,442)
--------------- --------------- --------------
Loss before extraordinary items and income taxes (66,065) (62,060) (49,804)
Income taxes -- -- (10)
--------------- --------------- --------------
Net loss before extraordinary items (66,065) (62,060) (49,814)
Extraordinary items - gain on extinguishment of debt 4,213 -- --
--------------- --------------- --------------
Net loss (61,852) (62,060) (49,814)
Preferred stock dividends accrued (7,752) (354) --
--------------- --------------- --------------
Net loss attributable to common stock $ (69,604) $ (62,414) $ (49,814)
=============== =============== ==============
Per share information:
Net loss per common share before extraordinary items:
Basic and Diluted $ (9.54) $ (8.08) $ (6.48)
=============== =============== ==============
Extraordinary items - gain on extinguishment of debt 0.54 -- --
=============== =============== ===============
Net loss per common share:
Basic and Diluted $ (9.00) $ (8.08) $ (6.48)
=============== =============== ==============
Common shares used in computing per share amounts:
Basic and Diluted 7,731 7,729 7,692
=============== =============== ==============
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-4
<PAGE>
INTER*ACT ELECTRONIC MARKETING, INC.
(formerly Inter*Act Systems, Inc.)
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------------------------------
December 31, December 31, December 31,
1999 1998 1997
--------------------------------------------------
(In thousands)
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss $ (61,852) $ (62,060) $ (49,814)
Items not affecting cash and cash equivalents:
Gain on extinguishment of debt (4,213) -- --
Depreciation and amortization 10,258 7,985 3,934
Loss on disposal of assets 2 113 1,097
Non-cash interest on discounted bonds 22,324 20,413 17,972
Equity in earnings of affiliate, net -- -- 301
Other items, net 136 156 319
Changes in working capital:
Receivables, net (1,905) (2,854) (196)
Other current assets 239 99 (2,260)
Accounts payable and accrued expenses 2,885 (3,883) 6,416
Deferred revenues 1,776 1,607 60
-------------- -------------- -------------
Net cash used in operating activities (30,350) (38,424) (22,171)
-------------- -------------- -------------
Cash flows from investing activities:
Expenditures for property, plant and equipment (11,846) (8,085) (20,110)
Proceeds from disposal of assets 5 -- --
Patent acquisition costs -- (2,090) (800)
-------------- -------------- -------------
Net cash used in investing activities (11,841) (10,175) (20,910)
-------------- -------------- -------------
Cash flows from financing activities:
Net proceeds from issuance of 10% Series A Mandatorily Convertible
Preferred Stock, net 31,402 17,688 --
Net proceeds from issuance of 10% Series C Mandatorily Redeemable
Convertible Preferred Stock 7,012 -- --
Payment of obligation under capital lease (226) -- --
Long-term debt repayments - extinguishment of debt (194) (125) --
Payment of debt issuance costs (95) -- --
-------------- -------------- -------------
Net cash provided by financing activities 37,899 17,563 --
-------------- -------------- -------------
Foreign exchange effects on cash and cash equivalents 65 (9) (14)
-------------- -------------- -------------
Net decrease in cash and cash equivalents (4,227) (31,045) (43,095)
Cash and cash equivalents at beginning of period 14,166 45,211 88,306
-------------- -------------- -------------
Cash and cash equivalents at end of period $ 9,939 $ 14,166 $ 45,211
============== ============== =============
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest $ 1,060 $ 45 $ 39
============== ============== =============
Supplemental disclosures of non-cash investing and financing activities:
Issuance of common stock in consideration of certain obligations $ 129 $ -- $ 600
============== ============== =============
Issuance of 14% Senior Pay-in-Kind Notes in connection with the
extinguishment of long-term debt $ 69,789 $ -- $ --
============== ============== =============
Issuance of common stock purchase warrants in connection with the issuance
of 14% Senior Discount Notes $ -- $ -- $ 2,972
============== ============== =============
Issuance of common stock purchase warrants in connection with the issuance
of 14% Senior Pay-in-Kind Notes $ 10,641 $ -- $ --
============== ============== =============
Issuance of 14% Series B Senior Mandatorily Redeemable Convertible Preferred
Stock in connection with the extinguishment of long-term debt $ 69,789 $ -- $ --
============== ============== =============
Issuance of warrants in connection with the issuance of 14% Series B Senior
Mandatorily Redeemable Convertible Preferred Stock $ 10,641 $ -- $ --
============== ============== =============
Issuance of warrants in connection with the issuance of 10% Series C
Mandatorily Redeemable Convertible Preferred Stock $ 879 $ -- $ --
============== ============== =============
Dividends payable in preferred stock (Note 9 and 10) $ 3,681 $ 354 $ --
============== ============== =============
Accrued dividends payable in cash (Note 9 and 10) $ 4,071 $ -- $ --
============== ============== =============
Obligation under capital lease for acquired equipment $ 1,436 $ -- $ --
============== ============== =============
Issuance of note payable for patent acquisition $ -- $ 5,679 $ --
============== ============== =============
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-5
<PAGE>
INTER*ACT ELECTRONIC MARKETING, INC.
(formerly Inter*Act Systems, Inc.)
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT) AND COMPREHENSIVE
INCOME (In thousands)
<TABLE>
<CAPTION>
Series A Accumulated
Preferred Stock Common Stock Additional Other
--------------------- ------------------- Paid-in Deferred Comprehensive
Shares Amount Shares Amount Capital Compensation Income(Loss)
-------- -------- -------- -------- --------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1996 -- $ -- 7,669 $ 27,651 $ 768 $ (723) $ --
Issuance of common stock -- -- 60 600 -- -- --
Amortization of deferred compensation -- -- -- -- -- 153 --
Net loss -- -- -- -- -- -- --
Other comprehensive income (loss) -
Foreign currency translation
adjustment -- -- -- -- -- -- (14)
-------- -------- -------- -------- --------- ------------ ------------
Balance at December 31, 1997 -- -- 7,729 28,251 768 (570) (14)
Issuance of preferred stock 178 17,788 -- -- -- -- --
Preferred stock dividends accrued -- 354 -- -- -- -- --
Amortization of deferred compensation -- -- -- -- -- 154 --
Net loss -- -- -- -- -- -- --
Other comprehensive income (loss) -
Foreign currency translation
adjustment -- -- -- -- -- -- (5)
-------- -------- -------- -------- --------- ------------ ------------
Balance at December 31, 1998 178 18,142 7,729 28,251 768 (416) (19)
Issuance of common stock in exchange
for services -- -- 15 129 -- -- --
Issuance of preferred stock, net 321 31,402 -- -- -- -- --
Issuance of warrants in connection
with the issuance of 14% Senior
Pay-In Kind Notes and 14% Series B
Senior Mandatorily Redeemable
Convertible Preferred Stock -- -- -- -- 21,282 -- --
Issuance of warrants in connection
with the issuance of 10% Series C
Mandatorily Redeemable Convertible
Preferred Stock -- -- -- -- 879 -- --
Preferred stock dividends accrued on
10% Series A Mandatorily
Convertible Preferred Stock -- 3,655 -- -- -- -- --
Preferred stock dividends accrued on
14% Series B Mandatorily Redeemable
Convertible Preferred Stock -- -- -- -- -- -- --
Preferred stock dividends accrued on
10% Series C Mandatorily Redeemable
Convertible Preferred Stock -- -- -- -- -- -- --
Reversal of deferred compensation
for cancelled options -- -- -- -- (461) 416 --
Net loss -- -- -- -- -- -- --
Other comprehensive income (loss) -
Foreign currency translation
adjustment -- -- -- -- -- -- 45
-------- -------- -------- -------- --------- ------------ ------------
Balance at December 31, 1999 499 $ 53,199 7,744 $ 28,380 $ 22,468 $ -- $ 26
======== ======== ======== ======== ========= ========== =========
</TABLE>
<TABLE>
<CAPTION>
Total
Stockholders'
Accumulated Equity Comprehensive
Deficit (Deficit) Income (Loss)
------------- ------------- --------------
<S> <C> <C> <C>
Balance at December 31, 1996 $ (27,053) $ 643
Issuance of common stock -- 600
Amortization of deferred compensation -- 153
Net loss (49,814) (49,814) $ (49,814)
Other comprehensive income (loss) -
Foreign currency translation
adjustment -- (14) (14)
------------- ------------- --------------
Balance at December 31, 1997 (76,867) (48,432) $ (49,828)
==============
Issuance of preferred stock -- 17,788
Issuance of common stock -- --
Preferred stock dividends accrued (354) --
Amortization of deferred compensation -- 154
Net loss (62,060) (62,060) $ (62,060)
Issuance of Preferred Stock -- (5) (5)
------------- ------------- --------------
Balance at December 31, 1998 (139,281) (92,555) $ (62,065)
==============
Issuance of common stock in exchange
for services -- 129
Issuance of preferred stock, net -- 31,402
Issuance of warrants in connection
with the issuance of 14% Senior
Pay-In Kind Notes and 14% Series B
Senior Mandatorily Redeemable
Convertible Preferred Stock -- 21,282
Issuance of warrants in connection
with the issuance of 10% Series C
Mandatorily Redeemable Convertible
Preferred Stock (879) --
Preferred stock dividends accrued on
10% Series A Mandatorily
Convertible Preferred Stock (3,655) --
Preferred stock dividends accrued on
14% Series B Mandatorily Redeemable
Convertible Preferred Stock (4,071) (4,071)
Preferred stock dividends accrued on
10% Series C Mandatorily Redeemable
Convertible Preferred Stock (27) (27)
Reversal of deferred compensation
for cancelled options -- (45)
Net loss (61,852) (61,852) $ (61,852)
Other comprehensive income (loss) -
Foreign currency translation
adjustment -- 45 45
------------- ------------- --------------
Balance at December 31, 1999 $ (209,765) $ (105,692) $ (61,807)
============= ============ ============
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-6
<PAGE>
INTER*ACT ELECTRONIC MARKETING, INC.
(formerly Inter*Act Systems, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999
(dollars in thousands, except share, per share and per note data)
1. BUSINESS DESCRIPTION
Inter*Act Electronic Marketing, Inc. ("Inter*Act" or the "Company"), which
changed its name from Inter*Act Systems, Incorporated effective July 1, 1999,
believes it operates the world's largest fully electronic marketing network
linked to supermarket and pharmacy retailers' point-of-sale ("POS") databases
that serves on-line promotions and advertisements to shoppers seamlessly
in-store, at home and in the office. The Company's patented technologies enable
consumer products manufacturers ("Manufacturers") and supermarket retailers
("Retailers") to use historical purchase behavior data to develop targeted
purchase incentives and messages which the Company delivers to customers before
shopping begins. The Company's proprietary system, called the Inter*Act
e-Marketing Network'sm' ("IEMN"), currently comprises approximately 4,000
server-based terminals located inside the front entrance of more than 20 retail
chains in the U.S. and Europe, as well as a recently launched Company-owned
Internet web site called ShopperPerks.com. The Company's web site and its
in-store ShopperPerks'TM' portals, are linked directly to each store's
point-of-sale scanning system via Company-owned in-store servers. This on-line
network gives Inter*Act's business partners exclusive access to offer all
shoppers (whether Internet users or not) same-day, personalized savings that are
electronically downloaded to participating retailers' cash register systems.
Delivering highly targeted, pre-shopping promotions on the IEMN historically has
generated average consumer response, or redemption, rates above 25%, which the
Company believes is superior to the response rate of any other marketing or
advertising medium in the industry.
Certain factors could affect Inter*Act's actual future financial
results. These factors include: (i) the Company's limited operating history,
significant losses, accumulated deficit 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 IEMN and the
uncertainty of market acceptance for the IEMN, (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 IEMN
terminals, (vii) the intensely competitive nature of the consumer product and
promotional industry and (viii) risks that the Company's rights related to
patents, proprietary information and trademarks may not adequately protect its
business (See Note 15 for a description of litigation concerning intellectual
property).
From inception to December 31, 1999, the Company has incurred recurring
losses and has experienced negative operating cash flow, and there is no
assurance that the product the Company has developed will achieve widespread
success in the marketplace. In addition to increasing its revenues, the Company
intends to raise additional equity and/or debt capital to fund its ongoing
expansion plans. There is no assurance that the Company will be fully successful
in obtaining the required additional capital or continued equipment financing.
In the event that the Company is only partially successful, the Company believes
that existing cash and cash equivalents, cash received from sales of preferred
stock since December 31, 1999 (See Note 10) and reduced or delayed operating and
capital expenditures will be sufficient to meet the Company's operating
requirements into the second quarter of 2001.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The financial statements include the consolidated accounts of the
Company and its wholly and majority-owned subsidiaries: Network Licensing, Inc.
("NLI"), Inter*Act International Holdings, Inc. ("Inter*Act International"),
Inter*Act Holdings, Ltd., ("Inter*Act Holdings"), Inter*Act U.K. Ltd.
("Inter*Act U.K.") and Inter*Act France, Ltd. ("IAEM S.A.S."). Network
Licensing, Inc. was incorporated in 1993; Inter*Act International, Inter*Act
Holdings and Inter*Act U.K. were incorporated during 1997; and IAEM S.A.S. was
incorporated during 1999. All intercompany accounts and transactions have
been eliminated in consolidation.
REVENUE RECOGNITION
REDEMPTION-BASED
During 1997, 1998 and to a limited extent in 1999, the Company had
arrangements with manufacturers whereby revenue was recognized as electronic
discounts are redeemed at store cash registers. Manufacturers pay a fee to the
Company for each redemption. The fee is composed of (i) a retailer processing
fee, (ii) a redemption fee and (iii) 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.
F-7
<PAGE>
INTER*ACT ELECTRONIC MARKETING, INC.
(formerly Inter*Act Systems, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999
(dollars in thousands, except share, per share and per note data)
FIXED FEE ARRANGEMENTS
Beginning in 1998 and through 1999, the Company also has arrangements
with Manufacturers whereby the Company receives a fixed payment over a fixed
period. In these cases, the Company recognizes revenue on a ratable basis over
the fixed period during which they are providing service or exclusivity to
the Manufacturers, as well as the retailer processing fee paid by the
Manufacturers.
DEFERRED REVENUE
Certain Manufacturers pay the Company in advance for a portion of
anticipated redemptions or a portion of the fixed contract amount, as
applicable, and these amounts are recorded as deferred revenue until earned
through redemption activity during the contract period.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents, which at December 31, 1999 and 1998 were
primarily comprised of money market funds and overnight repurchase agreements,
are stated at cost, which approximates market value. Highly liquid investments
with original maturities of three months or less are considered cash
equivalents.
RECEIVABLES, NET
Accounts receivable included in current assets are stated net of
allowances for doubtful accounts of approximately $300 and $127 at December 31,
1999 and 1998, respectively. The Company recorded approximately $190, $80 and
$30 for bad debt expense for the years ended December 31, 1999, 1998 and 1997,
respectively.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are stated at cost. Expenditures for
maintenance and repairs are charged to expense as incurred; costs of major
renewals and improvements are capitalized. At the time property and equipment
are retired or otherwise disposed of, the cost and accumulated depreciation are
eliminated from the assets and accumulated depreciation accounts and the profit
or loss on such disposition is reflected in income.
Depreciation is generally provided on the straight-line method for
financial reporting purposes over the estimated useful lives of the underlying
assets. Machinery and equipment are depreciated over a period ranging from 3 to
5 years and leasehold improvements are amortized using the straight-line method
over the term of the lease or the estimated useful life of the improvements,
whichever is shorter. In-store machinery and equipment are depreciated over five
years.
The Company capitalizes certain payroll costs associated with the
development of internal computer systems in accordance with Statement of
Position ("SOP") 98-1 "Accounting for the Costs of Computer Software Developed
or Obtained for Internal Use." These costs are included within property, plant
and equipment in the accompanying consolidated balance sheets. These costs are
amortized on a straight-line basis over the estimated useful lives of the
related computer systems or software, not to exceed five years.
RESEARCH AND DEVELOPMENT COSTS
Research and development costs incurred by the Company are included in
selling, general and administrative expenses. Such costs for the years ended
December 31, 1999, 1998 and 1997 were $71, $297 and $646, respectively.
F-8
<PAGE>
INTER*ACT ELECTRONIC MARKETING, INC.
(formerly Inter*Act Systems, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999
(dollars in thousands, except share, per share and per note data)
BOND ISSUANCE COSTS
Bond issuance costs as of December 31, 1999 are costs incurred by the
Company associated with a private placement of debt and preferred securities
exchanged during 1999 for the securities issued in a private placement in 1999
(the "Exchange Offer") (See Notes 6 and 7), and are being amortized over 4 years
using the effective interest rate method. Bond issuance costs as of December 31,
1998 were incurred by the Company associated with a private placement offering
of 14% Senior Discount Notes (the "1996 Private Placement") (See Note 7) and
were being amortized over seven years using the effective interest rate method.
During 1999, the Company restructured the 1996 Private Placement debt, and the
remaining unamortized debt issuance costs associated with those bonds were
written off as part of the gain on this restructuring (See Note 6). The Company
recorded interest expense on the amortization of bond issuance costs of $570,
$526 and $464 for the years ended December 31, 1999, 1998 and 1997,
respectively.
PATENTS, LICENSES AND TRADEMARKS
Acquisition costs for patents, licenses and trademarks and legal fees
incurred for the improvement and protection of the Company's patents, licenses
and trademarks have been deferred and are being amortized over fifteen years or
the remaining life of the patent, license or trademark, whichever is less, using
the straight-line method. Accumulated amortization was $1,739 and $780 at
December 31, 1999 and 1998, respectively. The Company recorded amortization
expense related to patents, licenses and trade marks of $959, $686 and $131 for
the years ended December 31, 1999, 1998 and 1997, respectively.
FOREIGN CURRENCY TRANSLATION
Assets and liabilities of foreign subsidiaries have been translated
using the exchange rates in effect at the balance sheet dates. Results of
operations of foreign entities are translated using the average exchange rates
prevailing throughout the period. Local currencies are considered functional
currencies of the Company's foreign operating entities. Translation effects are
accumulated as part of the cumulative foreign translation adjustment, which is
reflected in equity as accumulated other comprehensive income (loss). Gains and
losses from foreign currency transactions are included in net loss for the
period. The Company did not incur material foreign exchange gains or losses
during any period presented. The Company has not entered into any derivative
transactions to hedge foreign currency exposure.
LONG-LIVED ASSETS
The Company accounts for long-lived assets according to Statement of
Financial Accounting Standards ("SFAS") No. 121, "Accounting for the Impairment
of Long-Lived Assets and for Long-Lived Assets to be Disposed of." This standard
requires that long-lived assets be reviewed for impairment whenever events or
changes in circumstances indicate that the carrying amount of the asset in
question may not be recoverable. Management believes there is no impairment of
long-lived assets as of December 31, 1999.
INCOME TAXES
The Company accounts for income taxes in accordance with SFAS No. 109,
"Accounting for Income Taxes." SFAS No. 109 requires an asset and liability
approach for financial reporting for income taxes. It also requires the company
to adjust its deferred tax balances in the period of enactment for the effect of
enacted changes in tax rates and to provide a valuation allowance against such
deferred tax assets that are not, or more likely than not, to be realized (See
Note 13).
STOCK-BASED COMPENSATION
The Company has adopted the provisions of SFAS No. 123, "Accounting for
Stock-Based Compensation," by continuing to apply the provisions of Accounting
Principles Board ("APB") Opinion No. 25, "Accounting for Stock Issued to
Employees," while providing the required pro forma disclosures as if the fair
value method had been applied (See Note 14).
F-9
<PAGE>
INTER*ACT ELECTRONIC MARKETING, INC.
(formerly Inter*Act Systems, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999
(dollars in thousands, except share, per share and per note data)
NET LOSS PER SHARE
The Company follows the provisions of SFAS No. 128, "Earnings Per
Share" (See Note 11). 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. In all periods presented, the impact of
convertible preferred stock (See Note 10), stock options and warrants was
anti-dilutive, and basic and diluted EPS are the same.
COMPREHENSIVE INCOME (LOSS)
The Company follows the provisions of 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. Comprehensive and other
comprehensive income must be reported on the face of annual financial
statements. The Company has chosen to disclose comprehensive income (loss),
which for 1999, 1998 and 1997 includes its net loss and foreign currency
translation adjustments, in the accompanying consolidated statements of
stockholders' equity (deficit) and comprehensive income.
SEGMENT REPORTING
The Company follows the provisions of SFAS No. 131, "Disclosures about
Segments of an Enterprise and Related Information." Pursuant to this
pronouncement, reportable operating segments are determined based on the
Company's management approach. The management approach, as defined by SFAS No.
131, is based on the way that the chief operating decision maker organizes the
segments within an enterprise for making operating decisions and assessing
performance. The Company's results of operations are reviewed by the chief
operating decision maker on a consolidated basis and the Company operates in
only one segment. The Company has presented required geographical segment data
in Note 16, and no additional segment data has been presented.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets (specifically with
respect to the lives of in-store machinery and equipment) and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES - NEW ACCOUNTING PRONOUNCEMENT
In June 1998, the Financial Accounting Standards Board issued SFAS No.
133, "Accounting for Derivative Instruments and Hedging Activities". This
statement establishes accounting and reporting standards for derivative
instruments, including certain derivative instruments embedded in other
contracts, and for hedging activities. SFAS No. 133, as amended by SFAS No. 137,
is effective for all fiscal years beginning after June 15, 2000 and will not
require retroactive restatement of prior period financial statements. This
statement requires the recognition of all derivative instruments as either
assets or liabilities in the balance sheet measured at fair value. Derivative
instruments will be recognized as gains or losses in the period of change. If
certain conditions are met where the derivative instrument has been designated
as a fair value hedge, the hedge items may also be marked to market through
earnings, thus creating an offset. If the derivative is designed and qualifies
as a cash flow hedge, the changes in fair value of the derivative instrument may
be recorded in comprehensive income. The Company does not presently make use of
derivative instruments.
F-10
<PAGE>
INTER*ACT ELECTRONIC MARKETING, INC.
(formerly Inter*Act Systems, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999
(dollars in thousands, except share, per share and per note data)
3. PROPERTY, PLANT AND EQUIPMENT, NET
Property, plant and equipment consisted of the following:
<TABLE>
<CAPTION>
December 31,
-------------------------------
1999 1998
-------------------------------
<S> <C> <C>
Land and buildings $ 83 $ 87
Machinery and equipment
In-Store 40,743 32,637
Other 10,392 6,708
--------------- ---------------
Total machinery and equipment 51,135 39,345
--------------- ---------------
51,218 39,432
Less: accumulated depreciation and amortization (19,996) (11,330)
--------------- ---------------
Property, plant and equipment, net $ 31,222 $ 28,102
=============== ===============
</TABLE>
Depreciation expense was approximately $8,728, $6,773 and $3,800 for
the years ended December 31, 1999, 1998 and 1997, respectively.
4. LEASES
The Company leases office facilities and equipment under various
operating lease agreements expiring through year 2008. Future minimum lease
payments under noncancelable operating leases at December 31, 1999 were
as follows:
<TABLE>
<CAPTION>
Operating Lease
Commitments
----------------
<S> <C>
2000 $ 1,044
2001 904
2002 432
2003 322
2004 311
Thereafter 1,529
</TABLE>
Rent expense of $950, $476 and $383 was recognized for the years ended
December 31, 1999, 1998 and 1997, respectively, and is included in selling,
general and administrative expenses.
5. RELATED PARTY TRANSACTIONS
The Company has been party to various agreements with Vanguard Cellular
Systems, Inc. (together with its subsidiaries, "Vanguard"), which made a series
of investments in the Company's equity and debt securities beginning in 1995. As
of December 31, 1998, Vanguard was the Company's largest shareholder. In 1999,
Vanguard was acquired by AT&T Corp. Prior to the acquisition by AT&T Corp., the
Company's Chairman and Chief Executive Officer was also President and Chief
Executive Officer of Vanguard and six of the Company's directors were also
directors of Vanguard. Since the acquisition of Vanguard by AT&T Corp., there
has been no similar common management of the Company and AT&T Corp.
Pursuant to management services agreements with Vanguard from 1996
through 1998, the Company received certain management services and assistance
for which the Company compensated Vanguard by issuing Vanguard 10,000 shares of
common stock in 1996 and an additional 10,000 shares in 1997. In addition, the
Company paid Vanguard approximately $21, $78 and $218 during the years ended
December 31, 1999, 1998 and 1997, respectively. As of December 31, 1999, all
management services agreements with Vanguard have been terminated.
F-11
<PAGE>
INTER*ACT ELECTRONIC MARKETING, INC.
(formerly Inter*Act Systems, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999
(dollars in thousands, except share, per share and per note data)
In connection with an investment of $8,000 in common stock in 1996, the
Company, Vanguard and shareholders representing a majority of the outstanding
common stock entered into a voting agreement in November 1996 (the "Voting
Agreement") pursuant to which such shareholders agreed to vote their shares in
all elections of directors so as to elect to the Board of Directors six persons
nominated by Vanguard. The Voting Agreement terminated upon the acquisition of
Vanguard by AT&T Corp. in 1999.
See Note 9 for a description of a special common stock purchase warrant
issued to Vanguard and certain registration rights to which Vanguard is
entitled.
6. RESTRUCTURING OF DEBT
During 1999, the Company repurchased certain of the 1996 Senior
Discount Notes (See Note 7) at less than their face value as part of an overall
undertaking to restructure this debt. In December 1999, the Company completed an
exchange offer (the "Exchange Offer") of Senior Pay-in-Kind Notes Due 2003 of
Inter*Act Operating Co., Inc., a wholly owned subsidiary of the Company (the
"PIK Notes"), 14% Series B Senior Mandatorily Redeemable Convertible Preferred
Stock of the Company (the "Series B Preferred Stock") and common stock purchase
warrants (the "Exchange Offer Warrants") for its outstanding Senior Discount
Notes. In the Exchange Offer, each holder of $1,000 principal amount of Senior
Discount Notes received $500 principal amount of PIK Notes, one share of Series
B Preferred Stock having an initial liquidation preference of $500 (See Note 10)
and one Exchange Offer Warrant to purchase 17.96 shares of common stock for an
exercise price of $.01 (See Note 9). Because 100% of the outstanding Discount
Notes (other than those held by the Company) were tendered in the Exchange
Offer, the issuer of the PIK Notes, Inter*Act Operating Co., Inc., merged with
and into its parent, the Company, on December 30, 1999. Consequently, the PIK
Notes are direct obligations of the Company.
The gain on restructuring of this debt, including the effect of the
repurchase of certain notes, unamortized debt issuance costs (See Note 2) and
unaccreted debt discount related to the Discount Note Warrants (See Note 9) is
included as an extraordinary item in the accompanying statement of operations
for 1999.
7. LONG-TERM DEBT
<TABLE>
<CAPTION>
Long-term debt consisted of the following:
December 31,
------------------------------------
1999 1998
------------------------------------
<S> <C> <C>
1996 14% Senior Discount Notes(a) $ -- $ 111,819
Note payable for patent acquisition(b) 5,657 5,554
1999 14% Senior Pay-In-Kind Notes (c) 63,217 --
Obligation under capital lease(d) 1,210 --
--------------- --------------
70,084 117,373
Less: Current portion of long-term debt 6,135 5,554
--------------- --------------
$ 63,949 $ 111,819
=============== ==============
</TABLE>
(a) In August 1996, the Company, through the 1996 Private Placement, issued
142,000 units, each consisting of a 14% Senior Discount Note due 2003
(collectively, the "Discount Notes") with a principal amount at maturity
of $1,000 and a warrant to purchase 7.334 shares (adjusting to 9.429
shares at September 30, 1997 if the Company did not complete a qualified
initial public offering of common stock by that date) of common stock of
the Company at $.01 per share. The gross proceeds of $94,800 were
allocated by the Company to the value of the warrants of approximately
$24,500 (See Note 9) and to the Discount Notes of approximately $70,300.
Expenses of the offering of approximately $3,900 were capitalized as bond
issuance costs and are being amortized over the remaining term of the
Discount Notes (See Note 2). The Company did not complete a qualified
initial public offering of common stock by September 30, 1997; as a
result, the Company recorded additional common stock purchase warrants
and related debt discount of $3,000, reflecting the valuation of an
additional 297,490 shares, or 2.095 shares issuable per warrant.
F-12
<PAGE>
INTER*ACT ELECTRONIC MARKETING, INC.
(formerly Inter*Act Systems, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999
(dollars in thousands, except share, per share and per note data)
The Discount Notes were to accrue cash interest at a rate of 14% per
annum, commencing on August 1, 1999, payable semi-annually on
February 1 and August 1 of each year commencing on February 1, 2000. The
debt discount related to the difference between the face value of the
notes ($142,000) and the proceeds of the 1996 Private Placement ($94,800)
was accreted over the period to August 1, 1999. The debt discount related
to the portion of the 1996 Private Placement allocated to the value of
the warrants ($27,400 in aggregate) was being accreted over the full term
of the Discount Notes to August 1, 2003. Interest expense on the notes,
including the accretion of debt discount and amortization of issuance
costs, was being recognized at a constant rate of interest over the life
of the Notes. Discount accretion of $14,500, $20,400 and $17,500 and
amortization of bond issuance costs of approximately $570, $526 and $464
have been recognized as interest expense during the years ended
December 31, 1999, 1998 and 1997, respectively.
See Note 6 for a description of the repurchase of a portion of, and the
restructuring of all of, these notes during 1999.
(b) In 1998, the Company incurred a note payable in the amount of
approximately $5,679 in connection with the acquisition of certain
intellectual property. This note, which currently bears interest at 10.0%
per year, was originally payable on June 1, 1999 and was amended and
extended to June 1, 2000. If, prior to the maturity of this note, the
Company completes a qualifying initial public offering of common stock
or a change in control, as defined, the note would then be convertible
into a number of shares of the Company's common stock, equal to the
then-outstanding principal balance and accrued interest divided by $8.50.
(c) In December 1999, the Company completed an exchange offer described in
Note 6, whereby the Discount Notes were exchanged for the PIK Notes,
Series B Preferred Stock and the Exchange Offer Warrants. The PIK Notes
mature on August 1, 2003 and accrue interest at a rate of 14% per annum
from and after August 1, 1999, payable semiannually on February 1 and
August 1 of each year, beginning February 1, 2000. The Company may, at
its option, elect not to make interest payments in cash prior to the date
that is 18 months following the earlier of an initial public offering of
the Company's common stock or a Change in Control (as defined in the
Indenture governing the PIK Notes). To the extent that the Company does
not pay interest in cash, the interest accrued on the PIK Notes will be
paid by the issuance of additional promissory notes, which will have
substantially the same terms, including date of maturity and interest
rate, as the PIK Notes.
In the event that the Company has not commenced a public offering by 180
days after the date of the exchange offer, the Company has agreed with
the holders of the PIK Notes, to (i) file with the Securities and
Exchange Commission on or prior to 180 days after the Exchange Date (the
"Target Filing Date") a registration statement (the "Exchange Offer
Registration Statement") relating to a registered exchange offer (the
"Registered Exchange Offer") for the PIK Notes and (ii) use its best
efforts to cause the Exchange Offer Registration Statement to be declared
effective by no later than 90 days after the Target Filing Date. If (i)
the applicable Registration Statement is not filed with the Commission by
the Target Filing Date, (ii) the Exchange Offer Registration Statement or
a Shelf Registration Statement is not declared effective within 90 days
of the Target Filing Date, (iii) neither the Registered Exchange Offer is
consummated nor the Shelf Registration Statement is declared effective
within 60 days of the Target Effective Date, or (iv) after a Registration
Statement is declared effective, the Registration Statement thereafter
ceases to be effective or usable (subject to certain exceptions) in
connection with resale of PIK Notes (each such event referred to in
clauses (i) through (iv), a "Registration Default"), additional cash
interest will accrue on the PIK Notes at the rate of 0.50% per annum of
the principal amount of the PIK Notes on the immediately preceding
February 1 or August 1 with respect to the first 90-day period following
a Registration Default. Thereafter, interest will increase by an
additional one-half of one percent per annum for each subsequent 90-day
period until the Registration Default has been cured. Additional interest
will be payable in cash semi-annually, in arrears, on February 1 and
August 1 of each year from the date on which any Registration Default
occurs to the date on which all Registration Defaults have been cured.
Such interest is payable in addition to any other interest payable on
each February 1 and August 1, commencing August 1, 2000.
(d) During 1999, the Company entered various capital lease agreement with
initial terms of 36 months for the acquisiton of machinery and equipment.
F-13
<PAGE>
INTER*ACT ELECTRONIC MARKETING, INC.
(formerly Inter*Act Systems, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999
(dollars in thousands, except share, per share and per note data)
8. COMMON STOCK
The Company issued 15,184 shares of common stock during the year ended
December 31, 1999 in exchange for executive recruiting services. The issuance of
these shares was recorded at $8.50 per share, which management believes
approximates the fair market value of the shares when issued.
The Company issued no shares of common stock during the year ended
December 31, 1998.
During the year ended December 31, 1997, the Company issued 60,000
shares of Common Stock, consisting of 50,000 shares for partial consideration in
the acquisition of certain intellectual property and 10,000 shares issued
pursuant to a management service agreement the Company had with a former related
party. The issuance of these shares was recorded at $10.00 per share, which
management believes approximated the fair market value of the shares when
issued.
9. COMMON STOCK PURCHASE WARRANTS
VANGUARD WARRANT
Pursuant to a warrant issuance associated with a common stock
investment in 1995 (the "Vanguard Warrant"), as restructured prior to the 1996
Private Placement (See Note 7), Vanguard has the right to buy 900,113 shares at
any time before May 5, 2005 at $23.50 per share, which was, in the opinion of
management, the fair market value of the related common stock at the date of the
restructuring of the Warrant. The Vanguard Warrant also provides that Vanguard
may pay the exercise price either in cash or, if the fair market value of the
common stock at the time of exercise is greater than the exercise price, by
surrendering any unexercised portion of the Vanguard Warrant and receiving the
number of shares equal to (i) the excess of fair market value per share at the
time of exercise over the exercise price per share multiplied by (ii) the number
of shares surrendered.
The Company and Vanguard have entered into a Registration Rights
Agreement relating to certain warrants and shares of common stock of the Company
owned by Vanguard. In addition, the agreement allows Vanguard certain
"piggyback" registration rights on any security offerings the Company may
undertake. The agreement terminates on the earlier of five years from date of
the Company's first registration statement becomes effective or at such time as
Vanguard may sell its securities pursuant to Rule 144 under the Securities Act.
1996 EQUITY OFFERING WARRANTS
In connection with a private placement of common stock in 1996,
purchasers of certain minimum amounts received warrants to purchase shares of
the Company's common stock. Warrants to purchase an aggregate of 323,216 shares
of common stock were issued in this offering. Such warrants expire on December
31, 2000 and initially provided that the exercise price would equal the sales
price of the next $2,000 of common stock issued and sold by the Company. Since
the issuance of the warrants, the Company has not sold $2,000 of common stock
but did sell over $2,000 of Series A Preferred Stock convertible into common
stock at a conversion price of $8.50 per share (See Note 10). Accordingly, in
June 1999, the Company's Board of Directors declared the exercise price for
these warrants to be $8.50 per share.
F-14
<PAGE>
INTER*ACT ELECTRONIC MARKETING, INC.
(formerly Inter*Act Systems, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999
(dollars in thousands, except share, per share and per note data)
DISCOUNT NOTE WARRANTS
In August 1996, the Company issued in a private placement transaction
(the 1996 "Private Placement") 142,000 units, each consisting of a 14% Senior
Discount Note due 2003 with a principal amount at maturity of $1,000
(collectively, the "Discount Notes") (See Notes 2, 6 and 7) and a warrant to
purchase 7.334 shares (adjusted to 9.429 shares at September 30, 1997 when the
Company did not complete a qualified initial public offering of common stock by
that date) of common stock of the Company at $.01 per share (the "Discount Note
Warrants"). As of December 31, 1999, Discount Note Warrants to purchase an
aggregate of 1,338,918 shares of the Company's Common Stock are outstanding and
are exercisable on or after the earliest to occur of (i) August 1, 2000, (ii) a
change of control of the Company, (iii) (a) 90 days after the closing of an
initial public offering of common stock of the Company or (b) upon the closing
of the initial public offering but only in respect of warrants required to be
exercised to permit the holders thereof to sell shares in the initial public
offering, (iv) a consolidation, merger or purchase of assets involving the
Company or any of its subsidiaries that results in the common stock of the
Company becoming subject to registration, (v) an extraordinary cash dividend
paid by the Company or (vi) the voluntary or involuntary dissolution,
liquidation or winding up of the affairs of the Company. The number of shares of
the common stock for which a Discount Note Warrant is exercisable is subject to
adjustment upon the occurrence of certain events.
Holders of Discount Note Warrants (or common stock issued in respect
thereof) are entitled to certain registration rights.
After August 1, 2001, the Company may be required, under certain
circumstances, to purchase, at fair market value, the outstanding Discount Note
Warrants and underlying common stock issued. Depending on the fair market value
at that time, there may be a charge to earnings in connection with the
repurchase of the Discount Note Warrants and Underlying Common Stock.
Management of the Company believed, based on independent third party
valuations, that the value of the Company's common stock at the date of the
initial issuance of the Discount Note Warrants was $23.50 per share and,
accordingly, allocated approximately $24,500 of the proceeds of the 1996 Private
Placement to the value of the Discount Note Warrants based on 142,000 units
consisting of warrants to purchase 7.334 shares of common stock per unit with an
exercise price of $.01 per share. Effective September 30, 1997, the Company
recorded an additional $3,000, reflecting the valuation of an additional 297,490
shares, or 2.095 (9.429 less 7.334) shares issuable per Discount Note Warrant,
when the Company did not complete a qualifying initial public offering by that
date. In connection with the Company's restructuring of the related Discount
Notes, the carrying amount of the warrants still outstanding was reduced to
$11,367. This aggregate amount is classified between liabilities and
stockholders' equity (deficit) in the accompanying consolidated balance sheets.
The value of the original Discount Note Warrants and the incremental value of
the 2.095 additional Note Warrants issued per unit of the Notes effective
September 30, 1997 were, from their issuance through the date of the
restructuring of the related Discount Notes, accounted for as an additional debt
discount subject to accretion as described in Note 7. As part of the
restructuring of the Discount Notes described in Note 6, the remaining
unaccreted portion of this carrying amount was written off and included in the
determination of the gain on restructuring.
EXCHANGE OFFER WARRANTS
In December 1999, the Company completed an exchange offer (the
"Exchange Offer") of Senior Pay-in-Kind Notes Due 2003 of Inter*Act Operating
Co., Inc. (See Note 6), Series B Preferred Stock and common stock purchase
warrants exercisable at $.01 per share (the "Exchange Offer Warrants")
for its outstanding Discount Notes. As of December 31, 1999, Exchange Offer
Warrants to purchase an aggregate of 2,506,767 shares of the Company's common
stock were outstanding. The Exchange Offer Warrants are not exercisable until
December 31, 2002. To the extent that the Company redeems any of the PIK Notes
prior to December 31, 2002, the number of shares of common stock into which each
Exchange Offer Warrant is exercisable will be ratably reduced. Consequently, if
the Company redeems all of the PIK Notes prior to December 31, 2002, the
Exchange Offer Warrants will not be exercisable for any shares of the Company's
common stock. The number of shares of the common stock for which an Exchange
Offer Warrant is exercisable is subject to adjustment upon the occurrence of
certain events. The value of the Exchange Offer Warrants of $21,282 (which
represents the difference between the exercise price of $.01 per share and the
fair market value of the Company's common stock of $8.50 per share at the date
of issuance) has been credited to Additional Paid-In
F-15
<PAGE>
INTER*ACT ELECTRONIC MARKETING, INC.
(formerly Inter*Act Systems, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999
(dollars in thousands, except share, per share and per note data)
Capital and accounted for as additional debt discount associated with the PIK
Notes and as a discount on the Series B Preferred Stock, with
one-half of the aggregate value allocated to each of the related debt and
preferred securities. The accretion of the amount allocated to the PIK
Notes is being charged to interest expense and the accretion of the
amount allocated to the Series B Preferred stock is being charged to preferred
stock dividends using the effective interest rate method.
Holders of Exchange Offer Warrants (or common stock issued in respect
thereof) or Series B Preferred Stock are entitled, following an initial public
offering, to certain registration rights with respect to the common stock issued
or issuable upon the exercise of the warrants or the conversion of the preferred
stock and any other common stock held by such holders. If the Company does not
comply with the various registration rights, certain monetary damages are
provided for in the Exchange Offer. Furthermore, the holders of Exchange Offer
Warrants and Series B Preferred Stock have certain "piggy back" registration
rights.
1999 EQUITY OFFERING WARRANTS
In December 1999, the Company issued in a private offering 70,120
units, each consisting of one share of Series C Preferred Stock (See Note 10)
and one warrant to purchase approximately 7.14 shares of the Company's common
stock at a price of $14.00 per share. As of December 31, 1999, warrants to
purchase an aggregate of 500,857 shares of common stock had been issued in this
offering and were outstanding. Such warrants are presently exercisable and
expire ten years from the date of issuance if unexercised. The intrinsic value
of these warrants, calculated using the Black-Scholes Option Pricing Model with
similar variables as those used for the Company's options and described in
Note 14, of $879 has been credited to Additional Paid-In Capital and charged
as a preferred stock dividend during the year ended December 31, 1999.
The number of shares of the common stock for which these warrants are
exercisable and the exercise price are subject to adjustment upon the occurrence
of certain events, including if the Company issues additional common stock
without consideration or at a price less than the exercise price (except in
certain circumstances) and if the Company declares and pays on shares of its
common stock a dividend payable in shares of common stock or splits the then
- -outstanding shares of common stock into a greater number of shares. In the
event of certain adjustments to the exercise features of these warrants, there
may be further charges to preferred stock dividends, depending on the impact of
those adjustments on the value of the warrants then outstanding.
Holders who would retain the common stock upon the exercise of these
warrants and conversion of any outstanding Series C Preferred Stock in excess
of one percent of the total outstanding shares of common stock of the Company
have certain registration rights with respect to the shares common stock
issued or issuable upon exercise of the warrants or conversion of the Series C
Preferred Stock.
During the first quarter of 2000, the Company issued 67,210 additional
units in this private offering, including warrants to purchase an additional
480,070 shares of common stock of the Company at $14.00 per share.
10. PREFERRED STOCK
10% SERIES A MANDATORILY CONVERTIBLE PREFERRED STOCK
During the third quarter of 1998, the Company's Board of Directors
designated a series of preferred stock, the 10% Series A Mandatorily Convertible
Preferred Stock ("Series A Preferred Stock"), and authorized the issuance and
sale of up to $40 million of Series A Preferred Stock in a private offering at
$100 per share. As initially designated, the shares of Series A Preferred
Stock accrued dividends quarterly from the date of issuance at the rate of 10%
per annum payable in cash, by delivery of shares of Series A Preferred Stock, or
by a combination thereof at the Company's option. The holder of each share of
Series A Preferred Stock was initially entitled to ten votes per share. The
shares had certain voluntary and mandatory conversion rights into the Company's
common stock (at a conversion price per share of common stock equal to $10.00,
plus accrued and unpaid dividends) under certain events, such as an initial
public stock offering. During 1998, the Company issued 177,878 shares of
Series A Preferred Stock at a price of $100 per share, for total proceeds of
F-16
<PAGE>
INTER*ACT ELECTRONIC MARKETING, INC.
(formerly Inter*Act Systems, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999
(dollars in thousands, except share, per share and per note data)
approximately $17,788. Of the total proceeds in 1998, $17,688 was received in
cash and $100 was exchanged for the forgiveness of accounts payable in the same
amount.
In March 1999, the Board of Directors and shareholders of the Company
approved certain changes to the Series A Preferred Stock and authorized an
increase in the private offering from $40 million to $70 million. Changes to the
Series A Preferred Stock consisted of (i) a reduction in the conversion price
from $10.00 to $8.50 per share of common stock into which each share of Series A
Preferred Stock is convertible, (ii) an increase in the number of votes per
share of Series A Preferred Stock from 10 to the number of shares of common
stock into which it is convertible (initially 11.7647), (iii) accrual of
dividends on the Series A Preferred Stock semiannually, as opposed to quarterly,
to be paid only in shares of Series A Preferred Stock and (iv) the addition of
antidilution provisions. Such changes were applicable to all shares of Series A
Preferred Stock issued prior to the effective date of the changes and are
applicable to all additional shares of Series A Preferred Stock issued in the
private offering.
During 1999, the Company issued 320,990 shares of Series A Preferred
stock at a price of $100 per share for total proceeds of approximately $32,099.
As of December 31, 1999, the Company had 498,868 shares of Series A Preferred
Stock outstanding. Accrued dividends, payable in Series A Preferred Stock, were
$4,009 and $354 as of December 31, 1999 and 1998, respectively.
Holders who would retain the common stock upon the conversion of any
outstanding Series A Preferred Stock in excess of one percent of the total
outstanding shares of common stock of the Company have certain registration
rights with respect to the shares of common stock issued or issuable upon the
conversion of the Series A Preferred Stock.
14% SERIES B SENIOR MANDATORY REDEEMABLE CONVERTIBLE PREFERRED STOCK
In December 1999, the Company's Board of Directors designated a new
series of preferred stock, the 14% Series B Senior Mandatorily Redeemable
Convertible Preferred Stock ("Series B Preferred Stock"), and authorized the
issuance of 139,575 shares of Series B Preferred Stock to tendering holders of
the Company's Discount Notes in the Exchange Offer (See Note 6). As of December
31, 1999, all 139,575 shares of Series B Preferred Stock were issued and
outstanding.
The shares of Series B Preferred Stock have a liquidation preference of
$500 per share and rank senior, as to dividends and liquidation preference,
to all other classes of the Company's capital stock. Dividends on the Series B
Preferred Stock accrue from August 1, 1999, at the rate of 14% per annum of the
liquidation per share, payable semi-annually on the first day of February and
August of each year, commencing on February 1, 2000, and are cumulative to the
extent unpaid. Accrued dividends on the Series B Preferred Stock were $4,071 as
of December 31, 1999.
Holders of Series B Preferred Stock are entitled to vote their shares
at the rate of the number of shares of common stock into which each share of
Series B Preferred Stock is convertible (initially 35.71). Each share of Series
B Preferred Stock automatically converts into a number of shares of common stock
equal to the liquidation preference plus accrued and unpaid dividends on the
date of conversion divided by a conversion price of $14.00 (subject to certain
adjustments) upon the closing of a public offering of the Company's common
stock. Holders of Series B Preferred Stock may also voluntarily convert their
shares at any time. The number of shares of the common stock for which each
share of Series B Preferred Stock is convertible and the conversion price are
subject to adjustment upon the occurrence of certain events, including if the
Company issues additional common stock without consideration or at a price less
than the conversion price (except in certain circumstances) and if the Company
declares and pays on shares of its common stock a dividend payable in shares of
common stock or splits the then outstanding shares of common stock into a
greater number of shares. Upon a change in control, holders of Series B
Preferred Stock have the right to require the Company to redeem the stock at the
liquidation preference at the date of the change in control. Accordingly, the
Series B Preferred Stock is classified between liabilities and stockholders'
equity (deficit) in the accompanying consolidated balance sheets.
Holders of Series B Preferred Stock have certain registration rights
with respect to the shares of common stock issued or issuable upon the
conversion of the Series B Preferred Stock.
F-17
<PAGE>
INTER*ACT ELECTRONIC MARKETING, INC.
(formerly Inter*Act Systems, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999
(dollars in thousands, except share, per share and per note data)
10% SERIES C MANDATORILY REDEEMABLE CONVERTIBLE PREFERRED STOCK
In December 1999, the Company's Board of Directors designated an
additional series of preferred stock, the 10% Series C Mandatorily Redeemable
Convertible Preferred Stock ("Series C Preferred Stock") and authorized the
issuance and sale in a private offering up to 250,000 units consisting of one
share of Series C Preferred Stock and one warrant to purchase approximately 7.14
shares of the Company's common stock at a price of $14.00 per share
(See Note 9). As of December 31, 1999, 70,120 units of had been sold for total
proceeds of approximately $7,012.
The shares of Series C Preferred Stock have a liquidation preference of
$100 per share and rank, as to dividends and liquidation preference, equal to
the Series A Preferred Stock, junior to the Series B Preferred Stock and senior
to the Company's common stock. Dividends on the Series C Preferred Stock are
payable only in shares of Series C Preferred Stock and accrue from the date of
issuance, at the rate of 10% per annum of the liquidation preference, payable
semi-annually on the first day of March and September of each year, commencing
on the last day of March and September of each year, and are cumulative to the
extent unpaid.
Holders of Series C Preferred Stock are entitled to vote their shares
at the rate of the number of shares of common stock into which each share of
Series C Preferred Stock is convertible (initially 7.14). Each share of Series C
Preferred Stock automatically converts into a number of shares of common stock
equal to the liquidation preference plus accrued and unpaid dividends on the
date of conversion divided by a conversion price of $14.00 (subject to certain
adjustments) upon the closing of a public offering of the Company's common
stock. Holders of Series C Preferred Stock may also voluntarily convert their
shares at any time. The number of shares of the common stock for which each
share of Series C Preferred Stock is convertible and the conversion price are
subject to adjustment upon the occurrence of certain events, including if the
Company issues additional common stock without consideration or at a price less
than the conversion price (except in certain circumstances) and if the Company
declares and pays on shares of its common stock a dividend payable in shares of
common stock or splits the then outstanding shares of common stock into a
greater number of shares. The Company is required to redeem all then outstanding
shares of Series C Preferred stock at the liquidation value on November 1, 2008.
Accordingly, the Series C Preferred Stock is classified between liabilities and
stockholders' equity (deficit) in the accompanying consolidated balance sheets.
Certain holders of Series C Preferred Stock have certain registration
rights with respect to the shares of common stock issued or issuable upon the
conversion of the Series C Preferred Stock.
As of December 31, 1999, the Company had 70,120 shares of Series C
Preferred Stock outstanding. Accrued dividends, payable in Series C Preferred
Stock, were $27 as of December 31, 1999.
During the first quarter of 2000, the Company issued 67,210 additional
units in this private offering for total proceeds of approximately $6,721,000.
Included in the additional units were 67,210 shares of Series C Preferred Stock
and warrants to purchase an additional 480,070 shares of common stock of the
Company at $14.00 per share.
11. NET LOSS PER SHARE
A reconciliation between the net loss and common shares of the basic
and diluted EPS computations is as follows:
<TABLE>
<CAPTION>
Year Ended Year Ended Year Ended
December 31, 1999 December 31, 1998 December 31, 1997
----------------------------- -------------------------------- -------------------------------
Per Share Per Share Per Share
Net Loss Shares Amount Net Loss Shares Amount Net Loss Shares Amount
--------- ------ --------- -------- ------ --------- -------- ------ ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Basic EPS
Net loss attributable to
common stock $(69,604) 7,731 $(9.00) $(62,414) 7,729 $(8.08) $(49,814) 7,692 $(6.48)
Effect on Dilutive Securities:
Warrants -- -- -- -- -- -- -- -- --
Stock Options -- -- -- -- -- -- -- -- --
------ --- ----- ------ --- ----- ------ --- -----
Diluted EPS
Net loss attributable to common
stock and assumed option
exercise $(69,604) 7,731 $(9.00) $(62,414) 7,729 $(8.08) $(49,814) 7,692 $(6.48)
======== ===== ====== ========= ===== ======= ======== ===== ======
</TABLE>
F-18
<PAGE>
INTER*ACT ELECTRONIC MARKETING, INC.
(formerly Inter*Act Systems, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999
(dollars in thousands, except share, per share and per note data)
There were no reconciling items to be reported by the Company in the
calculation for basic EPS and diluted EPS for all periods presented. Inclusion
of the Company's convertible preferred stock, outstanding common stock purchase
warrants and stock options (See Notes 8, 10 and 14) would have an antidilutive
effect on earnings per share and, as a result, they are not included in the
calculation of diluted EPS for any period presented.
12. DEFERRED COMPENSATION
During 1996, the Company issued options to purchase 48,000 shares of
common stock at an exercise price of $7.50 per share under the 1996 Nonqualified
Stock Option Plan (See Note 14), which was an exercise price below the
then-estimated fair market value of the Company's common stock on the date of
grant. Accordingly, the Company recorded a deferred compensation charge of $768,
which was being amortized ratably over the five-year vesting period of the
related options. Accumulated amortization was $352 at December 31, 1998.
Amortization expense of deferred compensation was $154 for each of the years
ended December 31, 1998 and 1997. During 1999, due to the termination of the
employee who had received these options, 28,800 of these options were
cancelled, and the remaining 19,200 options which were fully vested were
retained by the former employee, with an expiration date of August 2001. As a
result, the remaining deferred compensation and $45 of previously recognized
compensation was reversed.
13. INCOME TAXES
The components of cumulative deferred tax assets and liabilities were
as follows:
<TABLE>
<CAPTION>
December 31,
-------------------------------
1999 1998
-------------------------------
<S> <C> <C>
Cumulative Amounts:
Deferred Tax Assets:
Accrued Bonus/Deferred Compensation/other $ 507 $ 324
Amortization of Warrant Expense 4,164 2,759
Interest Accretion 8,816 8,090
Other 108 113
Bond Issuance Cost Amortization 605 408
Net Operating Loss Carryforward 59,704 43,179
--------------- ---------------
Total Deferred Tax Assets 73,904 54,873
--------------- ---------------
Deferred Tax Liabilities:
Depreciation (2,024) (1,488)
--------------- ---------------
Total Deferred Tax Liabilities (2,024) (1,488)
--------------- ---------------
Net Deferred Tax Asset before Valuation Allowance 71,880 53,385
--------------- ---------------
Valuation Allowance (71,880) (53,385)
--------------- ---------------
Net Deferred Tax Asset $ -- $ --
=============== ===============
In accordance with the provisions of Internal Revenue Code Section 382,
utilization of the Company's net operating loss carryforwards could be limited
in years following a change in the Company's ownership, which could occur at the
time of an initial public offering. Net operating losses incurred after the date
of the change of ownership are not limited unless another change in ownership
occurs. At December 31, 1999, the amount of net operating loss carryforward is
approximately $135,000. The net operating loss carryforwards will expire in
varying amounts through 2019.
Creditable foreign taxes paid by the Company or its subsidiaries will
be subject to Internal Revenue Code Section 904, Limitation on Foreign Tax
Credit, because the Company does not have a Federal Income Tax liability. The
Foreign Tax Credit limitation may be carried back two years and forward five
years. The Company has the option of deducting these foreign taxes in lieu of
the credit. In general, since the Company does not have a federal tax liability,
the deduction method will increase the amount of net operating losses which are
available to be carried forward twenty years. Through December 31, 1999, the
Company has not paid or accrued foreign taxes.
F-19
<PAGE>
INTER*ACT ELECTRONIC MARKETING, INC.
(formerly Inter*Act Systems, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999
(dollars in thousands, except share, per share and per note data)
SFAS No. 109 requires a valuation allowance to be recorded when it is
more likely than not that some or all of the deferred tax assets may not be
realized. At each of the balance sheet dates, a valuation allowance for the full
amount of the net deferred tax asset was recorded. This valuation allowance is
recorded due to both the uncertainty of future income and the possible
application of Internal Revenue Code Section 382 limitations on the use of the
net operating loss carryforwards.
14. STOCK OPTION PLANS
The Company has in place the 1994 Stock Compensation Plan, which
provides for the issuance of shares of common stock to key employees,
consultants and directors pursuant to stock options that meet the requirements
of Section 422 of the Internal Revenue Code of 1986, as amended (incentive stock
options), options that do not meet such requirements (nonqualified stock
options) and stock bonuses. All options under the plan must be granted at an
exercise price not less than fair market value. Stock bonuses may be in the form
of grants of restricted stock. The aggregate number of shares of common stock
that may be issued pursuant to the plan may not exceed 330,000 shares, subject
to adjustment upon occurrence of certain events affecting the Company's
capitalization. As of December 31, 1999, there were no remaining shares
available for future grants under this plan.
The Company also has in place the 1996 Nonqualified Stock Option Plan,
which provides for the issuance of shares of common stock to key employees,
consultants and directors pursuant to nonqualified stock options. All options
must be granted at an exercise price not less than $5.50 per share. The
aggregate number of shares of common stock that may be issued pursuant to the
plan may not exceed 600,000 shares, subject to adjustment upon occurrence of
certain events affecting the Company's capitalization. As of December 31, 1999,
an aggregate of 15 shares remain available for future grants under this plan.
The Company also has in place the 1997 Long-term Incentive Plan
("Long-term Incentive Plan") for the purpose of promoting the long-term
financial performance of the Company by providing incentive compensation
opportunities to officers, executives or supervisory employees, directors or
consultants of the Company or any subsidiary. The plan allows for the Company to
grant stock options for the purchase of shares of stock to grantees under the
plan in such amounts as the Compensation Committee of the Board of Directors, in
its sole discretion, determines. The stock options granted under the Plan will
be designated as either: (i) Incentive Stock Options or (ii) Nonqualified Stock
Options. The purchase price for shares acquired pursuant to the exercise will be
determined at the time of grant; however, it will not be less than the fair
market value of the shares at the time of the grant. The Long-term Incentive
Plan also allows the Company to grant Stock Appreciation Rights in any amount,
at its sole discretion, either alone or in combination with other awards granted
under the Plan. An aggregate of 670,000 shares of common stock are reserved for
issuance pursuant to awards under this plan. As of December 31, 1998, options to
purchase 580,350 shares of common stock were issued and outstanding under the
Long-term Incentive Plan, all at an exercise price of $10.00 per share.
Management believes that these options were granted at fair market value of
common stock at the dates of grant. No Stock Appreciation Rights were awarded
through December 31, 1998. The awards vest annually over five years from the
date of grant with the exception of 63,500 options, which became immediately
exercisable. During 1999, the Board of Directors and shareholders approved an
amendment to the Long-Term Incentive Plan to increase the number of shares of
common stock reserved for issuance under the 1997 Plan to be increased from
670,000 to 1,470,000.
During 1999, options to purchase 501,100 shares of the Company's common
stock with original exercise prices of $10.00 per share were amended to change
the exercise prices to $8.50 per share which, in the opinion of the Company's
management, represented the fair market value of the Company's common stock on
the date of amendment. As of December 31, 1999 an aggregate of 1,918 shares
remain available for future grants under this plan.
In 1999, the Board of Directors approved the grant of a special
nonqualified option outside of the Company's option plans to the Chief Executive
Officer to purchase up to 475,000 shares of the Company's common stock at an
exercise price of $8.50 per share, which was the Board's determination of the
fair market value of the common stock at the time of the grant. The option vests
ratably over three years but may not be exercised unless the Company completes a
public offering of its common stock or a sale of all or substantially all of the
Company. In connection with the option, the Chief Executive Officer was granted
certain registration rights with respect to the shares issuable upon the
exercise of the option. Because the option's exercisability is subject to the
occurrence of certain contingent events, there may be a charge to compensation
expense upon the occurrence of one or both of those events based on the fair
market value of the Company's common stock at the date of those occurrences.
F-20
<PAGE>
INTER*ACT ELECTRONIC MARKETING, INC.
(formerly Inter*Act Systems, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999
(dollars in thousands, except share, per share and per note data)
The Company accounts for these plans under APB Opinion No. 25, under
which no compensation cost has been recognized. Had compensation cost for these
plans been determined consistent with SFAS No. 123 (See Note 2), the Company's
net loss and net loss per share would have been changed to the following pro
forma amounts:
</TABLE>
<TABLE>
<CAPTION>
Year Ended Year Ended Year Ended
December 31, December 31, December 31,
1999 1998 1997
------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Net Loss: As Reported $(69,604) $(62,414) $(49,814)
Pro Forma (71,120) (63,186) (50,353)
Net Loss Per Share: Basic and Diluted As Reported (9.00) (8.08) (6.48)
Basic and Diluted Pro Forma (9.22) (8.18) (6.55)
</TABLE>
Because the SFAS No. 123 method of accounting has not been applied to
options granted prior to January 1, 1995, the resulting pro forma compensation
cost may not be representative of that to be expected in future years. A summary
of the status of the Company's stock option plans for the years ended December
31, 1999 and 1998, the three month period ended December 31, 1996 and the fiscal
year ended September 28, 1996 is presented in the table and narrative below:
<TABLE>
<CAPTION>
Year Ended Year Ended Period Ended
December 31, 1999 December 31, 1998 December 31, 1997
----------------- ----------------- -----------------
Wtd Avg Wtd Avg Wtd Avg
Shares Ex Price Shares Ex Price Shares Ex Price
------ -------- ------ -------- ------ --------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning of year 1,475,250 7.79 1,259,400 $ 7.34 821,100 $ 5.40
Granted 1,347,020 8.50 388,100 10.00 543,400 10.00
Exercised -- -- -- -- -- --
Forfeited (100,180) 6.46 (10,500) 7.22 (2,200) 5.23
Expired (324,008) 8.78 (161,750) 9.60 (102,900) 5.91
--------- --------- ---------
Outstanding at end of year 2,398,082 7.82 1,475,250 7.79 1,259,400 7.34
========= ========= =========
Exercisable at end of year 927,407 6.77 766,890 6.51 571,250 6.16
========= ========= =========
Weighted average fair value of options granted N/A 7.82 N/A 7.79 N/A 7.34
</TABLE>
The options outstanding at December 31, 1998 have exercise prices
between $1.86 and $10.00, with a weighted average exercise price of $7.79 and a
weighted average remaining contractual life of 7.9 years.
The fair value of each option grant is estimated on the date of grant
using the Black-Scholes Option Pricing Model with the following weighted-average
assumptions used for grants in the years ended December 31, 1999, 1998 and
1997, respectively: risk free interest rates of 6.15, 5.09, and 6.49%;
and expected dividend yields of 0%, expected lives of 5 years, and expected
stock volatility of 30, 20, and 0 for each respective period.
The foregoing plans are administered by the Compensation and Stock
Option Committee of the Board of Directors, which is authorized, subject to the
provisions of the plans, to determine to whom and at what time options and
bonuses may be granted and the other terms and conditions of the grant.
F-21
<PAGE>
INTER*ACT ELECTRONIC MARKETING, INC.
(formerly Inter*Act Systems, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999
(dollars in thousands, except share, per share and per note data)
15. COMMITMENTS AND CONTINGENCIES
COMMITMENTS FOR TECHNOLOGY
The Company is party to several patent licensing agreements relating to
its in-store consumer product promotion and couponing business. With respect to
one license agreement under which the Company is assignee, the Company is
required to pay a royalty of 2% of the gross collected revenues of the Company,
to the extent derived from the Company's exploitation of the patent, with such
royalty decreasing to 1% of such revenues after $10 million in aggregate
royalties have been paid to the licensors. This license agreement requires that
certain minimum monthly payments be made to the licensors, and be exceeded
within approximately two years, in order to avoid triggering a termination right
on the part of the licensors. With respect to another license agreement, the
Company is required to pay the licensor a royalty of .8% of the gross collected
revenues of the Company to the extent derived from the Company's exploitation of
the patent, until such time as the licensor has received the aggregate sum of
$600 after which no additional royalty payments are required. Under a third
agreement, the Company is required to pay the licensor a royalty of 1% of the
gross revenues related to the Company's exploitation of the patent subject to
certain minimum annual payments, should the Company wish to maintain exclusive
rights under such patent. Under these agreements, the Company recorded royalty
payments of $330, $475 and $398 for the years ended December 31, 1999, 1998 and
1997, respectively.
LITIGATION
During the fiscal year ended September 28, 1996, a lawsuit was filed
and settled against the Company alleging certain patent infringement. The
Company expressly denied any wrongdoing and settled the case to avoid lengthy
litigation costs. Under the settlement agreement, the Company was required to
pay $400 and in return, received, among other things, the worldwide, perpetual
right to use such patent, dismissal with prejudice and release of all related
claims. The cost of the settlement of $400 was expensed during the fiscal year
ended September 28, 1996.
In February 1996, the Company filed suit against Catalina Marketing
Corporation ("Catalina") alleging that Catalina has a 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 that 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 and raised certain affirmative defenses. In May 1997, Catalina
asserted a counterclaim alleging that the Company is infringing a newly issued
Catalina Patent. The Company has answered denying the allegations, raising
affirmative defenses. Discovery on the claims and counterclaims will proceed,
and various motions are pending before the United States District Court. The
Company intends to pursue the action vigorously.
In January 1998, Catalina Marketing International, Inc. ("Catalina
International"), an affiliate of Catalina, filed suit against the Company
alleging that the Company has infringed a patent which Catalina International
acquired by assignment in December 1997. Catalina International alleges that the
Company is infringing this patent by making, using and offering for sale devices
and systems that incorporate and employ inventions covered by this patent. In
February 1998, Catalina International amended its complaint to join as
additional parties' defendant entities 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 this patent pending trial. Various other motions
are pending in the United States District Court. 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 patents described above for purposes of
discovery and trial.
F-22
<PAGE>
INTER*ACT ELECTRONIC MARKETING, INC.
(formerly Inter*Act Systems, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999
(dollars in thousands, except share, per share and per note data)
On May 27, 1998, the Company filed a new suit against Catalina alleging
that Catalina has infringed a series of patents collectively referred to as the
"Deaton Patents", which the Company acquired by assignment in May 1998 (See Note
7b). 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 answered denying the allegations and raising certain
affirmative defenses. Catalina has also 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.
16. SEGMENT DATA
As described in Note 2, the Company observes the provisions of SFAS No.
131, "Disclosures about Segments of an Enterprise and Related Information."
While the Company's results of operations are primarily reviewed on a
consolidated basis, the chief operating decision maker also manages the
enterprise in two geographic segments: (i) North American and (ii) Europe. The
following represents selected consolidated financial information for the
Company's segments for the year ended December 31, 1999 (the Company's results
of operations Europe were not material during 1997:
<TABLE>
<CAPTION>
For the Year Ended December 31, 1999
Operating Data North America Europe Eliminations Consolidated
-------------- ------------- ------ ------------ ------------
<S> <C> <C> <C> <C>
Net sales $ 2,466 $ 2,630 $ - $ 5,096
Loss from operations (37,569) (5,382) - 42,951
Depreciation 8,378 1,309 - 9,687
Capital Expenditures 3,029 8,817 - 11,846
Identifiable Assets 57,678 10,845 (15,222) 47,301
</TABLE>
<TABLE>
<CAPTION>
For the Year Ended December 31, 1998
Operating Data North America Europe Eliminations Consolidated
-------------- ------------- ------ ------------ ------------
<S> <C> <C> <C> <C>
Net sales $ 2,632 $ 2,241 $ (280) $ 4,593
Loss from operations (41,150) (1,101) - (42,251)
Depreciation 7,182 277 - 7,459
Capital Expenditures 6,538 1,547 - 8,085
Identifiable Assets 59,864 1,873 (1,596) 60,141
</TABLE>
F-23
STATEMENT OF DIFFERENCES
The trademark symbol shall be expressed as.......................... 'TM'
The registered trademark symbol shall be expressed as............... 'r'
The service mark symbol shall be expressed as....................... 'sm'
The section symbol shall be expressed as............................ 'SS'
<PAGE>
Exhibit 3 (a) (2)
ARTICLES OF AMENDMENT
OF
INTER*ACT ELECTRONIC MARKETING, INC.
The undersigned corporation hereby submits these Articles of Amendment
for the purpose of amending its Articles of Incorporation:
1. The name of the corporation is Inter*Act Electronic Marketing, Inc.
2. The Articles of Incorporation of the corporation are hereby amended
by attaching thereto: (a) the Statement of Rights and Preferences of the 14%
Series B Senior Mandatorily Convertible Preferred Stock; and (b) the Statement
of Rights and Preferences of the 10% Series C Mandatorily Convertible Preferred
Stock, each attached hereto.
3. The foregoing amendments to the Articles of Incorporation were duly
adopted by the Board of Directors of the corporation on December 8, 1999.
4. The foregoing amendments were adopted without shareholder action
pursuant to the authority vested in the Board of Directors to establish one or
more series within the class of preferred stock and to establish the
designations, preferences, limitations and relative rights (including conversion
rights) of such shares, said authority having been duly granted in Article 2 of
the Restated Articles of Incorporation of the corporation filed with the
Secretary of State of North Carolina on July 19, 1999. As required by Section 4
of the Amended and Restated Statement of Rights and Preferences of the 10%
Series A Mandatorily Convertible Preferred Stock of the corporation, the
Statement of Rights and Preferences of the 14% Series B Senior Mandatorily
Convertible Preferred Stock of the corporation and the issuance of up to 140,000
shares of 14% Series B Senior Mandatorily Convertible Preferred Stock of the
corporation was duly approved by holders of more than 75% of the outstanding
shares of the 10% Series A Mandatorily Convertible Preferred Stock of the
corporation at a meeting held for that purpose on December 20, 1999.
This the 22nd day of December, 1999.
INTER*ACT ELECTRONIC MARKETING, INC.
By:/s/ Stephen R. Leeolou
Stephen R. Leeolou, Chief Executive Officer
<PAGE>
STATEMENT OF RIGHTS AND PREFERENCES OF THE
14% SERIES B SENIOR MANDATORILY CONVERTIBLE PREFERRED STOCK
OF INTER*ACT ELECTRONIC MARKETING, INC.
Section 1. Number and Designation. A series consisting of 140,000
shares of the authorized preferred stock of the corporation, no par value, is
designated "14% Series B Senior Mandatorily Convertible Preferred Stock" (the
"Series B Preferred Stock"). The number of authorized shares of Series B
Preferred Stock shall not be increased but may be decreased from time to time by
resolution of the Board of Directors.
Section 2. Ranking. All capital stock of any class or classes of the
corporation outstanding on December 9, 1999 shall rank junior to Series B
Preferred Stock, and all capital stock of any class or classes of the
corporation issued after December 9, 1999 shall be deemed to rank:
(a) senior to the Series B Preferred Stock (the "Senior
Stock"), either as to dividends or upon liquidation, if the holders of
such class or classes shall be entitled to the receipt of dividends or
of amounts distributable upon dissolution, liquidation or winding up of
the corporation, as the case may be, in preference or priority to the
holders of Series B Preferred Stock;
(b) on a parity with Series B Preferred Stock (the "Parity
Stock"), either as to dividends or upon liquidation, whether or not the
dividend rates, dividend payment dates or redemption or liquidation
prices per share or sinking fund provisions, if any, shall be different
from those of Series B Preferred Stock, if the holders of such stock
shall be entitled to the receipt of dividends or of amounts
distributable upon dissolution, liquidation or winding up of the
corporation, as the case may be, without preference or priority, one
over the other, as between the holders of such stock and the holders of
Series B Preferred Stock; or
(c) junior to Series B Preferred Stock (the "Junior Stock"),
either as to dividends or upon liquidation, if such class shall be the
common stock, no par value, of the corporation (the "Common Stock") or
if the holders of Series B Preferred Stock shall be entitled to receipt
of dividends or of amounts distributable upon dissolution, liquidation
or winding up of the corporation, as the case may be, in preference or
priority to the holders of shares of such class or classes.
Section 3. Dividends and Distributions.
(a) For each semi-annual dividend period (a "Dividend
Period"), the holders of outstanding shares of Series B Preferred Stock
shall be entitled to receive, out of funds legally available therefor,
cumulative dividends payable in cash on each share of Series B
Preferred Stock at a rate of 14% per annum of the Liquidation
Preference (as defined in Section 6(a) herein) for such shares of
Series B Preferred Stock at the beginning of such Dividend Period for
such shares of Series B Preferred Stock. Each Dividend Period shall
commence on the February 1 and August 1 following the last
<PAGE>
day of the preceding Dividend Period and shall end on and include the
day next preceding the first day of the next Dividend Period. Dividends
shall accrue semi-annually in arrears commencing from August 1, 1999
and shall be cumulative, to the extent unpaid, whether or not they have
been declared and whether or not there are profits, surplus or other
funds of the corporation legally available for the payment of
dividends. Dividends shall become due and payable on February 1 and
August 1 of each year, commencing on February 1, 2000. Each such
dividend shall be paid to the holders of record of shares of Series B
Preferred Stock as they appear on the stock register of the corporation
on such record date, not exceeding 45 days preceding the payment date
thereof, as shall be fixed by the Board of Directors of the corporation
or by a duly authorized committee thereof. Dividends on account of
arrears for any past Dividend Period may be declared and paid at any
time without reference to any regular dividend payment date, to holders
of record on such date, not exceeding 45 days preceding the payment
date thereof, as may be fixed by the Board of Directors of the
corporation or by a duly authorized committee thereof. Dividends
payable on shares of Series B Preferred Stock for any period greater or
less than a full Dividend Period shall be computed on the basis of a
360-day year consisting of twelve 30-day months and the actual number
of days elapsed in the period.
(b) So long as any shares of Series B Preferred Stock are
issued and outstanding, no dividends (other than a dividend of Junior
Stock of the corporation) shall be paid or set apart for payment for
any period on any Parity Stock or Junior Stock of the corporation
unless full cumulative dividends have been or contemporaneously are
declared and paid or declared and a sum sufficient for the payment
thereof set apart for such payment on the Series B Preferred Stock for
all dividends accrued and unpaid (including all dividends accrued and
unpaid for any portion of a Dividend Period) as of the date upon which
any dividend is paid on such Parity Stock or Junior Stock. When
dividends are not paid in full, as aforesaid, upon the shares of Series
B Preferred Stock and any other series of Parity Stock, all dividends
to be paid upon shares of the Series B Preferred Stock and such other
series of Parity Stock shall be paid pro rata so that the amount of
dividends paid per share on the Series B Preferred Stock and such other
Parity Stock shall in all cases bear to each other the same ratio that
accrued and unpaid dividends per share on the shares of Series B
Preferred Stock and such other Parity Stock bear to each other. Holders
of shares of Series B Preferred Stock shall not be entitled to any
dividend, whether payable in cash, property or stock, in excess of full
cumulative dividends, as herein provided, on the Series B Preferred
Stock. No interest, or sum of money in lieu of interest, shall be
payable in respect of any dividend payment or payments on the Series B
Preferred Stock which may be in arrears.
(c) So long as any shares of Series B Preferred Stock are
issued and outstanding, no Junior Stock shall be redeemed, purchased or
otherwise acquired for cash or other property (or any monies be paid to
or made available for a sinking fund for the redemption of any shares
of any such stock) by the corporation (except by conversion into or
exchange for Junior Stock) unless the full cumulative dividends on all
outstanding shares of Series B Preferred Stock shall have been paid or
declared and
2
<PAGE>
set aside for payment for all past Dividend Periods (including all
dividends accrued and unpaid for any portion of a Dividend Period).
Section 4. Voting Rights.
Except as otherwise expressly provided herein or as required by law,
the holders of each share of Series B Preferred Stock shall be entitled to vote
on all matters submitted to shareholders for voting, voting together with the
holders of Common Stock as a single group, and shall be entitled to notice of
any shareholders' meeting in accordance with applicable law and the Bylaws of
the corporation. Each share of Series B Preferred Stock shall entitle the holder
thereof to such number of votes per share on each such matter as shall equal the
number of shares of Common Stock (including fractions of a share) into which
each share of Series B Preferred Stock is convertible pursuant to Section 5(a)
on the record date with respect to such matter.
Section 5. Conversion of Series B Preferred Stock. The holders of
Series B Preferred Stock shall have conversion rights as follows (the
"Conversion Rights"):
(a) Voluntary Conversion. Each share of Series B Preferred
Stock shall be convertible, at the option of the holder thereof, at any
time after the date of issuance of such share at the office of the
corporation or any transfer agent for such stock, without the payment
of any additional consideration, into such number of fully paid and
nonassessable shares of Common Stock as results by dividing the
Liquidation Preference on the date of conversion by $14.00, as adjusted
pursuant to Section 5(g) below (the "Conversion Price").
(b) Mandatory Conversion. Each share of Series B Preferred
Stock shall automatically be converted, without the payment of
additional consideration, into such number of fully paid and
nonassessable shares of Common Stock as results by dividing the
Liquidation Preference on the date of conversion by the Conversion
Price upon the closing of the sale of the Common Stock in a Qualified
Public Offering (defined below). Notice of any Qualified Public
Offering shall be given to each holder of Series B Preferred Stock at
least thirty (30) days prior to the anticipated date of closing and
conversion. "Qualified Public Offering" means a firm commitment public
offering of the Common Stock pursuant to a registration statement
declared effective under the Securities Act of 1933, as amended,
underwritten by a securities firm of nationally recognized standing
with an aggregate offering price to the public of not less than $30
million.
(c) Mechanics of Conversion.
(i) To convert shares of Series B Preferred
Stock into shares of Common Stock, the holder of such
shares of Series B Preferred Stock shall (A)
surrender the certificate or certificates therefor,
duly endorsed, at the office of the corporation or of
any transfer agent for
3
<PAGE>
such stock, (B) give written notice to the
corporation at such office that it elects to convert
the same and (C) state therein the name or names in
which it wishes the certificate or certificates for
shares of Common Stock to be issued. The corporation
shall, as soon as practicable thereafter and at its
expense, issue and deliver to such holder a
certificate or certificates for the number of shares
of Common Stock to which such holder is entitled.
Such conversion shall be deemed to have been made
immediately prior to the close of business on the
date of surrender of the shares of Series B Preferred
Stock to be converted, and the person or persons
entitled to receive the shares of Common Stock
issuable upon such conversion shall be treated for
all purposes as the record holder or holders of such
shares of Common Stock on such date.
(ii) If the conversion is mandatory pursuant
to Section 5(b) of this Statement of Rights and
Preferences, the conversion shall be conditioned upon
the closing with the underwriters of the sale of
securities pursuant to the Qualified Public Offering,
and the conversion of the Series B Preferred Stock
shall be deemed to have occurred, without any further
action by the holders of such shares, on a date
immediately prior to the occurrence of such event.
(d) Reservation of Stock Issuable Upon Conversion. The
corporation shall at all times reserve and keep available out of its
authorized but unissued shares of Common Stock, free of preemptive
rights, solely for the purpose of effecting the conversion of the
shares of Series B Preferred Stock, such number of its shares of Common
Stock as shall from time to time be sufficient to effect the conversion
of all outstanding shares of Series B Preferred Stock; and if at any
time the number of authorized but unissued shares of Common Stock shall
not be sufficient to effect the conversion of all then outstanding
shares of Series B Preferred Stock, the corporation will take such
corporate action as may, in the opinion of its counsel, be necessary to
increase its authorized but unissued shares of Common Stock to such
number of shares as shall be sufficient for such purpose.
(e) Fractional Shares. No fractional share shall be issued
upon the conversion of any share or shares of Series B Preferred Stock.
All shares of Common Stock (including fractions thereof) issuable upon
conversion of more than one share of Series B Preferred Stock by a
holder thereof shall be aggregated for purposes of determining whether
the conversion would result in the issuance of any fractional share.
If, after the aforementioned aggregation, the conversion would result
in the issuance of a fraction of a share of Common Stock, the
corporation shall, in lieu of issuing any fractional share, pay the
holder otherwise entitled to such fraction a sum in cash equal to the
same fraction of the fair market value per share as of the date of
conversion.
(f) No Impairment. The corporation will not, by amendment
of its Articles of Incorporation or through any reorganization,
transfer of assets, consolidation,
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merger, share exchange, dissolution, issue or sale of securities or any
other voluntary action, avoid or seek to avoid the observance or
performance of any of the terms to be observed or performed hereunder
by the corporation, including without limitation the adjustments
required under this Section 5, and will at all times in good faith
assist in the carrying out of all the provisions of this Section 5 and
in the taking of all such action as may be necessary or appropriate in
order to protect the Conversion Rights of the holders of Series B
Preferred Stock against impairment.
(g) Adjustment to Conversion Price. The Conversion Price shall
be subject to adjustment from time to time as follows:
(i) If, at any time when any shares of
Series B Preferred Stock are issued and outstanding,
the corporation shall pay on shares of Common Stock a
dividend payable in shares of Common Stock or shall
split the then outstanding shares of Common Stock
into a greater number of shares, then the number of
shares of Common Stock that the holders of the Series
B Preferred Stock would receive upon conversion
thereof, as in effect at the time of taking of a
record for such dividend or at the time of such stock
split, shall be proportionately increased and the
Conversion Price shall be proportionately decreased,
and conversely, if at any time the corporation shall
contract or reduce the number of outstanding shares
of Common Stock by combining such shares into a
smaller number of shares, then the number of shares
which may be purchased upon the conversion of the
Series B Preferred Stock at the time of such action
shall be proportionately decreased as of such time,
and the Conversion Price shall be proportionately
increased.
(ii) If the Company shall at any time, or
from time to time (i) issue, sell or exchange any
shares of Common Stock (including shares of Common
Stock sold in a Qualified Public Offering), excluding
the Excluded Securities (as hereafter defined), for a
consideration per share less than the Conversion
Price as of the date of issuance or (ii) issue, sell
or exchange options or other securities, excluding
the Excluded Securities, that are convertible into or
exercisable for shares of Common Stock at an exercise
or conversion price that is less than the Conversion
Price (taking into account, to the extent applicable,
any price paid for the option or other security) as
of the date of issuance, then and thereafter
successively upon each such issuance, sale or
exchange, the Conversion Price in effect immediately
prior to the issuance, sale or exchange of such
shares, options or securities shall forthwith be
reduced to, in the case of clause (i) above, the
amount of the consideration per share received by the
Company in connection with such issuance, sale or
exchange, or in the case of clause (ii) above, the
amount of the exercise or conversion price per share,
plus the amount paid (if any) for the underlying
option or other security, in connection with such
issuance, sale or exchange.
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(iii) Notwithstanding anything to the
contrary contained herein, the provisions of
paragraph (ii) of this Section 5(g) shall not apply
with respect to the issuance of any Excluded
Securities. For purposes hereof, "Excluded
Securities" means (A) options, rights or shares of
Common Stock issued to, or issued in connection with
the exercise or grant of options or rights granted
to, employees, directors or consultants of the
corporation pursuant to the terms of any stock
compensation plan of the corporation in effect on
December 9, 1999 or adopted by the shareholders of
the corporation after December 9, 1999, (B) shares of
Common Stock issued in connection with the exercise
of options or warrants issued by the corporation and
outstanding on December 9, 1999, (C) up to 20,000
shares of Common Stock (or options or warrants to
acquire up to such number of shares of Common Stock)
issued in connection with the exercise of options or
warrants issued under contractual obligations of the
corporation in effect as of December 9, 1999, (D)
shares of Common Stock issued in connection with the
acquisition by the corporation (or its subsidiary) of
Clearing Systems, Inc. so long as the corporation (or
its subsidiary) receives in such acquisition the same
number of shares of Common Stock issued, (E) shares
of Common Stock issued upon conversion of the 10%
Series A Mandatorily Convertible Preferred Stock
("Series A Preferred Stock") issued and outstanding
on December 9, 1999 or issued in respect of a
dividend payment on the Series A Preferred Stock, (F)
shares of Series A Preferred Stock issued in respect
of a dividend payment on the Series A Preferred Stock
and (G) shares of Common Stock in connection with any
stock split or stock dividend covered by paragraph
(i) of this Section 5(g).
(iv) Whenever the Conversion Price shall be
adjusted as provided in this Section 5(g), the
corporation shall as soon as practicable thereafter
file at its principal office, a statement signed by
its Chief Executive Officer or its Chief Financial
Officer, showing in reasonable detail the basis for
such adjustment and the actual Conversion Price that
shall be in effect after such adjustment and shall
cause a copy of such statement to be sent to the
holders of the Series B Preferred Stock at their
addresses on the books and records of the
corporation.
(h) Changes in Common Stock. In case at any time the
corporation shall initiate any transaction or be a party to any
transaction (including, without limitation, a merger, consolidation,
share exchange, sale, lease or other disposition of all or
substantially all of the corporation's assets, charter amendment,
recapitalization or reclassification of the Common Stock or a "Stock
Sale," as defined below) in connection with which the previously
outstanding Common Stock shall be changed into or exchanged for
different securities of the corporation or capital stock or other
securities of another corporation or interests in a noncorporate entity
or other property
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<PAGE>
(including cash) or any combination of the foregoing (each such
transaction being herein called a "Transaction"), then, as a condition
to the consummation of the Transaction, lawful, enforceable and
adequate provision shall be made so that the holders of Series B
Preferred Stock shall be entitled to receive upon conversion of their
shares of Series B Preferred Stock at any time on or after the
consummation of the Transaction, in lieu of the shares of Common Stock
issuable upon such conversion prior to such consummation, the
securities or other property (including cash) to which such holders of
Series B Preferred Stock would have been entitled upon consummation of
the Transaction if such holders had converted their shares of Series B
Preferred Stock immediately prior thereto (subject to adjustments from
and after the consummation date as nearly equivalent as possible to the
adjustments provided for in this Section 5). If a purchase, tender or
exchange offer is made to and accepted by the holders of more than 50%
of the outstanding Common Stock (a "Stock Sale"), and if the holders of
a majority interest of the shares of Series B Preferred Stock so
designate in a written notice given to the corporation, such holders of
Series B Preferred Stock shall be entitled to receive upon the
conversion of their shares of Series B Preferred Stock at any time on
or after the consummation of the Stock Sale in lieu of the shares of
Common Stock issuable upon conversion prior to the consummation of the
Stock Sale, the securities or other property to which such holders of
Series B Preferred Stock would have been entitled if such holders had
converted their shares of Series B Preferred Stock prior to the
expiration of such purchase, tender or exchange offer and had accepted
such offer (subject to adjustments from and after the consummation of
such purchase, tender or exchange offer as nearly equivalent as
possible to the adjustments provided for in this Section 5). The
corporation will not effect any Transaction unless prior to the
consummation thereof each corporation or entity (other than the
corporation) that may be required to deliver any securities or other
property upon the conversion of Series B Preferred Stock as provided
herein shall assume, by written instrument delivered to the holders of
Series B Preferred Stock, the obligation to deliver to such holders
such securities or other property as in accordance with the foregoing
provisions such holders may be entitled to receive. The foregoing
provisions of this Section 5(h) shall similarly apply to successive
Transactions.
(i) Issue Taxes. The corporation shall pay any and all issue
and other taxes that may be payable in respect of any issue or delivery
of shares of Common Stock on conversion of shares of Series B Preferred
Stock pursuant hereto; provided, that the corporation shall not be
obligated to pay any transfer taxes resulting from any transfer
requested by any holder in connection with any such conversion.
(j) Status of Converted Shares. Any shares of Series B
Preferred Stock that shall at any time have been converted pursuant to
this Section 5 shall, after such conversion, have the status of
authorized but unissued shares of preferred stock, without designation
as to series until such shares are once more designated as part of a
particular series by the Board.
Section 6. Liquidation Preference.
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(a) Series B Preferred Stock. In the event of any liquidation,
dissolution or winding up of the corporation (a "Liquidation Event"),
either voluntary or involuntary, each holder of the Series B Preferred
Stock shall be entitled to receive, prior and in preference to any
distribution of any of the assets or surplus funds of the corporation
to the holders of any Junior Stock, an amount in cash equal to $500.00
per share of Series B Preferred Stock plus the amount of any accrued
and unpaid dividends thereon as of the date of the Liquidation Event,
including all dividends accrued for any portion of a Dividend Period
(collectively, the "Liquidation Preference") (such Liquidation
Preference to be adjusted for any combinations, consolidations, stock
distributions, stock splits, stock dividends or similar event with
respect to shares of the Series B Preferred Stock). If upon the
occurrence of any such Liquidation Event the assets and funds to be
distributed among the holders of the Series B Preferred Stock shall be
insufficient to permit the payment to such holders of the full
Liquidation Preference, then the entire assets and funds of the
corporation legally available for distribution, after payment of any
amounts due and owing to holders of any Senior Stock, shall be
distributed ratably among the holders of Series B Preferred Stock based
upon the number of shares of Series B Preferred Stock then held by
them. Upon any Liquidation Event, holders of fractional of Series B
Preferred Stock shall receive proportionate payments in respect
thereof. Notwithstanding anything contained herein to the contrary, if
upon any Liquidation Event the holders of the outstanding shares of
Series B Preferred Stock would receive more than the Liquidation
Preference amount in the event their shares were converted to Common
Stock immediately prior to such Liquidation Event, and the holders of
shares of Common Stock received a liquidating distribution from the
corporation, then each holder of shares of Series B Preferred Stock
shall receive as a distribution from the corporation in connection with
such Liquidation Event, in lieu of the Liquidation Preference, an
amount equal to the amount that would be paid if such holder's shares
of Series B Preferred Stock were converted into Common Stock
immediately prior to such Liquidation Event.
(b) Consolidation, Merger, etc. Not a Liquidation. The
consolidation or merger of the corporation with or into any other
entity, the acquisition of the capital stock of the corporation in a
share exchange or the sale, lease or other disposition of all or
substantially all of the assets, property or business of the
corporation shall not be deemed to be a Liquidation Event within the
meaning of this Section 6.
(c) Valuation of Securities. Any securities to be distributed
pursuant to this Section 6 in a Liquidation Event shall be valued at
the fair market value thereof, as mutually determined in good faith by
the Board of Directors of the corporation and the holders of a majority
of the outstanding shares of Series B Preferred Stock or, if so
required by a majority interest of the holders of outstanding shares of
Series B Preferred Stock, as determined by a national or regional
investment bank or a national accounting firm mutually selected by such
holders and the corporation, the fees and expenses of which shall be
paid by the corporation.
(d) Notice. Written notice (the "Notice") of any Liquidation
Event within the meaning of this Section 6, which Notice shall state
the payment date, the amount
8
<PAGE>
per share which each holder of Series B Preferred Stock will be
entitled to receive, the place where payments shall be made and the
date on which Conversion Rights terminate as to such shares (which
shall be not less than 30 days after the date such Notice is received),
shall be given by first class mail, postage prepaid, or by telecopy,
facsimile or recognized overnight courier, not less than 30 nor more
than 60 days prior to the payment date stated therein, to the holders
of record of any then outstanding shares of Series B Preferred Stock
and Common Stock, such Notice to be addressed to each such holder at
its address as shown on the records of the corporation.
Section 7. Redemption Rights.
(a) Each holder of shares of Series B Preferred Stock shall
have the right to require the corporation to redeem all (but not less
than all) of the shares of Series B Preferred Stock held by such person
upon the occurrence of a Change of Control (as defined below). The
redemption price per share (the "Redemption Price") shall be payable in
cash in immediately available funds and shall be equal to the
Liquidation Preference per share of Series B Preferred Stock as of the
date of redemption. Upon any redemption as provided herein, the holders
of fractional shares shall receive proportionate amounts in respect
thereof. Notwithstanding the foregoing, if upon a Change of Control the
holders of the outstanding shares of Series B Preferred Stock would
receive more than the Redemption Price in the event their shares were
converted into Common Stock immediately prior to such Change of
Control, and such shares of Common Stock were purchased or otherwise
participated in the Change of Control, then each holder of shares of
Series B Preferred Stock shall receive from the corporation or the
relevant purchaser, as applicable, upon the election of such holders to
redeem or otherwise participate in the Change of Control an amount
equal to the amount per share that would be paid if the shares of
Common Stock receivable upon conversion of the Series B Preferred Stock
were being acquired in the Change of Control at the same price per
share as is paid for other shares of Common Stock, which amount shall
be paid in the same form of consideration as is paid to holders of
Common Stock, as if each share of Series B Preferred Stock had been
converted into the number of shares of Common Stock issuable upon
conversion of such shares of Series B Preferred Stock immediately prior
to such Change of Control.
(b) The corporation shall give each holder of record of shares
of Series B Preferred Stock written notice of any impending Change of
Control transaction, that it is aware of, at least 30 days prior to the
anticipated closing date of such Change of Control transaction. The
notice shall describe the material terms and conditions of the
impending transaction, including without limitation the consideration
to be delivered in connection with such transaction.
(c) Any shares of Series B Preferred Stock that have been
redeemed shall, after such redemption, have the status of authorized
but unissued shares of preferred stock, without designation as to
series until such shares are once more designated as part of a
particular series by the Board.
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<PAGE>
(d) Within thirty (30) days following the date of receipt of
the Change of Control notice described above, any holder of shares of
Series B Preferred Stock desiring to tender shares for redemption shall
provide written notice of such election and, together therewith, shall
surrender the certificate or certificates representing such shares to
the corporation, duly assigned or endorsed for transfer (or accompanied
by duly executed stock powers relating thereto), or, in the event the
certificate or certificates are lost, stolen or missing, shall deliver
an affidavit or agreement satisfactory to the corporation to indemnify
the corporation from any loss incurred by it in connection therewith
(an "Affidavit of Loss") with respect to such certificates at the
principal corporate office of the corporation or the office of the
transfer agent for the Series B Preferred Stock or such office or
offices in the continental United States of an agent for redemption as
may from time to time be designated by the corporation in a notice to
the holders of Series B Preferred Stock, and thereupon the Redemption
Price (or such other consideration as is provided in Section 7(a)) of
such shares shall be paid by the corporation to the person whose name
appears in the corporation's records as the holder of record of such
shares of Series B Preferred Stock; provided, however, that if the
corporation is prohibited from redeeming any shares of Series B
Preferred Stock, then upon the surrender of such certificate(s), the
corporation will deliver to the holder a new certificate for the
aggregate number of shares of Series B Preferred Stock not so redeemed.
(e) If the corporation is prohibited under applicable law from
redeeming all shares of Series B Preferred Stock for which redemption
is required hereunder, then it shall redeem such shares, if any, on a
pro-rata basis among the holders of the Series B Preferred Stock in
proportion to the full respective redemption amounts to be redeemed
hereunder to the extent possible and shall redeem the remaining shares
to be redeemed as soon as the corporation is not prohibited from
redeeming some or all of such shares under applicable law. Any shares
of Series B Preferred Stock not redeemed shall remain outstanding and
entitled to all of the rights and preferences provided in this
Statement of Rights and Preferences. The corporation shall take such
commercially reasonable action as shall be necessary or appropriate to
review and promptly remove any impediment to its ability to redeem the
shares of Series B Preferred Stock under the circumstances contemplated
by this Section.
(f) From and after the date of redemption of shares of Series
B Preferred Stock, no shares of Series B Preferred Stock subject to
redemption shall be entitled to dividends; provided, however, that in
the event that any shares of Series B Preferred Stock are unable to be
redeemed and continue to be outstanding, such shares shall continue to
be entitled to dividends thereon as otherwise provided herein until the
date on which such shares are actually redeemed by the corporation.
(g) A "Change of Control" means the occurrence of any of the
following events: (i) any "person" or "group" (within the meaning of
Sections 13(d)(3) and 14(d)(2) of the Securities Exchange Act of 1934,
as amended (the "Exchange Act"), or any successor provision to either
of the foregoing, including any group acting for the purpose of
acquiring, holding or disposing of securities within the meaning of
Rule
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13d-5(b)(1) under the Exchange Act) other than one or more of the
Permitted Holders (defined below) is or becomes the "beneficial owner"
(as defined in Rule 13d-3 under the Exchange Act), directly or
indirectly, of 40% or more of the total voting power of power of all
shares of outstanding capital stock of the corporation or of Intero Act
Operating Co., Inc., a North Carolina corporation and wholly-owned
subsidiary of the corporation (the "Subsidiary") (on a fully diluted
basis, the "Voting Stock"), (ii) during any period of two consecutive
years, individuals who at the beginning of such period constituted the
Board of Directors of either the corporation or the Subsidiary
(together with any new directors whose election by the Board of
Directors of either the corporation or the Subsidiary or whose
nomination for election by the shareholders of the corporation or the
Subsidiary was approved by a vote of 66 2/3% of the directors of the
corporation or the Subsidiary, as the case may be, then still in office
who were either directors at the beginning of such period or whose
election or nomination for election was previously so approved) cease
for any reason to constitute a majority of the Board of Directors of
the corporation or the Subsidiary then in office, (iii) the corporation
or the Subsidiary consolidates or merges with or into any other Person
(other than with each other or with a wholly owned subsidiary of the
corporation) where less than a majority of the outstanding voting stock
of the surviving or consolidated corporation is held by stockholders of
the corporation immediately prior to such event, (iv) the Richardson
Family (as defined in the definition of Permitted Holder) or Stephen R.
Leeolou, at any one time or from time to time, sells to any Person that
is not a Permitted Holder more than 10% of the fully-diluted shares of
Common Stock beneficially held by the Richardson Family or Stephen R.
Leeolou, as the case may be, as of the date hereof or (v) the
Subsidiary sells, conveys, transfers or leases, directly or indirectly,
all or substantially all of its assets (other than a transfer of such
assets as an entirety or virtually as an entirety to a wholly owned
Subsidiary). For purposes of this paragraph, "Permitted Holders" means
(i) the descendants of Lunsford Richardson, Sr., their spouses, trusts,
and corporations in which they have interests and charitable
organizations established by such descendants (the "Richardson Family")
and (ii) Stephen R. Leeolou and Lee D. Armbuster, their estates,
spouses, ancestors, and lineal descendants, the legal representatives
of any of the foregoing and the trustee of any bona fide trust of which
the foregoing are the sole beneficiaries or the grantors, or any person
of which the foregoing "beneficially owns" (as defined in Rules 13d-3
and 13d-5 under the Exchange Act) voting securities representing at
least 66-2/3% of the total voting power of all classes of capital stock
of such person or entity (exclusive of any matters as to which class
voting rights exist).
Section 8. Right to Approve Certain Actions. Except as otherwise
provided by law, so long as any shares of Series B Preferred Stock remain
outstanding, the corporation shall not, without the approval by vote or written
consent (which written consent need not be unanimous) by the holders of a
majority of the then outstanding shares of Series B Preferred Stock, voting as a
separate class, take any of the following actions:
(a) amend, restate, modify or alter the corporation's articles
of incorporation (including any amendments thereto and including any
Statements of Rights and Preferences incorporated therein) or its
bylaws;
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(b) (i) declare or pay, or set aside funds for payment of, any
dividend on or with respect to (other than dividends payable on the
shares of Series B Preferred Stock) any shares of capital stock of the
corporation or (ii) redeem, purchase or otherwise acquire for value (or
pay into or set aside for a sinking fund for such purpose) any shares
of capital stock of the corporation (other than with respect to any
shares of Series B Preferred Stock);
(c) effect any liquidation, dissolution or winding-up of the
corporation;
(d) authorize or issue any shares of Senior Stock; or
(e) increase the number of shares, options or other rights
authorized under any stock compensation plan of the corporation above
such number which is authorized as of December 9, 1999, or present any
stock compensation plan to the shareholders of the corporation for
adoption.
Section 9. Preemptive Rights.
(a) Holders of shares of Series B Preferred Stock shall have a
preemptive right to purchase his or her pro rata share of any Common
Stock issued by the corporation, other than shares issued pursuant to
the following transactions:
(i) shares issued in connection with the
exercise or grant of options or rights granted to
employees, directors or consultants of the
corporation pursuant to the terms of any stock
compensation plan of the corporation in effect on
December 9, 1999 or adopted by the shareholders of
the corporation after December 9, 1999;
(ii) shares issued in connection with the
exercise of options or warrants issued by the
corporation and outstanding on December 9, 1999;
(iii) shares issued in connection with a
merger or asset acquisition approved by a majority of
the Board of Directors;
(iv) shares issued as dividends with respect
to outstanding shares of the same class or series of
stock;
(v) shares issued upon conversion of any
shares of 10% Series A Mandatorily Convertible
Preferred Stock; or
(vi) shares issued upon conversion of any
shares of Series B Preferred Stock.
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For purposes hereof, each holder of shares of Series B Preferred Stock shall
have a "pro rata share" based on the ratio which the Series B Preferred Stock
then owned by it bears, on an as-if-converted basis, to all of the then issued
and outstanding shares of Voting Stock of the corporation.
(b) All preemptive rights under this Section 9 shall terminate
upon the closing of a Qualified Public Offering and shall exclude all
capital stock issued in such Qualified Public Offering.
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STATEMENT OF RIGHTS AND PREFERENCES OF THE
10% SERIES C MANDATORILY CONVERTIBLE PREFERRED STOCK
OF INTER*ACT ELECTRONIC MARKETING, INC.
Section 1. Number and Designation. A series consisting initially of
250,000 shares of the authorized preferred stock of the corporation, no par
value, is designated "10% Series C Mandatorily Convertible Preferred Stock" (the
"Series C Preferred Stock"). The number of shares of Series C Preferred Stock
shall not be increased but may be decreased from time to time by resolution of
the Board of Directors; provided, that the number of authorized shares of Series
A Preferred Stock shall be increased by the number of shares of Series C
Preferred Stock issued in respect of dividends pursuant to Section 3(b) hereof.
Section 2. Ranking. For purposes of this Statement of Rights and
Preferences, all shares of the corporation's 14% Series B Senior Mandatorily
Convertible Preferred Stock shall rank senior to Series C Preferred Stock, all
shares of the corporation's 10% Series A Mandatorily Convertible Preferred Stock
shall rank on a parity with Series C Preferred Stock and all other capital stock
of any class or classes of the corporation shall be deemed to rank:
a. prior to the Series C Preferred Stock, either as to dividends or
upon liquidation, if the holders of such class or classes shall be entitled to
the receipt of dividends or of amounts distributable upon dissolution,
liquidation or winding up of the corporation, as the case may be, in preference
or priority to the holders of Series C Preferred Stock;
b. on a parity with Series C Preferred Stock (the "Parity Stock"),
either as to dividends or upon liquidation, whether or not the dividend rates,
dividend payment dates or redemption or liquidation prices per share or sinking
fund provisions, if any, shall be different from those of Series C Preferred
Stock, if the holders of such stock shall be entitled to the receipt of
dividends or of amounts distributable upon dissolution, liquidation or winding
up of the corporation, as the case may be, without preference or priority, one
over the other, as between the holders of such stock and the holders of Series C
Preferred Stock; or
c. junior to Series C Preferred Stock, either as to dividends or upon
liquidation, if such class shall be the common stock, no par value, of the
corporation (the "Common Stock") or if the holders of Series C Preferred Stock
shall be entitled to receipt of dividends or of amounts distributable upon
dissolution, liquidation or winding up of the corporation, as the case may be,
in preference or priority to the holders of shares of such class or classes.
Section 3. Dividends and Distributions.
a. For each semi-annual dividend period (a "Dividend Period") dividends
payable on each share of Series C Preferred Stock shall be payable at a rate of
10% per annum of the initial liquidation preference of $100 per share divided by
two. Each Dividend Period shall commence on the April 1 and October 1 following
the last day of the preceding Dividend Period and shall end on and include the
day next preceding the first day of the next Dividend Period. Dividends
<PAGE>
shall be cumulative from the date of original issue and shall be payable, when,
as and if declared by the Board of Directors or by a duly authorized committee
thereof, on March 31 and September 30 of each year, commencing on March 31,
2000. Each such dividend shall be paid to the holders of record of shares of
Series C Preferred Stock as they appear on the stock register of the corporation
on such record date, not exceeding 45 days preceding the payment date thereof,
as shall be fixed by the Board of Directors of the corporation or by a duly
authorized committee thereof. Dividends on account of arrears for any past
Dividend Periods may be declared and paid at any time, without reference to any
regular dividend payment date, to holders of record on such date, not exceeding
45 days preceding the payment date thereof, as may be fixed by the Board of
Directors of the corporation or by a duly authorized committee thereof.
b. Dividends payable on shares of Series C Preferred Stock for any
period greater or less than a full Dividend Period, shall be computed on the
basis of a 360-day year consisting of twelve 30-day months and the actual number
of days elapsed in the period. Notwithstanding paragraph (a) of this Section 3,
any dividends payable on the shares of Series C Preferred Stock prior to a
Qualified Public Offering (defined below), including without limitation any or
all dividends in arrears, shall be paid in additional shares of Series C
Preferred Stock. The corporation shall pay such dividend by issuing to such
holder of Series C Preferred Stock additional shares of Series C Preferred Stock
having an aggregate initial liquidation preference equal to the amount of cash
dividends otherwise payable to such holder.
c. No full dividends shall be declared or paid or set apart for payment
on the Preferred Stock of any series ranking, as to dividends, on a parity with
or junior to the Series C Preferred Stock for any period unless full cumulative
dividends have been or contemporaneously are declared and paid or declared and a
sum sufficient for the payment thereof set apart for such payment on the Series
C Preferred Stock for all Dividend Periods terminating on or prior to the date
of payment of such full cumulative dividends. When dividends are not paid in
full, as aforesaid, upon the shares of Series C Preferred Stock and any other
series of Parity Stock, all dividends declared upon shares of this Series and
such other series of Parity Stock shall be declared pro rata so that the amount
of dividends declared per share on the Series C Preferred Stock and such other
Parity Stock shall in all cases bear to each other the same ratio that accrued
and unpaid dividends per share on the shares of Series C Preferred Stock and
such other Parity Stock bear to each other. Holders of shares of Series C
Preferred Stock shall not be entitled to any dividend, whether payable in cash,
property or stock, in excess of full cumulative dividends, as herein provided,
on the Series C Preferred Stock. No interest, or sum of money in lieu of
interest, shall be payable in respect of any dividend payment or payments on the
Series C Preferred Stock which may be in arrears.
d. So long as any shares of Series C Preferred Stock are outstanding,
no dividend (other than a dividend in Common Stock or in any other stock ranking
junior to this series as to dividends and upon liquidation and other than as
provided in paragraph (c) of this Section 3) shall be declared or paid or set
aside for payment or other distribution declared or made upon the Common Stock
or upon any other stock ranking junior to or on a parity with this Series as to
dividends or upon liquidation, nor shall any Common Stock or any other stock of
the corporation ranking junior to or on a parity with this Series as to
dividends or upon liquidation be redeemed, purchased or otherwise acquired for
cash or other property (or any moneys be paid to or made
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available for a sinking fund for the redemption of any shares of any such stock)
by the corporation (except by conversion into or exchange for stock of the
corporation ranking junior to the Series C Preferred Stock as to dividends and
upon liquidation) unless, in each case, the full cumulative dividends on all
outstanding shares of Series C Preferred Stock shall have been paid or declared
and set aside for payment for all past Dividend Periods.
Section 4. Voting Rights. Except as otherwise expressly provided herein
or as required by law, the holders of each share of Series C Preferred Stock
shall be entitled to vote on all matters submitted to shareholders for voting,
voting together with the holders of Common Stock as a single group, and shall be
entitled to notice of any shareholders' meeting in accordance with applicable
law and the Bylaws of the corporation. Each share of Series C Preferred Stock
shall entitle the holder thereof to such number of votes per share on each such
matter as shall equal the number of shares of Common Stock (including fractions
of a share) into which each share of Series C Preferred Stock is convertible
pursuant to Section 5(a) on the record date with respect to such matter. Except
as provided in the next succeeding sentence, the approval of holders of a
majority of the outstanding shares of Series C Preferred Stock shall be required
prior to the corporation's issuing any shares of a class of preferred stock that
ranks on a parity with or senior to the Series C Preferred Stock.
Notwithstanding the foregoing sentence, the corporation may issue up to $90
million of Series C Preferred Stock and Parity Stock without the approval of any
holders of Series C Preferred Stock. The corporation may not amend or alter any
of this Statement of Rights and Preferences without the approval of the holders
of 75% of the outstanding Series C Preferred Stock
Section 5. Conversion of Series C Preferred Stock. The holders of
Series C Preferred Stock shall have conversion rights as follows (the
"Conversion Rights"):
a. Right to Convert. Each share of Series C Preferred Stock shall be
convertible, at the option of the holder thereof, at any time after the date of
issuance of such share at the office of the corporation or any transfer agent
for such stock, into such number of fully paid and nonassessable shares of
Common Stock as is equal to the Liquidation Preference on the date of conversion
divided by $14.00, as adjusted pursuant to Section 5(g) below (the "Conversion
Price").
b. Mandatory Conversion. Each share of Series C Preferred Stock shall
automatically be converted into such number of fully paid and nonassessable
shares of Common Stock as is equal to the Liquidation Preference on the date of
conversion divided by the Conversion Price, upon (i) the closing of the sale of
the Common Stock in a Qualified Public Offering (defined below), (ii) the
closing of any Transaction (as defined in Section 5(h) below) in which each
holder of shares of Series C Preferred Stock is entitled to receive an amount of
cash or marketable securities having a current market value at least equal to
the Liquidation Preference of such shares of Series C Preferred Stock (a
"Qualified Transaction") or (iii) the vote or written consent of holders of not
less than 75% of the outstanding shares of Series C Preferred Stock. Notice of
any Qualified Public Offering or Qualified Transaction shall be given to each
holder of Series C Preferred Stock at least thirty days prior to anticipated
date of closing and conversion. "Qualified Public Offering" means a firm
commitment, public offering of the Common Stock pursuant to a registration
statement declared effective under the Securities Act of 1933, as
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amended, underwritten by a securities firm of nationally recognized standing
with an aggregate offering price to the public of not less than $30 million and
a price per share not less than the Conversion Price.
c. Mechanics of Conversion.
i. To convert shares of Series C Preferred Stock into shares
of Common Stock, the holder of such shares of Series C Preferred Stock
shall (A) surrender the certificate or certificates therefor, duly
endorsed, at the office of the corporation or of any transfer agent for
such stock, (B) give written notice to the corporation at such office
that it elects to convert the same, (C) state therein the name or names
in which it wishes the certificate or certificates for shares of Common
Stock to be issued and (D) deliver to the corporation an executed
joinder agreement pursuant to which such holder agrees to become a
party to and be bound by the Shareholders' Agreement dated as of April
16, 1993 among the corporation and the holders of Common Stock, as
amended (the "Shareholders' Agreement"). The corporation shall, as soon
as practicable thereafter and at its expense, issue and deliver to such
holder a certificate or certificates for the number of shares of Common
Stock to which such holder is entitled. Such conversion shall be deemed
to have been made immediately prior to the close of business on the
date of surrender of the shares of Series C Preferred Stock to be
converted, and the person or persons entitled to receive the shares of
Common Stock issuable upon such conversion shall be treated for all
purposes as the record holder or holders of such shares of Common Stock
on such date.
ii. If the conversion is mandatory pursuant to Section 5(b) of
this Statement of Rights and Preferences, the conversion shall be
conditioned upon the closing with the underwriters of the sale of
securities pursuant to such Qualified Public Offering, the closing of
such Qualified Transaction or the vote or written consent of holders of
not less than 75% of the outstanding shares of Series C Preferred
Stock, as the case may be, and the Series C Preferred Stock shall be
deemed to have been converted immediately prior to the occurrence of
such event.
d. Reservation of Stock Issuable Upon Conversion. The corporation shall
at all times reserve and keep available out of its authorized but unissued
shares of Common Stock, free of preemptive rights, solely for the purpose of
effecting the conversion of the shares of Series C Preferred Stock, such number
of its shares of Common Stock as shall from time to time be sufficient to effect
the conversion of all outstanding shares of Series C Preferred Stock; and if at
any time the number of authorized but unissued shares of Common Stock shall not
be sufficient to effect the conversion of all then outstanding shares of Series
C Preferred Stock, the corporation will take such corporate action as may, in
the opinion of its counsel, be necessary to increase its authorized but unissued
shares of Common Stock to such number of shares as shall be sufficient for such
purpose, including, without limitation, engaging in best efforts to obtain the
requisite shareholder approval of any necessary amendment to these Articles of
Incorporation.
e. Fractional Shares. No fractional share shall be issued upon the
conversion of any share or shares of Series C Preferred Stock. All shares of
Common Stock (including fractions
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thereof) issuable upon conversion of more than one share of Series C Preferred
Stock by a holder thereof shall be aggregated for purposes of determining
whether the conversion would result in the issuance of any fractional share. If,
after the aforementioned aggregation, the conversion would result in the
issuance of a fraction of a share of Common Stock, the corporation shall, in
lieu of issuing any fractional share, pay the holder otherwise entitled to such
fraction a sum in cash equal to the same fraction of the fair market value per
share as of the date of conversion.
f. No Impairment. The corporation will not, by amendment of its
Articles of Incorporation or through any reorganization, transfer of assets,
consolidation, merger, share exchange, dissolution, issue or sale of securities
or any other voluntary action, avoid or seek to avoid the observance or
performance of any of the terms to be observed or performed hereunder by the
corporation, including without limitation the adjustments required under this
Section 5, and will at all times in good faith assist in the carrying out of all
the provisions of this Section 5 and in the taking of all such action as may be
necessary or appropriate in order to protect the Conversion Rights of the
holders of Series C Preferred Stock against impairment.
g. Adjustment to Conversion Price. The Conversion Price shall be
subject to adjustment from time to time as follows:
i. If, at any time when any shares of Series C Preferred Stock
are issued and outstanding, the corporation shall pay on shares of
Common Stock a dividend payable in shares of Common Stock or shall
split the then outstanding shares of Common Stock into a greater number
of shares, then the number of shares of Common Stock that the holders
of the Series C Preferred Stock would receive upon conversion thereof,
as in effect at the time of taking of a record for such dividend or at
the time of such stock split, shall be proportionately increased and
the Conversion Price shall be proportionately decreased, and
conversely, if at any time the corporation shall contract or reduce the
number of outstanding shares of Common Stock by combining such shares
into a smaller number of shares, then the number of shares which may be
purchased upon the conversion of the Series C Preferred Stock at the
time of such action shall be proportionately decreased as of such time,
and the Conversion Price shall be proportionately increased.
ii. If the Company shall at any time, or from time to time (i)
issue, sell or exchange any shares of Common Stock (including shares of
Common Stock sold in a Qualified Public Offering), excluding the
Excluded Securities (as hereafter defined), for a consideration per
share less than the Conversion Price as of the date of issuance or (ii)
issue, sell or exchange options or other securities, excluding the
Excluded Securities, that are convertible into or exercisable for
shares of Common Stock at an exercise or conversion price that is less
than the Conversion Price (taking into account, to the extent
applicable, any price paid for the option or other security) as of the
date of issuance, then and thereafter successively upon each such
issuance, sale or exchange, the Conversion Price in effect immediately
prior to the issuance, sale or exchange of such shares, options or
securities shall forthwith be reduced to, in the case of clause (i)
above, the amount of the consideration per share received by the
Company in connection with such issuance, sale or exchange, or in the
case of clause (ii) above, the amount of the exercise or
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conversion price per share, plus the amount paid (if any) for the
underlying option or other security, in connection with such
issuance, sale or exchange.
iii. Notwithstanding anything to the contrary contained
herein, the provisions of paragraph (ii) of this Section 5(g) shall not
apply with respect to the issuance of any Excluded Securities For
purposes hereof, "Excluded Securities" means (A) options, rights or
shares of Common Stock issued to, or issued in connection with the
exercise or grant of options or rights granted to, employees, directors
or consultants of the corporation pursuant to the terms of any stock
compensation plan of the corporation in effect on December 9, 1999 or
adopted by the shareholders of the corporation after December 9, 1999,
(B) shares of Common Stock issued in connection with the exercise of
options or warrants issued by the corporation and outstanding on
December 9, 1999, (C) up to 20,000 shares of Common Stock (or options
or warrants to acquire up to such number of shares of Common Stock)
issued in connection with the exercise of options or warrants issued
under contractual obligations of the corporation in effect prior to
December 9, 1999, (D) shares of Common Stock issued in connection with
the acquisition by the corporation (or its subsidiary) of Clearing
Systems, Inc. so long as the corporation (or its subsidiary) receives
in such acquisition the same number of shares of Common Stock issued,
(E) shares of Common Stock issued upon conversion of the 10% Series A
Mandatorily Convertible Preferred Stock ("Series A Preferred Stock")
issued and outstanding on December 9, 1999 or issued in respect of a
dividend payment on the Series A Preferred Stock, (F) shares of Series
A Preferred Stock issued in respect of a dividend payment on the Series
A Preferred Stock and (G) shares of Common Stock in connection with any
stock split or stock dividend covered by paragraph (i) of this Section
5(g).
iv. Whenever the Conversion Price shall be adjusted as
provided in this Section 5(g), the corporation shall as soon as
practicable thereafter file at its principal office, a statement signed
by its Chief Executive Officer or its Chief Financial Officer, showing
in reasonable detail the basis for such adjustment and the actual
Conversion Price that shall be in effect after such adjustment and
shall cause a copy of such statement to be sent to the holders of the
Series C Preferred Stock at their addresses on the books and records of
the corporation.
h. Changes in Common Stock. In case at any time the corporation shall
initiate any transaction or be a party to any transaction (including, without
limitation, a merger, consolidation, share exchange, sale, lease or other
disposition of all or substantially all of the corporation's assets, charter
amendment, recapitalization or reclassification of the Common Stock or a "Stock
Sale," as defined below) in connection with which the previously outstanding
Common Stock shall be changed into or exchanged for different securities of the
corporation or capital stock or other securities of another corporation or
interests in a non-corporate entity or other property (including cash) or any
combination of the foregoing (each such transaction being herein called a
"Transaction"), then, as a condition of the consummation of the Transaction,
lawful, enforceable and adequate provision shall be made so that the holders of
Series C Preferred Stock shall be entitled to receive upon conversion of their
shares of Series C Preferred Stock at any time on or after the consummation of
the Transaction, in lieu of the shares of Common Stock issuable upon such
conversion prior to such consummation, the securities or other property
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<PAGE>
(including cash) to which such holders of Series C Preferred Stock would have
been entitled upon consummation of the Transaction if such holders had converted
their shares of Series C Preferred Stock immediately prior thereto (subject to
adjustments from and after the consummation date as nearly equivalent as
possible to the adjustments provided for in this Section 5). If a purchase,
tender or exchange offer is made to and accepted by the holders of more than 50%
of the outstanding Common Stock (a "Stock Sale"), and if the holders of Series C
Preferred Stock so designate in a written notice given to the corporation, such
holders of Series C Preferred Stock shall be entitled to receive upon the
conversion of their shares of Series C Preferred Stock at any time on or after
the consummation of the Stock Sale in lieu of the shares of Common Stock
issuable upon conversion prior to the consummation of the Stock Sale, the
securities or other property to which such holders of Series C Preferred Stock
would have been entitled if such holders had converted their shares of Series C
Preferred Stock prior to the expiration of such purchase, tender or exchange
offer and had accepted such offer (subject to adjustments from and after the
consummation of such purchase, tender or exchange offer as nearly equivalent
as possible to the adjustments provided for in this Section 5). The corporation
will not effect any Transaction unless prior to the consummation thereof each
corporation or entity (other than the corporation) which may be required to
deliver any securities or other property upon the conversion of Series C
Preferred Stock as provided herein shall assume, by written instrument delivered
to the holders of Series C Preferred Stock, the obligation to deliver to such
holders such securities or other property as in accordance with the foregoing
provisions such holders may be entitled to receive. The foregoing provisions of
this Section 5(h) shall similarly apply to successive Transactions.
i. Other Action Affecting Common Stock. In case at any time or from
time to time the corporation shall take any action affecting the Common Stock,
other than an action described in Section 5(h) hereof, then, unless in the
opinion of the Board of Directors of the corporation such action will not have a
material adverse effect upon the rights of the holders of Series C Preferred
Stock (taking into consideration, if necessary, any prior actions which the
Board of Directors deemed not to materially adversely affect the rights of the
holders), the conversion formula set forth in Section 5(a) shall be adjusted in
such manner and at such time as the Board of Directors of the corporation may in
good faith determine to be equitable in the circumstances.
j. Issue Taxes. The corporation shall pay any and all issue and other
taxes that may be payable in respect of any issue or delivery of shares of
Common Stock on conversion of shares of Series C Preferred Stock pursuant
hereto; provided, that the corporation shall not be obligated to pay any
transfer taxes resulting from any transfer requested by any holder in connection
with any such conversion.
k. Any shares of Series C Preferred Stock which shall at any time have
been converted pursuant to this Section 6 shall, after such conversion, have the
status of authorized but unissued shares of preferred stock, without designation
as to series until such shares are once more designated as part of a particular
series by the Board.
Section 6. Liquidation Preference.
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<PAGE>
a. Series C Preferred Stock. In the event of any liquidation,
dissolution or winding up of the corporation, either voluntary or involuntary,
the holders of the Series C Preferred Stock shall be entitled to receive, prior
and in preference to any distribution of any of the assets or surplus funds of
the corporation to the holders of any stock ranking junior to the Series C
Preferred Stock, an amount equal to $100.00 per share plus the amount of accrued
and unpaid dividends thereon (the "Liquidation Preference")(such Liquidation
Preference to be adjusted for any combinations, consolidations, stock
distributions or stock dividends with respect to shares of the Series C
Preferred Stock). If upon the occurrence of any such liquidation, dissolution
or winding up of the corporation the assets and funds to be distributed among
the holders of the Series C Preferred Stock shall be insufficient to permit
the payment to such holders of the full Liquidation Preference, then the entire
assets and funds of the corporation legally available for distribution after
payment of any amounts due and owing to holders of any stock ranking senior to
the Series C Preferred Stock shall be distributed ratably among the holders of
Series C Preferred Stock based upon the number of shares of Series C Preferred
Stock then held by them.
b. Consolidation, Merger, etc. Not a Liquidation. The consolidation or
merger of the corporation with or into any other entity, the acquisition of the
capital stock of the corporation in a share exchange or the sale, lease or other
disposition of all or substantially all of the assets, property or business of
the corporation shall not be deemed to be a liquidation, dissolution or winding
up of the corporation within the meaning of this Section 6.
c. Valuation of Securities. Any securities to be distributed pursuant
to this Section 6 in a liquidation, dissolution or winding up of the corporation
shall be the fair market value thereof, as determined in good faith by the Board
of Directors of the corporation or, if so required by a holder of Series C
Preferred Stock, as determined by a national or regional investment bank or a
national accounting firm mutually selected by such holder and the corporation,
the fees and expenses of which shall be paid by the corporation.
d. Notice. Written notice (the "Notice") of any such liquidation,
dissolution or winding up of the corporation within the meaning of this Section
6, which states the payment date, the place where said payments shall be made
and the date on which Conversion Rights (as defined in Section 5) terminate as
to such shares (which shall be not less than 20 days after the date such notice
is given), shall be given by first class mail, postage prepaid, or by telecopy,
facsimile or recognized overnight courier, not less than 30 nor more than 60
days prior to the payment date stated therein, to the then holders of record of
Series C Preferred Stock and Common Stock, such Notice to be addressed to each
such holder at its address as shown on the records of the corporation.
Section 7. Redemption Rights.
a. The corporation shall have the right at any time after November 1,
2005 to redeem, out of funds legally available therefor, any outstanding shares
of Series C Preferred Stock, in whole or in part, for a redemption price equal
to the Liquidation Price per share of the Series C Preferred Stock (calculated
as if the corporation liquidated on the date of redemption). On November 1,
2008, the corporation shall redeem, out of funds legally available therefor, any
outstanding shares of Series C Preferred Stock, in whole or in part, for a
redemption price equal to the Liquidation Price per share of the Series C
Preferred Stock (calculated as if the corporation liquidated on the date of
redemption). On November 1, 2008, the corporation shall redeem, out of funds
legally available therefor, any outstanding shares of Series C Preferred Stock,
in whole or in part, for a redemption price equal
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<PAGE>
to the Liquidation Price per share of the Series C Preferred Stock (calculated
as if the corporation liquidated on the date of redemption).
b. In the event that fewer than all the outstanding Series C Preferred
Stock are to be redeemed, except as otherwise provided by law, the number of
shares to be redeemed shall be determined by the Board and the shares to be
redeemed shall be determined by lot or pro rata as may be determined by the
Board or by any other method as may be determined by the Board in its sole
discretion to be equitable.
c. In the event the corporation shall redeem shares of Series C
Preferred Stock, notice of such redemption shall be given by first class mail,
postage prepaid, mailed not less than 30 nor more than 60 days prior to the
redemption date, to each holder of record of the shares to be redeemed, at such
holder's address as the same appears on the stock register of the Corporation.
Each such notice shall state: (i) the redemption date; (ii) the number of shares
of Series C Preferred Stock to be redeemed and, if fewer than all the shares
held by such holder are to be redeemed, the number of such shares to be redeemed
from such holder; (iii) the redemption price; and (iv) the place or places where
certificates for such shares are to be surrendered for payment of the redemption
price.
d. Notice having been mailed as aforesaid, from and after the
redemption date (unless default shall be made by the corporation in providing
money for the payment of the redemption price), the redeemed shares of Series C
Preferred Stock shall no longer be deemed to be outstanding, and all rights of
the holders thereof as stockholders of the corporation (except the right to
receive from the corporation the redemption price) shall cease. Upon surrender
in accordance with said notice of the certificates for any shares so redeemed
(properly endorsed or assigned for transfer, if the Board shall so require and
the notice shall so state), such shares shall be redeemed by the corporation at
the redemption price aforesaid. In case fewer than all the shares represented by
any such certificate are redeemed, a new certificate shall be issued
representing the unredeemed shares without cost to the holder thereof.
e. Any shares of Series C Preferred Stock which shall at any time have
been redeemed shall, after such redemption, have the status of authorized but
unissued shares of preferred stock, without designation as to series until such
shares are once more designated as part of a particular series by the Board.
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<PAGE>
Exhibit 3 (a) (3)
ARTICLES OF MERGER
OF
INTER*ACT OPERATING CO., INC.
INTO
INTER*ACT ELECTRONIC MARKETING, INC.
Inter*Act Electronic Marketing, Inc.(the "surviving corporation"), a
corporation organized under the law of North Carolina, hereby submits these
Articles of Merger for the purpose of merging its subsidiary corporation,
Inter*Act Operating Co., Inc. (the "merging corporation"), a corporation
organized under the law of North Carolina, into the surviving corporation.
1. The Plan of Merger attached hereto as Schedule A was duly approved
by the board of directors of the surviving corporation in the manner prescribed
by law.
2. Shareholder approval of the Plan of Merger was not required because
the surviving corporation was the owner of 100%of the outstanding shares of each
class of the merging corporation and the Plan of Merger does not provide for any
changes in the articles of incorporation of the surviving corporation that
require shareholder action.
This the 29th day of December, 1999.
INTER*ACT ELECTRONIC MARKETING, INC.
By: /s/ Thomas McGoldrick
-------------------------------
Thomas McGoldrick
Executive Vice President
<PAGE>
SCHEDULE A
PLAN OF MERGER
OF INTER*ACT OPERATING CO., INC.,
A WHOLLY OWNED SUBSIDIARY OF INTER*ACT ELECTRONIC MARKETING, INC.,
WITH AND INTO
INTER*ACT ELECTRONIC MARKETING, INC.
A. Corporations Participating in Merger.
InterAct Operating Co., Inc., a North Carolina corporation (the
"Merging Corporation"), will merge with and into InterAct Electronic Marketing,
Inc., a North Carolina corporation, which will be the surviving corporation (the
"Surviving Corporation"). The Merging Corporation is a wholly owned subsidiary
of the Surviving Corporation.
B. Name of Surviving Corporation.
After the merger, the name of the Surviving Corporation will remain
"InterAct Electronic Marketing, Inc."
C. Merger.
The merger of the Merging Corporation into the Surviving Corporation
will be effected pursuant to the terms and conditions of this Plan. Upon the
merger becoming effective, the corporate existence of the Merging Corporation
will cease, and the corporate existence of the Surviving Corporation will
continue. The merger shall be effective upon the filing of the Articles of
Merger with the Secretary of State of North Carolina (the "Effective Time").
D. Conversion and Exchange of Shares.
1. Surviving Corporation. The outstanding shares of the Surviving
Corporation will not be converted, exchanged or altered in any manner as a
result of the merger and will remain outstanding as shares of the Surviving
Corporation.
2. Merging Corporation. The outstanding shares of the Merging
Corporation immediately prior to the Effective Time shall not be converted but
shall be surrendered and cancelled.
E. Amendments to Articles of Incorporation
The Articles of Incorporation of the Surviving Corporation are not
amended in any way by this Plan of Merger.
<PAGE>
Exhibit 4 (a) (3)
INCORPORATED UNDER THE LAWS OF
NORTH CAROLINA
Number Shares
INTER*ACT ELECTRONIC MARKETING, INC.
14% Series B Senior Mandatorily Convertible Preferred Stock
This Certifies that _________________________________________________ is the
registered holder of ________________________________________________ Shares of
the 14% Series B Senior Mandatorily Convertible Preferred Stock of Inter*Act
Electronic Marketing, Inc. transferable only on the books of the Corporation by
the holder hereof in person or by Attorney upon surrender of this Certificate
properly endorsed.
In Witness Whereof, the said Corporation has caused this Certificate to be
signed by its duly authorized officers and its Corporate Seal to be hereunto
affixed this __________________ day of _______________ A.D.
[Form of Reverse of Certificate]
THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "SECURITIES ACT"), OR ANY STATE SECURITIES LAWS. NEITHER THIS
SECURITY NOR ANY INTEREST OR PARTICIPATION HEREIN MAY BE REOFFERED, SOLD,
ASSIGNED, TRANSFERRED, PLEDGED, ENCUMBERED OR OTHERWISE DISPOSED OF IN ABSENCE
OF SUCH REGISTRATION OR UNLESS SUCH TRANSACTION IS EXEMPT FROM, OR NOT SUBJECT
TO, REGISTRATION. THE HOLDER OF THIS SECURITY BY ITS ACCEPTANCE HEREOF AGREES TO
OFFER, SELL, OR OTHERWISE TRANSFER SUCH SECURITY, PRIOR TO THE DATE WHICH IS TWO
YEARS AFTER THE LATER OF THE ORIGINAL ISSUE DATE HEREOF AND THE LAST DATE ON
WHICH THE COMPANY, OR ANY AFFILIATE OF THE COMPANY, WAS THE OWNER OF THIS
SECURITY (OR ANY PREDECESSOR OF THIS SECURITY) ONLY (A) TO THE COMPANY, (B)
PURSUANT TO A REGISTRATION STATEMENT WHICH HAS BEEN DECLARED EFFECTIVE UNDER THE
SECURITIES ACT, (C) FOR SO LONG AS THIS SECURITY IS ELIGIBLE FOR RESALE PURSUANT
TO RULE 144A UNDER THE SECURITIES ACT ("RULE 144A"), TO A PERSON IT REASONABLY
BELIEVES IS A "QUALIFIED INSTITUTIONAL BUYER" AS DEFINED IN RULE 144A THAT
PURCHASES FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF A QUALIFIED INSTITUTIONAL
BUYER TO WHOM NOTICE IS GIVEN THAT THE TRANSFER IS BEING MADE IN RELIANCE ON
RULE 144A OR (D) PURSUANT TO ANOTHER AVAILABLE EXEMPTION FROM THE REGISTRATION
REQUIREMENTS OF THE SECURITIES ACT, SUBJECT TO THE COMPANY'S AND THE TRANSFER
AGENT'S RIGHT PRIOR TO ANY SUCH OFFER, SALE OR TRANSFER TO REQUIRE THE DELIVERY
OF AN OPINION OF COUNSEL, CERTIFICATION AND/OR OTHER INFORMATION SATISFACTORY TO
EACH OF THEM.
UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE
DEPOSITORY TRUST COMPANY TO THE COMPANY OR ITS AGENT FOR REGISTRATION OF
TRANSFER, EXCHANGE OR PAYMENT, AND ANY CERTIFICATE ISSUED IS REGISTERED IN THE
NAME OF CEDE & CO. OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED
REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY OR SUCH OTHER REPRESENTATIVE OF
THE DEPOSITORY TRUST COMPANY OR SUCH OTHER NAME AS IS REQUESTED BY AN AUTHORIZED
REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY (AND ANY PAYMENT HEREON IS MADE
TO CEDE & CO.), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE
BY OR TO ANY PERSON IS WRONGFUL SINCE THE REGISTERED OWNER HEREOF, CEDE & CO.,
HAS AN INTEREST HEREIN. TRANSFERS OF THIS GLOBAL SECURITY SHALL BE LIMITED TO
TRANSFERS IN WHOLE, BUT NOT IN PART, TO DTC OR NOMINEES OF DTC OR TO A SUCCESSOR
OF DTC OR SUCH SUCCESSOR'S NOMINEE AND TRANSFERS OF PORTIONS OF THIS GLOBAL
SECURITY SHALL BE LIMITED TO TRANSFERS MADE IN ACCORDANCE WITH THE RESTRICTIONS
SET FORTH IN THE PRECEDING LEGEND.
THE SECURITIES REPRESENTED HEREBY ARE SUBJECT TO THE PROVISIONS OF A CERTAIN
STOCKHOLDERS AGREEMENT, DATED AS OF DECEMBER 28, 1999. A COMPLETE AND CORRECT
COPY OF SUCH AGREEMENT IS AVAILABLE FOR
<PAGE>
INSPECTION AT THE PRINCIPAL OFFICE OF THE COMPANY AND WILL BE FURNISHED UPON
WRITTEN REQUEST AND WITHOUT CHARGE.
THE COMPANY WILL, UPON REQUEST, FURNISH ANY SHAREHOLDER, WITHOUT CHARGE,
INFORMATION IN WRITING AS TO THE DESIGNATIONS, PREFERENCES, LIMITATIONS AND
RELATIVE RIGHTS OF ALL CLASSES OF SHARES AND ANY SERIES THEREOF AND THE
AUTHORITY OF THE BOARD OF DIRECTORS TO DETERMINE VARIATIONS FOR FUTURE SERIES.
For Value Received, _____________________ hereby sell, assign and transfer unto
_________________________ Shares represented by the within Certificate, and do
hereby irrevocable constitute and appoint ___________________________________
Attorney to transfer the said Shares on the books of the within named
Corporation will power of substitution in the premises.
Dated ________________________
<PAGE>
Exhibit 4 (a) (4)
INCORPORATED UNDER THE LAWS OF
NORTH CAROLINA
Number Shares
INTER*ACT ELECTRONIC MARKETING, INC.
10% Series C Mandatorily Convertible Preferred Stock
This Certifies that _________________________________________________ is the
registered holder of ________________________________________________ Shares of
the 10% Series C Mandatorily Convertible Preferred Stock of Inter*Act
Electronic Marketing, Inc. transferable only on the books of the Corporation by
the holder hereof in person or by Attorney upon surrender of this Certificate
properly endorsed.
In Witness Whereof, the said Corporation has caused this Certificate to be
signed by its duly authorized officers and its Corporate Seal to be hereunto
affixed this ______________ day of ______________ A.D.
[Form of Reverse of Certificate]
The shares evidenced by this certificate have not been registered under the
Securities Act of 1933, as amended, or under the securities laws of any state.
The shares may not be sold, transferred, pledged or hypothecated in the absence
of an effective registration statement under the Securities Act of 1933, as
amended, and such registration or qualification as may be necessary under the
securities laws of any state, or an opinion of counsel satisfactory to the
corporation that such registration or qualification is not required.
The shares of common stock into which the shares represented by this certificate
are convertible, and the transfer thereof, are subject to the provisions of that
certain Shareholders' Agreement dated as of April 16, 1993, as amended and as
may be subsequently amended. Copies of the Shareholders' Agreement and
amendments thereto are on file in, and may be examined at, the principal office
of the Corporation.
THE CORPORATION WILL, UPON REQUEST, FURNISH ANY SHAREHOLDER, WITHOUT CHARGE,
INFORMATION IN WRITING AS TO THE DESIGNATIONS, PREFERENCES, LIMITATIONS AND
RELATIVE RIGHTS OF ALL CLASSES OF SHARES AND ANY SERIES THEREOF AND THE
AUTHORITY OF THE BOARD OF DIRECTORS TO DETERMINE VARIATIONS FOR FUTURE SERIES.
For Value Received, _____________________ hereby sell, assign and transfer unto
_________________________ Shares represented by the within Certificate, and do
hereby irrevocable constitute and appoint ___________________________________
Attorney to transfer the said Shares on the books of the within named
Corporation will power of substitution in the premises.
Dated ___________________________
<PAGE>
Exhibit 4 (b)
EXECUTION COPY
INTER*ACT OPERATING CO., INC.
and
STATE STREET BANK AND TRUST COMPANY,
Trustee
INDENTURE
Dated as of December 15, 1999
$70,000,000
Senior Pay-In-Kind Notes Due 2003
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TABLE OF CONTENTS
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ARTICLE I
DEFINITIONS AND OTHER PROVISIONS
OF GENERAL APPLICATION...................................................................................2
SECTION 101. Definitions................................................................................2
SECTION 102. Compliance Certificates and Opinions......................................................22
SECTION 103. Form of Documents Delivered to Trustee....................................................23
SECTION 104. Acts of Holders...........................................................................23
SECTION 105. Notices, Etc., to Trustee and Company.....................................................24
SECTION 106. Notice to Holders; Waiver.................................................................25
SECTION 107. Effect of Headings and Table of Contents..................................................25
SECTION 108. Successors and Assigns....................................................................25
SECTION 109. Separability Clause.......................................................................26
SECTION 110. Benefits of Indenture.....................................................................26
SECTION 111. Governing Law.............................................................................26
SECTION 112. Legal Holidays............................................................................26
ARTICLE II
SECURITY FORMS..........................................................................................26
SECTION 201. Forms Generally...........................................................................26
SECTION 202. Restrictive Legends.......................................................................28
ARTICLE III
THE SECURITIES..........................................................................................29
SECTION 301. Title and Terms...........................................................................29
SECTION 302. Denominations.............................................................................30
SECTION 303. Execution, Authentication, Delivery and Dating............................................30
SECTION 304. Temporary Securities......................................................................31
SECTION 305. Registration, Registration of Transfer and Exchange.......................................32
SECTION 306. Book-Entry Provisions for Global Securities...............................................33
SECTION 307. Special Transfer Provisions...............................................................35
SECTION 308. Mutilated, Destroyed, Lost and Stolen Securities..........................................38
SECTION 309. Payment of Interest; Interest Rights Preserved............................................39
SECTION 310. Persons Deemed Owners.....................................................................40
SECTION 311. Cancellation..............................................................................40
SECTION 312. Computation of Interest...................................................................41
SECTION 313. Wire Transfers............................................................................41
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ARTICLE IV
SATISFACTION AND DISCHARGE..............................................................................41
SECTION 401. Satisfaction and Discharge of Indenture...................................................41
SECTION 402. Application of Trust Money................................................................42
ARTICLE V
REMEDIES................................................................................................43
SECTION 501. Events of Default.........................................................................43
SECTION 502. Acceleration of Maturity; Rescission and Annulment........................................44
SECTION 503. Collection of Indebtedness and Suits for Enforcement by Trustee...........................45
SECTION 504. Trustee May File Proofs of Claim..........................................................46
SECTION 505. Trustee May Enforce Claims Without Possession of Securities...............................46
SECTION 506. Application of Money Collected............................................................47
SECTION 507. Limitation on Suits.......................................................................47
SECTION 508. Unconditional Right of Holders to Receive Principal, Premium and
Interest..................................................................................48
SECTION 509. Restoration of Rights and Remedies........................................................48
SECTION 510. Rights and Remedies Cumulative............................................................48
SECTION 511. Delay or Omission Not Waiver..............................................................48
SECTION 512. Control by Holders........................................................................49
SECTION 513. Waiver of Past Defaults...................................................................49
SECTION 514. Waiver of Stay or Extension Laws..........................................................49
ARTICLE VI
THE TRUSTEE.............................................................................................50
SECTION 601. Notice of Defaults........................................................................50
SECTION 602. Certain Rights of Trustee.................................................................50
SECTION 603. Trustee Not Responsible for Recitals or Issuance of Securities............................51
SECTION 604. May Hold Securities.......................................................................52
SECTION 605. Money Held in Trust.......................................................................52
SECTION 606. Compensation and Reimbursement............................................................52
SECTION 607. Corporate Trustee Required; Eligibility; Conflicting Interests............................53
SECTION 608. Resignation and Removal; Appointment of Successor.........................................53
SECTION 609. Acceptance of Appointment by Successor....................................................54
SECTION 610. Merger, Conversion, Consolidation or Succession to Business...............................55
ARTICLE VII
HOLDERS LISTS AND REPORTS BY TRUSTEE....................................................................55
SECTION 701. Disclosure of Names and Addresses of Holders..............................................55
SECTION 702. Reports by Trustee........................................................................56
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ARTICLE VIII
CONSOLIDATION, MERGER, CONVEYANCE,
TRANSFER OR LEASE.......................................................................................56
SECTION 801. Company May Consolidate, Etc., Only on Certain Terms......................................56
SECTION 802. Successor Substituted.....................................................................57
SECTION 803. Securities To Be Secured in Certain Events................................................57
ARTICLE IX
SUPPLEMENTAL INDENTURES.................................................................................58
SECTION 901. Supplemental Indentures Without Consent of Holders........................................58
SECTION 902. Supplemental Indentures with Consent of Holders...........................................59
SECTION 903. Execution of Supplemental Indentures......................................................60
SECTION 904. Effect of Supplemental Indentures.........................................................60
SECTION 905. Conformity with Trust Indenture Act.......................................................60
SECTION 906. Reference in Securities to Supplemental Indentures........................................60
SECTION 907. Notice of Supplemental Indentures.........................................................60
ARTICLE X
COVENANTS...............................................................................................61
SECTION 1001. Payment of Principal, Premium, if any, and Interest......................................61
SECTION 1002. Maintenance of Office or Agency..........................................................61
SECTION 1003. Money for Security Payments to Be Held in Trust..........................................61
SECTION 1004. Corporate Existence......................................................................63
SECTION 1005. Payment of Taxes and Other Claims........................................................63
SECTION 1006. Statement by Officers as to Default......................................................63
SECTION 1007. Provision of Reports and Financial Statements............................................64
SECTION 1008. Limitation on Indebtedness...............................................................64
SECTION 1009. Limitation on Indebtedness and Preferred Stock of Restricted
Subsidiaries.............................................................................64
SECTION 1010. Limitation on Restricted Payments........................................................65
SECTION 1011. Limitation on Transactions with Affiliates...............................................66
SECTION 1012. Limitation on Liens......................................................................67
SECTION 1013. Purchase of Securities upon a Change of Control..........................................67
SECTION 1014. Limitation on Assets Sales...............................................................68
SECTION 1015. Limitation on Lines of Business..........................................................70
SECTION 1016. Limitation on Dividends and Other Payment Restrictions Affecting
Restricted Subsidiaries..................................................................70
ARTICLE XI
REDEMPTION OF SECURITIES................................................................................71
SECTION 1101. Mandatory and Optional Redemption........................................................71
SECTION 1102. Applicability of Article.................................................................71
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SECTION 1103. Notice to Trustee of Redemption..........................................................71
SECTION 1104. Selection by Trustee of Securities to Be Redeemed........................................71
SECTION 1105. Notice of Redemption.....................................................................72
SECTION 1106. Deposit of Redemption Price..............................................................73
SECTION 1107. Securities Payable on Redemption Date....................................................73
SECTION 1108. Securities Redeemed in Part..............................................................73
TESTIMONIUM........................................................................................................
SIGNATURES AND SEALS...............................................................................................
SCHEDULE I Existing Affiliate Transactions
EXHIBIT A Form of Note
EXHIBIT B Form of Certificate to Be Delivered upon Termination of Restricted Period
EXHIBIT C Form of Certificate to Be Delivered in Connection with Transfers to
Non-QIB Institutional Accredited Investors
EXHIBIT D Form of Certificate to Be Delivered in Connection with Transfers Pursuant
to Regulation S
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<PAGE>
INDENTURE, dated as of December 15, 1999, between Inter*Act Operating
Co., Inc. (herein called the "Company"), a North Carolina corporation and wholly
owned subsidiary of Inter*Act (hereinafter defined), and State Street Bank and
Trust Company, a Massachusetts trust company, as Trustee (herein called the
"Trustee").
RECITALS OF THE COMPANY
Inter*Act Electronic Marketing, Inc., a North Carolina corporation
("Inter*Act"), entered into a Purchase Agreement, dated as of July 30, 1996 (the
"Purchase Agreement"), between Inter*Act and the initial purchasers named
therein, pursuant to which Inter*Act sold and issued to such initial purchasers
142,000 units (the "Units"), each Unit consisting of one $1,000 principal amount
of 14% Senior Discount Notes due 2003 (the "Notes") and one warrant entitling
the holder thereof to purchase shares of Common Stock, no par value, of
Inter*Act (the "Common Stock") at an exercise price of $.01 per share.
The Company has duly authorized the creation of an issue of Senior
Pay-In-Kind Notes due 2003 (herein called the "Initial Securities") and Senior
Pay-In-Kind Notes due 2003 (the "Exchange Securities" and, together with the
Initial Securities, the "Securities"), of substantially the tenor and amount
hereinafter set forth, and to provide therefor the Company has duly authorized
the execution and delivery of this Indenture.
Upon the issuance of the Exchange Securities, if any, or the
effectiveness of the Shelf Registration Statement (as defined herein), this
Indenture will be subject to the provisions of the Trust Indenture Act of 1939,
as amended, that are required to be part of this Indenture and shall, to the
extent applicable, be governed by such provisions.
Pursuant to the terms of that certain Exchange Offer and Consent
Solicitation Memorandum, dated as of December 9, 1999, and the consent and
letter of transmittal attached thereto (the "Letter of Transmittal"), the
Holders of Notes that have duly executed a Letter of Transmittal (each a
"Purchaser," and collectively, the "Purchasers") have agreed to tender and
exchange their respective Notes to Inter*Act, and the Company and Inter*Act have
agreed to issue and sell to such Purchasers in exchange for each $1,000
principal amount of such Notes (i) $500 principal amount of the Initial
Securities, (ii) one warrant (collectively, the "Warrants") entitling the holder
thereof to purchase shares of Common Stock from Inter*Act at an exercise price
of $.01 per share, subject to adjustment as provided in that certain Warrant
Agreement, dated as of December 15, 1999, between Inter*Act and American Stock
Transfer & Trust Company, as the warrant agent and (iii) one share of 14% Series
B Senior Mandatorily Convertible Preferred Stock, no par value, of Inter*Act
(the "New Preferred Stock"), with an initial liquidation preference of $500 plus
accrued and unpaid dividends thereon, which New Preferred Stock is convertible
into shares of Common Stock.
All things necessary have been done to make the Securities, when
executed by the Company and authenticated and delivered hereunder and duly
issued by the Company, the
<PAGE>
valid obligations of the Company and to make this Indenture a valid agreement of
the Company, in accordance with their and its terms.
NOW, THEREFORE, THIS INDENTURE WITNESSETH:
For and in consideration of the premises and the purchase of the
Securities by the Holders thereof, it is mutually covenanted and agreed, for the
equal and proportionate benefit of all Holders of the Securities, as follows:
ARTICLE I
DEFINITIONS AND OTHER PROVISIONS
OF GENERAL APPLICATION
SECTION 101. Definitions.
For all purposes of this Indenture, except as otherwise expressly
provided or unless the context otherwise requires:
(a) the terms defined in this Article have the meanings
assigned to them in this Article, and include the plural as well as the
singular;
(b) all other terms used herein which are defined in the Trust
Indenture Act, either directly or by reference therein, have the
meanings assigned to them therein;
(c) all accounting terms not otherwise defined herein have the
meanings assigned to them in accordance with generally accepted
accounting principles in the United States; and
(d) the words "herein," "hereof" and "hereunder" and other
words of similar import refer to this Indenture as a whole and not to
any particular Article, Section or other subdivision.
"Acquired Indebtedness" means Indebtedness of a Person (a) existing at
the time such Person becomes a Restricted Subsidiary or (b) assumed in
connection with the acquisition of assets from such Person. Acquired
Indebtedness shall be deemed to be incurred on the date of the related
acquisition of assets from any Person or the date the acquired Person becomes a
Restricted Subsidiary.
"Act," when used with respect to any Holder, has the meaning specified
in Section 104.
"Additional Assets" means (i) any Property (other than cash, cash
equivalents or securities) to be owned by the Company or a Restricted Subsidiary
and used in a Related Business, (ii) the costs of improving or developing any
Property owned by the Company or a
2
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Restricted Subsidiary which is used in a Related Business and (iii) Investments
in any other Person engaged primarily in a Related Business (including the
acquisition from third parties of Capital Stock of such person) as a result of
which such other Person becomes a Wholly Owned Subsidiary or is merged or
consolidated with or into the Company or any Wholly Owned Subsidiary.
"Affiliate" of any specified Person means (i) any other Person,
directly or indirectly, controlling or controlled by or under direct or indirect
common control with such specified Person or (ii) any other Person who is a
director or executive officer (a) of such Person, (b) of any Subsidiary of such
specified Person or (c) of any person described in clause (i) above. For the
purposes of this definition, "control," when used with respect to any specified
Person, means the power to direct the management and policies of such Person,
directly or indirectly, whether through the ownership of voting securities, by
contract or otherwise; and the terms "controlling" and "controlled" have
meanings correlative to the foregoing. "Affiliate" shall also mean any
beneficial owner of shares representing 10% or more of the total voting power of
the Voting Stock (on a fully diluted basis) of the Company or of rights or
warrants to purchase such Voting Stock (whether or not currently exercisable)
and any Person who would be an Affiliate of any such beneficial owner pursuant
to the first sentence hereof.
"Asset Sale" means, with respect to any Person, any transfer,
conveyance, sale, lease or other disposition (including, without limitation,
dispositions pursuant to any consolidation or merger or a Sale and Leaseback
Transaction (collectively, a "transfer"), by such Person or any of its
Restricted Subsidiaries in any single transaction or series of transactions of
(a) any shares of Capital Stock or other ownership interests in another Person
(including, with respect to the Company and its Restricted Subsidiaries, Capital
Stock of Unrestricted Subsidiaries) or (b) any other Property of such Person or
any of its Restricted Subsidiaries; PROVIDED, HOWEVER, that the term "Asset
Sale" shall not include: (i) the sale or transfer of Temporary Cash Investments,
inventory, accounts receivable or other Property in the ordinary course of
business; (ii) the liquidation of Property received in settlement of debts owing
to such Person or any of its Restricted Subsidiaries as a result of foreclosure,
perfection or enforcement of any Lien or debt, which debts were owing to such
Person or any of its Restricted Subsidiaries in the ordinary course of business;
(iii) when used with respect to the Company, any asset disposition permitted
pursuant to Article Eight which constitutes a disposition of all or
substantially all of the Company's Property; (iv) the sale or transfer of any
Property by such Person of any of its Restricted Subsidiaries to such Person or
any of its Wholly Owned Subsidiaries; (v) a disposition in the form of a
Restricted Payment permitted to be made pursuant to Section 1010; (vi) any
Permitted Sale and Leaseback Transaction; or (vii) a disposition with a Fair
Market Value and a sale price of less than $500,000.
"Attributable Indebtedness" means indebtedness deemed to be incurred in
respect of a Sale and Leaseback Transaction (other than a Permitted Sale and
Leaseback Transaction) and shall be, at the date of determination, the present
value (discounted at the actual rate of interest implicit in such transaction,
compounded annually), of the total obligations of the
3
<PAGE>
lessee for rental payments during the remaining term of the lease included in
such Sale and Leaseback Transaction (including any period for which such lease
has been extended).
"Average Life" means, as of the date of determination, with respect to
any Indebtedness or Preferred Stock, the quotient obtained by dividing (i) the
sum of the products of the number of years (rounded to the nearest one-twelfth
of one year) from the date of determination to the date or dates of each
successive scheduled principal payment (including, without limitation through a
mandatory redemption) of such Indebtedness or redemption or similar payment with
respect to such Preferred Stock multiplied by the amount of such principal
payment by (ii) the sum of all such payments.
"Board Resolution" means a copy of a resolution certified by the
Secretary or an Assistant Secretary to have been duly adopted by the Board of
Directors, and to be in full force and effect on the date of such certification.
"Business Day" means a day other than a Saturday, a Sunday or a day on
which banking institutions in New York City or in the city of the principal
Corporate Trust Office of the Trustee are not required to be open.
"Capital Lease Obligations" means Indebtedness represented by
obligations under a lease that is required to be capitalized for financial
reporting purposes in accordance with GAAP and the amount of such Indebtedness
shall be the capitalized amount of such obligations determined in accordance
with GAAP. For purposes of Section 1012, a Capital Lease Obligation shall be
deemed secured by a Lien on the property being leased.
"Capital Stock" means, with respect to any Person, any and all shares,
interests, partnership interests, participations, rights in or other equivalents
(however designated) of corporate stock, partnership interests or any other
participation, right, warrant, option or other interest in the nature of an
equity interest in such Person, but excluding any debt security convertible or
exchangeable into such equity interest.
"Capital Stock Sale Proceeds" means the aggregate Net Cash Proceeds
received by the Company from the issue or sale (other than to a Subsidiary or an
employee stock ownership plan or trust established by the Company or any
Subsidiary) by the Company of any class of its Capital Stock (other than
Redeemable Stock) after the Issue Date.
"Change of Control" means the occurrence of any of the following
events: (i) any "person" or "group" (as such terms are used in Sections 13(d)(3)
and 14(d)(2) of the Exchange Act or any successor provision to either of the
foregoing, including any group acting for the purpose of acquiring, holding or
disposing of securities within the meaning of Rule 13d-5(b)(1) under the
Exchange Act), other than one or more of the Permitted Holders is or becomes the
"beneficial owner" (as defined in Rule 13d-3 under the Exchange Act), directly
or indirectly, of 40% or more of the total voting power of the Voting Stock (on
a fully diluted basis) of the Company or Inter*Act, as the case may be; (ii)
during any period of two consecutive years, individuals who at the beginning of
such period constituted the Board of Directors of the Company or Inter*Act, as
the case may be (together with any new
4
<PAGE>
directors whose election by the Board of Directors of the Company or Inter*Act,
as the case may be, or whose nomination for election by the shareholders of the
Company was approved by a vote of 66-2/3% of the directors of the Company or
Inter*Act then still in office who were either directors at the beginning of
such period or whose election or nomination for election was previously so
approved), cease for any reason to constitute a majority of the Board of
Directors of the Company or Inter*Act, as the case may be, then in office, (iii)
the Company or Inter*Act consolidates or merges with or into any other Person
(other than with each other or with a Wholly Owned Subsidiary) with respect to
which less than a majority of the outstanding Voting Stock of the surviving or
consolidated corporation is held by stockholders of the corporation immediately
prior to such event or (iv) the Company sells, conveys, transfers or leases,
directly or indirectly, all or substantially all of its assets (other than a
transfer of such assets as an entirety or virtually as an entirety to a Wholly
Owned Subsidiary).
"Change of Control Offer" has the meaning provided in Section 1013.
"Change of Control Purchase Date" has the meaning provided in
Section 1013.
"Change of Control Purchase Price" has the meaning provided in
Section 1013.
"Commission" means the Securities and Exchange Commission, as from time
to time constituted, or, if at any time after the execution of this Indenture
such Commission is not existing and performing the duties now assigned to it
under the Trust Indenture Act, then the body performing such duties at such
time.
"Company" means the Person named as the "Company" in the heading of
this Indenture, until a successor Person shall have become such Person pursuant
to the applicable provisions of this Indenture, and thereafter "Company" shall
mean such successor Person.
"Company Request" or "Company Order" means a written request or order
signed in the name of the Company by its Chairman, its President, any Vice
President, its Treasurer or an Assistant Treasurer, and delivered to the
Trustee.
"Consolidated Interest Expense" means, for any Person (or in the case
of the Company, Inter*Act, the Company and its Restricted Subsidiaries), for any
period, the amount of interest in respect of Indebtedness (excluding
amortization of original issue discount resulting from the allocation of a
portion of the Indebtedness from the offering attributable to the Warrants, but
including amortization of original issue discount in all other instances and
fees payable in connection with financings, including commitment, availability
and similar fees, and amortization of debt issuance costs, noncash interest
payments on any Indebtedness and the interest portion of any deferred payment
obligation and after taking into account the effect of elections made under, and
the net costs associated with, any Interest Rate Agreement, however denominated,
with respect to such Indebtedness), the amount of Redeemable Dividends, the
amount of Preferred Stock dividends in respect of all Preferred Stock of
Subsidiaries of such Person held other than by such Person or a Subsidiary of
such Person, commissions, discounts and other fees and charges owed with respect
to letters of
5
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credit and bankers' acceptance financing, and the interest component of rentals
in respect of any Capital Lease Obligation or Sale and Leaseback Transaction
(other than a Permitted Sale and Leaseback Transaction) paid, accrued or
scheduled to be paid or accrued by such Person during such period, determined on
a consolidated basis in accordance with GAAP. For purposes of this definition,
interest on a Capital Lease Obligation or a Sale and Leaseback Transaction shall
be deemed to accrue at an interest rate reasonably determined by such Person to
be the rate of interest implicit in such Capital Lease Obligation or Sale and
Leaseback Transaction in accordance with GAAP consistently applied.
"Consolidated Leverage Ratio" is defined as the ratio of (i) the
outstanding Indebtedness of a Person and its Subsidiaries (or in the case of the
Company, its Restricted Subsidiaries) divided by (ii) the Pro Forma EBITDA of
such Person.
"Consolidated Net Income" of a Person means for any period, the net
income (loss) of such Person and its Subsidiaries; PROVIDED, HOWEVER, that there
shall not be included in such Consolidated Net Income (i) with respect to the
Company, any net income (loss) of any Person if such Person is not a Restricted
Subsidiary, except that (a) subject to the limitations contained in clause (iv)
below, the Company's equity in the net income of any such Person for such period
shall be included in such Consolidated Net Income up to the aggregate amount of
cash actually distributed by such Person during such period to the Company or a
Restricted Subsidiary as a dividend or other distribution (subject, in the case
of a dividend or other distribution to a Restricted Subsidiary, to the
limitations contained in clause (iii) below) and (b) the Company's equity in a
net loss of any such Person (other than an Unrestricted Subsidiary) for such
period shall be included in determining such Consolidated Net Income, (ii) any
net income (loss) of any Person acquired by such Person or a Subsidiary of such
Person in a pooling of interests transaction for any period prior to the date of
such acquisition, (iii) with respect to the Company, any net income (loss) of
any Restricted Subsidiary if such Subsidiary is subject to restrictions,
directly or indirectly, on the payment of dividends or the making of
distributions by such Restricted Subsidiary, directly or indirectly, to the
Company, except that (a) subject to the limitations contained in clause (iv)
below, the Company's equity in the net income of any such Restricted Subsidiary
for such period shall be included in such Consolidated Net Income up to the
aggregate amount of cash that could have been distributed by such Restricted
Subsidiary during such period to the Company or another Restricted Subsidiary as
a dividend (subject, in the case of a dividend to another Restricted Subsidiary,
to the limitation contained in this clause) and (b) the Company's equity in a
net loss of any such Restricted Subsidiary for such period shall be included in
determining such Consolidated Net Income, (iv) any gain (but not loss) realized
upon the sale or other disposition of any Property of such Person or its
consolidated Subsidiaries (including pursuant to any Sale and Leaseback
Transaction) which is not sold or otherwise disposed of in the ordinary course
of business, (v) any extraordinary gain or loss and (vi) the cumulative effect
of a change in accounting principles.
"Corporate Trust Office" means the office of the Trustee, at which at
any particular time its corporate trust business shall be principally
administered, which office at the date of execution of this Indenture is located
at 225 Asylum Street, Hartford, Connecticut, 06103.
6
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"Cumulative EBITDA" means at any date of determination the cumulative
EBITDA of the Company and Inter*Act from and after the last day of the fiscal
quarter of the Company immediately preceding June 30, 1996 to the end of the
fiscal quarter immediately preceding the date of determination or, if such
cumulative EBITDA for such period is negative, the amount (expressed as a
negative number) by which such cumulative EBITDA is less than zero.
"Cumulative Interest Expense" means at any date of determination the
aggregate amount of Consolidated Interest Expense paid, accrued or scheduled to
be paid or accrued by Inter*Act, the Company and its Restricted Subsidiaries
from June 30, 1996 to the end of the fiscal quarter immediately preceding the
date of determination.
"Default" means any event which is, or after notice or passage of time
or both would be, an Event of Default.
"Defaulted Interest" has the meaning provided in Section 309.
"Depositary" means, with respect to Securities issued in the form of
one or more Global Securities, The Depository Trust Company or another Person
designated as depositary by the Company, which must be a clearing agency
registered under the Exchange Act.
"Disinterested Director" means, with respect to any transaction or
series of transactions in respect of which the Board of Directors is required to
deliver a resolution of the Board of Directors under this Indenture, a member of
the Board of Directors who does not have any material direct or indirect
financial interest in or with respect to such transaction or series of
transactions.
"EBITDA" means, for any Person, for any period, an amount equal to (A)
the sum of (i) Consolidated Net Income for such period, plus, to the extent
deducted in the calculation of Consolidated Net Income, (ii) the provision for
taxes for such period based on income or profits to the extent such income or
profits were included in computing Consolidated Net Income and any provision for
taxes utilized in computing net loss under clause (i) hereof, plus (iii)
Consolidated Interest Expense for such period, plus (iv) depreciation for such
period on a consolidated basis, plus (v) amortization of intangibles for such
period on a consolidated basis, plus (vi) any other non cash items reducing
Consolidated Net Income for such period, minus (B) all non-cash items increasing
Consolidated Net Income for such period, all for such Person and its
Subsidiaries determined in accordance with GAAP consistently applied, except
that with respect to the Company each of the foregoing items shall be determined
on a consolidated basis with respect to the Company and its Restricted
Subsidiaries only.
"Event of Default" has the meaning provided in Section 501.
"Excess Proceeds" has the meaning provided in Section 1014.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
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"Exchange Offer" means the exchange offer that may be effected pursuant
to the Registration Rights Agreement.
"Exchange Offer Registration Statement" means the Exchange Offer
Registration Statement as defined in the Registration Rights Agreement.
"Exchange Securities" has the meaning stated in the second recital of
this Indenture and refers to any Exchange Securities containing terms
substantially identical to the Initial Securities (except that such Exchange
Securities shall not contain terms with respect to transfer restrictions) that
are issued and exchanged for the Initial Securities pursuant to the Registration
Rights Agreement and this Indenture.
"Fair Market Value" means, with respect to any asset or Property, the
price which could be negotiated in an arm's-length free market transaction, for
cash, between a willing seller and a willing buyer, neither of whom is under
undue pressure or compulsion to complete the transaction. Fair Market Value will
be determined, except as otherwise provided, (i) if such property or asset has a
Fair Market Value of less than $5 million, by any Officer of the Company or (ii)
if such property or asset has a Fair Market Value in excess of $5 million, by a
majority of the Board of Directors of the Company and evidenced by a Board
Resolution, dated within 30 days of the relevant transaction.
"Federal Bankruptcy Code" means the Bankruptcy Act of Title 11 of the
United States Code, as amended from time to time.
"GAAP" means United States generally accepted accounting principles as
in effect on the Issue Date, unless stated otherwise.
"Global Security" has the meaning provided in Section 201.
"Guarantee" means any obligation, contingent or otherwise, of any
Person directly or indirectly guaranteeing any Indebtedness of any other Person
and any obligation, direct or indirect, contingent or otherwise, of such Person
(i) to purchase or pay (or advance or supply funds for the purchase or payment
of) such Indebtedness of such other Person (whether arising by virtue of
partnership arrangements, or by agreements to keep well, to purchase assets,
goods, securities or services, to take-or-pay or to maintain financial statement
conditions or otherwise) or (ii) entered into for the purpose of assuring in any
other manner the obligee against loss in respect thereof (in whole or in part);
PROVIDED, HOWEVER, that the term "Guarantee" shall not include endorsements for
collection or deposit in the ordinary course of business. The term "Guarantee"
used as a verb has a corresponding meaning.
"Hedging Obligation" of any Person means any obligation of such Person
pursuant to any Interest Rate Agreement, foreign exchange contract, currency
swap agreement, currency option or any other similar agreement or arrangement.
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"Holder" means a Person in whose name a Security is registered in the
Security Register.
"ILN Terminals" means the interactive terminals through which the
Company's Inter*Act Loyalty Network can be accessed in supermarkets and the
supporting network equipment and computer servers for such terminals along with
the component parts thereof.
"Incur" means, with respect to any Indebtedness or other obligation of
any Person, to create, issue, incur (by merger, conversion, exchange or
otherwise), extend, assume, Guarantee or become liable in respect of such
Indebtedness or other obligation or the recording, as required pursuant to GAAP
or otherwise, of any such Indebtedness or obligation on the balance sheet of
such Person (and "Incurrence," "Incurred," "Incurrable" and "incurring" shall
have meanings correlative to the foregoing); PROVIDED, HOWEVER, that a change in
GAAP that results in an obligation of such Person that exists at such time, and
is not theretofore classified as Indebtedness, becoming Indebtedness shall not
be deemed an Incurrence of such Indebtedness; PROVIDED FURTHER, HOWEVER, that
solely for purposes of determining compliance with Section 1008 amortization of
debt discount shall not be deemed to be the Incurrence of Indebtedness; PROVIDED
that in the case of Indebtedness sold at a discount, the amount of such
Indebtedness Incurred shall at all times be the aggregate principal amount at
Stated Maturity.
"Indebtedness" means (without duplication), with respect to any Person,
any indebtedness, secured or unsecured, contingent or otherwise, which is for
borrowed money (whether or not the recourse of the lender is to the whole of the
assets of such Person or only to a portion thereof), or evidenced by bonds,
Securities, notes, debentures or similar instruments or representing the balance
deferred and unpaid of the purchase price of any property (excluding any
balances that constitute customer advance payments and deposits, accounts
payable or trade payables, and other accrued liabilities arising in the ordinary
course of business) if and to the extent any of the foregoing indebtedness would
appear as a liability upon a balance sheet of such Person prepared in accordance
with GAAP, and shall also include, to the extent not otherwise included (i) any
Capital Lease Obligations, (ii) Indebtedness of other Persons secured by a Lien
to which the Property owned or held by such first Person is subject, whether or
not the obligation or obligation secured thereby shall have been assumed (the
amount of such Indebtedness being deemed to be the lesser of the value of such
property or assets or the amount of the Indebtedness so secured), (iii)
Guarantees of Indebtedness of other Persons, (iv) the maximum fixed repurchase
price of any Redeemable Stock (PROVIDED, HOWEVER, that Redeemable Stock of the
Company shall not constitute Indebtedness if such Redeemable Stock may not be
redeemed prior to the first anniversary of the Stated Maturity of the
Securities), (v) any Attributable Indebtedness, (vi) all reimbursement
obligations of such Person in respect of letters of credit, bankers' acceptances
or other similar instruments or credit transactions issued for the account of
such Person, (vii) in the case of the Company, the maximum fixed repurchase
price of Preferred Stock of its Restricted Subsidiaries and (viii) to the extent
not otherwise included in clauses (i) through (vii) of this paragraph, any
payment obligations of any such Person at the time of determination under any
Hedging Obligation. For purposes of this definition, the maximum fixed
repurchase price of any Redeemable Stock or Preferred Stock that does not have a
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fixed repurchase price shall be calculated in accordance with the terms of such
Redeemable Stock or Preferred Stock as if such Redeemable Stock or Preferred
Stock were repurchased on any date on which Indebtedness shall be required to be
determined pursuant to the Indenture; PROVIDED, HOWEVER, that if such Redeemable
Stock or Preferred Stock is not then permitted to be repurchased, the repurchase
price shall be the book value of such Redeemable Stock or Preferred Stock. The
amount of Indebtedness of any Person at any date shall be the outstanding
balance at such date of all unconditional obligations as described above and the
maximum liability of any contingent obligations in respect thereof at such date.
For purposes of this definition, the amount of the payment obligation with
respect to any Hedging Obligation shall be an amount equal to (i) zero, if such
obligation is an Interest Rate Obligation permitted pursuant to clause (vi) of
the second paragraph of Section 1008 or (ii) the notional amount of such Hedging
Obligation, if such Hedging Obligation is not an Interest Rate Agreement so
permitted.
"Indenture" means this instrument as originally executed and as it may
from time to time be supplemented or amended by one or more indentures
supplemental hereto entered into pursuant to the applicable provisions hereof.
"Initial Public Offering" means the first underwritten public offering
of Common Stock of Inter*Act, or any successor in interest thereof, pursuant to
an effective registration statement under the Securities Act, in which the
aggregate gross proceeds attributable to sales of shares of Common Stock covered
by such registration statement for the account of Inter*Act equals or exceeds
$30,000,000.
"Initial Securities" has the meaning provided in the recitals to this
Indenture.
"Institutional Accredited Investor" means an institution that is an
"accredited investor" as that term is defined in Rule 501(a)(1), (2), (3) or (7)
under the Securities Act.
"Interest Payment Date" means the date on which an installment of
interest on the Securities is due and payable.
"Interest Rate Agreement" means, for any Person, any interest rate swap
agreement, interest rate cap agreement, interest rate collar agreement or other
similar agreement.
"Investment" by any Person means any direct or indirect loan, advance
or other extension of credit or capital contribution (by means of any transfer
of cash or other Property to others or any payment for Property or services for
the account or use of others, or otherwise) to, or Incurrence of a Guarantee of
any obligation of, or purchase or acquisition or ownership by such Person of any
Capital Stock, bonds, notes, debentures or other securities or evidence of
Indebtedness issued or owned by, any other Person. In determining the amount of
any Investment made by transfer of any Property other than cash, such Property
shall be valued at its Fair Market Value at the time of such Investment.
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"Investment Grade Rating" means both a rating equal to or higher than
Baa3 (or the equivalent) by Moody's and a rating equal to or higher than BBB-
(or the equivalent) by S & P.
"Issue Date" means the date on which the Initial Securities are
initially issued.
"Lien" means, with respect to any Property of any Person, any mortgage
or deed of trust, pledge, hypothecation, assignment, deposit arrangement,
security interest, lien, charge, easement (other than any easement not
materially impairing usefulness or marketability), encumbrances, preference,
priority, or other security agreement or preferential arrangement of any kind or
nature whatsoever on or with respect to such Property (including any Capital
Lease Obligation, conditional sale or other title retention agreement having
substantially the same economic effect as any of the foregoing or any Sale and
Leaseback Transaction other than Permitted Sale and Leaseback Transactions).
"Maturity Date" means, with respect to any Security, the date on which
any principal of such Security becomes due and payable as therein or herein
provided, whether at the Stated Maturity with respect to such principal or by
declaration of acceleration, call for redemption or purchase or otherwise.
"Moody's" means Moody's Investors Service, Inc. or any successor to
the rating agency business thereof.
"Net Available Cash" from an Asset Sale means cash payments received
therefrom (including any cash payments received by way of deferred payment of
principal pursuant to a note or installment receivable or otherwise, but only as
and when received, but excluding any other consideration received in the form of
assumption by the acquiring person of Indebtedness or other obligations relating
to such Properties or assets or received in any other noncash form) in each case
net of all legal, title and recording tax expenses, commissions and other fees
and expenses incurred, and all Federal, state, provincial, foreign and local
taxes required to be accrued as a liability under GAAP, as a consequence of such
Asset Sale, and in each case net of all payments made on any Indebtedness which
is secured by any assets subject to such Asset Sale, in accordance with the
terms of any Lien upon or other security agreement of any kind with respect to
such assets, or which must by its terms, or in order to obtain a necessary
consent to such Asset Sale, or by applicable law be repaid out of the proceeds
from such Asset Sale, and net of all distributions and other payments required
to be made to minority interest holders in Subsidiaries or joint ventures as a
result of such Asset Sale.
"Net Cash Proceeds" with respect to any issuance or sale of Capital
Stock means the cash proceeds of such issuance or sale, net of attorney's fees,
accountants' fees, underwriters' or placement agents' fees, discounts or
commissions and brokerage, consultant and other fees actually incurred in
connection with such issuance or sale and net of taxes paid or payable as a
result thereof.
"New Preferred Stock" has the meaning provided in the recitals to
this Indenture.
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"Non-U.S. Person" means a Person that is not a "U.S. person" as
defined in Regulation S.
"Offering Memorandum" means the Company's and Inter*Act's final
Exchange Offer and Consent Solicitation Memorandum, dated as of December 9,
1999, pursuant to which the Securities, New Preferred Stock and Warrants were
offered for sale in exchange for the Notes.
"Officer" means the Chairman of the Board, the Chief Executive Officer,
the President, the Chief Financial Officer or the Treasurer of the Company.
"Officers' Certificate" means a certificate signed by two Officers of
the Company, at least one of whom shall be the principal executive officer or
principal financial officer of the Company.
"Offshore Global Security" has the meaning provided in Section 201.
"Offshore Physical Security" has the meaning provided in Section 201.
"Opinion of Counsel" means a written opinion from legal counsel who is
acceptable to the Trustee. The counsel may be counsel to the Company or the
Trustee.
"Original Offering Memorandum" means Inter*Act's final Offering
Memorandum dated July 30, 1996, pursuant to which the Original Units were
offered for sale.
"Outstanding," when used with respect to Securities, means, as of the
date of determination, all Securities theretofore authenticated and delivered
under this Indenture, except:
(i) Securities theretofore cancelled by the Trustee
or delivered to the Trustee for cancellation;
(ii) Securities, or portions thereof, for whose
payment or redemption money in the necessary amount has been
theretofore deposited with the Trustee or any Paying Agent
(other than the Company) in trust or set aside and segregated
in trust by the Company (if the Company shall act as its own
Paying Agent) for the Holders of such Securities; PROVIDED
that, if such Securities are to be redeemed, notice of such
redemption has been duly given pursuant to this Indenture or
provision therefor satisfactory to the Trustee has been made;
(iii) Securities which have been paid pursuant to
Section 308 or in exchange for or in lieu of which other
Securities have been authenticated and delivered pursuant to
this Indenture, other than any such Securities in respect of
which there shall have been presented to the Trustee proof
satisfactory to it that such Securities are held by a bona
fide purchaser in whose hands the
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Securities are valid obligations of the Company; PROVIDED,
HOWEVER, that in determining whether the Holders of the
requisite principal amount of Outstanding Securities have
given any request, demand, authorization, direction, consent,
notice or waiver hereunder, and for the purpose of making the
calculations required by TIA Section 316, Securities owned by
the Company or any other obligor upon the Securities or any
Affiliate of the Company or such other obligor shall be
disregarded and deemed not to be Outstanding, except that, in
determining whether the Trustee shall be protected in making
such calculation or in relying upon any such request, demand,
authorization, direction, notice, consent or waiver, only
Securities which the Trustee knows to be so owned shall be so
disregarded. Securities so owned which have been pledged in
good faith may be regarded as Outstanding if the pledgee
establishes to the satisfaction of the Trustee the pledgee's
right so to act with respect to such Securities and that the
pledgee is not the Company or any other obligor upon the
Securities or any Affiliate of the Company or such other
obligor.
"Paying Agent" means any Person (including the Company acting as Paying
Agent) authorized by the Company to pay the principal of (and premium, if any)
or interest on any Securities on behalf of the Company.
"Permitted Holders" means (i) the descendants of Lunsford Richardson,
Sr., their spouses, trusts, and corporations in which they have interests and
charitable organizations established by such descendants, (ii) AT&T Corporation
and its controlled Affiliates, (iii) Leonard C. Horvitz, his lineal descendants,
and his or their current or former spouses, including widows or widowers (all
collectively referred to herein as the "LCH Family"), estates of, and trusts for
the benefit of, or created by, any member of the LCH Family, any partnerships,
foundations, philanthropic funds or other entities created by them, or created
for their benefit by another, and (iv) Stephen R. Leeolou and Lee D. Armbuster,
their estates, spouses, ancestors, and lineal descendants, the legal
representatives of any of the foregoing and the trustee of any bona fide trust
of which the foregoing are the sole beneficiaries or the grantors, or any Person
of which the foregoing "beneficially owns" (as defined in Rules 13d-3 and 13d-5
under the Exchange Act) voting securities representing at least 66-2/3% of the
total voting power of all classes of Capital Stock of such Person (exclusive of
any matters as to which class voting rights exist).
"Permitted Indebtedness" is defined to include any and all of the
following: (i) Indebtedness Incurred in an aggregate principal amount which,
when taken together with the principal amount of all other Indebtedness Incurred
pursuant to this clause (i) and then outstanding, does not exceed $25 million;
(ii) Indebtedness Incurred to finance the purchase or lease and installation
(including all associated capitalized costs) of ILN Terminals; PROVIDED,
HOWEVER, that the aggregate principal amount of such Indebtedness does not
exceed 100% of the Fair Market Value (on the date of such Incurrence) of the ILN
Terminals acquired; (iii) Indebtedness of the Company evidenced by the
Securities; (iv) Indebtedness of the Company owing to and held by a Wholly Owned
Subsidiary and Indebtedness of a Wholly Owned Subsidiary owing to and held by
the Company or any
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Wholly Owned Subsidiary; PROVIDED, HOWEVER, that any event that results in any
such Wholly Owned Subsidiary ceasing to be a Wholly Owned Subsidiary or any
subsequent transfer of any such Indebtedness (except to the Company or a Wholly
Owned Subsidiary) shall be deemed, in each case, to constitute the Incurrence of
such Indebtedness by the issuer thereof; (v) Indebtedness under Interest Rate
Agreements entered into for the purpose of limiting interest rate risks;
PROVIDED, HOWEVER, that the obligations under such agreements are related to
payment obligations of the Company in respect of Indebtedness otherwise
permitted by the terms of the covenant described hereunder; (vi) Indebtedness in
connection with one or more standby letters of credit or performance bonds
issued in the ordinary course of business or pursuant to self-insurance
obligations and not in connection with the borrowing of money or the obtaining
of advances or credit; and (vii) Permitted Refinancing Indebtedness Incurred in
respect of Indebtedness Incurred pursuant to clause (a) of the immediately
preceding paragraph and clauses (ii) and (iii) above.
"Permitted Investment" means an Investment by the Company or any
Restricted Subsidiary in (i) a Wholly Owned Subsidiary or a Person which will,
upon the making of such Investment, become a Wholly Owned Subsidiary; PROVIDED,
HOWEVER, that such Person's primary business is a Related Business; (ii) another
Person if as a result of such Investment such other Person is merged or
consolidated with or into, or transfers or conveys all or substantially all its
assets to, the Company or a Wholly Owned Subsidiary; PROVIDED, HOWEVER, that
such Person's primary business is a Related Business; (iii) Temporary Cash
Investments; (iv) receivables owing to the Company or any Restricted Subsidiary,
if created or acquired in the ordinary course of business and payable or
dischargeable in accordance with customary trade terms; (v) payroll, travel and
similar advances to cover matters that are expected at the time of such advances
ultimately to be treated as expenses for accounting purposes and that are made
in the ordinary course of business; (vi) loans and advances to employees made in
the ordinary course of business consistent with past practice of the Company or
such Restricted Subsidiary, as the case may be; PROVIDED, HOWEVER, that such
loans and advances do not exceed $5 million at any one time outstanding; and
(vii) stock, obligations or securities received in settlement of debts created
in the ordinary course of business and owing to the Company or any Restricted
Subsidiary or in satisfaction of judgments.
"Permitted Liens" means (i) Liens on the Property of the Company or any
Restricted Subsidiary existing on the Issue Date; (ii) Liens on inventory,
accounts receivable and any ILN Terminals owned or leased, or cash held on the
Issue Date to secure Indebtedness permitted to be incurred under clause (i) of
the definition of "Permitted Indebtedness"; (iii) Liens on ILN Terminals
acquired or leased with the proceeds of Indebtedness permitted to be Incurred
under clause (ii) of "Permitted Indebtedness"; (iv) Liens on the Property of the
Company or any Restricted Subsidiary to secure any extension, renewal,
refinancing, replacement or refunding (or successive extensions, renewals,
refinancings, replacements or refundings), in whole or in part, of any
Indebtedness secured by Liens referred to in any of clauses (i), (ii), (iii),
(viii) or (xi); PROVIDED, HOWEVER, that any such Lien will be limited to all or
part of the same Property that secured the original Lien (plus improvements on
such Property) and the aggregate principal amount of Indebtedness that is
secured by such Lien will not be increased to an amount greater than the sum of
(A) the outstanding principal
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amount, or, if greater, the committed amount, of the Indebtedness secured by
Liens described under clauses (i), (ii), (iii), (viii) or (xi) at the time the
original Lien became a Permitted Lien under the Indenture and (B) an amount
necessary to pay any premiums, fees and other expenses incurred by the Company
in connection with such refinancing, refunding, extension, renewal or
replacement; (v) Liens for taxes, assessments or governmental charges or levies
on the Property of the Company or any Restricted Subsidiary if the same shall
not at the time be delinquent or thereafter can be paid without penalty, or are
being contested in good faith and by appropriate proceedings; (vi) Liens imposed
by law, such as carriers', warehousemen's and mechanics' Liens and other similar
Liens on the Property of the Company or any Restricted Subsidiary arising in the
ordinary course of business and securing payment of obligations which are not
more than 60 days past due or are being contested in good faith and by
appropriate proceedings; (vii) Liens on the Property of the Company or any
Restricted Subsidiary Incurred in the ordinary course of business to secure
performance of obligations with respect to statutory or regulatory requirements,
performance or return-of-money bonds, surety bonds or other obligations of a
like nature and Incurred in a manner consistent with industry practice; (viii)
Liens on Property at the time the Company or any Restricted Subsidiary acquired
such Property, including any acquisition by means of a merger or consolidation
with or into the Company or any Restricted Subsidiary; PROVIDED, HOWEVER, that
such Lien shall not have been Incurred in anticipation of or in connection with
such transaction or series of related transactions pursuant to which such
Property was acquired by the Company or any Restricted Subsidiary; (ix) other
Liens on the Property of the Company or any Restricted Subsidiary incidental to
the conduct of their respective businesses or the ownership of their respective
Properties which were not created in connection with the Incurrence of
Indebtedness or the obtaining of advances or credit and which do not in the
aggregate materially detract from the value of their respective Properties or
materially impair the use thereof in the operation of their respective
businesses; (x) pledges or deposits by the Company or any Restricted Subsidiary
under workmen's compensation laws, unemployment insurance laws or similar
legislation, or good faith deposits in connection with bids, tenders, contracts
(other than for the payment of Indebtedness) or leases to which the Company or
any Restricted Subsidiary is party, or deposits to secure public or statutory
obligations of the Company, or deposits for the payment of rent, in each case
Incurred in the ordinary course of business; (xi) Liens on the Property of a
Person at the time such Person becomes a Restricted Subsidiary; PROVIDED,
HOWEVER, that any such Lien may not extend to any other Property of the Company
or any other Restricted Subsidiary which is not a direct Subsidiary of such
Person; PROVIDED FURTHER, HOWEVER, that any such Lien was not Incurred in
anticipation of or in connection with the transaction or series of related
transactions pursuant to which such Person became a Restricted Subsidiary; (xii)
utility easements, building restrictions and such other encumbrances or charges
against real property as are of a nature generally existing with respect to
properties of a similar character; or (xiii) Liens to secure Interest Rate
Agreements permitted to be incurred under clause (vi) of the definition of
"Permitted Indebtedness".
"Permitted Refinancing Indebtedness" means any renewals, extensions,
substitutions, refinancings or replacements of any Indebtedness, including any
successive extensions, renewals, substitutions, refinancings or replacements so
long as (i) the aggregate amount of Indebtedness represented thereby is not
increased by such renewal, extension, substitution,
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refinancing or replacement (other than to finance fees and expenses associated
with such refinancing, including any premium and defeasance costs), (ii) the
Average Life of such Indebtedness is equal to or greater than the Average Life
of the Indebtedness being refinanced, (iii) the Stated Maturity of such
Indebtedness is no earlier than the Stated Maturity of the Indebtedness being
refinanced and (iv) the new Indebtedness shall not be senior in right of payment
to the Indebtedness that is being extended, renewed, substituted, refinanced or
replaced; PROVIDED, HOWEVER, that Permitted Refinancing Indebtedness shall not
include (a) Indebtedness of a Subsidiary that refinances Indebtedness of the
Company or (b) Indebtedness of the Company or a Restricted Subsidiary that
refinances Indebtedness of an Unrestricted Subsidiary.
"Permitted Sale and Leaseback Transactions" shall mean any Sale and
Leaseback Transaction covering ILN Terminals.
"Person" means any individual, corporation, company (including any
limited liability company), partnership, joint venture, trust, unincorporated
organization or government or any agency or political subdivision thereof.
"Physical Security" has the meaning provided in Section 201.
"PIK Notes" has the meaning provided in Section 301.
"Predecessor Security" of any particular Security means every previous
Security evidencing all or a portion of the same debt as that evidenced by such
particular Security; and, for the purposes of this definition, any Security
authenticated and delivered under Section 308 in exchange for a mutilated
security or in lieu of a lost, destroyed or stolen Security shall be deemed to
evidence the same debt as the mutilated, lost, destroyed or stolen Security.
"Preferred Stock" means any Capital Stock, including but not limited to
the New Preferred Stock, of a Person, however designated, which entitles the
holder thereof to a preference with respect to dividends, distributions or
liquidation proceeds of such Person over the holders of other Capital Stock
issued by such Person.
"Prepayment Offer" has the meaning provided in Section 1014.
"Prepayment Offer Notice" has the meaning provided in Section 1014.
"Private Placement Legend" has the meaning provided in Section 202.
"Pro Forma EBITDA" means, for any Person at any date of determination,
the EBITDA of such Person for the four most recent full fiscal quarters
preceding such date for which financial statements are available as determined
on a consolidated basis in accordance with GAAP consistently applied after
giving effect to the following: (i) if, during or after such period, such Person
or any of its Subsidiaries shall have made any disposition of any Person or
business, Pro Forma EBITDA of such Person and its Subsidiaries shall be
16
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computed so as to give pro forma effect to such disposition and (ii) if, during
or after such period, such Person or any of its Subsidiaries completes an
acquisition of any Person or business which immediately after such acquisition
is a Subsidiary of such Person or whose assets are held directly by such Person
or a Subsidiary of such Person, Pro Forma EBITDA shall be computed so as to give
pro forma effect to the acquisition of such Person or business; PROVIDED,
HOWEVER, that, with respect to the Company, all of the foregoing references to
"Subsidiary" or "Subsidiaries" shall be deemed to refer only to the "Restricted
Subsidiaries" of the Company.
"Property" means, with respect to any Person, any interest of such
Person in any kind of property or asset, whether real, personal or mixed, or
tangible or intangible, including, without limitation, Capital Stock in, and
other securities of, any other Person (but excluding Capital Stock or other
securities issued by such first mentioned Person).
"Purchase Agreement" has the meaning provided in the recitals to this
Indenture.
"Purchase Date" has the meaning provided in Section 1014.
"Purchasers" has the meaning provided in the recitals to this
Indenture.
"Qualified Institutional Buyer" or "QIB" shall have the meaning
specified in Rule 144A.
"Redeemable Dividend" means, for any dividend with regard to Redeemable
Stock, the quotient of the dividend divided by the difference between one and
the maximum statutory Federal income tax rate (expressed as a decimal number
between 1 and 0) then applicable to the issuer of such Redeemable Stock.
"Redeemable Stock" means, with respect to any person, any Capital Stock
that by its terms (or by the terms of any security into which it is convertible
or for which it is exchangeable) or otherwise (i) matures or is mandatorily
redeemable pursuant to a sinking fund obligation or otherwise, (ii) is or may
become redeemable or repurchasable at the option of the holder thereof, in whole
or in part, or (iii) is convertible or exchangeable for Indebtedness.
"Redemption Date," when used with respect to any Security to be
redeemed, in whole or in part, means the date fixed for such redemption by or
pursuant to this Indenture.
"Redemption Price," when used with respect to any Security to be
redeemed, means the price at which it is to be redeemed pursuant to this
Indenture.
"Registration Rights Agreement" means the Exchange and Registration
Rights Agreement between the Company and the Purchasers named therein, dated as
of December 15, 1999, relating to the Securities.
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"Registration Statement" means the Registration Statement as defined
in the Registration Rights Agreement.
"Regular Record Date" for the interest payable on any Interest Payment
Date means the January 15 or July 15 (whether or not a Business Day), as the
case may be, next preceding such Interest Payment Date.
"Regulation S" means Regulation S under the Securities Act.
"Related Business" means any business related to the consumer product
promotion business (including any interactive, multi-media and
telecommunications aspects thereof).
"Responsible Officer," when used with respect to the Trustee, means any
officer of the Trustee employed within the corporate trust administration
department, including any vice president, any assistant vice president, any
assistant secretary, any assistant treasurer, any trust officer or assistant
trust officer or any other officer of the Trustee customarily performing
functions similar to those performed by any of the above-designated officers,
and also means, with respect to a particular corporate trust matter, any other
officer to whom such matter is referred because of his knowledge of and
familiarity with the particular subject.
"Restricted Payment" means (i) any dividend or distribution (whether
made in cash, Property or securities) declared or paid on or with respect to any
shares of Capital Stock of the Company or Capital Stock of any Restricted
Subsidiary except for any dividend or distribution which is made solely to the
Company or a Restricted Subsidiary (and, if such Restricted Subsidiary is not a
Wholly Owned Subsidiary, to the other shareholders of such Restricted Subsidiary
on a pro rata basis) or dividends or distributions payable solely in shares of
Capital Stock (other than Redeemable Stock) of the Company; (ii) a payment made
by the Company or any Restricted Subsidiary to purchase, redeem, acquire or
retire any Capital Stock of the Company of Capital Stock of any Affiliate of the
Company (other than a Restricted Subsidiary) of any warrants, rights or options
to directly or indirectly purchase or acquire any such Capital Stock or any
securities exchangeable for or convertible into any such Capital Stock; (iii) a
payment made by the Company or any Restricted Subsidiary to redeem, repurchase,
defease or otherwise acquire or retire for value, prior to any scheduled
maturity, scheduled sinking fund or mandatory redemption payment (other than the
purchase, repurchase, or other acquisition of any Indebtedness subordinate in
right of payment to the Securities purchased in anticipation of satisfying a
sinking fund obligation, principal installment or final maturity, in each case
due within one year of the date of acquisition), Indebtedness of the Company
which is subordinate (whether pursuant to its terms or by operation of law) in
right of payment to the Securities; (iv) an Investment (other than Permitted
Investments) in any Person; or (v) any Restricted Payment (as such term is
defined in the Indenture, dated as of August 1, 1996, between Inter*Act and
Fleet National Bank) made after August 1, 1996 and before the Issue Date.
"Restricted Subsidiary" means (i) any Subsidiary of the Company as of
and after the Issue Date unless such Subsidiary shall have been designated an
Unrestricted Subsidiary as
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permitted or required pursuant to the definition of "Unrestricted Subsidiary"
and (ii) an Unrestricted Subsidiary which is redesignated as a Restricted
Subsidiary as permitted pursuant to the definition of "Unrestricted Subsidiary."
"Rule 144A" means Rule 144A under the Securities Act.
"Sale and Leaseback Transaction" means with respect to any Person, any
direct or indirect arrangement pursuant to which Property is sold or transferred
by such Person or a Subsidiary of such Person and is thereafter leased back from
the purchaser or transferee thereof by such Person or one of its Subsidiaries.
"S&P" means Standard and Poor's Ratings Group, or any successor to the
rating agency business thereof.
"Secured Indebtedness" means Indebtedness of the Company secured by
property or assets of the Company or any Restricted Subsidiary.
"Securities" has the meaning stated in the second recital of this
Indenture, and more particularly means any Securities authenticated and
delivered under this Indenture, and such term shall also specifically include
the PIK Notes from and after the Interest Payment Date pursuant to which such
PIK Notes are to be issued.
"Securities Act" means the Securities Act of 1933, as amended.
"Security Register" and "Security Registrar" have the respective
meanings specified in Section 305.
"Shelf Registration Statement" means the Shelf Registration Statement
as defined in the Registration Rights Agreement.
"Special Record Date" for the payment of any Defaulted Interest means a
date fixed by the Trustee pursuant to Section 309.
"Stated Maturity" means, with respect to any Indebtedness, the date
specified in such Indebtedness as the fixed date on which the principal of such
Indebtedness is due and payable, including pursuant to any mandatory redemption
provision (but excluding any provision providing for the repurchase of such
Indebtedness at the option of the holder thereof upon the happening of any
contingency beyond the control of the issuer unless such contingency has
occurred).
"Subordinated Indebtedness" means Indebtedness of the Company that is
expressly subordinated in right of payment to the Securities.
"Subsidiary" of any specified Person means any corporation,
partnership, joint venture, association or other business entity, whether now
existing or hereafter organized or acquired, (i) in the case of a corporation,
of which at least 50% of the total voting power of
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the Voting Stock is held by such first-named Person or any of its Subsidiaries
and such first-named Person or any of its Subsidiaries has the power to direct
the management, policies and affairs thereof; or (ii) in the case of a
partnership, joint venture, association, or other business entity, with respect
to which such first-named Person or any of its Subsidiaries has the power to
direct or cause the direction of the management and policies of such entity by
contract or otherwise if in accordance with generally accepted accounting
principles such entity is consolidated with the first-named Person for financial
statement purposes.
"Temporary Cash Investments" means any of the following: (i)
Investments in U.S. Government Obligations maturing within 90 days of the date
of acquisition thereof, (ii) Investments in time deposit accounts, certificates
of deposit and money market deposits maturing within 90 days of the date of
acquisition thereof issued by a bank or trust company which is organized under
the laws of the United States of America or any state thereof having capital,
surplus and undivided profits aggregating in excess of $500,000,000 and whose
long-term debt is rated "A-3" or "A-" or higher according to Moody's or S & P
(or such similar equivalent rating by at least one "nationally recognized
statistical rating organization" (as defined in Rule 436 under the Securities
Act)), (iii) repurchase obligations with a note of not more than 7 days for
underlying securities of the types described in clause (i) entered into with a
bank meeting the qualifications described in clause (ii) above, and (iv)
Investments in commercial paper, maturing not more than 90 days after the date
of acquisition, issued by a corporation (other than an Affiliate of the Company)
organized and in existence under the laws of the United States of America with a
rating at the time as of which any Investment therein is made of "P-1" (or
higher) according to Moody's or "A-1" (or higher) according to S & P (or such
similar equivalent rating by at least one "nationally recognized statistical
rating organization" (as defined in Rule 436 under the Securities Act)).
"Trust Indenture Act" or "TIA" (except as provided in Section 905)
means the Trust Indenture Act of 1939 as in force at the date as of which this
Indenture is executed and, to the extent required by law, as amended.
"Trustee" means the Person named as the "Trustee" in the heading of
this Indenture until a successor Trustee shall have become such pursuant to the
applicable provisions of this Indenture, and thereafter "Trustee" shall mean
such successor Trustee.
"Units" has the meaning provided in the recitals to this Indenture.
"Unrestricted Subsidiary" means (a) any Subsidiary of the Company in
existence on the Issue Date that is not a Restricted Subsidiary and (b) any
Subsidiary of an Unrestricted Subsidiary. The Board of Directors of the Company
may designate any Subsidiary or any Restricted Subsidiary (including any newly
acquired or newly formed Subsidiary) to be an Unrestricted Subsidiary so long as
(i) the Subsidiary to be so designated does not own any Capital Stock or
Indebtedness of, or own or hold any Lien on any Property of the Company or any
other Restricted Subsidiary, (ii) the Subsidiary to be so designated is not
obligated under any Indebtedness or other obligation that, if in default, would
result (with the passage of time or notice or otherwise) in a default on any
Indebtedness of the Company or any Restricted Subsidiary and (iii) either (A)
the Subsidiary to be so designated has total assets of
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$1,000 or less or (B) such designation is effective immediately upon such entity
becoming a Subsidiary of the Company or any Restricted Subsidiary. Unless so
designated as an Unrestricted Subsidiary, any Person that becomes a Subsidiary
of the Company or of any Restricted Subsidiary will be classified as a
Restricted Subsidiary; PROVIDED, HOWEVER, that such Subsidiary shall not be
designated a Restricted Subsidiary and shall be automatically classified as an
Unrestricted Subsidiary if the Company would be unable to Incur at least $1.00
of additional Indebtedness pursuant to clause (a) of Section 1008. Except as
provided in the second sentence of this paragraph, no Restricted Subsidiary may
be redesignated as an Unrestricted Subsidiary. The Company's Board of Directors
may designate any Unrestricted Subsidiary to be a Restricted Subsidiary if,
immediately after giving pro forma effect to such designation, (x) the Company
could incur at least $1.00 of additional Indebtedness pursuant to clause (a) of
Section 1008 and (y) no Default or Event of Default shall have occurred and be
continuing or would result therefrom. Any such designation by the Company's
Board of Directors will be evidenced to the Trustee by filing with the Trustee a
copy of the Board Resolution giving effect to such designation and an Officers'
Certificate certifying (i) that such designation complies with the foregoing
provisions and (ii) giving the effective date of such designation, such filing
with the Trustee to occur within 75 days after the end of the fiscal quarter of
the Company in which such designation is made (or in the case of a designation
made during the last fiscal quarter of the Company's fiscal year, within 120
days after the end of such fiscal year).
"U.S. Global Security" has the meaning provided in Section 201.
"U.S. Government Obligations" means direct obligations (or certificates
representing an ownership interest in such obligations) of the United States of
America (including any agency or instrumentality thereof) for the payment of
which the full faith and credit of the United States of America is pledged and
which are not callable or redeemable.
"U.S. Person" has the meaning provided in Regulation S.
"U.S. Physical Security" has the meaning provided in Section 201.
"Vice President," when used with respect to the Company or the Trustee,
means any vice president, whether or not designated by a number or a word or
words added before or after the title "vice president."
"Voting Stock" means all classes of Capital Stock of such corporation
then outstanding and normally entitled to vote in the election of directors.
"Warrant Agreement" has the meaning provided in the recitals to this
Indenture.
"Warrants" have the meaning provided in the recitals to this Indenture.
"Wholly Owned Subsidiary" means a Restricted Subsidiary, all the
Capital Stock of which (other than directors' qualifying shares and shares held
by other Persons to the extent such shares are required by applicable law to be
held by a Person other than the Company or
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a Restricted Subsidiary) is owned by the Company or one or more Wholly Owned
Subsidiaries.
SECTION 102. Compliance Certificates and Opinions.
Upon any application or request by the Company to the Trustee to take
any action under any provision of this Indenture, the Company shall furnish to
the Trustee an Officers' Certificate stating that all conditions precedent, if
any, provided for in this Indenture (including any covenant compliance with
which constitutes a condition precedent) relating to the proposed action have
been complied with and an Opinion of Counsel stating that in the opinion of such
counsel all such conditions precedent, if any, have been complied with, except
that in the case of any such application or request as to which the furnishing
of such documents is specifically required by any provision of this Indenture
relating to such particular application or request, no additional certificate or
opinion need be furnished.
Every certificate or opinion with respect to compliance with a
condition or covenant provided for in this Indenture (other than pursuant to
Section 1006(a)) shall include:
(1) a statement that each individual signing such certificate
or opinion has read such covenant or condition and the definitions
herein relating thereto;
(2) a brief statement as to the nature and scope of the
examination or investigation upon which the statements or opinions
contained in such certificate or opinion are based;
(3) a statement that, in the opinion of each such individual,
he has made such examination or investigation as is necessary to enable
him to express an informed opinion as to whether or not such covenant
or condition has been complied with; and
(4) a statement as to whether, in the opinion of each such
individual, such condition or covenant has been complied with.
SECTION 103. Form of Documents Delivered to Trustee.
In any case where several matters are required to be certified by, or
covered by an opinion of, any specified Person, it is not necessary that all
such matters be certified by, or covered by the opinion of, only one such
Person, or that they be so certified or covered by only one document, but one
such Person may certify or give an opinion with respect to some matters and one
or more other such Persons as to other matters, and any such Person may certify
or give an opinion as to such matters in one or several documents.
Any certificate or opinion of an officer of the Company may be based,
insofar as it relates to legal matters, upon a certificate or opinion of, or
representations by, counsel, unless such officer knows, or in the exercise of
reasonable care should know, that the certificate or opinion or representations
with respect to the matters upon which his certificate
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or opinion is based are erroneous. Any such certificate or Opinion of Counsel
may be based, insofar as it relates to factual matters, upon a certificate or
opinion of, or representations by, an officer or officers of the Company stating
that the information with respect to such factual matters is in the possession
of the Company, unless such counsel knows, or in the exercise of reasonable care
should know, that the certificate or opinion or representations with respect to
such matters are erroneous.
Where any Person is required to make, give or execute two or more
applications, requests, consents, certificates, statements, opinions or other
instruments under this Indenture, they may, but need not, be consolidated and
form one instrument.
SECTION 104. Acts of Holders.
(a) Any request, demand, authorization, direction, notice,
consent, waiver or other action provided by this Indenture to be given or taken
by Holders may be embodied in and evidenced by one or more instruments of
substantially similar tenor signed by such Holders in person or by agents duly
appointed in writing; and, except as herein otherwise expressly provided, such
action shall become effective when such instrument or instruments are delivered
to the Trustee and, where it is hereby expressly required, to the Company. Such
instrument or instruments (and the action embodied therein and evidenced
thereby) are herein sometimes referred to as the "Act" of the Holders signing
such instrument or instruments. Proof of execution of any such instrument or of
a writing appointing any such agent shall be sufficient for any purpose of this
Indenture and conclusive in favor of the Trustee and the Company, if made in the
manner provided in this Section.
(b) The fact and date of the execution by any Person of any
such instrument or writing may be proved by the affidavit of a witness of such
execution or by a certificate of a notary public or other officer authorized by
law to take acknowledgments of deeds, certifying that the individual signing
such instrument or writing acknowledged to him the execution thereof. Where such
execution is by a signer acting in a capacity other than his individual
capacity, such certificate or affidavit shall also constitute sufficient proof
of authority. The fact and date of the execution of any such instrument or
writing, or the authority of the Person executing the same, may also be proved
in any other manner that the Trustee deems sufficient.
(c) The principal amount and serial numbers of Securities held
by any Person, and the date of holding the same, shall be proved by the Security
Register.
(d) If the Company shall solicit from the Holders of
Securities any request, demand, authorization, direction, notice, consent,
waiver or other Act, the Company may, at its option, by or pursuant to a Board
Resolution, fix in advance a record date for the determination of Holders
entitled to give such request, demand, authorization, direction, notice,
consent, waiver or other Act, but the Company shall have no obligation to do so.
Such record date shall be the record date specified in or pursuant to such Board
Resolution, which shall be a date not earlier than the date 30 days prior to the
first solicitation of Holders generally in connection therewith and not later
than the date such solicitation is completed. If
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such a record date is fixed, such request, demand, authorization, direction,
notice, consent, waiver or other Act may be given before or after such record
date, but only the Holders of record at the close of business on such record
date shall be deemed to be Holders for the purposes of determining whether
Holders of the requisite proportion of Outstanding Securities have authorized or
agreed or consented to such request, demand, authorization, direction, notice,
consent, waiver or other Act, and for that purpose the Outstanding Securities
shall be computed as of such record date; PROVIDED that no such authorization,
agreement or consent by the Holders on such record date shall be deemed
effective unless it shall become effective pursuant to the provisions of this
Indenture not later than 120 days after the record date.
(e) Any request, demand, authorization, direction, notice,
consent, waiver or other Act of the Holder of any Security shall bind every
future Holder of the same Security and the Holder of every Security issued upon
the registration of transfer thereof or in exchange therefor or in lieu thereof
in respect of anything done, omitted or suffered to be done by the Trustee or
the Company in reliance thereon, whether or not notation of such action is made
upon such Security.
SECTION 105. Notices, Etc., to Trustee and Company.
Any request, demand, authorization, direction, notice, consent, waiver
or Act of Holders or other document provided or permitted by this Indenture to
be made upon, given or furnished to, or filed with,
(1) the Trustee by any Holder or by the Company shall be
sufficient for every purpose hereunder if made, given, furnished or
filed in writing to or with the Trustee at its Corporate Trust
Office, Attention: Corporate Trust Administration, or
(2) the Company by the Trustee or by any Holder shall be
sufficient for every purpose hereunder (unless otherwise herein
expressly provided) if in writing and mailed, first-class postage
prepaid, to the Company addressed to it at the address of its principal
office specified in the heading of this Indenture, or at any other
address previously furnished in writing to the Trustee by the Company.
SECTION 106. Notice to Holders; Waiver.
Where this Indenture provides for notice of any event to Holders by the
Company or the Trustee, such notice shall be sufficiently given (unless
otherwise herein expressly provided) if in writing and mailed, first-class
postage prepaid, to each Holder affected by such event, at his address as it
appears in the Security Register, not later than the latest date, and not
earlier than the earliest date, prescribed for the giving of such notice. In any
case where notice to Holders is given by mail, neither the failure to mail such
notice, nor any defect in any notice so mailed, to any particular Holder shall
affect the sufficiency of such notice with respect to other Holders. Any notice
mailed to a Holder in the manner herein prescribed shall be conclusively deemed
to have been received by such Holder, whether or not such Holder actually
receives such notice. Where this Indenture provides for notice in
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any manner, such notice may be waived in writing by the Person entitled to
receive such notice, either before or after the event, and such waiver shall be
the equivalent of such notice. Waivers of notice by Holders shall be filed with
the Trustee, but such filing shall not be a condition precedent to the validity
of any action taken in reliance upon such waiver.
In case by reason of the suspension of or irregularities in regular
mail service or by reason of any other cause, it shall be impracticable to mail
notice of any event to Holders when such notice is required to be given pursuant
to any provision of this Indenture, then any manner of giving such notice as
shall be satisfactory to the Trustee shall be deemed to be a sufficient giving
of such notice for every purpose hereunder.
SECTION 107. Effect of Headings and Table of Contents.
The Article and Section headings herein and the Table of Contents are
for convenience only and shall not affect the construction hereof.
SECTION 108. Successors and Assigns.
All covenants and agreements in this Indenture by the Company shall
bind its successors and assigns, whether so expressed or not.
SECTION 109. Separability Clause.
In case any provision in this Indenture or in the Securities shall be
invalid, illegal or unenforceable, the validity, legality and enforceability of
the remaining provisions shall not in any way be affected or impaired thereby.
SECTION 110. Benefits of Indenture.
Nothing in this Indenture or in the Securities, express or implied,
shall give to any Person, other than the parties hereto, any Paying Agent, any
Securities Registrar and their successors hereunder and the Holders, any benefit
or any legal or equitable right, remedy or claim under this Indenture.
SECTION 111. Governing Law.
This Indenture and the Securities shall be governed by and construed in
accordance with the law of the State of New York. Upon the issuance of the
Exchange Securities or the effectiveness of the Shelf Registration Statement,
this Indenture shall be subject to the provisions of the Trust Indenture Act
that are required to be part of this Indenture and shall, to the extent
applicable, be governed by such provisions; and, if and to the extent that any
provision of this Indenture limits, qualifies or conflicts with another
provision included in this Indenture which is required to be included in this
Indenture by any of Sections 310 to 318, inclusive, of the Trust Indenture Act,
such required provision shall control.
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SECTION 112. Legal Holidays.
In any case where any Interest Payment Date, Redemption Date, or
Maturity Date of any Security shall not be a Business Day, then (notwithstanding
any other provision of this Indenture or of the Securities) payment of principal
(or premium, if any) or interest need not be made on such date, but may be made
on the next succeeding Business Day with the same force and effect as if made on
the Interest Payment Date, Redemption Date, or at the Stated Maturity or
Maturity; PROVIDED that no interest shall accrue for the period from and after
such Interest Payment Date, Redemption Date or Maturity Date, as the case
may be.
ARTICLE II
SECURITY FORMS
SECTION 201. Forms Generally.
The definitive Securities shall be typed, printed, lithographed or
engraved or produced by any combination of these methods or may be produced in
any other manner permitted by the rules of any securities exchange on which the
Securities may be listed, all as determined by the officers executing such
Securities, as evidenced by their execution of such Securities.
The Securities and the Trustee's certificate of authentication shall be
substantially in the form annexed hereto as Exhibit A. The Securities may have
such appropriate insertions, omissions, substitutions and other variations as
are required or permitted by this Indenture and may have such letters,
notations, numbers or other marks of identification and such legends or
endorsements placed thereon as the Company may deem appropriate (and as are not
prohibited by the terms of this Indenture) or as may be required or appropriate
to comply with any law or with any rules made pursuant thereto or with any rules
of any securities exchange on which such Securities may be listed, or to conform
to general usage, or as may, consistently herewith, be determined by the
officers executing such Securities, as evidenced by their execution of such
Securities. Any portion of the text of any Security may be set forth on the
reverse thereof, with an appropriate reference thereto on the face of the
Security. The Company shall approve the form of the Securities and any notation,
legend or endorsement on the Securities. Each Security shall be dated the date
of its authentication.
The terms and provisions contained in the form of the Securities
annexed hereto as Exhibit A shall constitute, and are hereby expressly made, a
part of this Indenture. Each of the Company and the Trustee, by its execution
and delivery of this Indenture, expressly agrees to the terms and provisions of
the Securities applicable to it and to be bound thereby.
Initial Securities shall be issued in the form of a single permanent
global Security in registered form, substantially in the form set forth in
Exhibit A (the "U.S. Global Security"), deposited with the Trustee, as custodian
for the Depositary, duly executed by the Company and authenticated by the
Trustee as hereinafter provided. The aggregate principal amount at maturity of
the U.S. Global Security may from time to time be increased or decreased by
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adjustments made on the records of the Trustee, as custodian for the
Depositary or its nominee, as hereinafter provided.
Initial Securities offered and sold in offshore transactions in
reliance on Regulation S shall be issued in the form of a single global
Security, initially in temporary form and after the Private Placement Legend is
no longer required pursuant to Section 202, in permanent global form, in each
case in registered form substantially in the form set forth in Exhibit A (the
"Offshore Global Security") deposited with the Trustee, as custodian for the
Depositary, duly executed by the Company and authenticated by the Trustee as
hereinafter provided. The aggregate principal amount at maturity of the Offshore
Global Security may from time to time be increased or decreased by adjustments
made in the records of the Trustee, as custodian for the Depositary or its
nominee, as herein provided.
Initial Securities which are offered and sold to Institutional
Accredited Investors which are not QIBs (excluding Non-U.S. Persons) shall be
issued in the form of permanent certificated Securities in registered form in
substantially the form set forth in Exhibit A (the "U.S. Physical Securities").
Securities issued pursuant to Section 306 in exchange for interests in the U.S.
Global Security or the Offshore Global Security shall be in the form of U.S.
Physical Securities or in the form of permanent certificated Securities in
registered form substantially in the form set forth in Exhibit A (the "Offshore
Physical Securities"), respectively.
The Offshore Physical Securities and U.S. Physical Securities are
sometimes collectively herein referred to as the "Physical Securities." The
U.S. Global Security and the Offshore Global Security are sometimes
collectively referred to as the "Global Securities."
SECTION 202. Restrictive Legends.
Unless and until (i) an Initial Security is sold under an effective
Registration Statement or (ii) an Initial Security is exchanged for an Exchange
Security in connection with an effective Registration Statement, in each case
pursuant to the Registration Rights Agreement, (A) each U.S. Global Security and
each U.S. Physical Security shall bear the following legend set forth below (the
"Private Placement Legend") on the face thereof and (B) the Offshore Physical
Securities and the Offshore Global Security shall bear the legend set forth
below on the face thereof until at least 1 year after the Issue Date. THIS
SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED
(THE "SECURITIES ACT"), OR ANY STATE SECURITIES LAWS. NEITHER THIS SECURITY NOR
ANY INTEREST OR PARTICIPATION HEREIN MAY BE REOFFERED, SOLD, ASSIGNED,
TRANSFERRED, PLEDGED, ENCUMBERED OR OTHERWISE DISPOSED OF IN ABSENCE OF SUCH
REGISTRATION OR UNLESS SUCH TRANSACTION IS EXEMPT FROM, OR NOT SUBJECT TO,
REGISTRATION. THE HOLDER OF THIS SECURITY BY ITS ACCEPTANCE HEREOF AGREES TO
OFFER, SELL, OR OTHERWISE TRANSFER SUCH SECURITY, PRIOR TO THE DATE WHICH IS TWO
YEARS AFTER THE LATER OF THE ORIGINAL ISSUE DATE HEREOF AND THE LAST DATE ON
WHICH THE COMPANY, OR ANY AFFILIATE OF THE COMPANY, WAS THE OWNER OF THIS
SECURITY (OR ANY
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PREDECESSOR OF THIS SECURITY) ONLY (A) TO THE COMPANY, (B) PURSUANT TO A
REGISTRATION STATEMENT WHICH HAS BEEN DECLARED EFFECTIVE UNDER THE SECURITIES
ACT, (C) FOR SO LONG AS THIS SECURITY IS ELIGIBLE FOR RESALE PURSUANT TO RULE
144A UNDER THE SECURITIES ACT ("RULE 144A"), TO A PERSON IT REASONABLY BELIEVES
IS A "QUALIFIED INSTITUTIONAL BUYER" AS DEFINED IN RULE 144A THAT PURCHASES FOR
ITS OWN ACCOUNT OR FOR THE ACCOUNT OF A QUALIFIED INSTITUTIONAL BUYER TO WHOM
NOTICE IS GIVEN THAT THE TRANSFER IS BEING MADE IN RELIANCE ON RULE 144A, (D)
PURSUANT TO OFFERS AND SALES TO NON-U.S. PERSONS THAT OCCUR OUTSIDE THE UNITED
STATES WITHIN THE MEANING OF REGULATION S UNDER THE SECURITIES ACT, (E) TO AN
INSTITUTIONAL, "ACCREDITED INVESTOR" WITHIN THE MEANING OF SUBPARAGRAPH (A)(1),
(2), (3) OR (7) OF RULE 501 UNDER THE SECURITIES ACT THAT IS ACQUIRING THIS
SECURITY FOR ITS OWN ACCOUNT, OR FOR THE ACCOUNT OF SUCH AN INSTITUTIONAL
"ACCREDITED INVESTOR", FOR INVESTMENT PURPOSES AND NOT WITH A VIEW TO, OR FOR
OFFER OR SALE IN CONNECTION WITH, ANY DISTRIBUTION IN VIOLATION OF THE
SECURITIES ACT, OR (F) PURSUANT TO ANOTHER AVAILABLE EXEMPTION FROM THE
REGISTRATION REQUIREMENTS OF THE SECURITIES ACT, SUBJECT TO THE COMPANY'S AND
THE TRUSTEE'S RIGHT PRIOR TO ANY SUCH OFFER, SALE OR TRANSFER (i) PURSUANT TO
CLAUSE (D), (E) OR (F) TO REQUIRE THE DELIVERY OF AN OPINION OF COUNSEL,
CERTIFICATION AND/OR OTHER INFORMATION SATISFACTORY TO EACH OF THEM, AND (ii) IN
EACH OF THE FOREGOING CASES, TO REQUIRE THAT A CERTIFICATE OF TRANSFER IN THE
FORM APPEARING ON THE OTHER SIDE OF THIS SECURITY IS COMPLETED AND DELIVERED BY
THE TRANSFEROR TO THE TRUSTEE.
Each Global Security, whether or not an Initial Security, shall also
bear the following legend on the face thereof: UNLESS THIS CERTIFICATE IS
PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY TO
THE COMPANY OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT, AND
ANY CERTIFICATE ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR TO SUCH OTHER
ENTITY AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST
COMPANY OR SUCH OTHER REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY OR SUCH
OTHER NAME AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY
TRUST COMPANY (AND ANY PAYMENT HEREON IS MADE TO CEDE & CO.), ANY TRANSFER,
PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS
WRONGFUL SINCE THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN.
TRANSFERS OF THIS GLOBAL SECURITY SHALL BE LIMITED TO TRANSFERS IN WHOLE, BUT
NOT IN PART, TO DTC OR NOMINEES OF DTC OR TO A SUCCESSOR OF DTC OR SUCH
SUCCESSOR'S NOMINEE AND TRANSFERS OF PORTIONS OF THIS GLOBAL SECURITY SHALL BE
LIMITED TO TRANSFERS MADE IN ACCORDANCE WITH THE RESTRICTIONS SET FORTH IN
SECTIONS 306 AND 307 OF THE INDENTURE.
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ARTICLE III
THE SECURITIES
SECTION 301. Title and Terms.
The aggregate principal amount at final maturity of Securities which
may be authenticated and delivered under this Indenture is limited to
$70,000,000, plus the amount of any PIK Notes (as hereafter defined) issued
hereunder, except for Securities authenticated and delivered upon registration
of transfer of, or in exchange for, or in lieu of, other Securities pursuant to
Section 304, 305, 308, 906, 1013, 1014 or 1108.
The Initial Securities shall be known and designated as the "Senior
Pay-In-Kind Notes due 2003" and the Exchange Securities shall be known and
designated as the "Senior Pay-In-Kind Notes due 2003," in each case of the
Company. Their Stated Maturity shall be August 1, 2003 and, except as may be
otherwise provided for in the Securities, they shall bear interest, until the
principal thereof is paid or duly provided for, at the rate of 14% per annum
from and after August 1, 1999, or from the most recent Interest Payment Date to
which interest has been paid or duly provided for, payable beginning on February
1, 2000 and semi-annually thereafter on August 1 and February 1 in each year and
at said Stated Maturity. Interest shall be payable in cash; PROVIDED, HOWEVER,
that the Company may at its option pay interest in kind on the Securities by the
issuance of one or more promissory notes therefor (each a "PIK Note," and
collectively the "PIK Notes"), with the same terms, including date of maturity
and interest rate, as the Senior Pay-In-Kind Notes, to each Holder registered in
the Security Register at the close of business on the preceding January 15 or
July 15, as the case may be; PROVIDED FURTHER, HOWEVER, that upon the first
Interest Payment Date immediately following the date that is eighteen (18)
months after (i) the consummation of an Initial Public Offering or (ii) a Change
in Control, then and thereafter interest shall be payable only in cash. PIK
Notes shall be deemed to have been issued by the Company, and it obligations
thereunder shall commence, as of the applicable Interest Payment Date,
irrespective of the actual date of execution and delivery of the PIK Notes, and
shall be deemed to be included within the term "Securities" for all purposes of
this Agreement as of such Interest Payment Date.
The principal of (and premium, if any) and interest on the Securities
shall be payable at the office or agency of the Company maintained for such
purpose in The City of New York, or at such other office or agency of the
Company as may be maintained for such purpose; PROVIDED, HOWEVER, that, at the
option of the Company, interest that is payable in cash pursuant to the terms
hereof may be paid by check mailed to addresses of the Persons entitled thereto
as such addresses shall appear on the Security Register.
The Securities shall be redeemable as provided in Article Eleven.
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SECTION 302. Denominations.
The Securities shall be issuable only in registered form without
coupons and only in denominations of $500 and any integral multiple thereof.
SECTION 303. Execution, Authentication, Delivery and Dating.
The Securities shall be executed on behalf of the Company by its
Chairman, its President or a Vice President, under its corporate seal reproduced
thereon. The signature of any of these officers on the Securities may be manual
or facsimile signatures of the present or any future such authorized officer and
may be imprinted or otherwise reproduced on the Securities. The seal of the
Company, if any, may be in the form of a facsimile thereof and may be impressed,
affixed, imprinted or otherwise reproduced on the Securities.
Securities bearing the manual or facsimile signatures of individuals
who were at any time the proper officers of the Company shall bind the Company,
notwithstanding that such individuals or any of them have ceased to hold such
offices prior to the authentication and delivery of such Securities or did not
hold such offices at the date of such Securities. In addition, any Security may
be signed on behalf of the Company by such Persons as, at the actual date of the
execution of such Security, shall be the proper officers of the Company,
although at the date of such Security or of the execution of this Indenture any
such Person was not such officer.
At any time and from time to time after the execution and delivery of
this Indenture, the Company may deliver Securities executed by the Company to
the Trustee for authentication, together with a Company Order for the
authentication and delivery of such Securities, and the Trustee in accordance
with such Company Order shall authenticate and deliver such Securities.
Each Security shall be dated the date of its authentication.
No Security shall be entitled to any benefit under this Indenture or be
valid or obligatory for any purpose unless there appears on such Security a
certificate of authentication substantially in the form provided for herein duly
executed by the Trustee by manual signature of an authorized signatory, and such
certificate upon any Security shall be conclusive evidence, and the only
evidence, that such Security has been duly authenticated and delivered hereunder
and is entitled to the benefits of this Indenture.
In case the Company, pursuant to Article Eight, shall be consolidated
or merged with or into any other Person or shall convey, transfer, lease or
otherwise dispose of its properties and assets substantially as an entirety to
any Person, and the successor Person resulting from such consolidation, or
surviving such merger, or into which the Company shall have been merged, or the
Person which shall have received a conveyance, transfer, lease or other
disposition as aforesaid, shall have executed an indenture supplemental hereto
with the Trustee pursuant to Article Eight, any of the Securities authenticated
or delivered prior to such consolidation, merger, conveyance, transfer, lease or
other disposition may, from time
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to time, at the request of the successor Person, be exchanged for other
Securities executed in the name of the successor Person with such changes in
phraseology and form as may be appropriate, but otherwise in substance of like
tenor as the Securities surrendered for such exchange and of like principal
amount at maturity; and the Trustee, upon Company Request of the successor
Person, shall authenticate and deliver Securities as specified in such Request
for the purpose of such exchange. If Securities shall at any time be
authenticated and delivered in the name of a successor Person pursuant to this
Section in exchange or substitution for or upon registration of transfer of any
Securities, such successor Person, at the option of the Holders but without
expense to them, shall provide for the exchange of all Securities at the time
Outstanding for Securities authenticated and delivered in such name.
SECTION 304. Temporary Securities.
Pending the preparation of definitive Securities, the Company may
execute, and upon Company Order the Trustee shall authenticate and deliver,
temporary Securities which are printed, lithographed, typewritten, mimeographed
or otherwise produced, in any authorized denomination, substantially of the
tenor of the definitive Securities in lieu of which they are issued and with
such appropriate insertions, omissions, substitutions and other variations as
the officers executing such Securities may determine, as conclusively evidenced
by their execution of such Securities.
If temporary Securities are issued, the Company will cause definitive
Securities to be prepared without unreasonable delay. After the preparation of
definitive Securities, the temporary Securities shall be exchangeable for
definitive Securities upon surrender of the temporary Securities at the office
or agency of the Company designated for such purpose pursuant to Section 1002,
without charge to the Holder (except as provided in Section 305). Upon surrender
for cancellation of any one or more temporary Securities, the Company shall
execute and the Trustee shall authenticate and deliver in exchange therefor a
like principal amount at maturity of definitive Securities of authorized
denominations. Until so exchanged, the temporary Securities shall in all
respects be entitled to the same benefits under this Indenture as definitive
Securities.
SECTION 305. Registration, Registration of Transfer and Exchange.
The Company shall keep or cause to be kept at the Corporate Trust
Office of the Trustee a register (the register maintained in such office and in
any other office or agency designated pursuant to Section 1002 being herein
sometimes referred to as the "Security Register") in which, subject to such
reasonable regulations as it may prescribe, the Company shall provide for the
registration of Securities and of transfers and exchanges of Securities. The
Security Register shall be in written form or any other form capable of being
converted into written form within a reasonable time. At all reasonable times,
the Security Register shall be open to inspection by the Trustee. The Trustee is
hereby initially appointed as security registrar (the "Security Registrar") for
the purpose of registering Securities and transfers and exchanges of Securities
as herein provided.
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Upon surrender for registration of transfer of any Security at the
Corporate Trust Office of the Trustee or the office or agency of the Company
designated pursuant to Section 1002, the Company shall execute, and the Trustee
shall authenticate and deliver, in the name of the designated transferee or
transferees, one or more new Securities of any authorized denomination or
denominations of a like aggregate principal amount at maturity.
At the option of the Holder, Securities may be exchanged for other
Securities of any authorized denomination and of a like aggregate principal
amount at maturity, upon surrender of the Securities to be exchanged at the
Corporate Trust Office of the Trustee or such office or agency. Whenever any
Securities are so surrendered for exchange, the Company shall execute, and the
Trustee shall authenticate and deliver, the Securities which the Holder making
the exchange is entitled to receive; PROVIDED that no exchange of Initial
Securities for Exchange Securities shall occur until an Exchange Offer
Registration Statement shall have been declared effective by the Commission and
that the Initial Securities to be exchanged for the Exchange Securities shall be
cancelled by the Trustee.
All Securities issued upon any registration of transfer or exchange of
Securities shall be the valid obligations of the Company, evidencing the same
debt, and entitled to the same benefits under this Indenture, as the Securities
surrendered upon such registration of transfer or exchange.
Every Security presented or surrendered for registration of transfer or
for exchange shall (if so required by the Company) be duly endorsed, or be
accompanied by a written instrument of transfer, in form satisfactory to the
Company and the Security Registrar, duly executed by the Holder thereof or his
attorney duly authorized in writing.
No service charge shall be payable by the Holders for any registration
of transfer or exchange or redemption of Securities, but the Company may require
payment of a sum sufficient to cover any tax or other governmental charge that
may be imposed in connection with any registration of transfer or exchange of
Securities, other than transfer taxes and similar charges with respect to
exchanges pursuant to Section 304, 906, 1013, 1014 or 1108 not involving any
transfer.
The Company shall not be required (i) to issue or register the transfer
of or exchange any Security during a period beginning at the opening of business
15 days before the selection of Securities to be redeemed under Section 1104 and
ending at the close of business on the day of mailing of the relevant notice of
redemption, or (ii) to register the transfer of or exchange any Security so
selected for redemption in whole or in part, except the unredeemed portion of
any Security being redeemed in part.
SECTION 306. Book-Entry Provisions for Global Securities.
(a) The U.S. Global Security and Offshore Global Security
shall (i) be registered in the name of the Depositary for such Global
Securities or the nominee of such
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Depositary, (ii) be delivered to the Trustee as custodian for such Depositary
and (iii) bear legends as set forth in Section 202.
Members of, or participants in, the Depositary ("Agent Members") shall
have no rights under this Indenture with respect to any Global Security held on
their behalf by the Depositary, or the Trustee as its custodian, or under any
Global Security, and the Depositary may be treated by the Company, the Trustee
and any agent of the Company or the Trustee as the absolute owner of such Global
Security for all purposes whatsoever. Notwithstanding the foregoing, nothing
herein shall prevent the Company, the Trustee or any agent of the Company or the
Trustee from giving effect to any written certification, proxy or other
authorization furnished by the Depositary or impair, as between the Depositary
and its Agent Members, the operation of customary practices governing the
exercise of the rights of a beneficial ownership of any Security.
(b) Transfers of a Global Security shall be limited to
transfers of such Global Security in whole, but not in part, to the Depositary,
its successors or their respective nominees. Interests of beneficial owners in a
Global Security may be transferred in accordance with the applicable rules and
procedures of the Depositary and the provisions of Section 307. In addition,
U.S. Physical Securities or Offshore Physical Securities shall be transferred to
all beneficial owners in exchange for their beneficial interests in the U.S.
Global Security or the Offshore Global Security, respectively, if (i) the
Depositary notifies the Company that it is unwilling or unable to continue as
Depositary for the U.S. Global Security or the Offshore Global Security, as the
case may be, or the Depositary ceases to be a "Clearing Agency" registered under
the Exchange Act and a successor depositary is not appointed by the Company
within 90 days or (ii) an Event of Default has occurred and Holders of more than
25% in aggregate principal amount of the Securities at the time outstanding
represented by the Global Securities advise the Trustee through the Depositary
in writing that the continuation of a book-entry system through the Depositary
with respect to the Global Securities is no longer required.
(c) Any beneficial interest in one of the Global Securities
that is transferred to a person who takes delivery in the form of an interest in
the other Global Security will, upon transfer, cease to be an interest in such
Global Security and become an interest in the other Global Security and,
accordingly, will thereafter be subject to all transfer restrictions, if any,
and other procedures applicable to beneficial interests in such other Global
Security for as long as it remains such an interest.
(d) In connection with any transfer pursuant to paragraph (b)
of this Section of a portion of the beneficial interests in the U.S. Global
Security to beneficial owners who are required to hold U.S. Physical Securities,
the Registrar shall reflect on its books and records the date and a decrease in
the principal amount at maturity of the U.S. Global Security in an amount equal
to the principal amount at maturity of the beneficial interest in the U.S.
Global Security to be transferred, and the Company shall execute, and the
Trustee shall authenticate and deliver, one or more U.S. Physical Securities of
like tenor and amount.
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(e) In connection with the transfer of the entire U.S. Global
Security or Offshore Global Security to beneficial owners pursuant to paragraph
(b) of this Section, the U.S. Global Security or Offshore Global Security, as
the case may be, shall be deemed to be surrendered to the Trustee for
cancellation, and the Company shall execute, and the Trustee shall authenticate
and deliver, to each beneficial owner identified by the Depositary in exchange
for its beneficial interest in the U.S. Global Security or Offshore Global
Security, as the case may be, an equal aggregate principal amount at maturity of
U.S. Physical Securities or Offshore Physical Securities, as the case may be, of
authorized denominations.
(f) Any U.S. Physical Security delivered in exchange for an
interest in the U.S. Global Security pursuant to paragraph (b) or (d) of this
Section shall, except as otherwise provided by paragraph (a)(i)(x) or paragraph
(e) of Section 307, bear the legend regarding transfer restrictions applicable
to the U.S. Physical Security set forth in Section 202.
(g) The registered holder of a Global Security may grant
proxies and otherwise authorize any person, including Agent Members and persons
that may hold interests through Agent Members, to take any action which a Holder
is entitled to take under this Indenture or the Securities.
(h) Beneficial owners of interests in a Global Security may
receive Physical Securities (which shall bear the Private Placement Legend if
required by Section 202) in accordance with the procedures of the Depositary. In
connection with the execution, authentication and delivery of such Physical
Securities, the Registrar shall reflect on its books and records a decrease in
the principal amount at maturity of the relevant Global Security equal to the
principal amount at maturity of such Physical Securities and the Company shall
execute and the Trustee shall authenticate and deliver one or more Physical
Securities having an equal aggregate principal amount at maturity.
SECTION 307. Special Transfer Provisions. Unless and until (i) an
Initial Security is sold under an effective Registration Statement (as certified
to the Trustee by the Company), or (ii) an Initial Security is exchanged for an
Exchange Security in connection with an effective Registration Statement, in
each case pursuant to the Registration Rights Agreement, the following
provisions shall apply:
(a) Transfers to Non-QIB Institutional Accredited Investors.
The following provisions shall apply with respect to the registration of any
proposed transfer of an Initial Security to any Institutional Accredited
Investor which is not a QIB (excluding Non-U.S.
Persons):
(i) The Registrar shall register the transfer of any
Security, whether or not such Security bears the Private Placement
Legend, if (x) the requested transfer is at least two years after the
original issue date of the Initial Securities or (y) the proposed
transferee has delivered to the Registrar a certificate substantially
in the form of Exhibit C hereto.
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(ii) If the proposed transferor is an Agent Member
holding a beneficial interest in the U.S. Global Security, upon receipt
by the Registrar of (x) the documents, if any, required by paragraph
(i), and (y) instructions given in accordance with the Depositary's and
the Registrar's procedures therefor, the Registrar shall reflect on its
books and records the date and a decrease in the principal amount of
the U.S. Global Security in an amount equal to the principal amount of
the beneficial interest in the U.S. Global Security to be transferred,
and the Company shall execute, and the Trustee shall authenticate and
deliver, one or more U.S. Physical Securities of like tenor and amount.
(b) Transfers to QIBs. The following provisions shall apply
with respect to the registration of any proposed transfer of a U.S. Physical
Security or an interest in the U.S. Global Security to a QIB (excluding Non-U.S.
Persons):
(i) If the Security to be transferred consists of (x)
U.S. Physical Securities, the Security Registrar shall register the
transfer if such transfer is being made by a proposed transferor who
has checked the box provided for on the form of Initial Security
stating, or has otherwise advised the Company and the Security
Registrar in writing, that the sale has been made in compliance with
the provisions of Rule 144A to a transferee who has signed the
certification provided for on the form of Initial Security stating, or
has otherwise advised the Company and the Security Registrar in
writing, that it is purchasing the Initial Security for its own account
or an account with respect to which it exercises sole investment
discretion and that it and any such account is a QIB within the meaning
of Rule 144A, and is aware that the sale to it is being made in
reliance on Rule 144A and acknowledges that it has received such
information regarding the Company as it has requested pursuant to Rule
144A or has determined not to request such information and that it is
aware that the transferor is relying upon its foregoing representations
in order to claim the exemption from registration provided by Rule 144A
or (y) an interest in the U.S. Global Security, the transfer of such
interest may be effected only through the book-entry system maintained
by the Depositary.
(ii) If the proposed transferee is an Agent Member,
and the Security to be transferred consists of U.S. Physical
Securities, upon receipt by the Security Registrar of the documents
referred to in clause (i) and instructions given in accordance with the
Depositary's and the Security Registrar's procedures, the Security
Registrar shall reflect on its books and records the date and an
increase in the principal amount at maturity of the U.S. Global
Security in an amount equal to the principal amount at maturity of the
U.S. Physical Securities to be transferred, and the Trustee shall
cancel the Physical Securities so transferred.
(c) Transfers of Interests in the Offshore Global Security or
Offshore Physical Securities to U.S. Persons. The following provisions shall
apply with respect to any transfer of interests in the Offshore Global Security
or Offshore Physical Securities to U.S. Persons:
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(i) prior to the removal of the Private Placement
Legend from the Offshore Global Security or Offshore Physical
Securities pursuant to Section 202, the Security Registrar shall refuse
to register such transfer; and
(ii) after such removal, the Security Registrar shall
register the transfer of any such Security without requiring any
additional certification.
(d) Transfers to Non-U.S. Persons at Any Time. The following
provisions shall apply with respect to any transfer of an Initial Security to a
Non-U.S. Person:
(i) The Security Registrar shall register any
proposed transfer to any Non-U.S. Person if the Security to be
transferred is a U.S. Physical Security or an interest in the U.S.
Global Security only upon receipt of a certificate substantially in the
form of Exhibit D from the proposed transferor.
(ii) (x) If the proposed transferee is an Agent
Member holding a beneficial interest in the U.S. Global Security, upon
receipt by the Security Registrar of (1) the documents required by
paragraph (i) and (2) instructions in accordance with the Depositary's
and the Security Registrar's procedures, the Security Registrar shall
reflect on its books and records the date and a decrease in the
principal amount at maturity of the U.S. Global Security in an amount
equal to the principal amount at maturity of the beneficial interest in
the U.S. Global Security to be transferred, and (y) if the proposed
transferee is an Agent Member, upon receipt by the Security Registrar
of instructions given in accordance with the Depositary's and the
Security Registrar's procedures, the Security Registrar shall reflect
on its books and records the date and an increase in the principal
amount at maturity of the Offshore Global Security in an amount equal
to the principal amount at maturity of the U.S. Physical Security or
the U.S. Global Security, as the case may be, to be transferred, and
the Trustee shall cancel the Physical Security, if any, so transferred
or decrease the amount of the U.S. Global Security.
(e) Private Placement Legend. Upon the transfer, exchange or
replacement of Securities not bearing the Private Placement Legend, the Security
Registrar shall deliver Securities that do not bear the Private Placement
Legend. Upon the transfer, exchange or replacement of Securities bearing the
Private Placement Legend, the Security Registrar shall deliver only Securities
that bear the Private Placement Legend unless either (i) the Private Placement
Legend is no longer required by Section 202 or (ii) there is delivered to the
Security Registrar an Opinion of Counsel reasonably satisfactory to the Company
and the Trustee to the effect that neither such Legend nor the related
restrictions on transfer are required in order to maintain compliance with the
provisions of the Securities Act.
(f) General. By its acceptance of any Security bearing the
Private Placement Legend, each Holder of, or beneficial owner of an interest in,
such Security acknowledges the restrictions on transfer of such Security set
forth in this Indenture and in the Private Placement Legend and agrees that it
will transfer such Security only as provided in this Indenture. The Security
Registrar shall not register a transfer of any Security unless
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such transfer complies with the requirements of this Section 307. In connection
with any transfer of Securities to an Institutional Accredited Investor, each
such Holder or beneficial owner agrees by its acceptance of the Securities to
furnish the Security Registrar or the Company such certifications, legal
opinions or other information as such Person may reasonably require to confirm
that such transfer is being made pursuant to an exemption from, or a transaction
not subject to, the registration requirements of the Securities Act; PROVIDED
that the Security Registrar shall not be required to determine (but may rely on
a determination made by the Company with respect to) the sufficiency of any such
certifications, legal opinions or other information. The Security Registrar's
only obligation to enforce the transfer restrictions of this Indenture shall be
to require the certifications and opinions specifically required by this Section
307 as a condition to transfer.
Every replacement Security is an additional obligation of the Company
and shall be entitled to the benefits of this Indenture.
SECTION 308. Mutilated, Destroyed, Lost and Stolen Securities.
If (i) any mutilated Security is surrendered to the Trustee, or (ii)
the Company and the Trustee receive evidence to their satisfaction of the
destruction, loss or theft of any Security, and there is delivered to the
Company and the Trustee such security or indemnity as may be required by them to
save each of them harmless, then, in the absence of notice to the Company or the
Trustee that such Security has been acquired by a bona fide purchaser, the
Company shall execute and upon Company Order the Trustee shall authenticate and
deliver, in exchange for any such mutilated Security or in lieu of any such
destroyed, lost or stolen Security, a new Security of like tenor, form, terms
and principal amount, bearing a number not contemporaneously Outstanding.
In case any such mutilated, destroyed, lost or stolen Security has
become or is about to become due and payable, the Company in its discretion may,
instead of issuing a new Security, pay or authorize the payment of such
Security.
Upon the issuance of any new Security under this Section, the Company
may require the payment of a sum sufficient to cover any tax or other
governmental charge that may be imposed in relation thereto and any other
expenses (including the fees and expenses of the Trustee) connected therewith.
Every new Security issued pursuant to this Section in lieu of any
mutilated, destroyed, lost or stolen Security shall constitute an original
additional contractual obligation of the Company, whether or not the mutilated,
destroyed, lost or stolen Security shall be at any time enforceable by anyone,
and shall be entitled to all benefits of this Indenture equally and
proportionately with any and all other Securities duly issued hereunder.
All Securities shall be held and owned upon the express condition that
the foregoing provisions of this Section are exclusive with respect to the
replacement or payment of mutilated, destroyed, lost or stolen Securities and
shall preclude any and all other rights or remedies, notwithstanding any law or
statute existing or hereinafter enacted to the contrary
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with respect to the replacement or payment of negotiable instruments or other
securities without their surrender.
SECTION 309. Payment of Interest; Interest Rights Preserved.
Interest on any Security which is payable, and is punctually paid or
duly provided for, on any Interest Payment Date shall be paid to the Person in
whose name such Security (or one or more Predecessor Securities) is registered
at the close of business on the Regular Record Date for such interest at the
office or agency of the Company maintained for such purpose pursuant to Section
1002; PROVIDED, HOWEVER, that to the extent such interest payment is payable in
cash, each installment of interest may at the Company's option be paid by (i)
mailing a check for such interest, payable to or upon the written order of the
Person entitled thereto pursuant to Section 310, to the address of such Person
as it appears in the Security Register at the close of business on the Regular
Record Date for such interest payment or (ii) transfer to an account located in
the United States maintained by the payee the details of which account are
notified to the Security Registrar prior to the close of business on the Record
Date for such interest payment.
Any interest on any Security which is payable in cash, but is not
punctually paid or duly provided for, on any Interest Payment Date shall
forthwith cease to be payable to the Holder on the Regular Record Date by virtue
of having been such Holder, and such defaulted interest and (to the extent
lawful) interest on such defaulted interest at the rate borne by the Securities
(such defaulted interest and interest thereon herein collectively called
"Defaulted Interest") may be paid by the Company, at its election in each case,
as provided in clause (1) or (2) below:
(1) The Company may elect to make payment of any Defaulted
Interest to the Persons in whose names the Securities (or their
respective Predecessor Securities) are registered at the close of
business on a Special Record Date for the payment of such Defaulted
Interest, which shall be fixed in the following manner. The Company
shall notify the Trustee in writing of the amount of Defaulted Interest
proposed to be paid on each Security and the date of the proposed
payment, and at the same time the Company shall deposit with the
Trustee an amount of money equal to the aggregate amount proposed to be
paid in respect of such Defaulted Interest or shall make arrangements
satisfactory to the Trustee for such deposit prior to the date of the
proposed payment, such money when deposited to be held in trust for the
benefit of the Persons entitled to such Defaulted Interest as in this
clause provided. Thereupon the Trustee shall fix a Special Record Date
for the payment of such Defaulted Interest which shall be not more than
15 days and not less than 10 days prior to the date of the proposed
payment and not less than 10 days after the receipt by the Trustee of
the notice of the proposed payment. The Trustee shall promptly notify
the Company of such Special Record Date, and in the name and at the
expense of the Company, shall cause notice of the proposed payment of
such Defaulted Interest and the Special Record Date therefor to be
given in the manner provided for in Section 106, not less than 10 days
prior to such Special Record Date. Notice of the proposed payment of
such Defaulted Interest and the Special Record Date therefor having
been so given,
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such Defaulted Interest shall be paid to the Persons in whose names the
Securities (or their respective Predecessor Securities) are registered
at the close of business on such Special Record Date and shall no
longer be payable pursuant to the following clause (2).
(2) The Company may make payment of any Defaulted Interest in
any other lawful manner not inconsistent with the requirements of any
securities exchange on which the Securities may be listed, and upon
such notice as may be required by such exchange, if, after notice given
by the Company to the Trustee of the proposed payment pursuant to this
clause, such manner of payment shall be deemed practicable by the
Trustee.
Subject to the foregoing provisions of this Section, each Security
delivered under this Indenture upon registration of transfer of or in exchange
for or in lieu of any other Security shall carry the rights to interest accrued
and unpaid, and to accrue, which were carried by such other Security.
SECTION 310. Persons Deemed Owners.
Prior to the due presentment of a Security for registration of
transfer, the Company, the Trustee and any agent of the Company or the Trustee
may treat the Person in whose name such Security is registered as the owner of
such Security for the purpose of receiving payment of principal of (and premium,
if any) and (subject to Sections 305 and 309) interest on such Security and for
all other purposes whatsoever, whether or not such Security be overdue, and none
of the Company, the Trustee or any agent of the Company or the Trustee shall be
affected by notice to the contrary.
SECTION 311. Cancellation.
All Securities surrendered for payment, redemption, registration of
transfer or exchange shall, if surrendered to any Person other than the Trustee,
be delivered to the Trustee and shall be promptly cancelled by it. The Company
may at any time deliver to the Trustee for cancellation any Securities
previously authenticated and delivered hereunder which the Company may have
acquired in any manner whatsoever, and may deliver to the Trustee (or to any
other Person for delivery to the Trustee) for cancellation any Securities
previously authenticated hereunder which the Company has not issued and sold,
and all Securities so delivered shall be promptly cancelled by the Trustee. If
the Company shall so acquire any of the Securities, however, such acquisition
shall not operate as a redemption or satisfaction of the indebtedness
represented by such Securities unless and until the same are surrendered to the
Trustee for cancellation. No Securities shall be authenticated in lieu of or in
exchange for any Securities cancelled as provided in this Section, except as
expressly permitted by this Indenture. All cancelled Securities held by the
Trustee shall be disposed of by the Trustee in accordance with its customary
procedures and certification of their disposal delivered to the Company unless
by Company Order the Company shall direct that cancelled Securities be returned
to it.
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SECTION 312. Computation of Interest.
Interest on the Securities shall be computed on the basis of a 360-day
year of 12 30-day months.
SECTION 313. Wire Transfers.
Notwithstanding any other provision to the contrary in this Indenture,
the Company may make any payment of monies required to be deposited with the
Trustee on account of principal of, or premium, if any, or interest on, the
Securities (whether pursuant to optional or mandatory redemption payments,
interest payments or otherwise) by wire transfer in immediately available funds
to an account designated by the Trustee on or before 10:00 a.m. (New York City
time) the date such monies are to be paid to the Holders of the Securities in
accordance with the terms hereof.
ARTICLE IV
SATISFACTION AND DISCHARGE
SECTION 401. Satisfaction and Discharge of Indenture.
This Indenture shall upon Company Request cease to be of further effect
(except as to surviving rights and obligations of the Trustee expressly provided
for in this Indenture and the surviving rights of registration of transfer or
exchange of Securities expressly provided for herein or pursuant hereto) and the
Trustee, at the direction and expense of the Company, shall execute proper
instruments acknowledging satisfaction and discharge of this Indenture when
(1) either
(a) all Securities theretofore authenticated and
delivered (other than (i) Securities which have been
destroyed, lost or stolen and which have been replaced or paid
as provided in Section 308 and (ii) Securities for whose
payment money has theretofore been deposited in trust with the
Trustee or any Paying Agent or segregated and held in trust by
the Company and thereafter repaid to the Company or discharged
from such trust, as provided in Section 1003) have been
delivered to the Trustee for cancellation; or
(b) all such Securities not theretofore delivered
to the Trustee for cancellation
(i) have become due and payable, or
(ii) will become due and payable at their
Stated Maturity within one year, or
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(iii) are to be called for redemption within
one year under arrangements satisfactory to the
Trustee for the giving of notice of redemption by the
Trustee in the name, and at the expense, of the
Company, and the Company, in the case of (i), (ii) or
(iii) above, has irrevocably deposited or caused to
be deposited with the Trustee as trust funds in trust
for such purpose an amount sufficient to pay and
discharge the entire indebtedness on such Securities
not theretofore delivered to the Trustee for
cancellation, for principal of (and premium, if any)
and interest to the date of such deposit (in the case
of Securities which have become due and payable) or
to the Stated Maturity or Redemption Date, as the
case may be;
(2) the Company has paid or caused to be paid all other sums
payable hereunder by the Company; and
(3) the Company has delivered to the Trustee an Officers'
Certificate and an Opinion of Counsel, each stating that all conditions
precedent herein provided for relating to the satisfaction and
discharge of this Indenture have been complied with.
Notwithstanding the satisfaction and discharge of this Indenture, the
obligations of the Company to the Trustee under Section 606 and, if money shall
have been deposited with the Trustee pursuant to subclause (B) of clause (1) of
this Section, the obligations of the Trustee under Section 402 and the last
paragraph of Section 1003 shall survive.
SECTION 402. Application of Trust Money.
Subject to the provisions of the last paragraph of Section 1003, all
money deposited with the Trustee pursuant to Section 401 shall be held in trust
and applied by it, in accordance with the provisions of the Securities and this
Indenture, to the payment, either directly or through any Paying Agent
(including the Company acting as its own Paying Agent) as the Trustee may
determine, to the Persons entitled thereto, of the principal (and premium, if
any) and interest for whose payment such money has been deposited with the
Trustee; but such money need not be segregated from other funds except to the
extent required by law. So long as no Event of Default shall have occurred and
be continuing, all interest allowed on any such moneys shall be paid from time
to time to the Company upon a Company Order.
ARTICLE V
REMEDIES
SECTION 501. Events of Default.
"Event of Default," wherever used herein, means any one of the
following events (whatever the reason for such Event of Default and whether it
shall be voluntary or
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involuntary or be effected by operation of law or pursuant to any judgment,
decree or order of any court or any order, rule or regulation of any
administrative or governmental body):
(1) failure to make the payment of any principal of or
premium, if any, on any Security at its Maturity Date (upon
acceleration, optional redemption, required purchase or otherwise); or
(2) failure to make the payment of any interest on any
Security when it becomes due and payable, and any such failure
continues for a period of 30 days; or
(3) failure to comply with any covenant or warranty of the
Company in this Indenture (other than a covenant or warranty that is
specifically dealt with in clause (1) or (2) above), which failure
continues for a period of 30 days after written notice of such failure
requiring the Company to remedy the same shall have been given to the
Company by the Trustee or to the Company and the Trustee by the Holders
of at least 25% in principal amount of the Outstanding Securities; or
(4) (A) Indebtedness of the Company or any Restricted
Subsidiary in an amount greater than $5,000,000 shall have been
accelerated or otherwise declared due and payable, or required to be
prepaid or repurchased (other than by regularly scheduled required
prepayment prior to the stated maturity thereof) or (B) there shall
have occurred a default by the Company or any Restricted Subsidiary in
the payment of the principal on Indebtedness of the Company or any
Restricted Subsidiary in an amount greater than $5,000,000, when the
same becomes due and payable at the stated maturity thereof, and such
default shall have continued after any applicable grace period and
shall not have been cured or waived ; or
(5) one or more final judgments or orders rendered against the
Company or any Restricted Subsidiary for the payment of money in an
uninsured aggregate amount in excess of $5,000,000 shall not be waived,
satisfied or discharged for any period of 30 consecutive days during
which a stay of enforcement of such judgment or order was not in
effect; or
(6) the entry of a decree or order by a court having
jurisdiction in the premises adjudging the Company or any Subsidiary a
bankrupt or insolvent, or approving as properly filed a petition
seeking reorganization, arrangement, adjustment or composition of or in
respect of the Company or any Subsidiary under the Federal Bankruptcy
Code or any other applicable federal or state law, or appointing a
receiver, liquidator, assignee, trustee, sequestrator (or other similar
official) of the Company or any Subsidiary or of any substantial part
of its property, or ordering the winding up or liquidation of its
affairs, and the continuance of any such decree or order unstayed and
in effect for a period of 60 consecutive days; or
(7) the institution by the Company or any Subsidiary of
proceedings to be adjudicated a bankrupt or insolvent, or the consent
by it to the institution of bankruptcy or insolvency proceedings
against it, or the filing by it of a petition or
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answer or consent seeking reorganization or relief under the Federal
Bankruptcy Code or any other applicable federal or state law, or the
consent by it to the filing of any such petition or to the appointment
of a receiver, liquidator, assignee, trustee, sequestrator (or other
similar official) of the Company or any Subsidiary or of any
substantial part of its property, or the making by it of an assignment
for the benefit of creditors, or the admission by it in writing of its
inability to pay its debts generally as they become due.
SECTION 502. Acceleration of Maturity; Rescission and Annulment.
If an Event of Default (other than an Event of Default specified in
Section 501(6) or (7)) occurs and is continuing, then and in every such case the
Trustee or the Holders of not less than 25% in principal amount of the
Securities Outstanding may declare the principal of all the Securities and all
accrued and unpaid interest thereon to such date, if any, to be due and payable
immediately, by a notice in writing to the Company (and to the Trustee if given
by Holders), and upon any such declaration such amounts shall become immediately
due and payable. If an Event of Default specified in Section 501(6) or (7)
occurs and is continuing, then the principal of all the Securities and all
accrued and unpaid interest thereon to such date, if any, shall IPSO FACTO
become and be immediately due and payable without any declaration or other act
on the part of the Trustee or any Holder.
At any time after a declaration of acceleration has been made and
before a judgment or decree for payment of the money due has been obtained by
the Trustee as hereinafter provided in this Article, the Holders of a majority
in principal amount of the Outstanding Securities, by written notice to the
Company and the Trustee, may rescind and annul such declaration and its
consequences if
(1) the Company has paid or deposited with the Trustee a sum
sufficient to pay,
(A) all overdue interest on all Outstanding
Securities,
(B) all unpaid principal of and premium, if any, on
any Outstanding Securities which have become due otherwise
than by such declaration of acceleration, and interest on such
unpaid principal at the rate borne by the Securities,
(C) to the extent that payment of such interest is
lawful, interest on overdue interest and overdue principal at
the rate borne by the Securities, and
(D) all sums paid or advanced by the Trustee
hereunder and the reasonable compensation, expenses,
disbursements and advances of the Trustee, its agents and
counsel; and
(2) all Events of Default, other than the nonpayment of
amounts of principal of or premium, if any, on or interest on
Securities which have become due
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solely by such declaration of acceleration, have been cured or waived
as provided in Section 513. No such rescission shall affect any
subsequent default or impair any right consequent thereon.
SECTION 503. Collection of Indebtedness and Suits for Enforcement by
Trustee. The Company covenants that if
(a) default is made in the payment of any installment of
interest on any Security when such interest becomes due and payable and
such default continues for a period of 30 days, or
(b) default is made in the payment of the principal of or
premium, if any, on any Security at the Maturity thereof, the Company
will, upon demand of the Trustee, pay to the Trustee for the benefit of
the Holders of such Securities, the whole amount then due and payable
on such Securities for principal (and premium, if any) and interest,
and interest on any overdue principal (and premium, if any) and, to the
extent that payment of such interest shall be legally enforceable, upon
any overdue installment of interest, at the rate borne by the
Securities and, in addition thereto, such further amount as shall be
sufficient to cover the costs and expenses of collection, including the
reasonable compensation, expenses, disbursements and advances of the
Trustee, its agents and counsel.
If the Company fails to pay such amounts forthwith upon such demand,
the Trustee, in its own name as trustee of an express trust, may institute a
judicial proceeding for the collection of the sums so due and unpaid, may
prosecute such proceeding to judgment or final decree and may enforce the same
against the Company or any other obligor upon the Securities and collect the
moneys adjudged or decreed to be payable in the manner provided by law out of
the property of the Company or any other obligor upon the Securities, wherever
situated.
If an Event of Default occurs and is continuing, the Trustee may in its
discretion proceed to protect and enforce its rights and the rights of the
Holders by such appropriate judicial proceedings as the Trustee shall deem most
effectual to protect and enforce any such rights, whether for the specific
enforcement of any covenant or agreement in this Indenture or in aid of the
exercise of any power granted herein, or to enforce any other proper remedy.
SECTION 504. Trustee May File Proofs of Claim.
In case of the pendency of any receivership, insolvency, liquidation,
bankruptcy, reorganization, arrangement, adjustment, composition or other
judicial proceeding relative to the Company or any other obligor upon the
Securities or the property of the Company or of such other obligor or their
creditors, the Trustee (irrespective of whether the principal of the Securities
shall then be due and payable as therein expressed or by declaration or
otherwise and irrespective of whether the Trustee shall have made any demand on
the Company for the payment of overdue principal, premium, if any, or interest)
shall be entitled and empowered, by intervention in such proceeding or
otherwise,
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(i) to file and prove a claim for the whole amount of
principal (and premium, if any) and interest owing and unpaid in
respect of the Securities and to file such other papers or documents as
may be necessary or advisable in order to have the claims of the
Trustee (including any claim for the reasonable compensation, expenses,
disbursements and advances of the Trustee, its agents and counsel) and
of the Holders allowed in such judicial proceeding, and
(ii) collect and receive any moneys or other property payable
or deliverable on any such claims and to distribute the same; and any
custodian, receiver, assignee, trustee, liquidator, sequestrator or
similar official in any such judicial proceeding is hereby authorized
by each Holder to make such payments to the Trustee and, in the event
that the Trustee shall consent to the making of such payments directly
to the Holders, to pay the Trustee any amount due it for the reasonable
compensation, expenses, disbursements and advances of the Trustee, its
agents and counsel, and any other amounts due the Trustee under Section
606.
Nothing herein contained shall be deemed to authorize the Trustee to
authorize or consent to or accept or adopt on behalf of any Holder any plan of
reorganization, arrangement, adjustment or composition affecting the Securities
or the rights of any Holder thereof, or to authorize the Trustee to vote in
respect of the claim of any Holder in any such proceeding.
SECTION 505. Trustee May Enforce Claims Without Possession of
Securities.
All rights of action and claims under this Indenture or the Securities
may be prosecuted and enforced by the Trustee without the possession of any of
the Securities or the production thereof in any proceeding relating thereto, and
any such proceeding instituted by the Trustee shall be brought in its own name
and as trustee of an express trust, and any recovery of judgment shall, after
provision for the payment of the reasonable compensation, expenses,
disbursements and advances of the Trustee, its agents and counsel, be for the
ratable benefit of the Holders of the Securities in respect of which such
judgment has been recovered.
SECTION 506. Application of Money Collected.
Any money collected by the Trustee pursuant to this Article shall be
applied in the following order, at the date or dates fixed by the Trustee and,
in case of the distribution of such money on account of principal (or premium,
if any) or interest, upon presentation of the Securities and the notation
thereon of the payment, if only partially paid, and upon surrender thereof if
fully paid:
FIRST: To the payment of all amounts due the Trustee under
Section 606;
SECOND: To the payment of the amounts then due and unpaid
for principal of (and premium, if any) and interest on the Securities
in respect of which or for the benefit of which such money has been
collected, ratably, without preference or
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priority of any kind, according to the amounts due and payable on
such Securities for principal (and premium, if any) and interest,
respectively; and
THIRD: The balance, if any, to the Company, its successors
or assigns, or to any other Person or Persons lawfully entitled
thereto.
SECTION 507. Limitation on Suits.
No Holder of any Securities shall have any right to institute any
proceeding, judicial or otherwise, with respect to this Indenture, or for the
appointment of a receiver or trustee, or for any other remedy hereunder, unless
(1) such Holder has previously given written notice to the
Trustee of a continuing Event of Default;
(2) the Holders of not less than 25% in principal amount of
the Outstanding Securities shall have made written request to the
Trustee to institute proceedings in respect of such Event of Default in
its own name as Trustee hereunder;
(3) such Holder or Holders have offered to the Trustee
reasonable indemnity against the costs, expenses and liabilities to be
incurred in compliance with such request;
(4) the Trustee for 60 days after its receipt of such notice,
request and offer of indemnity has failed to institute any such action
or proceeding; and
(5) no direction inconsistent with such written request has
been given to the Trustee during such 60-day period by the Holders of a
majority or more in principal amount of the Outstanding Securities;
it being understood and intended, and being expressly covenanted by the Holder
of every Security with every other Holder and the Trustee, that no one or more
Holders shall have any right in any manner whatever by virtue of, or by availing
of, any provision of this Indenture to affect, disturb or prejudice the rights
of any other Holders, or to obtain or to seek to obtain priority or preference
over any other Holders or to enforce any right under this Indenture, except in
the manner herein provided and for the equal and ratable benefit of all the
Holders.
SECTION 508. Unconditional Right of Holders to Receive Principal,
Premium and Interest.
Notwithstanding any other provision in this Indenture, the Holder of
any Security shall have the right, which is absolute and unconditional, to
receive payment, as provided herein (including, if applicable, Article Thirteen)
and in such Security of the principal of (and premium, if any) and (subject to
Section 309) interest on such Security on the respective
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Stated Maturities expressed in such Security (or, in the case of redemption, on
the Redemption Date) and to institute suit for the enforcement of any such
payment on or after such respective dates, and such rights shall not be impaired
without the consent of such Holder.
SECTION 509. Restoration of Rights and Remedies.
If the Trustee or any Holder has instituted any proceeding to enforce
any right or remedy under this Indenture and such proceeding has been
discontinued or abandoned for any reason, or has been determined adversely to
the Trustee or to such Holder, then and in every such case, subject to any
determination in such proceeding, the Company, the Trustee and the Holders shall
be restored severally and respectively to their former positions hereunder and
thereafter all rights and remedies of the Trustee and the Holders shall continue
as though no such proceeding had been instituted.
SECTION 510. Rights and Remedies Cumulative.
Except as otherwise provided with respect to the replacement or payment
of mutilated, destroyed, lost or stolen Securities in the last paragraph of
Section 308, no right or remedy herein conferred upon or reserved to the Trustee
or to the Holders is intended to be exclusive of any other right or remedy, and
every right and remedy shall, to the extent permitted by law, be cumulative and
in addition to every other right and remedy given hereunder or now, or hereafter
existing at law or in equity or otherwise. The assertion or employment of any
right or remedy hereunder, or otherwise, shall not prevent the concurrent
assertion or employment of any other appropriate right or remedy.
SECTION 511. Delay or Omission Not Waiver.
No delay or omission of the Trustee or of any Holder of any Security to
exercise any right or remedy accruing upon any Event of Default shall impair any
such right or remedy or constitute a waiver of any such Event of Default or an
acquiescence therein. Every right and remedy given by this Article or by law to
the Trustee or to the Holders may be exercised from time to time, and as often
as may be deemed expedient, by the Trustee or by the Holders, as the case may
be.
SECTION 512. Control by Holders.
Subject to the provisions of Section 602(5), the Holders of not less
than a majority in principal amount of the Outstanding Securities shall have the
right to direct the time, method and place of conducting any proceeding for any
remedy available to the Trustee, or exercising any trust or power conferred on
the Trustee, PROVIDED that
(1) such direction shall not be in conflict with any rule of
law or with this Indenture,
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(2) the Trustee may take any other action deemed proper by the
Trustee which is not inconsistent with such direction, and
(3) the Trustee need not take any action which might involve
it in personal liability or be unjustly prejudicial to the Holders not
consenting.
SECTION 513. Waiver of Past Defaults.
The Holders of not less than a majority in principal amount of the
Outstanding Securities may, on behalf of the Holders of all the Securities,
waive any past Default hereunder and its consequences, except a Default
(1) in respect of the payment of the principal of (or
premium, if any) or interest on any Security, or
(2) in respect of a covenant or provision hereof which under
Article Nine cannot be modified or amended without the consent of the
Holder of each Outstanding Security affected.
Upon any such waiver, such Default shall cease to exist, and any Event
of Default arising therefrom shall be deemed to have been cured, for every
purpose of this Indenture; but no such waiver shall extend to any subsequent or
other Default or Event of Default or impair any right consequent thereon.
SECTION 514. Waiver of Stay or Extension Laws.
The Company covenants (to the extent that it may lawfully do so) that
it will not at any time insist upon, or plead, or in any manner whatsoever claim
or take the benefit or advantage of, any stay or extension law wherever enacted,
now or at any time hereafter in force, which may affect the covenants or the
performance of this Indenture; and the Company (to the extent that it may
lawfully do so) hereby expressly waives all benefit or advantage of any such law
and covenants that it will not hinder, delay or impede the execution of any
power herein granted to the Trustee, but will suffer and permit the execution of
every such power as though no such law had been enacted.
ARTICLE VI
THE TRUSTEE
SECTION 601. Notice of Defaults.
Within 30 days after the occurrence of any Default hereunder, the
Trustee shall transmit in the manner and to the extent provided in TIA Section
313(c), notice of such Default hereunder known to the Trustee, unless such
Default shall have been cured or waived; PROVIDED, HOWEVER, that, except in the
case of a Default in the payment of the principal of (or premium, if any) or
interest on any Security, the Trustee shall be
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protected in withholding such notice if and so long as a trust committee of
directors and/or Responsible Officers of the Trustee in good faith determines
that the withholding of such notice is in the interest of the Holders; and
PROVIDED FURTHER that in the case of any Default of the character specified in
Section 501(4) no such notice to Holders shall be given until at least 30 days
after the occurrence thereof.
SECTION 602. Certain Rights of Trustee.
Subject to the provisions of TIA Sections 315(a) through 315(d):
(1) the Trustee may rely and shall be protected in acting or
refraining from acting upon any resolution, certificate, statement,
instrument, opinion, report, notice, request, direction, consent,
order, bond, debenture, note, other evidence of indebtedness or other
paper or document believed by it to be genuine and to have been signed
or presented by the proper party or parties;
(2) any request or direction of the Company mentioned herein
shall be sufficiently evidenced by a Company Request or Company Order
(unless other evidence in respect thereof is herein specifically
prescribed) and any resolution of the Board of Directors may be
sufficiently evidenced by a Board Resolution;
(3) whenever in the administration of this Indenture the
Trustee shall deem it desirable that a matter be proved or established
prior to taking, suffering or omitting any action hereunder, the
Trustee (unless other evidence is herein specifically prescribed) may,
in the absence of bad faith on its part, rely upon an Officers'
Certificate;
(4) the Trustee may consult with counsel and the written
advice of such counsel or any Opinion of Counsel shall be full and
complete authorization and protection in respect of any action taken,
suffered or omitted by it hereunder in good faith and in reliance
thereon;
(5) the Trustee shall be under no obligation to exercise any
of the rights or powers vested in it by this Indenture at the request
or direction of any of the Holders pursuant to this Indenture, unless
such Holders shall have offered to the Trustee reasonable security or
indemnity against the costs, expenses and liabilities which might be
incurred by it in compliance with such request or direction;
(6) prior to the occurrence of an Event of Default and after
the curing of all Events of Default which may have occurred, the
Trustee shall not be bound to make any investigation into the facts or
matters stated in any resolution, certificate, statement, instrument,
opinion, report, notice, request, direction, consent, order, bond,
debenture, note, other evidence of indebtedness or other paper or
document, but the Trustee, in its discretion, may make such further
inquiry or investigation into such facts or matters as it may see fit,
and, if the Trustee shall determine to make
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such further inquiry or investigation, it shall be entitled to examine
the books, records and premises of the Company, personally or by agent
or attorney;
(7) the Trustee may execute any of the trusts or powers
hereunder or perform any duties hereunder either directly or by or
through agents or attorneys and the Trustee shall not be responsible
for any misconduct or negligence on the part of any agent or attorney
appointed with due care by it hereunder; and
(8) the Trustee shall not be liable for any action taken,
suffered or omitted by it in good faith and believed by it to be
authorized or within the discretion or rights or powers conferred upon
it by this Indenture.
The Trustee shall not be required to expend or risk its own funds or
otherwise incur any financial liability in the performance of any of its duties
hereunder, or in the exercise of any of its rights or powers if it shall have
reasonable grounds for believing that repayment of such funds or adequate
indemnity against such risk or liability is not reasonably assured to it.
SECTION 603. Trustee Not Responsible for Recitals or Issuance of
Securities.
The recitals contained herein and in the Securities, except for the
Trustee's certificates of authentication, shall be taken as the statements of
the Company, and the Trustee assumes no responsibility for their correctness.
The Trustee makes no representations as to the validity or sufficiency of this
Indenture or of the Securities, except that the Trustee represents that it is
duly authorized to execute and deliver this Indenture, authenticate the
Securities and perform its obligations hereunder and that the statements made by
it in any Statement of Eligibility on Form T-1 supplied to the Company will be
true and accurate when made, subject to the qualifications set forth therein.
The Trustee shall not be accountable for the use or application by the Company
of Securities or the proceeds thereof.
SECTION 604. May Hold Securities.
The Trustee, any Paying Agent, any Security Registrar or any other
agent of the Company or of the Trustee, in its individual or any other capacity,
may become the owner or pledgee of Securities and, subject to the Trust
Indenture Act, may otherwise deal with the Company with the same rights it would
have if it were not Trustee, Paying Agent, Security Registrar or such other
agent.
SECTION 605. Money Held in Trust.
Subject to the provisions of Section 506, all moneys received by the
Trustee shall, until used or applied as herein provided, be held in trust for
the purposes for which they were received, but need not be segregated from other
funds except to the extent required by law. The Trustee shall be under no
liability for interest on any money received by it hereunder except as otherwise
agreed with the Company.
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SECTION 606. Compensation and Reimbursement.
The Company agrees:
(1) to pay to the Trustee from time to time such compensation
as the Company and the Trustee shall agree for all services rendered by
it hereunder (which compensation shall not be limited by any provision
of law in regard to the compensation of a trustee of an express trust);
(2) to reimburse the Trustee upon its request for all
reasonable expenses, disbursements and advances incurred or made by the
Trustee in accordance with any provision of this Indenture (including
the reasonable compensation and the expenses and disbursements of its
agents and counsel), except any such expense, disbursement or advance
as may be attributable to its negligence or bad faith; and
(3) to indemnify the Trustee for, and to hold it harmless
against, any loss, liability or expense incurred without negligence or
bad faith on its part, arising out of or in connection with the
acceptance or administration of this trust, including the costs and
expenses (including the reasonable compensation and the expenses and
disbursements of its agents and counsel) of investigating or defending
itself against any claim or liability in connection with the exercise
or performance of any of its powers or duties hereunder.
The obligations of the Company under this Section to compensate the
Trustee, to pay or reimburse the Trustee for expenses, disbursements and
advances and to indemnify and hold harmless the Trustee shall constitute
additional indebtedness hereunder and shall survive the resignation or removal
of the Trustee and/or the satisfaction and discharge of this Indenture. As
security for the performance of such obligations of the Company, the Trustee
shall have a claim prior to the Securities upon all property and funds held or
collected by the Trustee as such, except funds held in trust for the payment of
principal of (and premium, if any) or interest on particular Securities.
When the Trustee incurs expenses or renders services in connection with
an Event of Default specified in Section 501(6) or (7), the expenses (including
the reasonable charges and expenses of its counsel) of and the compensation for
such services are intended to constitute expenses of administration under any
applicable federal or state bankruptcy, insolvency or other similar law.
The provisions of this Section shall survive the termination of this
Indenture.
SECTION 607. Corporate Trustee Required; Eligibility; Conflicting
Interests.
There shall be at all times a Trustee hereunder which shall be eligible
to act as Trustee under TIA Section 310(a)(1) and 310(a)(5) and shall have a
combined capital and surplus of at least $50,000,000. If such corporation
publishes reports of condition at least annually, pursuant to law or to the
requirements of federal, state, territorial or District of
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Columbia supervising or examining authority, then for the purposes of this
Section, the combined capital and surplus of such corporation shall be deemed to
be its combined capital and surplus as set forth in its most recent report of
condition so published. If at any time the Trustee shall cease to be eligible in
accordance with the provisions of this Section, it shall resign immediately in
the manner and with the effect hereinafter specified in this Article.
SECTION 608. Resignation and Removal; Appointment of Successor.
(a) No resignation or removal of the Trustee and no
appointment of a successor Trustee pursuant to this Article shall become
effective until the acceptance of appointment by the successor Trustee in
accordance with the applicable requirements of Section 609.
(b) The Trustee may resign at any time by giving written
notice thereof to the Company. If the instrument of acceptance by a successor
Trustee required by Section 609 shall not have been delivered to the Trustee
within 30 days after the giving of such notice of resignation, the resigning
Trustee may petition any court of competent jurisdiction for the appointment of
a successor Trustee.
(c) The Trustee may be removed at any time by Act of the
Holders of not less than a majority in principal amount of the Outstanding
Securities, delivered to the Trustee and to the Company.
(d) If at any time:
(1) the Trustee shall fail to comply with the
provisions of TIA Section 310(b) after written request
therefor by the Company or by any Holder who has been a bona
fide Holder of a Security for at least six months, or
(2) the Trustee shall cease to be eligible under
Section 607 and shall fail to resign after written request
therefor by the Company or by any Holder who has been a bona
fide Holder of a Security for at least six months, or
(3) the Trustee shall become incapable of acting or
shall be adjudged a bankrupt or insolvent or a receiver of the
Trustee or of its property shall be appointed or any public
officer shall take charge or control of the Trustee or of its
property or affairs for the purpose of rehabilitation,
conservation or liquidation, then, in any such case, (i) the
Company, by a Board Resolution, may remove the Trustee, or
(ii) Subject to TIA Section 315(e), any Holder who has been a
bona fide Holder of a Security for at least six months may, on
behalf of himself and all others similarly situated, petition
any court of competent jurisdiction for the removal of the
Trustee and the appointment of a successor Trustee.
(e) If the Trustee shall resign, be removed or become
incapable of acting, or if a vacancy shall occur in the office of Trustee for
any cause, the Company, by a Board
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Resolution, shall promptly appoint a successor Trustee. If, within one year
after such resignation, removal or incapability, or the occurrence of such
vacancy, a successor Trustee shall be appointed by Act of the Holders of a
majority in principal amount of the Outstanding Securities delivered to the
Company and the retiring Trustee, the successor Trustee so appointed shall,
forthwith upon its acceptance of such appointment, become the successor Trustee
and supersede the successor Trustee appointed by the Company. If no successor
Trustee shall have been so appointed by the Company or the Holders and accepted
appointment in the manner hereinafter provided, any Holder who has been a bona
fide Holder of a Security for at least six months may, on behalf of himself and
all others similarly situated, and the Trustee may, petition any court of
competent jurisdiction for the appointment of a successor Trustee.
(f) The Company shall give notice of each resignation and each
removal of the Trustee and each appointment of a successor Trustee to the
Holders of Securities in the manner provided for in Section 106. Each notice
shall include the name of the successor Trustee and the address of its Corporate
Trust Office.
SECTION 609. Acceptance of Appointment by Successor.
Every successor Trustee appointed hereunder shall execute, acknowledge
and deliver to the Company and to the retiring Trustee an instrument accepting
such appointment, and thereupon the resignation or removal of the retiring
Trustee shall become effective and such successor Trustee, without any further
act, deed or conveyance, shall become vested with all the rights, powers, trusts
and duties of the retiring Trustee; but, on request of the Company or the
successor Trustee, such retiring Trustee shall, upon payment of its charges,
execute and deliver an instrument transferring to such successor Trustee all the
rights, powers and trusts of the retiring Trustee and shall duly assign,
transfer and deliver to such successor Trustee all property and money held by
such retiring Trustee hereunder. Upon request of any such successor Trustee, the
Company shall execute any and all instruments for more fully and certainly
vesting in and confirming to such successor Trustee all such rights, powers and
trusts.
No successor Trustee shall accept its appointment unless at the time of
such acceptance such successor Trustee shall be qualified under the TIA and
eligible under this Article.
SECTION 610. Merger, Conversion, Consolidation or Succession to
Business.
Any corporation into which the Trustee may be merged or converted or
with which it may be consolidated, or any corporation resulting from any merger,
conversion or consolidation to which the Trustee shall be a party, or any
corporation succeeding to all or substantially all of the corporate trust
business of the Trustee, shall be the successor of the Trustee hereunder,
provided such corporation shall be otherwise qualified and eligible under this
Article, without the execution or filing of any paper or any further act on the
part of any of the parties hereto. In case any Securities shall have been
authenticated, but not delivered, by the Trustee then in office, any successor
by merger, conversion or consolidation to such
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authenticating trustee may adopt such authentication and deliver the Securities
so authenticated with the same effect as if such successor Trustee had itself
authenticated such Securities. In case at that time any of the Securities shall
not have been authenticated, any successor Trustee may authenticate such
Securities either in the name of any predecessor hereunder or in the name of the
successor Trustee. In all such cases such certificates shall have the full force
and effect which this Indenture provides for the certificate of authentication
of the Trustee shall have; PROVIDED, HOWEVER, that the right to adopt the
certificate of authentication of any predecessor Trustee or to authenticate
Securities in the name of any predecessor Trustee shall apply only to its
successor or successors by merger, conversion or consolidation.
ARTICLE VII
HOLDERS LISTS AND REPORTS BY TRUSTEE
SECTION 701. Disclosure of Names and Addresses of Holders.
Every Holder of Securities, by receiving and holding the same, agrees
with the Company and the Trustee that none of the Company or the Trustee or any
agent of either of them shall be held accountable by reason of the disclosure of
any information as to the names and addresses of the Holders in accordance with
TIA Section 312, regardless of the source from which such information was
derived, and that the Trustee shall not be held accountable by reason of mailing
any material pursuant to a request made under TIA Section 312(b).
SECTION 702. Reports by Trustee.
Within 60 days after May 15 of each year commencing with the first May
15 after the first issuance of Securities, the Trustee shall transmit to the
Holders, in the manner and to the extent provided in TIA Section 313(c), a brief
report dated as of such May 15 if required by TIA Section 313(a).
ARTICLE VIII
CONSOLIDATION, MERGER, CONVEYANCE,
TRANSFER OR LEASE
SECTION 801. Company May Consolidate, Etc., Only on Certain Terms.
(a) The Company shall not merge or consolidate with or into
any other entity (other than a merger of a Restricted Subsidiary into the
Company or of the Company into Inter*Act) or sell, transfer, assign, lease,
convey or otherwise dispose of all or substantially all of its Property in any
one transaction or series of transactions unless:
(1) the entity formed by or surviving any such consolidation
or merger (if the Company is not the surviving entity) or the Person to
which such sale, transfer, assignment, lease or conveyance is made (the
"Surviving Entity") shall be a
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corporation organized and existing under the laws of the United States
of America or a State thereof or the District of Columbia and such
corporation expressly assumes, by supplemental indenture in form
satisfactory to the Trustee, executed and delivered to the Trustee by
such corporation, the due and punctual payment of the principal of,
premium, if any, and interest on all the Securities, according to their
tenor, and the due and punctual performance and observance of all the
covenants and conditions of the Indenture to be performed by the
Company;
(2) in the case of a sale, transfer, assignment, lease,
conveyance or other disposition of all or substantially all the
Company's Property, such Property shall have been transferred as an
entirety or virtually as an entirety to one Person;
(3) immediately before and after giving effect to such
transaction or series of transactions, no Default or Event of Default
shall have occurred and be continuing; and
(4) immediately after giving effect to such transaction or
series of transactions on a pro forma basis (including any Indebtedness
Incurred or anticipated to be Incurred in connection with such
transaction or series of transactions), the Company or the Surviving
Entity, as the case may be, would be able to Incur at least $1.00 of
additional Indebtedness under clause (a) Section 1008.
(b) In connection with any consolidation, merger or transfer
contemplated by this Section 801, the Company shall deliver, or cause to be
delivered, to the Trustee, in form and substance reasonably satisfactory to the
Trustee, an Officer's Certificate and an Opinion of Counsel, each stating that
such consolidation, merger or transfer and the supplemental indenture in respect
thereto comply with this provision and that all conditions precedent herein
provided for relating to such transaction or transactions have been complied
with.
SECTION 802. Successor Substituted.
Upon any merger or consolidation or any sale, transfer, assignment,
lease, conveyance or other disposition of all or substantially all of the
properties and assets of the Company in accordance with Section 801 in which the
Company is not the continuing obligor under this Indenture, the Surviving Entity
shall succeed to, and be substituted for, and may exercise every right and power
of, the Company under this Indenture with the same effect as if such successor
had been named as the Company herein and, in the event of any such conveyance or
transfer, the Company (which term shall for this purpose mean the Person named
as the "Company" in the first paragraph of this Indenture or any successor
Person which shall theretofore become such in the manner described in Section
801), except in the case of a transfer by lease, shall be discharged of all
obligations and covenants under this Indenture and the Securities and may be
dissolved and liquidated.
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SECTION 803. Securities To Be Secured in Certain Events.
If, upon any such consolidation of the Company with or merger of the
Company into any other corporation, or upon any sale, assignment, conveyance,
lease, transfer or disposition of all or substantially all of the properties and
assets of the Company substantially as an entirety to any other Person or
Persons, any property or assets of the Company would thereupon become subject to
any Lien, then, unless such Lien could be created pursuant to Section 1012
without equally and ratably securing the Securities, the Company, prior to or
simultaneously with such consolidation, merger, conveyance, lease or transfer,
will, as to such property or assets, secure the Outstanding Securities (together
with, if the Company shall so determine any other Indebtedness of the Company
now existing or hereinafter created which is not subordinate in right of payment
to the Securities) equally and ratably with (or prior to) the Indebtedness which
upon such consolidation, merger, conveyance, lease or transfer is to become
secured as to such property or assets by such Lien, or will cause such
Securities to be so secured.
ARTICLE IX
SUPPLEMENTAL INDENTURES
SECTION 901. Supplemental Indentures Without Consent of Holders.
Without the consent of any Holders, the Company, when authorized by a
Board Resolution, and the Trustee, at any time and from time to time, may enter
into one or more indentures supplemental hereto, in form satisfactory to the
Trustee, for any of the following purposes:
(1) to evidence the succession of another Person to the
Company or any other obligor on the Securities and the assumption by
any such successor of the covenants of the Company or such obligor
contained herein and in the Securities in accordance with Article
Eight; or
(2) to add to the covenants of the Company or any other
obligor on the Securities for the benefit of the Holders or to
surrender any right or power herein conferred upon the Company or any
other obligor on the Securities; or
(3) to add any additional Events of Default; or
(4) to evidence and provide for the acceptance of appointment
hereunder by a successor Trustee pursuant to the requirements of
Section 609; or
(5) to cure any ambiguity, to correct or supplement any
provision herein which may be defective or inconsistent with any other
provision herein, or to make any other provisions or changes with
respect to matters or questions arising under this Indenture; PROVIDED
that such action shall not adversely affect the interests of the
Holders in any material respect; or
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(6) to comply with the requirements of the Commission in order
to effect or maintain the qualification of this Indenture under the
Trust Indenture Act; or
(7) to add a guarantor of the Securities; or
(8) to mortgage, pledge, hypothecate or grant a security
interest in favor of the Trustee for the benefit of the Holders of the
Securities as additional security for the payment and performance of
the Company's and any guarantor's obligations under this Indenture in
any property or assets, including any of which are required to be
mortgaged, pledged or hypothecated, or in which a security interest is
required to be granted to the Trustee pursuant to Section 803 or 1012
or otherwise.
SECTION 902. Supplemental Indentures with Consent of Holders.
With the consent of the Holders of not less than a majority in
principal amount of the Outstanding Securities, by Act of said Holders delivered
to the Company and the Trustee, the Company, when authorized by a Board
Resolution, and the Trustee may enter into an indenture or indentures
supplemental hereto for the purpose of adding any provisions to or changing in
any manner or eliminating any of the provisions of this Indenture or of
modifying in any manner the rights of the Holders under this Indenture;
PROVIDED, HOWEVER, that no such supplemental indenture shall, without the
consent of the Holder of each Outstanding Security affected thereby:
(1) change the Stated Maturity of the principal of, or any
installment of interest on, any Security, or reduce the principal
amount thereof (or premium, if any) or the rate of interest thereon or
reduce the amount of the principal of the Securities that would be due
and payable upon a declaration of acceleration of the Maturity Date
thereof pursuant to Section 502 or the amount thereof provable in
bankruptcy pursuant to Section 504, or change the coin or currency in
which any Security or any premium or the interest thereon is payable,
or impair the right to institute suit for the enforcement of any such
payment after the Stated Maturity thereof (or, in the case of
redemption, on or after the Redemption Date), or
(2) amend, change or modify in any material respect the
obligation of the Company to make and consummate a Prepayment Offer
with respect to any Asset Sale in accordance with Section 1014 or the
obligation of the Company to make and consummate a Change of Control
Offer in the event of a Change of Control in accordance with Section
1013, including, in each case, amending, changing or modifying in any
material respect any definition relating thereto, or
(3) reduce the percentage in principal amount of the
Outstanding Securities the consent of the Holders of which Outstanding
Securities is required for any such supplemental indenture, or the
consent of the Holders of which Outstanding Securities is required for
any waiver of compliance with certain provisions of this Indenture or
certain defaults hereunder and their consequences provided for in this
Indenture, or
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(4) modify any of the provisions of this Section or Section
513, except to increase any such percentage or to provide that certain
other provisions of this Indenture cannot be modified or waived without
the consent of the Holder of each Outstanding Security affected
thereby, or
(5) except as otherwise provided by Article Eight, consent to
the assignment or transfer by the Company of any of its obligations
under this Indenture.
It shall not be necessary for any Act of Holders under this Section to
approve the particular form of any proposed supplemental indenture, but it shall
be sufficient if such Act shall approve the substance thereof.
SECTION 903. Execution of Supplemental Indentures.
In executing, or accepting the additional trusts created by, any
supplemental indenture permitted by this Article or the modifications thereby of
the trusts created by this Indenture, the Trustee shall be entitled to receive,
and shall be fully protected in relying upon, an Opinion of Counsel stating that
the execution of such supplemental indenture is authorized or permitted by this
Indenture. The Trustee may, but shall not be obligated to, enter into any such
supplemental indenture which adversely affects the Trustee's own rights, duties
or immunities under this Indenture or otherwise.
SECTION 904. Effect of Supplemental Indentures.
Upon the execution of any supplemental indenture under this Article,
this Indenture shall be modified in accordance therewith, and such supplemental
indenture shall form a part of this Indenture for all purposes; and every Holder
of Securities theretofore or thereafter authenticated and delivered hereunder
shall be bound thereby.
SECTION 905. Conformity with Trust Indenture Act.
Every supplemental indenture executed pursuant to this Article shall
conform to the requirements of the Trust Indenture Act as then in effect.
SECTION 906. Reference in Securities to Supplemental Indentures.
Securities authenticated and delivered after the execution of any
supplemental indenture pursuant to this Article may, and shall if required by
the Trustee, bear a notation in form approved by the Trustee as to any matter
provided for in such supplemental indenture. If the Company shall so determine,
new Securities so modified as to conform, in the opinion of the Trustee and the
Company, to any such supplemental indenture may be prepared and executed by the
Company and authenticated and delivered by the Trustee in exchange for
Outstanding Securities. Failure to make the appropriate notation or to issue a
new Security shall not affect the validity of such amendment.
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SECTION 907. Notice of Supplemental Indentures.
Promptly after the execution by the Company and the Trustee of any
supplemental indenture pursuant to the provisions of Section 902, the Company
shall give notice thereof to the Holders of each Outstanding Security affected,
in the manner provided for in Section 106, setting forth in general terms the
substance of such supplemental indenture. Failure to provide such notice shall
not affect the validity of such amendment.
ARTICLE X
COVENANTS
SECTION 1001. Payment of Principal, Premium, if any, and Interest.
The Company covenants and agrees for the benefit of the Holders that it
will duly and punctually pay or cause to be paid the principal of (and premium,
if any) and interest on the Securities in accordance with the terms of the
Securities and this Indenture.
SECTION 1002. Maintenance of Office or Agency.
The Company will maintain in The City of New York, an office or agency
where Securities may be presented or surrendered for payment, where Securities
may be surrendered for registration of transfer or exchange and where notices
and demands to or upon the Company in respect of the Securities and this
Indenture may be served. The Trustee's Affiliate at 61 Broadway, 15th Floor, New
York, New York 10006, shall be such office or agency of the Company, unless the
Company shall designate and maintain some other office or agency for one or more
of such purposes. The Company will give prompt written notice to the Trustee of
any change in the location of any such office or agency. If at any time the
Company shall fail to maintain any such required office or agency or shall fail
to furnish the Trustee with the address thereof, such presentations, surrenders,
notices and demands may be made or served at the Corporate Trust Office of the
Trustee, and the Company hereby appoints the Trustee as its agent to receive all
such presentations, surrenders, notices and demands.
The Company may also from time to time designate one or more other
offices or agencies (in or outside of The City of New York) where the Securities
may be presented or surrendered for any or all such purposes and may from time
to time rescind any such designation; PROVIDED, HOWEVER, that no such
designation or rescission shall in any manner relieve the Company of its
obligation to maintain an office or agency in The City of New York for such
purposes. The Company will give prompt written notice to the Trustee of any such
designation or rescission and any change in the location of any such other
office or agency.
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SECTION 1003. Money for Security Payments to Be Held in Trust.
If the Company shall at any time act as its own Paying Agent, it will,
on or before each due date of the principal of (or premium, if any) or interest
on any of the Securities, segregate and hold in trust for the benefit of the
Persons entitled thereto a sum sufficient to pay the principal of (or premium,
if any) or interest so becoming due until such sums shall be paid to such
Persons or otherwise disposed of as herein provided and will promptly notify the
Trustee of its action or failure so to act.
Whenever the Company shall have one or more Paying Agents for the
Securities, it will, on or before 10:00 a.m. on each due date of the principal
of (or premium, if any) or interest on any Securities, deposit with a Paying
Agent a sum sufficient to pay the principal (and premium, if any) or interest so
becoming due, such sum to be held in trust for the benefit of the Persons
entitled to such principal, premium or interest, and (unless such Paying Agent
is the Trustee) the Company will promptly notify the Trustee of such action or
any failure so to act.
The Company will cause each Paying Agent (other than the Trustee) to
execute and deliver to the Trustee an instrument in which such Paying Agent
shall agree with the Trustee, subject to the provisions of this Section, that
such Paying Agent will:
(1) hold all sums held by it for the payment of the principal
of (and premium, if any) or interest on Securities in trust for the
benefit of the Persons entitled thereto until such sums shall be paid
to such Persons or otherwise disposed of as herein provided;
(2) give the Trustee notice of any default by the Company (or
any other obligor upon the Securities) in the making of any payment of
principal (and premium, if any) or interest; and
(3) at any time during the continuance of any such default,
upon the written request of the Trustee, forthwith pay to the Trustee
all sums so held in trust by such Paying Agent.
Notwithstanding anything in this Section 1003 to the contrary, the
Company may at any time, for the purpose of obtaining the satisfaction and
discharge of this Indenture or for any other purpose pay, or by Company Order
direct any Paying Agent to pay, to the Trustee all sums held in trust by the
Company or such Paying Agent, such sums to be held by the Trustee upon the same
trusts as those upon which such sums were held by the Company or such Paying
Agent; and, upon such payment by any Paying Agent to the Trustee, such Paying
Agent shall be released from all further liability with respect to such sums.
Any money deposited with the Trustee or any Paying Agent, or then held
by the Company, in trust for the payment of the principal of (or premium, if
any) or interest on any Security and remaining unclaimed for two years after
such principal, premium or interest has become due and payable shall, subject to
applicable escheat laws, be paid to the Company on
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Company Request, or (if then held by the Company) shall be discharged from such
trust; and the Holder of such Security shall thereafter, as an unsecured general
creditor, look only to the Company for payment thereof, and all liability of the
Trustee or such Paying Agent with respect to such trust money, and all liability
of the Company as trustee thereof, shall thereupon cease; PROVIDED, HOWEVER,
that the Trustee or such Paying Agent, before being required to make any such
repayment, may at the expense of the Company cause to be published once, in a
newspaper published in the English language, customarily published on each
Business Day and of general circulation in the Borough of Manhattan, The City of
New York, notice that such money remains unclaimed and that, after a date
specified therein, which shall not be less than 30 days from the date of such
publication, any unclaimed balance of such money then remaining will be repaid
to the Company.
SECTION 1004. Corporate Existence.
Subject to Article Eight, the Company will do or cause to be done all
things necessary to preserve and keep in full force and effect the corporate
existence, rights (charter and statutory) and franchises of the Company and each
Subsidiary; PROVIDED, HOWEVER, that the Company shall not be required to
preserve any such right or franchise if the Board of Directors shall determine
that the preservation thereof is no longer desirable in the conduct of the
business of the Company and its Subsidiaries as a whole and that the loss
thereof is not disadvantageous in any material respect to the Holders.
SECTION 1005. Payment of Taxes and Other Claims.
The Company will pay or discharge or cause to be paid or discharged,
before the same shall become delinquent, (a) all material taxes, assessments and
governmental charges levied or imposed upon the Company or any Subsidiary or
upon the income, profits or property of the Company or any Subsidiary and (b)
all lawful claims for labor, materials and supplies, which, if unpaid, might by
law become a material lien upon the property of the Company or any Subsidiary;
PROVIDED, HOWEVER, that the Company shall not be required to pay or discharge or
cause to be paid or discharged any such tax, assessment, charge or claim the
amount, applicability or validity of which is being contested in good faith by
appropriate proceedings.
SECTION 1006. Statement by Officers as to Default.
(a) The Company will deliver to the Trustee, within 120 days
after the end of each fiscal year, a brief certificate from the principal
executive officer, principal financial officer or principal accounting officer
as to his or her knowledge of the Company's compliance with all conditions and
covenants under this Indenture. For purposes of this Section 1006(a), such
compliance shall be determined without regard to any period of grace or
requirement of notice under this Indenture.
(b) When any Default has occurred and is continuing under this
Indenture, or if the trustee for or the holder of any other evidence of
Indebtedness of the Company or any Subsidiary gives any notice or takes any
other action with respect to a claimed default
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(other than with respect to Indebtedness in the principal amount of less than
$5,000,000), the Company shall deliver to the Trustee by registered or certified
mail or by telegram, telex or facsimile transmission an Officers' Certificate
specifying such event, notice or other action within five Business Days of its
occurrence.
SECTION 1007. Provision of Reports and Financial Statements.
(a) The Company shall file with the Trustee and provide the
Holders of Securities, within 15 days after it files them with the Commission,
copies of its annual and quarterly reports and other information, documents and
other reports (or copies of such portions of any of the foregoing as the
Commission may by rules and regulations prescribe) which the Company is required
to file with the Commission pursuant to Section 13 or 15(d) of the Exchange Act.
(b) Notwithstanding that the Company may not be subject to the
reporting requirements of Section 13 or 15(d) of the Exchange Act, the Company
shall, for all periods ending after the date of this Indenture, file with the
Commission and provide the Trustee and holders of the Notes with such annual
reports and such information, documents and other reports as are specified in
Sections 13 and 15(d) of the Exchange Act and applicable to a U.S. corporation
subject to such Sections, such information, documents and other reports to be so
filed and provided at the times specified for the filing of such information,
documents and reports under such Sections; PROVIDED, HOWEVER, that
notwithstanding the foregoing, the Company shall have no obligation under this
Section 1007(b) for so long as its parent company, Inter*Act, makes all filings
and provides all reports required under this Section 1007(b).
SECTION 1008. Limitation on Indebtedness.
The Company shall not, and shall not permit any Restricted Subsidiary
to, directly or indirectly, Incur any Indebtedness, except that the Company may
Incur Indebtedness, if either (a) after giving pro forma effect to the
application of the proceeds thereof, no Default or Event of Default would occur
as a consequence of such Incurrence or be continuing following such Incurrence
and, after giving effect to the Incurrence of such Indebtedness and the receipt
and application of the proceeds thereof, the Consolidated Leverage Ratio of the
Company and its Restricted Subsidiaries would not exceed 5.0 to 1.0 or (b) such
Indebtedness is Permitted Indebtedness.
SECTION 1009. Limitation on Indebtedness and Preferred Stock of
Restricted Subsidiaries.
The Company shall not permit any Restricted Subsidiary to, directly or
indirectly, Incur any Indebtedness or issue any Preferred Stock, except that a
Restricted Subsidiary may Incur the following Indebtedness:
(i) Indebtedness owing to the Company or a Wholly Owned
Subsidiary; PROVIDED, HOWEVER, that any event that
results in any such
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Wholly Owned Subsidiary ceasing to be a Wholly Owned
Subsidiary or any subsequent transfer of any such
Indebtedness (except to the Company or another Wholly
Owned Subsidiary) shall be deemed to constitute the
Incurrence of such Indebtedness by the issuer
thereof;
(ii) Indebtedness Incurred and outstanding on or prior
to the date on which such Restricted Subsidiary was
acquired by the Company (other than Indebtedness
Incurred in anticipation of, or in connection with,
the transaction or series of related transactions
pursuant to which such Subsidiary became a
Restricted Subsidiary or was acquired by the
Company); PROVIDED, HOWEVER, that either (a) such
Indebtedness does not exceed at any one time
outstanding $5,000,000 or (b) the Company would be
permitted to Incur $1.00 of Indebtedness pursuant
to clause (a) of Section 1008;
(iii) Indebtedness under Interest Rate Agreements entered
into for the purpose of limiting interest rate risks,
provided that the obligations under such agreements
are related to payment obligations of such Restricted
Subsidiary in respect of Indebtedness otherwise
permitted by the terms of this Section 1009;
(iv) Indebtedness in connection with one or more standby
letters of credit or performance bonds issued in the
ordinary course of business or pursuant to
self-insurance obligations and not in connection with
the borrowing of money or the obtaining of advances
or credit; and
(v) Permitted Refinancing Indebtedness Incurred in
respect of Indebtedness Incurred pursuant to clauses
(ii) and (iii) above.
SECTION 1010. Limitation on Restricted Payments.
The Company shall not, and shall not permit any Restricted Subsidiary
to, directly or indirectly, make any Restricted Payment if at the time of, and
after giving effect to, such proposed Restricted Payment, (a) a Default or Event
of Default shall have occurred and be continuing, (b) the Company could not
Incur at least $1.00 of additional Indebtedness pursuant to clause (a) of
Section 1008 or (c) the aggregate amount of such Restricted Payment and all
other Restricted Payments made since August 1, 1996 (the amount of any
Restricted Payment, if made other than in cash, to be based upon Fair Market
Value) would exceed an amount equal to the sum of (i) the excess of (A)
Cumulative EBITDA over (B) the product of 1.5 and Cumulative Interest Expense,
(ii) Capital Stock Sale Proceeds, (iii) the amount by which Indebtedness of the
Company or its Restricted Subsidiaries is reduced on the balance sheet of the
Company upon the conversion or exchange (other than by a Subsidiary) subsequent
to the Issue Date of any Indebtedness of the Company or any Restricted
Subsidiary convertible or exchangeable for Capital Stock (other than Redeemable
Stock) of the Company (less the amount of any cash or other Property distributed
by the Company or any Restricted Subsidiary upon conversion or exchange) and
(iv) an amount
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equal to the net reduction in Investments made by the Company and its Restricted
Subsidiaries subsequent to the Issue Date in any Person resulting from (A)
dividends, repayment of loans or advances, or other transfers or distributions
of Property (but only to the extent the Company excludes such transfers or
distributions from the calculation of Cumulative EBITDA for purposes of clause
(c)(i) above), in each case to the Company or any Restricted Subsidiary from any
Person or (B) the redesignation of any Unrestricted Subsidiary as a Restricted
Subsidiary, not to exceed, in the case of (A) or (B), the amount of such
Investments previously made by the Company and its Restricted Subsidiaries in
such Person which were treated as Restricted Payments.
Notwithstanding the foregoing limitation, the Company may (a) pay
dividends on its Capital Stock within 60 days of the declaration thereof if, on
the declaration date, such dividends could have been paid in compliance
herewith, (b) redeem, repurchase, defease, acquire or retire for value, any
Indebtedness subordinate (whether pursuant to its terms or by operation of law)
in right of payment to the Securities with the proceeds of any Permitted
Refinancing Indebtedness, (c) acquire, redeem or retire Capital Stock of the
Company or Indebtedness subordinate (whether pursuant to its terms or by
operation of law) in right of payment to the Securities in exchange for or in
connection with a substantially concurrent issuance of, Capital Stock of the
Company (other than Redeemable Stock and other than Capital Stock issued or sold
to a Subsidiary or an employee stock ownership plan or other trust established
by the Company or any Subsidiary), and (d) make Investments in Persons the
primary businesses of which are Related Businesses (other than Investments in
the Capital Stock of the Company) in an amount at any time outstanding not to
exceed $10,000,000 in the aggregate.
Any payments made pursuant to clauses (b) and (c) of the immediately
preceding paragraph shall be excluded from the calculation of the aggregate
amount of Restricted Payments made after the Issue Date; PROVIDED, HOWEVER, that
the proceeds from the issuance of Capital Stock pursuant to clause (c) of the
immediately preceding paragraph shall not constitute Capital Stock Sale Proceeds
for purposes of clause (c)(ii) of the first paragraph of this Section.
SECTION 1011. Limitation on Transactions with Affiliates.
The Company shall not, and shall not permit any Restricted Subsidiary
to, directly or indirectly, conduct any business or enter into or suffer to
exist any transaction or series of transactions (including the purchase, sale,
transfer, lease or exchange of any Property or the rendering of any service)
with, or for the benefit of, any Affiliate of the Company (an "Affiliate
Transaction") unless (a) the terms of such Affiliate Transaction are (i) set
forth in writing, (ii) in the best interest of the Company or such Restricted
Subsidiary, as the case may be, and (iii) no less favorable to the Company or
such Restricted Subsidiary, as the case may be, than those that could be
obtained in a comparable arm's-length transaction with a Person that is not an
Affiliate of the Company or such Restricted Subsidiary, (b) with respect to an
Affiliate Transaction involving aggregate payments or value in excess of
$1,000,000, the Board of Directors of the Company (including a majority of the
Disinterested Directors of the Company) approves such Affiliate Transaction and,
in its good faith judgment,
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believes that such Affiliate Transaction complies with clauses (a)(ii) and (iii)
of this paragraph as evidenced by a Board Resolution and (c) with respect to an
Affiliate Transaction involving aggregate payments or value in excess of
$10,000,000, the Company obtains a written opinion from an independent appraisal
firm to the effect that such Affiliate Transaction is fair from a financial
point of view.
Notwithstanding the foregoing limitation, the Company may enter into or
suffer to exist the following: (i) any transaction pursuant to any contract in
existence on the Issue Date and listed on Schedule I; (ii) any transaction or
series of transactions between the Company and one or more of its Restricted
Subsidiaries or between two or more of its Restricted Subsidiaries; (iii) any
Restricted Payment permitted to be made pursuant to Section 1010; (iv) the
payment of compensation (including amounts paid pursuant to employee benefit
plans) for the personal services of officers, directors and employees of the
Company or any of its Restricted Subsidiaries, so long as the Board of Directors
of the Company in good faith shall have approved the terms thereof and deemed
the services theretofore or thereafter to be performed for such compensation or
fees to be fair consideration therefor; (v) loans and advances to employees made
in the ordinary course of business and consistent with past practice of the
Company or such Restricted Subsidiary, as the case may be, provided, that such
loans and advances do not exceed $5,000,000 at any one time outstanding; (vi)
employment arrangements entered into in the ordinary course of business with
officers of the Company approved by a majority of the Disinterested Directors of
the Company; and (vii) the Management Services Agreement.
SECTION 1012. Limitation on Liens.
The Company shall not, and shall not permit any Restricted Subsidiary
to, directly or indirectly, Incur or suffer to exist, any Lien (other than
Permitted Liens) upon any of its Property, whether now owned or hereafter
acquired, including any Lien on any interest in, or any income or profits from,
its Property, unless effective provision has been or will be made whereby the
Securities will be secured equally and ratably with (or prior to) such
obligation; PROVIDED, HOWEVER, that no Lien may be granted with respect to
Indebtedness of the Company that is subordinated to the Securities.
SECTION 1013. Purchase of Securities upon a Change of Control.
(a) If a Change of Control shall occur at any time, then each
Holder of Securities shall have the right to require that the Company purchase
such Holder's Securities, in whole or in part in integral multiples of $500
principal amount, at a purchase price (the "Change of Control Purchase Price")
in cash in an amount equal to 100% of the principal amount thereof, plus accrued
and unpaid interest, if any, to the date of purchase (the "Change of Control
Purchase Date") in accordance with the procedures set forth in paragraphs (b)
and (c) of this Section (the "Change of Control Offer").
(b) Within 30 days following any Change of Control, the
Company shall (x) cause a notice of the Change of Control Offer to be sent at
least once to the Dow Jones News Service or similar business news service in the
United States and (y) notify the Trustee
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thereof and give written notice of such Change of Control to each Holder of
Securities in the manner provided in Section 106, stating:
(1) that a Change of Control has occurred and a
Change of Control Offer is being made pursuant to this Section
1013 and that all Securities timely tendered will be accepted
for payment;
(2) the Change of Control Purchase Price and the
Change of Control Purchase Date, which shall be, subject to
any contrary requirements of applicable law, no earlier than
30 days nor later than 60 days from the date such notice is
mailed;
(3) that any Security (or portion thereof) accepted
for payment (and duly paid on the Change of Control Purchase
Date) pursuant to the Change of Control Offer shall cease to
accrue interest after the Change of Control Purchase Date;
(4) that any Securities (or portions thereof) not
tendered will continue to accrue interest;
(5) a description of the transaction or
transactions constituting the Change of Control; and
(6) the procedures that Holders of Securities must
follow in order to tender their Securities (or portions
thereof) for payment and the procedures that Holders of
Securities must follow in order to withdraw an election to
tender Securities (or portions thereof) for payment.
(c) The Company will comply, to the extent applicable, with
the requirements of Rule 14e-1 under the Exchange Act, and any other securities
laws and regulations thereunder to the extent such laws and regulations are
applicable in connection with the purchase of Securities in connection with a
Change of Control. To the extent that the provisions of any securities laws or
regulations conflict with the provisions relating to the Change of Control
Offer, the Company will comply with the applicable securities laws and
regulations and will not be deemed to have breached its obligations described
above by virtue thereof.
SECTION 1014. Limitation on Assets Sales.
(a) The Company shall not, and shall not permit any Restricted
Subsidiary to, directly or indirectly, consummate any Asset Sale after the Issue
Date unless (i) the Company or such Restricted Subsidiary, as the case may be,
receives consideration at the time of such Asset Sale at least equal to the Fair
Market Value of the Property subject to such Asset Sale and (ii) at least 80% of
the consideration paid to the Company or such Restricted Subsidiary in
connection with such Asset Sale is in the form of cash or cash equivalents.
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(b) The Net Available Cash (or any portion thereof) from Asset
Sales may be applied by the Company or a Restricted Subsidiary, to the extent
the Company or such Restricted Subsidiary elects, (A) to prepay, repay or
purchase Indebtedness of a Restricted Subsidiary (excluding Indebtedness owed to
the Company or an Affiliate of the Company); or (B) to reinvest in Additional
Assets (including by means of an Investment in Additional Assets by a Restricted
Subsidiary with Net Available Cash received by the Company or another Restricted
Subsidiary).
(c) Any Net Available Cash from an Asset Sale is not applied
in accordance with the preceding paragraph within 270 days from the date of such
Asset Sale or the receipt of such Net Available Cash shall constitute "Excess
Proceeds". When the aggregate amount of Excess Proceeds exceeds $10,000,000
(taking into account income earned on such Excess Proceeds), the Company will be
required to make an offer to purchase (the "Prepayment Offer") the Securities,
on a pro rata basis according to principal amount at maturity, at a purchase
price equal to 100% of the principal amount thereof plus accrued and unpaid
interest thereon (if any) to the date of purchase, in accordance with the
procedures (including prorating in the event of oversubscription) set forth
herein. If the aggregate principal amount of Securities surrendered for purchase
by Holders thereof exceeds the amount of Excess Proceeds, then the Trustee shall
select the Securities to be purchased according to the principal amount of the
Securities tendered in response to the Prepayment Offer pro rata or by lot with
such adjustments as may be deemed appropriate by the Company so that only
Securities having a principal amount of maturity of $500, or integral multiples
thereof, shall be purchased. To the extent that any portion of the amount of Net
Available Cash remains after compliance with the preceding sentence and provided
that all Holders of Securities have been given the opportunity to tender their
Securities for purchase as described in the following paragraph, the Company or
such Restricted Subsidiary may use such remaining amount for general corporate
purposes and the amount of Excess Proceeds will be reset to zero.
(d) Within five Business Days after the Excess Proceeds
exceeds $10,000,000, the Company shall send a written notice, by first-class
mail, to the Holders (the "Prepayment Offer Notice"), accompanied by such
information regarding the Company and its Subsidiaries as the Company in good
faith believes will enable such Holders to make an informed decision with
respect to the Prepayment Offer. The Prepayment Offer Notice will state, among
other things, (1) that the Company is offering to purchase Securities pursuant
to the provisions of this Section 1014, (2) the purchase price and purchase
date, which shall be, subject to any contrary requirements of applicable law, no
less than 30 days not more than 60 days from the date the Prepayment Offer
Notice is mailed (the "Purchase Date"), (3) that any Security (or any portion
thereof) accepted for payment (and duly paid on the Purchase Date) pursuant to
the Prepayment Offer shall cease to accrue interest after the Purchase Date, (4)
the aggregate principal amount of Securities (or portion thereof) to be
purchased and (5) a description of the procedure that Holders must follow in
order to tender their Securities (or portions thereof) and the procedure that
Holders must follow in order to withdraw an election to tender their Securities
(or portions thereof) for payment.
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(e) The Company will comply, to the extent applicable with
Rule 14e-1 under the Exchange Act and any other securities laws or regulations
thereunder to the extent such laws and regulations are applicable in connection
with the purchase of Securities pursuant to this Section. To the extent that the
provisions of any securities laws or regulations conflict with the provisions
relating to the Prepayment Offer, the Company will comply with the applicable
securities laws and regulations and will not be deemed to have breached its
obligations described in this Section by virtue thereof.
SECTION 1015. Limitation on Lines of Business.
The Company shall not, and shall not permit any Restricted Subsidiary
to, directly or indirectly, engage in any business other than a Related
Business.
SECTION 1016. Limitation on Dividends and Other Payment Restrictions
Affecting Restricted Subsidiaries.
The Company shall not, and shall not permit any of its Restricted
Subsidiaries to, directly or indirectly, create or otherwise cause or suffer to
exist or become effective, or enter into any agreement with any Person that
would cause to become effective, any consensual encumbrance or restriction on
the ability of any Restricted Subsidiary to (a) pay dividends, in cash or
otherwise, or make any other distributions on or in respect of its Capital
Stock, or pay any Indebtedness or other obligation owed, to the Company or any
other Restricted Subsidiary, (b) make any loans or advances to the Company or
any other Restricted Subsidiary or (c) transfer any of its Property to the
Company or any other Restricted Subsidiary. Such limitation will not apply (1)
with respect to clauses (a), (b) and (c), to encumbrances and restrictions (i)
in existence under or by reason of any agreements in effect on the Issue Date,
(ii) relating to Indebtedness of a Restricted Subsidiary and existing at such
Restricted Subsidiary at the time it became a Restricted Subsidiary if such
encumbrance or restriction was not created in connection with or in anticipation
of the transaction or series of related transactions pursuant to which such
Restricted Subsidiary became a Restricted Subsidiary or was acquired by the
Company, or (iii) which result from the renewal, refinancing, extension or
amendment of an agreement referred to in the immediately preceding clauses (1)
(i) and (ii) above an in clauses (2) (i) and (ii) below, provided, such
encumbrance or restriction is no more restrictive to such Restricted Subsidiary
than those under or pursuant to the agreement evidencing the Indebtedness so
extended, renewed, refinanced or replaced, and (2) with respect to clause (c)
only, to (i) any encumbrance or restriction relating to Indebtedness that is
permitted to be Incurred and secured pursuant to the provisions under Section
1011 and Section 1015 that limits the right of the debtor to dispose of the
assets or Property securing such Indebtedness, (ii) any encumbrance or
restriction in connection with an acquisition of Property, so long as such
encumbrance or restriction relates solely to the Property so acquired and was
not created in connection with or in anticipation of such acquisition, (iii)
customary provisions restricting subletting or assignment of leases and
customary provisions in other agreements that restrict assignment of such
agreements or rights thereunder or (iv) customary restrictions contained in
asset sale agreements limiting the transfer of such assets pending the closing
of such sale.
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ARTICLE XI
REDEMPTION OF SECURITIES
SECTION 1101. Mandatory and Optional Redemption.
(a) The Company shall redeem all of the Outstanding Securities
on August 1, 2003 at 100% of the principal amount thereof, together with accrued
and unpaid interest to the redemption date, from the Holders of the Securities.
(b) The Securities are redeemable at any time at the option of
the Company, in whole or in part, on not less than 30 nor more than 60 days'
notice, at 100% of the principal amount thereof, plus accrued and unpaid
interest (if any) to the date of redemption.
SECTION 1102. Applicability of Article.
Redemption of Securities at the election of the Company or otherwise,
as permitted or required by any provision of this Indenture, shall be made in
accordance with such provision and this Article.
SECTION 1103. Notice to Trustee of Redemption.
The election of the Company to redeem any Securities pursuant to
paragraph (b) of Section 1101 shall be evidenced by a Board Resolution. In case
of any redemption at the election of the Company, the Company shall, at least 60
days prior to the Redemption Date fixed by the Company (unless a shorter notice
shall be satisfactory to the Trustee), notify the Trustee of such Redemption
Date and shall deliver to the Trustee such documentation and records as shall
enable the Trustee to select the Securities to be redeemed pursuant to Section
1104.
SECTION 1104. Selection by Trustee of Securities to Be Redeemed.
If less than all the Securities are to be redeemed, the particular
Securities to be redeemed shall be selected not more than 60 days prior to the
Redemption Date by the Trustee, with such selection to be done on a pro rata
basis for all of the Outstanding Securities; PROVIDED, HOWEVER, that no such
partial redemption shall reduce the portion of the principal amount of a
Security not redeemed to less than $500.
The Trustee shall promptly notify the Company in writing of the
Securities selected for redemption and, in the case of any Securities selected
for partial redemption, the principal amount thereof to be redeemed.
For all purposes of this Indenture, unless the context otherwise
requires, all provisions relating to redemption of Securities shall relate, in
the case of any Security
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redeemed or to be redeemed only in part, to the portion of the principal amount
of such Security which has been or is to be redeemed.
SECTION 1105. Notice of Redemption.
Notice of redemption shall be given in the manner provided for in
Section 106 not less than 30 nor more than 60 days prior to the Redemption Date,
to each Holder of Securities to be redeemed. The notice if given in the manner
herein provided shall be conclusively presumed to have been duly given, whether
or not the Holder receives such notice. In any case, failure to give such notice
or any defect in the notice to the Holder of any Security designated for
redemption as a whole or in part shall not affect the validity of the
proceedings for the redemption of any other Security.
All notices of redemption shall state:
(1) the Redemption Date,
(2) the Redemption Price and the amount of accrued interest to
the Redemption Date payable as provided in Section 1107, if any,
(3) if less than all Outstanding Securities are to be
redeemed, the identification (and, in the case of a partial redemption,
the principal amounts) of the particular Securities to be redeemed,
(4) in case any Security is to be redeemed in part only, the
notice which relates to such Security shall state that on and after the
Redemption Date, upon surrender of such Security, the Holder will
receive, without charge, a new Security or Securities of authorized
denominations for the principal amount thereof remaining unredeemed,
(5) that on the Redemption Date the Redemption Price (and
accrued interest, if any, to the Redemption Date payable as provided in
Section 1107) will become due and payable upon each such Security, or
the portion thereof, to be redeemed, and that interest thereon will
cease to accrue on and after said date, and
(6) the place or places where such Securities are to be
surrendered for payment of the Redemption Price and accrued interest,
if any.
Notice of redemption of Securities to be redeemed shall be given by the
Company or, at the Company's request, by the Trustee in the name and at the
expense of the Company.
SECTION 1106. Deposit of Redemption Price.
On or prior to 10:00 a.m. (New York City time) on any Redemption Date,
the Company shall deposit with the Trustee or with a Paying Agent (or, if the
Company is acting as its own Paying Agent, segregate and hold in trust as
provided in Section 1003) an amount
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of money sufficient to pay the Redemption Price of, and accrued interest on, all
the Securities which are to be redeemed on that date.
SECTION 1107. Securities Payable on Redemption Date.
Notice of redemption having been given as aforesaid, the Securities so
to be redeemed shall, on the Redemption Date, become due and payable at the
Redemption Price therein specified (together with accrued interest, if any, to
the Redemption Date), and from and after such date (unless the Company shall
default in the payment of the Redemption Price and accrued interest) such
Securities shall cease to bear interest. Upon surrender of any such Security for
redemption in accordance with said notice, such Security shall be paid by the
Company at the Redemption Price, together with accrued interest, if any, to the
Redemption Date; PROVIDED, HOWEVER, that installments of interest payable on any
Interest Payment Date on or prior to the Redemption Date shall be payable to the
Holders of such Securities, or one or more Predecessor Securities, registered as
such at the close of business on the relevant Record Dates according to their
terms and the provisions of Section 309.
If any Security called for redemption shall not be so paid upon
surrender thereof for redemption, the principal (and premium, if any) shall,
until paid, bear interest, from the Redemption Date at the rate borne by the
Securities.
SECTION 1108. Securities Redeemed in Part.
Any Security which is to be redeemed only in part shall be surrendered
at the Corporate Trust Office of the Trustee or at the office or agency of the
Company maintained for such purpose pursuant to Section 1002 (with, if the
Company or the Trustee so requires, due endorsement by, or a written instrument
of transfer in form satisfactory to the Company and the Trustee duly executed
by, the Holder thereof or such Holder's attorney duly authorized in writing),
and the Company shall execute, and the Trustee shall authenticate and deliver to
the Holder of such Security without service charge, a new Security or Securities
of like tenor and form, of any authorized denomination as requested by such
Holder, in aggregate principal amount equal to and in exchange for the
unredeemed portion of the principal of the Security so surrendered.
[THE REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK.]
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This Indenture may be signed in any number of counterparts each of
which so executed shall be deemed to be an original, but all such counterparts
shall together constitute but one and the same Indenture.
IN WITNESS WHEREOF, the parties hereto have caused this Indenture to be
duly executed, and their respective corporate seals to be hereunto affixed and
attested, all as of the day and year first above written.
INTER*ACT OPERATING CO., INC.
By /s/ Thomas McGoldrick
--------------------------
Name: Thomas McGoldrick
Title: Executive Vice President
[Corporate Seal]
Attest:
/s/ Dan T. Barber, Jr
- ---------------------------
Asst. Secretary
STATE STREET BANK AND
TRUST COMPANY
By /s/ Michael M. Hopkins
__________________________
Name: Michael M. Hopkins
_______________________
Title: Vice President
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Exhibit A
[FACE OF NOTE]
INTER*ACT OPERATING CO., INC.
Senior Pay-In-Kind Note Due 2003
CUSIP [ ]
No. _______ US$__________
INTER*ACT OPERATING CO., INC., a corporation existing under the laws of
the State of North Carolina (the "Company," which term includes any successor
under the Indenture hereinafter referred to), for value received, promises to
pay to ____________, or its registered assigns, the principal sum of
_____________ dollars ($_________) on August 1, 2003
Initial Interest Rate: 14% per annum.**
Interest Rate: 14% per annum.*
Interest Payment Dates: February 1 and August 1,
commencing February 1, 2000.
Regular Record Dates: January 15 and July 15
Reference is hereby made to the further provisions of this Note set
forth on the reverse hereof, which further provisions shall for all purposes
have the same effect as if set forth at this place.
- -------------------
* Include only for Exchange Securities.
** Include only for Initial Securities.
A-1
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Note to be signed
manually or by facsimile by its duly authorized officers.
Date: ____________ INTER*ACT OPERATING CO., INC.
By: ___________________________
Name:
Title:
Attest: _______________________
Name:
Title:
A-2
<PAGE>
(Form of Trustee's Certificate of Authentication)
This is one of the Senior Pay-In-Kind Notes due 2003 described in the
within-mentioned Indenture.
STATE STREET BANK AND TRUST
COMPANY
as Trustee
By: ________________________________
Authorized Signatory
A-3
<PAGE>
[REVERSE SIDE OF NOTE]
INTER*ACT OPERATING CO., INC.
Senior Pay-In-Kind Note due 2003
1. Principal and Interest.
The Company will pay the principal of this Note on August 1, 2003.
The Company promises to pay interest on the principal amount of this
Note on each Interest Payment Date, as set forth below, [at the rate of 14% per
annum (subject to adjustment as provided below)]1 [at the rate of 14% per annum,
except that interest accrued on this Note (or the predecessor Note hereto) in
accordance with the terms of this Section 1 for periods prior to the applicable
Exchange Date (as such term is defined in the Registration Rights Agreement
referred to below) will accrue at the rate or rates borne by the predecessor
Note hereto from time to time during such periods pursuant to the Registration
Rights Agreement as set forth below].**
Interest will be payable semiannually to the holder of record of the
Note, or any predecessor Note (the "Holder") at the close of business on the
January 15 or July 15 immediately preceding the Interest Payment Date) on each
Interest Payment Date, commencing February 1, 2000, and thereafter on August 1
and February 1 of each year and at said Stated Maturity. Interest shall be
payable in cash; PROVIDED, HOWEVER, that the Company may at its option pay
interest in kind on the Note by the issuance of one or more promissory notes
therefor (each a "PIK Note," and collectively the "PIK Notes"), with the same
terms, including date of maturity and interest rate, as the Note, to the Holder;
PROVIDED FURTHER, HOWEVER, that upon the first Interest Payment Date immediately
following the date that is eighteen (18) months after (i) the consummation of an
Initial Public Offering or (ii) a Change in Control, then and thereafter
interest shall be payable only in cash. PIK Notes shall be deemed to have been
issued by the Company, and it obligations thereunder shall commence, as of the
applicable Interest Payment Date, irrespective of the actual date of execution
and delivery of the PIK Notes, and shall be deemed to be included within the
term "Notes" for all purposes as of such Interest Payment Date.
The Holder of this Note is entitled to the benefits of the Exchange and
Registration Rights Agreement, dated as of December __, 1999, between the
Company and the parties named therein (the "Registration Rights Agreement"). In
the event that as of the date that is 180 days following the date hereof,
neither the Company nor Inter*Act has commenced an Initial Public Offering, and
(a) the Exchange Offer Registration Statement or the Shelf Registration
Statement (as such terms are defined in the Registration Rights Agreement), as
- --------
1 Include only for Initial Securities.
2 Include only for Exchange Securities.
A-4
<PAGE>
the case may be, is not filed with the Securities and Exchange Commission on or
prior to the Target Filing Date (as defined in the Registration Rights
Agreement), (b) the Exchange Offer Registration Statement or the Shelf
Registration Statement, as the case may be, has not been declared effective on
or prior to the Target Effective Date (as defined in the Registration Rights
Agreement; (c) either the Exchange Offer (as such term is defined in the
Registration Rights Agreement) is not consummated or the Shelf Registration
Statement (as such term is defined in the Registration Rights Agreement) is not
declared effective on or prior to the Target Consummation Date (as defined in
the Registration Rights Agreement), or (d) the Exchange Offer Registration
Statement or the Shelf Registration Statement is declared effective, but
thereafter ceases to be effective or usable (each such event referred to in
clause (a) through (d) above, a "Registration Default") interest (in addition
to the interest otherwise due on the Note after such date) will accrue on this
Note at a rate of one-half of one percent per annum of the principal amount of
this Note with respect to the first 90-day period following such Registration
Default, and the amount of such additional interest will increase by an
additional one-half of one percent per annum for each subsequent 90-day period
until such Registration Default has been cured, with such interest payable in
cash semi-annually, in arrears, on February 1 and August 1 of each year;
PROVIDED, HOWEVER, that in no event shall the rate of such additional interest
be more than one and one-half of one percent. Upon the cure of all applicable
Registration Defaults, such additional interest shall cease to accrue.
Any and all payments made by the Company under this Note will be made
free and clear of and without deduction for or on account of any and all present
or future taxes, levies, imposts, deductions, charges or withholdings and all
liabilities with respect thereto imposed by the United States excluding any
taxes, levies, imposts, deductions, charges or withholdings and all liability
with respect thereto (i) resulting from the Holder having some connection with
the United States other than the mere holding of or enforcement of or receipt of
any payment with respect to such Note, (ii) the payment of which may be avoided
by the Holder complying with any certification, declaration or other reporting
requirement concerning the nationality, residence, identity or connection with
any taxing authority of such Holder as the beneficial owner of such Note, (iii)
that would not have been imposed but for the presentation (where presentation is
required) of such Note for payment more than 30 days after the date such payment
became due and payable or was duly provided for, whichever occurs later, (iv) in
the nature of estate, inheritance, gift, sale, transfer, personal property or
similar taxes or (v) imposed on or with respect to any payment by the Company to
the Holder if such Holder is a fiduciary or partnership or person other than the
sole beneficial owner of such payment to the extent such tax, levy, impost,
deduction, charge or withholding would not have been imposed on a beneficiary or
settlor with respect to such fiduciary, member of such partnership or the
beneficial owner of such payment had such beneficiary, settlor, member or
beneficial owner been the Holder of such Note (all such non-excluded taxes,
levies, imposts, deductions, charges, withholdings and liabilities being
referred to collectively or individually as "U.S. Withholding Taxes"). If the
Company is required by law to deduct any U.S. Withholding Taxes from or in
respect of any sum payable under this Note, the sum payable hereunder shall be
increased by the amount necessary so that after making all required deductions
the Holder will receive an amount equal to the sum it would have received had no
such deductions been made.
A-5
<PAGE>
From and after August 1, 1999, interest on this Note will accrue from
the most recent date to which interest has been paid [on this Note or the Note
surrendered in Exchange herefor]* or, if no interest has been paid, from August
1, 1999; provided that, if there is no existing default in the payment of
interest and if this Note is authenticated between a Regular Record Date
referred to on the face hereof and the next succeeding Interest Payment Date,
interest shall accrue from such Interest Payment Date. Interest will be computed
on the basis of a 360-day year of twelve 30-day months.
The Company shall pay interest on overdue principal and premium, if
any, and interest on overdue installments of interest, to the extent lawful, at
a rate per annum equal to the rate of interest applicable to the Notes.
2. Method of Payment.
The Company will pay interest (except Defaulted Interest) on the
principal amount of the Notes on each February 1 and August 1 to the persons who
are Holders (as reflected in the Security Register at the close of business on
the January 15 and July 15 immediately preceding the Interest Payment Date), in
each case, even if the Note is cancelled on registration of transfer or
registration of exchange after such record date; provided that, with respect to
the payment of principal, the Company will make payment to the Holder that
surrenders this Note to any Paying Agent on or after August 1, 2003.
The Company will pay principal, premium, if any, and interest in money
of the United States that at the time of payment is legal tender for payment of
public and private debts. However, the Company may pay principal, premium, if
any, and interest by its check payable in such money. The Company may mail an
interest check to a Holder's registered address (as reflected in the Security
Register). The Company may also make any payment of monies required to be
deposited with the Trustee on account of principal of, or premium, if any, or
interest on, this Note by wire transfer in immediately available funds to an
account designated by the Trustee on or before the date such monies are to be
paid to the Holder. If a payment date is a date other than a Business Day,
payment may be made on the next succeeding day that is a Business Day and no
interest shall accrue for the intervening period.
3. Paying Agent and Registrar.
Initially, the Trustee will act as authenticating agent, Paying Agent
and Registrar. The Company may change any authenticating agent, Paying Agent or
Registrar upon written notice thereto. The Company, any Subsidiary or any
Affiliate of any of them may act as Paying Agent, Registrar or co-registrar.
- --------
1 Include only for Exchange Securities.
A-6
<PAGE>
4. Indenture; Limitations.
The Company issued the Note under an Indenture dated as of December __,
1999 (the "Indenture"), between the Company and State Street Bank and Trust
Company as trustee (the "Trustee"). Capitalized terms herein are used as defined
in the Indenture unless otherwise indicated. The terms of this Note include
those stated in the Indenture and those made part of the Indenture by reference
to the Trust Indenture Act. The Note is subject to all such terms, and the
Holder is referred to the Indenture and the Trust Indenture Act for a statement
of all such terms. To the extent permitted by applicable law, in the event of
any inconsistency between the terms of this Note and the terms of the Indenture,
the terms of the Indenture shall control.
The Note is a general unsecured obligations of the Company. The
Indenture limits the aggregate principal amount of the Notes to $70,000,000 plus
the amounts of PIK Notes issued thereunder.
5. Redemption.
Mandatory Redemption. The Company will redeem 100% of the principal
amount of the Notes, together with accrued and unpaid interest to the redemption
date, from the Holders of the Notes at the close of business on August 1, 2003.
Optional Redemption. The Notes are redeemable at any time at the option
of the Company, in whole or in part, on not less than 30 nor more than 60 days'
notice, at 100% of the principal amount thereof, plus accrued and unpaid
interest (if any) to the date of redemption.
On and after any redemption date, interest will cease to accrue on the
Notes or portions thereof called for redemption unless the Company shall fail to
redeem any such Notes.
6. Repurchase upon a Change of Control.
Upon the occurrence of a Change in Control, each Holder shall have the
right to require that the Company repurchase such Holder's Notes, in whole or in
part, in integral multiples of $500 principal amount at final Maturity, at a
purchase price in cash in an amount equal to 100% of the principal amount
thereof, plus accrued interest (if any) to the date of purchase (the "Change of
Control Purchase Price").
A notice of each Change in Control will be mailed within 15 days after
such Change of Control occurs to each Holder at his last address as it appears
in the Security Register. On and after the Change of Control Payment Date,
interest ceases to accrue on Notes or portions of Notes surrendered for purchase
by the Company, unless the Company defaults in the payment of the Change of
Control Purchase Price.
A-7
<PAGE>
7. Denominations; Transfer; Exchange.
The Notes are in registered form without coupons, in denominations of
$500 principal amount at maturity and multiples of $500 in excess thereof. A
Holder may register the transfer or exchange of Notes in accordance with the
Indenture. The Registrar may require a Holder, among other things, to furnish
appropriate endorsements and transfer documents and to pay any taxes and fees
required by law or permitted by the Indenture. The Registrar need not register
the transfer or exchange of any Notes selected for redemption (except the
unredeemed portion of any Note being redeemed in part). Also, it need not
register the transfer or exchange of any Notes for a period of 15 days before a
selection of Notes to be redeemed is made.
8. Persons Deemed Owners.
A Holder may be treated as the owner of a Note for all purposes.
9. Unclaimed Money.
If money for the payment of principal, premium, if any, or interest
remains unclaimed for two years, the Trustee and the Paying Agent will, subject
to escheat law, pay the money back to the Company at its request. After that,
Holders entitled to the money must look to the Company for payment, unless an
abandoned property law designates another Person, and all liability of the
Trustee and such Paying Agent with respect to such money shall cease.
10. Amendment; Supplement; Waiver.
Subject to certain exceptions, the Indenture or the Notes may be
amended or supplemented with the consent of the Holders of at least a majority
in aggregate principal amount at final Maturity of the Notes then outstanding,
and any existing default or compliance with any provision may be waived with the
consent of the Holders of a majority in aggregate principal amount at final
Maturity of the Notes then outstanding. Without notice to or the consent of any
Holder, the parties thereto may amend or supplement the Indenture or the Notes
to, among other things, cure any ambiguity, or inconsistency provided such
change does not materially adversely affect the rights of any Holder.
11. Restrictive Covenants.
The Indenture imposes certain limitations on the ability of the Company
and its Subsidiaries, among other things, to incur additional Indebtedness,
grant Liens, make Restricted Payments, use the proceeds from Asset Sales, engage
in transactions with Affiliates, engage in other businesses, restrict payments
from Restricted Subsidiaries or merge, consolidate or transfer substantially all
of its assets. At the end of each fiscal year, the Company must report to the
Trustee on compliance with such limitations.
A-8
<PAGE>
12. Successor Persons.
When a successor person or other entity assumes all the obligations of
its predecessor under the Notes and the Indenture, the predecessor person will
be released from those obligations.
13. Defaults and Remedies.
The following events constitute "Events of Default" under the
Indenture: (a) failure to make the payment of any principal of or premium, if
any, on any Note at its Maturity Date (upon acceleration, optional redemption,
required purchase or otherwise); (b) failure to make the payment of any interest
on any Note when it becomes due and payable and any such failure continues for a
period of 30 days; (c) failure to comply with any covenant or warranty of the
Company contained in the Indenture (other than a covenant or warranty that is
specifically dealt with in clauses (a) or (b) above) which failure continues for
a period of 30 days after written notice shall have been given to the Company by
the Trustee or to the Company and the Trustee by the holders of at least 25% in
aggregate principal amount of the Notes then outstanding; (d) (i) Indebtedness
of the Company or any Restricted Subsidiary in an amount greater than $5,000,000
shall have been accelerated or otherwise declared due and payable, or required
to be prepaid or repurchased (other than by regularly scheduled required
prepayment prior to the stated maturity thereof) or (ii) a default by the
Company or any Restricted Subsidiary in the payment of principal on Indebtedness
of the Company or any Restricted Subsidiary in an amount greater than
$5,000,000, when the same becomes due and payable at the stated maturity
thereof, and such default shall have continued after any applicable grace period
and shall not have been cured or waived; (e) one or more final judgments or
orders shall be rendered against the Company or any Restricted Subsidiary for
the payment of money in an uninsured aggregate amount, in excess of $5,000,000
shall not be waived, satisfied or discharged for any period of 30 consecutive
days during which a stay of enforcement of such judgment or order was not in
effect; or (f) the occurrence of certain events of bankruptcy, insolvency or
reorganization with respect to the Company or any Subsidiary.
If an Event of Default, as defined in the Indenture, occurs and is
continuing, the Trustee or the Holders of at least 25% in aggregate principal
amount at final Maturity of the Notes then outstanding may declare all the Notes
to be immediately due and payable. If a bankruptcy or insolvency Event of
Default with respect to the Company or any of its Subsidiaries occurs and is
continuing, the Notes automatically become immediately due and payable. Holders
may not enforce the Indenture or the Notes except as provided in the Indenture.
The Trustee may require indemnity satisfactory to it before it enforces the
Indenture or the Notes. Subject to certain limitations, Holders of at least a
majority in aggregate principal amount at final Maturity of the Notes then
outstanding may direct the Trustee in its exercise of any trust or power.
A-9
<PAGE>
14. Trustee Dealings with Company.
The Trustee under the Indenture, in its individual or any other
capacity, may become the owner or pledgee of Notes and may make loans to, accept
deposits from, perform services for, and otherwise deal with, the Company and
its Affiliates as if it were not the Trustee.
15. Authentication.
This Note shall not be valid until the Trustee or authenticating agent
signs the certificate of authentication on the other side of this Note.
16. Abbreviations.
Customary abbreviations may be used in the name of a Holder or an
assignee, such as: TEN COM (= tenants in common), TEN ENT (= tenants by the
entireties), JT TEN (= joint tenants with right of survivorship and not as
tenants in common), CUST (= Custodian) and U/G/M/A (= Uniform Gifts to Minors
Act).
17. Defeasance.
The Indenture contains provisions for defeasance, at any time, of the
Indebtedness represented by this Note or the covenants governing the
Indebtedness represented by this Note, upon compliance by the Company with
certain conditions set forth in the Indenture.
The Company will furnish to any Holder upon written request and without
charge a copy of the Indenture. Requests may be made to Inter*Act Operating Co.,
Inc., 14 Westport Avenue, Norwalk, CT 06851.
A-10
<PAGE>
[FORM OF TRANSFER NOTICE]
FOR VALUE RECEIVED the undersigned registered holder hereby sell(s),
assign(s) and transfer(s) unto
Insert Taxpayer Identification No. ___________________________________________
- ------------------------------------------------------------------------
(Please print or typewrite name and address including zip code of assignee)
- ------------------------------------------------------------------------
the within Note and all rights thereunder, hereby irrevocably constituting and
appointing attorney to transfer such Note on the books of the Company with full
power of substitution in the premises.
[THE FOLLOWING PROVISION TO BE INCLUDED
ON ALL CERTIFICATES
EXCEPT PERMANENT OFFSHORE PHYSICAL
CERTIFICATES]
In connection with any transfer of this Note occurring prior to the
date which is the earlier of the date of an effective Registration Statement or
December __, 2002, the undersigned confirms that without utilizing any general
solicitation or general advertising that:
[Check One]
[ ] (a) this Note is being transferred in compliance with the exemption
from registration under the Securities Act of 1933, as amended,
provided by Rule 144A thereunder.
[ ] (b) this Note is being transferred other than in accordance with (a)
above and documents are being furnished which comply with the
conditions of transfer set forth in this Note and the Indenture.
If none of the foregoing boxes is checked, the Trustee or other Registrar shall
not be obligated to register this Note in the name of any Person other than the
Holder hereof unless and until the conditions to any such transfer of
registration set forth herein and in Section 307 of the Indenture shall have
been satisfied.
Date: __________________________
____________________________
NOTICE: The signature to
this assignment must
correspond with the name as
written upon the face of
the within-mentioned
instrument in every
particular, without
alteration or any change
whatsoever.
A-11
<PAGE>
Signature Guarantee: (1) ____________________________________________________
(signature must be guaranteed)
TO BE COMPLETED BY PURCHASER IF (a) ABOVE IS CHECKED.
The undersigned represents and warrants that it is purchasing this Note
for its own account or an account with respect to which it exercises sole
investment discretion and that it and any such account is a "qualified
institutional buyer" within the meaning of Rule 144A under the Securities Act of
1933, as amended, and is aware that the sale to it is being made in reliance on
Rule 144A and acknowledges that it has received such information regarding the
Company as the undersigned has requested pursuant to Rule 144A or has determined
not to request such information and that it is aware that the transferor is
relying upon the undersigned's foregoing representations in order to claim the
exemption from registration provided by Rule 144A.
Dated: __________________________ ______________________________________
NOTICE: To be executed by an executive
officer
- -----------
(1) Guarantor must be a member of the Securities Transfer Agents Medallion
Program ("STAMP"), the New York Stock Exchange Medallion Signature Program
("MSP") or the Stock Exchange Medallion Program ("SEMP").
A-12
<PAGE>
OPTION OF HOLDER TO ELECT PURCHASE
If you wish to have this Note purchased by the Company pursuant to
Section 1013 or Section 1014 of the Indenture, check the Box: [ ].
If you wish to have a portion of this Note purchased by the Company
pursuant to Section 1013 or Section 1014 of the Indenture, state the amount in
original principal amount (must be an integral multiple of $500) below:
$___________
Date: ____________________
Your Signature: _______________________________
(Sign exactly as your name appears on the other side of this Note)
Signature Guarantee: (1) ___________________________________________
(signature must be guaranteed)
- ---------------
(1) Guarantor must be a member of the Securities Transfer Agents Medallion
Program ("STAMP"), the New York Stock Exchange Medallion Signature
Program ("MSP") or the Stock Exchange Medallion Program ("SEMP").
A-13
<PAGE>
Exhibit B
Form of Certificate
to Be Delivered upon
Termination of Restricted Period
On or after ________ __, ____
State Street Bank and Trust Company
[ ]
[ ]
Attention: Corporate Trust Administration
Re: Inter*Act Systems, Inc. (the "Company")
Senior Pay-In-Kind Notes due 2003 (the "Securities")
Ladies and Gentlemen:
This letter relates to U.S. $_____________________ principal amount of
Securities represented by the temporary global note certificate (the "Temporary
Certificate"). Pursuant to Section 202 of the Indenture dated as of December __,
1999 relating to the Securities (the "Indenture"), we hereby certify that (1) we
are the beneficial owner of such principal amount of Securities represented by
the Temporary Certificate and (2) we are a person outside the United States to
whom the Securities could be transferred in accordance with Rule 904 of
Regulation S promulgated under the U.S. Securities Act of 1933, as amended.
Accordingly, you are hereby requested to issue a Certificated Security
representing the undersigned's interest in the principal amount of Securities
represented by the Temporary Certificate, all in the manner provided by the
Indenture.
You and the Company are entitled to rely upon this letter and are
irrevocably authorized to produce this letter or a copy hereof to any interested
party in any administrative or legal proceedings or official inquiry with
respect to the matters covered hereby. Terms used in this certificate have the
meanings set forth in Regulation S.
Very truly yours,
[Name of Holder]
By:
Authorized Signature
B-1
<PAGE>
Exhibit C
Form of Certificate to Be
Delivered in Connection with
Transfers to Non-QIB Institutional Accredited Investors
-------------, ----
Inter*Act Systems, Inc.
14 Westport Avenue
Norwalk, CT 06851
c/o
State Street Bank and Trust Company
[ ]
[ ]
Attention: Corporate Trust Administration
Re: Inter*Act Systems, Inc. (the "Company")
Senior Pay-In-Kind Notes due 2003 (the "Securities")
Ladies and Gentlemen:
In connection with our proposed purchase of $ _________________
aggregate principal amount of the Securities:
1. We understand that the Securities have not been registered under the
Securities Act of 1933, as amended (the "Securities Act"), and may not be sold
except as permitted in the following sentence. We agree on our own behalf and on
behalf of any investor account for which we are purchasing the Securities to
offer, sell or otherwise transfer such Securities prior to the date which is two
years after the later of the date of original issue and the last date on which
the Company or any affiliate of the Company was the owner of such Securities, or
any predecessor thereto (the "Resale Restriction Termination Date") only (a) to
the Company, (b) pursuant to a registration statement which has been declared
effective under the Securities Act, (c) for so long as the Securities are
eligible for resale pursuant to Rule 144A under the Securities Act, to a person
we reasonably believe is a qualified institutional buyer under Rule 144A (a
"QIB") that purchases for its own account or for the account of a QIB to whom
notice is given that the transfer is being made in reliance on Rule 144A, (d)
pursuant to offers and sales to non-U.S. Persons that occur outside the United
States within the meaning of Regulation S under the Securities Act, (e) to an
institutional "accredited investor" within the meaning of subparagraph (a)(1),
(2), (3) or (7) of Rule 501 under the Securities Act that is acquiring the
Securities for its own account or for the account of such an institutional
"accredited investor" for investment purposes and not with a view to, or for
offer or sale in connection with, any distribution thereof in violation of the
Securities Act or (f) pursuant to any other available exemption from the
registration requirements of the
C-1
<PAGE>
Securities Act, subject in each of the foregoing cases to any requirement of law
that the disposition of our property and the property of such investor account
or accounts be at all times within our or their control and to compliance with
any applicable state securities laws. The foregoing restrictions on resale will
not apply subsequent to the Resale Restriction Termination Date. If any resale
or other transfer of the Securities is proposed to be made pursuant to clause
(e) above prior to the Resale Restriction Termination Date, the transferor shall
deliver a letter from the transferee substantially in the form of this letter to
the Trustee, which shall provide, among other things, that the transferee is an
institutional "accredited investor" within the meaning of subparagraph (a)(1),
(2), (3) or (7) or Rule 501 under the Securities Act and that it is acquiring
such Securities for investment purposes and not for distribution in violation of
the Securities Act. We acknowledge that the Company and the Trustee reserve the
right prior to any offer, sale or other transfer prior to the Resale Restriction
Termination Date of the Securities pursuant to clauses (d), (e) and (f) above to
require the delivery of an opinion of counsel, certifications and/or other
information satisfactory to the Company and the Trustee.
2. We are an institutional "accredited investor" (as defined in Rule
501(a)(1), (2), (3) or (7) of Regulation D under the Securities Act) purchasing
for our own account or for the account of such an institutional "accredited
investor," and we are acquiring the Securities for investment purposes and not
with a view to, or for offer or sale in connection with, any distribution in
violation of the Securities Act and we have such knowledge and experience in
financial and business matters as to be capable of evaluating the merits and
risks of our investment in the Securities, and we and any accounts for which we
are acting are each able to bear the economic risk of our or its investment.
3. We are acquiring the Securities purchased by us for our own account
or for one or more accounts as to each of which we exercise sole investment
discretion.
4. You are entitled to rely upon this letter and you are irrevocably
authorized to produce this letter or a copy hereof to any interested party in
any administrative or legal proceeding or official inquiry with respect to the
matters covered hereby.
Very truly yours,
By: _________________________
(NAME OF PURCHASER)
Date: _______________________
C-2
<PAGE>
Upon transfer, the Securities should be registered in the name of the
new beneficial owner as follows:
Name: _______________________________________________________________________
Address: ____________________________________________________________________
Taxpayer ID Number: _________________________________________________________
C-3
<PAGE>
Exhibit D
Form of Certificate to Be Delivered
in Connection with Transfers
Pursuant to Regulation S
-------------------, ----
State Street Bank and Trust Company
[ ]
[ ]
Attention: Corporate Trust Administration
Re: Inter*Act Systems, Inc. (the "Company")
Senior Pay-In-Kind Notes due 2003 (the "Securities")
Ladies and Gentlemen:
In connection with our proposed sale of $_______ aggregate principal
amount of the Securities, we confirm that such sale has been effected pursuant
to and in accordance with Regulation S under the Securities Act of 1933, as
amended ("Regulation S"; capitalized terms used but not defined herein shall
have the meanings given the in Regulation S, and, accordingly, we represent
that:
1. the offer of the Securities was not made to or for the
account or benefit of a United States Person or to a person in the
United States;
2. either (a) at the time the buy order was originated, the
transferee was outside the United States or we and any person acting on
our behalf reasonably believed that the transferee was outside the
United States or (b) the transaction was executed in, on or through the
facilities of a designated off-shore securities market and neither we
nor any person acting on our behalf knows that the transaction has been
pre-arranged with a buyer in the United States;
3. no direct selling efforts have been made in the United
States in contravention of the requirements of Rule 903(b) or Rule
904(b) of Regulation S, as applicable; and
4. the transaction is not part of a plan or scheme to evade
the registration requirements of the U.S. Securities Act of 1933, as
amended.
We acknowledge and agree that, if the sale is made during a restricted
period and the provisions of Rule 903(c)(3) or Rule 904(c)(1) of Regulation S
are applicable thereto, we confirm that such sale has been made in accordance
with the applicable provisions of Rule 903(c)(3) or Rule 904(c)(1), as the case
may be.
D-1
<PAGE>
You and the Company are entitled to rely upon this letter and are
irrevocably authorized to produce this letter or a copy hereof to any interested
party in any administrative or legal proceedings or official inquiry with
respect to the matters covered hereby. Terms used in this certificate have the
meanings set forth in Regulation S.
Very truly yours,
[Name of Transferor]
By: ___________________________
Authorized Signature
D-2
<PAGE>
Exhibit 4 (b) (1)
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
INTER*ACT ELECTRONIC MARKETING, INC.
(as successor to Inter*Act Operating Co., Inc.)
AND
STATE STREET BANK AND TRUST COMPANY
as Trustee
FIRST SUPPLEMENTAL INDENTURE
Dated as of December 30, 1999
TO
INDENTURE
Dated as of December 15, 1999
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
<PAGE>
FIRST SUPPLEMENTAL INDENTURE, dated as of the 30th day of December, 1999 (herein
called the "Supplement"), between INTER*ACT ELECTRONIC MARKETING, INC., a
corporation duly organized and existing under the laws of the State of North
Carolina (hereinafter referred to as "Intero Act") and successor-in-interest to
Intero Act Operating Co., Inc., a corporation duly organized and existing under
the laws of the State of North Carolina (hereinafter referred to as the
"Subsidiary"), and STATE STREET BANK AND TRUST COMPANY, a Massachusetts trust
company (hereinafter referred to as the "Trustee"), under the Indenture dated as
of December 15, 1999, between the Subsidiary and the Trustee (the "Indenture").
Capitalized terms used in this Supplement and not otherwise defined herein shall
have the meanings set forth in the Indenture.
WHEREAS, the Subsidiary merged with and into Inter*Act effective as
of the date hereof (the "Merger");
WHEREAS, Section 801(a) of the Indenture expressly permits the merger
of the Subsidiary with and into Inter*Act, and pursuant to Section 8.02 of the
Indenture upon the effectiveness of the Merger, Inter*Act succeeded to, and was
substituted for, and may exercise every right and power, of the Subsidiary under
the Indenture with the same effect as if Inter*Act had originally been party
thereto.
WHEREAS, in accordance with Section 901 of the Indenture, Intero Act
and the Trustee may amend the Indenture without the written consent of any
Holders to evidence the succession of another Person to the Subsidiary and the
assumption by such successor of the covenants of the Subsidiary contained in the
Indenture and in the Securities in accordance with Article VIII of the
Indenture; and
WHEREAS, Intero Act desires to amend the Indenture in accordance with
Section 901 thereof and has determined that the requirements of Article VIII and
Section 903 of the Indenture have been satisfied and has requested the Trustee
to join with it in the execution and delivery of this Supplement; all
requirements necessary to make this Supplement a valid instrument, in accordance
with its terms, have been met; and the execution and delivery hereof have been
in all respects duly authorized.
WHEREAS, Intero Act has (i) delivered to the Trustee an Officer's
Certificate relating to the Merger and this First Supplemental Indenture as
contemplated by Section 8.01(b) of the Indenture, (ii) delivered to the Trustee
an Opinion of Counsel relating to the Merger and this First Supplemental
Indenture as contemplated by Section 801(b) and Section 903 of the Indenture and
(iii) satisfied all other conditions required under ARTICLE IX of the Indenture
to enable the Intero Act and the Trustee to enter into this Supplemental
Indenture.
NOW, THEREFORE, for good and valuable consideration the sufficiency of
which is hereby recognized, Intero Act covenants and agrees with the Trustee as
follows:
<PAGE>
ARTICLE I
AMENDMENTS TO THE INDENTURE
Section 1.1 Successor Substituted. Inter*Act hereby expressly assumes
the due and punctual payment of the principal of, premium, if any, and interest
on all the Securities, according to their tenor, and the due and punctual
performance and observance of all the covenants and conditions of the Indenture
to be performed by the Subsidiary.
ARTICLE II
MISCELLANEOUS
Section 2.1 Effectiveness of Provisions. This Supplement shall be
effective and binding upon Intero Act, the Trustee and the Holders of Notes as
of the day and year first written above.
Section 2.2 Execution of Supplement. This Supplement is executed and
shall be construed as an indenture supplemental to the Indenture and, as
provided in the Indenture, this Supplement forms a part thereof.
Section 2.3 Conflict with Trust Indenture Act. If and to the extent
that any provision hereof limits, qualifies or conflicts with the duties imposed
by Sections 310 through 317, inclusive, of the Trust Indenture Act of 1939, as
amended, such imposed duties shall control.
Section 2.4 Successors and Assigns. All covenants and agreements in
this Supplement by Intero Act shall bind its successors and assigns, whether so
expressed or not.
Section 2.5 Separability Clause. In case any one or more of the
provisions contained in this Supplement, the Indenture or in the Notes shall for
any reason be held to be invalid, illegal or unenforceable in any respect, such
invalidity, illegality or unenforceability shall not affect any other provisions
of this Supplement, the Indenture or of such Notes, but this Supplement, the
Indenture and such Notes shall be construed as if such invalid or illegal or
unenforceable provision had never been contained herein or therein.
Section 2.6 Benefits of Supplement. Nothing in this Supplement or in
the Indenture, express or implied, shall give to any person, other than the
parties hereto and their successors hereunder and the holders of Debentures (to
the extent specified herein or therein), any benefit or any legal or equitable
right, remedy or claim under this Supplement.
Section 2.7 Governing Law. This Supplement shall be governed by, and
construed in accordance with, the laws of the State of New York but without
giving effect to applicable principles of conflicts of law to the extent that
the application of the laws of another jurisdiction would be required thereby.
Section 2.8 Execution and Counterparts. This Supplement may be executed
in any number of counterparts, each of which shall be deemed to be an original;
but such counterparts shall together constitute but one and the same instrument.
<PAGE>
Section 2.9 Miscellaneous. Except as expressly supplemented by this
Supplement, the Indenture shall remain unchanged and in full force and effect.
Section 2.10 Trustee Disclaimer. The Trustee has accepted the amendment
of the Indenture effected by this Supplemental Indenture and agrees to execute
the trust created by the Indenture as hereby amended, but only upon the terms
and conditions set forth in the Indenture, including the terms and provisions
defining and limiting the liabilities and responsibilities of the Trustee, and
without limiting the generality of the foregoing, the Trustee shall not be
responsible in any manner whatsoever for or with respect to any of the recitals
or statements contained herein, all of which recitals or statements are made
solely by Inter*Act, or for or with respect to (a) the validity or sufficiency
of this Supplemental Indenture or any of the terms or provisions hereof, (b) the
proper authorization hereof by Inter*Act by corporate action or otherwise, (c)
the due execution hereof by Inter*Act, (d) the consequences (direct or indirect
and whether deliberate or inadvertent) of any amendment herein provided for, and
the Trustee makes no representation with respect to any such matters and (e) the
validity or sufficiency of the consent solicitation or the consent solicitation
materials or procedure in connection therewith.
IN WITNESS WHEREOF, Inter*Act and the Trustee have caused this
Supplement to be duly executed by their respective officers thereunto duly
authorized, and their respective corporate seals to be hereunto affixed and
attested, as of the day and year first above written.
INTER*ACT ELECTRONIC MARKETING, INC.
as successor to Inter*Act Operating Co., Inc.
By: /s/ Thomas McGoldrick
-----------------------------------------
Thomas McGoldrick
Executive Vice President
[Corporate Seal]
Attest:
/s/ Dan T. Barker Jr.
- -----------------------------
Name:
Title: Asst Secretary
STATE STREET BANK AND TRUST COMPANY,
as TRUSTEE
By: /s/ Michael M. Hopkins
----------------------------------------
Name: Michael M. Hopkins
---------------------------------------
Title: Vice President
[Corporate Seal] --------------------------------------
Attest:
/s/ Elizabeth C. Haymer
- --------------------------
Name:
Title: Vice President
<PAGE>
Exhibit 10 (a) (13)
WARRANT AGREEMENT
Dated as of
December 15, 1999
between
INTER*ACT ELECTRONIC MARKETING, INC.
and
AMERICAN STOCK TRANSFER & TRUST COMPANY,
as the Warrant Agent
-------------------
Warrants for
Common Stock of
Inter*Act Electronic Marketing, Inc.
--------------------
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
<S> <C>
Page
----
ARTICLE I - DEFINITIONS................................................... 1
SECTION 1.01. Definitions....................................... 1
SECTION 1.02. Other Definitions................................. 5
SECTION 1.03. Rules of Construction............................. 5
ARTICLE II - WARRANT CERTIFICATES......................................... 6
SECTION 2.01. Form of Warrant Certificates...................... 6
SECTION 2.02. Legends........................................... 7
SECTION 2.03. Execution and Delivery of Warrant Certificates.... 7
SECTION 2.04. Loss or Mutilation................................ 9
ARTICLE III - EXERCISE TERMS.............................................. 9
SECTION 3.01. Exercise Price; Number of Shares.................. 9
SECTION 3.02. Exercise Periods.................................. 9
SECTION 3.03. Expiration........................................ 10
SECTION 3.04. Manner of Exercise................................ 10
SECTION 3.05. Issuance of Warrant Shares........................ 10
SECTION 3.06. Fractional Warrant Shares......................... 11
SECTION 3.07. Reservation of Warrant Shares..................... 11
SECTION 3.08. Compliance with Law............................... 11
ARTICLE IV - ANTIDILUTION PROVISIONS...................................... 12
SECTION 4.01. Changes in Common Stock........................... 12
SECTION 4.02. Cash Dividends and Other Distributions............ 12
SECTION 4.03. Rights Issue...................................... 13
SECTION 4.04. Combination; Liquidation.......................... 14
SECTION 4.05. Other Events...................................... 14
SECTION 4.06. Superseding Adjustment............................ 15
SECTION 4.07. Minimum Adjustment................................ 15
SECTION 4.08. Notice of Adjustment.............................. 15
SECTION 4.09. Notice of Certain Transactions.................... 16
SECTION 4.10. Adjustment to Warrant Certificate................. 16
SECTION 4.11. Issuance of Due Bills............................. 17
</TABLE>
(i)
<PAGE>
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE V - TRANSFERABILITY................................................ 17
SECTION 5.01. Transfer and Exchange.............................. 17
SECTION 5.02. Registration, Registration of Transfer and Exchange 18
SECTION 5.03. Book-Entry Provisions for the Rule 144A Global
Warrant and Regulation S Global Warrant............ 18
SECTION 5.04. Special Transfer Provisions........................ 20
SECTION 5.05. Surrender of Warrant Certificates.................. 22
ARTICLE VI - OTHER RIGHTS.................................................. 22
SECTION 6.01. Registration Rights............................. 22
ARTICLE VII - WARRANT AGENT................................................ 23
SECTION 7.01. Appointment of Warrant Agent....................... 23
SECTION 7.02. Rights and Duties of Warrant Agent................. 23
SECTION 7.03. Individual Rights of Warrant Agent................. 24
SECTION 7.04. Warrant Agent's Disclaimer......................... 24
SECTION 7.05. Compensation and Indemnity......................... 24
SECTION 7.06. Successor Warrant Agent............................ 24
ARTICLE VIII - MISCELLANEOUS............................................... 26
SECTION 8.01. Company Resales.................................... 26
SECTION 8.02. SEC Reports and Other Information.................. 26
SECTION 8.03. Rule 144A.......................................... 26
SECTION 8.04. Persons Benefitting................................ 27
SECTION 8.05. Rights of Holders.................................. 27
SECTION 8.06. Amendment.......................................... 27
SECTION 8.07. Notices............................................ 27
SECTION 8.08. Governing Law...................................... 28
SECTION 8.09. Successors......................................... 28
SECTION 8.10. Multiple Originals................................. 28
SECTION 8.11. Table of Contents.................................. 28
SECTION 8.12. Severability....................................... 29
</TABLE>
(ii)
<PAGE>
EXHIBIT A Form of Face of Warrant Certificate
EXHIBIT B Certificate To Be Delivered upon Exchange or Registration of
Transfer of Warrants
EXHIBIT C Form of Investor Letter To Be Delivered in Connection with
Transfers to Non-QIB Institutional Accredited Investors
(iii)
<PAGE>
WARRANT AGREEMENT dated as of December 15, 1999, between INTER*ACT
ELECTRONIC MARKETING, INC., a North Carolina corporation (the "Company"), and
AMERICAN STOCK TRANSFER & TRUST COMPANY, as Warrant Agent (the "Warrant Agent").
In connection with the exchange offering (the "Exchange Offering")
pursuant to which, in exchange for the surrender of at least 80% of the
Company's issued and outstanding 14% Senior Discount Notes Due 2003 (the "Old
Notes"), the Company shall issue or cause to be issued, as the case may be, (y)
up to $70,000,000 aggregate principal amount of Senior Pay-in-Kind Notes Due
2003 (the "Subsidiary Notes") of Inter*Act Operating Co., Inc. ("New Sub") and
(z) up to 140,000 shares of 14% Series B Senior Mandatorily Convertible
Preferred Stock of the Company (the "Preferred Stock"), the Company desires to
issue the warrants (the "Warrants") described herein. The Warrants will
initially entitle the holders thereof (the "Holders") to purchase, in the
aggregate, up to 2,506,812 shares of Common Stock, no par value, of the Company
(the "Common Stock"). Each Warrant will entitle the Holder thereof to purchase
the number of shares of Common Stock equal to the Warrant Exercise Amount (as
herein defined), subject to adjustment as provided herein.
The Warrants will trade separately from the Subsidiary Notes.
The Company further desires the Warrant Agent to act on behalf of the
Company in connection with the issuance of the Warrants as provided herein and
the Warrant Agent is willing to so act.
Each party agrees as follows for the benefit of the other party and for
the equal and ratable benefit of the holders of Warrants:
ARTICLE I - DEFINITIONS
SECTION 1.01. Definitions. "Affiliate" of any specified Person means
(i) any other Person which, directly or indirectly, is controlling or controlled
by or under direct or indirect common control with such specified Person, or
(ii) any other Person who is a director or executive officer (A) of such Person,
(B) of any subsidiary of such specified Person or (C) of any Person described in
clause (i) above. For purposes of this definition, "control", when used with
respect to any specified Person, means the power to direct the management and
policies of such Person, directly or indirectly, whether through the ownership
of voting securities, by contract or otherwise; and the terms "controlling" and
"controlled" have meanings correlative to the foregoing. Affiliate shall also
mean any beneficial owner of shares representing 10% or more of the total voting
power of the Voting Stock (on a fully diluted basis) of the Company or warrants
to purchase such Voting Stock (whether or not currently exercisable) and any
Person who would be an Affiliate of any such beneficial owner pursuant to the
first sentence hereof.
<PAGE>
"Board" means the Board of Directors of the Company or any committee
thereof duly authorized to act on behalf of such Board of Directors.
"Business Day" means each day that is not a Saturday, a Sunday or a day
on which banking institutions are not required to be open in New York City or in
the city where the Warrant Agent's principal corporate trust office is located.
"Certificated Warrants" means certificated Warrants in fully
registered definitive form.
"Change of Control" has the meaning ascribed thereto in the Articles of
Incorporation of the Company, as from time to time amended, restated,
supplemented or otherwise modified.
"Combination" means an event in which the Company consolidates with,
merges with or into, or sells all or substantially all its property and assets
to another Person.
"Common Stock" has the meaning ascribed thereto in the preamble to this
Agreement.
"DTC" means The Depository Trust Company.
"Exchange Offering" has the meaning ascribed thereto in the preamble
to this Agreement.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Exchange Offer Registration Statement" means the Exchange Offer
Registration Statement as defined in the Registration Rights Agreement.
"Extraordinary Cash Dividend" means that portion, if any, of the
aggregate amount of all dividends paid by the Company on its Common Stock in any
fiscal year that exceeds $10 million.
"Fair Market Value" means, with respect to any asset or Property, the
price which could be negotiated in an arm's-length free market transaction, for
cash, between a willing seller and a willing buyer, neither of whom is under
undue pressure or compulsion to complete the transaction. Fair Market Value will
be determined, except as otherwise provided, (i) if such property or asset has a
Fair Market Value of less than $5 million, by any Officer of the Company or (ii)
if such property or asset has a Fair Market Value in excess of $5 million, by a
majority of the Board of Directors of the Company and evidenced by a Board
Resolution, dated within 30 days of the relevant transaction.
2
<PAGE>
"Indenture" means the Indenture dated as of December 15, 1999 between
the Company and State Street Bank and Trust Company, as Trustee, as the same may
be amended, restated, supplemented or otherwise modified from time to time.
"Initial Public Offering" means the initial underwritten public
offering of Common Stock (not constituting Redeemable Stock) pursuant to a
registration statement filed with the SEC in accordance with the Securities Act.
"Issue Date" means the date on which Warrants are initially issued.
"Market Price" means, in respect of one share of the Common Stock of
the Company (i) the average closing price per share for such Common Stock for
the thirty consecutive trading days immediately prior to the Triggering Date on
the New York Stock Exchange or such other United States national securities
exchange on which such Common Stock is listed and principally traded or, if such
securities are not listed on any national securities exchange, as reported by
the Nasdaq Stock Market, Inc. or, if not so reported by the Nasdaq Stock Market,
Inc., the average of the high bid and low asked quotations for one share of such
Common Stock as reported by the National Quotations Bureau Incorporated or
similar organization or (ii) if the closing price for such Common Stock cannot
be calculated in the manner specified in clause (i) at the relevant time, the
Fair Market Value of one share of such Common Stock (without giving effect to
any discount for lack of liquidity or to the fact that shares of such Common
Stock may not be registered under the Exchange Act) as of the Business Day
immediately preceding the Triggering Date as determined in an opinion letter
delivered and addressed to the Warrant Agent by an independent appraisal firm
appointed by the Company (or by a majority of the holders of the Warrants or
related Warrant Shares, as the case may be, if the Company fails to appoint one)
reasonably acceptable to the Warrant Agent.
"New Sub" has the meaning ascribed thereto in the preamble to this
Agreement.
"Non-U.S. Person" means a person who is not a U.S. person, as
defined in Regulation S.
"Officer" means the Chairman of the Board, the Chief Executive Officer,
the President, the Chief Financial Officer or the Treasurer of the Company.
"Old Notes" has the meaning ascribed thereto in the preamble to this
Agreement.
"Optional Redemption" means the exercise by New Sub of the rights
granted to it pursuant to Section 1101(b) of the Indenture to redeem any or all
of the Subsidiary Notes.
"Parent" means any Person who beneficially owns, directly or
indirectly, all the Voting Stock of the Company.
3
<PAGE>
"Person" means any individual, corporation, company (including any
limited liability company), partnership, joint venture, trust, unincorporated
organization, government or any agency or political subdivision thereof.
"Pre-Redemption Value" has the meaning ascribed thereto in the
definition of Warrant Exercise Amount.
"Public Equity Offering" means an underwritten public offering of
common stock of the Company pursuant to an effective registration statement
under the Securities Act.
"Public Market" means, in respect of the Common Stock of the Company, a
time when (x) a Public Equity Offering has been consummated in respect of at
least 10% of the total issued and outstanding shares of such Common Stock and
(y) such Common Stock is registered under Section 13(a) or 15(d)(A) of the
Exchange Act and the Company is current in its reporting thereunder.
"QIB" means a "qualified institutional buyer" as defined in Rule 144A.
"Redeemable Stock" means, with respect to any Person, any capital stock
that by its terms (or by the terms of any security into which it is convertible
or exchangeable) or otherwise (i) matures or is mandatorily redeemable pursuant
to a sinking fund obligation or otherwise, (ii) is or may become redeemable or
repurchasable at the option of the holder thereof, in whole or in part, or (iii)
is convertible or exchangeable for indebtedness.
"Registration Rights Agreement" means the Exchange and Registration
Rights Agreement by and between the Company and the Holders named therein, dated
as of December 15, 1999, relating to the Warrants and other securities.
"Regulation S" means Regulation S under the Securities Act.
"Restricted Warrant" means a Rule 144A Global Warrant or a Restricted
Certificated Warrant.
"Rule 144A" means Rule 144A under the Securities Act.
"SEC" means the Securities and Exchange Commission.
"Securities Act" means the Securities Act of 1933, as amended.
"Stockholders Agreement" means the Stockholders Agreement dated as of
December 15, 1999 by and among the Company and the shareholders party thereto,
as from time to time amended, restated, supplemented or otherwise modified.
"Subsidiary Notes" has the meaning ascribed thereto in the preamble
to this Agreement.
4
<PAGE>
"Voting Stock" means all classes of capital stock of such corporation
then outstanding and normally entitled to vote in the election of directors.
"Warrant Exercise Amount" initially means 17.96 shares of Common Stock.
Thereafter, immediately upon and concurrently with each Optional Redemption, if
any, "Warrant Exercise Amount" shall mean that number of shares of Common Stock
equal to the difference between (i) the number of Shares of Common Stock for
which the Warrants were exercisable immediately prior to such Optional
Redemption (the "Pre-Redemption Value") minus (ii) the product of (y) the
Pre-Redemption Value multiplied by (z) the aggregate principal amount of
Subsidiary Notes redeemed pursuant to such Optional Redemption as a percentage
of the aggregate principal amount of all Subsidiary Notes outstanding
immediately prior to such Optional Redemption; provided, however, that at all
times the Warrant Exercise Amount shall be subject to adjustment as provided in
this Agreement.
"Warrant Shares" means the Common Stock (and other securities) issuable
upon the exercise of the Warrants, taking into account at all times the Warrant
Exercise Amount then in effect.
SECTION 1.02. Other Definitions.
<TABLE>
<CAPTON>
Defined in
Term Section
---- -----------
<S> <C>
"Company"..................................................... Recitals
"Exercisability Date"......................................... 3.02
"Exercise Price".............................................. 3.01
"Expiration Date"............................................. 3.02
"Global Warrants"............................................. 2.03
"Holders"..................................................... Recitals
"Offering".................................................... Recitals
"Preferred Stock"............................................. Recitals
"Registrar"................................................... 3.07
"Regulation S Global Warrant"................................. 2.03
"Repurchase Notice"........................................... 5.02
"Restricted Certificated Warrant.............................. 2.03
"Rule 144A Global Warrant".................................... 2.03
"Successor Company"........................................... 4.04(a)
"Stock Transfer Agent"........................................ 3.05
"Warrants".................................................... Recitals
"Warrant Agent"............................................... Recitals
"Warrant Certificates"........................................ 2.01
</TABLE>
SECTION 1.03. Rules of Construction. Unless the text otherwise
requires:
(i) a term has the meaning assigned to it;
5
<PAGE>
(ii) an accounting term not otherwise defined has the meaning
assigned to it in accordance with generally accepted accounting
principles as in effect from time to time;
(iii) or" is not exclusive;
(iv) "including" means including, without limitation; and
(v) words in the singular include the plural and words in the
plural include the singular.
ARTICLE II - WARRANT CERTIFICATES
SECTION 2.01. Form of Warrant Certificates. Certificates representing
the Warrants (the "Warrant Certificates") shall be in registered form only and
substantially in the form attached hereto as Exhibit A. The Warrant Certificates
shall be dated the date on which countersigned by the Warrant Agent and shall
have such insertions as are appropriate or required or permitted by this
Agreement and may have such letters, numbers or other marks of identification
and such legends and endorsements typed, stamped, printed, lithographed or
engraved thereon as the Company may deem appropriate and as are not inconsistent
with the provisions of this Agreement, or as may be required to comply with any
law or with any rule or regulation pursuant thereto, or to conform to usage. The
Company shall approve the form of the Warrant Certificates and any notation,
legend or endorsement on them.
The terms and provisions contained in the forms of the Warrant
Certificates annexed hereto as Exhibit A shall constitute, and are hereby
expressly made, a part of this Agreement.
The definitive Warrant Certificates shall be typed, printed,
lithographed or engraved or produced by any combination of these methods, all as
determined by the officer of the Company executing such Warrant Certificates, as
evidenced by such officer's execution of such Warrant Certificates.
Pending the preparation of definitive Warrant Certificates, temporary
Warrant Certificates may be issued, which may be printed, lithographed,
typewritten, mimeographed or otherwise produced, and which will be substantially
of the tenor of the definitive Warrant Certificates in lieu of which they are
issued.
If temporary Warrant Certificates are issued, the Company will cause
definitive Warrant Certificates to be prepared without unreasonable delay. After
the preparation of definitive Warrant Certificates, the temporary Warrant
Certificates shall be exchangeable for definitive Warrant Certificates upon
surrender of the temporary Warrant Certificates to the Warrant Agent, without
charge to the Holder. Until so exchanged the temporary Warrant
6
<PAGE>
Certificates shall in all respects be entitled to the same benefits under this
Agreement as definitive Warrant Certificates.
SECTION 2.02. Legends. Unless and until a Warrant or Warrant Share is
sold under an effective registration statement and except for Warrant
Certificates delivered pursuant to Section 5.04(c)(ii) of this Agreement, each
Warrant Certificate evidencing the Global Warrants and the Certificated Warrants
(and all Warrant Certificates issued in exchange therefor or substitution
thereof) and each certificate representing the Warrant Shares shall bear a
legend in substantially the following form (with any appropriate modification
for the Warrant Shares):
"THE WARRANTS AND THE WARRANT SHARES (THE "SECURITIES") HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933 (THE "SECURITIES ACT"), OR
ANY STATE SECURITIES LAWS. NEITHER THIS SECURITY NOR ANY INTEREST OR
PARTICIPATION HEREIN MAY BE REOFFERED, SOLD, ASSIGNED, TRANSFERRED,
PLEDGED, ENCUMBERED OR OTHERWISE DISPOSED OF IN THE ABSENCE OF SUCH
REGISTRATION OR UNLESS SUCH TRANSACTION IS EXEMPT FROM, OR NOT SUBJECT
TO, REGISTRATION AND SUBJECT TO COMPLIANCE WITH OTHER APPLICABLE LAWS.
THE HOLDER HEREOF, BY ITS ACCEPTANCE HEREOF, AGREES TO OFFER, SELL OR
OTHERWISE TRANSFER SUCH SECURITY, UNLESS PREVIOUSLY REGISTERED UNDER
THE SECURITIES ACT, ONLY (A) TO THE COMPANY; (B) PURSUANT TO AN
EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT PROVIDED BY RULE
144 THEREUNDER (IF APPLICABLE); (C) TO A PERSON IT REASONABLY BELIEVES
IS A "QUALIFIED INSTITUTIONAL BUYER" AS DEFINED IN RULE 144A UNDER THE
SECURITIES ACT THAT PURCHASES FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF
A QUALIFIED INSTITUTIONAL BUYER TO WHOM NOTICE IS GIVEN THAT THE
TRANSFER IS BEING MADE IN RELIANCE ON RULE 144A; OR (D) PURSUANT TO AN
OFFSHORE TRANSACTION COMPLYING WITH RULE 904 OF REGULATION S UNDER THE
SECURITIES ACT."
SECTION 2.03. Execution and Delivery of Warrant Certificates. Warrant
Certificates evidencing Warrants to purchase initially an aggregate of up to
2,506,812 Warrant Shares may be executed, on or after the Issue Date, by the
Company and delivered to the Warrant Agent for countersignature, and the Warrant
Agent shall thereupon countersign and deliver such Warrant Certificates upon the
order and at the direction of the Company to the purchasers thereof on the date
of issuance. The Warrant Agent is hereby authorized to countersign and deliver
Warrant Certificates as required by this Section 2.03 or by Section 2.04, 3.04,
5.03 or 5.04.
7
<PAGE>
The Warrant Certificates shall be executed on behalf of the Company by
its President or any Vice President, either manually or by facsimile signature
printed thereon. The Warrant Certificates shall be countersigned manually by the
Warrant Agent and shall not be valid for any purpose unless so countersigned. In
case any officer of the Company whose signature shall have been placed upon any
of the Warrant Certificates shall cease to be such officer of the Company before
countersignature by the Warrant Agent and issuance and delivery thereof, such
Warrant Certificates may, nevertheless, be countersigned by the Warrant Agent
and issued and delivered with the same force and effect as though such person
had not ceased to be such officer of the Company.
Warrants offered and sold in reliance on Rule 144A shall be issued
initially in the form of a single, permanent global Warrant Certificate in
definitive, fully registered form, substantially in the form set forth in
Exhibit A (the "Rule 144A Global Warrant"), deposited with the Warrant Agent, as
custodian for DTC, duly executed by the Company and countersigned by the Warrant
Agent. The aggregate number of Warrants represented by the Rule 144A Global
Warrant may from time to time be increased or decreased by adjustments made on
the records of the Warrant Agent, as custodian for DTC, or its nominee, as
hereinafter provided.
Warrants offered and sold in offshore transactions in reliance on
Regulation S shall be issued initially in the form of a single, permanent global
Warrant Certificate in definitive, fully registered form, substantially in the
form set forth in Exhibit A (the "Regulation S Global Warrant"), deposited with
the Warrant Agent. The aggregate number of Warrants represented by the
Regulation S Global Warrant may from time to time be increased or decreased by
adjustments made on the records of the Warrant Agent, as custodian for DTC, or
its nominee, as hereinafter provided. The Rule 144A Global Warrant and the
Regulation S Global Warrant are sometimes collectively referred to herein as the
"Global Warrants".
Warrants offered and sold in their initial distribution to a limited
number of institutions that are accredited investors (which are not QIBs) within
the meaning of Rule 501(a)(1), (2), (3) or (7) under the Securities Act (and
institutions in which all the equity owners are such accredited investors)
(together referred to as "Institutional Accredited Investors") in transactions
exempt from registration under the Securities Act will be delivered in
certificated fully registered form (a "Restricted Certificated Warrant")
substantially in the form set forth in Exhibit A. Such Warrants shall be
delivered to such Institutional Accredited Investors only upon the execution and
delivery to the Company and the Initial Purchasers of an institutional
accredited investor transferee compliance letter (an "Investor Letter")
substantially in the form of Exhibit C hereto. Restricted Certificated Warrants
may not be transferred or exchanged for interests in Global Warrants or another
Restricted Certificated Warrant except as provided in Sections 5.03 and 5.04
hereof.
Warrants issued pursuant to Section 5.03(b) in exchange for interests
in the Regulation S Global Warrant shall be issued in the form of permanent
Warrant Certificates in registered form in substantially the form set forth in
Exhibit A (the "Offshore Certificated
8
<PAGE>
Warrants"). The Offshore Certificated Warrants and the Restricted Certificated
Warrants are sometimes collectively herein referred to as the "Certificated
Warrants".
SECTION 2.04. Loss or Mutilation. Upon receipt by the Company and the
Warrant Agent of evidence satisfactory to them of the ownership and the loss,
theft, destruction or mutilation of any Warrant Certificate and of indemnity
satisfactory to them and (in the case of mutilation) upon surrender and
cancellation thereof, then, in the absence of notice to the Company or the
Warrant Agent that the Warrants represented thereby have been acquired by a bona
fide purchaser, the Company shall execute and the Warrant Agent shall
countersign and deliver to the registered Holder of the lost, stolen, destroyed
or mutilated Warrant Certificate, in exchange for or in lieu thereof, a new
Warrant Certificate of the same tenor and for a like aggregate number of
Warrants, subject to adjustment for any change in the Warrant Exercise Amount.
Upon the issuance of any new Warrant Certificate under this Section 2.04, the
Company may require the payment of a sum sufficient to cover any tax or other
governmental charge that may be imposed in relation thereto and other expenses
(including the reasonable fees and expenses of the Warrant Agent and of counsel
to the Company) in connection therewith. Every new Warrant Certificate executed
and delivered pursuant to this Section 2.04 in lieu of any lost, stolen or
destroyed Warrant Certificate shall constitute a contractual obligation of the
Company, whether or not the allegedly lost, stolen or destroyed Warrant
Certificates shall be at any time enforceable under applicable law, and shall be
entitled to the benefits of this Agreement equally and proportionately with any
and all other Warrant Certificates duly executed and delivered hereunder. The
provisions of this Section 2.04 are exclusive and shall preclude (to the extent
lawful) all other rights or remedies with respect to the replacement of
mutilated, lost, stolen or destroyed Warrant Certificates.
ARTICLE III - EXERCISE TERMS
SECTION 3.01. Exercise Price; Number of Shares. Subject to adjust
pursuant to the terms of this Agreement, each Warrant shall entitle the Holder
thereof to purchase the number of shares of Common Stock equal to the Warrant
Exercise Amount, for a per share exercise price (the "Exercise Price") of $0.01.
SECTION 3.02. Exercise Periods.
(a) Subject to the terms and conditions set forth herein, the
Warrants shall be exercisable at any time or from time to time on any Business
Day on or after December 31, 2002 (the "Exercisability Date"). The Company shall
notify the Warrant Agent of the occurrence of the Exercisability Date.
(b) No Warrant shall be exercisable after December 31, 2009
(the "Expiration Date").
9
<PAGE>
SECTION 3.03. Expiration. A Warrant shall terminate and become void as
of the earlier of (i) the close of business on the Expiration Date, (ii) the
date such Warrant is exercised, or (iii) the date, if any, on which New Sub
consummates an Optional Redemption of all of the Subsidiary Notes outstanding at
the time of such Optional Redemption. If any Warrants are to terminate and
become void pursuant to clause (i) of this Section 3.03, the Company shall give
notice not less than 90, and not more than 120, days prior to the Expiration
Date to the Holders of all then outstanding Warrants to the effect that the
Warrants will terminate and become void as of the close of business on the
Expiration Date; provided, however, that notwithstanding that the Company may
fail to give notice as provided in this Section 3.03, the Warrants will
terminate and become void on the Expiration Date.
SECTION 3.04. Manner of Exercise. Warrants may be exercised upon
surrender to the Warrant Agent of the Warrant Certificates, together with the
form of election to purchase Common Stock on the reverse thereof duly filled in
and signed by the Holder thereof, and payment of the Exercise Price. Subject to
Sections 3.02 and 3.03, the rights represented by the Warrants shall be
exercisable at the election of the Holders thereof either in full at any time,
up to the Warrant Exercise Amount then in effect, or from time to time in part.
In the event that a Warrant Certificate is surrendered for exercise in respect
of less than all the Warrant Shares purchasable on such exercise at any time
prior to the expiration of the Exercise Period a new Warrant Certificate
exercisable for the remaining Warrant Shares will be issued. The Warrant Agent
shall countersign and deliver the required new Warrant Certificates, and the
Company, at the Warrant Agent's request, shall supply the Warrant Agent with
Warrant Certificates duly signed on behalf of the Company for such purpose.
SECTION 3.05. Issuance of Warrant Shares. Upon the surrender of Warrant
Certificates, as set forth in Section 3.04, the Company shall issue and cause
the Warrant Agent or, if appointed, a transfer agent for the Common Stock
("Stock Transfer Agent") to countersign and deliver to or upon the written order
of the Holder and in such name or names as the Holder may designate, a
certificate or certificates for the number of full Warrant Shares so purchased
upon the exercise of such Warrants or other securities or property to which it
is entitled, registered or otherwise, to the Person or Persons entitled to
receive the same, together with cash as provided in Section 3.06 in respect of
any fractional Warrant Shares otherwise issuable upon such exercise. Such
certificate or certificates shall be deemed to have been issued and any Person
so designated to be named therein shall be deemed to have become a holder of
record of such Warrant Shares as of the date of the surrender of such Warrant
Certificates and payment of the per share Exercise Price, as aforesaid;
provided, however, that if, at such date, the transfer books for the Warrant
Shares shall be closed, the certificates for the Warrant Shares in respect of
which such Warrants are then exercised shall be issuable as of the date on which
such books shall next be opened and until such date the Company shall be under
no duty to deliver any certificates for such Warrant Shares; provided further,
however, that such transfer books, unless otherwise required by law, shall not
be closed at any one time for a period longer than 20 calendar days.
10
<PAGE>
SECTION 3.06. Fractional Warrant Shares. The Company shall not be
required to issue fractional Warrant Shares on the exercise of Warrants. If more
than one Warrant shall be exercised in full at the same time by the same Holder,
the number of full Warrant Shares which shall be issuable upon such exercise
shall be computed on the basis of the aggregate number of Warrant Shares
purchasable pursuant thereto. If any fraction of a Warrant Share would, except
for the provisions of this Section 3.06, be issuable on the exercise of any
Warrant (or specified portion thereof), the Company shall pay an amount in cash
equal to the Market Price for one Warrant Share on the trading day immediately
preceding the date the Warrant is exercised, multiplied by such fraction,
computed to the nearest whole cent.
SECTION 3.07. Reservation of Warrant Shares. The Company shall at all
times keep reserved out of its authorized shares of Common Stock, a number of
shares of Common Stock sufficient to provide for the exercise of all outstanding
Warrants. The registrar for the Common Stock (the "Registrar") shall at all
times until the expiration of the Exercise Period reserve such number of
authorized shares as shall be required for such purpose. The Company will keep a
copy of this Agreement on file with the Stock Transfer Agent. The Company will
supply such Stock Transfer Agent with duly executed stock certificates for such
purpose and will itself provide or otherwise make available any cash which may
be payable as provided in Section 3.06. The Company will furnish to such Stock
Transfer Agent a copy of all notices of adjustments and certificates related
thereto transmitted to each Holder.
Before taking any action which would cause an adjustment pursuant to
Article IV to reduce the Exercise Price below the then par value (if any) of the
Common Stock, the Company shall take any and all corporate action which may, in
the opinion of its counsel, be necessary in order that the Company may validly
and legally issue fully paid and nonassessable shares of Common Stock at the
Exercise Price as so adjusted.
The Company covenants that all shares of Common Stock which may be
issued upon exercise of Warrants will, upon issue, be fully paid, nonassessable,
free of preemptive rights, free from all taxes and free from all liens, charges
and security interests, created by or through the Company, with respect to the
issue thereof.
SECTION 3.08. Compliance with Law.
(a) Notwithstanding anything in this Agreement to the
contrary, in no event shall a Holder be entitled to exercise a Warrant unless
(i) a registration statement filed under the Securities Act in respect of the
issuance of the Warrant Shares is then effective or (ii) in the opinion of
counsel to the Company addressed to the Warrant Agent an exemption from the
registration requirements is available under the Securities Act for the issuance
of the Warrant Shares (and the delivery of any other securities for which the
Warrants may at the time be exercisable) at the time of such exercise.
(b) If any shares of Common Stock required to be reserved for
purposes of exercise of Warrants require, under any other Federal or state law
or applicable governing
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rule or regulation of any national securities exchange, registration with or
approval of any governmental authority, or listing on any such national
securities exchange before such shares may be issued upon exercise, the Company
will in good faith and as expeditiously as possible endeavor also to cause such
shares to be duly registered or approved by such governmental authority or
listed on the relevant national securities exchange, as the case may be.
ARTICLE IV - ANTIDILUTION PROVISIONS
SECTION 4.01. Changes in Common Stock. In the event that at any time or
from time to time the Company shall (i) pay a dividend or make a distribution on
its Common Stock in shares of its Common Stock or other shares of capital stock,
(ii) subdivide its outstanding shares of Common Stock into a larger number of
shares of Common Stock, (iii) combine its outstanding shares of Common Stock
into a smaller number of shares of Common Stock or (iv) increase or decrease the
number of shares of Common Stock outstanding by reclassification of its Common
Stock, then the number of shares of Common Stock purchasable upon exercise of
each Warrant immediately prior to the happening of such event shall be adjusted
so that, after giving effect to such adjustment, the holder of each Warrant
shall be entitled to receive the number of shares of Common Stock upon exercise
of such Warrant that such holder would have owned or have been entitled to
receive had such Warrants been exercised immediately prior to the happening of
the events described above (or, in the case of a dividend or distribution of
Common Stock, immediately prior to the record date therefor). An adjustment made
pursuant to this Section 4.01 shall become effective immediately after the
effective date, retroactive to the record date therefor in the case of a
dividend or distribution in shares of Common Stock, and shall become effective
immediately after the effective date in the case of a subdivision, combination
or reclassification.
SECTION 4.02. Cash Dividends and Other Distributions. In case at any
time or from time to time the Company shall distribute to holders of Common
Stock (i) any dividend or other distribution (including any dividend or
distribution made in connection with a consolidation or merger in which the
Company is the continuing corporation) of cash, evidences of its indebtedness,
shares of its capital stock or any other properties or securities or (ii) any
options, warrants or other rights to subscribe for or purchase any of the
foregoing (other than, in the case of clause, (i) and (ii) above, (x) any
dividend or distribution described in Section 4.01, (y) any rights, options,
warrants or securities described in Section 4.03 and (z) any cash dividends or
distributions from current or retained earnings other than Extraordinary Cash
Dividends), then the number of shares of Common Stock purchasable upon the
exercise of each Warrant immediately after the record date for the determination
of stockholders entitled to receive such dividend or distribution shall be
increased to a number determined by multiplying the number of shares of Common
Stock purchasable upon the exercise of such Warrant immediately prior to such
record date for any such dividend or distribution by a fraction, the numerator
of which shall be the Market Price per share of Common Stock as of the record
date for such distribution plus the fair market value (as
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determined by the Board of Directors of the Company acting in good faith, whose
determination shall be evidenced by a board resolution) as of such record date
of such Extraordinary Cash Dividend, the evidences of indebtedness, shares of
capital stock or other assets, properties or securities, or any options,
warrants or rights to subscribe for or purchase any of the foregoing, to be
dividend or distributed in respect of one share of Common Stock, and the
denominator of which shall be such Market Price per share of Common Stock as of
such record date; and the Exercise Price shall be adjusted to a number
determined by dividing the Exercise Price immediately prior to such record date
by the above fraction. Such adjustments shall be made, and shall only become
effective, whenever any dividend or distribution is made; provided, however,
that the Company is not required to make an adjustment pursuant to this Section
4.02 if at the time of such distribution the Company makes the same distribution
to Holders of Warrants as it makes to holders of Common Stock pro rata based on
the number of shares of Common Stock for which such Warrants are exercisable
(whether or not currently exercisable). No adjustment shall be made pursuant to
this Section 4.02 which shall have the effect of decreasing the number of shares
of Common Stock purchasable upon exercise of each Warrant or increasing the
Exercise Price.
SECTION 4.03. Rights Issue. In the event that at any time or from time
to time the Company shall issue rights, options or warrants to acquire, or
securities convertible or exchangeable into, Common Stock to all holders of
Common Stock without any charge, entitling such holders to subscribe for or
purchase shares of Common Stock at a price per share that is less than the
Market Price per share of Common Stock as of the record date for the
determination of stockholders entitled to receive such rights, options, warrants
or securities, the number of shares of Common Stock purchasable upon the
exercise of each Warrant immediately after such record date shall be determined
by multiplying the number of shares of Common Stock purchasable upon exercise of
each Warrant immediately prior to such record date by a fraction, the numerator
of which shall be the number of shares of Common Stock outstanding as of the
close of business on the record date for the issuance of such rights, options,
warrants or securities plus the number of additional shares of Common Stock
offered for subscription or purchase or into which such securities are
convertible or exchangeable, and the denominator of which shall be the number of
shares of Common Stock outstanding as of the close of business on the record
date for the issuance of such rights, options, warrants or securities plus the
total number of shares of Common Stock which the aggregate consideration
expected to be received by the Company upon the exercise, conversion or exchange
of such rights, options, warrants or securities (as determined by the Board of
Directors of the Company acting in good faith, whose determination shall be
evidenced by a board resolution) would purchase at the Market Price per share of
Common Stock as of the record date. In the event of any such adjustment, the
Exercise Price shall be adjusted to a number determined by dividing the Exercise
Price immediately prior to such date of issuance by the aforementioned fraction.
Such adjustment shall be made, and shall only become effective, whenever such
rights, options, warrants or securities are issued. No adjustment shall be made
pursuant to this Section 4.03 which shall have the effect of decreasing the
number of shares of Common Stock purchasable upon exercise of each Warrant or of
increasing the Exercise Price.
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SECTION 4.04. Combination; Liquidation.
(a) Except as provided in Section 4.04(b), in the event of a
Combination, the Holders shall have the right to receive upon exercise of the
Warrants such number of shares of capital stock or other securities or property
which such Holder would have been entitled to receive upon or as a result of
such Combination had such Warrant been exercised immediately prior to such
event. Unless paragraph (b) is applicable to a Combination, the Company shall
provide that the surviving or acquiring Person (the "Successor Company") in such
Combination will enter into an agreement with the Warrant Agent confirming the
Holders' rights pursuant to this Section 4.04(a) and providing for adjustments,
which shall be as nearly equivalent as may be practicable to the adjustments
provided for in this Article IV. The provisions of this Section 4.04(a) shall
similarly apply to successive Combinations involving any Successor Company.
(b) In the event of (i) a Combination where consideration to
the holders of Common Stock in exchange for their shares is payable solely in
cash, or (ii) the dissolution, liquidation or winding-up of the Company, then
the holders of the Warrants will be entitled to receive distributions on an
equal basis with the holders of Common Stock or other securities issuable upon
exercise of the Warrants, as if the Warrants had been exercised immediately
prior to such event.
In case of any Combination described in this Section 4.04(b), the
surviving or acquiring Person and, in the event of any dissolution, liquidation
or winding-up of the Company, the Company shall deposit promptly with the
Warrant Agent the funds, if any, necessary to pay to the holders of the Warrants
the amounts to which they are entitled as described above. After such funds and
the surrendered Warrant Certificates are received, the Warrant Agent shall make
payment to the Holders by delivering a check in such amount as is appropriate
(or, in the case of consideration other than cash, such other consideration as
is appropriate) to such Person or Persons as it may be directed in writing by
the holders surrendering such Warrants.
SECTION 4.05. Other Events. If any event occurs as to which the
foregoing provisions of this Article IV are not strictly applicable or, if
strictly applicable, would not, in the good faith judgment of the Board, fairly
and adequately protect the purchase rights of the Warrants in accordance with
the essential intent and principles of such provisions, then such Board shall
make such adjustments in the application of such provisions, in accordance with
such essential intent and principles, as shall be reasonably necessary, in the
good faith opinion of such Board, to protect such purchase rights as aforesaid,
but in no event shall any such adjustment have the effect of increasing the
Exercise Price or decreasing the number of shares of Common Stock subject to
purchase upon exercise of this Warrant.
SECTION 4.06. Superseding Adjustment. Upon the expiration of any
rights, options, warrants or conversion or exchange privileges which resulted in
the adjustments pursuant to this Article IV, if any thereof shall not have been
exercised, the number of Warrant Shares purchasable upon the exercise of each
Warrant shall be readjusted as if (A)
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the only shares of Common Stock issuable upon exercise of such rights, options,
warrants, conversion or exchange privileges were the shares of Common Stock, if
any, actually issued upon the exercise of such rights, options, warrants or
conversion or exchange privileges and (B) shares of Common Stock actually
issued, if any, were issuable for the consideration actually received by the
Company upon such exercise plus the aggregate consideration, if any, actually
received by the Company for the issuance, sale or grant of all such rights,
options, warrants or conversion or exchange privileges whether or not exercised
and the Exercise Price shall be readjusted inversely; provided, however, that no
such readjustment shall (except by reason of an intervening adjustment under
Section 4.01) have the effect of decreasing the number of Warrant Shares
purchasable upon the exercise of each Warrant or increasing the Exercise Price
by an amount in excess of the amount of the adjustment initially made in respect
of the issuance, sale or grant of such rights, options, warrants or conversion
or exchange privileges.
SECTION 4.07. Minimum Adjustment. The adjustments required by the
preceding Sections of this Article IV shall be made whenever and as often as any
specified event requiring an adjustment shall occur, except that no adjustment
of the Exercise Price or the number of shares of Common Stock purchasable upon
exercise of Warrants that would otherwise be required shall be made (except in
the case of a subdivision or combination of shares of Common Stock, as provided
for in Section 4.01) unless and until such adjustment either by itself or with
other adjustments not previously made increases or decreases by at least 1% of
the number of shares of Common Stock purchasable upon exercise of Warrants
immediately prior to the making of such adjustment; provided, however, that any
adjustment pursuant to this Article IV (including those that require an increase
or decrease in the Exercise Price or the number of shares of Common Stock
purchasable upon exercise of Warrants of less than 1%) shall be made no later
than the earlier of three years from the date of the transaction that mandates
such adjustment and the Expiration Date. Any adjustment representing a change of
less than such minimum amount shall be carried forward and made as soon as such
adjustment, together with other adjustments required by this Article IV and not
previously made, would result in a minimum adjustment. For the purpose of any
adjustment, any specified event shall be deemed to have occurred at the close of
business on the date of its occurrence. In computing adjustments under this
Article IV, fractional interests in Common Stock shall be taken into account to
the nearest one-hundredth of a share.
SECTION 4.08. Notice of Adjustment. Whenever the Exercise Price or the
number of shares of Common Stock and other property, if any, purchasable upon
exercise of Warrants is adjusted, as herein provided, the Company shall deliver
to the Warrant Agent a certificate of a firm of independent accountants selected
by the Board (who may be the regular accountants employed by the Company)
setting forth, in reasonable detail, the event requiring the adjustment and the
method by which such adjustment was calculated (including a description of the
basis on which the Board of Directors of the Company determined the fair market
value of any evidences of indebtedness, other securities or property or warrants
or other subscription or purchase rights), and specifying the Exercise Price and
the number of shares of Common Stock purchasable upon exercise of Warrants after
giving effect to such
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adjustment. The Company shall promptly cause the Warrant Agent to mail a copy of
such certificate to each Holder in accordance with Section 7.06. The Warrant
Agent shall be entitled to rely on such certificate and shall be under no duty
or responsibility with respect to any such certificate, except to exhibit the
same from time to time, to any Holder desiring an inspection thereof during
reasonable business hours. The Warrant Agent shall not at any time be under any
duty or responsibility to any Holder to determine whether any facts exist which
may require any adjustment of the Exercise Price or the number of shares of
Common Stock or other stock or property, purchasable on exercise of the
Warrants, or with respect to the nature or extent of any such adjustment when
made, or with respect to the method employed in making such adjustment or the
validity or value of any shares of Common Stock.
SECTION 4.09. Notice of Certain Transactions. In the event that the
Company shall propose (a) to pay any dividend payable in securities of any class
to the holders of its Common Stock or to make any other distribution to the
holders of its Common Stock, (b) to offer the holders of its Common Stock rights
to subscribe for or to purchase any securities convertible into shares of Common
Stock or shares of stock of any class or any other securities, rights or
options, (c) to effect any capital reorganization, consolidation or merger or
(d) to effect the voluntary or involuntary dissolution, liquidation or
winding-up of the Company, the Company shall within 5 days send to the Warrant
Agent and the Warrant Agent shall within 5 days send the Holders a notice (in
such form as shall be furnished to the Warrant Agent by the Company) of such
proposed action or offer, such notice to be mailed by the Warrant Agent to the
Holders at their addresses as they appear in the Certificate Register, which
shall specify the record date for the purposes of such dividend, distribution or
rights, or the date such issuance or event is to take place and the date of
participation therein by the holders of Common Stock, if any such date is to be
fixed, and shall briefly indicate the effect of such action on the Common Stock
and on the number and kind of any other shares of stock and on other property,
if any, and the number of shares of Common Stock and other property, if any,
purchasable upon exercise of each Warrant and the Exercise Price after giving
effect to any adjustment which will be required as a result of such action. Such
notice shall be given as promptly as possible and, in the case of any action
covered by clause (a) or (b) above, at least 10 days prior to the record date
for determining holders of the Common Stock for purposes of such action and, in
the case of any other such action, at least 20 days prior to the date of the
taking of such proposed action or the date of participation therein by the
holders of Common Stock, whichever shall be the earlier.
SECTION 4.10. Adjustment to Warrant Certificate. The form of Warrant
Certificate need not be changed because of any adjustment made pursuant to this
Article IV or any adjustment of the Warrant Exercise Amount, and Warrant
Certificates issued after such adjustment may state the same Exercise Price and
the same number of shares of Common Stock as are stated in the Warrant
Certificates initially issued pursuant to this Agreement. The Company, however,
may at any time in its sole discretion make any change in the form of Warrant
Certificate that it may deem appropriate to give effect to such adjustments and
that does not affect the substance of the Warrant Certificate, and any Warrant
Certificate
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thereafter issued or countersigned, whether in exchange or substitution for an
outstanding Warrant Certificate or otherwise, may be in the form as so changed.
SECTION 4.11. Issuance of Due Bills. In any case in which this Article
IV shall require that adjustment in the Exercise Price be made as of the record
date for a specified event, (x) the Company may elect to defer until the
occurrence of such event the issuance to the holder of any Warrant exercised
after such record date the shares of Common Stock and other capital stock of the
Company, if any, issuable upon such exercise over and above the shares of Common
Stock and other capital stock of the Company, if any, issuable upon such
exercise upon the basis of the Exercise Price in effect prior to such
adjustment; provided, however, that the Company shall deliver to such holder a
due bill or other appropriate instrument evidencing such holder's right to
receive such additional shares upon the effectiveness of the event requiring
such adjustment and (y) the Common Stock transfer books of the Company shall be
deemed to have been opened immediately prior to such record date, whether or not
such transfer books were in fact open.
ARTICLE V - TRANSFERABILITY
SECTION 5.01. Transfer and Exchange. The Warrant Certificates shall be
issued in registered form only. The Company shall cause to be kept at the office
of the Warrant Agent a register in which, subject to such reasonable regulations
as it may prescribe, the Company shall provide for the registration of Warrant
Certificates and transfers or exchanges of Warrant Certificates as herein
provided. All Warrant Certificates issued upon any registration of transfer or
exchange of Warrant Certificates shall be the valid obligations of the Company,
evidencing the same obligations, and entitled to the same benefit under this
Agreement, as the Warrant Certificates surrendered for such registration of
transfer or exchange.
A Holder may transfer its Warrants only by complying with the terms of
this Agreement. No such transfer shall be effected until, and such transferee
shall succeed to the rights of a Holder only upon, final acceptance and
registration of the transfer by the Warrant Agent in the register. Prior to the
registration of any transfer of Warrants by a Holder as provided herein, the
Company, the Warrant Agent, any agent of the Company or the Warrant Agent may
treat the Person in whose name the Warrants are registered as the owner thereof
for all purposes and as the Person entitled to exercise the rights represented
thereby, any notice to the contrary notwithstanding. Furthermore, any Holder of
a Global Warrant, shall, by acceptance of such Global Warrant, agree that
transfers of beneficial interests in such Global Warrant may be effected only
through a book-entry system maintained by the Holder of such Global Warrant (or
its agent), and that ownership of a beneficial interest in the Warrants
represented thereby shall be required to be reflected in a book entry. When
Warrant Certificates are presented to the Warrant Agent with a request to
register the transfer or to exchange them for an equal amount of Warrants of
other authorized denominations, the Warrant Agent shall register the transfer or
make the exchange in accordance with the provisions hereof.
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SECTION 5.02. Registration, Registration of Transfer and Exchange. When
Certificated Warrants are presented to the Warrant Agent with a request from the
Holder of such Warrants to register the transfer or to exchange them for an
equal number of Warrants of other authorized denominations, the Warrant Agent
shall register the transfer or make the exchange as requested; provided,
however, that every Warrant presented and surrendered for registration of
transfer or exchange shall be duly endorsed and be accompanied by a written
instrument of transfer in form satisfactory to the Company, duly executed by the
Holder thereof or the Holder's attorneys duly authorizing in writing.
To permit registrations of transfer and exchanges, the Company shall
make available to the Warrant Agent a sufficient number of executed Warrant
Certificates to effect such registrations of transfers and exchanges. No service
charge shall be made to the Holder for any registration of transfer or exchange
of Warrants, but the Company may require from the transferring or exchanging
Holder payment of a sum sufficient to cover any transfer tax or similar
governmental charge payable upon exchanges pursuant to Section 2.04 and
exchanges in respect of portions of Warrants not exercised and the Company may
deduct such taxes from any payment of money to be made and such transfer or
exchange shall not be consummated (if such taxes are not deducted in full)
unless or until the Holder shall have paid to the Company the amount of such tax
or shall have established to the satisfaction of the Company and the Warrant
Agent that such tax has been paid.
SECTION 5.03. Book-Entry Provisions for the Rule 144A Global Warrant
and Regulation S Global Warrant.
(a) The Rule 144A Global Warrant and Regulation S Global
Warrant initially shall (i) be registered in the name of DTC or the nominee of
DTC, (ii) be delivered to the Warrant Agent as custodian for DTC and (iii) bear
legends as set forth in Section 2.02 hereof. Members of, or participants in, DTC
("Agent Members") shall have no rights under this Agreement with respect to the
Rule 144A Global Warrant or Regulation S Global Warrant, as the case may be,
held on their behalf by DTC or the Warrant Agent as its custodian, and DTC may
be treated by the Company, the Warrant Agent and any agent of the Company or the
Warrant Agent as the absolute owner of such Rule 144A Global Warrant or
Regulation S Global Warrant, as the case may be, for all purposes whatsoever.
Notwithstanding the foregoing, nothing herein shall prevent the Company, the
Warrant Agent or any agent of the Company or the Warrant Agent from giving
effect to any written certification, proxy or other authorization furnished by
DTC or impair, as between DTC and its Agent Members, the operation of customary
practices governing the exercise of the right of a beneficial owner of any
Warrants.
(b) Transfers of the Rule 144A Global Warrant and the
Regulation S Global Warrant shall be limited to transfers of such Rule 144A
Global Warrant or Regulation S Global Warrant in whole, but not in part, to DTC,
its successors or their respective nominees. Interests of beneficial owners in
the Rule 144A Global Warrant and the Regulation S Global Warrant may be
transferred in accordance with the rules and procedures of DTC and the
provisions of Section 5.04 hereof. Restricted Certificated Warrants and
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Offshore Certificated Warrants shall be transferred to all beneficial owners in
exchange for their beneficial interests in the Rule 144A Global Warrant or the
Regulation S Global Warrant, respectively, if DTC notifies the Company that it
is unwilling or unable to continue as Depositary for the Rule 144A Global
Warrant or the Regulation S Global Warrant, as the case may be, or DTC ceases to
be a "Clearing Agency" registered under the Exchange Act and a successor
depositary is not appointed by the Company within 90 days.
(c) Any beneficial interest in one of the Global Warrants that
is transferred to a Person who takes delivery in the form of an interest in the
other Global Warrant will, upon transfer, cease to be an interest in such Global
Warrant and become an interest in the other Global Warrant and, accordingly,
will thereafter be subject to all transfer restrictions, if any, and other
procedures applicable to beneficial interests in such other Global Warrant for
as long as it remains such in interest.
(d) In connection with any transfer pursuant to paragraph (b)
of this Section of a portion of the beneficial interests in the Rule 144A Global
Warrant to beneficial owners who are required to hold Restricted Certificated
Warrants, the Warrant Agent shall reflect on its books and records the date and
a decrease in the number of shares of Common Stock represented by the Rule 144A
Global Warrant in an amount equal to the number of shares of Common Stock
represented by the beneficial interest in the Rule 144A Global Warrant to be
transferred, and the Company shall execute, and the Warrant Agent shall
countersign and deliver, one or more Restricted Certificated Warrants of like
tenor and amount.
(e) In connection with the transfer of the entire Rule 144A
Global Warrant or Regulation S Global Warrant to beneficial owners pursuant to
paragraph (b) of this Section, the Rule 144A Global Warrant or the Regulation S
Global Warrant, as the case may be, shall be deemed to be surrendered to the
Warrant Agent for cancellation, and the Company shall execute, and the Warrant
Agent shall countersign and deliver, to each beneficial owner identified by DTC
in exchange for its beneficial interest in the Rule 144A Global Warrant or the
Regulation S Global Warrant, as the case may be, Restricted Certificated
Warrants or Offshore Certificated Warrants, as the case may be, of authorized
denominations representing, in the aggregate, the number of Warrants theretofore
represented by the Rule 144A Global Warrant or the Regulation S Global Warrant.
(f) Any Restricted Certificated Warrant delivered in exchange
for an interest in a Global Warrant pursuant to paragraph (b) or (d) of this
Section shall, except as otherwise provided by paragraph (c) of Section 5.04
hereof, bear the legend regarding transfer restrictions set forth in Section
2.02.
(g) The registered holder of the Rule 144A Global Warrant and
the Regulation S Global Warrant may grant proxies and otherwise authorize any
Person, including Agent Members and persons that may hold interests through
Agent Members, to take any action which a Holder is entitled to take under this
Agreement or the Warrants.
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SECTION 5.04. Special Transfer Provisions. Unless and until an Initial
Public Offering registration statement is declared effective that includes all
outstanding Warrants and Warrant Shares to the extent provided in the
Registration Rights Agreement (as certified to the Warrant Agent by the
Company), the following provisions shall apply:
(a) Transfers to Non-QIB Institutional Accredited Investors.
The following provisions shall apply with respect to the registration of any
proposed transfer of Warrants to any Institutional Accredited Investor which
is not a QIB (excluding Non-U.S. Persons):
(i) The Warrant Agent shall register the transfer of
any Warrant Certificate, if (x)(A) the requested transfer is at least
two years after the Issue Date or (B) the proposed transferee has
delivered to the Warrant Agent certificates substantially in the forms
of Exhibits B and C hereto and (y) if requested by the Warrant Agent or
the Company, the proposed transferee has delivered to the Warrant Agent
or the Company, an opinion of counsel acceptable to the Warrant Agent
or the Company that such transfer is in compliance with the Securities
Act.
(ii) If the proposed transferor is an Agent Member
holding a beneficial interest in the Rule 144A Global Warrant, upon
receipt by the Warrant Agent of (x) the documents, if any, required by
paragraph (i) and (y) instructions given in accordance with DTC's and
the Warrant Agent's procedures, the Warrant Agent shall reflect on its
books and records the date and a decrease in the number of Warrants
represented by the Rule 144A Global Warrant in an amount equal to the
number of Warrants represented by the Rule 144A Global Warrant to be
transferred, and the Company shall execute, and the Warrant Agent shall
countersign and deliver, one or more Restricted Certificated Warrants
of like tenor and amount.
(b) Transfers to QIBs. The following provisions shall apply
with respect to the registration of any proposed transfer of Warrants to a QIB
(excluding Non-U.S. Persons):
(i) If the Warrants to be transferred are represented
by (x) Restricted Certificated Warrants, the Warrant Agent shall
register the transfer if it has received from such transferor a
certificate substantially in the form of Exhibit B that the sale has
been made in compliance with the provisions of Rule 144A to a
transferee who has signed the certification provided for on the form of
Warrant Certificate stating, or has otherwise advised the Company and
the Warrant Agent in writing, that it is purchasing the Warrants for
its own account or an account with respect to which it exercises sole
investment discretion and that it and any such account is a QIB within
the meaning of Rule 144A, and is aware that the sale to it is being
made in reliance on Rule 144A and acknowledges that it has received
such information regarding the Company as it has requested pursuant to
Rule 144A or has determined not to request such information and that it
is aware that the transferor is relying upon its foregoing
representations in order to claim the exemption from registration
provided by Rule 144A or (y) an interest in the Rule 144A Global
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Warrant, the transfer of such interest may be effected only through the
book-entry system maintained by DTC.
(ii) If the proposed transferee is an Agent Member,
and the Warrants to be transferred are represented by Restricted
Certificated Warrants, upon receipt by the Warrant Agent of the
documents referred to in clause (i) above and instructions given in
accordance with DTC's and the Warrant Agent's procedures, the Warrant
Agent shall reflect on its books and records the date and an increase
in the number of Warrants represented by the Rule 144A Global Warrant
in an amount equal to the number of Warrants represented by the
Restricted Certificated Warrants, and the Warrant Agent shall cancel
the Restricted Certificated Warrant.
(c) Transfers of Interest in the Regulation S Global Warrant
or Offshore Certificated Warrants to U.S. Persons. With respect to any transfer
of interests in the Regulation S Global Warrant or Offshore Certificated
Warrants to U.S. Persons:
(i) on or prior to the date that is 40 calendar days
after the Issue Date, the Warrant Agent shall refuse to register such
transfer; and
(ii) after such date, the Warrant Agent shall
register such transfer without requiring additional certification and
shall deliver Warrant Certificates that do not bear the legend in
Section 2.02.
(d) Transfers to Non-U.S. Persons at Any Time. The following
provisions shall apply with respect to any transfer of Warrants to a Non-U.S.
Person:
(i) the Warrant Agent shall register any proposed
transfer of Warrants to a Non-U.S. Person only upon receipt of a
certificate substantially in the form of Exhibit B from the proposed
transferor.
(ii) (x) If the proposed transferor is an Agent
Member holding a beneficial interest in the Rule 144A Global Warrant,
upon receipt by the Warrant Agent of (A) the documents required by
paragraph (i) and (B) instructions in accordance with DTC's and the
Warrant Agent's procedures, the Warrant Agent shall reflect on its
books and records the date and a decrease in the number of Warrants
represented by the Rule 144A Global Warrant to be transferred, and (y)
if the proposed transferee is an Agent Member, upon receipt by the
Warrant Agent of instructions given in accordance with DTC's and the
Warrant Agent's procedures, the Warrant Agent shall reflect on its
books and records the date and an increase in the number of Warrants
represented by the Regulation S Global Warrant in an amount equal to
the number of Warrants represented by the Restricted Certificated
Warrants or the Rule 144A Global Warrant, as the case may be, to be
transferred, and the Warrant Agent shall cancel the Certificated
Warrant, if any, so transferred or decrease the number of Warrants
represented by the Rule 144A Global Warrant.
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(e) General. By its acceptance of any Warrants represented by
a Warrant Certificate bearing the legend in Section 2.02, each Holder of such
Warrants acknowledges the restrictions on transfer of such Warrants set forth in
this Agreement and in the legend and agrees that it will transfer such Warrants
only as provided in this Agreement. The Warrant Agent shall not register a
transfer of any Warrants unless such transfer complies with the requirements of
this Section 5.04. In connection with any transfer of Warrants, each Holder
agrees by its acceptance of Warrants to furnish the Warrant Agent or the Company
such certifications, legal opinions or other information as either of them may
reasonably require to confirm that such transfer is being made pursuant to an
exemption from, or a transaction not subject to, the registration requirements
of the Securities Act; provided, however, that the Warrant Agent shall not be
required to determine (but may rely on a determination made by the Company with
respect to) the sufficiency of any such certifications, legal opinions or other
information. The Warrant Agent's only obligation to enforce the transfer
restrictions of this Agreement shall be to require the certifications and
opinions specifically required by this Section 5.04 as a condition to a
transfer.
(f) Records. The Warrant Agent shall retain copies of all
letters, notices and other written communications received pursuant to Section
5.03 hereof or this Section 5.04. The Company shall have the right to inspect
and make copies of all such letters, notices or other written communications at
any reasonable time upon the giving of reasonable written notice to the Warrant
Agent.
SECTION 5.05. Surrender of Warrant Certificates. Any Warrant
Certificate surrendered for registration of transfer, exchange, exercise or
repurchase of the Warrants represented thereby shall, if surrendered to the
Company, be delivered to the Warrant Agent, and all Warrant Certificates
surrendered or so delivered to the Warrant Agent shall be promptly canceled by
the Warrant Agent and shall not be reissued by the Company and, except as
provided in this Article V in case of an exchange or in Article III hereof in
case of the exercise or repurchase of less than all the Warrants represented
thereby or in case of a mutilated Warrant Certificate, no Warrant Certificate
shall be issued hereunder in lieu thereof. The Warrant Agent shall deliver to
the Company from time to time or otherwise dispose of such canceled Warrant
Certificates as the Company may direct in writing.
ARTICLE VI - OTHER RIGHTS
SECTION 6.01. Registration Rights. With respect to the Warrant
Shares, the Holders shall have the registration rights set forth in the
Registration Rights Agreement.
ARTICLE VII - WARRANT AGENT
SECTION 7.01. Appointment of Warrant Agent. The Company hereby appoints
the Warrant Agent to act as agent for the Company in accordance with provisions
of this Agreement and the Warrant Agent hereby accepts such appointment.
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<PAGE>
SECTION 7.02. Rights and Duties of Warrant Agent.
(a) Agent for the Company. In acting under this Warrant
Agreement and in connection with the Warrant Certificates, the Warrant Agent is
acting solely as agent of the Company and does not assume any obligation or
relationship or agency or trust for or with any of the holders of Warrant
Certificates or beneficial owners of Warrants.
(b) Counsel. The Warrant Agent may consult with counsel
satisfactory to it, and the advice of such counsel shall be full and complete
authorization and protection in respect of any action taken, suffered or omitted
by it hereunder in good faith and in accordance with the advice of such counsel.
(c) Documents. The Warrant Agent shall be protected and shall
incur no liability for or in respect of any action taken or thing suffered by it
in reliance upon any Warrant Certificate, notice, direction, consent,
certificate, affidavit, statement or other paper or document reasonably believed
by it to be genuine and to have been presented or signed by the proper parties.
(d) No Implied Obligations. The Warrant Agent shall be
obligated to perform only such duties as are herein and in the Warrant
Certificates specifically set forth and no implied duties or obligations shall
be read into this Agreement or the Warrant Certificates against the Warrant
Agent. The Warrant Agent shall not be under any obligation to take any action
hereunder which may tend to involve it in any expense or liability for which it
does not receive indemnity if such indemnity is reasonably requested. The
Warrant Agent shall not be accountable or under any duty or responsibility for
the use by the Company of any of the Warrant Certificates countersigned by the
Warrant Agent and delivered by it to the Holders or on behalf of the Holders
pursuant to this Agreement or for the application by the Company of the proceeds
of the Warrants. The Warrant Agent shall have no duty or responsibility in case
of any default by the Company in the performance of its covenants or agreements
contained herein or in the Warrant Certificates or in the case of the receipt of
any written demand from a Holder with respect to such default, including any
duty or responsibility to initiate or attempt to initiate any proceedings at law
or otherwise.
(e) Not Responsible for Adjustments or Validity of Stock. The
Warrant Agent shall not at any time be under any duty or responsibility to any
Holder to determine whether any facts exist that may require an adjustment of
the number of shares of Common Stock purchasable upon exercise of each Warrant
or the Exercise Price, or with respect to the nature or extent of any adjustment
when made, or with respect to the method employed, or herein or in any
supplemental agreement provided to be employed, in making the same. The Warrant
Agent shall not be accountable with respect to the validity or value of any
shares of Common Stock or of any securities or property which may at any time be
issued or delivered upon the exercise of any Warrant or upon any adjustment
pursuant to Article IV, and it makes no representation with respect thereto. The
Warrant Agent shall not be responsible for any failure of the Company to make
any cash payment or to issue, transfer or deliver any shares of Common Stock or
stock certificates upon the surrender of any Warrant
23
<PAGE>
Certificate for the purpose of exercise or upon any adjustment pursuant to
Article IV, or to comply with any of the covenants of the Company contained in
Article IV.
SECTION 7.03. Individual Rights of Warrant Agent. The Warrant Agent and
any stockholder, director, officer or employee of the Warrant Agent may buy,
sell or deal in any of the Warrants or other securities of the Company or its
affiliates or become pecuniarily interested in transactions in which the Company
or its affiliates may be interested, or contract with or lend money to the
Company or its affiliates or otherwise act as fully and freely as though it were
not the Warrant Agent under this Agreement. Nothing herein shall preclude the
Warrant Agent from acting in any other capacity for the Company or for any other
legal entity.
SECTION 7.04. Warrant Agent's Disclaimer. The Warrant Agent shall not
be responsible for and makes no representation as to the validity or adequacy of
this Agreement or the Warrant Certificates and it shall not be responsible for
any statement in this Agreement or the Warrant Certificates other than its
countersignature thereon.
SECTION 7.05. Compensation and Indemnity. The Company agrees to pay the
Warrant Agent from time to time reasonable compensation for its services and to
reimburse the Warrant Agent upon request for all reasonable out-of- pocket
expenses incurred by it, including the reasonable compensation and expenses of
the Warrant Agent's agents and counsel. The Company shall indemnify the Warrant
Agent against any loss, liability or expense (including reasonable agents' and
attorneys' fees and expenses) incurred by it without negligence or bad faith on
its part arising out of or in connection with the acceptance or performance of
its duties under this Agreement. The Warrant Agent shall notify the Company
promptly of any claim for which it may seek indemnity. The Company need not
reimburse any expense or indemnify against any loss or liability incurred by the
Warrant Agent through wilful misconduct, negligence or bad faith. The Company's
payment obligations pursuant to this Section 7.05 shall survive the termination
of this Agreement.
To secure the Company' payment obligations under this Agreement, the
Warrant Agent shall have a lien prior to the Warrant Holders on all money or
property held or collected by the Warrant Agent.
SECTION 7.06. Successor Warrant Agent.
(a) The Company To Provide Warrant Agent. The Company agrees
for the benefit of the Holders that there shall at all times be a Warrant Agent
hereunder until all the Warrants have been exercised or are no longer
exercisable.
(b) Resignation and Removal. The Warrant Agent may at any time
resign by giving written notice to the Company of such intention on its part,
specifying the date on which its desired resignation shall become effective;
provided, however, that such date shall not be less than 60 days after the date
on which such notice is given unless the Company otherwise agrees. The Warrant
Agent hereunder may be removed at any time by the filing
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<PAGE>
with it of an instrument in writing signed by or on behalf of the Company and
specifying such removal and the date when it shall become effective, which date
shall not be less than 60 days after such notice is given unless the Warrant
Agent otherwise agrees. Any removal under this Section 7.06 shall take effect
upon the appointment by the Company as hereinafter provided of a successor
Warrant Agent (which shall be a bank or trust company authorized under the laws
of the jurisdiction of its organization to exercise corporate trust powers) and
the acceptance of such appointment by such successor Warrant Agent.
(c) The Company To Appoint Successor. In case at any time the
Warrant Agent shall resign, or shall be removed, or shall become incapable of
acting, or shall be adjudged a bankrupt or insolvent, or shall commence a
voluntary case under the Federal bankruptcy laws, as now or hereafter
constituted, or under any other applicable Federal or state bankruptcy,
insolvency or similar law or shall consent to the appointment of or taking
possession by a receiver, custodian, liquidator, assignee, trustee, sequestrator
(or other similar official) of the Warrant Agent or its property or affairs, or
shall make an assignment for the benefit of creditors, or shall admit in writing
its inability to pay its debts generally as they become due, or shall take
corporate action in furtherance of any such action, or a decree or order for
relief by a court having jurisdiction in the premises shall have been entered in
respect of the Warrant Agent in an involuntary case under the Federal bankruptcy
laws, as now or hereafter constituted, or any other applicable Federal or State
bankruptcy, insolvency or similar law; or a decree order by a court having
jurisdiction in the premises shall have been entered for the appointment of a
receiver, custodian, liquidator, assignee, trustee, sequestrator (or similar
official) of the Warrant Agent or of its property or affairs, or any public
officer shall take charge or control of the Warrant Agent or of its property or
affairs for the purpose of rehabilitation, conservation, winding up of or
liquidation, a successor Warrant Agent, qualified as aforesaid, shall be
appointed by the Company by an instrument in writing, filed with the successor
Warrant Agent. Upon the appointment as aforesaid of a successor Warrant Agent
and acceptance by the successor Warrant Agent of such appointment, the Warrant
Agent shall cease to be Warrant Agent hereunder; provided, however, that in the
event of the resignation of the Warrant Agent under this subsection (c), such
resignation shall be effective on the earlier of (i) the date specified in the
Warrant Agent's notice of resignation and (ii) the appointment and acceptance of
a successor Warrant Agent hereunder.
(d) Successor To Expressly Assume Duties. Any successor
Warrant Agent appointed hereunder shall execute, acknowledge and deliver to its
predecessor and to the Company an instrument accepting such appointment
hereunder, and thereupon such successor Warrant Agent, without any further act,
deed or conveyance, shall become vested with all the rights and obligations of
such predecessor with like effect as if originally named as Warrant Agent
hereunder, and such predecessor, upon payment of its charges and disbursements
then unpaid, shall thereupon become obligated to transfer, deliver and pay over,
and such successor Warrant Agent shall be entitled to receive, all monies,
securities and other property on deposit with or held by such predecessor, as
Warrant Agent hereunder.
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<PAGE>
(e) Successor by Merger. Any corporation into which the
Warrant Agent hereunder may be merged or consolidated, or any corporation
resulting from any merger or consolidation to which the Warrant Agent shall be a
party, or any corporation to which the Warrant Agent shall sell or otherwise
transfer all or substantially all of its corporate trust business; provided that
it shall be qualified as aforesaid, shall be the successor Warrant Agent under
this Agreement without the execution or filing of any paper or any further act
on the part of any of the parties hereto.
ARTICLE VIII - MISCELLANEOUS
SECTION 8.01. Company Resales. The Company hereby agrees with each
Holder, that the Company shall not resell any Warrants or Warrant Shares it
acquires, by purchase or otherwise, except pursuant to an effective registration
statement.
SECTION 8.02. SEC Reports and Other Information. Notwithstanding that
the Company may not be subject to the reporting requirements of Section 13 or
15(d) of the Exchange Act, the Company shall, for all periods ending after the
date of this Warrant Agreement, file with the SEC and thereupon provide the
Warrant Agent and Holders with such annual reports and such information,
documents and other reports are as specified in Sections 13 and 15(d) of the
Exchange Act and applicable to a U.S. corporation subject to such Sections, such
information, documents and other reports to be so filed and provided at the
times specified for the filing of such information, documents and reports under
such Sections. In addition, for as long as any of the Warrants are outstanding,
the Company will make available to any prospective purchaser of the Warrants or
Warrant Shares or beneficial owner thereof in connection with any sales thereof
the information required by Rule 144A(d)(4) under the Securities Act.
SECTION 8.03. Rule 144A. The Company hereby agrees with each Holder,
for so long as any Warrants or Warrant Shares remain outstanding and during any
period in which the Company is not subject to Section 13 or 15(d) of the
Exchange Act, to make available, upon request of any Holder, to any Holder or
beneficial owner of Warrants or Warrant Shares in connection with any sale
thereof and any prospective purchaser of such Warrants or Warrant Shares from
such Holder or beneficial owner, the information required by Rule 144A(d)(4)
under the Securities Act in order to permit resales of such Warrants or Warrant
Shares pursuant to Rule 144A.
SECTION 8.04. Persons Benefitting. Nothing in this Agreement is
intended or shall be construed to confer upon any Person other than the Company,
the Warrant Agent and the Holders any right, remedy or claim under or by reason
of this agreement or any part hereof.
SECTION 8.05. Rights of Holders. Except as expressly contemplated
herein, holders of unexercised Warrants are not entitled (i) to receive
dividends or other distributions (ii) to receive notice of or vote at any
meeting of the stockholders, (iii) to consent to any
26
<PAGE>
action of the stockholders, (iv) to receive notice of any other proceedings of
the Company or (v) to exercise any other rights as stockholders of the Company.
SECTION 8.06. Amendment. This Agreement may be amended by the parties
hereto without the consent of any Holder for the purpose of curing any
ambiguity, or of curing, correcting or supplementing any defective provision
contained herein or making any other provisions with respect to matters or
questions arising under this Agreement as the Company and the Warrant Agent may
deem necessary or desirable; provided, however, that the Company determines, and
the Warrant Agent may rely on such determination, that such action shall not
affect adversely the rights of the Holders. Any amendment or supplement to this
Agreement that has an adverse effect on the interests of the Holders shall
require the written consent of the Holders of majority of the then outstanding
Warrants. The consent of each Holder affected shall be required for any
amendment pursuant to which the Exercise Price would be increased or the number
of Warrant Shares purchasable upon exercise of Warrants would be decreased
(other than pursuant to adjustments provided in Article IV as of the Issue Date
of the Warrants). In determining whether the Holders of the required number of
Warrants have concurred in any direction, waiver or consent, Warrants owned by
the Company or by any Person directly or indirectly controlling or controlled by
or under direct or indirect common control with the Company shall be disregarded
and deemed not to be outstanding, except that, for the purpose of determining
whether the Warrant Agent shall be protected in relying on any such direction,
waiver or consent, only Warrants which the Warrant Agent knows are so owned
shall be so disregarded. Also, subject to the foregoing, only Warrants
outstanding at the time shall be considered in any such determination.
SECTION 8.07. Notices. Any notice or communication shall be in
writing and delivered in Person or mailed by first-class mail addressed as
follows:
if to the Company:
Inter*Act Electronic Marketing, Inc.
14 Westport Avenue
Norwalk, Connecticut 06851
Attention: President & Chief Operating Officer
with a copy to:
Schell Bray Aycock Abel & Livingston L.L.P.
Suite 1500
Renaissance Plaza
230 North Elm Street
Greensboro, North Carolina 27401
Attention: Doris R. Bray
27
<PAGE>
if to the Warrant Agent:
American Stock Transfer & Trust Company
40 Wall Street
New York, New York 10005
Attention: Joe Wolf
The Company or the Warrant Agent by notice to the other may designate
additional or different addresses for subsequent notices or communications.
Any notice or communication mailed to a Holder shall be mailed to the
Holder at the Holder's address as it appears on the register in which the
Company shall provide for the registration of Warrants and Warrant Shares and of
transfers and exchanges of Warrants and Warrant Shares and shall be sufficiently
given if so mailed within the time prescribed.
Failure to mail a notice or communication to a Holder or any defect in
it shall not affect its sufficiency with respect to other Holders. If a notice
or communication is mailed in the manner provided above, it is duly given,
whether or not the addressee receives it.
SECTION 8.08. Governing Law. The laws of the State of New York
shall govern this Agreement and the Warrant Certificates.
SECTION 8.09. Successors. All agreements of the Company in this
Agreement and the Warrant Certificates shall bind its successors. All
agreements of the Warrant Agent in this Agreement shall bind its successors.
SECTION 8.10. Multiple Originals. The parties may sign any number
of copies of this Agreement. Each signed copy shall be an original, but all
of them together represent the same agreement. One signed copy is enough to
prove this Agreement.
SECTION 8.11. Table of Contents. The table of contents and headings of
the Articles and Sections of this Agreement have been inserted for convenience
of reference only, are not intended to be considered a part hereof and shall not
modify or restrict any of the terms or provisions hereof.
SECTION 8.12. Severability. The provisions of this Agreement are
severable, and if any clause or provision shall be held invalid, illegal or
unenforceable in whole or in part in any jurisdiction, then such invalidity or
unenforceability shall affect in that jurisdiction only such clause or
provision, or part thereof, and shall not in any manner affect such clause or
provision in any other jurisdiction or any other clause or provision of this
Agreement in any jurisdiction.
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<PAGE>
IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed as of the date first written above.
INTER*ACT ELECTRONIC
MARKETING, INC.
By:/s/ Thomas McGoldrick
__________________________________
Thomas McGoldrick
Executive Vice President
AMERICAN STOCK TRANSFER &
TRUST COMPANY, as Warrant Agent,
By: /s/ J F Wolf
__________________________________
Name: J F Wolf
Title: Vice President
29
<PAGE>
EXHIBIT A
[FORM OF FACE OF WARRANT CERTIFICATE]
THE WARRANTS AND THE WARRANT SHARES (THE "SECURITIES") HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933 (THE "SECURITIES ACT"), OR ANY STATE
SECURITIES LAWS. NEITHER THIS SECURITY NOR ANY INTEREST OR PARTICIPATION HEREIN
MAY BE REOFFERED, SOLD, ASSIGNED, TRANSFERRED, PLEDGED, ENCUMBERED OR OTHERWISE
DISPOSED OF IN THE ABSENCE OF SUCH REGISTRATION OR UNLESS SUCH TRANSACTION IS
EXEMPT FROM, OR NOT SUBJECT TO, REGISTRATION AND SUBJECT TO COMPLIANCE WITH
OTHER APPLICABLE LAWS. THE HOLDER HEREOF, BY ITS ACCEPTANCE HEREOF, AGREES TO
OFFER, SELL OR OTHERWISE TRANSFER SUCH SECURITY, UNLESS PREVIOUSLY REGISTERED
UNDER THE SECURITIES ACT, ONLY (A) TO THE COMPANY; (B) PURSUANT TO AN EXEMPTION
FROM REGISTRATION UNDER THE SECURITIES ACT PROVIDED BY RULE 144 THEREUNDER (IF
AVAILABLE); (C) TO A PERSON IT REASONABLY BELIEVES IS A "QUALIFIED INSTITUTIONAL
BUYER" AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT THAT PURCHASES FOR ITS
OWN ACCOUNT OR FOR THE ACCOUNT OF A QUALIFIED INSTITUTIONAL BUYER TO WHOM NOTICE
IS GIVEN THAT THE TRANSFER IS BEING MADE IN RELIANCE ON RULE 144A; OR (D)
PURSUANT TO AN OFFSHORE TRANSACTION COMPLYING WITH RULE 904 OF REGULATION S
UNDER THE SECURITIES ACT.
[Unless and until it is exchanged in whole or in part for Warrants in
definitive form, this Warrant may not be transferred except as a whole by the
depository to a nominee of the depository or by a nominee of the depository to
the depository or another nominee of the depository or by the depository or any
such nominee to a successor depository or a nominee of such successor
depository. The Depository Trust Company ("DTC") (55 Water Street, New York,
New York) shall act as the depository until a successor shall be appointed by
the Company and the Warrant Agent. Unless this certificate is presented by an
authorized representative of DTC to the issuer or its agent for registration of
transfer, exchange or payment, and any certificate issued is registered in the
name of Cede & Co. or such other name as requested by an authorized
representative of DTC (and any payment is made to Cede & Co. or such other
entity as is requested by an authorized representative of DTC), ANY TRANSFER,
PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS
WRONGFUL inasmuch as the registered owner hereof, Cede & Co., has an interest
herein.](1)
- --------
(1) To be included only if the Warrant is in global form.
<PAGE>
No. [ ] Certificate for ______ Warrants
WARRANTS TO PURCHASE COMMON STOCK OF
INTER*ACT ELECTRONIC MARKETING, INC.
THIS CERTIFIES THAT, [___________], or its registered assigns, is the
registered holder of the number of Warrants set forth above (the "Warrants").
Each Warrant entitles the holder thereof (the "Holder"), at its option and
subject to the provisions contained herein and in the Warrant Agreement referred
to below, to purchase from Inter*Act Electronic Marketing, Inc., a North
Carolina corporation ("the Company") at the per share exercise price of $0.01
(the "Exercise Price"), that number of shares of Common Stock, no par value, of
the Company (the "Common Stock") equal to the Warrant Exercise Amount (as
defined in the Warrant Agreement). This Warrant Certificate shall terminate and
become void as of the close of business on (i) December 31, 2009 (the
"Expiration Date"), (ii) upon the exercise hereof as to all the shares of Common
Stock subject hereto or (iii) upon the optional redemption by Inter*Act
Operating Co., Inc. of all of its Senior Pay-in-Kind Notes Due 2003 pursuant to
the terms of that certain Indenture, prior to the Exercisability Date. The
number of shares purchasable upon exercise of the Warrants and the Exercise
Price per share shall be subject to adjustment from time to time as set forth in
the Warrant Agreement.
This Warrant Certificate is issued under and in accordance with a
Warrant Agreement dated as of December 15, 1999 (the "Warrant Agreement"),
between the Company and American Stock Transfer & Trust Company (the "Warrant
Agent", which term includes any successor Warrant Agent under the Warrant
Agreement), and is subject to the terms and provisions contained in the Warrant
Agreement, to all of which terms and provisions the Holder of this Warrant
Certificate consents by acceptance hereof. The Warrant Agreement is hereby
incorporated herein by reference and made a part hereof. Reference is hereby
made to the Warrant Agreement for a full statement of the respective rights,
limitations of rights, duties and obligations of the Company, the Warrant Agent
and the Holders of the Warrants. Capitalized terms used but not defined herein
shall have the meanings ascribed thereto in the Warrant Agreement. A copy of the
Warrant Agreement may be obtained for inspection by the Holder hereof upon
written request to the Warrant Agent at 40 Wall Street, New York, New York
10005, Attention: Joe Wolf.
Subject to the terms of the Warrant Agreement, the Warrants may be
exercised in whole or in part by presentation of this Warrant Certificate.
As provided in the Warrant Agreement and subject to the terms and
conditions therein set forth, the Warrants shall be exercisable at any time or
from time to time on any Business Day on or after December 31, 2002; provided,
however, that no Warrant shall be exercisable after December 31, 2009.
In the event the Company enters into a Combination, the Holder hereof
will be entitled to receive the shares of capital stock or other securities or
other property of such
2
<PAGE>
surviving entity as the Holder would have received had the Holder exercised its
Warrants immediately prior to such Combination; provided, however, that in the
event that, in connection with such Combination, consideration to holders of
Common Stock in exchange for their shares is payable solely in cash or in the
event of the dissolution, liquidation or winding-up of the Company, the Holder
hereof will be entitled to receive cash distributions as the Holder would have
received had the Holder exercised its Warrants immediately prior to such
Combination.
The Company may require payment of a sum sufficient to pay all taxes,
assessments or other governmental charges in connection with the transfer or
exchange of the Warrant Certificates pursuant to Section 5.02 of the Warrant
Agreement but not for any exchange or original issuance (not involving a
transfer) with respect to temporary Warrant Certificates, the exercise of the
Warrants or the Warrant Shares.
Upon any partial exercise of the Warrants, there shall be countersigned
and issued to the Holder hereof a new Warrant Certificate in respect of the
shares of Common Stock as to which the Warrants shall not have been exercised,
subject to any adjustments made pursuant to the Warrant Agreement. This Warrant
Certificate may be exchanged at the office of the Warrant Agent by presenting
this Warrant Certificate properly endorsed with a request to exchange this
Warrant Certificate for other Warrant Certificates evidencing an equal number of
Warrants. No fractional Warrant Shares will be issued upon the exercise of the
Warrants, but the Company shall pay an amount in cash equal to the Market Price
for one Warrant Share on the trading day immediately preceding the date the
Warrant is exercised, multiplied by the fraction of a Warrant Share that would
be issuable on the exercise of any Warrant.
All shares of Common Stock issuable by the Company upon the exercise of
the Warrants shall, upon such issue, be duly and validly issued and fully paid
and nonassessable.
The Holder in whose name the Warrant Certificate is registered may be
deemed and treated by the Company and the Warrant Agent as the absolute owner of
the Warrant Certificate for all purposes whatsoever and neither the Company nor
the Warrant Agent shall be affected by notice to the contrary.
The Warrants do not entitle any holder hereof to any of the rights of a
shareholder of the Company.
This Warrant Certificate shall not be valid or obligatory for any
purpose until it shall have been countersigned by the Warrant Agent.
INTER*ACT ELECTRONIC
MARKETING, INC.
By: ________________________
3
<PAGE>
[SEAL]
Attest:
- ------------------------------------
Secretary
DATED:
Countersigned:
AMERICAN STOCK TRANSFER & TRUST COMPANY,
as Warrant Agent
By:
--------------------------------
Authorized Signatory
4
<PAGE>
SCHEDULE OF EXCHANGES OF CERTIFICATED WARRANTS(2)
The following exchanges of a part of this Global Warrant for definitive
Warrants have been made:
<TABLE>
<CAPTION>
DATE OF EXCHANGE AMOUNT OF INCREASE NUMBER OF SIGNATURE OF
IN NUMBER OF WARRANTS IN THIS AUTHORIZED OFFICER
WARRANTS IN THIS GLOBAL WARRANT OF WARRANT AGENT
GLOBAL WARRANT FOLLOWING SUCH
INCREASE
<S> <C> <C> <C>
- --------------------------- ----------------------- ----------------------- ------------------------
- --------------------------- ----------------------- ----------------------- ------------------------
- --------------------------- ----------------------- ----------------------- ------------------------
- --------------------------- ----------------------- ----------------------- ------------------------
</TABLE>
- --------
(2) To be included only if the Warrant is in global form.
5
<PAGE>
EXHIBIT B
CERTIFICATE TO BE DELIVERED UPON EXCHANGE OR
REGISTRATION OF TRANSFER OF WARRANTS
Re: Warrants to Purchase Common Stock (the "Warrants") of
Inter*Act Electronic Marketing, Inc. (the "Company")
This Certificate relates to Warrants held in definitive form by
_______________ (the "Transferor").
The Transferor has requested the Warrant Agent by written order to
exchange or register the transfer of a Warrant or Warrants. In connection with
such request and in respect of each such Warrant, the Transferor does hereby
certify that the Transferor is familiar with the Warrant Agreement relating to
the above captioned Warrants and that the transfer of this Warrant does not
require registration under the Securities Act of 1933 (the "Securities Act")
because(3):
[_] Such Warrant is being acquired for the Transferor's own
account without transfer.
[_] Such Warrant is being transferred to the Company.
[_] Such Warrant is being transferred pursuant to an effective
registration statement pursuant to the Securities Act.
[_] Such Warrant is being transferred to a qualified institutional
buyer (as defined in Rule 144A under the Securities Act), in reliance on Rule
144A.
[_] Such Warrant is being transferred pursuant to an offshore
transaction in accordance with Rule 904 under the Securities Act.
[_] Such Warrant is being transferred in a transaction meeting the
requirements of Rule 144 under the Securities Act.
If such transfer is being made pursuant to an offshore transaction in
accordance with Rule 904 under the Securities Act, the Transferor further
certifies that:
(i) the offer of the Warrants was not made to a Person in
the United States;
- --------
(3) Please check applicable box.
<PAGE>
(ii) at the time the buy order was originated, the transferee
was outside the United States or we and any Person acting on our behalf
reasonably believed that the transferee was outside the United States;
(iii) no directed selling efforts have been made by us in the
United States in contravention of the requirements of Rule 903(b) or Rule 904(b)
of Regulation S under the Securities Act, as applicable;
(iv) the transaction is not part of a plan or scheme by us to
evade the registration requirements of the Securities Act; and
(v) if applicable, the transfer has been made in accordance
with Rule 903(c)(3) or Rule 904(c)(1), as the case may be.
Terms used in this paragraph have the meanings set forth in
Regulation S.
The Warrant Agent and the Company are entitled to rely upon this
Certificate and are irrevocably authorized to produce this Certificate or a copy
hereof to any interested party in any administrative or legal proceedings or
official inquiry with respect to the matters covered hereby.
[INSERT NAME OF TRANSFEROR]
Date: _________________________ ____________________________
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EXHIBIT C
Form of Investor Letter To Be Delivered in Connection
with Transfers Non-QIB Institutional Accredited Investors
Inter*Act Electronic Marketing, Inc.
14 Westport Avenue
Norwalk, Connecticut 06851
c/o American Stock Transfer & Trust Company
40 Wall Street
New York, New York 10005
Attention: Corporate Trust Administration
Ladies and Gentlemen:
In connection with our proposed purchase of ____ Warrants To Purchase
Shares of Common Stock (the "Warrants") of Inter*Act Electronic Marketing, Inc.
(the "Company"), we confirm that:
1. We understand that the Warrants have not been registered under the
Securities Act of 1933 (the "Securities Act"), and may not be sold except as
permitted in the following sentence. We agree on our own behalf and on behalf of
any investor account for which we are purchasing the Warrants to offer, sell or
otherwise transfer such Warrants prior to the date which is three years after
the later of the date of original issue and the last date on which the Company
or any affiliate of the Company was the owner of such Warrants, or any
predecessor thereto (the "Resale Restriction Termination Date") only (a) to the
Company, (b) pursuant to a registration statement which has been declared
effective under the Securities Act, (c) for so long as the Warrants are eligible
for resale pursuant to Rule 144A under the Securities Act, to a person we
reasonably believe is a qualified institutional buyer under Rule 144A (a "QIB")
that purchases for its own account or for the account of a QIB to whom notice is
given that the transfer is being made in reliance on Rule 144A, (d) pursuant to
offers and sales to non-U.S. Persons that occur outside the United States within
the meaning of Regulation S under the Securities Act, (e) to an institutional
"accredited investor" within the meaning of subparagraph (a)(1), (2), (3) or (7)
of Rule 501 under the Securities Act that is acquiring the Warrants for its own
account or for the account of such an institutional "accredited investor" for
investment purposes and not with a view to, or for offer or sale in connection
with, any distribution thereof in violation of the Securities Act or (f)
pursuant to any other available exemption from the registration requirements of
the Securities Act, subject in each of the foregoing cases to any requirement of
law that the disposition of our property and the property of such investor
account or accounts be at all times within our or their control and to
compliance with any applicable state securities laws. The foregoing restrictions
on resale will not apply subsequent to the Resale Restriction Termination Date.
If any resale or other transfer of the Warrants is proposed to be made pursuant
to clause (e)
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above prior to the Resale Restriction Termination Date, the transferor shall
deliver a letter from the transferee substantially in the form of this letter to
the Warrant Agent, which shall provide, among other things, that the transferee
is an institutional "accredited investor" within the meaning of subparagraph
(a)(1), (2), (3) or (7) or Rule 501 under the Securities Act and that it is
acquiring such Warrants for investment purposes and not for distribution in
violation of the Securities Act. We acknowledge that the Company and the Warrant
Agent reserve the right prior to any offer, sale or other transfer prior to the
Resale Restriction Termination Date of the Warrants pursuant to clauses (d), (e)
and (f) above to require the delivery of an opinion of counsel, certifications
or other information satisfactory to the Company and the Warrant Agent.
2. We are an institutional "accredited investor" (as defined in Rule
501(a)(1), (2) (3) or (7) of Regulation D under the Securities Act) purchasing
for our own account or for the account of such an institutional "accredited
investor", and we are acquiring the Warrants for investment purposes and not
with a view to, or for offer or sale in connection with, any distribution in
violation of the Securities Act and we have such knowledge and experience in
financial and business matters as to be capable of evaluating the merits and
risks of our investment in the Warrants, and we and any accounts for which we
are acting are each able to bear the economic risk of our or its investment.
3. We are acquiring the Warrants purchased by us for our own account or
for one or more accounts as to each of which we exercise sole investment
discretion.
4. You are entitled to rely upon this letter and you are irrevocably
authorized to produce this letter or a copy hereof to any interested party in
any administrative or legal proceeding or official inquiry with respect to the
matters covered hereby.
Very truly yours,
(Name of Purchaser),
By: _________________________
Date: _______________________
Upon transfer, the Warrants would be registered in the name of the new
beneficial owner as follows:
Name: _______________________
Address: ____________________
Taxpayer ID Number __________
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Exhibit 10 (a) (14)
EXCHANGE AND REGISTRATION RIGHTS AGREEMENT
EXCHANGE AND REGISTRATION RIGHTS AGREEMENT (the "Agreement") is made
and entered into as of December 15, 1999 by and among Inter*Act Operating Co.,
Inc. (the "Company") and each Holder (as herein defined).
This Agreement is made in connection with that certain exchange offer
pursuant to which, in exchange for the surrender of at least 80% aggregate
principal amount of (i) the 14% Senior Discount Notes Due 2003 of Inter*Act
Electronic Marketing, Inc., a North Carolina corporation ("Inter*Act"),
Inter*Act or the Company shall issue or cause to be issued, as the case may be,
(x) up to $70,000,000 aggregate principal amount of Senior Pay-in-Kind Notes
Due 2003 of the Company (the "Notes"), (y) warrants ("Warrants") to purchase up
to an aggregate of 2,506,812 shares of common stock, no par value, of Inter*Act
(the "Common Stock") and (z) up to an aggregate of 140,000 shares of the 14%
Series B Mandatorily Convertible Preferred Stock of Inter*Act (the "Preferred
Stock").
In consideration of the foregoing, the parties hereby agree as follows:
SECTION 1. DEFINITIONS.
Capitalized terms used herein without definition shall have the
respective meanings given such terms as in the Indenture. As used in this
Agreement, the following terms have the following meanings:
"Act" means the Securities Act of 1933, as amended.
"Advice" has the meaning set forth in Section 6.
"Affiliate" means, with respect to any specified Person, any other
Person who, directly or indirectly, controls, is controlled by, or is under
common control with such specified Person.
"Agreement" has the meaning set forth in the preamble.
"Business Day" means any day other than a day on which banks are
authorized or required to be closed in the State of New York.
"Commission" means the Securities and Exchange Commission.
"Common Stock" has the meaning set forth in the preamble.
"Company" has the meaning set forth in the preamble and shall include
the Company's successors by merger, acquisition, reorganization or otherwise.
"Consummate" means, with respect to an Exchange Offer hereunder, (a)
the filing and causing to become effective under the Securities Act of a
Registration Statement covering
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the Exchange Offer, (b) the maintenance of such Registration Statement
continuously effective for the period required by Section 2 hereof, and (c) the
delivery by the Company to the registrar under the Indenture of the Exchange
Securities in the same aggregate principal amount as the aggregate principal
amount of Registrable Securities tendered by Holders pursuant to such Exchange
Offer.
"Controlling Persons" has the meaning set forth in Section 8(a).
"Exchange Act" means the Securities Exchange Act of 1934, as amended
from time to time, or any successor statute, and the rules and regulations of
the Commission promulgated thereunder.
"Exchange Offer" means the offer to exchange any of the Registrable
Securities for Exchange Securities made by the Company pursuant to Section 2.
"Exchange Offer Registration Statement" has the meaning set forth in
Section 2(a).
"Exchange Securities" means securities of the Company that are (i)
identical to the Registrable Securities in all material respects except that
they have been registered pursuant to an effective Registration Statement under
the Securities Act and (ii) issued under and entitled to the benefits of the
Indenture, which shall have been qualified under the Trust Indenture Act.
"Exchanging Dealer" means any Holder which is a broker-dealer, electing
to exchange Securities acquired for its own account as a result of market-making
or other trading activities for new securities in the Exchange Offer.
"Holder" means any holder of Registrable Securities.
"Holders' Counsel" means Goodwin, Procter & Hoar LLP, special counsel
to the Holders, or any successor counsel selected by Holders of a majority in
interest of Registrable Securities.
"Indenture" means the Indenture, dated as of the date of this
Agreement, between the Company and the Trustee, pursuant to which the
Registrable Securities are being issued and pursuant to which the Exchange
Securities, if any, shall be issued, as amended, restated supplemented or
otherwise modified from time to time, together with any exhibits, schedules or
other attachments thereto.
"Initial Public Offering" means the first public offering of shares of
Common Stock registered on Form S-1, Form S-3, Form S-4 or Form S-11 (or any
successor or equivalent forms).
"Inspectors" has the meaning set forth in Section 6(m).
"Issue Date" means December 28, 1999.
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"NASD" has the meaning set forth in Section 6(q).
"NASDAQ" has the meaning set forth in Section 6(o).
"New Security" means debt securities of the Company identical in all
material respects to the Registrable Securities to be issued in connection with
the Exchange Offer pursuant to the Indenture or a new indenture of the Company
identical in all material respects to the Indenture.
"Notes" has the meaning set forth in the preamble.
"Other Registration Rights" has the meaning set forth in Section 11.
"Person" means any individual, corporation, partnership, joint venture,
association, joint-stock company, trust, limited liability company,
unincorporated organization or government or other agency or political
subdivision thereof.
"Preferred Stock" has the meaning set forth in the preamble.
"Prospectus" means the prospectus included in any Registration
Statement (including, without limitation, a prospectus that discloses
information previously omitted from a prospectus filed as part of an effective
Registration Statement in reliance upon Rule 430A promulgated under the
Securities Act), as amended or supplemented by any prospectus supplement,
including a prospectus supplement with respect to the terms of the offering of
any portion of the Registrable Securities covered by a Shelf Registration
Statement, and by all other amendments and supplements to the prospectus,
including post-effective amendments, and in each case including all material
incorporated by reference or deemed to be incorporated by reference in such
prospectus.
"Records" has the meaning set forth in Section 6(m).
"Registrable Securities" means the Notes until such time as (i) a
Registration Statement covering such Registrable Securities has been declared
effective and such Registrable Securities have been disposed of pursuant to such
effective Registration Statement, (ii) such Registrable Securities are
transferred to any Person other than a Holder pursuant to Rule 144 (or any
similar provision then in force, but not Rule 144A) under the Securities Act,
including a sale pursuant to the provisions of Rule 144(k), or (iii) such
Registrable Securities shall have been exchanged pursuant to an Exchange Offer.
"Registration Default" has the meaning set forth in Section 4(a).
"Registration Expenses" has the meaning set forth in Section 7.
"Registration Statement" means any registration statement of the
Company that covers any of the Securities pursuant to the provisions of this
Agreement (including any Shelf Registration Statement), and all amendments and
supplements to any such registration
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<PAGE>
statement, including post-effective amendments, in each case including the
Prospectus, all exhibits, and all material incorporated by reference or deemed
to be incorporated by reference in such registration statement.
"Rule 144A" has the meaning set forth in Section 9(b).
"Securities" means the Registrable Securities and the Exchange
Securities.
"Securities Act" means the Securities Act of 1933, as amended from time
to time, or any successor statute, and the rules and regulations of the
Commission promulgated thereunder.
"Shelf Notice" has the meaning set forth in Section 2(b).
"Shelf Registration Statement" has the meaning set forth in
Section 2(b).
"Suspension Notice" has the meaning set forth in Section 6.
"Suspension Period" has the meaning set forth in Section 6.
"Target Consummation Date" means the date 60 Business Days after the
earlier of (i) the Target Effective Date or (ii) the date on which the
Registration Statement relating to the Exchange Offer is declared effective by
the Commission.
"Target Effective Date" means the date 90 days after the earlier of (i)
the Target Filing Date or (ii) the date on which the Shelf Registration
Statement or the Exchange Offer Registration Statement is filed with the
Commission, as the case may be.
"Target Effective Period" has the meaning set forth in Section 3(a).
"Target Filing Date" means (i) the earlier of the date 30 days after an
Initial Public Offering or the date 180 days after the date hereof or (ii) in
the event that the Company has not filed a Registration Statement for an
Exchange Offer and the Shelf Notice is delivered within the 15 day period prior
to the Target Filing Date as contemplated by the proviso contained in the first
sentence of Section 3(a) of this Agreement, the date 15 days after delivery of
the Shelf Notice.
"Transfer Restricted Security" means each Security or New Security
until (i) the date which such Transfer Restricted Security has been exchanged by
a person other than a broker-dealer for a New Security in the Registered
Exchange Offer that is freely transferable under the Act, (ii) following the
exchange by a broker-dealer in the Registered Exchange Offer of a Transfer
Restricted Security for a New Security, the date on which such New Security is
sold to a purchaser who receives from such broker-dealer on or prior to the date
of such sale a copy of the prospectus contained in the Exchange Offer
Registration Statement, (iii) the date on which such Transfer Restricted
Security has been effectively registered under the Act and disposed of in
accordance with the Shelf Registration Statement
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<PAGE>
or (iv) the date an which such Transfer Restricted Security is distributed to
the public pursuant to Rule 144 under the Act or is saleable pursuant to Rule
144(k) under the Act.
"Trustee" means State Street Bank and Trust Company, as Trustee under
the Indenture, or any successor Trustee under the Indenture.
"Trust Indenture Act" means the Trust Indenture Act of 1939 (15 U.S.
Code 'SS''SS'77aaa-77bbbb), as amended from time to time, or any successor
statute, and any rules and regulations of the Commission promulgated thereunder.
"Warrants" has the meaning set forth in the preamble.
SECTION 2. EXCHANGE OFFER.
(a) After the Company's Initial Public Offering, or in the
event that, as of the date that is 180 days following the date hereof, neither
the Company nor Inter*Act has commenced an Initial Public Offering, the Company
shall (i) cause to be filed with the Commission in no later than the Target
Filing Date, a Registration Statement with respect to the Exchange Offer (the
"Exchange Offer Registration Statement"), (ii) use best efforts to cause such
Registration Statement to be declared effective as soon as practicable after the
Target Filing Date or such earlier filing date, but in no event later than the
Target Effective Date and (iii) use best efforts to Consummate the Exchange
Offer as soon as practicable after the Target Effective Date or such earlier
effective date, but in no event later than the Target Consummation Date. The
Exchange Offer will be registered under the Securities Act on the appropriate
form and duly registered or qualified under applicable state securities or blue
sky laws and will comply with all applicable tender offer rules and regulations
under the Exchange Act and state securities or blue sky laws. The Company shall
mail to each Holder a copy of the Prospectus forming part of the Exchange Offer
Registration Statement, together with an appropriate letter of transmittal and
related documents. Each Holder who exchanges Registrable Securities for Exchange
Securities in an Exchange Offer shall be deemed to have represented, and at the
request of the Company shall provide a letter confirming, that (A) such Holder
is not an "affiliate" of the Company within the meaning of Rule 405 under the
Securities Act, (B) any Exchange Securities received by such Holder will be
acquired in the ordinary course of its business, (C) such Holder will not, at
the time of the Consummation of the Exchange Offer, have any arrangement or
understanding with any Person or the intent to enter into any such arrangement
or understanding to participate in the distribution of the Exchange Securities
and (D) if such Holder is a broker-dealer, such Holder acquired its Registrable
Securities for its own account as a result of market-making or other trading
activities and such Holder will deliver a prospectus in connection with any
resale of Exchange Securities. Any Holder (x) who refuses to provide a letter
requested in connection with an Exchange Offer pursuant to the preceding
sentence or (y) who refuses to participate in an Exchange Offer other than in
the circumstances described in Section 2(b)(i) or (ii) below, shall not be
entitled to cause the Company to effect a "shelf" registration pursuant to
Section 3 hereof. The Company agrees to supplement or amend the Registration
Statement filed in respect of the Exchange Offer to the extent required by
applicable law, rules or regulations or by the instructions applicable to the
registration form used by the Company for
5
<PAGE>
such Registration Statement. The Company shall keep the Registration Statement
relating to the Exchange Offer continuously effective for a period of not less
than the minimum period required under applicable federal and state securities
laws; provided, however, that for a period of at least 20 consecutive Business
Days (i) the Exchange Offer shall remain open and (ii) the Registration
Statement relating to the Exchange Offer shall remain continuously effective.
The provisions of this Agreement shall continue to apply notwithstanding
acceptance of all tendered Registrable Securities pursuant to an Exchange Offer
and issuance of Exchange Securities in exchange therefor pursuant to an Exchange
Offer in accordance with this Section 2; provided, however, that the Company (i)
may omit to comply with such of the procedures set forth in Section 6 as are
required to be complied with only in connection with a Shelf Registration
Statement or as may be appropriate under the circumstances without adversely
affecting the interests of the Holders under this Agreement, taken as a whole,
(ii) shall have no further obligation to register Registrable Securities
pursuant to this Section 2 or pursuant to Section 3 of this Agreement and (iii)
shall, except for the obligation to pay liquidated damages which have accrued
under Section 4 hereof, have no further obligations under Section 4 hereof.
(b) As soon as practicable after the close of the Registered
Exchange Offer, the Company shall: (i) accept for exchange all Securities
tendered and not validly withdrawn pursuant to the Exchange Offer; (ii) deliver
to the Trustee for cancellation all Securities so accepted for exchange; and
(iii) cause the Trustee or the New Securities Trustee, as the case may be,
promptly to authenticate and deliver to each Holder of Securities New Securities
equal in principal amount to the Securities of such Holder so accepted for
exchange.
(c) The Company acknowledges that, pursuant to interpretations
by the Commission's staff of Section 5 of the Act, and in the absence of an
applicable exemption therefrom, each Exchanging Dealer is required to deliver a
Prospectus in connection with a sale of any New Securities received by such
Exchanging Dealer pursuant to the Registered Exchange Offer in exchange for
Securities acquired for its own account as a result of market-making activities
or other trading activities. Accordingly, the Company shall:
(i) include the information set forth in Annex A
hereto on the cover of the Exchange Offer Registration Statement, in
Annex B hereto in the forepart of the Exchange Offer Registration
Statement in a section setting forth details of the Exchange Offer, and
in Annex C hereto in the underwriting or plan of distribution section
of the Prospectus forming a part of the Exchange Offer Registration
Statement, and include the information set forth in Annex D hereto in
the Letter of Transmittal delivered pursuant to the Registered Exchange
Offer; and
(ii) use its best efforts to keep the Exchange Offer
Registration Statement continuously effective under the Act during the
Exchange Offer Registration Period for delivery by Exchanging Dealers
in connection with sales of New Securities received pursuant to the
Registered Exchange Offer, as contemplated by Section 4(h) below. The
Company shall be deemed not to have used its best efforts to keep the
Exchange Offer Registration Statement effective during the requisite
period if it voluntarily takes any action that would result in Holders
of Transfer Restricted
6
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Securities covered thereby not being able to offer and sell such
securities during that period, unless (i) such action is required by
applicable law, or (ii) such action is taken by the Company in good
faith and for valid business reasons (not including avoidance of the
Company's obligations hereunder), including the acquisition or
divestiture of assets, so long as the Company promptly thereafter
complies with the requirements of Section 4(f), if applicable.
(d) If, prior to the Consummation of the Exchange Offer, (i)
the Company reasonably determines, or Holders of at least 25% of the aggregate
principal amount of Registrable Securities reasonably determine, in each case
based on written advice of counsel, that the Exchange Securities would not, upon
receipt, be tradeable by each such Holder without restriction under the
Securities Act and the Exchange Act and under applicable blue sky or state
securities laws, and without, in each case, delivery of a prospectus, or (ii)
Holders of at least 25% of the aggregate principal amount of Registrable
Securities reasonably determine, based on written advice of counsel, that either
(A) the participation of such Holders in the Exchange Offer is not legally
permitted or (B) there has been a court decision or administrative action that
may reasonably be expected to have a material adverse effect on such Holders in
the event such Holders participate in the Exchange Offer, then the Company or
the Holders, as the case may be, shall promptly deliver to the Trustee and the
Company or the Holders, as the case may be, notice thereof (the "Shelf Notice")
and the Company shall file a "shelf" Registration Statement (the "Shelf
Registration Statement") on the appropriate form for an offering to be made on a
continuous basis pursuant to Rule 415 under the Securities Act (or such
successor rule or similar provision then in effect) pursuant to Section 3 of
this Agreement. The parties agree that, following the delivery of a Shelf
Notice, the Company shall have no further obligation under this Section 2.
SECTION 3. SHELF REGISTRATION.
(a) If the Company is required to deliver, or the Holders
deliver, a Shelf Notice as contemplated by Section 2(d) of this Agreement, then
the Company shall prepare and file with the Commission as soon as practicable,
but not later than the Target Filing Date, a Shelf Registration Statement
covering all of the Registrable Securities; provided, however, that if the
Company has not yet filed a Registration Statement for an Exchange Offer, the
Company shall file the Shelf Registration Statement on or before the Target
Filing Date unless the Shelf Notice is delivered within the 15 day period prior
to the Target Filing Date, in which case the Company shall have 15 days from the
date of delivery of the Shelf Notice to file the Shelf Registration Statement.
The Company will use best efforts to have the Shelf Registration Statement
declared effective on or before the Target Effective Date and to keep such Shelf
Registration Statement continuously effective for a period (the "Target
Effective Period") of at least 36 months following the Target Effective Date or,
if later, the date on which such Shelf Registration Statement is declared
effective (or such shorter period which will terminate when all Registrable
Securities covered by such Shelf Registration Statement have been sold or
withdrawn, but not prior to the expiration of the applicable period referred to
in Section 4(3) of the Securities Act and Rule 174 thereunder, if applicable).
The Company further agrees, if necessary, to supplement or amend the Shelf
Registration Statement, as required by the registration form used by the Company
for such
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<PAGE>
Shelf Registration Statement or by the instructions applicable to such
registration form or by the Securities Act or as requested (which request shall
result in the filing of a supplement or amendment) by any Holder of Registrable
Securities to which such Shelf Registration Statement relates (but only to the
extent that such request by such Holder relates to information with respect to
such Holder), and the Company agrees to furnish to the Holders and Holder's
Counsel copies of any such supplement or amendment prior to its being used
and/or filed with the Commission. Holders of Registrable Securities shall be
permitted to withdraw all or any part of the Registrable Securities from a Shelf
Registration Statement at any time prior to the effective date of such Shelf
Registration Statement.
(b) A registration will not be deemed to have been effected
under this Section 3 unless the Shelf Registration Statement has been declared
effective by the Commission and the Company has complied in all material
respects with its obligations under this Agreement with respect thereto;
provided, however, that if after it has been declared effective, the offering of
Registrable Securities pursuant to a Shelf Registration Statement is interfered
with by any stop order, injunction or other order or requirement of the
Commission or any other governmental agency or court, such Shelf Registration
Statement will be deemed not to have become effective during the period of such
interference (and liquidated damages shall accrue and be payable under Section
4) until the offering of Registrable Securities pursuant to such Shelf
Registration Statement may legally resume. If a registration pursuant to this
Section 3 is deemed not to have been effected then the Company shall continue to
be obligated to effect a registration pursuant to this Section 3.
(c) Selection of Underwriter. If the Holders so elect, the
offering of Registrable Securities pursuant to a Shelf Registration Statement
shall be in the form of an underwritten offering. If they so elect, the Holders
participating in such Shelf Registration Statement shall select one or more
nationally recognized firms of investment bankers to act as the book-running
managing underwriter or underwriters in connection with such offering; provided
that such selection shall be subject to the consent of the Company, which
consent shall not be unreasonably withheld.
SECTION 4. INTEREST PAYMENTS.
(a) In the event that, as of the date that is 180 days
following the date hereof, neither the Company nor Inter*Act has commenced on
Initial Public Offering, and (i) either the Exchange Offer Registration
Statement or the Shelf Registration Statement, as the case may be, is not filed
with the Commission on or prior to the Target Filing Date, (ii) the Exchange
Offer Registration Statement or the Shelf Registration Statement, as the case
may be, has not been declared effective on or prior to the Target Effective
Date, (iii) either the Exchange Offer is not consummated or the Shelf
Registration Statement is not declared effective, as the case may be, on or
prior to the Target Consummation Date or (iv) the Exchange Offer Registration
Statement or the Shelf Registration Statement, as the case may be, is declared
effective, but thereafter ceases to be effective or usable (each such event
referred to in clause (i) through (iv) above, a "Registration Default") interest
(in addition to the interest otherwise due on the Notes after such date) will
accrue on the Notes at a rate of one-half of one percent per annum of the
principal amount of the Notes on the immediately
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preceding semi-annual accrual date (for purposes of this paragraph, "semi-annual
accrual date" means each February 1 or August 1 of each year (or, if such
immediately preceding February 1 or August 1 occurs before February 1, 2000, at
a rate of one-half of one percent of the principal value of the Notes on August
1, 1999)) with respect to the first 90-day period following such Registration
Default, and the amount of such additional interest will increase by an
additional one-half of one percent per annum for each subsequent 90-day period
until such Registration Default has been cured, payable in cash semi-annually,
in arrears, on February 1 and August 1 of each year; provided, however, that in
no event shall the rate of such additional interest be more than one and
one-half of one percent of the principal value of the Notes. Upon the cure of
all applicable Registration Defaults, such additional interest shall cease to
accrue.
The parties hereto agree that the interest rate increase provided for
in this Section 4 constitutes a reasonable estimate as of the date hereof of the
damages that will be suffered by Holders of Registrable Securities by reason of
the failure of the Shelf Registration Statement or the Registration Statement
relating to the Exchange Offer to be filed, to be declared effective and/or to
remain effective, or by reason of the failure of the Exchange Offer to be
Consummated, as the case may be, in accordance with this Agreement. However, the
right of the Holders to be paid the increased interest rate provided for in this
Section 4 is not intended to be and shall not be construed or deemed to be an
exclusive remedy, it being understood that the Holders shall have the full right
to pursue all available remedies at law or in equity for any breach by the
Company of any of its obligations under this Agreement.
SECTION 5. TRUST INDENTURE ACT QUALIFICATION; RATING.
At or prior to the effectiveness of the Registration Statement relating
to the Exchange Offer or the Shelf Registration Statement:
(a) The Company will qualify the Indenture under the Trust
Indenture Act, and shall use best efforts to effect such registration to permit
the sale of such Registrable Securities or the exchange of the Exchange
Securities in accordance with the intended method or methods of disposition
thereof.
(b) If notified by a nationally recognized rating agency that
the Registrable Securities are being rated, the Company agrees to cooperate in
providing written information and making a presentation to such agency and to
use best efforts to obtain a rating for the Registrable Securities or Exchange
Securities, as the case may be, from a nationally recognized rating agency.
SECTION 6. REGISTRATION PROCEDURES.
In connection with the obligations of the Company to effect or cause
the registration of any Registrable Securities pursuant to the terms and
conditions of this Agreement, the Company shall use its best efforts to effect
the registration and sale of such Registrable Securities in accordance with the
intended method of distribution thereof as quickly as practicable, and in
connection therewith:
9
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(a) The Company shall prepare and file with the Commission a
Registration Statement on the appropriate form under the Securities
Act, which Registration Statement shall comply as to form in all
material respects with the requirements of the applicable form and
include all financial statements required by the Commission to be filed
therewith, and use its best efforts to cause such Registration
Statement to become effective and remain effective in accordance with
the provisions of this Agreement; provided, however that, at least ten
Business Days prior to filing a Registration Statement or Prospectus or
any amendments or supplements thereto, including documents incorporated
by reference after the initial filing of the Registration Statement,
the Company shall furnish to the Holders of the Registrable Securities
covered by such Registration Statement, Holders' Counsel and the
underwriters, if any, draft copies of all such documents proposed to be
filed, which documents will be subject to the review of Holders'
Counsel and the underwriters, if any, and the Company will not, unless
required by law or this Agreement, file any Registration Statement or
amendment thereto or any Prospectus or any supplement thereto to which
Holders holding a majority in interest of the Registrable Securities
covered by such Registration Statement or the underwriters with respect
to such Securities, if any, shall object; provided, however, that any
such objection to the filing of any Registration Statement or amendment
thereto or any Prospectus or supplement thereto shall be made by
written notice (the "Objection Notice") delivered to the Company no
later than ten Business Days after the party or parties asserting such
objection (the "Objecting Party") receives draft copies of the
documents that the Company proposes to file. The Objection Notice shall
set forth the objections and the specific areas in the draft documents
where such objections arise. The Company shall have five Business Days
after receipt of the Objection Notice to correct such deficiencies to
the satisfaction of the Objecting Party, and will notify each Holder of
any stop order issued or threatened by the Commission in connection
therewith and shall use its best efforts to prevent the entry of such
stop order or, if entered, to have such stop order withdrawn at the
earliest possible moment.
(b) The Company shall promptly prepare and file with the
Commission such amendments and post-effective amendments to each
Registration Statement as may be necessary to keep such Registration
Statement effective for as long as the Company is required to keep such
Registration Statement effective pursuant to the terms hereof; shall
cause the Prospectus to be supplemented by any required Prospectus
supplement, and, as so supplemented, to be filed pursuant to Rule 424
under the Securities Act; and shall comply with the provisions of the
Securities Act applicable to it with respect to the disposition of all
Registrable Securities covered by such Registration Statement during
the applicable period in accordance with the intended methods of
disposition by the Holders set forth in such Registration Statement or
amendment thereto or such Prospectus or supplement thereto;
(c) The Company shall promptly furnish to any Holder and the
underwriters, if any, without charge, such number of conformed copies
of each Registration Statement and any post-effective amendment thereto
and such number of
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copies of the Prospectus (including each preliminary Prospectus) and
any amendments or supplements thereto, any documents incorporated by
reference therein and such other documents as any such Holder or
underwriter may reasonable request in order to facilitate the public
sale or other disposition of the Registrable Securities being sold by
such Holder.
(d) The Company shall, on or prior to the date on which a
Registration Statement is declared effective, (i) use its best efforts
to register or qualify the Registrable Securities covered by such
Registration Statement under the securities or "blue sky" laws of each
of the 50 states of the United States (or such jurisdictions as any
Holder, Holders' counsel or underwriter may request) or obtain
appropriate exemptions therefrom; (ii) do any and all other acts and
things which may be necessary or advisable to enable the Holders of
Registrable Securities included in such Registration Statement to
consummate the disposition of such Registrable Securities in accordance
with their intended method of distribution thereof; (iii) use its best
efforts to keep each such state securities or "blue sky" registration
or qualification (or exemption therefrom) effective during the period
in which the Company is required to keep the Registration Statement
effective; and (iv) do any and all other acts or things which may be
necessary or advisable to enable the Holders of Registrable Securities
included in such Registration Statement to complete the disposition in
such jurisdictions of such Registrable Securities in accordance with
their intended method of distribution thereof; provided, however, that
the Company shall not be required (A) to qualify to do business in any
jurisdiction where it would not otherwise be required to so qualify but
for this Section 5(d) or (B) to file any general consent to service of
process.
(e) The Company shall use its best efforts to cause the
Registrable Securities covered by a Registration Statement to be
registered with or approved by such other governmental agencies or
authorities as may be necessary by virtue of the business and
operations of the Company to enable the Holders to consummate the
disposition of such Registrable Securities in accordance with their
intended method of distribution thereof.
(f) The Company shall promptly notify each Holder, Holders'
Counsel and any underwriter and (if requested by any such Person)
confirm such notice in writing, (i) when a Registration Statement or a
Prospectus or any post-effective amendment or any Prospectus supplement
has been filed and, with respect to a Registration Statement or any
post-effective amendment, when the same has become effective, (ii) of
any request by the Commission or any state securities authority for
amendments and supplements to a Registration Statement and Prospectus
or for additional information after the Registration Statement has
become effective, (iii) of the issuance by the Commission of any stop
order suspending the effectiveness of a Registration Statement or the
initiation or threatening of any proceedings for that purpose, (iv) of
the issuance by any state securities commission or other regulatory
authority of any order suspending the registration or qualification or
exemption from registration or qualification of any of the Registrable
Securities under state securities or "blue sky"
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laws or the initiation of any proceedings for that purpose, (v) if,
between the effective date of a Registration Statement and the closing
of any sale of Registrable Securities covered thereby, the
representations and warranties of the Company contained in any
underwriting agreement, securities sales agreement or other similar
agreement, if any, relating to the offering of such Registrable
Securities cease to be true and correct in all material respects, and
(vi) of the happening of any event which makes any statement of a
material fact made in a Registration Statement or related Prospectus
untrue or which requires the making of any changes in such Registration
Statement or Prospectus so that such Registration Statement or
Prospectus will not contain any untrue statement of a material fact or
omit to state any material fact required to be stated therein or
necessary to make the statements therein, in light of the circumstances
under which they were made, not misleading; and, as promptly as
practicable thereafter, prepare and file an amendment to such
Registration Statement with the Commission and furnish to the Holders
and any underwriter a supplement or amendment to such Prospectus so
that, as thereafter deliverable to the purchasers of such Registrable
Securities, such Prospectus will not contain any untrue statement of a
material fact or omit to state a material fact necessary to make the
statements therein, in light of the circumstances under which they were
made, not misleading.
(g) The Company shall make generally available to the Holders
an earnings statement satisfying the provisions of Section 11(a) of the
Securities Act no later than 30 days after the end of the 12-month
period beginning with the first day of the Company's first fiscal
quarter commencing after the effective date of a Registration
Statement, which earnings statement shall cover said 12-month period,
and which requirement will be deemed to be satisfied if the Company
timely files complete and accurate information on Forms 10-Q, 10-K and
8-K under the Exchange Act and otherwise complies with Rule 158 under
the Securities Act.
(h) The Company shall promptly use its best efforts to prevent
the issuance of any order suspending the effectiveness of a
Registration Statement, and, if any such order suspending the
effectiveness of a Registration Statement is issued, shall promptly use
its best efforts to obtain the withdrawal of such order at the earliest
possible moment.
(i) The Company shall, if requested by the managing
underwriter or underwriters, if any, Holders' Counsel, or any Holder
promptly incorporate in a Prospectus supplement or post-effective
amendment such information as such managing underwriter or underwriters
or Holder or Holders' Counsel requests to be included therein,
including, without limitation, with respect to the Registrable
Securities being sold by such Holder to such underwriter or
underwriters, the purchase price being paid therefor by such
underwriter or underwriters and any other terms of an underwritten
offering of the Registrable Securities to be sold in such offering, and
the Company shall promptly make all required filings of such Prospectus
supplement or post-effective amendment.
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(j) The Company shall, as promptly as practicable after the
filing with the Commission of any document which is incorporated by
reference into a Registration Statement (in the form in which it was
incorporated), deliver a copy of each such document to each of the
Holders and to Holders' Counsel.
(k) The Company shall cooperate with the Holders and the
managing underwriter or underwriters, if any, to facilitate the timely
preparation and delivery of certificates (which shall not bear any
restrictive legends unless required under applicable law) representing
Registrable Securities sold under a Registration Statement to the
purchasers thereof, and enable such Registrable Securities to be in
such denominations and registered in such names as the managing
underwriter or underwriters, if any, or such Holders may request and
keep available and make available to the Company's transfer agent prior
to the effectiveness of such Registration Statement a supply of such
certificates.
(l) The Company shall enter into such customary agreements
(including, if applicable, an underwriting agreement in customary form)
and take such other actions as the Holders or the underwriters retained
by the Holders participating in an underwritten public offering, if
any, may request in order to expedite or facilitate the disposition of
Registrable Securities (the Holders may, at their option, require that
any or all of the representations, warranties and covenants of the
Company to or for the benefit of any underwriters also be made to and
for the benefit of the Holders).
(m) The Company shall promptly make available to each Holder,
any underwriter participating in any disposition of Registrable
Securities pursuant to a Registration Statement, and any attorney,
accountant or other agent or representative retained by any such Holder
or underwriter (collectively, the "Inspectors"), all financial and
other records, pertinent corporate documents and properties of the
Company (collectively, the "Records"), as shall be reasonably necessary
to enable them to exercise their due diligence responsibility, and
cause the Company's officers, directors and employees to supply all
information requested by any such Inspector in connection with such
Registration Statement.
(n) The Company shall furnish to each Holder of Registrable
Securities included in such offering and to each underwriter, if any, a
signed counterpart, addressed to such Holder or underwriter, of (i) an
opinion or opinions of counsel to the Company, and (ii) a comfort
letter or comfort letters from the Company's independent public
accountants, each in customary form and covering matters of the type
customarily covered by opinions or comfort letters, as the case may be.
(o) The Company shall use its best efforts to cause the
Registrable Securities included in a Registration Statement (if the
Company and the Registrable Securities so qualify) (i) to be listed on
each national securities exchange, if any, on which similar securities
issued by the Company are then listed, or (ii) if similar securities of
the Company are not then listed, to be authorized for quotation or
listing,
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as applicable, on the New York Stock Exchange or The Nasdaq Stock
Market, Inc.'s ("Nasdaq") National Market or Small-Cap Market.
(p) The Company shall provide a CUSIP number for all
Registrable Securities covered by a Registration Statement not later
than the effective date of such Registration Statement.
(q) The Company shall cooperate with each Holder and each
underwriter participating in the disposition of Registrable Securities
and their respective counsel in connection with any filings required to
be made with the National Association of Securities Dealers, Inc.
("NASD").
(r) The Company shall, during the period when the Prospectus
is required to be delivered under the Securities Act, promptly file all
documents required to be filed with the Commission pursuant to Sections
13(a), 13(c), 14 or 15(d) of the Exchange Act.
(s) The Company shall appoint or maintain a transfer agent and
registrar for all Registrable Securities covered by a Registration
Statement not later than the effective date of such Registration
Statement.
(t) In connection with an underwritten offering, the Company
shall participate, to the extent reasonably requested by the managing
underwriter for the offering or the Holders, in customary efforts to
sell the securities being offered, including without limitation,
participating in "road shows."
(u) If a Holder proposes to sell a block of Registrable
Securities with a value in excess of $1 million, the Company shall make
members of the management of the Company available for reasonable
selling efforts, including senior management attendance at road shows,
provided, however, that the selling Holder or Holders shall reimburse
the Company for its reasonable out-of-pocket expenses actually incurred
at the request of such selling Holder or Holders in connection with
such selling efforts.
(v) If the Registrable Securities are of a class of securities
that is listed on a national securities exchange, the Company shall
file copies of any Prospectus with such exchange in compliance with
Rule 153 under the Securities Act so that the Holders shall benefit
from the prospectus delivery procedures described therein.
In the case of a Shelf Registration Statement, each Holder, upon
receipt of any notice (a "Suspension Notice") from the Company of the happening
of any event of the kind described in Section 5(f)(vi), shall forthwith
discontinue disposition of the Registrable Securities pursuant to the Shelf
Registration Statement covering such Registrable Securities until such Holder's
receipt of the copies of the supplemented or amended Prospectus contemplated by
Section 5(f) or until such Holder is advised in writing (the "Advice") by the
Company that the use of the Prospectus may be resumed, and such Holder has
received copies of any additional or supplemental filings which are incorporated
by reference in the
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Prospectus, and, if so directed by the Company, such Holder will, or will
request the managing underwriter or underwriters, if any, to, deliver to the
Company (at the Company's expense) all copies, other than permanent file copies
then in such Holder's possession, of the Prospectus covering such Registrable
Securities current at the time of receipt of such notice; provided, however,
that the Company shall not give a Suspension Notice until after the Shelf
Registration Statement has been declared effective and shall not give more than
one Suspension Notice during any period of 12 consecutive months and in no event
shall the period from the date on which any Holder receives a Suspension Notice
to the date on which any Holder receives either the Advice or copies of the
supplemented or amended Prospectus contemplated by Section 5(f) (the "Suspension
Period") exceed 30 days. In the event that the Company shall give any Suspension
Notice, (i) the Company shall use its best efforts and take such actions as are
reasonably necessary to render the Advice and end the Suspension Period as
promptly as practicable and (ii) the time periods for which a Shelf Registration
Statement is required to be kept effective pursuant to Section 2 hereof shall be
extended by the number of days during the Suspension Period. If any Suspension
Period exceeds 30 days or more than one Suspension Notice is given during any
period of 12 consecutive months, the Company shall pay liquidated damages to
each Holder of Registrable Securities in an amount equal to $.10 per 1,000
shares of the Registrable Securities included in the Shelf Registration
Statement per week beginning on the 31st day of such Suspension Period or the
date of such additional Suspension Notice, as the case may be. The weekly
liquidated damages payable by the Company to the Holders as a result of the
continuance of a Suspension Period beyond 30 days or as a result of the giving
of more than one Suspension Notice during any 12 months period shall increase by
an amount equal to $.10 per 1,000 shares of the Registrable Securities two weeks
after the event triggering such liquidated damages and shall thereafter increase
by an amount equal to $.10 per 1,000 shares of the Registrable Securities at the
end of each subsequent two week period for so long as the event triggering such
liquidated damages has not been eliminated. The Company shall pay the liquidated
damages due with respect to any Registrable Securities at the end of each week
during which such damages accrue. Liquidated damages shall be paid to the
Holders of Registrable Securities entitled to receive such liquidated damages by
wire transfer in immediately available funds to the accounts designated by such
Holders.
If any Registration Statement refers to any Holder by name or otherwise
as the holder of any securities of the Company, then such Holder shall have the
right to require (i) the insertion therein of language, in form and substance
reasonably satisfactory to such Holder, to the effect that the holding by such
Holder of such securities is not to be construed as a recommendation by such
Holder of the investment quality of the Company's securities covered thereby and
that such holding does not imply that such Holder will assist in meeting any
future financial requirements of the Company, or (ii) in the event that such
reference to such Holder by name or otherwise is not required by the Securities
Act or any similar Federal or state securities or "blue sky" statute and the
rules and regulations thereunder then in force, the deletion of the reference to
such Holder.
SECTION 7. REGISTRATION EXPENSES. Any and all expenses incident to
the Company's performance of or compliance with this Agreement, including
without limitation, all Commission and securities exchange, NASDAQ or NASD
registration and filing fees, all
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fees and expenses incurred in connection with compliance with state securities
or "blue sky" laws (including reasonable fees and disbursements of counsel for
any underwriters or Holders in connection with state securities or "blue sky"
qualifications of the Registrable Securities), rating agency fees, printing
expenses, messenger and delivery expenses, internal expenses (including, without
limitation, all salaries and expenses of the Company's officers and employees
performing legal or accounting duties), all expenses for word processing,
printing and distributing any Registration Statement, any Prospectus, any
amendments or supplements thereto, any underwriting agreements, securities sales
agreements and other documents relating to the performance of and compliance
with this Agreement, the fees and expenses incurred in connection with the
listing of the Registrable Securities, the fees and disbursements of counsel for
the Company and of the independent certified public accountants of the Company
(including the expenses of any comfort letters or costs associated with the
delivery by independent certified public accountants of a comfort letter or
comfort letter requested pursuant to Section 6(n), Securities Act liability
insurance (if the Company elects to obtain such insurance), the reasonable fees
and expenses of any special experts or other Persons retained by the Company in
connection with any registration, the reasonable fees and disbursements of
Holders' Counsel and any reasonable out-of-pocket expenses of the Holders and
their agents, including any reasonable travel costs but excluding underwriting
discounts and commissions and transfer taxes, if any, relating to the sale or
disposition of Registrable Securities (all such expenses being herein called
"Registration Expenses"), will be borne by the Company whether or not the
Registration Statement or Exchange Offer to which such expenses relate becomes
effective or is Consummated, as the case may be.
SECTION 8. INDEMNIFICATION AND CONTRIBUTION.
(a) Indemnification by the Company. The Company agrees to
indemnify and hold harmless, to the full extent permitted by law, each Holder,
its partners, officers, directors, trustees, stockholders, employees, agents and
investment advisers, and each Person who controls such Holder within the meaning
of either Section 15 of the Securities Act or Section 20 of the Exchange Act, or
is under common control with, or is controlled by, such Holder, together with
the partners, officers, directors, trustees, stockholders, employees, agents and
investment advisors of such controlling Person (collectively, the "Controlling
Persons"), from and against all losses, claims, damages, liabilities and
expenses (including, without limitation, any legal or other fees and expenses
incurred by any Holder or any such Controlling Person in connection with
defending or investigating any action or claim in respect thereof)
(collectively, the "Damages") to which such Holder, its partners, officers,
directors, trustees, stockholders, employees, agents and investment advisers,
and any such Controlling Person, may become subject under the Securities Act or
otherwise, insofar as such Damages (or proceedings in respect thereof) arise out
of or are based upon any untrue or alleged untrue statement of material fact
contained in any Registration Statement (or any amendment thereto) pursuant to
which Registrable Securities were registered under the Securities Act, including
all documents incorporated therein by reference, or are caused by any omission
or alleged omission to state therein a material fact necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading, or arise out of or are based upon any untrue statement or
alleged untrue statement of a material fact contained in any Prospectus (as
amended or supplemented if the
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Company shall have furnished any amendments or supplements thereto), or are
caused by any omission or alleged omission to state therein a material fact
necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading; provided, however, that the Company shall
not be liable for Damages to any Holder under this Section 6(a) to the extent
that any such Damages (i) arise out of or are based upon any such untrue
statement or omission which is based upon information relating to such Holder
furnished in writing to the Company by such Holder expressly for use in any such
Registration Statement (or any amendment thereto) or Prospectus (or amendment or
supplement thereto); or (ii) were caused by the fact that such Holder sold
Securities to a Person as to whom it shall be established that there was not
sent or given, or deemed sent or given pursuant to Rule 153 under the Securities
Act, at the time of or prior to the written confirmation of such sale, a copy of
the Prospectus as then amended or supplemented if, and only if, (a) the Company
has previously furnished copies of such amended or supplemented Prospectus to
such Holder and (b) such Damages were caused by any untrue statement or omission
or alleged untrue statement or omission contained in the Prospectus so delivered
which was corrected in such amended or supplemented Prospectus. In connection
with an underwritten offering, the Company will indemnify the underwriters
thereof, their officers and directors and each Person who controls such
underwriters (within the meaning of either Section 15 of the Securities Act or
Section 20 of the Exchange Act) to the same extent as provided above with
respect to the indemnification of the Holders of Registrable Securities except
with respect to information provided by the underwriter specifically for
inclusion therein.
(b) Indemnification by the Holders. Each Holder agrees,
severally and not jointly, to indemnify and hold harmless the Company, its
directors and officers and each Person, if any, who controls the Company within
the meaning of either Section 15 of the Securities Act or Section 20 of the
Exchange Act from and against all Damages to the same extent as the foregoing
indemnity from the Company to such Holder, but only to the extent such Damages
arise out of or are based upon any untrue statement of a material fact contained
in any Registration Statement (or any amendment thereto) or Prospectus (or any
amendment or supplement thereto) or are caused by any omission to state therein
a material fact necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading, which untrue statement
or omission is based upon information relating to such Holder furnished in
writing to the Company by such Holder expressly for use in any such Registration
Statement (or any amendment thereto) or any such Prospectus (or any amendment or
supplement thereto); provided, however, that such Holder shall not be obligated
to provide such indemnity to the extent that such Damages result from the
failure of the Company to promptly amend or take action to correct or supplement
any such Registration Statement or Prospectus on the basis of corrected or
supplemental information furnished in writing to the Company by such Holder
expressly for such purpose. In no event shall the liability of any Holder of
Registrable Securities hereunder be greater in amount than the amount of the
proceeds received by such Holder upon the sale of the Registrable Securities
giving rise to such indemnification obligation.
(c) Indemnification Procedures. In case any proceeding
(including any governmental investigation) shall be instituted involving any
Person in respect of which
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indemnity may be sought pursuant to either paragraph (a) or (b) above, such
Person (the "indemnified party") shall promptly notify the Person against whom
such indemnity may be sought (the "indemnifying party") in writing and the
indemnifying party, upon request of the indemnified party, shall retain counsel
reasonably satisfactory to the indemnified party to represent the indemnified
party and any others the indemnifying party may designate in such proceedings
and shall pay the fees and disbursements of such counsel relating to such
proceeding. The failure of an indemnified party to notify the indemnifying party
with respect to a particular proceeding shall not relieve the indemnifying party
from any obligation or liability (i) which it may have pursuant to this
Agreement if the indemnifying party is not materially prejudiced by such failure
to so notify it or (ii) which it may otherwise have pursuant to this Agreement.
The failure of an indemnified party to notify the indemnifying party with
respect to a particular proceeding shall not relieve the indemnifying party from
any obligation or liability (i) which it may have pursuant to this Agreement if
the indemnifying party is not substantially prejudiced by such failure to so
notify it or (ii) which it may have otherwise than pursuant to this Agreement.
In any such proceeding, any indemnified party shall have the right to retain its
own counsel, but the fees and expenses of such counsel shall be at the expense
of such indemnified party unless (i) the indemnifying party and the indemnified
party shall have mutually agreed to the retention of such counsel, or (ii) the
indemnifying party fails promptly to assume the defense of such proceeding or
fails to employ counsel reasonably satisfactory to such indemnified party, or
(iii) (A) the named parties to any such proceeding (including any impleaded
parties) include both such indemnified party or an Affiliate of such indemnified
party and any indemnifying party or an Affiliate of such indemnifying party, (B)
there may be one or more defenses available to such indemnified party or any
Affiliate of such indemnified party that are different from or additional to
those available to any indemnifying party or any Affiliate of any indemnifying
party and (C) such indemnified party shall have been advised by such counsel
that there may exist a conflict of interest between or among such indemnified
party or any Affiliate of such indemnified party and such indemnifying party or
any Affiliate of such indemnifying party, in which case, if such indemnified
party notifies the indemnifying party in writing that it elects to employ
separate counsel of its choice at the expense of the indemnifying party, the
indemnifying party shall not have the right to assume the defense thereof and
such counsel shall be at the expense of the indemnifying party, it being
understood, however, that unless there exists a conflict among indemnified
parties, the indemnifying parties shall not, in connection with any one such
proceeding or separate but substantially similar or related proceedings in the
same jurisdiction, arising out of the same general allegations or circumstances,
be liable for the fees and expenses of more than one separate firm of attorneys
(together with appropriate local counsel) at any time for such indemnified
parties. The indemnifying party shall not be liable for any settlement of any
proceeding effected without its written consent but, if settled with such
consent or if there be a final judgment for the plaintiff, the indemnifying
party agrees to indemnify each indemnified party from and against any loss or
liability by reason of such settlement or judgment. No indemnifying party shall,
without the prior written consent of each indemnified party, effect any
settlement of any pending or threatened proceeding in respect of which such
indemnified party is a party, and indemnity could have been sought hereunder by
such indemnified party, unless such settlement includes an unconditional release
of such indemnified party from all liability
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indemnifying party or indemnified party or any other equitable consideration
provided for in this Section 8(d).
SECTION 9. RULE 144. The Company covenants that it will file any
reports required to be filed by it under the Securities Act and the Exchange
Act, and the rules and regulations adopted by the Commission thereunder (or, if
the Company is not required to file such reports, it will, upon the request of
any Holder, make publicly available other information so long as necessary to
permit sales of the Registrable Securities under Rule 144 under the Securities
Act), and it will take such further action as any Holder may request, all to the
extent required from time to time to enable such Holder to sell Registrable
Securities without registration under the Securities Act within the limitation
of the exemptions provided by (a) Rule 144 under the Securities Act, as such
Rule may be amended from time to time, or (b) any successor rule or similar
provision or regulation hereafter adopted by the Commission. Upon the request of
any Holder, the Company will deliver to such Holder a written statement as to
whether it has complied with such requirements.
SECTION 10. RULE 144A. The Company covenants that it will file all
reports required to be filed by it under the Securities Act and the Exchange
Act, and the rules and regulations adopted by the Commission thereunder (or if
the Company is not required to file such reports, it will, upon the request of
any Holder, make available other information so long as necessary to permit
sales of the Registrable Securities pursuant to Rule 144A under the Securities
Act), and it will take such further action as any Holder may request, all to the
extent required from time to time to enable such Holder to sell Registrable
Securities without registration under the Securities Act within the limitation
of the exemptions provided by (a) Rule 144A, as such rule may be amended from
time to time, or (b) any successor rule or similar provision or regulation
hereafter adopted by the Commission.
SECTION 11. MISCELLANEOUS.
(a) No Inconsistent Agreements. The Company has not entered
into nor will the Company on or after the date of this Agreement enter into any
agreement which is inconsistent with the rights granted to the Holders of
Registrable Securities in this Agreement or otherwise conflicts with the
provisions hereof. The rights granted to the Holders hereunder do not in any way
conflict with and are not inconsistent with the rights granted to the holders of
the Company's other issued and outstanding securities under any such agreements.
(b) Amendments and Waivers. The provisions of this Agreement,
including the provisions of this sentence, may not be amended, modified or
supplemented, and waivers or consents to departures from the provisions hereof
may not be given unless the Company has obtained the written consent of Holders
of at least a majority in interest of the outstanding Registrable Securities
affected by such amendment, modification, supplement, waiver or consent;
provided, however, that, no amendment, modification, supplement, waiver or
consent to any departure from the provisions of Section 6 hereof (other than any
immaterial amendment, modification, supplement, waiver or consent) shall be
effective as against any Holder of Registrable Securities unless consented to in
writing by such Holder.
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(c) Notices. All notices and other communications provided for
or permitted hereunder shall be in writing and shall be deemed to have been duly
given if delivered personally or sent by telecopier, registered or certified
mail (return receipt requested), postage prepaid or courier to the parties at
their respective addresses set forth on the signature pages hereof (or at such
other address for any party as shall be specified by like notice, provided that
notices of a change of address shall be effective only upon receipt thereof).
All such notices and communications shall be deemed to have been duly
given: at the time delivered by hand, if personally delivered; five Business
Days after being deposited in the mail, postage prepaid, if mailed; by confirmed
receipt of transmission, if telecopied; and on the next Business Day if timely
delivered to a courier guaranteeing overnight delivery.
(d) Successors and Assigns. This Agreement shall inure to the
benefit of and be binding upon the successors, assigns and transferees of each
of the parties, including, without limitation and without the need for an
express assignment, subsequent Holders. If any transferee of any Holder shall
acquire Registrable Securities in any manner, whether by operation of law or
otherwise, such Registrable Securities shall be held subject to all of the terms
of this Agreement, and by taking and holding such Registrable Securities such
person shall be conclusively deemed to have agreed to be bound by and to perform
all of the terms and provisions of this Agreement and such person shall be
entitled to receive the benefits hereof.
(e) Counterparts. This Agreement may be executed in any number
of counterparts and by the parties hereto in separate counterparts, each of
which when so executed shall be deemed to be an original and all of which taken
together shall constitute one and the same agreement.
(f) Headings. The headings in this Agreement are for
convenience of reference only and shall not limit or otherwise affect the
meaning hereof.
(g) Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of New York without regard to
principles or rules of conflicts of law.
(h) Severability. In the event that any one or more of the
provisions contained herein, or the application thereof in any circumstances, is
held invalid, illegal or unenforceable in any respect for any reason, the
validity, legality and enforceability of any such provision in every other
respect and of the remaining provisions contained herein shall not be in any way
impaired thereby, it being intended that all of the rights and privileges of the
Holders shall be enforceable to the fullest extent permitted by law.
(i) Entire Agreement. This Agreement is intended by the
parties as a final expression of their agreement and is intended to be the
complete and exclusive statement of the agreement and understanding of the
parties hereto in respect of the subject matter contained herein. There are no
restrictions, promises, warranties or undertakings, other than
20
<PAGE>
those set forth or referred to herein. This Agreement supersedes all prior
agreements and understandings between the parties with respect to such subject
matter.
(j) Attorneys' Fees. In any action or proceeding brought to
enforce any provision of this Agreement or where any provision hereof is validly
asserted as a defense, the successful party shall, to the extent permitted by
applicable law, be entitled to recover reasonable attorneys' fees in addition to
any other available remedy.
(k) Further Assurances. Each party shall cooperate and take
such action as may be reasonably requested by another party in order to carry
out the provisions and purposes of this Agreement and the transactions
contemplated hereby.
(l) Remedies. In the event of a breach or a threatened breach
by any party to this Agreement of its obligations under this Agreement, any
party injured or to be injured by such breach will be entitled to specific
performance of its rights under this Agreement or to injunctive relief, in
addition to being entitled to exercise all rights provided in this Agreement and
granted by law. The parties agree that the provisions of this Agreement shall be
specifically enforceable, it being agreed by the parties that remedies at law
for violations hereof, including monetary damages, are inadequate and that the
right to object in any action for specific performance or injunctive relief
hereunder on the basis that a remedy at law would be adequate is waived.
(m) Third Party Beneficiaries. The beneficial owners of the
Registrable Securities, together with their nominees, successors and assigns,
are third party beneficiaries to this Agreement, and shall be entitled to the
rights, and subject to the obligations, of Holders contained herein as if each
were an original party to this Agreement.
[Remainder of Page Intentionally Left Blank]
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<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first written above.
INTER*ACT OPERATING CO., INC.
By: /s/ Thomas McGoldrick
_________________________________
Thomas McGoldrick
Executive Vice President
Notice Information:
Inter*Act Operating Co., Inc.
14 Westport Avenue
Norwalk, Connecticut 06851
Attn: President & Chief Operating Officer
Telecopier:
[HOLDERS]
By:---------------------------------
Name:
Title:
Notice Information: At the
address of the Holder set forth
on the books and records of the
Company or at such other place
designated by the Holder in writing
in accordance with the provisions
contained herein.
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<PAGE>
ANNEX A
Each broker-dealer that receives New Securities for its own account
pursuant to the Exchange Offer must acknowledge that it will deliver a
prospectus in connection with any resale of such New Securities. The Letter of
Transmittal states that by so acknowledging and by delivering a prospectus, a
broker-dealer will not be deemed to admit that it is an "underwriter" within the
meaning of the Act. This Prospectus, as it may be amended or supplemented from
time to time, may be used by a broker-dealer in connection with resales of New
Securities received in exchange for Securities where such Securities were
acquired by such broker-dealer as a result of market making activities or other
trading activities. The Company has agreed that, starting on the Expiration Date
(as defined herein) and ending on the close of business 90 days after the
Expiration Date, it will make this Prospectus available to any broker-dealer for
use in connection with any such resale. See "Plan of Distribution."
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<PAGE>
ANNEX B
Each broker-dealer that receives New Securities for its own account in
exchange for Securities, where such securities were acquired by such
broker-dealer as a result of market making activities or other trading
activities, must acknowledge that it will deliver a prospectus in connection
with any resale of such New Securities. See "Plan of Distributions."
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<PAGE>
ANNEX C
PLAN OF DISTRIBUTION
Each broker-dealer that receives New Securities for its own account
pursuant to the Exchange offer must acknowledge that it will deliver a
prospectus in connection with any resale of such New Securities. This
Prospectus, as it may be amended or supplemented from time to time, may be used
by a broker-dealer in connection with resales of New Securities received in
exchange for Securities where such Securities were acquired as a result Of
market making activities or other trading activities. The Company has agreed
that, starting on the Expiration Date and ending on the close of business 90
days after the Expiration Date, it will make this Prospectus, as amended or
supplemented, available to any broker-dealer for use in connection with any such
resale. In addition, until __________, 199_ all dealers effecting transaction in
the New Securities may be required to deliver a prospectus.
The Company will not receive any proceeds from any sale of New
Securities by broker-dealers. New Securities received by broker-dealers for
their own account pursuant to the Exchange offer may be sold from time to time
in one or more transactions in the over-the-counter market, in negotiated
transactions, through the writing of options on the New Securities or a
combination of such methods of resale, at market prices prevailing at the time
of resale, at prices related to such prevailing market prices or negotiated
prices. Any such resale may be made directly to purchasers or to or through
brokers or dealers who may receive compensation in the form of commissions or
concessions from any such broker-dealer and/or the purchasers of any such New
Securities. An broker-dealer that resells New Securities that were received by
it for its own account pursuant to the Exchange Offer and any broker or dealer
that participates in a distribution of such New Securities may be deemed to be
an "underwriter" within the meaning of the Act and any profit of any such resale
of New Securities and any commissions or concessions received by any such
persons may be deemed to be underwriting compensation under the Act. The Letter
of Transmittal states that by acknowledging that it will deliver and by
delivering a prospectus, a broker-dealer will not be deemed to admit that it is
an "underwriter" within the meaning of the Act.
For a period of 90 days after the Expiration Date, the Company will
promptly send additional copies of this prospectus and any amendment or
supplement to this Prospectus to any broker-dealer that requests such documents
in the Letter of Transmittal. The Company has agreed to pay all expenses
incident to the Exchange offer (including the expenses of one counsel for the
Holders of the Securities) other than commissions or concessions of any brokers
or dealers and will indemnify the Holders of the Securities (including any
broker-dealers) against certain liabilities, including liabilities under the
Act.
[If applicable, add any additional information required by Regulation
S-K Item 507 and/or 508.]
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<PAGE>
ANNEX D
RIDER A
[ ] CHECK HERE IF YOU ARE A BROKER-DEALER AND WISH TO RECEIVE 10
ADDITIONAL COPIES-OF THE PROSPECTUS AND 10 COPIES OF ANY
AMENDMENTS OR SUPPLEMENTS THERETO.
Name:
Address:
RIDER B
If the undersigned is not a broker-dealer, the undersigned represents
that it is not engaged in, and does not intend to engage in, a distribution of
New Securities. if the undersigned is a broker-dealer that will receive New
Securities for its own account in exchange for Securities, it represents that
the Securities to be exchanged for New Securities were acquired by it as a
result of market-making activities or other trading activities and acknowledges
that it will deliver a prospectus in connection with any resale of such New
Securities; however, by so acknowledging and by delivering a prospectus, the
undersigned will not be deemed to admit that it is an "underwriter" within the
meaning of the Act.
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<PAGE>
Exhibit 10 (a) (15)
REGISTRATION RIGHTS AGREEMENT
REGISTRATION RIGHTS AGREEMENT (the "Agreement") is made and entered
into as of December 15, 1999 by and among Inter*Act Electronic Marketing, Inc.,
a North Carolina corporation (the "Company"), and each Holder (as hereinafter
defined).
This Agreement is made in connection with that certain exchange offer
pursuant to which, in exchange for the surrender of at least 80% aggregate
principal amount of the 14% Senior Discount Notes Due 2003 of the Company the
Company shall issue or cause to be issued, as the case may be, (x) up to
$70,000,000 aggregate principal amount of Senior Pay-in-Kind Notes Due 2003 of
Inter*Act Operating Co., Inc. (the "Subsidiary Notes"), (y) warrants
("Warrants") to purchase up to an aggregate of 2,506,812 shares of common stock,
no par value, of the Company (the "Common Stock") and (z) up to an aggregate of
140,000 shares of the 14% Series B Mandatorily Convertible Preferred Stock of
the Company (the "Preferred Stock").
In consideration of the foregoing, the parties hereby agree as follows:
SECTION 1. DEFINITIONS.
As used in this Agreement, the following terms shall have the following
meanings:
"Advice" has the meaning set forth in Section 5.
"Affiliate" means, with respect to any specified Person, any other
Person who, directly or indirectly, controls, is controlled by, or is under
common control with such specified Person.
"Agreement" has the meaning set forth in the preamble.
"Business Day" means any day other than a day on which banks are
authorized or required to be closed in the State of New York.
"Commission" means the Securities and Exchange Commission.
"Common Stock" has the meaning set forth in the preamble.
"Company" has the meaning set forth in the preamble and shall include
the Company's successors by merger, acquisition, reorganization or otherwise.
"Controlling Persons" has the meaning set forth in Section 7(a).
"Damages" has the meaning set forth in Section 5(a).
"Demand Registration Statement" has the meaning set forth in
Section 3(a).
<PAGE>
"Exchange Act" means the Securities Exchange Act of 1934, as amended
from time to time, or any successor statute, and the rules and regulations of
the Commission promulgated thereunder.
"Holder" means each holder of Registrable Securities.
"Holders' Counsel" means Goodwin, Procter & Hoar LLP, special counsel
to the Holders, or any successor counsel selected by Holders of a majority in
interest of the Registrable Securities.
"Initial Public Offering" shall mean the first public offering of
shares of Common Stock registered on Form S-1, Form S-4, or Form S-11 (or any
successor or equivalent forms) under the Securities Act.
"Inspectors" has the meaning set forth in Section 5(m).
"NASD" has the meaning set forth in Section 5(q).
"Nasdaq" has the meaning set forth in Section 5(o).
"Objection Notice" has the meaning set forth in Section 5(a).
"Objecting Party" has the meaning set forth in Section 5(a).
"Person" means any individual, corporation, partnership, joint venture,
association, joint-stock company, trust, limited liability company,
unincorporated organization or government or other agency or political
subdivision thereof.
"Piggy-Back Registration" has the meaning set forth in Section 4(a).
"Preferred Stock" has the meaning set forth in the preamble.
"Prospectus" means the prospectus included in any Registration
Statement (including, without limitation, a prospectus that discloses
information previously omitted from a prospectus filed as part of an effective
Registration Statement in reliance upon Rule 430A promulgated under the
Securities Act), as amended or supplemented by any prospectus supplement,
including a prospectus supplement with respect to the terms of the offering of
any portion of the Registrable Securities covered by such Registration
Statement, and all other amendments and supplements to the prospectus, including
post-effective amendments, and in each case all material incorporated by
reference or deemed to be incorporated by reference in such prospectus.
"Public Offering" means a public offering of Securities registered on
Form S-11 or Form S-3 (or any successor or equivalent forms) under the
Securities Act for the Company's own or others' account.
2
<PAGE>
"Records" has the meaning set forth in Section 5(m).
"Registrable Securities" means the Securities; provided, however, that
any Securities shall cease to be Registrable Securities when (i) a Registration
Statement covering such Registrable Securities has been declared effective and
such Registrable Securities have been disposed of by the holder thereof pursuant
to such effective Registration Statement, (ii) such Registrable Securities are
transferred by the holder thereof to any Person other than a Holder pursuant to
Rule 144 (or any successor rule or similar provision then in effect, but not
Rule 144A) under the Securities Act, including a sale pursuant to the provisions
of Rule 144(k), or (iii) such Securities shall have ceased to be outstanding.
"Registration Expenses" has the meaning set forth in Section 6.
"Registration Statement" means any registration statement of the
Company that covers any of the Registrable Securities pursuant to the provisions
of this Agreement (including any Demand Registration Statement and any Shelf
Registration Statement), and all amendments and supplements to any such
registration statement, including post-effective amendments, in each case
including the Prospectus, all exhibits, and all material incorporated by
reference or deemed to be incorporated by reference in such registration
statement.
"Required Filing Date" has the meaning set forth in Section 2(a).
"Securities" means (i) all shares of Common Stock issued or issuable
upon the conversion of the Preferred Stock or the Warrants and (ii) all shares
of Common Stock directly or indirectly issued or issuable in respect of the
securities referred to in clause (i) above by way of stock dividend or stock
split or in connection with a combination of shares, recapitalization, merger,
consolidation, or other reorganization.
"Securities Act" means the Securities Act of 1933, as amended from time
to time, or any successor statute, and the rules and regulations of the
Commission promulgated thereunder.
"Shelf Registration Statement" has the meaning set forth in
Section 2(a).
"Suspension Notice" has the meaning set forth in Section 5.
"Suspension Period" has the meaning set forth in Section 5.
"Target Effective Date" means the date 30 days after the earlier of (i)
the Required Filing Date or (ii) the date on which the Shelf Registration
Statement is actually filed with the Commission.
"Target Effective Period" means the period of time between the date on
which a Shelf Registration Statement is actually declared effective and the
later of (i) the date which is 24 months following the date hereof, and (ii) the
date which is three months after the date on which
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<PAGE>
a Holder ceases to be an Affiliate of the Company, provided that the Company
first provides each Holder with an opinion of counsel to such effect.
"Target Filing Date" has the meaning set forth in Section 3(a).
SECTION 2. SHELF REGISTRATION.
(a) Filing; Effectiveness. As soon as practicable but not
later than the thirtieth (30th) day following the date of the Company's Initial
Public Offering (the "Required Filing Date"), the Company shall prepare and file
with the Commission a "shelf" registration statement (the "Shelf Registration
Statement") on the appropriate form for an offering to be made on a continuous
basis pursuant to Rule 415 under the Securities Act (or any successor rule or
similar provision then in effect) covering all of the Registrable Securities.
The Company shall use its best efforts to have the Shelf Registration Statement
declared effective on or before the Target Effective Date and to keep such Shelf
Registration Statement continuously effective for the Target Effective Period.
Any Holder of Registrable Securities shall be permitted to withdraw all or any
part of the Registrable Securities from a Shelf Registration Statement at any
time prior to the effective date of such Shelf Registration Statement.
(b) Supplements; Amendments. The Company agrees, if necessary,
to supplement or amend the Shelf Registration Statement, as required by the
rules, regulations or instructions applicable to the registration form used by
the Company for such Shelf Registration Statement or by the Securities Act or as
requested (which request shall result in the filing of a supplement or
amendment) by any Holder of Registrable Securities to which such Shelf
Registration Statement relates, and the Company agrees to furnish to the
Holders, Holders' Counsel and any managing underwriter copies of any such
supplement or amendment prior to its being used and/or filed with the
Commission.
(c) Liquidated Damages. If the Shelf Registration Statement is
not filed on or before the Required Filing Date, the Company shall pay
liquidated damages to each Holder in an amount equal to $.10 per 1,000 shares of
the Registrable Securities per week beginning on the Required Filing Date. If
the Shelf Registration Statement is filed, but has not become effective on or
before the Target Effective Date, the Company shall pay liquidated damages to
each Holder in an amount equal to $.10 per 1,000 shares of the Registrable
Securities per week beginning on the Target Effective Date. The weekly
liquidated damages payable by the Company to the Holders as a result of a late
filing or a late declaration of effectiveness shall increase by an amount equal
to $.10 per 1,000 shares of the Registrable Securities two weeks after the
Required Filing Date or the Target Effective Date, as the case may be, and shall
thereafter increase by an amount equal to $.10 per 1,000 shares of the
Registrable Securities at the end of each subsequent two week period for so long
as the Shelf Registration Statement is not filed or is not declared effective.
If a stop order is imposed or if for any other reason the effectiveness of the
Shelf Registration Statement is suspended during the Target Effective Period,
then the Company shall pay liquidated damages to each Holder of the Registrable
Securities in an amount equal to $.10 per 1,000 shares of Registrable Securities
per week beginning on the date of such stop order or other suspension of
effectiveness. The weekly liquidated damages
4
<PAGE>
payable by the Company to the Holders as a result of the imposition of a stop
order or such other suspension of the effectiveness of the Shelf Registration
Statement during the Target Effective Period shall increase by an amount equal
to $.10 per 1,000 shares of the Registrable Securities two weeks after the stop
order was imposed or the effectiveness of the Shelf Registration Statement was
otherwise suspended and shall thereafter increase by an amount equal to $.10 per
1,000 shares of the Registrable Securities at the end of each subsequent two
week period for so long as such stop order remains in effect or the
effectiveness of the Shelf Registration Statement continues to be suspended. For
purposes of the two preceding sentences, the Holders will not be entitled to
receive liquidated damages under this Agreement during a Suspension Period (as
hereinafter defined) except to the extent permitted by Section 5 of this
Agreement. The Registrable Securities with respect to which liquidated damages
shall accrue and be payable in accordance with this Section 2(c) shall be those
Registrable Securities held by the Holders which are included or proposed to be
included in the Shelf Registration Statement.
The liquidated damages payable by the Company to the Holders pursuant
to this Section 2(c) shall be deemed to commence accruing on the day on which
the event triggering such liquidated damages occurs. Such liquidated damages
shall cease to accrue (i) with respect to the liquidated damages payable as a
result of the Company's failure to file the Shelf Registration Statement on or
prior to the Required Filing Date, on the day after the Shelf Registration
Statement is filed, (ii) with respect to the liquidated damages payable as a
result of the Company's failure to have the Shelf Registration Statement
declared effective on or prior to the Target Effective Date, on the day after
the Shelf Registration Statement is declared effective, or (iii) with respect to
the liquidated damages payable as a result of the imposition of a stop order or
the suspension for any other reason of the effectiveness of the Shelf
Registration Statement, on the day after the stop order is withdrawn or the
effectiveness of the Shelf Registration Statement is otherwise reinstated.
Notwithstanding the foregoing, if the sole reason why (i) the Company
has not filed the Shelf Registration Statement on or before the Required Filing
Date and/or (ii) the Shelf Registration Statement has not become effective on or
before the Target Effective Date, is that the Holders did not provide the
Company with information which is required to be disclosed in the Shelf
Registration Statement and which the Company requested the Holders to so provide
in writing at least 15 days prior to the Required Filing Date and/or the Target
Effective Date, as the case may be, the Company's obligation to pay liquidated
damages with respect to such late filing or such late declaration of
effectiveness will not begin to accrue until five days after the Holders have
provided such information to the Company.
The Company shall pay the liquidated damages due with respect to any
Registrable Securities at the end of each week during which such liquidated
damages accrue and, to the extent such liquidated damages are not paid when due,
shall thereafter accrue dividends at a rate equal to the U.S. prime rate plus 5%
per annum. Liquidated damages shall be paid to the Holders of Registrable
Securities entitled to receive such liquidated damages by wire transfer in
immediately available funds to the accounts designated by such Holders.
5
<PAGE>
The parties hereto agree that the liquidated damages provided for in
this Section 2 constitute a reasonable estimate as of the date hereof of the
damages that will be suffered by Holders of Registrable Securities by reason of
the failure of the Shelf Registration Statement to be filed, to be declared
effective and/or to remain effective, as the case may be, in accordance with
this Agreement. However, the right of the Holders to be paid the liquidated
damages provided for in this Section 2(c) is not intended to be and shall not be
construed or deemed to be an exclusive remedy, it being understood that the
Holders shall have the full right to pursue all available remedies at law or in
equity for any breach by the Company of any of its obligations under this
Agreement.
(d) Effective Registration. A registration will not be deemed
to have been effected as a Shelf Registration Statement unless the Shelf
Registration Statement with respect thereto has been declared effective by the
Commission and the Company has complied in all material respects with its
obligations under this Agreement with respect thereto; provided, however, that
if after the Shelf Registration Statement has been declared effective, the
offering of Registrable Securities pursuant to such Shelf Registration Statement
is interfered with by any stop order, injunction or other order or requirement
of the Commission or any other governmental agency or court, such Shelf
Registration Statement will be deemed not to have become effective during the
period of such interference (and liquidated damages shall accrue and be payable
under Section 2(c)) until the offering of Registrable Securities pursuant to
such Shelf Registration Statement may legally resume. If a registration
requested pursuant to this Section 2 is deemed not to have been effected, then
the Company shall continue to be obligated to effect a registration pursuant to
this Section 2.
(e) Selection of Underwriter. If the Holders so elect, the
offering of Registrable Securities pursuant to a Shelf Registration Statement
shall be in the form of an underwritten offering. If they so elect, the Holders
participating in such Shelf Registration Statement shall select one or more
nationally recognized firms of investment bankers to act as the book-running
managing underwriter or underwriters in connection with such offering and shall
select any additional investment bankers and managers to be used in connection
with the offering; provided, however, that such selection shall be subject to
the consent of the Company, which consent shall not be unreasonably withheld.
(f) "Lock-Up" Period. Notwithstanding anything to the contrary
in this Section 2 the Holders hereby acknowledge and agree that upon the request
of the managing underwriters of the Company's Initial Public Offering, the
Holders will agree to a standard "lock-up" with respect to the Registrable
Securities for a time period of no longer than 180 days, on the same terms and
conditions as the other stockholders of the Company (it being understood that
any such lock-up agreement shall not affect the rights of the holders of
Registrable Securities to have the Company file a Shelf Registration Statement
pursuant to Section 2(a)).
SECTION 3. DEMAND REGISTRATION.
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<PAGE>
(a) Request for Registration. At any time when a Shelf
Registration Statement is not effective pursuant to Section 2 hereof, the
Holders of Registrable Securities constituting at least 25% of all Registrable
Securities at the time may request, in writing (a "Demand Request"), that the
Company prepare and file with the Commission a "shelf" registration statement
(the "Demand Registration Statement") on the appropriate form for an offering to
be made on a continuous basis pursuant to Rule 415 under the Securities Act (or
any successor rule or similar provision then in effect); provided, however, that
the Company shall not be required to file such Demand Registration Statement
unless, in the reasonable opinion of legal counsel to the Holders so requesting,
such registration is required in order for such Holders to transfer their
Registrable Securities and deliver unlegended certificates to the purchaser(s)
thereof; provided, further, that, subject to Section 5(e), the Company shall not
be required to effect more than one (1) Demand Registration Statement. Each
Demand Request so made by a Holder shall specify the number of Registrable
Securities proposed to be sold. Subject to Section 3(g), the Company shall file
the Demand Registration Statement within 30 days after receiving a Demand
Request (the "Target Filing Date") and shall use best efforts to cause the same
to be declared effective by the Commission as promptly as practicable after such
filing and to keep such Demand Registration Statement continuously effective for
a period beginning on the date such Demand Registration Statement is declared
effective and ending on the earlier of (i) the date which is twelve months
following such date, or (ii) the date on which all Registrable Securities
covered by such Demand Registration Statement have been disposed of pursuant
thereto.
(b) Supplements; Amendments. The Company agrees, if necessary,
to supplement or amend the Demand Registration Statement, as required by the
rules, regulations or instructions applicable to the registration form used by
the Company for such Demand Registration Statement or by the Securities Act or
as requested (which request shall result in the filing of a supplement or
amendment) by any Holder of Registrable Securities to which such Demand
Registration Statement relates, and the Company agrees to furnish to the
Holders, Holders' Counsel and any managing underwriter copies of any such
supplement or amendment prior to its being used and/or filed with the
Commission.
(c) Rights of Nonrequesting Holders. Upon receipt of any
Demand Request, the Company shall promptly (but in any event within 10 days
following the receipt thereof) give written notice of such proposed Demand
Registration Statement to all other Holders of Registrable Securities. Each of
such Holders shall have the right, exercisable by written notice to the Company
within 15 days of their receipt of the Company's notice, to elect to include in
such Demand Registration Statement such portion of each such Holder's
Registrable Securities as each such Holder may request. All Holders requesting
to have their Registrable Securities included in a Demand Registration Statement
in accordance with the preceding sentence (including the Holder or Holders
giving the Demand Request) shall be deemed "Requesting Holders" for purposes of
this Section 3.
(d) Priority with Respect to Demand Registration Statement. No
Securities to be sold for the account of any Person (including the Company)
other than a Requesting Holder shall be included in a Demand Registration
Statement unless the managing underwriter or underwriters, if any, shall advise
the Company or the Requesting Holders in writing that the
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<PAGE>
inclusion of such Securities will not materially and adversely affect the price
at which the Securities included in such Demand Registration Statement may be
sold or the success of the offering (a "Material Adverse Effect"). Furthermore,
in the event the managing underwriter or underwriters, if any, shall advise the
Company or the Requesting Holders that even after exclusion of all Securities of
other Persons pursuant to the immediately preceding sentence, the amount of
Registrable Securities proposed to be included in such Demand Registration
Statement by Requesting Holders is sufficiently large to cause a Material
Adverse Effect, the number of Registrable Securities of the Requesting Holders
to be included in such Demand Registration Statement shall equal the number of
shares which the Company is so advised can be sold in such offering without a
Material Adverse Effect and the number of shares to be excluded from such Demand
Registration Statement such shares shall be allocated first to any Requesting
Holders who requested inclusion of their Registrable Securities pursuant to
Section 3(c) hereof and then, if an additional reduction is required, to all
other requesting Holders, in each case pro rata among such Requesting Holders on
the basis of the number of shares of Registrable Securities requested to be
included in such registration by each such Requesting Holder.
(e) Effective Registration. A registration statement will not
be deemed to have been effected as a Demand Registration Statement unless such
Demand Registration Statement has been declared effective by the Commission and
the Company has complied in all material respects with its obligations under
this Agreement with respect thereto; provided, however, that if, after a Demand
Registration Statement has been declared effective, the offering of Registrable
Securities pursuant to such Demand Registration Statement is interfered with by
any stop order, injunction or other order or requirement of the Commission or
any other governmental agency or court, such Demand Registration Statement will
be deemed not to have become effective during the period of such interference
until the offering of Registrable Securities pursuant to such Demand
Registration Statement may legally resume. If a Demand Registration Statement is
deemed not to have been effected, then the Company shall continue to be
obligated to effect such Demand Registration Statement pursuant to this
Section 3.
(f) Selection of Underwriter. If the Holders of a majority of
the Registrable Securities requested to be included in such Demand Registration
Statement so elect, the offering of Registrable Securities pursuant to such
Demand Registration Statement shall be in the form of an underwritten offering.
If they so elect, the Holders of a majority of the Registrable Securities
requested to be included in such Demand Registration Statement shall select one
or more nationally recognized firms of investment bankers to act as the
book-running managing underwriter or underwriters in connection with such
offering and shall select any additional investment bankers and managers to be
used in connection with the offering; provided, however, that such selection
shall be subject to the consent of the Company, which consent shall not be
unreasonably withheld.
(g) Deferral of Filing. The Company may defer the filing (but
not the preparation) of a Demand Registration Statement required by Section 3(a)
until a date not later than 30 days after the Target Filing Date (or, if longer,
30 days after the effective date of the registration statement contemplated by
clause (ii) below) if (i) at the time the Company receives the Demand Request,
the Company or any of its Subsidiaries is engaged in confidential
8
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negotiations or other confidential business activities, disclosure of which
would be required in such Demand Registration Statement (but would not be
required if such Demand Registration Statement were not filed), and the Board of
Directors of the Company determines in good faith that such disclosure would be
materially detrimental to the Company and its stockholders or would have a
material adverse effect on any such confidential negotiations or other
confidential business activities, or (ii) prior to receiving the Demand Request,
the Board of Directors had determined to effect a registered underwritten public
offering of the Company's equity securities for the Company's account and the
Company had taken substantial steps (including, but not limited to, selecting a
managing underwriter for such offering) and is proceeding with reasonable
diligence to effect such offering. A deferral of the filing of a Demand
Registration Statement pursuant to this Section 3(g) shall be lifted, and the
requested Demand Registration Statement shall be filed forthwith, if, in the
case of a deferral pursuant to clause (i) of the preceding sentence, the
negotiations or other activities are disclosed or terminated, or, in the case of
a deferral pursuant to clause (ii) of the preceding sentence, the proposed
registration for the Company's account is abandoned. In order to defer the
filing of a Demand Registration Statement pursuant to this Section 3(g), the
Company shall promptly (but in any event within 10 days), upon determining to
seek such deferral, deliver to each Holder a certificate signed by an executive
officer of the Company stating that the Company is deferring such filing
pursuant to this Section 3(g) and an approximation of the anticipated delay. The
Company may defer the filing of a particular Demand Registration Statement
pursuant to this Section 3(g) only once.
SECTION 4. PIGGY-BACK REGISTRATION.
(a) Request for Registration. Each time the Company proposes
to file a registration statement under the Securities Act with respect to an
offering by the Company for its own account or for the account of any of its
securityholders of any class of equity security (other than (i) a registration
statement on Form S-4 or S-8 (or any substitute form that is adopted by the
Commission) or (ii) a registration statement filed in connection with an
exchange offer or the offering of securities solely to the Company's existing
securityholders), then the Company shall give written notice of such proposed
filing to each Holder of Registrable Securities as soon as practicable (but in
no event less than 30 days before the anticipated filing date), and such notice
shall offer such Holder the opportunity to register such number of shares of
Registrable Securities as each such Holder may request (which request must be
made in writing, no later than 20 days after receipt of such notice, and shall
specify the Registrable Securities intended to be disposed of by such Holder and
the intended method of distribution thereof) (a "Piggy-Back Registration"). The
Company shall permit, or, if the offering relating to a PiggyBack Registration
is an underwritten offering, shall use its best efforts to cause the managing
underwriter or underwriters of such proposed underwritten offering to permit,
the Registrable Securities requested to be included in such Piggy-Back
Registration to be included on the same terms and conditions as any similar
securities of the Company or any other securityholder included therein and shall
permit, or use its best efforts to cause such managing underwriter or
underwriters to permit, the sale or other disposition of such Registrable
Securities in accordance with such Holder's intended method of distribution
thereof. Any Holder shall have the right to withdraw its request for inclusion
of its Registrable Securities in any registration statement pursuant to this
Section 4 by giving written notice to the Company of such withdrawal. The
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Company may withdraw a Piggy-Back Registration at any time prior to the time it
becomes effective, provided that the Company shall give immediate notice of such
withdrawal to the Holders who requested Registrable Securities to be included in
such Piggy-Back Registration and shall reimburse such Holders for all reasonable
out-of-pocket expenses (including counsel fees and expenses) incurred prior to
such withdrawal.
(b) Reduction of Offering. In connection with an underwritten
offering where Holders have requested a Piggy-Back Registration pursuant to
Section 3(a), the Company shall use its best efforts to cause all Registrable
Securities requested to be included in such Piggy-Back Registration to be
included as provided in Section 4(a). If the managing underwriter or
underwriters of any such Piggy-Back Registration which is an underwritten
offering have informed, in writing, the Holders requesting inclusion of
Registrable Securities in such offering that it is their opinion that the total
number of shares which the Company, Holders of Registrable Securities and any
other Persons participating in such registration intend to include in such
offering is such as to materially and adversely affect the success of such
offering, then the shares to be offered for the account of all Persons
participating in such Piggy-Back Registration shall be reduced or limited (to
zero if necessary) and the Company shall include in the registration the maximum
number of securities which it is so advised can be sold without the adverse
effect, allocated as follows:
(i) First, the securities proposed to be registered
by the Company for its own account;
(ii) Second, the securities proposed to be registered
by the Company, other than for its own account, including, without
limitation, the Registrable Securities duly requested to be included in
the registration by the Holders and the Shares required to be
registered by the Company pursuant to the exercise by any Person other
than a Holder of Registrable Securities, of its piggy-back rights.
All reductions in shares included in a Registration Statement shall be
allocated pro rata in proportion to the respective number of shares requested to
be included in such offering by such Persons to the extent necessary to reduce
the total number of shares requested to be included in such offering to the
number of shares, if any, recommended by such managing underwriter or
underwriters.
Although the specific shares of Common Stock disposed of pursuant to a
Piggy-Back Registration will cease to be Registrable Securities, the mere
registration of Registrable Securities under this Section 4 shall not relieve
the Company of its obligation to effect or maintain a Shelf Registration
Statement pursuant to Section 2 or a Demand Registration Statement pursuant to
Section 3. No failure by the Holders to elect a Piggy-Back Registration under
this Section 4 or to complete the sale of Registrable Securities pursuant to the
registration statement effected in connection therewith, and no withdrawal of
Registrable Securities from a Piggy-Back Registration, shall relieve the Company
of any other obligation under this Agreement, including without limitation, the
Company's obligations under Sections 6 and 7.
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SECTION 5. REGISTRATION PROCEDURES.
In connection with the obligations of the Company to effect or cause
the registration of any Registrable Securities pursuant to the terms and
conditions of this Agreement, the Company shall use its best efforts to effect
the registration and sale of such Registrable Securities in accordance with the
intended method of distribution thereof as quickly as practicable, and in
connection therewith:
(a) The Company shall prepare and file with the Commission a
Registration Statement on the appropriate form under the Securities
Act, which Registration Statement shall comply as to form in all
material respects with the requirements of the applicable form and
include all financial statements required by the Commission to be filed
therewith, and use its best efforts to cause such Registration
Statement to become effective and remain effective in accordance with
the provisions of this Agreement; provided, however, that at least ten
Business Days prior to filing a Registration Statement or Prospectus or
any amendments or supplements thereto, including documents incorporated
by reference after the initial filing of the Registration Statement,
the Company shall furnish to the Holders of the Registrable Securities
covered by such Registration Statement, Holders' Counsel and the
underwriters, if any, draft copies of all such documents proposed to be
filed, which documents will be subject to the review of Holders'
Counsel and the underwriters, if any, and the Company will not, unless
required by law or this Agreement, file any Registration Statement or
amendment thereto or any Prospectus or any supplement thereto to which
Holders holding a majority in interest of the Registrable Securities
covered by such Registration Statement or the underwriters with respect
to such Securities, if any, shall object; provided, however, that any
such objection to the filing of any Registration Statement or amendment
thereto or any Prospectus or supplement thereto shall be made by
written notice (the "Objection Notice") delivered to the Company no
later than ten Business Days after the party or parties asserting such
objection (the "Objecting Party") receives draft copies of the
documents that the Company proposes to file. The Objection Notice shall
set forth the objections and the specific areas in the draft documents
where such objections arise. The Company shall have five Business Days
after receipt of the Objection Notice to correct such deficiencies to
the satisfaction of the Objecting Party, and will notify each Holder of
any stop order issued or threatened by the Commission in connection
therewith and shall use its best efforts to prevent the entry of such
stop order or, if entered, to have such stop order withdrawn at the
earliest possible moment.
(b) The Company shall promptly prepare and file with the
Commission such amendments and post-effective amendments to each
Registration Statement as may be necessary to keep such Registration
Statement effective for as long as the Company is required to keep such
Registration Statement effective pursuant to the terms hereof; shall
cause the Prospectus to be supplemented by any required Prospectus
supplement, and, as so supplemented, to be filed pursuant to Rule 424
under the Securities Act; and shall comply with the provisions of the
Securities Act applicable to it with respect to the disposition of all
Registrable Securities covered by such Registration Statement during
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the applicable period in accordance with the intended methods of
disposition by the Holders set forth in such Registration Statement or
amendment thereto or such Prospectus or supplement thereto;
(c) The Company shall promptly furnish to any Holder and the
underwriters, if any, without charge, such number of conformed copies
of each Registration Statement and any post-effective amendment thereto
and such number of copies of the Prospectus (including each preliminary
Prospectus) and any amendments or supplements thereto, any documents
incorporated by reference therein and such other documents as any such
Holder or underwriter may reasonably request in order to facilitate the
public sale or other disposition of the Registrable Securities being
sold by such Holder.
(d) The Company shall, on or prior to the date on which a
Registration Statement is declared effective, (i) use its best efforts
to register or qualify the Registrable Securities covered by such
Registration Statement under the securities or "blue sky" laws of each
of the 50 states of the United States (or such jurisdictions as any
Holder, Holders' counsel or underwriter may request) or obtain
appropriate exemptions therefrom; (ii) do any and all other acts and
things which may be necessary or advisable to enable the Holders of
Registrable Securities included in such Registration Statement to
consummate the disposition of such Registrable Securities in accordance
with their intended method of distribution thereof; (iii) use its best
efforts to keep each such state securities or "blue sky" registration
or qualification (or exemption therefrom) effective during the period
in which the Company is required to keep the Registration Statement
effective; and (iv) do any and all other acts or things which may be
necessary or advisable to enable the Holders of Registrable Securities
included in such Registration Statement to complete the disposition in
such jurisdictions of such Registrable Securities in accordance with
their intended method of distribution thereof; provided, however, that
the Company shall not be required (A) to qualify to do business in any
jurisdiction where it would not otherwise be required to so qualify but
for this Section 5(d) or (B) to file any general consent to service of
process.
(e) The Company shall use its best efforts to cause the
Registrable Securities covered by a Registration Statement to be
registered with or approved by such other governmental agencies or
authorities as may be necessary by virtue of the business and
operations of the Company to enable the Holders to consummate the
disposition of such Registrable Securities in accordance with their
intended method of distribution thereof.
(f) The Company shall promptly notify each Holder, Holders'
Counsel and any underwriter and (if requested by any such Person)
confirm such notice in writing, (i) when a Registration Statement or a
Prospectus or any post-effective amendment or any Prospectus supplement
has been filed and, with respect to a Registration Statement or any
post-effective amendment, when the same has become effective, (ii) of
any request by the Commission or any state securities authority for
amendments and supplements to a Registration Statement and Prospectus
or for additional information after the Registration Statement has
become effective, (iii) of the issuance by the Commission of any stop
order
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suspending the effectiveness of a Registration Statement or the
initiation or threatening of any proceedings for that purpose, (iv) of
the issuance by any state securities commission or other regulatory
authority of any order suspending the registration or qualification or
exemption from registration or qualification of any of the Registrable
Securities under state securities or "blue sky" laws or the initiation
of any proceedings for that purpose, (v) if, between the effective date
of a Registration Statement and the closing of any sale of Registrable
Securities covered thereby, the representations and warranties of the
Company contained in any underwriting agreement, securities sales
agreement or other similar agreement, if any, relating to the offering
of such Registrable Securities cease to be true and correct in all
material respects, and (vi) of the happening of any event which makes
any statement of a material fact made in a Registration Statement or
related Prospectus untrue or which requires the making of any changes
in such Registration Statement or Prospectus so that such Registration
Statement or Prospectus will not contain any untrue statement of a
material fact or omit to state any material fact required to be stated
therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading; and, as
promptly as practicable thereafter, prepare and file an amendment to
such Registration Statement with the Commission and furnish to the
Holders and any underwriter a supplement or amendment to such
Prospectus so that, as thereafter deliverable to the purchasers of such
Registrable Securities, such Prospectus will not contain any untrue
statement of a material fact or omit to state a material fact necessary
to make the statements therein, in light of the circumstances under
which they were made, not misleading.
(g) The Company shall make generally available to the Holders
an earnings statement satisfying the provisions of Section 11(a) of the
Securities Act no later than 30 days after the end of the 12-month
period beginning with the first day of the Company's first fiscal
quarter commencing after the effective date of a Registration
Statement, which earnings statement shall cover said 12-month period,
and which requirement will be deemed to be satisfied if the Company
timely files complete and accurate information on Forms 10-Q, 10-K and
8-K under the Exchange Act and otherwise complies with Rule 158 under
the Securities Act.
(h) The Company shall promptly use its best efforts to prevent
the issuance of any order suspending the effectiveness of a
Registration Statement, and, if any such order suspending the
effectiveness of a Registration Statement is issued, shall promptly use
its best efforts to obtain the withdrawal of such order at the earliest
possible moment.
(i) The Company shall, if requested by the managing
underwriter or underwriters, if any, Holders' Counsel, or any Holder
promptly incorporate in a Prospectus supplement or post-effective
amendment such information as such managing underwriter or underwriters
or Holder or Holders' Counsel requests to be included therein,
including, without limitation, with respect to the Registrable
Securities being sold by such Holder to such underwriter or
underwriters, the purchase price being paid therefor by such
underwriter or underwriters and any other terms of an underwritten
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offering of the Registrable Securities to be sold in such offering, and
the Company shall promptly make all required filings of such Prospectus
supplement or post-effective amendment.
(j) The Company shall, as promptly as practicable after the
filing with the Commission of any document which is incorporated by
reference into a Registration Statement (in the form in which it was
incorporated), deliver a copy of each such document to each of the
Holders and to Holders' Counsel.
(k) The Company shall cooperate with the Holders and the
managing underwriter or underwriters, if any, to facilitate the timely
preparation and delivery of certificates (which shall not bear any
restrictive legends unless required under applicable law) representing
Registrable Securities sold under a Registration Statement to the
purchasers thereof, and enable such Registrable Securities to be in
such denominations and registered in such names as the managing
underwriter or underwriters, if any, or such Holders may request and
keep available and make available to the Company's transfer agent prior
to the effectiveness of such Registration Statement a supply of such
certificates.
(l) The Company shall enter into such customary agreements
(including, if applicable, an underwriting agreement in customary form)
and take such other actions as the Holders or the underwriters retained
by the Holders participating in an underwritten public offering, if
any, may request in order to expedite or facilitate the disposition of
Registrable Securities (the Holders may, at their option, require that
any or all of the representations, warranties and covenants of the
Company to or for the benefit of any underwriters also be made to and
for the benefit of the Holders).
(m) The Company shall promptly make available to each Holder,
any underwriter participating in any disposition of Registrable
Securities pursuant to a Registration Statement, and any attorney,
accountant or other agent or representative retained by any such Holder
or underwriter (collectively, the "Inspectors"), all financial and
other records, pertinent corporate documents and properties of the
Company (collectively, the "Records"), as shall be reasonably necessary
to enable them to exercise their due diligence responsibility, and
cause the Company's officers, directors and employees to supply all
information requested by any such Inspector in connection with such
Registration Statement.
(n) The Company shall furnish to each Holder of Registrable
Securities included in such offering and to each underwriter, if any, a
signed counterpart, addressed to such Holder or underwriter, of (i) an
opinion or opinions of counsel to the Company, and (ii) a comfort
letter or comfort letters from the Company's independent public
accountants, each in customary form and covering matters of the type
customarily covered by opinions or comfort letters, as the case may be.
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(o) The Company shall use its best efforts to cause the
Registrable Securities included in a Registration Statement (if the
Company and the Registrable Securities so qualify) (i) to be listed on
each national securities exchange, if any, on which similar securities
issued by the Company are then listed, or (ii) if similar securities of
the Company are not then listed, to be authorized for quotation or
listing, as applicable, on the New York Stock Exchange or The Nasdaq
Stock Market, Inc.'s ("Nasdaq") National Market or Small-Cap Market.
(p) The Company shall provide a CUSIP number for all
Registrable Securities covered by a Registration Statement not later
than the effective date of such Registration Statement.
(q) The Company shall cooperate with each Holder and each
underwriter participating in the disposition of Registrable Securities
and their respective counsel in connection with any filings required to
be made with the National Association of Securities Dealers, Inc.
("NASD").
(r) The Company shall, during the period when the Prospectus
is required to be delivered under the Securities Act, promptly file all
documents required to be filed with the Commission pursuant to Sections
13(a), 13(c), 14 or 15(d) of the Exchange Act.
(s) The Company shall appoint or maintain a transfer agent and
registrar for all Registrable Securities covered by a Registration
Statement not later than the effective date of such Registration
Statement.
(t) In connection with an underwritten offering, the Company
shall participate, to the extent reasonably requested by the managing
underwriter for the offering or the Holders, in customary efforts to
sell the securities being offered, including without limitation,
participating in "road shows."
(u) If a Holder proposes to sell a block of Registrable
Securities with a value in excess of $1 million, the Company shall make
members of the management of the Company available for reasonable
selling efforts, including senior management attendance at road shows,
provided, however, that the selling Holder or Holders shall reimburse
the Company for its reasonable out-of-pocket expenses actually incurred
at the request of such selling Holder or Holders in connection with
such selling efforts.
(v) If the Registrable Securities are of a class of securities
that is listed on a national securities exchange, the Company shall
file copies of any Prospectus with such exchange in compliance with
Rule 153 under the Securities Act so that the Holders shall benefit
from the prospectus delivery procedures described therein.
In the case of a Shelf Registration Statement, each Holder, upon
receipt of any notice (a "Suspension Notice") from the Company of the happening
of any event of the kind described in Section 5(f)(vi), shall forthwith
discontinue disposition of the Registrable Securities pursuant
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to the Shelf Registration Statement covering such Registrable Securities until
such Holder's receipt of the copies of the supplemented or amended Prospectus
contemplated by Section 5(f) or until such Holder is advised in writing (the
"Advice") by the Company that the use of the Prospectus may be resumed, and such
Holder has received copies of any additional or supplemental filings which are
incorporated by reference in the Prospectus, and, if so directed by the Company,
such Holder will, or will request the managing underwriter or underwriters, if
any, to, deliver to the Company (at the Company's expense) all copies, other
than permanent file copies then in such Holder's possession, of the Prospectus
covering such Registrable Securities current at the time of receipt of such
notice; provided, however, that the Company shall not give a Suspension Notice
until after the Shelf Registration Statement has been declared effective and
shall not give more than one Suspension Notice during any period of 12
consecutive months and in no event shall the period from the date on which any
Holder receives a Suspension Notice to the date on which any Holder receives
either the Advice or copies of the supplemented or amended Prospectus
contemplated by Section 5(f) (the "Suspension Period") exceed 30 days. In the
event that the Company shall give any Suspension Notice, (i) the Company shall
use its best efforts and take such actions as are reasonably necessary to render
the Advice and end the Suspension Period as promptly as practicable and (ii) the
time periods for which a Shelf Registration Statement is required to be kept
effective pursuant to Section 2 hereof shall be extended by the number of days
during the Suspension Period. If any Suspension Period exceeds 30 days or more
than one Suspension Notice is given during any period of 12 consecutive months,
the Company shall pay liquidated damages to each Holder of Registrable
Securities in an amount equal to $.10 per 1,000 shares of the Registrable
Securities included in the Shelf Registration Statement per week beginning on
the 31st day of such Suspension Period or the date of such additional Suspension
Notice, as the case may be. The weekly liquidated damages payable by the Company
to the Holders as a result of the continuance of a Suspension Period beyond 30
days or as a result of the giving of more than one Suspension Notice during any
12 months period shall increase by an amount equal to $.10 per 1,000 shares of
the Registrable Securities two weeks after the event triggering such liquidated
damages and shall thereafter increase by an amount equal to $.10 per 1,000
shares of the Registrable Securities at the end of each subsequent two week
period for so long as the event triggering such liquidated damages has not been
eliminated. The Company shall pay the liquidated damages due with respect to any
Registrable Securities at the end of each week during which such damages accrue.
Liquidated damages shall be paid to the Holders of Registrable Securities
entitled to receive such liquidated damages by wire transfer in immediately
available funds to the accounts designated by such Holders.
If any Registration Statement refers to any Holder by name or otherwise
as the holder of any securities of the Company, then such Holder shall have the
right to require (i) the insertion therein of language, in form and substance
reasonably satisfactory to such Holder, to the effect that the holding by such
Holder of such securities is not to be construed as a recommendation by such
Holder of the investment quality of the Company's securities covered thereby and
that such holding does not imply that such Holder will assist in meeting any
future financial requirements of the Company, or (ii) in the event that such
reference to such Holder
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by name or otherwise is not required by the Securities Act or any similar
Federal or state securities or "blue sky" statute and the rules and regulations
thereunder then in force, the deletion of the reference to such Holder.
SECTION 6. REGISTRATION EXPENSES. Any and all expenses incident to the
Company's performance of or compliance with this Agreement, including without
limitation, all Commission and securities exchange, Nasdaq or NASD registration,
listing and filing fees, all fees and expenses incurred in connection with
compliance with state securities or "blue sky" laws (including reasonable fees
and disbursements of counsel for any underwriters or Holder in connection with
the state securities or "blue sky" qualifications of the Registrable
Securities), printing expenses, messenger and delivery expenses, internal
expenses (including, without limitation, all salaries and expenses of the
Company's officers and employees performing legal or accounting duties), all
expenses for word processing, printing and distributing any Registration
Statement, any Prospectus, any amendments or supplements thereto, any
underwriting agreements, securities sales agreements and other documents
relating to the performance of and compliance with this Agreement, the fees and
expenses incurred in connection with the listing of the Registrable Securities,
the fees and disbursements of counsel for the Company and of the independent
certified public accountants of the Company (including the expenses of any
comfort letters or costs associated with the delivery by independent certified
public accountants of a comfort letter or comfort letter requested pursuant to
Section 5(n), Securities Act liability insurance (if the Company elects to
obtain such insurance), the reasonable fees and expenses of any special experts
or other Persons retained by the Company in connection with any registration,
the reasonable fees and disbursements of Holders' Counsel and any reasonable
out-of-pocket expenses of the Holders and their agents, including any reasonable
travel costs (but excluding underwriting discounts and commissions and transfer
taxes, if any, relating to the sale or disposition of Registrable Securities)
(all such expenses being herein called "Registration Expenses"), will be borne
by the Company whether or not the Shelf Registration Statement, Demand
Registration Statement or Piggy-Back Registration to which such expenses relate
becomes effective.
SECTION 7. INDEMNIFICATION AND CONTRIBUTION.
(a) Indemnification by the Company. The Company agrees to
indemnify and hold harmless, to the full extent permitted by law, each Holder,
its partners, officers, directors, trustees, stockholders, employees, agents and
investment advisers, and each Person who controls such Holder within the meaning
of either Section 15 of the Securities Act or Section 20 of the Exchange Act, or
is under common control with, or is controlled by, such Holder, together with
the partners, officers, directors, trustees, stockholders, employees, agents and
investment advisors of such controlling Person (collectively, the "Controlling
Persons"), from and against all losses, claims, damages, liabilities and
expenses (including, without limitation, any legal or other fees and expenses
incurred by any Holder or any such Controlling Person in connection with
defending or investigating any action or claim in respect thereof)
(collectively, the "Damages") to which such Holder, its partners, officers,
directors, trustees, stockholders, employees, agents and investment advisers,
and any such Controlling Person, may become subject under the Securities Act or
otherwise, insofar as such Damages (or proceedings in
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respect thereof) arise out of or are based upon any untrue or alleged untrue
statement of material fact contained in any Registration Statement (or any
amendment thereto) pursuant to which Registrable Securities were registered
under the Securities Act, including all documents incorporated therein by
reference, or are caused by any omission or alleged omission to state therein a
material fact necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading, or arise out of or are
based upon any untrue statement or alleged untrue statement of a material fact
contained in any Prospectus (as amended or supplemented if the Company shall
have furnished any amendments or supplements thereto), or are caused by any
omission or alleged omission to state therein a material fact necessary to make
the statements therein, in light of the circumstances under which they were
made, not misleading; provided, however, that the Company shall not be liable
for Damages to any Holder under this Section 6(a) to the extent that any such
Damages (i) arise out of or are based upon any such untrue statement or omission
which is based upon information relating to such Holder furnished in writing to
the Company by such Holder expressly for use in any such Registration Statement
(or any amendment thereto) or Prospectus (or amendment or supplement thereto);
or (ii) were caused by the fact that such Holder sold Securities to a Person as
to whom it shall be established that there was not sent or given, or deemed sent
or given pursuant to Rule 153 under the Securities Act, at the time of or prior
to the written confirmation of such sale, a copy of the Prospectus as then
amended or supplemented if, and only if, (a) the Company has previously
furnished copies of such amended or supplemented Prospectus to such Holder and
(b) such Damages were caused by any untrue statement or omission or alleged
untrue statement or omission contained in the Prospectus so delivered which was
corrected in such amended or supplemented Prospectus. In connection with an
underwritten offering, the Company will indemnify the underwriters thereof,
their officers and directors and each Person who controls such underwriters
(within the meaning of either Section 15 of the Securities Act or Section 20 of
the Exchange Act) to the same extent as provided above with respect to the
indemnification of the Holders of Registrable Securities except with respect to
information provided by the underwriter specifically for inclusion therein.
(b) Indemnification by the Holders. Each Holder agrees,
severally and not jointly, to indemnify and hold harmless the Company, its
directors and officers and each Person, if any, who controls the Company within
the meaning of either Section 15 of the Securities Act or Section 20 of the
Exchange Act from and against all Damages to the same extent as the foregoing
indemnity from the Company to such Holder, but only to the extent such Damages
arise out of or are based upon any untrue statement of a material fact contained
in any Registration Statement (or any amendment thereto) or Prospectus (or any
amendment or supplement thereto) or are caused by any omission to state therein
a material fact necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading, which untrue statement
or omission is based upon information relating to such Holder furnished in
writing to the Company by such Holder expressly for use in any such Registration
Statement (or any amendment thereto) or any such Prospectus (or any amendment or
supplement thereto); provided, however, that such Holder shall not be obligated
to provide such indemnity to the extent that such Damages result from the
failure of the Company to promptly amend or take action to correct or supplement
any such Registration Statement or Prospectus on the basis of corrected or
supplemental information furnished in writing to the
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Company by such Holder expressly for such purpose. In no event shall the
liability of any Holder of Registrable Securities hereunder be greater in amount
than the amount of the proceeds received by such Holder upon the sale of the
Registrable Securities giving rise to such indemnification obligation.
(c) Indemnification Procedures. In case any proceeding
(including any governmental investigation) shall be instituted involving any
Person in respect of which indemnity may be sought pursuant to either paragraph
(a) or (b) above, such Person (the "indemnified party") shall promptly notify
the Person against whom such indemnity may be sought (the "indemnifying party")
in writing and the indemnifying party, upon request of the indemnified party,
shall retain counsel reasonably satisfactory to the indemnified party to
represent the indemnified party and any others the indemnifying party may
designate in such proceedings and shall pay the fees and disbursements of such
counsel relating to such proceeding. The failure of an indemnified party to
notify the indemnifying party with respect to a particular proceeding shall not
relieve the indemnifying party from any obligation or liability (i) which it may
have pursuant to this Agreement if the indemnifying party is not materially
prejudiced by such failure to so notify it or (ii) which it may otherwise have
pursuant to this Agreement. The failure of an indemnified party to notify the
indemnifying party with respect to a particular proceeding shall not relieve the
indemnifying party from any obligation or liability (i) which it may have
pursuant to this Agreement if the indemnifying party is not substantially
prejudiced by such failure to so notify it or (ii) which it may have otherwise
than pursuant to this Agreement. In any such proceeding, any indemnified party
shall have the right to retain its own counsel, but the fees and expenses of
such counsel shall be at the expense of such indemnified party unless (i) the
indemnifying party and the indemnified party shall have mutually agreed to the
retention of such counsel, or (ii) the indemnifying party fails promptly to
assume the defense of such proceeding or fails to employ counsel reasonably
satisfactory to such indemnified party, or (iii) (A) the named parties to any
such proceeding (including any impleaded parties) include both such indemnified
party or an Affiliate of such indemnified party and any indemnifying party or an
Affiliate of such indemnifying party, (B) there may be one or more defenses
available to such indemnified party or any Affiliate of such indemnified party
that are different from or additional to those available to any indemnifying
party or any Affiliate of any indemnifying party and (C) such indemnified party
shall have been advised by such counsel that there may exist a conflict of
interest between or among such indemnified party or any Affiliate of such
indemnified party and such indemnifying party or any Affiliate of such
indemnifying party, in which case, if such indemnified party notifies the
indemnifying party in writing that it elects to employ separate counsel of its
choice at the expense of the indemnifying party, the indemnifying party shall
not have the right to assume the defense thereof and such counsel shall be at
the expense of the indemnifying party, it being understood, however, that unless
there exists a conflict among indemnified parties, the indemnifying parties
shall not, in connection with any one such proceeding or separate but
substantially similar or related proceedings in the same jurisdiction, arising
out of the same general allegations or circumstances, be liable for the fees and
expenses of more than one separate firm of attorneys (together with appropriate
local counsel) at any time for such indemnified parties. The indemnifying party
shall not be liable for any settlement of any proceeding effected without its
written consent but, if settled with such consent or if there be a final
judgment for the plaintiff,
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the indemnifying party agrees to indemnify each indemnified party from and
against any loss or liability by reason of such settlement or judgment. No
indemnifying party shall, without the prior written consent of each indemnified
party, effect any settlement of any pending or threatened proceeding in respect
of which such indemnified party is a party, and indemnity could have been sought
hereunder by such indemnified party, unless such settlement includes an
unconditional release of such indemnified party from all liability on all claims
that are the subject matter of such proceeding with no payment by such
indemnified party of consideration in connection with such settlement.
(d) Contribution. If the indemnification from the indemnifying
party provided for in this Section 7 is found, pursuant to a final judicial
determination not subject to appeal, to be unavailable to an indemnified party
hereunder or insufficient in respect of any Damages incurred by such indemnified
party, then each indemnifying party, in lieu of indemnifying such indemnified
party, shall contribute to the Damages paid or payable by such indemnified party
in such proportion as is appropriate to reflect the relative fault of the
indemnifying party and the indemnified parties in connection with the actions or
omissions that resulted in such Damages, as well as any other relevant equitable
considerations. The relative fault of such indemnifying party and indemnified
parties shall be determined by reference to, among other things, whether any
action or omission in question, including any untrue or alleged untrue statement
of a material fact or the omission or alleged omission to state a material fact,
has been made by, or relates to information supplied by, such indemnifying party
or indemnified parties, and the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent such action. The amount paid
or payable by a party as a result of the Damages referred to above shall be
deemed to include, subject to the limitations set forth in Section 7(c), any
legal or other expenses reasonably incurred by such party in connection with any
investigation or proceeding.
The parties hereto agree that it would not be just or equitable if
contribution pursuant to this Section 7(d) were determined by pro rata
allocation or by any other method of allocation that does not take account of
the equitable considerations referred to in the immediately preceding paragraph.
Notwithstanding the provisions of this Section 7(d), no underwriter shall be
required to contribute any amount in excess of the amount by which the total
price at which the Registrable Securities underwritten by it and distributed to
the public were offered to the public (less any underwriting discounts or
commissions) exceeds the amount of any damages which such underwriter has
otherwise been required to pay by reason of such untrue or alleged untrue
statement or omission or alleged omission, and no selling Holder shall be
required to contribute any amount in excess of the amount by which the total net
proceeds received by such selling Holder with respect to Registrable Securities
sold by such selling Holder exceeds the amount of any damages which such selling
Holder has otherwise been required to pay by reason of such untrue statement or
alleged untrue statement or omission or alleged omission. Each Holder's
obligation to contribute pursuant to this Section 7(d) is several and not joint
and shall be determined by reference to the proportion that the proceeds of the
offering received by such Holder bears to the total proceeds of the offering
received by all the Holders. No person guilty of fraudulent misrepresentation
(within the meaning of Section 11(f) of the Securities Act) shall be entitled to
contribution from any person who was not guilty of such fraudulent
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misrepresentation. The remedies provided for in this Section 7 are not exclusive
and shall not limit any rights or remedies that may otherwise be available to
any indemnified party at law or in equity.
Notwithstanding the foregoing, if indemnification is available under
paragraph (a) or (b) of this Section 7, the indemnifying parties shall indemnify
each indemnified party to the full extent provided in such paragraphs without
regard to the relative fault of said indemnifying party or indemnified party or
any other equitable consideration provided for in this Section 7(d).
SECTION 8. RULE 144. The Company covenants that it will file any
reports required to be filed by it under the Securities Act and the Exchange
Act, and the rules and regulations adopted by the Commission thereunder (or, if
the Company is not required to file such reports, it will, upon the request of
any Holder, make publicly available other information so long as necessary to
permit sales of the Registrable Securities under Rule 144 under the Securities
Act), and it will take such further action as any Holder may request, all to the
extent required from time to time to enable such Holder to sell Registrable
Securities without registration under the Securities Act within the limitation
of the exemptions provided by (a) Rule 144 under the Securities Act, as such
Rule may be amended from time to time, or (b) any successor rule or similar
provision or regulation hereafter adopted by the Commission. Upon the request of
any Holder, the Company will deliver to such Holder a written statement as to
whether it has complied with such requirements.
SECTION 9. RULE 144A. The Company covenants that it will file all
reports required to be filed by it under the Securities Act and the Exchange
Act, and the rules and regulations adopted by the Commission thereunder (or if
the Company is not required to file such reports, it will, upon the request of
any Holder, make available other information so long as necessary to permit
sales of the Registrable Securities pursuant to Rule 144A under the Securities
Act), and it will take such further action as any Holder may request, all to the
extent required from time to time to enable such Holder to sell Registrable
Securities without registration under the Securities Act within the limitation
of the exemptions provided by (a) Rule 144A, as such rule may be amended from
time to time, or (b) any successor rule or similar provision or regulation
hereafter adopted by the Commission.
SECTION 10. MISCELLANEOUS.
(a) No Inconsistent Agreements. The Company has not entered
into nor will the Company on or after the date of this Agreement enter into any
agreement which is inconsistent with the rights granted to the Holders of
Registrable Securities in this Agreement or otherwise conflicts with the
provisions hereof. The rights granted to the Holders hereunder do not in any way
conflict with and are not inconsistent with the rights granted to the holders of
the Company's other issued and outstanding securities under any such agreements.
(b) Amendments and Waivers. The provisions of this Agreement,
including the provisions of this sentence, may not be amended, modified or
supplemented, and waivers or consents to departures from the provisions hereof
may not be given unless the Company has
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obtained the written consent of Holders of at least a majority in interest of
the outstanding Registrable Securities affected by such amendment, modification,
supplement, waiver or consent; provided, however, that, no amendment,
modification, supplement, waiver or consent to any departure from the provisions
of Section 5 hereof (other than any immaterial amendment, modification,
supplement, waiver or consent) shall be effective as against any Holder of
Registrable Securities unless consented to in writing by such Holder.
(c) Notices. All notices and other communications provided for
or permitted hereunder shall be in writing and shall be deemed to have been duly
given if delivered personally or sent by telecopier, registered or certified
mail (return receipt requested), postage prepaid or courier to the parties at
their respective addresses set forth on the signature pages hereof (or at such
other address for any party as shall be specified by like notice, provided that
notices of a change of address shall be effective only upon receipt thereof).
All such notices and communications shall be deemed to have been duly
given: at the time delivered by hand, if personally delivered; five Business
Days after being deposited in the mail, postage prepaid, if mailed; by confirmed
receipt of transmission, if telecopied; and on the next Business Day if timely
delivered to a courier guaranteeing overnight delivery.
(d) Successors and Assigns. This Agreement shall inure to the
benefit of and be binding upon the successors, assigns and transferees of each
of the parties, including, without limitation and without the need for an
express assignment, subsequent Holders. If any transferee of any Holder shall
acquire Registrable Securities in any manner, whether by operation of law or
otherwise, such Registrable Securities shall be held subject to all of the terms
of this Agreement, and by taking and holding such Registrable Securities such
person shall be conclusively deemed to have agreed to be bound by and to perform
all of the terms and provisions of this Agreement and such person shall be
entitled to receive the benefits hereof.
(e) Counterparts. This Agreement may be executed in any number
of counterparts and by the parties hereto in separate counterparts, each of
which when so executed shall be deemed to be an original and all of which taken
together shall constitute one and the same agreement.
(f) Headings. The headings in this Agreement are for
convenience of reference only and shall not limit or otherwise affect the
meaning hereof.
(g) Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of New York without regard to
principles or rules of conflicts of law.
(h) Severability. In the event that any one or more of the
provisions contained herein, or the application thereof in any circumstances, is
held invalid, illegal or unenforceable in any respect for any reason, the
validity, legality and enforceability of any such provision in every other
respect and of the remaining provisions contained herein shall not be in any way
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impaired thereby, it being intended that all of the rights and privileges of the
Holders shall be enforceable to the fullest extent permitted by law.
(i) Entire Agreement. This Agreement is intended by the
parties as a final expression of their agreement and is intended to be the
complete and exclusive statement of the agreement and understanding of the
parties hereto in respect of the subject matter contained herein. There are no
restrictions, promises, warranties or undertakings, other than those set forth
or referred to herein. This Agreement supersedes all prior agreements and
understandings between the parties with respect to such subject matter.
(j) Attorneys' Fees. In any action or proceeding brought to
enforce any provision of this Agreement or where any provision hereof is validly
asserted as a defense, the successful party shall, to the extent permitted by
applicable law, be entitled to recover reasonable attorneys' fees in addition to
any other available remedy.
(k) Further Assurances. Each party shall cooperate and take
such action as may be reasonably requested by another party in order to carry
out the provisions and purposes of this Agreement and the transactions
contemplated hereby.
(l) Remedies. In the event of a breach or a threatened breach
by any party to this Agreement of its obligations under this Agreement, any
party injured or to be injured by such breach will be entitled to specific
performance of its rights under this Agreement or to injunctive relief, in
addition to being entitled to exercise all rights provided in this Agreement and
granted by law. The parties agree that the provisions of this Agreement shall be
specifically enforceable, it being agreed by the parties that remedies at law
for violations hereof, including monetary damages, are inadequate and that the
right to object in any action for specific performance or injunctive relief
hereunder on the basis that a remedy at law would be adequate is waived.
(m) Third Party Beneficiaries. The beneficial owners of the
Registrable Securities, together with their nominees, successors and assigns,
are third party beneficiaries to this Agreement, and shall be entitled to the
rights, and subject to the obligations, of Holders contained herein as if each
were an original signatory to this Agreement.
[Remainder of Page Intentionally Left Blank]
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IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first written above.
INTER*ACT ELECTRONIC MARKETING, INC.
By: /s/ Thomas McGoldrick
____________________________
Thomas McGoldrick
Executive Vice President
Notice Information:
Inter*Act Electronic Marketing, Inc.
14 Westport Avenue
Norwalk, Connecticut 06851
Attn: President & Chief Operating Officer
Telecopier:
[HOLDERS]
By: _____________________________
Name:
Title:
Notice Information:
At the address of the Holder set forth on the books and records of the
Company or at such other place designated by the Holder in writing in
accordance with the provisions contained herein.
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Exhibit 10 (a) (16)
STOCKHOLDERS AGREEMENT
THIS STOCKHOLDERS AGREEMENT (the "Agreement") is made as of this 28th
day of December, 1999, by and among Inter*Act Electronic Marketing, Inc., a
North Carolina corporation (the "Company"), the stockholders of the Company
identified as such on the signature pages hereto (the "Stockholders"), and the
holders of the Convertible Preferred Stock and Warrants received in the
Exchange, and any assignees or transferees thereof (each, an "Investor" and
collectively, the "Investors").
WHEREAS, the Company entered into a Purchase Agreement, dated as of
July 30, 1996 (the "Purchase Agreement"), between the Company and the initial
purchasers named therein, pursuant to which the Company sold and issued to such
initial purchasers 142,000 units (the "Units"), each Unit consisting of one
$1,000 principal amount of 14% Senior Discount Notes due 2003 (the "Notes") and
one Warrant entitling the holder thereof to purchase shares of Common Stock, no
par value, of the Company (the "Common Stock") at an exercise price of $.01 per
share.
WHEREAS, pursuant to the terms of the Exchange Offer and Consent
Solicitation Memorandum (the "Offering Memorandum"), dated as of December 9,
1999, and the letter of consent and transmittal attached thereto (the "Letter of
Transmittal"), the holders of Notes that have duly executed a Letter of
Transmittal have agreed to tender and exchange their respective Notes (the
"Exchange") to the Company, and the Company and Inter*Act Operating Co., Inc., a
North Carolina corporation and wholly-owned subsidiary of the Company
("Inter*Act"), have agreed to issue and sell to such holders in exchange for
each $1,000 principal amount of such Notes (i) $500 principal amount of Senior
Pay-In-Kind Notes Due 2003 issued by Inter*Act, (ii) one warrant (collectively,
the "Warrants") entitling the holder thereof to purchase 17.96 shares of Common
Stock from the Company at an exercise price of $.01 per share, subject to
adjustment as provided in that certain Warrant Agreement, dated as of December
15, 1999, and (iii) one share of 14% Series B Senior Mandatorily Convertible
Preferred Stock, no par value, of the Company (the "Convertible Preferred
Stock"), with an initial liquidation preference of $500 plus accrued and unpaid
dividends therein, which Convertible Preferred Stock is convertible into shares
of Common Stock.
WHEREAS, the execution and delivery of this Agreement is a condition
precedent to the transactions contemplated by the Offering Memorandum.
NOW, THEREFORE, in consideration of the foregoing and the mutual
covenants and agreements hereinafter set forth, the parties hereto agree as
follows:
ARTICLE I DEFINITIONS
SECTION 1.1 CONSTRUCTION OF TERMS. As used herein, the masculine,
feminine or gender neutral, and the singular or plural number, shall be deemed
to be or to include the other genders or number, as the case may be, whenever
the context so indicates or requires.
<PAGE>
SECTION 1.2 DEFINED TERMS. The following capitalized terms, as used
in this Agreement, shall have the meanings set forth below.
An "AFFILIATE" of any Person (as defined herein) means a Person that,
directly or indirectly, through one or more intermediaries, controls, is
controlled by or is under common control with the first mentioned Person. A
Person shall be deemed to control another Person if such first Person possesses,
directly or indirectly, the power to direct, or cause the direction of, the
management and policies of the second Person, whether through the ownership of
voting securities, by contract or otherwise.
"BOARD OF DIRECTORS" means the Board of Directors of the Company.
"COMMON STOCK" means the Common Stock and any other common equity
securities issued by the Company, and any other shares of stock issued or
issuable with respect thereto (whether by way of a stock dividend or stock split
or in exchange for or upon conversion of such shares or otherwise in connection
with a combination of shares, recapitalization, merger, consolidation or other
corporate reorganization), including, without limitation, the Shares.
"COMPANY" shall refer to the Company and any successor or successors
thereto.
"MAJORITY INTEREST" means the Investors holding not less than a
majority of the outstanding Shares (as hereinafter defined) held by all of the
Investors.
"PERSON" means an individual, a corporation, an association, a joint
venture, a partnership, a limited liability company, an estate, a trust, an
unincorporated organization and any other entity or organization, governmental
or otherwise.
"PREFERRED STOCK" means the Convertible Preferred Stock, together with
any shares issued or issuable with respect thereto (whether by way of a stock
dividend or stock split or in exchange for or in replacement of such shares or
otherwise in connection with a combination of shares, recapitalization, merger,
consolidation or other corporate reorganization).
"QUALIFIED PUBLIC OFFERING" means the first underwritten offering to
the public of shares of the Company's Common Stock pursuant to an effective
registration statement under the Securities Act, in which the aggregate gross
proceeds attributable to sales of shares of Common Stock covered by such
registration statement for the account of the Company equals or exceeds
$30,000,000.
"SHARES" means (i) with respect to the Investors, the shares of Common
Stock subject to acquisition upon the conversion of the Preferred Stock (such
number being subject to possible adjustment in accordance with the terms of the
Company's Restated Articles of Incorporation) and the exercise of the Warrants,
together with the shares of Common Stock held by the Investors at the relevant
time if conversion of any of the Preferred Stock or
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exercise of any of the Warrants has then occurred and (ii) with respect to the
Stockholders, all shares of Common Stock then held by the Stockholders.
"TRANSFER" means any direct or indirect transfer, donation, sale,
assignment, pledge, hypothecation, grant of a security interest in or other
disposal or attempted disposal of all or any portion of a security or of any
rights. "Transferred" means the accomplishment of a Transfer, and "Transferee"
means the recipient of a Transfer.
ARTICLE II RIGHT OF FIRST REFUSAL; CO-SALE PROVISIONS
The following provisions of this Article II shall terminate immediately
upon and shall not apply with respect to, the closing of a Qualified Public
Offering.
SECTION 2.1 RIGHT OF FIRST REFUSAL. In the event that any of the
Stockholders receives a bona fide offer to purchase all or any portion of the
Shares held by such person (a "Transaction Offer") from a non-Affiliate (the
"Offeror"), such Stockholder (a "Transferring Stockholder") may, subject to the
provisions of Section 2.2 hereof, Transfer such Shares pursuant to and in
accordance with the following provisions of this Section 2.1:
(a) Such Transferring Stockholder shall cause
the Transaction Offer and all of the terms thereof to be reduced to writing and
shall promptly notify each of the Investors of such Transferring Stockholder's
desire to accept the Transaction Offer and otherwise comply with the provisions
of this Section 2.1 and, if applicable, Section 2.2 (such notice, the "Offer
Notice"). The Transferring Stockholder's Offer Notice shall constitute an
irrevocable offer to sell all but not less than all of the Shares which are the
subject of the Transaction Offer to the Investors, on the basis described
below, at a purchase price equal to the price contained in, and on the same
terms and conditions of, the Transaction Offer. The Offer Notice shall be
accompanied by a true copy of the Transaction Offer (which shall identify the
Offeror and all relevant information in connection therewith).
(b) Upon receipt of an Offer Notice, the
Investors may elect to accept the offer to sell with respect to all (but not
less than all) of the Shares subject thereto and shall give written notice of
such election to the Transferring Stockholder as provided below. Each Investor
shall have the right to purchase up to that number of Shares covered by the
Transaction Offer as shall be equal to the product obtained by multiplying (i)
the total number of Shares subject to the Transaction Offer by (ii) a fraction,
the numerator of which is the total number of Shares owned by such Investor,
and the denominator of which is the total number of Shares held by all
Investors, in each case as of the date of the Offer Notice, subject to increase
as hereinafter provided. The number of Shares that each Investor is entitled to
purchase under this Section 2.1 as provided in the immediately preceding
sentence shall be referred to as its "Pro Rata Fraction." Subject to Section
2.4 hereof, each Investor shall have the right to transfer its right to any Pro
Rata Fraction or part thereof with respect to any proposed Transaction Offer to
any transferee. In the event an Investor does not elect to purchase or transfer
its right to purchase its Pro Rata Fraction, then any Investors who have
elected to purchase Shares shall have the right to purchase, on a pro rata
basis with any
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other Investors who so elect, any Pro Rata Fraction not purchased by an Investor
or its transferee and to transfer such right to any transferee.
(c) Each Investor shall have the right to
accept the Transferring Stockholder's offer to sell the shares by giving
written notice of such acceptance (the "Right of First Refusal Acceptance
Notice") to the Transferring Stockholder as provided herein within thirty (30)
business days after receipt of the Offer Notice (the "Right of First Refusal
Election Period"), which notice shall indicate the maximum number of Shares
subject thereto which the Investor and its transferee(s) are willing to
purchase, including the number of Shares it would purchase if one or more other
Investors do not elect to purchase their Pro Rata Fractions. In the event that
the price set forth in the Offer Notice is stated in consideration other than
cash or cash equivalents, the Transferring Stockholder and a Majority Interest
of the Investors shall determine the fair market value of such consideration,
reasonably and in good faith, and the Investors and their transferees may
exercise their right to purchase under this Section 2.1 by payment of such fair
market value in cash or cash equivalents.
(d) Upon the expiration of the Right of First
Refusal Election Period, the number of Shares to be purchased by each Investor
and its transferees shall be determined as follows: (i) first, there shall be
allocated to each Investor and/or transferee electing to purchase a number of
Shares equal to the lesser of (A) the number of Shares as to which such
Investor or transferee accepted as set forth in its respective Right of First
Refusal Acceptance Notice or (B) such Investor's Pro Rata Fraction, and (ii)
second, the balance, if any, not allocated under clause (i) above, shall be
allocated to those Investors and transferees who within the Right of First
Refusal Election Period delivered a Right of First Refusal Acceptance Notice
that set forth a number of Shares that exceeded their respective Pro Rata
Fractions, in each case on a pro rata basis in proportion to the amount of such
excess. The closing for any purchase of Shares by the Investors and/or their
transferees under this Section 2.1 shall take place following the expiration of
the Right of First Refusal Election Period at the offices of the Company or on
such other date or at such other place as may be agreed to by the Transferring
Stockholder and such Investors and/or their transferees.
(e) In the event that the Investors and their
transferees do not elect to exercise the rights to purchase under this Section
2.1 with respect to all of the Shares proposed to be sold, the Transferring
Stockholder may sell such Shares to the Offeror on the terms and conditions set
forth in the Offer Notice, subject to the provisions of Section 2.2. If the
Transferring Stockholder's sale to an Offeror is not consummated in accordance
with the terms of the Transaction Offer within the later of (i) ninety (90)
calendar days after the expiration of the Right of First Refusal Election
Period under this Section 2.1 and the Co-Sale Election Period set forth in
Section 2.2 below, if applicable, and (ii) the satisfaction of all governmental
approval or filing requirements, the Transaction Offer shall be deemed to
lapse, and any Transfers of Shares pursuant to such Transaction Offer shall be
deemed to be in violation of the provisions of this Agreement unless the
Transferring Stockholder once again complies with the provisions of this
Section 2.1 with respect to such Transaction Offer.
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SECTION 2.2 CO-SALE OPTION OF INVESTORS. In the event that any
Transferring Stockholder receives a Transaction Offer from an Offeror, and the
right to purchase under Section 2.1 is not exercised by the Investors or their
transferees with respect to all of the Shares proposed to be so Transferred,
such Transferring Stockholder may Transfer such Shares only pursuant to and in
accordance with the following provisions of this Section 2.2:
(a) As soon as practicable following the
expiration of the Right of First Refusal Election Period, and in no event later
than ten (10) days thereafter, the Transferring Stockholder shall notify each
of the Investors (the "Co-Sale Notice") of its right to participate in the
Transaction Offer with respect to any Shares subject thereto which were not
purchased pursuant to Section 2.1 (the "Co-Sale Option"). Each of the Investors
shall have the right to exercise its Co-Sale Option by giving written notice of
such intent to participate (the "Co-Sale Acceptance Notice") to the
Transferring Stockholder within ten (10) days after receipt by such Investor of
the Co-Sale Notice (the "Co-Sale Election Period"). Each Co-Sale Acceptance
Notice shall indicate the maximum number of Shares subject thereto which the
Investor wishes to sell including the number of Shares it would sell if one or
more other Investors do not elect to participate in the sale on the terms and
conditions stated in the Offer Notice. Any Investor holding Preferred Stock or
Warrants shall be permitted to sell to the relevant Offeror in connection with
any exercise of the Co-Sale Option shares of Common Stock acquired upon
conversion of such Preferred Stock or exercise of such Warrants.
(b) Each Investor shall have the right to sell
a portion of its Shares pursuant to the Transaction Offer which is equal to or
less than the product obtained by multiplying (i) the total number of Shares
available for sale to the Offeror subject to the Transaction Offer by (ii) a
fraction, the numerator of which is the total number of Shares owned by such
Investor and the denominator of which is the total number of Shares held by all
Investors and the Transferring Stockholder, in each case as of the date of the
Offer Notice, subject to increase as hereinafter provided. In the event an
Investor does not elect to sell the full amount of such Shares which such
Investor is entitled to sell pursuant to this Section 2.2, then any Investors
who have elected to sell Shares shall have the right to sell, on a pro-rata
basis with any other Investors and up to the maximum number of Shares stated in
each such Investor's Co-Sale Acceptance Notice, any Shares not elected to be
sold by such Investor.
(c) Within ten (10) calendar days after the
end of the Co-Sale Election Period, the Transferring Stockholder shall promptly
notify each participating Investor of the number of Shares held by such
Investor that will be included in the sale and the date on which the
Transaction Offer will be consummated, which shall be no later than the later
of (i) thirty (30) calendar days after the end of the Co-Sale Election Period
and (ii) the satisfaction of any governmental approval or filing requirements,
if any.
(d) Each participating Investor may effect its
participation in any Transaction Offer hereunder by delivery to the Offeror, or
to the Transferring Stockholder for delivery to the Offeror, of one or more
instruments or certificates, properly endorsed for transfer, representing the
Shares it elects to sell pursuant thereto, provided that no Investor
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<PAGE>
shall be required to make any representations or warranties or to provide any
indemnities in connection therewith other than with respect to title to the
Shares being conveyed. At the time of consummation of the Transaction Offer, the
Offeror shall remit directly to each participating Investor that portion of the
sale proceeds to which the participating Investor is entitled by reason of its
participation with respect thereto (less any adjustments due to the conversion
of any convertible securities or the exercise of any exercisable securities). No
Shares may be purchased by the Offeror from the Transferring Stockholder unless
the Offeror simultaneously purchases from the participating Investors all of the
Shares that they have elected to sell pursuant to Section 2.2(b).
Notwithstanding anything contained herein to the contrary, in the event that the
delivery mechanics for participation as described in this Section 2.2(d) are in
contravention of federal or state laws or regulations with respect to a
particular participating Investor, then the delivery mechanics shall be adjusted
by mutual agreement of such Investor, the Offeror and the Transferring
Stockholder such that the transfer of Shares hereunder conforms with all
applicable federal and state laws and regulations.
(e) Any Shares held by a Transferring
Stockholder which are the subject of the Transaction Offer that the
Transferring Stockholder desires to Transfer following compliance with this
Section 2.2 may be sold to the Offeror only during the period specified in
Section 2.2(c) and only on terms no more favorable to the Transferring
Stockholder than those contained in the Offer Notice. Promptly after such
Transfer, the Transferring Stockholder shall notify the Company, which in turn
shall promptly notify the Investors, of the consummation thereof and shall
furnish such evidence of the completion and time of completion of the Transfer
and of the terms thereof as may reasonably be requested by a Majority Interest
of the Investors. So long as the Offeror is neither a party nor an Affiliate of
or relative of a party to this Agreement, such Offeror shall take the Shares so
Transferred free and clear of any further restrictions of this Article II. In
the event that the Transaction Offer is not consummated within the period
required by this Section 2.2 or the Offeror fails timely to remit to each
participating Investor its respective portion of the sale proceeds, the
Transaction Offer shall be deemed to lapse, and any Transfer of Shares pursuant
to such Transaction Offer shall be deemed to be in violation of the provisions
of this Agreement unless the Transferring Stockholder once again complies with
the provisions of Section 2.1 and this Section 2.2 hereof with respect to such
Transaction Offer.
SECTION 2.3 CONTEMPORANEOUS TRANSFERS. If two or more Stockholders
propose concurrent Transfers which are subject to this Article II, then the
relevant provisions of Section 2.1 and Section 2.2, as applicable, shall apply
separately to each such proposed Transfer.
SECTION 2.4 ASSIGNMENT. Subject to Section 3.11 hereof, each Investor
shall have the right to assign its rights to any transferee of such Investor's
Shares, and shall further have the right to assign and transfer such Investor's
right to accept particular Transaction Offers as contemplated by this Article
II, and any such transferee shall be deemed within the definition of an
"Investor" for purposes of this Article II.
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<PAGE>
SECTION 2.5 PROHIBITED TRANSFERS. If any Transfer is made or attempted
contrary to the provisions of this Agreement, such purported Transfer shall be
void ab initio; the Company and the other parties hereto shall have, in addition
to any other legal or equitable remedies which they may have, the right to
enforce the provisions of this Agreement by actions for specific performance (to
the extent permitted by law); and the Company shall have the right to refuse to
recognize any Transferee as one of its stockholders for any purpose.
SECTION 2.6 PERMITTED TRANSFERS. The provisions of Sections 2.1 and 2.2
shall not apply to any Transfers by a Stockholder to a Permitted Transferee;
provided, however, that as a condition to such Transfer, the Permitted
Transferee shall enter into a joinder agreement providing that all Shares so
Transferred shall continue to be subject to all provisions of this Agreement as
if such Shares were still held by the transferring Stockholder. For purposes
hereof, the term "Permitted Transferee" shall mean (i) a Stockholder's spouse or
children, or a trust for the benefit of the transferring Stockholder, his spouse
or children; (ii) any member of the "Richardson Family" (defined as the
descendants of Lunsford Richardson, Sr., their spouses, trusts, corporations in
which they own a majority interest and charitable organizations established by
such descendants) who has received Shares from another member of the Richardson
Family; and (iii) any member of the "LCH Family" (defined as Leonard C. Horvitz,
his lineal descendants, and his or their current or former spouses, including
widows and widowers, estates of, and trusts for the benefit of any of the
forgoing, and any partnerships, foundations, or philanthropic funds or other
entities created by any of the forgoing, or created by another for their
benefit) who has received Shares from another member of the LCH Family.
SECTION 2.7 DEMINIMUS TRANSFERS. The provisions of Sections 2.1 and 2.2
shall not apply to any Transfers by a Stockholder, at any one time or from time
to time, which in the aggregate do not exceed ten percent (10%) of the Shares
held by such Stockholder as of the date hereof; provided, that Transfers made to
Permitted Transferees pursuant to Section 2.6 hereof shall not apply to or count
against the ten percent (10%) limitation described herein.
ARTICLE III MISCELLANEOUS PROVISIONS
SECTION 3.1 SURVIVAL OF COVENANTS. Each of the parties hereto agrees
that each covenant and agreement made by it in this Agreement or in any
certificate, instrument or other document delivered pursuant to this Agreement
is material, shall be deemed to have been relied upon by the other parties and
shall remain operative and in full force and effect after the date hereof
regardless of any investigation. This Agreement shall not be construed so as to
confer any right or benefit upon any Person other than the parties hereto and
their respective successors and permitted assigns to the extent contemplated
herein.
SECTION 3.2 LEGEND ON SECURITIES. The Company, the Investors and the
Stockholders acknowledge and agree that the following legend shall be typed on
each
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<PAGE>
certificate evidencing any of the securities held at any time by the
Stockholders or the Investors:
THE SECURITIES REPRESENTED HEREBY ARE SUBJECT TO THE PROVISIONS OF A
CERTAIN STOCKHOLDERS AGREEMENT, DATED AS OF DECEMBER 28, 1999. A COMPLETE AND
CORRECT COPY OF SUCH AGREEMENT IS AVAILABLE FOR INSPECTION AT THE PRINCIPAL
OFFICE OF THE COMPANY AND WILL BE FURNISHED UPON WRITTEN REQUEST AND WITHOUT
CHARGE.
SECTION 3.3 AMENDMENT AND WAIVER; ACTIONS OF THE BOARD. Any party may
waive any provision hereof intended for its benefit in writing. No failure or
delay on the part of any party hereto in exercising any right, power or remedy
hereunder shall operate as a waiver thereof. The remedies provided for herein
are cumulative and are not exclusive of any remedies that may be available to
any party hereto at law or in equity or otherwise. This Agreement may be amended
with the prior written consent of the Company, a majority-in-interest of the
Stockholders, and a Majority Interest of the Investors. Any consent given as
provided in the preceding sentence shall be binding on all Stockholders and all
Investors, respectively, and no Stockholder or Investor shall have any cause of
action against any other Person for any action taken by such Person in reliance
upon such consent.
SECTION 3.4 NOTICES. All notices and other communications provided for
herein shall be in writing and shall be deemed to have been duly given,
delivered and received (a) if delivered personally or (b) if sent by facsimile,
registered or certified mail (return receipt requested) postage prepaid, or by
courier guaranteeing next day delivery, in each case to the party to whom it is
directed at the following addresses (or at such other address for any party as
shall be specified by notice given in accordance with the provisions hereof,
provided that notices of a change of address shall be effective only upon
receipt thereof). Notices delivered personally shall be effective on the day so
delivered, notices sent by registered or certified mail shall be effective five
days after mailing, notices sent by facsimile shall be effective when receipt is
acknowledged, and notices sent by courier guaranteeing next day delivery shall
be effective on the earlier of the second business day after timely delivery to
the courier or the day of actual delivery by the courier:
If to the Company:
Inter*Act Electronic Marketing, Inc.
74 Westport Avenue
Norwalk, Connecticut 06851
Facsimile:
Attn: President and Chief Executive Officer
If to the Investors:
At such Investor's address for notice as set forth in the books and
records of the Company, or at such other address as shall be designated
in writing by such Investor.
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<PAGE>
If to the Stockholders:
At such Stockholder's address for notice as set forth in the books and
records of the Company, or at such other address as shall be designated in
writing by such Stockholders.
SECTION 3.5 HEADINGS. The Article and Section headings used or
contained in this Agreement are for convenience of reference only and shall not
affect the construction of this Agreement.
SECTION 3.6 COUNTERPARTS. This Agreement may be executed in one or more
counterparts and by the parties hereto in separate counterparts, each of which
when so executed shall be deemed to be an original and all of which together
shall be deemed to constitute one and the same agreement.
SECTION 3.7 REMEDIES; SEVERABILITY. It is specifically understood and
agreed that any breach of the provisions of this Agreement by any Person subject
hereto will result in irreparable injury to the other parties hereto, that the
remedy at law alone will be an inadequate remedy for such breach, and that, in
addition to any other legal or equitable remedies which they may have, such
other parties may enforce their respective rights by actions for specific
performance (to the extent permitted by law) and the Company may refuse to
recognize any unauthorized Transferee as one of its stockholders for any
purpose, including, without limitation, for purposes of dividend and voting
rights, until the relevant party or parties have complied with all applicable
provisions of this Agreement.
In the event that any one or more of the provisions contained herein,
or the application thereof in any circumstances, is held invalid, illegal or
unenforceable in any respect for any reason, the validity, legality and
enforceability of any such provision in every other respect and of the remaining
provisions contained herein shall not be in any way impaired thereby, it being
intended that all of the rights and privileges of the parties hereto shall be
enforceable to the fullest extent permitted by law.
SECTION 3.8 ENTIRE AGREEMENT. This Agreement is intended by the parties
as a final expression of their agreement and intended to be complete and
exclusive statement of the agreement and understanding of the parties hereto in
respect of the subject matter contained herein and therein. This Agreement
supersedes all prior agreements and understandings between the parties with
respect to such subject matter.
SECTION 3.9 ADJUSTMENTS. All references to share prices and amounts
herein shall be equitably adjusted to reflect stock splits, stock dividends,
recapitalizations and similar changes affecting the capital stock of the
Company.
SECTION 3.10 LAW GOVERNING. This Agreement shall be construed and
enforced in accordance with and governed by the laws of the State of New York
(without giving effect to principles of conflicts of law). Each party also
waives trial by jury in any action relating to this Agreement.
9
<PAGE>
SECTION 3.11 SUCCESSORS AND ASSIGNS. This Agreement shall be binding
upon and inure to the benefit of the respective successors and permitted assigns
of the parties hereto as contemplated herein, and any successor to the Company
by way of merger or otherwise shall specifically agree to be bound by the terms
hereof as a condition of such successor. The rights of the Investors hereunder
shall be assignable, without the need for an express assignment, to transferees
of their Shares as contemplated herein, and by taking and holding such Shares,
such transferee shall be conclusively deemed to have agreed to be bound by and
to perform all of the terms and conditions of this Agreement and such transferee
shall be entitled to receive the benefits hereof.
SECTION 3.12 THIRD PARTY BENEFICIARIES. The beneficial owners of the
Shares with respect to the Investors, together with their successors and
assigns, are third party beneficiaries to this Agreement, and shall be entitled
to the rights, and subject to the obligations, of Investors contained herein as
if each were an original party to this Agreement.
SECTION 3.13 DISPUTE RESOLUTION. Before any of the parties hereto
commences a legal action arising out of or relating to this Agreement, he shall
notify the other parties hereto and the Company in writing of his intention to
commence an action and of the basis for the action and, except as hereinafter
provided, shall not commence an action for at least 30 days after such written
notification. During such 30-day period, the parties to the dispute that is the
subject of the threatened action shall make reasonable and good faith efforts to
resolve the such dispute, by means of nonbinding arbitration or a similar
nonbinding procedure.
SECTION 3.14 TERMINATION. This Agreement shall terminate immediately
upon the closing of a Qualified Public Offering.
IN WITNESS WHEREOF, the parties hereto have caused this Stockholders
Agreement to be duly executed as of the date first set forth above.
THE COMPANY:
INTER*ACT ELECTRONIC MARKETING,
INC.
By: /s/ Thomas McGoldrick
____________________________
Thomas McGoldrick
Executive Vice President
[SIGNATURES CONTINUED ON FOLLOWING PAGE]
10
<PAGE>
STOCKHOLDERS:
SMITH RICHARDSON FOUNDATION, INC.
By:
____________________________
Name:
Title:
PIEDMONT ACORN INVESTORS LIMITED
PARTNERSHIP
By: /s/ Lunsford Richardson, Jr.
____________________________
Name: Lunsford Richardson, Jr.
Title: General Partner
PIEDMONT HARBOR-PIEDMONT
ASSOCIATES LIMITED PARTNERSHIP
By: /s/ Lunsford Richardson, Jr.
____________________________
Name: Lunsford Richardson, Jr.
Title: General Partner
/s/ Stephen R. Leeolou
________________________________
Stephen R. Leeolou
THE LEEOLOU FAMILY LIMITED
PARTNERSHIP
By: /s/ Stephen R. Leeolou
____________________________
Name: Stephen R. Leeolou
Title: General Partner
LJR LIMITED PARTNERSHIP
By: Mark F. Polzin
____________________________
Name:
Title: Trust Administrator of
the LJR Trust,
General Partner
11
<PAGE>
EXHIBIT 10 (a) (17)
INTER*ACT ELECTRONIC MARKETING, INC.
SUBSCRIPTION AGREEMENT
THIS SUBSCRIPTION AGREEMENT (the "Agreement") by and between Inter*Act
Electronic Marketing, Inc., a North Carolina corporation (the "Corporation") and
the undersigned subscriber (the "Subscriber") for shares of the Corporation's
10% Series C Mandatorily Convertible Preferred Stock ("Preferred Stock") and
Common Stock Purchase Warrants ("Warrants") being offered pursuant to the terms
described in a Confidential Private Placement Memorandum dated ______________
(the "Memorandum").
WHEREAS, the Corporation has offered the Subscriber an opportunity to
purchase units consisting of one share of Preferred Stock and one Warrant to
purchase shares of Common Stock of the Corporation (the "Units") pursuant to a
private offering (the "Offering") of up to 250,000 Units pursuant to the terms
described in the Memorandum that has been delivered to the Subscriber by the
Corporation,
WHEREAS, the Subscriber desires to purchase certain of the Units
being offered;
NOW, THEREFORE, the parties hereby agree as follows:
1. The Subscriber hereby subscribes and agrees to purchase, subject to
the terms and conditions of this Subscription Agreement (the "Agreement") the
number of Units set forth at the end of this Agreement. This subscription and
Agreement represent an irrevocable offer by the Subscriber to subscribe for such
number of Units, except as expressly provided herein. This Agreement, subject to
the terms hereof, shall become a contract for the sale of said Units upon the
acceptance thereof by the Corporation on or before February 11, 2000, or such
later date to which the Corporation may extend the Offering.
2. The Corporation reserves the unrestricted right to accept or reject
this subscription, in whole or in part and to withdraw this offer at any time,
as provided in the Memorandum. The subscription will not become effective unless
and until accepted by the Corporation.
3. Please check the method of payment.
[ ] This subscription is accompanied by a check in an amount
representing $100.00 for each Unit to which the Subscriber has
subscribed. The check is payable to "Bank of America, as
Escrow Agent for Inter*Act Electronic Marketing, Inc." (the
"Escrow Agent") as Escrow Agent for both the Subscriber and
the Corporation.
[ ] The Subscriber has wired funds in an amount representing
$100.00 for each Unit to which the Subscriber has subscribed
to the following account:
Bank of America, N.A.
ABA # 111000025
Credit to FTA 018-00-1981-0
Attention: Settlements
<PAGE>
Reference: Inter*Act Systems Escrow Account
Account No: 10-02-002-0006874
4. If this subscription is not accepted by the Corporation by February
11, 2000, or such later date to which the Corporation may extend the Offering,
the Escrow Agent shall promptly return the full amount of the Subscriber's
deposit with interest to the Subscriber. If this subscription is accepted by the
Corporation, the Escrow Agent shall pay the full amount of the Subscriber's
deposit, plus interest earned thereon, into an account established by the
Corporation.
5. The Subscriber hereby makes the representations and warranties set
forth below with the express intention that they be relied upon by the
Corporation in determining the suitability of the Subscriber to purchase Units:
a. The Subscriber is fully aware that the Units (including the
Preferred Stock, the Warrants and the underlying Common Stock) have not
been registered under the Securities Act of 1933, as amended (the
"Act"), or under any applicable state securities law. The Subscriber
further understands that the Units are being sold in reliance on the
exemptions from the registration requirements of the Act provided by
Section 4(2) thereof and by Regulation D promulgated thereunder, and in
reliance on exemptions from the registration requirements of the
applicable state law, on the ground that the Offering involved has been
limited to "accredited investors" within the meaning of Rule 501(a)
under the Securities Act of 1933, as amended (the "1933 Act"), and
existing shareholders of the Corporation who are "qualified investors,"
within the meaning of Rule 506 under the 1933 Act are also eligible
provided that the total number of all such qualified investors does not
exceed 35.
b. The Subscriber is acquiring the Units for his, her or its
own account as principal for the Subscriber's investment and not with a
view to resale or distribution;
c. The Subscriber has been furnished and has carefully read
the Memorandum and the attachments thereto and enclosures therewith and
has been given the opportunity to ask questions of, and receive answers
from, the Corporation concerning the terms and conditions of the
Offering and to obtain such additional information that the Corporation
possesses or can acquire without unreasonable effort or expense that is
necessary to verify the accuracy of the information contained therein
or information that has been otherwise provided by the Corporation;
d. The Subscriber fully understands and agrees that the
Subscriber must bear the economic risk of investment in the Units for
an indefinite period of time because, among other reasons, the Units
(including the Preferred Stock, the Warrants and the underlying Common
Stock) have not been registered under the Act, or under any applicable
state securities laws, and, therefore, cannot be sold, pledged,
assigned or otherwise disposed of unless they are subsequently
registered under any applicable securities laws or an exemption from
such registration is available. The Subscriber further understands and
agrees that the Corporation will not honor any attempt by the
Subscriber to sell, pledge, transfer or otherwise dispose of any of the
Units (including the Preferred Stock, the Warrants and the
2
<PAGE>
underlying Common Stock) in the absence of an effective registration
statement for such securities or an opinion of counsel satisfactory to
the Corporation that an exemption from any applicable registration
requirements is available. The Subscriber further understands that the
Corporation is under no obligation to register the Units (including the
Preferred Stock, the Warrants and the underlying Common Stock) or make
an exemption from registration available and that the Corporation has
not represented that it will make any attempt to so register the Units
(including the Preferred Stock, the Warrants and the underlying Common
Stock) or to make such an exemption thereto available;
e. The Subscriber understands that the certificate(s)
representing the Preferred Stock will bear restrictive legends
substantially in the following form:
THE SHARES EVIDENCED BY THIS CERTIFICATE HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED,
OR UNDER THE SECURITIES LAWS OF ANY STATE. THE SHARES MAY NOT
BE SOLD, TRANSFERRED, PLEDGED OR HYPOTHECATED IN THE ABSENCE
OF AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES
ACT OF 1933, AS AMENDED, AND SUCH REGISTRATION OR
QUALIFICATION AS MAY BE NECESSARY UNDER THE SECURITIES LAWS OF
ANY STATE, OR AN OPINION OF COUNSEL SATISFACTORY TO THE
CORPORATION THAT SUCH REGISTRATION OR QUALIFICATION IS NOT
REQUIRED.
THE SHARES OF COMMON STOCK INTO WHICH THE SHARES
REPRESENTED BY THIS CERTIFICATE ARE CONVERTIBLE, AND THE
TRANSFER THEREOF, ARE SUBJECT TO THE PROVISIONS OF THAT
CERTAIN SHAREHOLDERS' AGREEMENT DATED AS OF APRIL 16, 1993, AS
AMENDED AND AS MAY BE SUBSEQUENTLY AMENDED. COPIES OF THE
SHAREHOLDERS' AGREEMENT AND AMENDMENTS THERETO ARE ON FILE IN,
AND MAY BE EXAMINED AT, THE PRINCIPAL OFFICE OF THE
CORPORATION.
and that the Warrants will bear substantially similar legends.
f. The Subscriber has sought such accounting, legal and tax
advice as the Subscriber has considered necessary to make an informed
investment decision;
g. The Subscriber is aware that no federal or state agency has
made any finding or determination as to the fairness of an investment
in the Units, nor any recommendation or endorsement of any such
investment; and
h. The Subscriber has delivered herewith a Representation of
Accredited Investor (attached hereto as Exhibit 1) or a Representation
of Qualified Investor (attached hereto as Exhibit 2), as the case may
be, and the Subscriber represents that the information contained in
such Representation is true and accurate as of the date hereof. The
Subscriber
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<PAGE>
agrees to advise the Corporation if any of the information contained in
the Representation materially changes prior to acceptance of this
subscription.
i. The Subscriber has delivered herewith a Form W-9 - Request
for Taxpayer Identification Number and Certification (attached as
Exhibit 3 hereto), and the Subscriber represents that the information
contained in such Form W-9 is true and accurate as of the date hereof.
The Subscriber agrees to supplement the information in such Form W-9 as
may be necessary to ensure that the information contained in such Form
W-9 remains correct in all material respects.
6. The Subscriber acknowledges that subscribers who upon conversion of
their shares of Preferred Stock would own more than 1% of the total number of
shares of outstanding Common Stock ("Eligible Holders") will be entitled to the
registration rights set forth on Exhibit 4 hereto. The Subscriber agrees to be
bound by the terms set forth on Exhibit 4 hereto to the extent that it attempts
to exercise registration rights in respect of Common Stock issued upon
conversion of its shares of Preferred Stock.
7. The Subscriber acknowledges that the Common Stock of the Corporation
into which the shares of Preferred Stock are convertible and for which the
Warrants are exercisable will be issued subject to a Shareholders' Agreement
dated as of April 16, 1993 among the Corporation and all of its shareholders, as
amended by Amendment No. 1 to Shareholders' Agreement dated as of June 17, 1994
(the "Shareholders' Agreement"). The Subscriber hereby agrees that upon any
conversion of the shares of Preferred Stock or exercise of the Warrant, the
Subscriber will execute a Joinder Agreement and will agree to be bound by the
terms of the Shareholders' Agreement, as it may be amended from time to time,
unless the Shareholders' Agreement is terminated prior to the issuance of Common
Stock to Subscriber. Notwithstanding the foregoing, however, in the event the
Shareholders' Agreement is terminated prior to the issuance of Common Stock to
the Subscriber, the Subscriber nevertheless agrees to be bound by the lock-up
agreement contained in Section 23 of the Shareholders' Agreement or any similar
lock-up agreement then in effect with respect to the Company's shareholders. A
copy of the Shareholders's Agreement is available upon request.
8. The subscription herein shall survive the death or disability of any
individual Subscriber and the dissolution or termination of any subscribing
entity, and this Agreement shall be binding upon the heirs, executors,
administrators, successors and assigns of any such Subscriber. All pronouns and
any variations thereof used herein shall be deemed neuter, singular or plural as
the identity of the Subscriber may require.
[Continued on Following Page]
4
<PAGE>
The number of Units subscribed for by the Subscriber and their
registration of ownership are set forth as follows:
PLEASE TYPE OR PRINT
Owner: _______________________________
_______________________________
Social Security or Federal
Employer ID Number
Residence _______________________________
Address: _______________________________
Mailing Address
(if other than ________________________________
Residence): ________________________________
Telephones: Res. ___________________________
Bus. ___________________________
Joint Owner:
(if any): ________________________________
________________________________
Social Security or Federal
Employer ID Number
Residence ________________________________
Address: ________________________________
Mailing Address
(if other than ________________________________
Residence): ________________________________
Telephones: Res. ___________________________
Bus. ___________________________
PREFERRED SHARES TO BE REGISTERED AS INDICATED BELOW:
[ ] Sole ownership
[ ] Joint tenants with right of survivorship
[ ] Tenants in common
Number of Units (consisting of (i) one share of 10% Series C Mandatorily
Convertible Preferred Stock convertible into 7.14 shares of Common Stock and
(ii) one Common Stock Purchase Warrant to purchase 7.14 shares of Common Stock
at a price of $14.00 per share) subscribed for:
------------------------
Total Purchase Price ($100.00 per Unit):
------------------------
5
<PAGE>
Dated: _______________, 2000
SIGNATURE FORM FOR INDIVIDUALS
____________________________________ (SEAL)
Signature
Name: _____________________________
____________________________________ (SEAL)
(Signature of Joint Owner, if any)
Name: _____________________________
SIGNATURE FORM FOR CORPORATIONS:
____________________________________
(Name of corporation)
By:_________________________________
(Signature of Officer)
____________________________________
(Name and Title)
6
<PAGE>
Dated: ____________________, 2000
SIGNATURE FORM FOR PARTNERSHIPS OR LIMITED LIABILITY COMPANIES:
____________________________________
(Name of Partnership or LLC)
By its General Partners or Managers:
____________________________________
Name:
____________________________________
Name:
____________________________________
Name:
SIGNATURE FORM FOR TRUSTS:
____________________________________
(Full Name of Trust)
By its Trustee (s):
____________________________________
Name:
____________________________________
Name:
____________________________________
Name:
7
<PAGE>
ACCEPTANCE OF SUBSCRIPTION
The foregoing Subscription Agreement is ACCEPTED on behalf of the
Corporation as of this ____ day of __________________, 2000 to the extent
of _____________ Units.
INTER*ACT ELECTRONIC MARKETING, INC.
By: _______________________________
Name:
Title:
8
<PAGE>
EXHIBIT 10 (a) (18)
NEITHER THIS WARRANT NOR THE SHARES OF COMMON STOCK ISSUABLE UPON THE EXERCISE
HEREOF HAVE BEEN REGISTERED UNDER ANY FEDERAL OR STATE SECURITIES LAWS. THIS
WARRANT HAS BEEN ISSUED UNDER EXEMPTIONS THAT DEPEND, IN PART, ON THE INTENT OF
THE HOLDER HEREOF NOT TO SELL OR TRANSFER THIS WARRANT OR SUCH SHARES IN ANY
MANNER NOT PERMITTED BY SUCH LAWS. THIS WARRANT AND SUCH SHARES THEREFORE MAY
NOT BE SOLD OR TRANSFERRED EXCEPT IN ACCORDANCE WITH THE RESTRICTIONS SET FORTH
HEREIN.
INTER*ACT ELECTRONIC MARKETING, INC.
COMMON STOCK PURCHASE WARRANT
No. warrant number #shares Shares
FOR VALUE RECEIVED, Inter*Act Electronic Marketing, Inc., a North
Carolina corporation (the "Company"), hereby grants to name, or his/hers/its
registered assigns, the right to purchase number of shares (#shares) shares at a
price per share equal to the Exercise Price, as defined in Section 2 below,
(such number of shares and Exercise Price being subject to adjustment as
provided hereinafter) of the validly authorized and issued, fully paid and
nonassessable shares of common stock of the Company, no par value per share (the
"Common Stock"), upon compliance with and subject to the following terms and
conditions:
1. Exercise of Warrant. This Warrant may be exercised in whole at any
time, or in part from time to time, on or before the expiration date set forth
in Section 3 below by surrendering this Warrant, or the applicable portion
hereof, with a subscription form substantially in the form attached hereto duly
executed, at the offices of the Company in Charlotte, North Carolina, and by
paying in full the Exercise Price, in immediately available funds or as
otherwise hereinafter provided, for the number of shares of Common Stock as to
which this Warrant or applicable portion hereof is exercised. No fractional
shares shall be issued upon the exercise of this Warrant and, instead, any
fractional shares created by exercise hereunder shall be purchased by the
Company at the rate of the Exercise Price per share then in effect.
2. Exercise Price. This Warrant is being issued in connection with the
offering and sale of up to $25,000,000 of 10% Series C Mandatorily Convertible
Preferred Stock of the Company approved by the Board of Directors of the Company
on December 8, 1999 (the "Offering"). The exercise price per share of this
Warrant (the "Exercise Price") shall be $14.00 per share, subject to adjustment
as provided in Section 4 below.
3. Expiration of Warrant. This Warrant shall expire and all rights
hereunder shall cease on the date which is ten years from the date hereof.
<PAGE>
4. Adjustment. The number of shares of Common Stock for which this
Warrant may be exercised and the Exercise Price per share shall be adjusted in
amount and number in accordance with the following:
(a) If the Company shall declare and pay on shares of Common
Stock a dividend payable in shares of Common Stock or shall split the
then outstanding shares of Common Stock into a greater number of shares,
the number of share of Common Stock for which this Warrant may be
exercised, as in effect at the time of taking of a record for such
dividend or at the time of such stock split, shall be proportionately
increased and the Exercise Price per share shall be proportionately
decreased. Conversely, if at any time the Company shall contract or
reduce the number of outstanding shares of Common Stock by combining
such shares into a smaller number of shares, the number of shares of
Commons Stock for which this Warrant may be exercised at the time of
such action shall be proportionately decreased and the Exercise Price
per share shall be proportionately increased.
(b) If the Company shall at any time, or from time to time (i)
issue, sell or exchange any shares of Common Stock, including shares
issued in the Company's first Qualified Public Offering (as defined
below) but excluding the Excluded Securities (as hereafter defined), for
a consideration per share less than the Exercise Price as of the date of
issuance, or (ii) issue, sell or exchange options or other securities,
excluding the Excluded Securities, that are convertible into or
exercisable for shares of Common Stock at an exercise or conversion
price that is less than the Exercise Price (taking into account, to the
extent applicable, any price paid for the option or other security) as
of the date of issuance, then and thereafter successively upon each such
issuance, sale or exchange, the Exercise Price in effect immediately
prior to the issuance, sale or exchange of such shares, options or
securities shall forthwith be reduced to, in the case of clause (i)
above, the amount of the consideration per share received by the Company
in connection with such issuance, sale or exchange, or in the case of
clause (ii) above, the amount of the exercise or conversion price per
share, plus the amount paid (if any) for the underlying option or other
security, in connection with such issuance, sale or exchange.
Notwithstanding the foregoing, there shall be no adjustment to the
Exercise Price pursuant to the provisions of this Section 4(b) after the
Company completes its first Qualified Public Offering. For purposes
hereof, "Qualified Public Offering" means a firm commitment public
offering of the Common Stock pursuant to a registration statement
declared effective under the Securities Act of 1933, as amended,
underwritten by a securities firm of nationally recognized standing with
an aggregate offering price to the public of not less than $30 million.
(c) Notwithstanding anything to the contrary contained herein,
the provisions of paragraph (b) of this Section 4 shall not apply with
respect to the issuance of any Excluded Securities For purposes hereof,
"Excluded Securities" means (i) options, rights or shares of Common
Stock issued to, or issued in connection with the exercise or grant of
options or rights granted to, employees, directors or consultants of the
Company pursuant to the terms of any stock compensation plan of the
Company in effect on December 9, 1999 or adopted by the shareholders of
the Company after December 9, 1999, (ii) shares of Common Stock issued
in connection with the exercise of options or warrants issued by the
Company and outstanding on December 9, 1999, (iii) up to 20,000 shares
of Common Stock (or options or warrants to acquire up to such number of
shares of Common Stock) issued in connection
2
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with the exercise of options or warrants issued under contractual
obligations of the corporation in effect as of December 9, 1999, (iv)
shares of Common Stock issued in connection with the acquisition by the
Company (or its subsidiary) of Clearing Systems, Inc. so long as the
Company (or its subsidiary) receives in such acquisition the same number
of shares of Common Stock issued, (v) shares of Common Stock issued upon
conversion of the 10% Series A Mandatorily Convertible Preferred Stock
("Series A Preferred Stock") issued and outstanding on December 9, 1999
or issued in respect of a dividend payment on the Series A Preferred
Stock, (vi) shares of Series A Preferred Stock issued in respect of a
dividend payment on the Series A Preferred Stock, (vii) shares of, or
options or rights to acquire, Common Stock issued for consideration
other than money, deemed by the Board of Directors of the Company to be
advantageous to the Company's business, and (viii) shares of Common
Stock in connection with any stock split or stock dividend covered by
paragraph (a) of this Section 4.
(d) If any time the Company shall initiate any transaction or be
a party to any transaction (including, without limitation, a merger,
consolidation, share exchange, sale, lease or other disposition of all
or substantially all of the Company's assets, charter amendment,
recapitalization or reclassification of the Common Stock or a "Stock
Sale," as defined below) in connection with which the previously
outstanding Common Stock shall be changed into or exchanged for
different securities of the Company or capital stock or other securities
of another corporation or interests in a non-corporate entity or other
property (including cash) or any combination of the foregoing (each such
transaction being herein called a "Transaction"), then, as a condition
of the consummation of the Transaction, lawful, enforceable and adequate
provision shall be made so that the holder of this Warrant shall be
entitled to receive upon exercise of the Warrant at any time on or after
the consummation of the Transaction, in lieu of the shares of Common
Stock issuable upon such exercise prior to such consummation, the
securities or other property (including cash) to which the holder would
have been entitled upon consummation of the Transaction if the holder
had exercised the Warrant immediately prior thereto (subject to
adjustments from and after the consummation date as nearly equivalent as
possible to the adjustments provided for in this Section 4). If a
purchase, tender or exchange offer is made to and accepted by the
holders of more than 50% of the outstanding Common Stock (a "Stock
Sale"), and if the holder of the Warrant so designates in a written
notice given to the Company, the holder shall be entitled to receive
upon the exercise of the Warrant at any time on or after the
consummation of the Stock Sale in lieu of the shares of Common Stock
issuable upon exercise prior to the consummation of the Stock Sale, the
securities or other property to which the holder would have been
entitled if the holder had exercised this Warrant prior to the
expiration of such purchase, tender or exchange offer and had accepted
such offer (subject to adjustments from and after the consummation of
such purchase, tender or exchange offer as nearly equivalent as possible
to the adjustments provided for in this Section 4). The Company will not
effect any Transaction unless prior to the consummation thereof each
corporation or entity (other than the Company) which may be required to
deliver any securities or other property upon the exercise of the
Warrant as provided herein shall assume, by written instrument delivered
to the holder, the obligation to deliver to the holder such securities
or other property as in accordance with the foregoing provisions the
holder may be entitled to receive. The foregoing provisions of this
Section 4(d) shall similarly apply to successive Transactions.
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5. Notice of Adjustments. Within five (5) days after any adjustment
pursuant to Section 4 above, the Company shall give written notice thereof to
the registered holder. Such notice shall state the Exercise Price as adjusted
and the increased or decreased number of shares purchasable upon the exercise of
this Warrant, setting forth in detail the method of calculation.
6. Partial Exercise of Warrant. In the event of any partial exercise of
this Warrant, the Company shall return to the registered holder this Warrant,
which shall have noted thereon the date of partial exercise and the number of
shares of Common Stock issued upon the partial exercise thereof.
7. Reservation of Shares. The Company shall at all times reserve and
keep available a number of its authorized but unissued shares of its Common
Stock sufficient to permit the exercise in full of this Warrant.
8. Sale of Warrant or Shares. Neither this Warrant nor the shares of
Common Stock issuable upon exercise hereof have been registered under the
Securities Act of 1933, as amended, or under the securities laws of any state.
Neither this Warrant nor such shares, when issued, may be sold, transferred,
pledged or hypothecated in the absence of an effective registration statement
for this Warrant, or the shares of Common Stock, as the case may be, under the
Securities Act of 1933, as amended, and such registration or qualification as
may be necessary under the securities laws of any state, or an opinion of
counsel satisfactory to the Company that such registration or qualification is
not required.
9. Shareholders' Agreement. The holder understands and agrees that the
shares of Common Stock issuable upon exercise of this Warrant shall also be
subject to the restrictions on transfer and other provisions of the
shareholders' agreement, if any, that may be in effect among the Company and all
its shareholders as of the date of any exercise of this Warrant. As a condition
to the exercise of this Warrant, the holder agrees that he will become a party
to any such shareholders' agreement by executing a joinder agreement or other
appropriate document. In the event that the Shareholders' Agreement dated as of
April 16, 1993, as amended by Amendment No. 1 thereto dated as of June 17, 1994,
has terminated as a result of a public offering of capital stock of the Company
prior to the exercise of this Warrant, the holder nevertheless agrees to be
bound by the lock-up agreement contained in Section 23 thereof or any similar
lock-up agreement then in effect with respect to the Company's shareholders.
10. Legends. The certificate or certificates evidencing all or any of
the shares of Common Stock issued upon exercise of this Warrant shall bear the
following legend:
"The Shares evidenced by this certificate have not been registered under
the Securities Act of 1933, as amended, or under the securities laws of
any state. The shares may not be sold, transferred, pledged or
hypothecated in the absence of an effective registration statement under
the Securities Act of 1933, as amended, and such registration or
qualification as may be necessary under the securities laws of any
state, or any opinion of counsel satisfactory to the Company that such
registration or qualification is not required."
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Such certificate or certificates shall also bear any legend required by
the Shareholders' Agreement.
11. Successor and Assigns. The terms of this Warrant shall be binding
upon and shall enure to the benefit of any successors or assigns of the Company
and of the holder or holders hereof and of the Common Stock issued or issuable
upon the exercise hereof.
12. Transfer of Warrant. This Warrant shall be registered on the books
of the Company, which shall be kept by it at its principal office for that
purpose and shall be transferable only on said books by the registered holder
hereof in person or by such holder's duly authorized attorney upon surrender of
this Warrant properly endorsed, and only in compliance with the foregoing
provisions of this Warrant. Except as otherwise provided herein, and subject to
applicable securities laws, this Warrant and all rights hereunder are
transferable in whole or in part by the registered holder hereof in person or by
the registered holder's duly authorized attorney on the books of the company
upon surrender of this Warrant, or the applicable portion hereof, with a
transfer form substantially in the form attached hereto duly executed, at the
offices of the Company in Charlotte, North Carolina. The Company may deem and
treat the registered holder of this Warrant at any time as the absolute owner
hereof for all purposes and shall not be affected by any notices to the
contrary.
13. Notices. Notices under this Warrant shall be in writing and shall be
deemed to have been duly given (i) when personally delivered, (ii) when
forwarded by Federal Express, Airborne, or another private carrier which
maintains records showing delivery information, (iii) when sent via facsimile
but only if a written or facsimile acknowledgement of receipt is received by the
sending party, or (iv) when place in the United States Mail and forwarded by
registered or certified mail, return receipt requested, postage prepaid,
addressed to the party to whom such notice is being given and, with respect to
the Company, addressed to the Company's principal office, and with respect to
the registered holder of the Warrant, addressed to the address of such holder as
maintained on the records of the Company, or to such other address as may by
furnished in writing to the parties.
14. Governing Law. This Warrant shall be governed in accordance with the
laws of the State of North Carolina without taking into account conflict of law
provisions.
IN WITNESS WHEREOF, the Company has caused this Warrant to be issued and
executed in its corporate name by its authorized officer and its corporate seal
to be affixed hereto and attested by its Secretary or Assistant Secretary.
DATED: date INTER*ACT ELECTRONIC MARKETING, INC.
By: ______________________
Title:
ATTEST:
____________________________
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Secretary
(Corporate Seal)
Exercise Form for
Common Stock Purchase Warrant
INTER*ACT ELECTRONIC MARKETING, INC.
The undersigned hereby irrevocably subscribes for the shares of Common
Stock of Inter*Act Electronic Marketing, Inc. indicated below, upon the terms
and conditions of the attached Warrant.
No. of Shares: ___________________
Exercise Price per share:
$_________________________________
Subscriber's Name and Address: ____________________________________________
(Please print) ____________________________________________
____________________________________________
____________________________________________
Subscriber's Telephone Number: (____) ______________________________________
Subscriber's Signature: ___________________________________________________
(if individual)
Subscriber's Signature: ___________________________________________________
(if entity) (Name of Entity)
By: _____________________________________
(Signature of Authorized Person)
__________________________________________
(Title of Authorized Person)
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Transfer Form for
Common Stock Purchase Warrant
INTER*ACT ELECTRONIC MARKETING, INC.
The undersigned registered holder of the attached Warrant hereby
irrevocable transfers the following portion of the Warrant to purchase shares of
Common Stock of Inter*Act Electronic Marketing, Inc., which transfer is subject
to the terms and conditions described in the Warrant.
Date of Transfer: _____________________________
Number of Shares Exercisable under
Warrant as of Date of Transfer _____________________________________
Portion of Warrant Transferred:
Expressed as fraction or percentage _____________________________________
Expressed as number of shares _____________________________________
Transferee's Name and Address: ____________________________________________
(Please Print) ____________________________________________
____________________________________________
____________________________________________
Transferee's Telephone Number: (_____) ____________________________________
Transferor's Signature: ____________________________________________
(if individual)
Transferor's Signature: ____________________________________________
(if entity) (Name of Entity)
By: ________________________________________
(Signature of Authorized Person)
____________________________________________
(Title of Authorized Person)
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<PAGE>
EXHIBIT 10(d)(4)
INTER*ACT ELECTRONIC MARKETING, INC.
1997 LONG-TERM INCENTIVE PLAN
NONQUALIFIED STOCK OPTION AGREEMENT
THIS NONQUALIFIED STOCK OPTION AGREEMENT (the "Option Agreement") dated
the 15th day of September, 1999 by and between Inter*Act Electronic Marketing,
Inc., a North Carolina corporation (the "Company"), and Stephen R. Leeolou, a
key employee of the Company (the "Optionee"):
W I T N E S S E T H:
WHEREAS, the Company desires to provide the Optionee with an incentive
to continue employment with the Company and align his interests with those of
the Company's shareholders; and
WHEREAS, the Company desires to grant the Optionee a nonqualified stock
option under the Inter*Act Systems, Incorporated 1997 Long-Term Incentive Plan
(the "Plan"), a copy of which is attached hereto and incorporated by reference,
and the Optionee desires to accept such option in accordance with the terms and
conditions set forth herein;
NOW, THEREFORE, in consideration of the premises and the mutual
covenants contained herein, and intending to be legally bound hereby, the
parties agree as follows:
1. Grant of Option. Subject to the terms and conditions of this
Agreement and the Plan, the Company hereby grants to the Optionee an option (the
"Option") to purchase all or any portion of two hundred sixty-one thousand seven
hundred and eight (261,708) shares of the Company's Common Stock (the "Common
Stock") at an exercise price of Eight Dollars and Fifty Cents ($8.50) per share
(the "Exercise Price"). This Option is not intended to be an incentive stock
option as defined in Section 422 of the Internal Revenue Code of 1986, as
amended (the "Code").
2. Term of Option. Unless sooner terminated in accordance with Section
5 hereof, this Option shall terminate and be no longer exercisable after ten
years from the date hereof. Subject to the further limitations and restrictions
as provided in the Plan and this Agreement, the Option shall vest and be
exercisable to the extent of 87,236 shares on and after the first anniversary
date of this Option, to the extent of 174,472 shares on and after the second
anniversary date of this Option (to the extent not previously exercised) and to
the extent of all shares subject to this Option on and after the third
anniversary date of this Option (to the extent not previously exercised).
Notwithstanding the foregoing, in the event the Optionee's employment with the
Company is terminated by the Company other than for Cause (as defined below),
this Option shall become exercisable in full and shall remain exercisable for
the duration of its term.
Not less than 1,000 shares may be purchased at any one time pursuant to
any exercise of this Option unless the number of shares purchased is the total
number that may be
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<PAGE>
purchased under this Option at that time or unless the Company shall otherwise
consent. No fractional shares of Common Stock shall be issued upon any exercise
of this Option.
For purposes of this Agreement, "Cause" shall mean termination due to
(i) continued willful or gross neglect of duties for thirty days following
receipt by the Optionee of one or more written warnings from the Board of
Directors of the Company specifying in detail the duties neglected, (ii)
incapacity due to continuing alcohol or drug addiction, (iii) continued
intentional refusal to perform the duties for which employed thirty days
following receipt by the Optionee of one or more written warnings from the Board
of Directors of the Company specifying in detail the Optionee's misconduct, (iv)
fraud or embezzlement committed against the Company, or (v) the Optionee's
conviction for a felony.
3. Transferability of Option. The Option is not transferable by the
Optionee during the Optionee's lifetime but may be transferred only upon the
death of the Optionee by will or by the laws of descent and distribution;
provided, however that the Option may be transferred to immediate family members
of the Optionee, without payment of consideration, to the fullest extent
permitted under Article 14 of the Plan for nonqualified stock options. The
limitations on the exercise of the Option contained in this Agreement,
including, without limitation, those set forth in Section 5 hereof relating to
termination of the Option following the termination of the Optionee's employment
with the Company, shall not be affected by and shall continue to apply following
a transfer.
4. Adjustments. If the shares of Common Stock of the Company are
increased, decreased, changed into, or exchanged for a different number or kind
of shares or securities through merger, consolidation, combination, exchange of
shares, other reorganization, recapitalization, reclassification, stock
dividend, stock split or reverse stock split in which the Company is the
surviving entity, an appropriate and proportionate adjustment shall be made, as
provided in Article 15 of the Plan, in the number or kind of shares allocated to
any unexercised part of the Option. In the event of a consolidation or a merger
in which the Company is not the surviving corporation, or any other merger in
which all of the shareholders of the Company exchange their shares of stock in
the Company for stock or other consideration of another corporation, or in the
event of complete liquidation of the Company, or in the case of a tender offer
pursuant to which the tender offeror acquires more than 50% of the combined
voting power of the Company's outstanding securities, the Option shall become
exercisable in full immediately prior to the effective date of any such
transaction (to the extent they are not already so exercisable). In the event
the consideration to be received for Common Stock in any such transaction is
only cash, the Optionee shall be entitled to receive from the Company at the
time the transaction is consummated cash in an amount equal to the difference
between the Exercise Price of the aggregate number of shares then subject to the
Option and not yet purchased by the Optionee and the price of such number of
shares of Common Stock of the Company in the consolidation, merger, liquidation,
or tender offer (such difference to be determined by the Board of Directors as
of the effective date of the transaction).
5. Termination of Option. Notwithstanding the term of the Option set
forth in Section 2 above, the Option shall sooner terminate as follows:
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<PAGE>
(a) If the Optionee's employment with the Company, its parent,
or any of its subsidiaries, or a corporation of a parent or subsidiary
of such corporation issuing or assuming the Option in a transaction to
which Section 424(a) of the Code applies (for purposes of this Section
5, the Company, its parent, subsidiary or such other corporation
collectively referred to as the "Company") is terminated by the Company
for Cause, then the Option or unexercised portion thereof shall
terminate on the effective date of the Optionee's termination of
employment.
(b) If the Optionee's employment with the Company is
terminated for any other reason (including but not limited to
termination by the Company other than for Cause or termination by the
Optionee voluntarily or as a result of the Optionee's death or
disability (within the meaning of Section 22(e)(3) of the Code)), then
the Option or unexercised portion thereof shall terminate on the date
which three years from the effective date of the Optionee's termination
of employment.
Any Option that may be exercised for a period following termination of
the Optionee's employment as described in subparagraphs (a) and (b) above of
this Section 5, may be exercised only to the extent it was exercisable
immediately before such termination (except as provided in the last sentence of
Section 2 above) and in no event after the Option would expire by its terms
without regard to such termination.
6. Method of Exercise. The Option shall be exercised by the tender of
payment and delivery to the Company at its principal place of business of a
written notice, at least five (5) days prior to the proposed date of exercise,
which notice shall:
(a) state the election to exercise the Option, the number of
shares of Common Stock with respect to which the Option is being
exercised, and the name, address, and social security number of the
person in whose name the stock certificate or certificates for such
shares of Common Stock is to be registered.
(b) contain any such representations and agreements as to
Optionee's investment interest with respect to such shares of Common
Stock as shall be satisfactory to the Board or Committee.
(c) be signed by the person entitled to exercise the Option,
and if the Option is being exercised by any person or persons other
than the Optionee, be accompanied by proof, satisfactory to the
Committee, of the right of such person or persons to exercise the
Option.
Payment of the exercise price may be made in cash or by certified,
cashiers or official check or, at the option of the Company, by personal check.
Payment may also be made by surrendering shares of Common Stock (including any
shares of Common Stock received upon a prior or simultaneous exercise of the
Option) at the then fair market value of such shares, as determined in
accordance with the Plan. Payment may also be made by combining cash or check
and shares of Common Stock.
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<PAGE>
After receipt of such notice in a form satisfactory to the Committee
and the acceptance of payment, the Company shall deliver to the Optionee a
certificate or certificates representing the shares purchased hereunder,
provided, that if any law or regulation requires the Company to take any action
with respect to the shares specified in such notice before the issuance thereof,
the date of delivery of such shares shall be extended for the period necessary
to take such action.
7. Tax Matters. The Optionee acknowledges that, upon exercise of the
Option, the Optionee will recognize taxable income generally in an amount equal
to the difference between the fair market value of the shares purchased upon
exercise and the Exercise Price paid therefor, and the Company may have certain
withholding obligations for income and other taxes. It shall be a condition to
the Optionee's exercise of the Option and receipt of a stock certificate
covering Shares purchased pursuant to the Option that the Optionee pay to the
Company such amounts as it is required to withhold or, with the consent of the
Company, that the Optionee otherwise provide for the satisfaction of the
Company's withholding obligation. If any such payment is not made by the
Optionee, the Company may deduct the amounts required to be withheld from
payments of any kind to which the Optionee would otherwise be entitled from the
Company.
8. Rights of a Shareholder. The Optionee shall not be deemed for any
purpose to be a shareholder of the Company with respect to any shares covered by
this Option unless this Option shall have been exercised and the Exercise Price
paid in the manner provided herein. No adjustment will be made for dividends or
other rights where the record date is prior to the date of exercise and payment.
Upon the exercise of the Option and the issuance of the certificate or
certificates evidencing the shares of Common Stock received, except as otherwise
provided herein, the Optionee shall have all the rights of a stockholder of the
Company including the rights to receive all dividends or other distributions
paid or made with respect to such shares.
9. Compliance with Securities Laws. The Optionee recognizes that any
registration of the shares of Common Stock issuable pursuant to this Option
under applicable federal and state securities laws, or actions to qualify for
applicable exemptions from such registrations, shall be at the option of the
Company. The Optionee acknowledges that, in the event that no such registrations
are undertaken and the Company relies on exemptions from such registrations, the
shares shall be issued only if the Optionee qualifies to receive such shares in
accordance with the exemptions from registration on which the Company relies and
that, in connection with any issuance of certificates evidencing such shares,
the Board of Directors may require appropriate representations from the Optionee
and take such other action as the Board of Directors may deem necessary,
including but not limited to placing restrictive legends on such certificates
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 or this Agreement (i) no shares will be issued upon any exercise of
the Option unless and until such shares have been registered under all
applicable federal and state securities laws or unless, in the opinion of
counsel satisfactory to the Company, all actions necessary to qualify for
exemptions from such registrations shall have been taken and (ii) the Company
shall have no obligation to undertake such registrations or such actions
necessary to qualify
4
<PAGE>
for exemptions from registrations and shall have no liability whatsoever for not
doing so except to refund any option price tendered to the Company.
10. Shareholders' Agreement. The Optionee understands and agrees that
the shares of Common Stock issuable upon exercise of this Option shall also be
subject to the restrictions on transfer and other provisions of the
shareholders' agreement, if any, that may be in effect among the Company and all
its shareholders as of the date of any exercise of this Option. As a condition
to the exercise of this Option, the Optionee agrees that he will become a party
to any such shareholders' agreement by executing a joinder agreement or other
appropriate document. In the event that the Shareholders' Agreement dated as of
April 16, 1993, as amended by Amendment No. 1 thereto dated as of June 17, 1994,
has terminated as a result of a public offering of capital stock of the Company
prior to the exercise of this Option, the Optionee nevertheless agrees to be
bound by the lock-up agreement contained in Section 23 thereof or any similar
lock-up agreement then in effect with respect to the Company's shareholders.
11. Legends. Until the shares of Common Stock issued upon exercise of
this Option are registered under the Securities Act of 1933, as amended, the
certificate or certificates evidencing such shares shall bear substantially the
following legend:
The shares evidenced by this certificate have not been registered under
the Securities Act of 1933, as amended, or under the securities laws of
any state. The shares may not be sold, transferred, pledged or
hypothecated in the absence of any effective registration statement
under the Securities Act of 1933, as amended, and such registration or
qualification as may be necessary under the securities laws of any
state, or an opinion of counsel satisfactory to the Company that such
registration or qualification is not required.
Such certificate or certificates shall also bear any legend required by the
Shareholders' Agreement.
12. Specific Performance. The Optionee agrees that in the event of any
violation of this Agreement, an action may be commenced by the Company for any
such preliminary and permanent injunctive relief and other equitable relief in
any court of competent jurisdiction in the State of North Carolina or in any
other court of competent jurisdiction. The Optionee hereby waives any objections
on the grounds of improper jurisdiction or venue to the commencement of an
action in the State of North Carolina and agrees that effective service of
process may be made upon him by mail under the notice provisions contained in
Section 16 hereof.
13. Construction. Whenever the word "Optionee" is used in any provision
of this Agreement under circumstances where the provision should logically be
construed to apply to (i) the estate, personal representative, or beneficiary to
whom this Option may be transferred by will or by the laws of descent and
distribution or (ii) the guardian or legal representative of the Optionee acting
pursuant to a valid power of attorney or the decree of a court of competent
jurisdiction, then the term "Optionee" shall be construed to include such
estate, personal representative, beneficiary, guardian or legal representative.
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<PAGE>
14. Severability. The provisions of this Agreement shall be severable
and the invalidity or unenforceability of any provision shall not affect the
validity or enforceability of the other provisions hereto.
15. Successor and Assigns. The terms of this Agreement shall be binding
upon and shall enure to the benefit of any successors or assigns of the Company
and of the Optionee and of the Common Stock issued or issuable upon the exercise
hereof.
16. Notices. Notices under this Agreement shall be in writing and shall
be deemed to have been duly given (i) when personally delivered, (ii) when
forwarded by Federal Express, Airborne, or another private carrier which
maintains records showing delivery information, (iii) when sent via facsimile
but only if a written facsimile acknowledgment of receipt is received by the
sending party, or (iv) when placed in the United States Mail and forwarded by
registered or certified mail, return receipt requested, postage prepaid,
addressed to the party to whom such notice is being given.
17. Modification. This Agreement is the entire agreement and
understanding of the parties hereto with respect to the Option granted herein
and supersedes any and all prior and contemporaneous negotiations,
understandings and agreements with regard to the Option and the matters set
forth herein, whether oral or written. No representation, inducement, agreement,
promise or understanding altering, modifying, taking from or adding to the terms
and conditions hereof shall have any force or effect unless the same is in
writing and validity executed by the parties hereto.
18. Governing Law. This Agreement shall be governed in accordance with
the laws of the State of North Carolina.
19. Multiple Counterparts. This Agreement may be signed in one or more
counterparts, each of which shall be deemed to be an original.
IN WITNESS WHEREOF, the Optionee has executed this Agreement and the
Company has caused this Agreement to be executed on its behalf by its duly
authorized officer effective as of the day and year first above written.
ATTEST: INTER*ACT ELECTRONIC MARKETING, INC.
/s/ Dan T. Barker, Jr. By: /s/ Lee D. Armbuster
Assistant Secretary Title: President
(Corporate Seal)
OPTIONEE:
/s/ Stephen R Leeolou (SEAL)
Stephen R. Leeolou
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<PAGE>
EXHIBIT 10(d)(5)
INTER*ACT ELECTRONIC MARKETING, INC.
1996 NONQUALIFIED STOCK OPTION PLAN
NONQUALIFIED STOCK OPTION AGREEMENT
THIS NONQUALIFIED STOCK OPTION AGREEMENT (the "Option Agreement") dated
as of the 15th day of September, 1999, by and between Inter*Act Electronic
Marketing, Inc., a North Carolina corporation (the "Company"), and Stephen R.
Leeolou, an employee of the Company (the "Optionee"):
W I T N E S S E T H:
WHEREAS, the Company desires to provide the Optionee with an incentive
to continue employment with the Company and align his interests with those of
the Company's shareholders; and
WHEREAS, the Company desires to grant the Optionee a nonqualified stock
option under the Inter*Act Systems, Incorporated 1996 Nonqualified Stock Option
Plan (the "Plan"), a copy of which is attached hereto and incorporated by
reference, and the Optionee desires to accept such option in accordance with the
terms and conditions set forth herein;
NOW, THEREFORE, in consideration of the premises and the mutual
covenants contained herein, and intending to be legally bound hereby, the
parties agree as follows:
1. Grant of Option. Subject to the terms and conditions of this
Agreement and the Plan, the Company hereby grants to the Optionee an option (the
"Option") to purchase all or any portion of twenty-eight thousand (28,000)
shares of the Company's Common Stock (the "Common Stock") at an exercise price
of Eight Dollars and Fifty Cents ($8.50) per share (the "Exercise Price"). This
Option is not intended to be an incentive stock option as defined in Section 422
of the Internal Revenue Code of 1986, as amended (the "Code").
2. Term of Option. Unless sooner terminated in accordance with Section
5 hereof, this Option shall terminate and be no longer exercisable after ten
years from the date hereof. Subject to the further limitations and restrictions
as provided in the Plan and this Agreement, the Option shall vest and be
exercisable to the extent of 9,333 shares on and after the first anniversary
date of this Option, to the extent of 18,666 shares on and after the second
anniversary date of this Option (to the extent not previously exercised) and to
the extent of all shares subject to this Option on and after the third
anniversary date of this Option (to the extent not previously exercised).
Notwithstanding the foregoing, in the event the Optionee's employment with the
Company is terminated by the Company other than for Cause (as defined below),
this Option shall become exercisable in full and shall remain exercisable for
the duration of its term.
Not less than 1,000 shares may be purchased at any one time pursuant to
any exercise of this Option unless the number of shares purchased is the total
number that may be purchased under this Option at that time or unless the
Company shall otherwise consent. No fractional shares of Common Stock shall be
issued upon any exercise of this Option.
<PAGE>
For purposes of this Agreement, "Cause" shall mean termination due to
(i) continued willful or gross neglect of duties for thirty days following
receipt by the Optionee of one or more written warnings from the Board of
Directors of the Company specifying in detail the duties neglected, (ii)
incapacity due to continuing alcohol or drug addiction, (iii) continued
intentional refusal to perform the duties for which employed thirty days
following receipt by the Optionee of one or more written warnings from the Board
of Directors of the Company specifying in detail the Optionee's misconduct, (iv)
fraud or embezzlement committed against the Company, or (v) the Optionee's
conviction for a felony.
3. Transferability of Option. The Option is not transferable by the
Optionee during the Optionee's lifetime but may be transferred only upon the
death of the Optionee by will or by the laws of descent and distribution;
provided, however that the Optionee may effect "immediate family transfers",
without payment of consideration, to the fullest extent permitted under Section
5(f) of the Plan for nonqualified stock options. The limitations on the exercise
of the Option contained in this Agreement, including, without limitation, those
set forth in Section 5 hereof relating to termination of the Option following
the termination of the Optionee's employment with the Company, shall not be
affected by and shall continue to apply following a transfer.
4. Adjustments. If the shares of Common Stock of the Company are
increased, decreased, changed into or exchanged for a different number or kind
of shares or securities through merger, consolidation, combination, exchange of
shares, other reorganization, recapitalization, reclassification, stock
dividend, stock split or reverse stock split in which the Company is the
surviving entity, an appropriate and proportionate adjustment shall be made, as
provided in Section 8 of the Plan, in the number or kind of shares allocated to
the unexercised portion of the Option and in the Exercise Price thereof.
5. Termination of Option. Notwithstanding the term of the Option set
forth in Section 2 above, the Option shall sooner terminate as follows:
(a) If the Optionee's employment with the Company, its parent,
or any of its subsidiaries, or a corporation of a parent or subsidiary
of such corporation issuing or assuming the Option in a transaction to
which Section 424(a) of the Code applies (for purposes of this Section
5, the Company, its parent, subsidiary or such other corporation
collectively referred to as the "Company") is terminated by the Company
for Cause, then the Option or unexercised portion thereof shall
terminate on the effective date of the Optionee's termination of
employment.
(b) If the Optionee's employment with the Company is
terminated for any other reason (including but not limited to
termination by the Company other than for Cause or termination by the
Optionee voluntarily or as a result of the Optionee's death or
disability (within the meaning of Section 22(e)(3) of the Code)), then
the Option or unexercised portion thereof shall terminate on the date
which is three years from the effective date of the Optionee's
termination of employment.
Any Option that may be exercised for a period following termination of
the Optionee's employment as described in subparagraphs (a) and (b) above of
this Section 5, may be exercised
2
<PAGE>
only to the extent it was exercisable immediately before such termination
(except as provided in the last sentence of Section 2 above) and in no event
after the Option would expire by its terms without regard to such termination.
6. Method of Exercise. The Option shall be exercised by the tender of
payment and delivery to the Company at its principal place of business of a
written notice, at least five days prior to the proposed date of exercise, which
notice shall:
(a) state the election to exercise the Option, the number of
shares of Common Stock with respect to which the Option is being
exercised, and the name, address, and social security number of the
person in whose name the stock certificate or certificates for such
shares of Common Stock is to be registered;
(b) contain any such representations and agreements as to
Optionee's investment interest with respect to such shares of Common
Stock as shall be reasonably required by the Board of Directors or the
Committee; and
(c) be signed by the person entitled to exercise the Option,
and if the Option is being exercised by any person or persons other
than the Optionee, be accompanied by proof, satisfactory to the
Committee, of the right of such person or persons to exercise the
Option.
Payment of the Exercise Price may be made in cash or by certified or
cashiers check. Payment may also be made by surrendering shares of Common Stock
(including any shares of Common Stock received upon a prior or simultaneous
exercise of the Option) at the then fair market value of such shares, as
determined in accordance with Section 5(d) of the Plan. Payment may also be made
by combining cash, check and shares of Common Stock.
After receipt of such notice in a form satisfactory to the Committee and
the acceptance of payment, the Company shall deliver to the Optionee a
certificate or certificates representing the shares purchased hereunder;
provided, however, that if any law or regulation requires the Company to take
any action with respect to the shares specified in such notice before the
issuance thereof, the date of delivery of such shares shall be extended for the
period necessary to take such action.
7. Tax Matters. The Optionee acknowledges that, upon exercise of the
Option, the Optionee will recognize taxable income generally in an amount equal
to the difference between the fair market value of the shares purchased upon
exercise and the Exercise Price paid therefor, and the Company may have certain
withholding obligations for income and other taxes. It shall be a condition to
the Optionee's exercise of the Option and receipt of a stock certificate
covering Shares purchased pursuant to the Option that the Optionee pay to the
Company such amounts as it is required to withhold or, with the consent of the
Company, that the Optionee otherwise provide for the satisfaction of the
Company's withholding obligation. If any such payment is not made by the
Optionee, the Company may deduct the amounts required to be withheld from
payments of any kind to which the Optionee would otherwise be entitled from the
Company.
3
<PAGE>
8. Rights of a Shareholder. The Optionee shall not be deemed for any
purpose to be a shareholder of the Company with respect to any shares covered by
this Option unless this Option shall have been exercised and the Exercise Price
paid in the manner provided herein. No adjustment will be made for dividends or
other rights where the record date is prior to the date of exercise and payment.
Upon the exercise of the Option and the issuance of the certificate or
certificates evidencing the shares of Common Stock received, except as otherwise
provided herein, the Optionee shall have all the rights of a stockholder of the
Company including the rights to receive all dividends or other distributions
paid or made with respect to such shares.
9. Compliance with Securities Laws. The Optionee recognizes that any
registration of the shares of Common Stock issuable pursuant to this Option
under applicable federal and state securities laws, or actions to qualify for
applicable exemptions from such registrations, shall be at the option of the
Company. The Optionee acknowledges that, in the event that no such registrations
are undertaken and the Company relies on exemptions from such registrations, the
shares shall be issued only if the Optionee qualifies to receive such shares in
accordance with the exemptions from registration on which the Company relies and
that, in connection with any issuance of certificates evidencing such shares,
the Board of Directors may require appropriate representations from the Optionee
and take such other action as the Board of Directors may deem necessary,
including but not limited to placing restrictive legends on such certificates
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 or this Agreement (i) no shares will be issued upon any exercise of
the Option unless and until such shares have been registered under all
applicable federal and state securities laws or unless, in the opinion of
counsel satisfactory to the Company, all actions necessary to qualify for
exemptions from such registrations shall have been taken and (ii) the Company
shall have no obligation to undertake such registrations or such actions
necessary to qualify for exemptions from registrations and shall have no
liability whatsoever for not doing so except to refund any option price tendered
to the Company.
10. Shareholders' Agreement. The Optionee understands and agrees that
the shares of Common Stock issuable upon exercise of this Option shall also be
subject to the restrictions on transfer and other provisions of the
shareholders' agreement, if any, that may be in effect among the Company and all
its shareholders as of the date of any exercise of this Option. As a condition
to the exercise of this Option, the Optionee agrees that he will become a party
to any such shareholders' agreement by executing a joinder agreement or other
appropriate document. In the event that the Shareholders' Agreement dated as of
April 16, 1993, as amended by Amendment No. 1 thereto dated as of June 17, 1994,
has terminated as a result of a public offering of capital stock of the Company
prior to the exercise of this Option, the Optionee nevertheless agrees to be
bound by the lock-up agreement contained in Section 23 thereof or any similar
lock-up agreement then in effect with respect to the Company's shareholders.
11. Legends. Until the shares of Common Stock issued upon exercise of
this Option are registered under the Securities Act of 1933, as amended, the
certificate or certificates evidencing such shares shall bear substantially the
following legend:
4
<PAGE>
The shares evidenced by this certificate have not been registered under
the Securities Act of 1933, as amended, or under the securities laws of
any state. The shares may not be sold, transferred, pledged or
hypothecated in the absence of any effective registration statement
under the Securities Act of 1933, as amended, and such registration or
qualification as may be necessary under the securities laws of
any state, or an opinion of counsel satisfactory to the Company that
such registration or qualification is not required.
Such certificate or certificates shall also bear any legend required by the
Shareholders' Agreement.
12. Specific Performance. The Optionee agrees that in the event of any
violation of this Agreement, an action may be commenced by the Company for any
such preliminary and permanent injunctive relief and other equitable relief in
any court of competent jurisdiction in the State of North Carolina or in any
other court of competent jurisdiction. The Optionee hereby waives any objections
on the grounds of improper jurisdiction or venue to the commencement of an
action in the State of North Carolina and agrees that effective service of
process may be made upon him by mail under the notice provisions contained in
Section 16 hereof.
13. Construction. Whenever the word "Optionee" is used in any provision
of this Agreement under circumstances where the provision should logically be
construed to apply to (i) the estate, personal representative, or beneficiary to
whom this Option may be transferred by will or by the laws of descent and
distribution or (ii) the guardian or legal representative of the Optionee acting
pursuant to a valid power of attorney or the decree of a court of competent
jurisdiction, then the term "Optionee" shall be construed to include such
estate, personal representative, beneficiary, guardian or legal representative.
14. Severability. The provisions of this Agreement shall be severable
and the invalidity or unenforceability of any provision shall not affect the
validity or enforceability of the other provisions hereto.
15. Successor and Assigns. The terms of this Agreement shall be binding
upon and shall enure to the benefit of any successors or assigns of the Company
and of the Optionee and of the Common Stock issued or issuable upon the exercise
hereof.
16. Notices. Notices under this Agreement shall be in writing and shall
be deemed to have been duly given (i) when personally delivered, (ii) when
forwarded by Federal Express, Airborne, or another private carrier which
maintains records showing delivery information, or (iii) when placed in the
United States Mail and forwarded by registered or certified mail, return receipt
requested, postage prepaid, addressed to the party to whom such notice is being
given.
17. Modification. This Agreement is the entire agreement and
understanding of the parties hereto with respect to the Option granted herein
and supersedes any and all prior and contemporaneous negotiations,
understandings and agreements with regard to the Option and the matters set
forth herein, whether oral or written. No representation, inducement, agreement,
5
<PAGE>
promise or understanding altering, modifying, taking from or adding to the terms
and conditions hereof shall have any force or effect unless the same is in
writing and validity executed by the parties hereto.
18. Governing Law. This Agreement shall be governed in accordance with
the laws of the State of North Carolina.
19. Multiple Counterparts. This Agreement may be signed in one or more
counterparts, each of which shall be deemed to be an original.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement
effective as of the day and year first above written.
INTER*ACT ELECTRONIC MARKETING, INC.
ATTEST:
By: /s/ Lee D. Armbuster
/s/ Dan T. Barker, Jr. Title: President
Assistant Secretary
[Corporate Seal]
OPTIONEE:
/s/ Stephen R. Leeolou [SEAL]
Stephen R. Leeolou
6
<PAGE>
EXHIBIT 10(d)(6)
INTER*ACT ELECTRONIC MARKETING, INC.
1997 LONG-TERM INCENTIVE PLAN
INCENTIVE STOCK OPTION AGREEMENT
THIS INCENTIVE STOCK OPTION AGREEMENT (the "Option Agreement") dated
the 15th day of September, 1999 by and between Inter*Act Electronic Marketing,
Inc., a North Carolina corporation (the "Company"), and Stephen R. Leeolou, a
key employee of the Company (the "Optionee"):
W I T N E S S E T H:
WHEREAS, the Company desires to provide the Optionee with an incentive
to continue employment with the Company and align his interests with those of
the Company's shareholders; and
WHEREAS, the Company desires to grant the Optionee an incentive stock
option under the Inter*Act Systems, Incorporated 1997 Long-Term Incentive Plan
(the "Plan"), a copy of which is attached hereto and incorporated by reference,
and the Optionee desires to accept such option in accordance with the terms and
conditions set forth herein;
NOW, THEREFORE, in consideration of the premises and the mutual
covenants contained herein, and intending to be legally bound hereby, the
parties agree as follows:
1. Grant of Option. Subject to the terms and conditions of this
Agreement and the Plan, the Company hereby grants to the Optionee an option (the
"Option") to purchase all or any portion of thirty-five thousand two hundred
ninety-two (35,292) shares of the Company's Common Stock (the "Common Stock") at
an exercise price of Eight Dollars and Fifty Cents ($8.50) per share (the
"Exercise Price"). This Option is intended to be an incentive stock option as
defined in Section 422 of the Internal Revenue Code of 1986, as amended (the
"Code").
2. Term of Option. Unless sooner terminated in accordance with Section
5 hereof, this Option shall terminate and be no longer exercisable after ten
years from the date hereof. Subject to the further limitations and restrictions
as provided in the Plan and this Agreement, the Option shall vest and be
exercisable to the extent of 11,764 shares on and after the first anniversary
date of this Option, to the extent of 23,528 shares on and after the second
anniversary date of this Option (to the extent not previously exercised) and to
the extent of all shares subject to this Option on and after the third
anniversary date of this Option (to the extent not previously exercised).
Notwithstanding the foregoing, in the event the Optionee's employment with the
Company is terminated by the Company other than for Cause (as defined below),
this Option shall become exercisable in full and shall remain exercisable for
the duration of its term.
Not less than 1,000 shares may be purchased at any one time pursuant to
any exercise of this Option unless the number of shares purchased is the total
number that may be
<PAGE>
purchased under this Option at that time or unless the Company shall otherwise
consent. No fractional shares of Common Stock shall be issued upon any exercise
of this Option.
For purposes of this Agreement, "Cause" shall mean termination due to
(i) continued willful or gross neglect of duties for thirty days following
receipt by the Optionee of one or more written warnings from the Board of
Directors of the Company specifying in detail the duties neglected, (ii)
incapacity due to continuing alcohol or drug addiction, (iii) continued
intentional refusal to perform the duties for which employed thirty days
following receipt by the Optionee of one or more written warnings from the Board
of Directors of the Company specifying in detail the Optionee's misconduct, (iv)
fraud or embezzlement committed against the Company, or (v) the Optionee's
conviction for a felony.
3. Transferability of Option. The Option is not transferable by the
Optionee during the Optionee's lifetime but may be transferred only upon the
death of the Optionee by will or by the laws of descent and distribution.
4. Adjustments. If the shares of Common Stock of the Company are
increased, decreased, changed into, or exchanged for a different number or kind
of shares or securities through merger, consolidation, combination, exchange of
shares, other reorganization, recapitalization, reclassification, stock
dividend, stock split or reverse stock split in which the Company is the
surviving entity, an appropriate and proportionate adjustment shall be made, as
provided in Article 15 of the Plan, in the number or kind of shares allocated to
any unexercised part of the Option. In the event of a consolidation or a merger
in which the Company is not the surviving corporation, or any other merger in
which all of the shareholders of the Company exchange their shares of stock in
the Company for stock or other consideration of another corporation, or in the
event of complete liquidation of the Company, or in the case of a tender offer
pursuant to which the tender offeror acquires more than 50% of the combined
voting power of the Company's outstanding securities, the Option shall become
exercisable in full immediately prior to the effective date of any such
transaction (to the extent they are not already so exercisable). In the event
the consideration to be received for Common Stock in any such transaction is
only cash, the Optionee shall be entitled to receive from the Company at the
time the transaction is consummated cash in an amount equal to the difference
between the Exercise Price of the aggregate number of shares then subject to the
Option and not yet purchased by the Optionee and the price of such number of
shares of Common Stock of the Company in the consolidation, merger, liquidation,
or tender offer (such difference to be determined by the Board of Directors as
of the effective date of the transaction).
5. Termination of Option. Notwithstanding the term of the Option set
forth in Section 2 above, the Option shall sooner terminate as follows:
(a) If the Optionee's employment with the Company, its parent,
or any of its subsidiaries, or a corporation of a parent or subsidiary
of such corporation issuing or assuming the Option in a transaction to
which Section 424(a) of the Code applies (for purposes of this Section
5, the Company, its parent, subsidiary or such other corporation
collectively referred to as the "Company") is terminated by the Company
2
<PAGE>
for Cause, then the Option or unexercised portion thereof shall
terminate on the effective date of the Optionee's termination of
employment.
(b) If the Optionee's employment with the Company is
terminated for any other reason (including but not limited to
termination by the Company other than for Cause or termination by the
Optionee voluntarily or as a result of the Optionee's death or
disability (within the meaning of Section 22(e)(3) of the Code)), then
the Option or unexercised portion thereof shall terminate on the date
which is three years from the effective date of the Optionee's
termination of employment.
Any Option that may be exercised for a period following termination of
the Optionee's employment as described in subparagraphs (a) and (b) above of
this Section 5, may be exercised only to the extent it was exercisable
immediately before such termination (except as provided in the last sentence of
Section 2 above) and in no event after the Option would expire by its terms
without regard to such termination.
6. Method of Exercise. The Option shall be exercised by the tender of
payment and delivery to the Company at its principal place of business of a
written notice, at least five (5) days prior to the proposed date of exercise,
which notice shall:
(a) state the election to exercise the Option, the number of
shares of Common Stock with respect to which the Option is being
exercised, and the name, address, and social security number of the
person in whose name the stock certificate or certificates for such
shares of Common Stock is to be registered.
(b) contain any such representations and agreements as to
Optionee's investment interest with respect to such shares of Common
Stock as shall be satisfactory to the Board or Committee.
(c) be signed by the person entitled to exercise the Option,
and if the Option is being exercised by any person or persons other
than the Optionee, be accompanied by proof, satisfactory to the
Committee, of the right of such person or persons to exercise the
Option.
Payment of the exercise price may be made in cash or by certified,
cashiers or official check or, at the option of the Company, by personal check.
Payment may also be made by surrendering shares of Common Stock (including any
shares of Common Stock received upon a prior or simultaneous exercise of the
Option) at the then fair market value of such shares, as determined in
accordance with the Plan. Payment may also be made by combining cash or check
and shares of Common Stock.
After receipt of such notice in a form satisfactory to the Committee
and the acceptance of payment, the Company shall deliver to the Optionee a
certificate or certificates representing the shares purchased hereunder,
provided, that if any law or regulation requires the Company to take any action
with respect to the shares specified in such notice before the issuance thereof,
the date of delivery of such shares shall be extended for the period necessary
to take such action.
3
<PAGE>
7. Tax Matters. The Optionee acknowledges that, upon exercise of the
Option, the Optionee will recognize taxable income generally in an amount equal
to the difference between the fair market value of the shares purchased upon
exercise and the Exercise Price paid therefor, and the Company may have certain
withholding obligations for income and other taxes. It shall be a condition to
the Optionee's exercise of the Option and receipt of a stock certificate
covering Shares purchased pursuant to the Option that the Optionee pay to the
Company such amounts as it is required to withhold or, with the consent of the
Company, that the Optionee otherwise provide for the satisfaction of the
Company's withholding obligation. If any such payment is not made by the
Optionee, the Company may deduct the amounts required to be withheld from
payments of any kind to which the Optionee would otherwise be entitled from the
Company.
8. Rights of a Shareholder. The Optionee shall not be deemed for any
purpose to be a shareholder of the Company with respect to any shares covered by
this Option unless this Option shall have been exercised and the Exercise Price
paid in the manner provided herein. No adjustment will be made for dividends or
other rights where the record date is prior to the date of exercise and payment.
Upon the exercise of the Option and the issuance of the certificate or
certificates evidencing the shares of Common Stock received, except as otherwise
provided herein, the Optionee shall have all the rights of a stockholder of the
Company including the rights to receive all dividends or other distributions
paid or made with respect to such shares.
9. Compliance with Securities Laws. The Optionee recognizes that any
registration of the shares of Common Stock issuable pursuant to this Option
under applicable federal and state securities laws, or actions to qualify for
applicable exemptions from such registrations, shall be at the option of the
Company. The Optionee acknowledges that, in the event that no such registrations
are undertaken and the Company relies on exemptions from such registrations, the
shares shall be issued only if the Optionee qualifies to receive such shares in
accordance with the exemptions from registration on which the Company relies and
that, in connection with any issuance of certificates evidencing such shares,
the Board of Directors may require appropriate representations from the Optionee
and take such other action as the Board of Directors may deem necessary,
including but not limited to placing restrictive legends on such certificates
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 or this Agreement (i) no shares will be issued upon any exercise of
the Option unless and until such shares have been registered under all
applicable federal and state securities laws or unless, in the opinion of
counsel satisfactory to the Company, all actions necessary to qualify for
exemptions from such registrations shall have been taken and (ii) the Company
shall have no obligation to undertake such registrations or such actions
necessary to qualify for exemptions from registrations and shall have no
liability whatsoever for not doing so except to refund any option price tendered
to the Company.
10. Shareholders' Agreement. The Optionee understands and agrees that
the shares of Common Stock issuable upon exercise of this Option shall also be
subject to the restrictions on transfer and other provisions of the
shareholders' agreement, if any, that may be in effect among the Company and all
its shareholders as of the date of any exercise of this Option.
4
<PAGE>
As a condition to the exercise of this Option, the Optionee agrees that he will
become a party to any such shareholders' agreement by executing a joinder
agreement or other appropriate document. In the event that the Shareholders'
Agreement dated as of April 16, 1993, as amended by Amendment No. 1 thereto
dated as of June 17, 1994, has terminated as a result of a public offering of
capital stock of the Company prior to the exercise of this Option, the Optionee
nevertheless agrees to be bound by the lock-up agreement contained in Section 23
thereof or any similar lock-up agreement then in effect with respect to the
Company's shareholders.
11. Legends. Until the shares of Common Stock issued upon exercise of
this Option are registered under the Securities Act of 1933, as amended, the
certificate or certificates evidencing such shares shall bear substantially the
following legend:
The shares evidenced by this certificate have not been registered under
the Securities Act of 1933, as amended, or under the securities laws of
any state. The shares may not be sold, transferred, pledged or
hypothecated in the absence of any effective registration statement
under the Securities Act of 1933, as amended, and such registration or
qualification as may be necessary under the securities laws of any
state, or an opinion of counsel satisfactory to the Company that such
registration or qualification is not required.
Such certificate or certificates shall also bear any legend required by the
Shareholders' Agreement.
12. Specific Performance. The Optionee agrees that in the event of any
violation of this Agreement, an action may be commenced by the Company for any
such preliminary and permanent injunctive relief and other equitable relief in
any court of competent jurisdiction in the State of North Carolina or in any
other court of competent jurisdiction. The Optionee hereby waives any objections
on the grounds of improper jurisdiction or venue to the commencement of an
action in the State of North Carolina and agrees that effective service of
process may be made upon him by mail under the notice provisions contained in
Section 16 hereof.
13. Construction. Whenever the word "Optionee" is used in any provision
of this Agreement under circumstances where the provision should logically be
construed to apply to (i) the estate, personal representative, or beneficiary to
whom this Option may be transferred by will or by the laws of descent and
distribution or (ii) the guardian or legal representative of the Optionee acting
pursuant to a valid power of attorney or the decree of a court of competent
jurisdiction, then the term "Optionee" shall be construed to include such
estate, personal representative, beneficiary, guardian or legal representative.
14. Severability. The provisions of this Agreement shall be severable
and the invalidity or unenforceability of any provision shall not affect the
validity or enforceability of the other provisions hereto.
5
<PAGE>
15. Successor and Assigns. The terms of this Agreement shall be binding
upon and shall enure to the benefit of any successors or assigns of the Company
and of the Optionee and of the Common Stock issued or issuable upon the exercise
hereof.
16. Notices. Notices under this Agreement shall be in writing and shall
be deemed to have been duly given (i) when personally delivered, (ii) when
forwarded by Federal Express, Airborne, or another private carrier which
maintains records showing delivery information, (iii) when sent via facsimile
but only if a written facsimile acknowledgment of receipt is received by the
sending party, or (iv) when placed in the United States Mail and forwarded by
registered or certified mail, return receipt requested, postage prepaid,
addressed to the party to whom such notice is being given.
17. Modification. This Agreement is the entire agreement and
understanding of the parties hereto with respect to the Option granted herein
and supersedes any and all prior and contemporaneous negotiations,
understandings and agreements with regard to the Option and the matters set
forth herein, whether oral or written. No representation, inducement, agreement,
promise or understanding altering, modifying, taking from or adding to the terms
and conditions hereof shall have any force or effect unless the same is in
writing and validity executed by the parties hereto.
18. Governing Law. This Agreement shall be governed in accordance with
the laws of the State of North Carolina.
19. Multiple Counterparts. This Agreement may be signed in one or more
counterparts, each of which shall be deemed to be an original.
IN WITNESS WHEREOF, the Optionee has executed this Agreement and the
Company has caused this Agreement to be executed on its behalf by its duly
authorized officer effective as of the day and year first above written.
ATTEST: INTER*ACT ELECTRONIC MARKETING, INC.
/s/ Dan T. Barker Name: /s/ Lee D. Armbuster
Assistant Secretary Title: President
(Corporate Seal)
OPTIONEE:
/s/ Stephen R. Leeolou (SEAL)
Stephen R. Leeolou
6
<PAGE>
EXHIBIT 10(d)(7)
EMPLOYMENT AGREEMENT
Agreement, made and entered into as of the 2nd day of November, 1999, by
and between INTER*ACT ELECTRONIC MARKETING, INC., a North Carolina corporation
(the "Company"), and STEPHEN R. LEEOLOU (the "Employee").
W I T N E S S E T H:
WHEREAS, the Company desires to assure the continuing services of the
Employee, the Employee desires to continue employment with the Company, and each
desires to enter into an agreement embodying the terms of such employment;
NOW, THEREFORE, in consideration of the premises and the mutual
covenants contained herein, the parties agree as follows:
1. EMPLOYMENT. The Company hereby employs the Employee, and the Employee
hereby accepts employment with the Company, for the term set forth in paragraph
2 below, in the position and with the duties and responsibilities set forth in
paragraph 3 below, and upon the other terms and conditions hereinafter stated.
2. TERM. The term of this Agreement shall commence as of the date
hereof, and unless otherwise terminated as hereinafter provided, shall continue
for an initial term of three years and from year to year thereafter until
terminated by either party. The Agreement may be terminated at the end of the
initial term or at the end of any subsequent year (a "Termination Date") by
written notice by either party to the other, given not less than six months nor
more than one year prior to the Termination Date reflected in such notice.
3. DUTIES; POSITION. The Employee is engaged as Chief Executive Officer
of the Company. The Employee shall be responsible for such duties as are
commensurate with his office that may from time to time be assigned to the
Employee by the Company's Board of
<PAGE>
Directors. The Employee will use his best efforts to faithfully serve the
Company and promote its best interests and will devote substantially all of his
working hours to the Company. Nothing herein shall prohibit the Employee from
engaging in the management of his personal business and affairs so long as such
activities do not substantially interfere with the performance of his duties
hereunder.
4. COMPENSATION. In consideration of the services to be rendered by the
Employee to the Company and in consideration of the Employee's other covenants
hereunder, the Employee will receive an initial base salary at the rate of
$50,000 per annum (such salary as it may be increased from time to time being
hereafter referred to as "Base Salary"), payable at such intervals as may be
established by the Company from time to time for salary payments to its senior
management employees. The Employee shall receive such increases in his Base
Salary as the Board of Directors of the Company may from time to time approve in
its discretion, provided, however, that the Employee's Base Salary will be
reviewed not less often than annually and the annual increase shall not be less
than 5% of the then Base Salary, and, provided further, that upon the occurrence
of a Liquidity Event, the Employee's Base Salary shall automatically be
increased to $250,000 per annum. No decreases in Base Salary may be effected
without the written consent of the Employee. The Employee shall also be eligible
to receive such bonuses as the Board of Directors may, in its discretion, deem
appropriate, from time to time. For purposes of this Agreement, "Liquidity
Event" shall mean (i) completion of an initial public offering by the Company,
or (ii) a sale of all or substantially all of the Company, by means of a merger,
a share exchange, a sale of assets or otherwise, for an aggregate equity value
(excluding debt) of not less than $200,000,000.
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5. EMPLOYEE BENEFITS. The Employee will be entitled to participate, in
accordance with the provisions thereof, in any employee benefit plans and
programs made available by the Company to its executive management employees
generally and the Company agrees to continue, in a form no less favorable to the
Employee, those benefits currently in effect.
6. BUSINESS EXPENSE REIMBURSEMENTS. During the period of his employment
under this Agreement, the Employee will be entitled to reimbursement for all
reasonable out-of-pocket expenses incurred by him in performing his duties
hereunder upon presentation by the Employee, from time to time, of an itemized
account of such expenses and appropriate documentation therefor.
7. TERMINATION OF EMPLOYMENT.
a. Death. In the event of the death of the Employee during his
employment under this Agreement, the following payments shall be made to
the Employee's designated beneficiary, or, in the absence of such
designation, to the estate or other legal representative of the
Employee: (i) the Employee's then Base Salary shall be continued for a
period of one year following the date of his death, and (ii) such
bonuses and incentive compensation as shall have been earned by the
Employee and not paid to him at the time of his death. Any other rights
and benefits the Employee's estate or any other person may have under
employee benefit plans and programs of the Company in the event of the
Employee's death shall be determined in accordance with the terms of
such plans and programs.
b. Disability. In the event of the disability of the Employee
during his employment under this Agreement (a "Disability"), the
Employee's then Base Salary will
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be continued for a period of one year following occurrence of the
Disability or until commencement of payments to the Employee equal to
not less than 60% of the Employee's Base Salary under the terms of
disability insurance provided by the Company for the benefit of the
Employee, whichever first occurs. For purposes of this Agreement,
"Disability" shall mean the inability, by reason of bodily injury or
physical or mental disease, or any combination thereof, of the Employee
to perform his customary or other comparable duties with the Company. In
the event the parties are unable to agree as to whether the Employee is
suffering a Disability, the Employee and the Company shall each select a
physician and the two physicians so chosen shall make the determination
or, if they are unable to agree, they shall select a third physician,
and the determination as to whether the Employee is suffering a
Disability shall be based upon the determination of a majority of the
three physicians. Any other rights and benefits the Employee may have
under employee benefit plans and programs of the Company generally in
the event of the Employee's Disability shall be determined in accordance
with the terms of such plans and programs.
c. Termination for Cause. Nothing herein shall prevent the
Company from terminating the Employee's employment at any time for Cause
(as hereinafter defined). Upon termination for Cause, the Employee shall
receive his Base Salary only through the date of termination, and
neither the Employee nor any other person shall be entitled to any
further payments from the Company, for salary, unpaid bonuses or any
other amounts. Any rights and benefits the Employee may have under
employee benefit plans and programs of the Company generally following a
termination of the Employee's
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employment for Cause shall be determined in accordance with the terms of
such plans and programs. For purposes of this Agreement, termination for
Cause shall mean termination due to (i) continued willful or gross
neglect of duties for 30 days following receipt by the Employee of one
or more written warnings from the Board of Directors of the Company
specifying in detail the duties neglected, (ii) incapacity due to
continuing alcohol or drug addiction, (iii) continued intentional
refusal to perform the duties for which employed 30 days following
receipt by the Employee of one or more written warnings from the Board
of Directors of the Company specifying in detail the Employee's
misconduct, (iv) fraud or embezzlement committed against the Company, or
(v) the Employee's conviction for a felony.
d. Change in Position or Employment Conditions; Termination
Other Than for Cause Following a Change in Control. The Employee may
terminate his employment immediately upon written notice to the Company
upon the occurrence, following a "change in control" of the Company, of
any one of the following events: (i) his authority and/or responsibility
are substantially reduced, without his consent, below that described in
paragraph 3, (ii) the Employee is required to change his residence or
principal place of business from Charlotte, North Carolina, or (iii) the
travel obligations of the Employee are, without his consent, increased
materially above those in effect on the date of this Agreement. If the
Employee's employment is terminated pursuant to this paragraph 8(d) or
if the Employee's employment is terminated by the Company without cause
following a change in control, the Employee shall be entitled to receive
an amount equal a severance payment in an amount equal to his average
annual total cash compensation for the
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immediately preceding two fiscal years of the Company, multiplied by
2.99 (the "Severance Payment"). Upon entitlement, the Severance Payment
will be payable in cash or by certified check within thirty (30) days
following termination of the Employee's employment. Notwithstanding
anything to the contrary contained herein, in the event that any portion
of the Severance Payment received or to be received by the Employee,
together with any other payments received by him, whether paid or
payable pursuant to the terms of this Plan or any other plan,
arrangement or agreement with the Company or any other person or entity,
would not be deductible in whole or in part by the Company in the
calculation of its federal income tax by reason of Section 280G of the
Internal Revenue Code or would cause, either directly or indirectly, an
"excess parachute payment" to exist within the meaning of said Section
280G, the Severance Payment payable shall be reduced until no portion of
the Severance Payment would fail to be deductible by reason of being an
"excess parachute payment." In the event that any dispute arises as to
whether an "excess parachute payment" exists, the appropriate
calculations shall be made by the Company's regularly employed
independent public auditors and delivered to the Employee in writing
within 30 days following the date for payment of the Severance Payment,
and the Company will warrant to the Employee the accuracy of the
calculations and the information on which they are based.
For purposes of this paragraph 7(d), a "change of control" shall be
deemed to have occurred upon the occurrence of any of the following
events:
i. Any "person" (as such term is used in Sections 13(d)
and 14(d)(2) of the Securities Exchange Act of 1934, as amended
(the "Exchange Act") but
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excluding any employee benefit plan of the Company) is or
becomes the "beneficial owner" (as defined in Rule 13d-3 under
the Exchange Act), directly or indirectly, of securities of the
Company representing 50% or more of the combined voting power of
the Company's outstanding securities then entitled ordinarily
(and apart from rights accruing under special circumstances) to
vote for the election of directors; or
ii. Individuals who are "Continuing Directors" (as
hereinafter defined) cease for any reason to constitute at least
a majority of the Board of Directors; or
iii. The Board of Directors shall approve a sale of
more than 90% of the assets of the Company; or
iv. Any merger, consolidation, or like business
combination or reorganization of the Company is consummated that
resulted in the occurrence of any event described in clause (i)
or (ii) above.
For purposes of the foregoing, "Continuing Directors" shall mean (i) the
directors of the Company in office on the date hereof and (ii) any successor to
any such director (and any additional director) who after the date hereof (y)
was nominated or selected by a majority of the Continuing Directors in office at
the time of his nomination or selection and (z) who is not an "affiliate" or
"associate" (as defined in Regulation 12B under the Exchange Act) of any person
who is the beneficial owner, directly or indirectly, of securities representing
50% or more of the combined voting power of the Company's outstanding securities
then entitled ordinarily to vote for the election of directors.
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8. COVENANTS NOT TO COMPETE.
a. The Employee hereby promises and agrees that during the term
of this Agreement or for a period of one year following the termination
of his employment with the Company, whichever later occurs:
i. He will not, directly or indirectly, own any
interest in, manage, operate, control, be employed by, render
consulting or advisory services to, or participate in or be
connected with the management or control of any business that is
then (A) a competitor of the Company, including but not limited
to Catalina Marketing Corporation, Planet U, CoolSavings and
Actmedia, Inc. or any affiliate thereof, or (B) engaged in the
business of displaying and/or dispensing electronic discounts,
coupons, recipes or other promotions through inter-active
terminals or other customer interface systems in grocery or
other retail stores or through the Internet, and any other
business activity that the Company may engage in during the
course of the Participant's employment (an "electronic marketing
system") in competition with the Company in the Territory;
ii. He will not, directly or indirectly, influence or
attempt to influence any retail store customer or any product
manufacturer customer of the Company to discontinue its use of
the Company's services or to divert such business to any other
person, firm or corporation;
iii. He will not, directly or indirectly, interfere
with, disrupt or attempt to disrupt the relationship,
contractual or otherwise, between the Company and any of its
respective suppliers, principals, distributors, lessors or
licensors; and
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iv. He will not, directly or indirectly, solicit any
employee of the Company, whose base annual salary at the time of
the Participant's termination was $30,000 or more, to work for
any person, firm or corporation.
b. It is the desire and intent of the parties that the
provisions of paragraph 8(a) shall be enforced to the fullest extent
permitted under the laws and public policies of each jurisdiction in
which enforcement is sought. Accordingly, if any particular portion of
paragraph 8(a) shall be adjudicated to be invalid or unenforceable,
such adjudication shall apply only with respect to the operation of
that portion in the particular jurisdiction in which such adjudication
is made, and all other portions shall continue in full force and effect.
c. It is expressly agreed that the provisions and covenants in
this paragraph 8 shall not apply and shall be of no force or effect in
the event that the Company fails to honor its obligations hereunder.
d. The purposes of this Section 8, the "Territory" shall mean
the United States, the United Kingdom, continental Europe and any other
geographic area in which the Company is operating an electronic
marketing system immediately prior to a termination of the Employee's
employment with the Company.
9. INJUNCTIVE RELIEF. The Employee acknowledges and agrees that the
Company would suffer irreparable injury in the event of a breach by him of any
of the provisions of paragraph 8 of this Agreement and that the Company shall be
entitled to an injunction restraining him from any breach or threatened breach
thereof. Nothing herein shall be construed, however, as prohibiting the Company
from pursuing any other remedies at law or in equity which it may
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have for any such breach or threatened breach of any provision of paragraph 8
hereof, including the recovery of damages from the Employee.
10. SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon and
shall inure to the benefit of the Employee and his personal representatives,
estate and heirs and to the Company and its successors and assigns, including
without limitation any corporation or other entity to which the Company may
transfer all or substantially all of its assets and business (by operation of
law or otherwise) and to which the Company may assign this Agreement. The
Employee may not assign this Agreement or any part hereof without the prior
written consent of the Company, which consent may be withheld by the Company for
any reason it deems appropriate.
11. ENTIRE AGREEMENT. This Agreement, together with any written
agreements and similar documents entered into between the Company and the
Employee under any stock option, stock compensation or similar employee benefit
plans maintained by the Company or otherwise, contains the entire agreement of
the parties with respect to the employment of the Employee by the Company and
supersedes and replaces all other understandings and agreements, whether oral or
in writing, if any, previously entered into by the parties with respect to such
employment.
12. AMENDMENT; WAIVER. No provision of this Agreement may be amended,
modified or waived unless such amendment, modification or waiver is agreed to in
writing and signed by the Employee and by a duly authorized officer of the
Company. No waiver by either party of any breach by the other party of any
provision of this Agreement shall be deemed a waiver of any other breach.
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13. NOTICES. All notices or other communications given pursuant to this
Agreement shall be in writing and either delivered personally or by prepaid
registered or certified mail, return receipt requested. Notices and other
communications mailed to the Employee shall be addressed to his last address as
shown on the personnel records of the Company, and notices and other
communications to the Company shall be addressed to Inter*Act Electronic
Marketing, Inc., 14 Westport Avenue, Norwalk, CT 06851, Attn: President. Either
party may change the address to which notices are to be mailed pursuant to this
paragraph 13, by written notice given in accordance herewith. Any notice
pursuant to this paragraph 13 shall be effective for all purposes on the date
delivered or mailed as herein provided.
14. SEVERABILITY. If any one or more of the provisions contained in this
Agreement shall be invalid, illegal, or unenforceable in any respect under any
applicable law, the validity, legality and enforceability of the remaining
provision shall not in any way be affected or impaired thereby.
15. GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the laws and judicial decisions of the State of North Carolina.
IN WITNESS WHEREOF, the parties have executed this Agreement on the day
and year first above written.
INTER*ACT ELECTRONIC MARKETING, INC.
By: /s/ Lee D. Armbuster
Title: President
/s/ Stephen R. Leeolou (SEAL)
Stephen R. Leeolou
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EXHIBIT 10(d)(8)
NONQUALIFIED STOCK OPTION AGREEMENT
THIS NONQUALIFIED STOCK OPTION AGREEMENT (this "Agreement") dated as of
the 2nd day of November, 1999, by and between Inter*Act Electronic Marketing,
Inc., a North Carolina corporation (the "Company"), and Stephen R. Leeolou, the
Chief Executive Officer of the Company (the "Optionee");
W I T N E S S E T H:
WHEREAS, the Company desires to provide an incentive to the Optionee to
continue his efforts on behalf of the Company as the Company's Chief Executive
Officer and to align his interests with those of the Company's shareholders by
granting to him a nonqualified option to purchase shares of the Company's common
stock, without par value ("Common Stock"), and the Optionee desires to accept
such option in accordance with the terms and conditions set forth herein;
NOW, THEREFORE, in consideration of the premises and the mutual
covenants contained herein, and intending to be legally bound hereby, the
parties agree as follows:
1. Grant of Option. The Company hereby grants to the Optionee an option
(the "Option") to purchase all or any portion of four hundred seventy-five
thousand (475,000) shares of the Company's Common Stock at an exercise price of
Eight and One Half Dollars ($8.50) per share (the "Exercise Price"). This Option
is a "Nonqualified Option" and is not intended to be an incentive stock option
as defined in Section 422 of the Internal Revenue Code of 1986, as amended (the
"Code").
2. Term of Option. Unless sooner terminated in accordance with Section
12 hereof, the Option shall terminate and be no longer exercisable after ten
years from the date hereof. The Option shall vest and be exercisable to the
extent of 158,333 shares on and after the first anniversary date of this Option,
to the extent of 316,667 shares on and after the second anniversary date of this
Option (to the extent not previously exercised) and to the extent of all shares
subject to this Option on and after the third anniversary date of this Option
(to the extent not previously exercised); provided, however, that the Option may
not be exercised until (i) the completion of an initial public offering by the
Company, or (ii) the occurrence of a "Sale Transaction," which is the sale of
all or substantially all of the Company, by means of a merger, share exchange,
sale of assets or otherwise, for an aggregate equity value (excluding debt) of
not less than $200 million. In the event of a Sale Transaction, the Option shall
become immediately exercisable in full. Subject to the foregoing, the Option may
be exercised from time to time in whole or in part during the term of the
Option; provided, however, that not less than 1,000 shares may be purchased at
any one time pursuant to any exercise of this Option unless the number of shares
purchased is the total number that may be purchased under this Option at that
time or unless the Company shall otherwise consent. No fractional shares of
Common Stock shall be issued upon any exercise of this Option.
<PAGE>
3. Transfer of Option. This Option may be transferred, in whole or in
part, with or without payment of consideration, to immediate family members of
the Optionee, to trusts for the benefit of the Optionee or his immediate family
members, or to a partnership or limited liability company whose only partners or
members are the Optionee and his immediate family members. For purposes of this
Section, the phrase "immediate family members" shall mean spouse, parents,
siblings, children and grandchildren of the Optionee. The limitations on the
exercise of the Option contained in this Agreement, including, without
limitation, those set forth in Section 12 hereof relating to termination of the
Option following the termination of the Optionee's employment with the Company,
shall not be affected by and shall continue to apply following a transfer.
4. Method of Exercise. The Option shall be exercised by the tender of
payment and delivery to the Company at its principal place of business of a
written notice, at least five days prior to the proposed date of exercise, which
notice shall:
(a) State the election to exercise the Option, the number of
shares of Common Stock with respect to which the Option is being
exercised, and the name, address, and social security number of the
person in whose name the stock certificate or certificates for such
shares of Common Stock is to be registered.
(b) Contain any such representations and agreements as to
Optionee's investment interest with respect to such shares of Common
Stock as shall be satisfactory to the Company.
(c) Be signed by the person entitled to exercise the Option,
and if the Option is being exercised by any person or persons other
than the Optionee, be accompanied by proof, satisfactory to the
Company, of the right of such person or persons to exercise the Option.
Payment of the exercise price may be made in cash or by certified,
cashiers or official bank check or, at the option of the Company, by personal
check. Payment may also be made by surrendering shares of Common Stock
(including any shares of Common Stock received upon a prior or simultaneous
exercise of the Option) at the then fair market value of such shares. Payment
may also be made by combining cash or check and shares of Common Stock. For
purposes of this Agreement, the fair market value of shares of Common Stock as
of a given date shall be determined based on the closing sales price per share
of the Common Stock, as reported on the national securities exchange (including
the Nasdaq Stock Market, Inc.) on which the Common Stock is principally traded
on the most recent trading day preceding the day on which the shares are to be
valued; provided, however, that if at the time of valuation the Company's Common
Stock is not admitted to trading on a national securities exchange for which
sales prices are regularly reported, the fair market value of the shares shall
be determined by the Company's Board of Directors in good faith on the basis of
such factors as it deems appropriate but without regard to any restriction on
the shares other than a restriction that, by its terms, shall never lapse.
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After receipt of such notice in a form satisfactory to the Company and
the acceptance of payment, the Company shall deliver to the Optionee a
certificate or certificates representing the shares purchased hereunder;
provided, however, that if any law or regulation requires the Company to take
any action with respect to the shares specified in such notice before the
issuance thereof, the date of delivery of such shares shall be extended for the
period necessary to take such action.
5. Tax Withholding. The exercise of the Option granted hereunder is
subject to the condition that, if the Company shall determine in its discretion
that the satisfaction of withholding tax or other withholding liabilities under
any state or federal law is necessary or desirable as a condition of, or in any
connection with, such exercise or the delivery or purchase of shares pursuant
thereto, the Optionee will pay, or make arrangements to pay, to the Company an
amount equal to such tax or liabilities that the Company is required to withhold
as a result of the exercise of the Option. If for any reason such payment or
arrangement to pay is not made, the Company shall be entitled to withhold from
other sums payable to the Optionee the amount of such withholding and other
liabilities.
6. Adjustments. If the shares of Common Stock of the Company are
increased, decreased, changed into or exchanged for a different number or kind
of shares or securities through merger, consolidation, combination, exchange of
shares, other reorganization, recapitalization, reclassification, stock
dividend, stock split or reverse stock split, an appropriate and proportionate
adjustment shall be made in the number or kind of shares allocated to the
unexercised portion of the Option. Any such adjustment to the unexercised
portion of the Option shall be made without change in the aggregate purchase
price applicable to such portion, but with a corresponding adjustment in the
price for each share covered by the Option. In making any adjustment pursuant to
this Section 6, any fractional shares shall be disregarded.
7. Rights of a Shareholder. The Optionee shall not be deemed for any
purpose to be a shareholder of the Company with respect to any shares covered by
this Option unless this Option shall have been exercised and the Exercise Price
paid in the manner provided herein. No adjustment will be made for dividends or
other rights where the record date for such dividends or other rights is prior
to the date of exercise and payment. Upon the exercise of the Option and the
payment of the Exercise Price for the shares subject to such exercise, the
Optionee shall have all the rights of a shareholder of the Company including the
rights to receive all dividends or other distributions paid or made with respect
to such shares.
8. Compliance with Securities Laws. The Option granted hereunder and the
shares issuable upon the exercise of the Option have not been registered under
applicable federal and state securities laws and the Company has no obligation
to undertake any such registrations until such time as the Company is eligible
to do so pursuant to a registration statement on Form S-3 under the Securities
Act of 1933 as amended (or any equivalent successor form). This Option may not
be exercised unless the issuance and delivery of those shares of Common Stock
pursuant to such exercise shall comply with all relevant federal and state
securities laws including, without limitation, the Securities Act of 1933, as
amended, the rules and regulations promulgated thereunder, and the requirements
of any stock
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exchange upon which such shares may then be listed, and shall be further subject
to the approval of counsel for the Company with respect to such compliance. If
required by the Board of Directors, the Optionee shall furnish evidence
satisfactory to the Company, including a written and signed representation
letter and consent to be bound by any transfer restrictions imposed by law,
legend, condition, or otherwise, that the shares are being purchased only for
investment and without any present intention to sell or distribute the shares in
violation of any federal or state law, rule, or regulation.
9. Registration Rights. From and after the time the Company is eligible
to register shares of its Common Stock pursuant to a registration statement on
Form S-3 under the Securities Act of 1933, as amended (or any equivalent
successor form), the Optionee may submit a written request to the Company to
register under the Securities Act of 1933, as amended, all or part of the shares
of Common Stock held by or issuable to the Optionee upon exercise of the Option,
specifying the intended method or methods of disposition of such shares. Upon
receipt by the Company of such written request, the Company will use its best
efforts to register such shares at the earliest possible date under the
Securities Act of 1933, as amended, to permit the disposition of such shares in
accordance with the intended method or methods of disposition stated in the
Optionee's written request. A registration requested pursuant to this Section 9
shall be effected by filing a registration statement on Form S-3 (or any
equivalent successor form) and, if qualified and agreed to in writing by the
Optionee, filed pursuant to Rule 415 under the Securities Act of 1933, as
amended, or any successor provision. The Company will pay all expenses
associated with a registration under this Section 9 except for underwriting
discounts or commissions, brokers' fees, applicable transfer taxes, and the fees
and expenses of the Optionee's counsel. In connection with any registration
under this Section 9, the Company and the Optionee will provide each other and
the underwriter, if any, with customary representations, warranties, covenants,
indemnification and contribution. The Company shall not be required to effect
more than one registration under this Section 9.
10. Shareholders' Agreement. The Optionee understands and agrees that
the shares of Common Stock issuable upon exercise of this Option shall also be
subject to the restrictions on transfer and other provisions of the
shareholders' agreement, if any, that may be in effect among the Company and all
its shareholders as of the date of any exercise of this Option. As a condition
to the exercise of this Option, the Optionee agrees that he will become a party
to any such shareholders' agreement by executing a joinder agreement or other
appropriate document. In the event that the Shareholders' Agreement dated as of
April 16, 1993, as amended by Amendment No. 1 thereto dated as of June 17, 1994,
has terminated as a result of a public offering of capital stock of the Company
prior to the exercise of this Option, the Optionee nevertheless agrees to be
bound by the lock-up agreement contained in Section 23 thereof or any similar
lock-up agreement then in effect with respect to the Company's shareholders.
11. Legends. Until the shares of Common Stock issued upon exercise of
this Option are registered under the Securities Act of 1933, as amended, the
certificate or certificates evidencing such shares shall bear substantially the
following legend:
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The shares evidenced by this certificate have not been registered under
the Securities Act of 1933, as amended, or under the securities laws of
any state. The shares may not be sold, transferred, pledged or
hypothecated in the absence of an effective registration statement under
the Securities Act of 1933, as amended, and such registration or
qualification as may be necessary under the securities laws of any
state, or an opinion of counsel satisfactory to the Company that such
registration or qualification is not required.
Such certificate or certificates shall also bear any legend required by the
Shareholders' Agreement.
12. Termination of Option. The Option shall terminate and be no longer
exercisable (a) immediately upon the termination for Cause (as hereinafter
defined) of Optionee's employment with the Company or (b) three years after the
effective date of termination of the Optionee's employment for any other reason
(including but not limited to termination by the Company other than for Cause or
termination by the Optionee voluntarily or as a result of the Optionee's death
or disability (within the meaning of Section 22(e)(3) of the Code)).
Notwithstanding the foregoing, in no event shall this Option be exercisable
after ten years from the date hereof.
For purposes of this Agreement, "Cause" shall mean termination due to
(i) continued willful or gross neglect of duties for thirty days following
receipt by the Optionee of one or more written warnings from the Board of
Directors of the Company specifying in detail the duties neglected, (ii)
incapacity due to continuing alcohol or drug addiction, (iii) continued
intentional refusal to perform the duties for which employed thirty days
following receipt by the Optionee of one or more written warnings from the Board
of Directors of the Company specifying in detail the Optionee's misconduct, (iv)
fraud or embezzlement committed against the Company, or (v) the Optionee's
conviction for a felony.
13. Specific Performance. If the Optionee violates any provision of this
Agreement, the Company may commence an action for such preliminary and permanent
injunctive relief and other equitable relief it deems appropriate in any court
of competent jurisdiction in the State of North Carolina or in any other court
of competent jurisdiction. The Optionee hereby waives any objections on the
grounds of improper jurisdiction or venue to the commencement of an action in
the State of North Carolina and agrees that effective service of process may be
made upon him by mail under the notice provisions contained in Section 18
hereof.
14. Construction. Whenever the word "Optionee" is used in any provision
of this Agreement under circumstances where the provision should logically be
construed to apply to (i) the estate, personal representative, or beneficiary to
whom this Option may be transferred by will or by the laws of descent and
distribution, (ii) the guardian or legal representative of the Optionee acting
pursuant to a valid power of attorney or the decree of a court of competent
jurisdiction, or (iii) a permitted transferee under Section 3, then the term
"Optionee" shall be construed to include such estate, personal representative,
beneficiary, guardian, legal representative or transferee.
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15. Severability. The provisions of this Agreement shall be severable
and the invalidity or unenforceability of any provision shall not affect the
validity or enforceability of the other provisions hereto
16. Notices. Notices under this Agreement shall be in writing and shall
be deemed to have been duly given (i) when personally delivered, (ii) when
forwarded by Federal Express, Airborne, or another private carrier which
maintains records showing delivery information, (iii) when sent via facsimile
but only if a written facsimile acknowledgment of receipt is received by the
sending party, or (iv) when placed in the United States Mail and forwarded by
registered or certified mail, return receipt requested, postage prepaid,
addressed to the party to whom such notice is being given.
17. Modification. This Agreement is the entire agreement and
understanding of the parties hereto with respect to the Option granted herein
and supersedes any and all prior and contemporaneous negotiations,
understandings and agreements with regard to the Option and the matters set
forth herein, whether oral or written. No representation, inducement, agreement,
promise or understanding altering, modifying, taking from or adding to the terms
and conditions hereof shall have any force or effect unless the same is in
writing and validity executed by the parties hereto.
18. Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of North Carolina.
19. Multiple Counterparts. This Agreement may be signed in one or more
counterparts, each of which shall be deemed to be an original and all of which
together shall constitute one and the same agreement.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement
effective as of the day and year first above written.
ATTEST: INTER*ACT ELECTRONIC MARKETING, INC.
/s/ Dan T. Barker, Jr. By: /s/ Lee D. Armbuster
Assistant Secretary President
[Corporate Seal]
OPTIONEE:
/s/ Stephen R. Leeolou (SEAL)
Stephen R. Leeolou
- 6 -
<PAGE>
Exhibit 10(e)(1)
NCR CORPORATION
GLOBAL MASTER AGREEMENT
---------------
Customer Number
INTER*ACT ELECTRONIC MARKETING INC.
Your Business Name ("you")
5032 Parkway Plaza Boulevard, Building 8
Charlotte, NC 28217
January 26, 2000
Effective Date
CONTENTS
<TABLE>
<S> <C>
1 - Definitions 8 - Your Obligations
2 - Orders, Addenda, and Contract Formation 9 - Product Evaluation
3 - Delivery and Installation 10 - Defense of Infringement Claims
4 - Prices, Invoice, Payment, Taxes, and Title 11 - NCR's Liability
5 - Services 12 - Dispute Resolution
6 - License to Use Software and Deliverables 13 - Miscellaneous Terms
7 - Warranties
</TABLE>
1.0 DEFINITIONS
1.1 "Agreement" means this Global Master Agreement.
1.2 "Addendum" is defined in Section 2.1.
1.3 "Contract" is defined in Section 2.3.
1.4 "Deliverables" is defined in Section 5.3.
1.5 "Equipment" means hardware and associated peripherals and features that
you acquire from NCR.
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1.6 "NCR Product Specifications" means NCR's official published
specifications for Products when you acquire them (which NCR will provide to you
upon request), and the documentation which NCR includes with Products delivered
to you.
1.7 "NCR" means NCR Corporation.
1.8 "Policies" is defined in Section 2.2.
1.9 "Products" means Equipment, Software, Services, Deliverables, and
Supplies.
1.10 "Services" means those services that you acquire from NCR, including
those described in Section 5.0.
1.11 "Software" means computer programs in any form that you acquire from
NCR, but does not include diagnostic software as set out in Section 6.3 or
software developed by you.
1.12 "Supplies" means consumable items that you acquire from NCR.
1.13 PARTIES
1.13.1 NCR intends to use its affiliates and distributors to carry out
some or all of its non-U.S. activities under this Agreement.
1.13.2 You intend to use your affiliates to carry out some or all of
your non-U.S. activities under this Agreement.
1.13.3 NCR and you each agree to notify their respective affiliates and
distributors of the terms and conditions of this Agreement, and to procure that
such affiliates and distributors abide by the terms and conditions of this
Agreement.
2.0 ORDERS, ADDENDA, AND CONTRACT FORMATION
2.1 SCOPE; ADDENDA -- This Agreement establishes general terms and
conditions that apply to your acquisition (directly or through a leasing
company) of Products for your use. This Agreement does not authorize you
to acquire Products for resale or redistribution except as permitted in
the attached Exhibit A, Reseller Addendum. In the future, you and NCR may
agree to additional terms covering a specific transaction. These terms will
be contained in an "Addendum" (which may be called an Addendum, "Statement
of Work," or other name).
2.2 NCR POLICIES -- This Agreement refers to a number of NCR policies
("Policies"). These are written policies that apply to NCR's customers
generally. They contain supplemental details of NCR's Products (for
example, details regarding Services and Software usage terms) and the
way that NCR interacts with its customers (for example,
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NCR's credit policies). These Policies are incorporated into this Agreement as
if they were written in it. NCR will give you copies at your request. Changes
to these Policies affect only Contracts (defined in the next Section) which you
and NCR subsequently create or which renew; they do not change Contracts in
place at the time of the change during such Contracts' then-current terms.
2.3 CONTRACTS -- This Agreement, standing alone, does not constitute an
obligation to buy or provide Products except and until you and NCR
enter into an Addendum, purchase order, or other document that contains
terms and conditions, such as Products being ordered, quantities,
prices, delivery schedules, and discounts, which apply only to a
specific transaction. This Agreement and each set of
transaction-specific documentation will together constitute a
"Contract" between you and NCR that is a binding agreement separate
from other Contracts. NCR may accept written or oral orders. NCR
accepts an order when it signs the order or acknowledges it by
performance or otherwise. If NCR accepts a written order, the Contract
includes the written order, this Agreement, the applicable Policies,
and any applicable Addenda. Unless NCR specifically agrees in writing,
any preprinted language on your order forms will not be a part of the
Contract. If NCR accepts an oral order, the Contract includes this
Agreement, the applicable Policies, any applicable Addenda, and the
quantities, prices and product identifications confirmed on NCR's
invoice or acknowledgment. If there is a conflict within any Contract,
the following order of precedence will apply: first, the order, second,
any applicable Addenda, third, Policies, and finally, this Agreement.
2.4 OTHER SOFTWARE LICENSE TERMS; OTHER COMPANY'S PRODUCTS -- If NCR
provides Software to you with a "shrink-wrap" or other license, those
license terms are included in the Contract rather than the license
terms in this Agreement. If NCR provides you with Equipment, Software,
Deliverables, or Supplies that bear the logo or copyright of another
company with warranty and/or support terms from the other company, the
other company's terms are included in the Contract rather than those in
this Agreement, and, unless specifically agreed in writing, NCR
provides no warranty or support for these products. Upon your request,
NCR will give you a copy of the terms discussed in this Section 2.4
before you order these products.
2.5 INVOICED SERVICES -- In order to facilitate the continuation of
Services at the end of a warranty period or maintenance Service term,
NCR may offer to provide the Services by sending invoices covering them
to the person you designate. These invoices will clearly describe the
Services and identify the covered Products. If you want the Services,
pay the invoices, or let NCR perform the Services. The Contract will
include this Agreement, the applicable Policies, and the invoice terms.
If you do not want the Services but your employees mistakenly pay the
invoice or accept the Services, notify NCR within three months and NCR
will cancel the Contract. If you have made any payments, NCR will
refund them, less charges for time and materials which NCR has already
provided. If you have not made any payments, NCR will charge you for
time and materials which NCR has already provided.
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2.6 ELECTRONIC DATA INTERCHANGE ("EDI") -- NCR may provide EDI options,
including electronic ordering, invoicing and payment. These options and
NCR's acceptance of your electronic document will be governed by an EDI
Addendum to this Agreement. If, however, you and NCR communicate
electronically without executing an EDI Addendum, an identification
code contained in an electronic document will be legally sufficient to
verify the sender's identity and the document's authenticity as a
signed writing.
2.7 CHANGES -- Each Contract is the complete agreement between you and NCR
concerning transactions covered by it, and replaces any prior or
contemporary oral or written communications. If you request that NCR
cancel or modify a Contract (including changing delivery or
installation dates or locations), you and NCR will negotiate in good
faith new schedules and/or sufficient compensation to NCR for
accommodating you. If no agreement is reached, the Contract will
continue unmodified, and if you refuse to perform further or reject
NCR's tender of Products, NCR may pursue its available remedies. No
change to this Agreement or a Contract will be effective unless it is
in writing and signed by authorized representatives of both you and
NCR. Changes to Contracts should be made on NCR's change control form.
3.0 DELIVERY AND INSTALLATION
3.1 DELIVERY -- NCR will use reasonable efforts to perform its obligations
by dates included in a Contract. These dates are estimates only. NCR
will inform you of delays as far in advance as reasonably possible. If
NCR's performance is delayed (other than by a force majeure) for an
unreasonable time, you may cancel delivery without penalty.
3.2 LOCATION AND RISK OF LOSS -- NCR will deliver Products to the location
that you specify. If you select the shipping agent, the agent's receipt
of the Products constitutes delivery. Risk of loss passes to you upon
delivery. You agree to inspect Products when you receive them and to
notify NCR promptly if there is any visible damage.
3.3 INSTALLATION -- NCR will notify you if Products require a special
physical environment. You agree to provide that environment prior to
installation. Upon request, NCR will provide installation Services
which may be separately chargeable.
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4.0 PRICES, INVOICE, PAYMENT, TAXES, AND TITLE
4.1 PRICES -- Prices will be included in Contracts. If NCR announces a
price increase for a Product which you have ordered and the Contract
specifies guaranteed prices and delivery more than 120 days after the
price increase becomes effective, NCR will not increase your price for
the Product. However, in the event that a Contract for a Product does
not specify guaranteed Prices and delivery is more than 120 days after
the price increase becomes effective, NCR may increase your price for
the Product. Price increases for Services or Software licensed for a
periodic fee will only apply to subsequent billing periods.
4.2 INVOICE AND PAYMENT -- Unless otherwise provided in an Addendum to
this Agreement, NCR will invoice you (1) for Equipment and Software -after
shipment, unless NCR stores Equipment or Software for you, in which
case NCR will invoice you when storage begins; (2) for recurring
Services -- in advance; and (3) for non-recurring Services, including
the provision of Deliverables -- after NCR provides them to you.
Payment is due when you receive the invoice. NCR reserves the right to
charge late fees if it does not receive payment within 30 days from the
date of the invoice, at the rate of one and one-half percent per month,
or up to the maximum allowed by law, whichever is less. If you do not
pay within 30 days after NCR notifies, in advance and in writing, you
of your default, NCR also may suspend or terminate applicable Services
and repossess or reclaim the applicable Products without waiving NCR's
right to payment.
4.3 TAXES AND OTHER CHARGES -- Product prices exclude delivery and
installation charges; charges associated with preparing your site;
duties, levies and other similar charges; and all taxes (such as sales,
use, VAT, and ad valorem taxes, other governmental charges and taxes,
and assessments after audit) other than NCR's net income or franchise
taxes. If you qualify for tax exemptions, you must provide NCR with
appropriate exemption documentation.
4.4 TITLE -- Title of Equipment passes to you on delivery, except if
NCR stores purchased Equipment for you, title passes to you where and when
storage occurs. NCR retains a purchase money security interest in each
Product that you purchase until you pay for it. You appoint NCR as your
agent to sign and file a financing statement to perfect NCR's security
interest. In addition to NCR's retention of a purchase money security
interest in Products and based on NCR's credit policies and unless
otherwise provided in an Addendum, NCR may make its acceptance of
orders subject to the entering into of additional mutually acceptable
credit arrangements, which may include the making of advance payments.
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5.0 SERVICES
5.1 EQUIPMENT WARRANTY AND MAINTENANCE SERVICES
5.1.1 During the term of an Equipment warranty or Contract
for Equipment maintenance Services, NCR will maintain the covered
Equipment in accordance with this Section and applicable
Policies so that it complies with the warranties in Section
7.1.b. Unless otherwise provided in an Addendum to this
Agreement, the initial term of a Contract for Equipment
maintenance Services is one year and will automatically renew
for additional one year terms unless you or NCR terminate it.
Unless otherwise provided in an Addendum to this Agreement,
You or NCR may terminate a Contract for Equipment maintenance
Services at any time by providing 30 days advance written
notice. On termination under this Section 5.1.1, NCR will
refund the unapplied portion of any advance payment.
5.1.2 Unless otherwise provided in an Addendum to this
Agreement, NCR's Equipment warranty and prepaid or contract maintenance
Services include parts and, if labor is included in the
Service, labor during covered hours. NCR will charge
separately for: (1) Supplies; (2) service calls outside of the
applicable scope of contracted Service or coverage hours; (3)
service calls for Equipment that was in good operating
condition at the time of the call; (4) use of specified types
of Equipment above their rated usage levels (which NCR will
provide to you at your request); and (5) per-call Services
covering Products outside of warranty or not on contract
maintenance. NCR will also charge separately to repair
Equipment which has failed due to: (i) an alteration to
Equipment or Software or attachment not provided by NCR,
approved by NCR in writing or compatible with NCR's standard
interfaces; (ii) your use of Supplies or products acquired
from third parties that are defective or that do not meet NCR
standards or specifications; (iii) your or any third party's
negligence, misuse, or abuse; or (iv) fire, smoke, water, or
acts of God. Replaced parts become or remain NCR's property.
NCR's ability to rework replaced parts allows NCR to provide
cost effective maintenance services.
5.1.3 You must maintain the Equipment site consistent
with NCR specifications at your expense, and you must provide safe
working conditions and appropriate utility services for
maintenance personnel. When Equipment is under warranty or a
Contract for maintenance Services, or is loaned to you under
Section 9.0, you may not allow anyone other than NCR or an
authorized NCR warranty service provider to maintain it.
Before accepting an order for maintenance Services for
Equipment that is not then under maintenance Services or which
anyone other than NCR has installed or serviced, NCR may
inspect and refurbish it at your expense, subject to your
prior approval. Orders for maintenance Services must include
all of the same type of Equipment at a location.
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5.1.4 If NCR provides Services for products you acquire
from third parties, NCR will maintain those products in good operating
condition during the term of the Contract for those Services.
NCR will not assume the manufacturer's warranty obligations or
make modifications specified by the manufacturer unless
otherwise agreed in writing unless otherwise provided in an
Addendum to this Agreement,
5.2 SOFTWARE SERVICES
5.2.1 Unless otherwise provided in an Addendum to this
Agreement, during the term of a Software warranty or Contract for
Software Services, NCR will perform the following in
accordance with this Agreement and applicable Policies: (1)
provide telephone access to NCR support resources to assist in
resolving Software problems; and (2) distribute, at your
request, Software updates. NCR will announce the availability
of updates via internet postings or otherwise. Unless
otherwise stated, the initial term of a Contract for Software
Services is one year and will automatically renew for
additional one year terms unless you or NCR terminate it. You
or NCR may terminate a Software Services Contract at any time
by providing 30 days advance written notice. On termination
under this Section 5.2.1, NCR will refund the unapplied
portion of any advance payment.
5.2.2 NCR will provide Software Services for the most recent
release and the prior release of covered Software. Software Services
for the prior release may not include updates or code level
fixes. When you order Software Services, you must order the
same level of service (to the extent available) for all
interdependent Software operating on the same Equipment. If
you have licensed multiple copies of the same Software, you
must order Software Services for each copy used at the same
location.
5.2.3 To permit NCR to provide Software Services, upon
request you agree to assist in isolating Software problems. You also
agree to provide modems and telephone lines for NCR to access your
system remotely, to install and test all fixes and updates,
and to perform other actions reasonably requested by NCR.
5.3 PROFESSIONAL SERVICES -- When NCR performs Services for you, NCR may
provide you with ADeliverables.@ Deliverables may include: (1) custom
or third party Software in executable or source code form; and (2)
written, visual, or audio materials such as architectural designs, data
models, and training materials in either written or electronic form;
which relate to your information processing systems. Software
Deliverables may be subject to additional terms and conditions
contained in an Addendum.
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6.0 LICENSE TO USE SOFTWARE AND DELIVERABLES
6.1 Scope -- Subject to your payment of all one-time or periodic license
fees, NCR grants you a non-transferable, non-exclusive license to use
Software and Deliverables under the terms of this Agreement. Unless the
Contract or applicable Policies specify that the license to Software is
periodic, your license is perpetual. If the Contract or applicable
Policies do not specify usage terms such as the number of users or site
license rights, you may use Software at any time on a single processing
unit of the class and model for which you originally licensed it. You
may use Software in object code only, unless you and NCR agree to
additional terms regarding the use of source code. The license term for
Software and Deliverables begins on delivery. Your license to use
Software or Deliverables terminates automatically if you violate the
license terms. When a license terminates, you will immediately stop
using the Software or Deliverables and either return or destroy all
copies.
6.2 GENERAL -- You may not copy Software or Deliverables; transfer,
disclose, sublicense or distribute them to any party except as
permitted in the attached Exhibit A, Reseller Addendum; or use them
other than as allowed by this Agreement or a Contract, except that,
subject to Section 2.4, (a) you may transfer Software and Deliverables
to your affiliates who agree to be bound by this Agreement, (b) you may
give access to the Software and Deliverables to your consultants who
agree to be bound by the license terms of this Section 6.0 and the
Contract, for the sole purpose of performing consulting services for
you, and (c) if you transfer Equipment to a third party, you may
transfer Software running on that Equipment to the third party for that
party's internal use only (and not for resale or redistribution) if you
notify NCR and give the other party a copy of the license terms of the
Contract, including this Section 6.0 and all usage limitations. The
license transfer will be effective when the third party accepts the
terms by initial use of the Software and pays any applicable relicense
fees. You will retain copyright notices and proprietary legends on all
copies of Software and Deliverables you possess or transfer. Software
and Deliverables remain the property of NCR or its licensors. You will
not take any steps, such as reverse assembly or reverse compilation, to
derive a source code equivalent of Software. NCR shall not copy,
transfer, disclose, sublicense or distribute your software except as
you agree in other Addendums to this Agreement.
6.3 DIAGNOSTIC SOFTWARE -- NCR may provide Products to you that include
software, data, documentation, and other material that NCR uses to
diagnose the operation of Products (ADiagnostic Tools@). Diagnostic
software may be firmware or it may be loaded in memory from disks or
other media. The Diagnostic Tools are not licensed for use by any
person other than NCR Corporation. Diagnostic Tools are the
confidential intellectual property of NCR and are provided solely to
assist NCR in supporting its Products. They may not be copied,
disclosed to any third party (except under the same terms as under
Section 6.2(c)), or used by any person for any purpose whatsoever
without NCR's express written consent. NCR may delete or remove
Diagnostic Tools at any time without notice. NCR PROVIDES NO WARRANTIES
FOR DIAGNOSTIC TOOLS AND IS NOT LIABLE FOR THEIR USE BY ANY PERSON
OTHER THAN NCR.
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7.0 WARRANTIES
7.1 Equipment, Supplies, Software, and Services B NCR warrants that:
(a) Title in Equipment and Supplies will be free and clear except for
NCR's security interest.
(b) Equipment, Supplies, and Software media will be free from defects
in material and workmanship and will conform to NCR Product
Specifications. Software operation will materially conform to NCR
Product Specifications (except for Software Deliverables, which are
covered in 7.1(c) below).
(c) Deliverables, including Software Deliverables, will materially
conform to the specifications included in the applicable Addendum.
(d) Equipment and Software listed in the "NCR Year 2000 Qualification
List" ("Qualified Products") at the time of acquisition from NCR will
comply with the "NCR Year 2000 Qualification Requirements Definition"
in effect at the time of acquisition. Both the Qualification List and
the Qualification Requirements Definition will be made available to you
at your request. This warranty applies only to the performance of the
Qualified Products themselves, and does not extend to the use of
Qualified Products in combination with other products, whether acquired
from NCR or not. Notwithstanding Section 7.2, this warranty is not
limited in duration.
(e) It will provide Services in a professional manner consistent with
Section 5.0, any Contract, and applicable Policies in effect at the
time the Services are rendered.
7.2 WARRANTY PERIOD -- Unless otherwise specified in a Contract or Policies
at the time of delivery, the warranty period for Equipment and Supplies
is 90 days, and for Software and Deliverables is 30 days. Unless
otherwise provided in an Addendum to this Agreement, the warranty
period begins on delivery of the Product. As specified in the Kiosk
Addendum dated January 26, 2000, warranty begins upon installation at
your end-user's site but, in no event, will it begin more than three
(3) months after delivery to you or your designated staging agent. The
warranty for a copy of a piece of Software covers only that specific
copy; software fixes supplied under warranty Services may not be
incorporated into other copies of the same Software which are not then
under warranty or a Contract for Software Services.
7.3 NONCONFORMANCE WITH WARRANTIES -- If Equipment, Software (except
Software Deliverables, which are covered by the next sentence), or
Supplies do not conform to their warranties during the applicable
warranty period, NCR will without charge: (a) under Section 5.1 repair
Equipment or replace it with a unit of Equipment that is at least
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functionally equivalent; (b) under Section 5.2 correct Software; or (c)
replace Supplies. If NCR does not perform Services as warranted
(including by providing Deliverables that do not conform to their
warranties) and you provide prompt notice, NCR will use its best
efforts to reperform them.
7.4 REFUNDS
7.4.1 If NCR is unable to repair, correct, or replace Equipment,
Software (except Software Deliverables, which are covered by Section
7.4.2), or Supplies under Section 7.3 within a reasonable time, you may
return the defective Product and obtain a refund, or you may accept the
Product "as is."
7.4.2 If NCR is unable to reperform Services as warranted under Section
7.3 within a reasonable time (including by correcting any
non-conforming Deliverables), you may terminate the Contract and obtain
a refund of your payments to NCR for those Services and/or associated
Deliverables. Your refund for a fixed term Services Contract will not
exceed your most recent payment for such Services.
7.4.3 If NCR makes a warranty in a Contract that does not have a
specified remedy for its failure, and a problem arises concerning that
warranty, you will notify NCR promptly in writing, and NCR will without
charge correct the problem. If NCR is unable to correct the problem
within a reasonable time, you may return the affected Product(s) and
obtain a refund.
7.4.4 Any refund under this Section 7.0 will be reduced on the same
basis as you depreciate the Product(s) in your financial statements,
calculated from the delivery date. If you do not depreciate the
Product(s), the refund will be reduced on a 5-year straight-line basis.
7.5 WARRANTY SERVICES -- NCR will provide warranty Services under the
applicable Policies in effect when it delivers the Products. You may
separately purchase expanded warranty Services from NCR, when
available.
7.6 EXCEPT FOR WARRANTIES SPECIFICALLY CONTAINED IN THIS AGREEMENT OR A
CONTRACT, NCR DISCLAIMS ALL WARRANTIES, EXPRESS AND IMPLIED, INCLUDING
BUT NOT LIMITED TO THE IMPLIED WARRANTIES OF MERCHANTABILITY, FITNESS
FOR A PARTICULAR PURPOSE AND THOSE ARISING FROM A COURSE OF DEALING.
NCR DOES NOT WARRANT THAT PRODUCTS WILL OPERATE UNINTERRUPTED OR ERROR
FREE, OR THAT ALL DEFICIENCIES, ERRORS, DEFECTS OR NONCONFORMITIES WILL
BE CORRECTED. NCR HAS NO WARRANTY OBLIGATION FOR PRODUCTS THAT YOU
ACQUIRE FROM THIRD PARTIES, EVEN IF NCR ASSISTED IN EVALUATING OR
SELECTING THEM. THE FAILURE OF PRODUCTS YOU ACQUIRE FROM THIRD PARTIES
OR THEIR SUPPLIERS WILL NOT AFFECT YOUR OBLIGATIONS TO NCR. IF NCR
DESIGNATES THAT PRODUCTS ARE PROVIDED "AS IS," THERE IS NO WARRANTY.
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7.7 EXCLUSIVE REMEDIES -- Your rights and remedies set forth in this
Agreement or a Contract are exclusive and in lieu of all other rights
and remedies related to any Contract or Product (except to the extent
that applicable law prohibits agreements to disclaim warranties or
limit liabilities).
8.0 YOUR OBLIGATIONS
The successful performance of our Products depends on your knowledgeable
selection and operation of the Products and your reasonable cooperation with
NCR. Your obligations include, unless otherwise provided in an Addendum to this
Agreement :
(a) determining whether the Products, if they perform as warranted,
will meet your specific requirements;
(b) giving NCR sufficient, free, and safe access to your facilities,
free of any hazardous materials (e.g., asbestos) or conditions;
(c) providing back-up equipment and services to safeguard your
programs, data and funds;
(d) giving NCR reasonable access to your employees, including clearly
identified key contacts;
(e) obtaining the commitment of your management to the success of the
Products and communicating that commitment to all of your employees;
(f) appropriately educating your employees on the use of the
Products;
(g) giving NCR information that it requests that is reasonably relevant
to your implementation or operation of the Products;
(h) obtaining any necessary governmental permits or consents;
(i) implementing and operating the Products;
(j) testing and operating Software and all Software updates; and
(k) documenting Software problems.
If you cause a delay in NCR's performance under a Contract, NCR may charge you a
reasonable amount for accommodating you as specified in a separate Contract or
Addendum to this Agreement, eg: Kiosk Addendum dated January 26, 2000, Section
9.0.
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9.0 PRODUCT EVALUATION
NCR may loan Products to you for your evaluation. You and NCR will agree in
advance on: (1) the length of the evaluation period; (2) prices if you elect to
acquire the Products; (3) the post-evaluation warranty periods, if any; and (4)
who will bear related costs of freight, installation/deinstallation and
maintenance. The evaluation period will begin when NCR delivers the Products to
you. At the end of the evaluation period, you will make the Products available
for return to NCR, or NCR will invoice you for the Products at the agreed
prices. You agree not to move the Products to another location during the
evaluation without NCR's consent. DURING YOUR EVALUATION, PRODUCTS ARE FURNISHED
TO YOU "AS IS." IF YOU ARE DISSATISFIED WITH THEM FOR ANY REASON, YOUR EXCLUSIVE
REMEDY WILL BE NCR'S REMOVAL OF THE PRODUCTS FROM YOUR SITE.
10.0 DEFENSE OF INFRINGEMENT CLAIMS
NCR will defend at its expense any claim or suit brought against you alleging
that any Product infringes a patent, copyright or trade secret and will pay all
costs and damages finally awarded, if you promptly notify NCR of the claim and
give NCR (a) the information and cooperation that NCR reasonably asks for, and
(b) sole authority to defend or settle the claim. In handling the claim, NCR may
obtain for you the right to continue using the Product or replace or modify the
Product so that it becomes non-infringing. If NCR is unable to reasonably secure
those remedies, as a last resort NCR will refund the purchase price for
infringing Equipment and refund one-time license fees for infringing Software.
The refund will be reduced on the same basis as you depreciate the infringing
Product in your financial statements. If you do not depreciate it, the refund
will be reduced on a 5-year straight-line basis. NCR is not obligated to
indemnify you under this Section 10.0 if the alleged infringement is based on
the use of the Product with other products not furnished directly by NCR, or on
NCR's compliance with any designs, specifications or instructions provided by
you, or if anyone other than NCR has modified the Product. THIS SECTION STATES
NCR'S ENTIRE LIABILITY FOR INFRINGEMENT OF PATENTS, COPYRIGHTS, TRADE SECRETS,
AND OTHER INTELLECTUAL PROPERTY RIGHTS.
11.0 NCR'S LIABILITY
Circumstances may arise where, because of NCR's default or other liability, you
are entitled to recover damages from NCR. In each such instance, regardless of
the basis on which you become entitled to claim damages, your sole remedy, and
NCR's entire liability (except to the extent that applicable law prohibits
agreements to limit liabilities), is as follows:
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11.1 For failure (i) of Equipment, Supplies, and Software (other than Software
Deliverables, which are covered by the next clause) to conform to their
warranties during a warranty period, (ii) to perform Services (including by
providing Deliverables that do not conform to their warranties) as warranted,
and (iii) any warranty as set out in Section 7.4.3, as stated in Section 7.0.
11.2 For delays in delivery, as stated in Section 3.1 or as otherwise provided
in a Contract.
11.3 For your dissatisfaction with Products that NCR loans to you, as stated in
Section 9.0.
11.4 For infringement of patents, copyrights, trade secrets, and other
intellectual property rights, as stated in Section 10.0.
11.5 For bodily injury, including death, caused by NCR's negligence, NCR's
liability will be unlimited, to the extent NCR's negligence caused the injury.
For physical damage to tangible property, NCR will be liable for direct damages
up to $1,000,000 per occurrence, to the extent NCR's negligence caused the
damage.
11.6 FOR ALL CLAIMS NOT EXPRESSLY ADDRESSED IN SECTIONS 11.1 THROUGH 11.5 (OR IF
THE REMEDIES IN THOSE SECTIONS ARE HELD TO HAVE FAILED OF THEIR ESSENTIAL
PURPOSE OR ARE OTHERWISE HELD TO BE INVALID OR UNENFORCEABLE), INCLUDING BUT NOT
LIMITED TO CLAIMS OF FRAUD OR MISREPRESENTATION ARISING OUT OF OR RELATED IN ANY
MANNER TO THE PERFORMANCE OF ANY OBLIGATIONS UNDER A CONTRACT, NCR'S CUMULATIVE
LIABILITY (INCLUDING REFUNDS AND THE VALUE OF REPLACEMENT PRODUCTS GIVEN TO YOU)
WILL BE LIMITED TO YOUR PROVEN DIRECT DAMAGES NOT TO EXCEED THE AMOUNT YOU PAID
NCR FOR THE APPLICABLE PRODUCT IN CONTROVERSY.
11.7 UNDER NO CIRCUMSTANCES ARE NCR, OR ITS OFFICERS, DIRECTORS, EMPLOYEES,
AFFILIATES, SUBCONTRACTORS, OR SUPPLIERS LIABLE FOR ANY INDIRECT, INCIDENTAL,
CONSEQUENTIAL OR PUNITIVE DAMAGES; OR FOR LOSS OF PROFITS, REVENUE, OR DATA;
WHETHER IN AN ACTION IN CONTRACT, TORT, PRODUCT LIABILITY, STATUTE OR OTHERWISE,
EVEN IF ADVISED OF THE POSSIBILITY OF THOSE DAMAGES.
11.8 SECTIONS 11.6 AND 11.7 WILL SURVIVE FAILURE OF AN EXCLUSIVE OR LIMITED
REMEDY.
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<PAGE>
12.0 DISPUTE RESOLUTION
12.1 Negotiation, Escalation and Mediation -- If any controversy or claim arises
relating to this Agreement or any Contract, you and NCR will attempt in good
faith to negotiate a solution to our differences, including progressively
escalating any controversy or claim through senior levels of management. If
negotiation does not result in a resolution within 15 business days of when one
party first notifies the other of the controversy or claim, you and NCR will
participate in good faith mediation as administered by the American Arbitration
Association.
12.2 ARBITRATION -- Any controversy or claim between you and NCR, whether based
on contract, tort, statute, or other legal theory (including but not limited to
any claim of infringement, fraud, or misrepresentation) which cannot be resolved
by negotiation or mediation will be resolved by binding arbitration under this
Section 12.2 and the then-current Commercial Rules and supervision of the
American Arbitration Association. The duty to arbitrate will extend to any
employee, officer, shareholder, agent, or affiliate of you or NCR making or
defending a claim which would be subject to arbitration if brought by you or
NCR. If any part of this Section 12.0 is held to be unenforceable, it will be
severed and will not affect either the duty to arbitrate or any other part of
this Section 12.0. The arbitration will be held in the United States
headquarters city of the party not initiating the claim before a sole arbitrator
who is knowledgeable in business information and electronic data processing
systems. The arbitrator's award will be final and binding and may be entered in
any court having jurisdiction. The arbitrator will not have the power to award
punitive or exemplary damages, or any damages excluded by, or in excess of, any
damage limitations expressed in this Agreement or a Contract. Issues of
arbitrability will be determined in accordance solely with the federal
substantive and procedural laws relating to arbitration; in all other respects,
the arbitrator will be obligated to apply and follow the substantive law of the
state of New York, as provided by Section 13.9.
12.3 COSTS -- Each party will bear its own attorney's fees and other costs
associated with the negotiation, mediation, and arbitration provided for by this
Section 12.0, except that costs and expenses of arbitration other than
attorney's fees will be paid as provided by the rules of the American
Arbitration Association. If court proceedings to stay litigation or compel
arbitration are necessary, the party who unsuccessfully opposes such proceedings
will pay all associated costs, expenses and attorney's fees which are reasonably
incurred by the other party.
12.4 TWO YEAR LIMITATION -- Neither you nor NCR may bring a claim or action
regardless of form, arising out of or related to this Agreement, including any
claim of fraud or misrepresentation, more than two years after the delivery of
any Products at issue, or more than two years after cause of action accrues,
whichever is later.
12.5 CONFIDENTIALITY -- In order to facilitate the resolution of controversies
or claims between you and NCR, you and NCR will keep them confidential,
including details regarding negotiations, mediation, arbitration, and settlement
terms.
Page 14
<PAGE>
12.6 SUBSTITUTE PRODUCTS -- Your acceptance of refunds or substitute Products
under this Agreement waives all claims relating to the nonperforming Products
involved.
13.0 MISCELLANEOUS TERMS
13.1 Effective Date; Non-Waiver; Assignment -- The cover page of this Agreement
specifies the effective date. If the date is left blank, the date NCR signs this
Agreement or first provides Products to you is the effective date. Failure to
enforce any term of this Agreement or a Contract is not a waiver of future
enforcement of that or any other term. Neither you nor NCR may assign this
Agreement, a Contract, or its rights or obligations under them without the
express written consent of the other, except NCR may assign this Agreement or a
Contract to an affiliate and may use subcontractors or resellers to fulfill its
obligations.
13.2 SEVERABILITY -- If any provision of this Agreement or a Contract is held to
be illegal, invalid, or unenforceable, the provision will be enforced to the
maximum extent permissible so as to effect the intent of the parties, and the
remaining provisions of this Agreement or the Contract will remain in full force
and effect.
13.3 TERMINATION -- This Agreement will remain in effect until you or NCR
terminate it on 30 days advance written notice. Termination of this Agreement
will not terminate any existing Contract or Addendum to this Agreement.
13.4 INSOLVENCY AND BANKRUPTCY -- On the occurrence of any of the following, all
Contracts will automatically terminate unless the non-affected party elects to
have any such contract continue:
Page 15
<PAGE>
(a) the admission by either party in writing of its inability to pay
its debts generally or the making of a general assignment for the
benefit of creditors;
(b) any affirmative act of insolvency by either party or the filing by
or against any party of any petition or action under any bankruptcy,
reorganization, insolvency arrangement, liquidation, dissolution or
moratorium law, or any other law or laws for the relief of, or relating
to, debtors; or
(c) the subjection of a material part of either party's property to any
levy, seizure, assignment or sale for or by any creditor, third party
or governmental agency.
13.5 CONFIDENTIALITY; CUSTOMER REFERENCES --Without revealing any specific terms
of this Agreement, you may disclose that NCR is your vendor and NCR may disclose
that you are an NCR customer, and both parties may disclose the Products you are
purchasing from NCR, the contract value and the purpose for which you intend to
use those Products. Each party may request the other to participate in mutually
agreed upon marketing activities, including participating in and providing
quotes for inclusion in press releases, participating in print and television
advertisements, discussions with the media and business analysts, speaking at
company and industry events and allowing the other to document a case study of
its use of NCR products.
13.6 NOTICES -- All notices (including requests, consents or waivers) made under
this Agreement or any Contract will be in writing and delivered by facsimile,
electronic mail, or other electronic means (in which case the recipient will
provide acknowledgment within one business day separately from any
machine-generated automatic reply); or by prepaid means providing proof of
delivery. Notices are effective upon receipt. NCR will send notices to you at
the address on the face of this Agreement, and you will send notices to NCR at
its local district office or other designated address, with an additional copy
to:
General Counsel/Notices WHQ-5
NCR Corporation
Dayton, OH 45479
Fax: (937) 445-7214
Email: [email protected]
Either party may change its address upon notice as required by this Section.
13.7 GEOGRAPHIC SCOPE This Agreement shall be applicable to the parties business
relationship on a global basis. Both you and NCR will comply with all applicable
laws, regulations, rules and ordinances in force, including any laws relating to
export control applicable to any Contract, and specifically to all U.S. laws
relating to foreign corrupt practices.
Page 16
<PAGE>
13.8 FORCE MAJEURE -- Neither party is liable for failing to fulfill its
obligations due to acts of God, civil or military authority, war, riots,
strikes, fire, or other causes beyond its reasonable control, except for your
obligation to make payments.
13.9 CHOICE OF LAW -- New York law governs this Agreement, except for its laws
regarding choice of law and as stated in Section 12.2; the United Nations
Convention on Contracts for the International Sales of Goods does not apply.
THIS AGREEMENT TOGETHER WITH ANY CONTRACTS SETS OUT THE ENTIRE AGREEMENT WITH
RESPECT TO YOUR ACQUISITION OF PRODUCTS FROM NCR. YOU ACKNOWLEDGE THAT YOU HAVE
READ AND UNDERSTAND THE TERMS OF THIS AGREEMENT.
Executed on your behalf by:
INTER*ACT ELECTRONIC NCR CORPORATION
MARKETING INC.
/S/ LEE ARMBUSTER /S/JAMES G. NADLER
Authorized Signature Authorized Signature
LEE ARMBUSTER JAMES G. NADLER
Printed Name Printed Name
PRESIDENT/COO VICE PRESIDENT -
Title Title
2/20/00 2/16/2000
Date Date
/s/ Alan Couch
Alan Couch
3/1/00
Page 17
<PAGE>
EXHIBIT A
RESELLER ADDENDUM
AS OF FEBRUARY 14, 2000, THE RESELLER ADDENDUM IS TO BE NEGOTIATED.
Page 18
<PAGE>
Exhibit 10(e)(2)
PORTIONS OF THIS EXHIBIT HAVE BEEN OMITTED PURSUANT TO A REQUEST
FOR CONFIDENTIAL TREATMENT
INTERACTIVE WEB TERMINAL VOLUME PURCHASE
AND
MARKETING PARTNERSHIP
ADDENDUM
This Addendum supplements and modifies the Master Agreement dated January 26,
2000 between NCR Corporation ("NCR") and Inter*Act Electronic Marketing,
Incorporated ("you"). To the extent any provisions of this Addendum are
inconsistent with the terms and conditions of the Master Agreement, the
provisions of this Addendum will prevail.
1.0 MARKETING PARTNERSHIP
NCR and Inter*Act have agreed to become strategic partners in the sale and
marketing of Interactive Web Terminals. Further, in an effort to implement this
strategic relationship the parties agree to the following terms.
1.1. Inter*Act and NCR mutually agree to port applications to NCR's
Interactive Web Kiosk environment as per a separate Porting Agreement.
2.0 EXCLUSIVE RELATIONSHIP
Inter*Act agrees that NCR will be its sole and exclusive supplier of Interactive
Web Terminals unless an end user explicitly requires that another supplier be
used or NCR cannot meet the end user's specification. This commitment will be
effective for the duration of the partnership detailed in Section 3.0.
2.1 As part of this exclusive arrangement NCR agrees to provide space in
NCR's booth at the 2000 Marketechnics and FMI Trade Shows and other
trade shows, including those held in Europe, as mutually agreed upon.
2.2 NCR will also develop joint sales strategies and presentations with
Inter*Act for deployment in Q1, 2000 as mutually agreed upon. The
parties will mutually agree upon NCR/Inter*Act sales engagement plans
that clearly define roles and responsibilities, expectations and
obligations of both parties by region and in a specific customer
engagement.
3.0 TERM
The Term of this Addendum begins January 24, 2000 and ends January 23, 2002.
During this Term Inter*Act has the right to purchase and take delivery of up to
10,000 Interactive Web Terminals from NCR at the prices outlined in Attachment
1. At the end of this Term the parties may, upon mutual agreement, elect to
extend this Addendum with the understanding that pricing and payment terms may
be revised.
4.0 APPLICABILITY - PRODUCTS COVERED
This Addendum applies only to the products listed in Attachment 1 (the
"Products") which are: (i) purchased from NCR, either directly or through a
leasing company; and (ii) delivered during the Term. NCR may substitute
Products, provided the substitute
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<PAGE>
Products do not materially impact form, fit or function. NCR agrees to provide
Inter*Act sufficient advance notification to ensure that Inter*Act's Customer
Quality Assurance process can be completed.
5.0 ORDERS
All orders, regardless of the form used, will be governed by this Addendum and
the Master Agreement. Any pre-printed language on your order form will have no
force or effect.
6.0 INVOICING AND PAYMENT TERMS
6.1 Units 1 - 5,000 Only. Invoicing will occur 5 days after shipment of
Products to Inter*Act's designated staging contractor. For accounts in which
Inter*Act has a special pricing agreement with its end user, Inter*Act will pay
[ ]% of the NCR invoice within [ ] days after the date of the invoice and the
remaining [ ]% within [ ] days after the date of the invoice. A list of end user
customers with whom Inter*Act has special pricing agreements is listed in
Attachment 2, which may be updated, in writing, from time to time. For all other
accounts, Inter*Act will pay 100% of the invoice within [ ] days after the date
of the invoice. The [ ] day payment delay is only applicable to the first 5,000
units shipped.
6.2 Units 5,001 - 10,000. Invoicing will occur 5 days after shipment of
Products to Inter*Act's designated staging contractor. Inter*Act will pay 100%
of the invoice within [ ] days after the date of the invoice. Additionally,
Inter*Act will be charged [______] for each unit shipped. This [_____]charge is
only applicable units 5,001 to 10,000.
7.0 PRICES
The Product prices in this Addendum do not include NCR's standard freight,
duties, distribution, and installation charges, any other charges associated
with your site or other requirements, and all taxes which relate to your
acquisition of the products (excluding NCR's net corporate income or franchise
taxes) all of which shall be the responsibility of Inter*Act. NCR will provide
Interact with an estimate of the current freight and duty charges.
The price for the three Product configurations listed in Attachment 1 are:
Model A -[ ]
Model B -[ ]
Model C -[ ]
Details of specific options such as printers, speakers, MSR's and other optional
components are also included in Attachment 1.
8.0 EQUITY INTEREST
In consideration of the discounts provided to Inter*Act in this Addendum,
Inter*Act agrees to issue shares of stock to NCR equivalent in value to [ ] for
each unit purchased. The share value applicable for different equipment
configurations, the method for determining the value of the stock, registration
and anti-dilution rights and
Page 2
<PAGE>
class of shares will be set forth in a separate agreement between the parties
to be negotiated in good faith and executed within 30 days after the date of
this Agreement.
9.0 ORDER CHANGES
You may cancel any order in whole or in part, delay delivery or change the
installation location by providing written notice prior to shipment subject to
the Change Order Policy in Attachment 3.
10.0 CONFIDENTIALITY
This Agreement shall be considered confidential and each party will use
reasonable efforts to prevent the disclosure of its contents to any person not
an employee, except as may be required by law or government regulation. The
specific areas covered by this clause include contract price, terms & conditions
and other information that is specific to relevant negotiated issues that are
not covered by Section 11.0 below.
11.0 PUBLICITY
Without revealing any specific terms of this Agreement, you may disclose that
NCR is your vendor and NCR may disclose that you are an NCR customer, and both
parties may disclose the Products you are purchasing from NCR, the contract
value and the purpose for which you intend to use those Products. Each party may
request the other to participate in mutually agreed upon marketing activities,
including participating in and providing quotes for inclusion in press releases,
participating in print and television advertisements, discussions with the media
and business analysts, speaking at company and industry events and allowing the
other to document a case study of its use of NCR products.
It is understood that Inter*Act may disclose the contract in its 10-K report to
the Securities and Exchange Commission but will request confidentiality with
respect to pricing.
INTER*ACT ELECTRONIC MARKETING NCR CORPORATION
INCORPORATED
Signature Signature
Title Title
Typed Name Typed Name
Date Date
Page 3
<PAGE>
/S/ ALAN COUCH 3/1/00
Signature
VP RETAIL KIOSK
Title
ALAN COUCH
Printed Name
Page 4
<PAGE>
ATTACHMENT 1
MODEL A 12.1" DISPLAY/ SCANNER/MSR
$[ ]
7401-3112-8001 Retail Self Service Terminal-Scanner
7401-F002 LCD Color Display Active
7401-F012 266 Mhz Processor
7401-F022 64MB RAM
7401-F101 3 Track MSR
7401-F402 NT Operating System
7401-F601 US Power Cord
7401-F051 4.3 MB Hard Drive
7401-F200 Integrated hi-fi stereo speakers
7401-F580 Self Service Printer
7401-K523 Wall mount Bracket with SS printer
D370-0431-0100 7401 NT Client Platform Software
D370-0432-0100 7401 NT/95 Win 95 Server Platform
Software
D370-0433-0100 7401 NT Operating System Recovery
Software
A370-0022-0100 7401 Bios and Bios Update Software
MODEL B 12.1" DISPLAY/SCANNER
$[ ]
7401-3112-8001 Retail Self Service Terminal-Scanner
7401-F002 LCD Color Display Active
7401-F012 266 Mhz Processor
7401-F022 64MB RAM
7401-F402 NT Operating System
7401-F601 US Power Cord
7401-F051 4.3 MB Hard Drive
7401-F200 Integrated hi-fi stereo speakers
7401-F580 Self Service Printer
7401-K523 Wall mount Bracket with SS printer
D370-0431-0100 7401 NT Client Platform Software
D370-0432-0100 7401 NT/95 Win 95 Server Platform
Software
D370-0433-0100 7401 NT Operating System Recovery
Software
A370-0022-0100 7401 Bios and Bios Update Software
No Pedestal
No PCMCIA
Page 5
<PAGE>
MODEL C 12.1" DISPLAY
$[ ]
7401-2112-8001 Retail Self Service Terminal-Scanner
7401-F002 LCD Color Display Active
7401-F012 266 Mhz Processor
7401-F022 64MB RAM
7401-F402 NT Operating System
7401-F601 US Power Cord
7401-F051 4.3 MB Hard Drive
7401-F200 Integrated hi-fi stereo speakers
7401-F580 Self Service Printer
7401-K523 Wall mount Bracket with SS printer
D370-0431-0100 7401 NT Client Platform Software
D370-0432-0100 7401 NT/95 Win 95 Server Platform
Software
D370-0433-0100 7401 NT Operating System Recovery
Software
A370-0022-0100 7401 Bios and Bios Update Software
No Pedestal
No PCMCIA
Components Item Price
7401-F024 * 128MB DRAM $[ ]
7401-F101- ** 3 Track MSR $[ ]
7401-F402** NT operating System $[ ]
7401- 10GB Disk drive *
7401-F200 ** Integrated hi-fi stereo speakers $[ ]
7401-F580 ** Self Service Printer $[ ]
7401-K523 ** Wall mount Bracket with SS printer $[ ]
D370-0431-0100 ** 7401 NT Client Platform Software $[ ]
D370-0432-0100 ** 7401 NT/95 Win 95 Server Platform
Software $[ ]
D370-0433-0100 ** 7401 NT Operating System Recovery
Software $[ ]
A370-0022-0100 ** 7401 Bios and Bios Update Software $[ ]
*Price for 12.1 GB Hard Drive will be provided when released.
(1) Indicates that NCR has established certification guidelines for this
Product. You must maintain certification in accordance with those
guidelines in order to remarket this Product.
* These items would be added to a configuration
** These items could potentially be removed from a configuration
Page 6
<PAGE>
ATTACHMENT 2
List of Inter*Act end users with special pricing end user agreements
TEXT OF ATTACHMENT REDACTED PURSUANT TO CONFIDENTIALITY REQUEST
Page 7
<PAGE>
ATTACHMENT 3
ORDER CHANGE POLICIES
Customer initiated changes increase NCR administration cost. Any order change is
defined as any change to the configuration ordered, requested delivery date or
location or cancellation.
CUSTOMER REQUESTED CHANGES CUSTOMER CHARGE
A. Expedite shipment, i.e. air freight Actual cost plus handling
2. Order change
Configuration change--less than 15
working days [ ]% net order value
Delay shipment--less than 30 days [ ]% net order value
More than 30 days [ ]% net order value per month
Change location [ ]% net order value
C. Cancellation--less than 60 days [ ]% net order value
<PAGE>
Exhibit 21
List of Subsidiaries
State or Country of
Corporate Name Incorporation
- -------------- -------------
Inter*Act Electronic Marketing, Inc. North Carolina
Inter*Act International Holdings, Inc. North Carolina
Inter*Act Holdings Limited England
Inter*Act Systems UK Limited England
IAEM SAS France
Network Licensing, Inc. North Carolina
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<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 9,939
<SECURITIES> 0
<RECEIVABLES> 1,715
<ALLOWANCES> 300
<INVENTORY> 0
<CURRENT-ASSETS> 15,860
<PP&E> 51,218
<DEPRECIATION> 19,996
<TOTAL-ASSETS> 55,113
<CURRENT-LIABILITIES> 15,233
<BONDS> 68,020
<COMMON> 28,380
0
119,384
<OTHER-SE> (187,271)
<TOTAL-LIABILITY-AND-EQUITY> 55,113
<SALES> 0
<TOTAL-REVENUES> 5,096
<CGS> 0
<TOTAL-COSTS> 47,848
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 23,582
<INCOME-PRETAX> (66,065)
<INCOME-TAX> 0
<INCOME-CONTINUING> (66,065)
<DISCONTINUED> 0
<EXTRAORDINARY> 4,213
<CHANGES> 0
<NET-INCOME> (61,852)
<EPS-BASIC> (9.00)
<EPS-DILUTED> (9.00)
</TABLE>
